2014 h1 results
TRANSCRIPT
2014 H1 Results
Agenda
Group highlights
Financial review
Strategy update
Outlook
2
Highlights
Profit before tax £2.0m (H1 2013: £4.6m)• Reduction due to competitive environment, reduced gold price and a
challenging regulatory climate
The three point plan progressed well:
53% reduction in net debt• Net debt £13.5m at 30 June 2014 (30 June 2013: £28.5m)
Control Costs• Total direct and administrative costs reduced £2.1m to £19.8m
Drive revenue – Increased retail sales• Retail sales increased 49% vs H1 2013
• Introduction of DSJ stores from mid-June 2014
3
Financial Review
Steve Fenerty, Finance Director
4
H1 2014 Results – Summary
Profit before tax of £2.0m (H1 2013: £4.6m )
• Adjusted proforma PBT (pre swap fair value movement, amortisation and impairment) of £2.2m (H1 2013: £4.8m )
Gross profit of £22.2m (H1 2013: £26.9m)
• Pawnbroking scrap gross loss £0.2m (H1 2013 profit: £1.9m)
• Gold Purchasing gross profits £1.3m (H1 2013: £3.8m)
Measured cost reductions
• Expenses down £2.1m (9.6%), £0.6m relating to the GoldBar operations
Pledge Book reduced to £38.5m (30 June 2013: £48.6m)
• Impact of gold price, competition and reduction in aged pledge
• Recent trends stabilising, pledge at £38.3m at 13 August 2014
Net debt reduced 52.6% to £13.5m (30 June 2013: £28.5m)
• Net debt to LTM EBITDA ratio of 1.5x vs a covenant test of 3.0x
• £11.3m of the reduction is through working capital
Interim dividend of 2.1p (Interim 2013: 2.1p)
5
Consolidated income statement
Main revenue impact related to gold:• Pawnbroking Scrap £2.2m
• Gold Purchasing £2.4m
Costs controlled through: • GoldBar closure
• Field operations reduction
• Central functions reduction
£'m H1 2014 H1 2013 % Change
Revenue 43.8 50.4 -13%
Cost of sales (21.6) (23.5)
Gross profit 22.2 26.9 -17%
Direct and Administrative Expenses (18.0) (20.1) -10%
EBITDA 4.2 6.8 -38%
Depreciation and Amortisation (1.8) (1.8) 0%
Operating profit 2.4 5.0 -52%
Finance costs (0.4) (0.4) 0%
Profit before taxation 2.0 4.6 -57%
Tax charge on profit (0.6) (1.3)
Profit for the period and total comprehensive
income1.4 3.3 -58%
Earnings per share - basic (pence) 3.98 9.22 -57%
6
Segmental Analysis
Gold price directly impacts:• Revenue from pawnbroking scrap, but not COGs
• Gross profit from gold purchasing as we adjust margin
PSC maintained and yield improved due to interest rate increases, pawnbrokinginterest was £14.0m (H1 2013: £15.0m)
Segments updated to better reflect the business, new segment to include all unsecured loans activity “Personal Loans”
Business mix H1 2014
*Pawnbroking includes both pawn service charge and pawnbroking scrap
Pawnbrokin
g, 63.2%
Retail, 21.9%
Gold
Purchasing,
5.9%
Other, 9.0%
Mix has shifted to Pawnbroking and retail from gold purchasing
14.7
4.0
1.9
3.8
1.6 0.8
14.3
4.9
-0.2 1.3
0.8 1.2
-2.0
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Pawnbroking Retail Pawnbroking
scrap
Gold
purchasing
Personal Loans Other Services
Gross Profit £'m
H1 13 H1 14
7
Pawnbroking: Pledge Book and PSC
Reduction in the pawnbroking loan book due to:• Reduced lending rates in response to the gold price fall
• Competitive environment leading to reduced customer numbers
• Reduction in aged pledge
PSC broadly maintained following rate increases in late 2013 to improve yields on average book – H1 2014: 34.6% (H1 2013: 29.5%)
LTV increased compared with H1 2013 at approximately 80%.
