20 August 2024

H&T Group PLC ("H&T" or "the Group" or "the Company")

UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2024

AND CHANGE OF ACCOUNTING REFERENCE DATE 

H&T Group plc (AIM: HAT), the UK's largest pawnbroker and a leading retailer of high quality new and pre-owned jewellery and pre-owned watches, today announces its interim results for the six months ended 30 June 2024 ("the period"). In addition, the Group announces the change of its accounting reference date ("Year End") to 30 September with effect from September 2025.

Highlights

●     The capital value of the pledge book increased to £105m (December 2023: £101m;). Pledge lending in the six month period to 30 June 2024 increased by 14% to £146m (H1 2023: £128m). As in 2023, redemptions were higher than anticipated in the Spring as customers chose to repay their loans early. Redemption levels have now normalised, albeit later than anticipated.

●     Profit before tax of £9.9m (H1 2023: £8.8m), up 12.5% year on year as the core pawnbroking business continues to be the foundation of Group profits.

●     Retail jewellery and watch sales of £29.3m (H1 2023: £23.0m), up 27% year on year. Margins improved throughout the period to 30% (H1 2023: 28%; FY 2023: 30%), improving further in June and July.

●     Foreign currency profits of £3.2m (H1 2023: £2.9m), up 10% year on year, with transaction volumes up 9% year on year.

●     In February 2024 the Group acquired a pawnbroking pledge book amounting to £5.5m (excluding interest accrued and required IFRS 9 provisions) from Maxcroft Securities Limited ("Maxcroft"). Maxcroft also has a successful foreign currency business. The integration is proceeding as planned, with valuable insights being applied in other stores.

●    The balance sheet remains strong with a net asset value of £181m (December 2023: £177m). Net asset value per share of 416p (December 2023: 408p).

●     Diluted earnings per share of 17.7p (H1 2023: 16.3p), up 8.6% year on year.

●   Interim dividend of 7.0p per share (2023 interim dividend: 6.5p), up 7.7% year on year, reflecting the Board's confidence in the future prospects for the Group.

●    Following consultation with a number of shareholders and after careful consideration, the Board has made the decision to change the Group's financial year end from 31 December to 30 September with effect from September 2025. This will result in financial performance being more evenly spread across the two half year reporting periods. Details of future reporting periods and expected reporting dates are provided below. Comparative figures for the corresponding prior periods will be provided.

Chris Gillespie, H&T Chief Executive Officer, said:

"I am pleased to report that we have continued to make positive progress in the first half of 2024.

Our core pawnbroking business continues to attract increasing numbers of new and returning customers, for whom alternative sources of small sum regulated lending are much constrained. Retail sales have also been encouraging, with margins on all product categories improving in the second quarter and expected to further improve through the remainder of 2024. This performance has been supported by growing demand for our foreign currency service and improved margins on over-the-counter gold purchase. 

Maxcroft has performed well since the acquisition in February. We have begun to apply our learnings from their foreign currency business to selected H&T stores, and we have seen an increase in footfall and sales as a result.

I am extremely proud of the whole H&T team. They deliver outstanding levels of service. They are, and always will be, our greatest asset and I thank them for everything they do for H&T, our customers and stakeholders. We remain focused on growing and broadening our core pawnbroking business and investing in the store estate."

Enquiries:

H&T Group plc                                                                                                                  +44(0)20 8225 2700

Chris Gillespie, Chief Executive Officer          

Diane Giddy, Chief Financial Officer

Shore Capital Ltd (Nominated Adviser and Joint Broker)                               +44(0)20 7408 4090          

Stephane Auton / Sophie Collins (Corporate Advisory)

Guy Wiehahn (Corporate Broking)

Canaccord Genuity Limited (Joint Broker)                                                            +44(0)20 7523 8000

Emma Gabriel / George Grainger 

Alma Strategic Communications (PR)                                                                     +44(0)20 3405 0205

Sam Modlin/Andy Bryant/                                                                               [email protected]  

Rebecca Sanders-Hewett/Will Merison                                                                                                                                

About H&T Group plc

H&T is the UK's largest pawnbroker, a leading retailer of high quality new and pre-owned jewellery and pre-owned watches and provides a range of financial products tailored for a customer base which has limited access to or is excluded from the traditional banking sector. These products include Pawnbroking, Retail and Foreign Currency. f

H&T's store estate of over 280 stores across the UK provide customers with small-sum short-term non-recourse pawnbroking loans secured by pledged personal property, which consists primarily of gold, jewellery items and watches. H&T also buys and sells new and pre-owned gold, jewellery items and watches along with providing foreign currency exchange, international money transfer, third-party cheque encashment and watch repair services to its customers.  