8
-
10.0
20.0
30.0
40.0
50.0
60.0
H1 10 H2 10 H1 11 H2 11 H1 12 H2 12 H1 13 H2 13 H1 14
Pledge Book (£'m)
11.5 11.7
13.2 13.6
14.7 13.7
14.7 13.9 14.3
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
H1 10 H2 10 H1 11 H2 11 H1 12 H2 12 H1 13 H2 13 H1 14
Pawn Service Charge (£'m)
Gross Profit depends on historic lending rate per gram and current gold price
Average gold price fell 21.7% between H1 2013 and H1 2014
Based on current LTV and higher expected rate per gram in forfeits this is unlikely
to be a significant contributor in the near future
We consider the current lending policy to be appropriate in the current
competitive market
Pawnbroking Scrap
6.4
2.6 2.6
3.7 3.8 3.6
1.9
-0.1 -0.2
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
-1.0
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
H1 10 H2 10 H1 11 H2 11 H1 12 H2 12 H1 13 H2 13 H1 14
Pawnbroking Scrap Gross Profits (£'m)
Gross Profit Margin %
-
200
400
600
800
1,000
1,200
H1 1
0
H2 1
0
H1 1
1
H2 1
1
H1 1
2
H2 1
2
H1 1
3
H2 1
3
H1 1
4
Average Gold Price (£ / troy oz)
9
Retail
Retail sales growth of 49.3% H1 2013 to H1 2014
The retail focus and pricing policies implemented in H2 2013 provided growth that carried through into 2014
Minimal impact of Discount Secondhand Jewellery stores in the half as rebranding commenced in June
Margin impacted by historic increases to lending rate flowing through stock
Average sales per store at £69k (H1 2010: £71k)
8.6
10.9
8.5
11.4
9.1
11.0
8.9
16.1
13.2
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
H1 10 H2 10 H1 11 H2 11 H1 12 H2 12 H1 13 H2 13 H1 14
Retail Sales
Retail Sales (£'m) Sales / Avg Stores (£'k)
4.0
4.8
4.3
5.6
4.4
5.5
4.0
5.9
4.9
0%
10%
20%
30%
40%
50%
60%
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
H1 10 H2 10 H1 11 H2 11 H1 12 H2 12 H1 13 H2 13 H1 14
Retail Gross Profits
Gross Profit (£'m) Margin %
10
Gold Purchasing
Gross profits of £1.3m (H1 2013: £3.8m)
21.7% reduction in the average gold price between H1 2013 and H1 2014
Closure of GoldBar during 2013, the units contributed £0.6m GP in H1 2013
Competitive pressure impacts margins
Result also impacted by increased COGs sold through retail channel
• Profit on jewellery sales is recognised in the retail segment, even if the items originated from purchasing
• £3.5m more COGs into retail in H1 2014 compared with H1 2013
12.6
7.5 7.5
9.7
5.5
6.5
3.8
1.0 1.3
0%
5%
10%
15%
20%
25%
30%
35%
40%
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
H1 10 H2 10 H1 11 H2 11 H1 12 H2 12 H1 13 H2 13 H1 14
Gold Purchasing Gross Profit (£'m)
Gross Profit Margin %
11
Personal Loans
Decision taken in early 2013 to withdraw from the Pay Day Loan market and provide a new more flexible personal loan
New personal loans product performing in line with management expectations
Personal Loans will be offered online in H2 2014
Minimal impact from the FCA rate cap
Well positioned to take advantage of market disruption
Included in Personal Loans:
• Personal Loan (new in 2013)
• KwikLoan
• Pay Day Advance
1.8
1.6 1.8
2.1 2.1
1.8
1.6 1.6 1.6
1.3
0.8
-
0.5
1.0
1.5
2.0
2.5
H1 09 H2 09 H1 10 H2 10 H1 11 H2 11 H1 12 H2 12 H1 13 H2 13 H1 14
Personal Loans Gross Profit (£'m)
12
Other Services
Development of other services is important to widen our appeal and drive revenue growth
Key growth areas in Western Union, FX and Buyback with combined H1 2014 gross profits of £0.6m (H1 2013: £0.2m)
• FX gross profits increased by £0.2m
• Buyback gross profits increased by £0.2m
Buyback of high end electronics is an important part of the “We buy anything” proposition, turnover increased from £0.2m H1 2013 to £1.2m H1 2014.
Included in Other Services:
• Third Party Cheque Cashing
• FX
• Buyback
• Western Union
• Other
0.8
1.0
0.7
0.8
0.7 0.7
0.8
0.9
1.2
-
0.2
0.4
0.6
0.8
1.0
1.2
1.4
H1 10 H2 10 H1 11 H2 11 H1 12 H2 12 H1 13 H2 13 H1 14
Other Services Gross Profit (£'m)
13
Net debt decreased by 52.6% to
£13.5m (2012: £28.5m)
Well within all financial covenants
• Leverage: 1.5x vs covenant
of 3.0x
• Interest cover: 14.2x vs
covenant of 4x
£50m facility refinanced in Jan
13, facility expires in Jan 17
Further reductions in net debt
planned in 2014
Consolidated balance sheet
14
£'m 30 June 2014 30 June 2013
Goodwill 17.7 18.1
Other intangible assets 1.2 1.6
Property, plant and equipment 11.3 13.8
Inventories 29.5 30.3
Pawnbroking Loans 38.5 48.6
Other debtors 11.2 12.0
Cash and cash equivalents 7.4 6.3
Total Assets 116.8 130.7
Borrowings (20.5) (34.3)
Other Creditors (7.6) (9.1)
Total Liabilities (28.1) (43.3)
Net Assets 88.7 87.4
Net Debt (13.5) (28.5)
Net Debt / Net Assets 15% 33%
Net Debt / EBITDA 1.50 1.54
NB: Borrowings are net of unamortised debt issue costs
Significant positive cash flow in
the period
£10.1m cash released from
pledge book, estimated £2m from
improved ageing
Four stores closed in the half,
one opened, ending on 191
stores
Further releases of cash expected
through small number of store
closures
Cash flow Statement
£'m H1 2014 H1 2013
Profit after Tax 1.4 3.3
Non Cash Expenses (Depreciation etc) 2.3 2.3
Movement in stock 0.2 (3.9)
Movement in debtors 5.2 5.2
Other working capital 0.3 (0.1)