H&T is regulated by the Financial Conduct Authority for its pawnbroking activities.

H&T's common stock (ticker symbol "HAT") is traded on AIM, which is the London Stock Exchange's market for small and medium size growth companies. 

For more information regarding H&T and the services the Group offers, please visit H&T's website at http://handt.co.uk.

INTERIM REPORT

Overview

The first half of 2024 has been a period of continued progress across the Group, delivering a profit before tax of £9.9m (H1 2023: £8.8m), an increase of 12.5%.

We are, by some margin, the largest pawnbroker in the UK and as at 30 June 2024 we were operating from a network of 281 stores (December 2023: 278).

We added four new stores in the period, with one closure, including the acquisition of Maxcroft. A further store has been opened since the period end, and additional store openings are in course for the remainder of the year and beyond. We have refreshed 30 stores under the store refurbishment programme in the period.

Our balance sheet remains strong with net assets of £181m (December 2023: £177m). Additional funding facilities were put in place over the course of 2023 and early 2024 and will enable us to continue to grow the pledge book whilst investing in the store estate, both existing and new stores, and in our IT infrastructure.

We believe that the acquisition of Maxcroft provides us with an opportunity to expand our reach into a different customer segment, specifically those who have a requirement for larger value pawnbroking pledge loans. Often, these loans are used by business owners looking to fund working capital through the pledge of personal items. This further underlines our strategy of growing and broadening our core pawnbroking business.

We are continuing with the implementation of our new core IT platform, named EVO. Phase 1 was successfully deployed across the store network in the second half of 2022. Further functionality enhancements have been and will continue to be deployed. Phase 2 of the programme is now underway and will bring the new system to our jewellery processing centre, which is expected to improve productivity in the medium term. The new system will be implemented across the wider business over the next three years.  

We invested in increased capacity at our jewellery centre in 2023, with a second facility adjacent to the existing site.  This increase in capacity is supporting our jewellery business by improving jewellery processing efficiency, which we anticipate will accommodate higher future processing volumes. Processing volumes increase as the pledge book grows and matures, resulting in the volume of items released for retail sale or scrap which require processing, rising commensurately.

As a regulated business, we ensure we comply with the spirit and the letter of all relevant regulations. Consumer Duty requirements receive ongoing close focus and oversight, and we provide bespoke support to vulnerable customers from our experienced customer support team based in Liverpool.

Reflecting the confidence in the prospects of the Group, the Board has approved an increased interim dividend of 7.0p per share (2023 interim dividend: 6.5p per share). The dividend will be paid on 4 October 2024 to shareholders on the share register at the close of business on 6 September 2024.

Financial Results

Income from operations increased by 11% to £55.8m (H1 2023: £50.1m).

As the table below illustrates, the pawnbroking and retail segments continue to be the core contributors to the Group's performance, supported by growing demand for our foreign currency service and over the counter gold purchase.  Gold purchases are benefiting from current elevated gold prices with volumes broadly flat.

The underlying drivers of income will be explained in the divisional operational review below.

Expenses

Operating expenses increased by 6.7% to £42.9m (H1 2023: £40.2m). Close cost control continues to be a priority. Employee related costs, excluding variable remuneration, contribute approximately 55% (H1 2023: 54%) of total operating costs, and increased by 7.7% year on year.

Employee related cost growth for 2024 is at a rate above that of headline inflation, primarily because of macro-level decisions taken in respect of national living wage. Ensuring that our people are appropriately remunerated will remain a priority for the Group. Salary costs are not expected to increase significantly in the second half of the year.

We have fixed, in advance, the cost of energy supplies since 2021, and recently extended this arrangement through to 2026 at a modest cost reduction. We remain able to obtain attractive lease renewal terms as our rental agreements fall due for review. Typically, the store estate is subject to three or five-year rent reviews. 

The business is predominantly a fixed cost business and accordingly as income from the various service offerings grows the operating margin improves (all other things being equal).

Profit before and after Tax

The Group delivered profit before tax up 12.5% to £9.9m (H1 2023: £8.8m) and a profit after tax of £7.6m (H1 2023: £7.0m), up 9% year on year reflecting an effective tax charge of 22% (H1 2023: 20%).

Balance Sheet

Our balance sheet remains strong with net assets of £181m (December 2023: £177m) and is underpinned by the inherent value of precious metals, mainly gold and watches, in the form of collateral for the pledge book and inventory, and cash holdings.

The summary below highlights the principal components of the balance sheet.

Total inventory amounted to £49.4m (December 2023: £40.7m). This included retail inventory available for sale in stores of £35m at cost (December 2023: £29m), watches in the course of repair £4m (December 2023: £3m), stock of parts held at Swiss Time, stock in process at the Jewellery centre and in transit. We continue to refine our approach to retail stock allocation across the store estate to better meet customer demands and preferences.

At 30 June 2024 the Group had a net debt position of £48.7m (December 2023: £31.6m). Funding facilities have been deployed primarily to fund the growing pledge book through the acquisition of Maxcroft in early 2024, increased inventory holdings and capital investment in the store portfolio as well as our technology platform, and the payment of dividend and interest. Increased usage of the Group's funding facilities, coupled with persistently high interest rates, resulted in higher financing costs of £2.4m (H1 2023: £0.7m) for the period.

2024 Business Focus and Outlook

With continued investment in scale and capabilities, along with growing our business in the context of wider macro-economic factors, we believe that the Group has an opportunity for significant growth in the medium term. This applies across our product offering, particularly the core pawnbroking product. Our focus is to ensure that the Group is well positioned to take advantage of these growth opportunities.

The Group offers a range of products and services which are tailored to meet the needs of its customer base. It is common for customers to use more than one service, for example a money transfer customer might take foreign currency with them when they visit their home country. Similarly, a piece of retail jewellery purchased from H&T may become an item pledged as collateral for a future pawnbroking loan. Our strategy is to attract footfall to our stores, and through the outstanding service provided by our store colleagues, establish long term relationships with customers, often spanning many years and multiple products.

Our priorities are:

Store Estate 

We believe that our stores, and our outstanding colleagues, are and will remain at the heart of our business. There remain further opportunities to expand the geographic coverage of our store network and we are investing in new store openings, in refreshing existing stores and in the acquisition of independent pawnbroking businesses where they fully meet our investment criteria. We will continue with the planned store refresh programme, with c.50 store refreshes per annum. 

We have a prioritised list of potential locations throughout the UK for new store openings. Further additions are envisaged for the remainder of the year and beyond, with the capital investment of a new store being relatively modest and an expectation that new stores will become profitable, on a run-rate basis, no later than their second year of operation. It is likely that 8 to 12 stores will be added in 2024. The High Street is always evolving, as are customer habits. With the growth of weekend activity on many High Streets, we are undertaking a trial of Sunday trading in approximately 10% of stores which are situated in locations with high Sunday footfall.

Digital Strategy and Customer Journey

A new Point of Sale (PoS) system, known as EVO, now operates across the store network. Further functionality enhancements have been, and will continue to be, deployed through 2024. Phase 2 of the programme is now underway. The new system will be implemented across the wider business over the next three years.  

EVO is improving customers' experience in stores whilst providing us with enhanced customer data. A single view of the customer relationship across all products will be available when the programme is completed. In the meantime, the improvements delivered through the EVO programme are supporting more effective and better targeted marketing communications and merchandising. 

We are improving and enhancing our online presence. The customer-facing website is in the process of being upgraded, and the Group now has a single online presence following the recent consolidation of the est1897 website into the H&T website. This will be an ongoing process of continual evolution. Our aim is to further modernise the functionality, as well as the look and user experience. We intend to make it easier for customers to do business with us through the channel they choose.

Macroeconomic Environment

We see the trading environment in the near term being positive for H&T.

Pledge Book

We anticipate continued strong demand for our core pawnbroking product as the need for small-sum, short-term loans increase at a time when supply of small-sum regulated credit is more constrained than has been the case for many years. We are continuing our strategy of raising the awareness of pawnbroking to potential customers who are business owners and have personal assets which can be pledged in support of a pawnbroking loan for business purposes.  These tend to be larger loans with higher rates of redemption.

Retail

H&T is a leading retailer of high quality pre-owned jewellery and pre-owned watches. We also offer our customers an expanding range of new jewellery items. We believe that there are clear reasons for the strength of the demand for these products, including the growing attractiveness of buying pre-owned products and the environmental and sustainability benefits this brings. Customers view these items as representing good value for money, and also as a store of value which can be sold or used as collateral for a future pledge loan if their circumstances change. We believe that these dynamics are likely to continue. The Group is responding by ensuring that we have the right mix of items for sale, reflecting current customer spending priorities and fashion trends, whilst remaining nimble to adapt as those priorities and trends evolve.