Tax and Interest (0.5) (1.2)
Net cash from operating activities 8.9 5.6
Capex and Acquisitions (0.7) (3.6)
Dividends paid (1.0) (3.0)
Share issue etc 0.0 0.0
Movement in net debt 7.2 (0.9)
15
Strategy Update
16
The rate of competitive growth peaked in 2012 for stores, total number of stores
estimated at circa 2,250 at Oct 13
Pressures on earnings across the sector
Some signs of rationalisation:
• A&B administration and subsequent closure of approximately 60 stores and all
gold shops
• Cheque Centres stopped lending on 1 April 2014 and has announced substantial
closures in it’s 350+ store estate
• Cash Store entered administration and closed 27 stores
FCA rate cap to be implemented in 2015 is expected to have a significant impact on
high street pay day lenders
The Market
17
H&T Proposition
Attractive high street locations
Friendly and knowledgeable staff
Product set well suited to:
• Service the need for cash; and
• Deliver great value retail
The core proposition works well for consumers
Build understanding and volume by extending the product range, simplifying the communication, and promotion
18
Secured Lending
Our secured proposition is delivered through two key routes:• Pawnbroking on jewellery and watches
• Buyback on quality electronics
Measured expansion into other asset classes using internal and external product experts
Expert Eye system in place in all stores
“Value my item” website is live and Android and iOS apps will be live in H2 2014
Buyback purchases in FY 2013: £0.7mBuyback purchases in H1 2014: £1.2m
19
Retail
A strong retail proposition:• Supports secured lending
• Provides improved margins
• Provides a hedge to gold price
Opportunity both in H&T Pawnbrokers stores and the new est1897 retail brand• Discount Secondhand Jewellers trial evolved into the est1897 brand (above)
Further improvements through:• H2 2014 development of online store stock catalogue to drive engagement
• H2 2014 development of online retail store for specialist pieces
20
Key opportunity in store and online
Personal Loan product in store from October 2013:• Loans from £50 to £1000
• Terms from 1 week to 2 years
Repayable in line with pay frequency
Most loans have terms of 11 – 13 months
Available online in H2 2014
Significantly better value compared with Pay Day Loans
21
Outlook
John Nichols, Chief Executive
22
Outlook
Industry rationalisation has begun
Demand for small, simple, short term loans will continue
Stable platform for growth:• Available headroom on debt facilities
• Secure long term finance
• A product range we consider to be well positioned for the new regulatory regime
Expansion of online products and services to widen appeal
2014 year to date trading in line with management expectations
23
Q&A
Appendix
24
What do we do?
Pawnbroking:
• Secured loans (99% on jewellery and watches)
• 6m contract regulated under CCA*
• Customer’s choice to redeem/renew/forfeit
Gold Purchasing:
• Offer to purchase customers unwanted / damaged gold
• Postal or in-store service
Third Party Cheque Cashing:
• Allows customers to receive cash for cheques
• Offers immediate cash and avoids banking into overdrawn accounts
Retail:
• Unique range of new and second-hand jewellery
• Majority sourced from forfeits and restored at Company’s refurbishment centre
Personal Loans:
• Unsecured loans of up to £1000 repayable up to 2 years by direct debit
• Identity, income and employment proof required
Other Services:
• Western Union money transfer
• Foreign Currency
* Consumer Credit Act
The Board
Joined H&T as Managing Director in 1997
Previous roles: several Senior Executive
positions within the Rank Organisation,
following an early career in the RAF
President of the National Pawnbrokers
Association 2004 - 2009
John Nichols
Chief Executive
Malcolm Berryman
Non-Executive
James Thornton
Non-Executive
Peter McNamara
Non-Executive
Steve Fenerty
Finance Director
Joined H&T Board in 2005 as Commercial
Director
Previous roles: KPMG, Money Shop.
Significant expertise in consumer credit
and debt collection
Originated and executed over 20
acquisitions for H&T
Member of H&T Board on flotation
Previous roles: Group Managing Director
Alliance & Leicester plc, Managing
Director Lloyds Personal Banking
Currently Chief Executive of Notemachine
Joined H&T Board in 2012
Previous roles: UK Finance Director at
Old Mutual plc, Head of Foreign Exchange
at IFX plc
Currently a Director at Strands Partners
Joined H&T Board in 2008
Previous roles: Chief Executive of two
insurers, Liverpool Victoria and Crown
Financial Management
Currently Non-Executive Director at
Scottish Friendly
Financing Key Terms
Total Facility Size £50m
Termination Date 30 January 2017
Utilisation £50m subject to leverage (3x) and interestcover (4x) ratios
Margin LIBOR plus a margin of between 1.25% and2.25%
Fixed Repayments No capital repayments prior to termination date.
Customer Service
Programme of surveys via Foresee
Summary of Q2 2014 results:
• 1,352 surveys completed
• Score of 95% for overall satisfaction
• Score of 96% for both professionalism and knowledge
Satisfaction significantly outperforms specialty retailers benchmark