Foreign Currency

We expect increasing demand for foreign exchange services as overseas travel continues to grow. Our foreign currency business will continue to receive focus and investment.

Our Cost Base

Payroll is the largest expense the business incurs. Changes in the national living wage have a meaningful impact on expenses as many employees' pay is set by reference to the minimum wage. Our employees are critical to the delivery of our customer proposition, as such ensuring that our people are appropriately remunerated will remain a priority for the Group.

We remain able to obtain attractive lease renewal terms as our rental agreements fall due for review. Typically, the store estate is subject to three or five-year rent reviews. 

Review of Operations

Pawnbroking

Demand for our core pawnbroking product remains strong across all geographies, with 10% growth in loan volumes year on year. This is, in part, due to broader macroeconomic conditions and an ongoing constraint in the supply of regulated small-sum, short-term credit. These market dynamics create a growth opportunity for pawnbroking and, as the market leader, for H&T in particular.

Aggregate lending for the half year increased by 14% to £146m (H1 2023: £128m). Currently, c.11% of loans are to new borrowers, with new customer volumes broadly flat year on year and those customers acquired in prior years often returning to transact with us again.

The second quarter of 2024 saw customer behaviour consistent with that experienced for the first time last year, leading some customers to repay loans earlier than normal. Redemption levels have now normalised. As a result, and as was the case in 2023, the pledge book has returned to organic growth. Notwithstanding management action, this moderation in redemption levels took longer than we anticipated. The capital value of the pledge book grew in the period by 4% to £105m (December 2023: £101m). The pledge book currently amounts to £108m.

Notwithstanding the increase in redemptions through the Spring, overall redemption rates have been consistent at c.85%. Average Loan to Value ratios have been slightly below 65% in the period.

Net pawnbroking revenue grew by 1.5% year on year to £32.9m (H1 2023: £32.4m), impacted by the combined effect of shorter loan duration, higher than expected levels of redemptions and normalisation of redemption levels taking longer than anticipated. This has resulted in a higher effective interest rate ("EIR") adjustment, as required by IFRS 9.

Loan duration reduced to 94 days (FY 2023: 97 days), continuing the recent trend of customers repaying their loans more quickly than historic averages and, in particular, reflecting customer behaviour in the second quarter, which was not forecast.

Action was taken in 2023 to reduce the risk profile of lending against certain high-value watch brands, where price volatility was apparent. As a result, the value of lending against watches reduced in the period as planned, both in respect of stock and flow. At the period end, the proportion of the pledge book secured on watches was 14% (H1 2023: 17%), with watch lending representing 12% of lending flow (H1 2023: 17%). These loan values tend to be slightly larger than the average, remain on the book for slightly longer and have slightly lower redemption rates than average. The volatility in pre-owned watch prices has abated and we now believe it is appropriate to cautiously increase activity in this asset class once again.

It remains the case that pledge book growth in the c.70 stores acquired in 2019, is at a faster rate than for the store estate as a whole, delivering upon the acquisition strategy which identified pawnbroking as a key growth opportunity in those locations. All new stores opened by the Group since late 2020 are performing at or above planned levels. Integration of the Maxcroft acquisition has proceeded as planned. 

Loan sizes have remained consistent, with a median loan size of £200. Mean loan sizes increased slightly to £479 (December 2023: £428). We are continuing to see a growing number of requests for larger value loans, often from customers who are business owners seeking to fund working capital by pledging personal assets. Loans of £5,000 or more are generally used for business purposes, and currently represent c.18% of the pledge book by value and c.1% by loan numbers.

Retail

H&T is a leading retailer of high quality new and pre-owned jewellery and pre-owned watches, via its physical store network and increasingly, online.

Retail prices have been increased across the product range, with margins on all product categories improving in the second quarter and expected to further improve through the remainder of 2024.

In the peak Christmas trading period, there was a shift towards lower priced items, often new rather than pre-owned because of the lower relative price point of our new jewellery range, and in some cases, towards products which earn lower margins, e.g. gold coins. Trading in the first six months of 2024 has shown a reversion to a more normal spending pattern by customers, and sales mix. Our business model of selling both pre-owned and new items gives flexibility as customer preferences change.

Retail sales increased by 27% to £29.3m (H1 2023: £23.0m) with profits increasing by 40% to £8.8m (H1 2023: £6.3m) with H1 margins improving as expected to 30% (H1 2023: 28%), reflecting changes in the mix of sales, the benefit of retail price increases and the easing of challenging trading conditions for certain watch brands.

Sales of new products represented 20% (FY 2023: 25%) of total sales by value, at a typical margin of 35% (FY 2023: 30%) inclusive of coins and gold bars, which carry a lower margin.

Pre-owned jewellery sales represented 50% (FY 2023: 50%) of sales by value, at a typical margin of 47% (FY 2023: 45%) inclusive of coins and gold bars, which carry a lower margin.

Pre-owned watch sales represented 30% (FY 2023: 25%) of sales by value. This year we have seen less volatility in watch prices, and have been able to retail watches which in 2023, would have been sold for scrap at auction as retail sale was deemed uneconomic.  The majority of prestige watches sold in H1 2024 pre-date the action taken in June 2023 to de-risk watch lending rates and valuations, as almost all prestige watches offered for sale are sourced through pawnbroking activities. Watches flowing from the pledge book in the second half of 2024, have a lower input price.

Online sales increased by 35% to £7m, (H1 2023: £5.2m). This represents 24% (H1 2023: 23%) of total sales by value, with approximately 50% (H1 2023: 50%) of these sales viewed in store by the customer prior to completing their purchase.

Foreign Currency

Our foreign currency business continues to receive increased focus and investment, and we are pleased to report further progress in its development.

Gross profit grew to £3.2m (H1 2023: £2.9m), an increase of 10%, on transaction volumes up 9% on the prior half year. We continue to believe there is a role for foreign currency as customers budget for their travel and many overseas suppliers of goods and services do not take card payments.

Our click and collect service was relaunched in June 2023 and continues to build momentum, albeit these online transactions remain a comparatively small proportion of total transaction volumes.

Average transaction size increased year on year to £398 (FY 2023: £386). Click and collect transaction size, which is significantly higher than store-based transactions, reduced slightly year on year to £677 (FY 2023: £685). 

We have begun to apply our learnings from the Maxcroft foreign currency business, following the acquisition in February, to selected H&T stores. We have seen an increase in footfall and sales in those stores.

We have introduced efficiencies to our FX cash distribution model as well as further broadening the range of currencies available for immediate purchase in store, which has supported the growth in transaction volumes

Gold Purchasing and Pawnbroking Scrap

Gold Purchasing

Gross profit earned from scrap purchasing was £5.5m (H1 2023: £4.2m), an increase of 31%. Margins increased to 25% (H1 2023: 19%), supported by a strong gold price. The increase in gross profit is primarily margin related with volumes broadly flat year on year. The average gold price per troy ounce during the period was £1,742 (H1 2023: £1,566). 

Pawnbroking Scrap

As the pledge book grows and matures, the volume of items released for retail sale or scrap rises commensurately. Typically, c.60% of such items are processed for scrap. Pawnbroking scrap has a longer conversion cycle - usually 10 to 11 months after the date of the original loan - than purchased items.

Gross profit grew by 46% to £3.8m (H1 2023: £2.6m), with margin of 23% (H1 2023: 18%). Margin in 2023 was impacted by a decision to dispose of, by auction primarily in Q2 and Q3, a number of higher value watches where the cost of repair prior to retail sale was deemed uneconomic due to price volatility in the watch market. The start of 2024 has seen less volatility in pre-owned watch prices.

Pawnbroking scrap margins are earned as a direct consequence of our pawnbroking activities and represent the disposition of collateral held as security on unredeemed pawnbroking pledges. We do not believe that this represents a separate line of business. In future reporting periods, pawnbroking scrap will be incorporated into the segmental performance of pawnbroking, with prior periods restated to present an appropriate comparison.

Other Services

Money Transfer

Money transfer activity drives significant footfall to our store estate and represents an opportunity for colleagues in our stores to bring customers' attention to our wider service offering. Contribution in the year was broadly flat at £0.5m (H1 2023: £0.6m).

Cheque Cashing

Whilst some local authorities and government departments issue payments by cheque, the use of cheques in the wider economy continues to decline and consequently profit contribution remains modest at £0.3m (H1 2023: £0.4m).

Personal Lending

The Group no longer offers an unsecured lending product. Lending volumes reduced significantly after Q4 2019, and all lending ceased in early 2022. The unsecured loan book has since continued to receive repayments, and corresponding impairment provisions have been released. The net loan book has reduced to c.£40k, (December 2023: £0.1m) with profits earned reducing to £0.2m (H1 2023: £0.5m) as the underlying book repays. The profit contribution will continue to decline as outstanding loans are repaid.

Change of accounting reference date ("Year End")

Following consultation with a number of shareholders and after careful consideration, the Board has made the decision to change the Group's financial year end from 31 December to 30 September, with effect from September 2025. This will result in financial performance being more evenly spread across the two half year reporting periods. Comparative figures for the corresponding prior periods will be provided.

For the current financial year, the Group will publish audited results for the 12-month period to 31 December 2024 in March 2025, as normal. Simultaneously, the Group will publish unaudited comparative results for the twelve months to 30 September 2024 to establish the base for the new accounting reference dates. 

For the following year, being the first financial year with the new year end, statutory audited results covering the nine-month period to 30 September 2025 will be published in January 2026. Simultaneously, the Group will publish unaudited comparative results for the twelve months to 30 September 2025. Given that there will be no interim financial reporting in this first year of transition, the Group will publish a trading update in July 2025, covering the first six months of the calendar year to 30 June 2025.

For future financial years, the reporting cycle will comprise six months interim reporting to March, published in May, and full year reporting to September, published in January.

A reporting calendar will be published on the Group's investor relations website at https://handt.co.uk/pages/investor-relations

* Impairment charges for the period to June 2023 have been reallocated between revenue and impairment charges

All profit for the period is attributable to equity shareholders.

Unaudited notes to the Condensed Consolidated Interim Financial Statements

For the 6 months ended 30 June 2024

1.          Finance information and significant accounting policies

The condensed consolidated Group interim financial statements of the Group for the six months ended 30 June 2024, which are unaudited, have been prepared in accordance with the International Financial Reporting Standards ('IFRS') accounting policies adopted by the Group and set out in the annual report and accounts for the year ended 31 December 2023. The Group does not anticipate any change in these accounting policies for the year ended 31 December 2024.

As permitted, this interim report had been prepared in accordance with the AIM rules but not in accordance with IAS 34 "Interim financial reporting". While the financial figures included in this preliminary interim earnings announcement have been computed in accordance with IFRS's applicable to interim periods, this announcement does not contain sufficient information to constitute an interim financial report as that term is defined in IFRS.

The financial information contained in the interim report also does not constitute statutory accounts for the purposes of section 434 of the Companies Act 2006. The financial information for the year ended 31 December 2023 is based on the statutory accounts for the year ended 31 December 2023. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

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 be reliably measured.

The Group recognises revenue from the following major sources:

●     Pawnbroking, or Pawn Service Charge (PSC);

●     Retail jewellery sales;

●     Pawnbroking scrap and gold purchasing;

●     Foreign exchange; and

●     Income from other services

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.

Pawnbroking, or Pawn Service Charge (PSC)

PSC comprises contractual interest earned on pledge loans, plus auction profit or 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 jewellery sales

Jewellery inventory is sourced from unredeemed pawn loans, newly purchased items 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; as a proportion of sales H1 2024 returns were 8% (H1 2023: 8%)

Pawnbroking scrap and gold purchasing

Scrap revenue comprises proceeds from gold scrap sales, jewellery items and watches. Revenue is recognised when control of the goods has transferred, being at the point the smelter purchases the relevant metals or the items are sold or auctioned.

Foreign exchange

The foreign exchange currency service where the Group earns a margin when selling or buying foreign currencies.

Other services

Other services comprise revenues from third party cheque cashing, money transfer income, watch repairs, income from the Group's former unsecured lending activities (ceased in April 2022) and other income. Commission receivable on cheque cashing 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. Repair income is recognised when the repair has been completed.

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, before loan and pawnbroking impairments.

Impairment charges

Impairment charges comprise a charge for interest earned on pawnbroking loans that ultimately forfeit, net of the movement in the IFRS 9 provision.

Operating expenses

Operating expenses comprise all expenses associated with the operation of the various stores 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, and the administrative expenses and overheads of the Group.

Inventory stock provisions

Where necessary provision is made for obsolete, slow moving, damaged goods or inventory shrinkage. The provision for obsolete, slow moving, and damaged inventory represents the difference between the cost of the inventory and its net realisable value. The inventory shrinkage provision is based on an estimate of the inventory missing at the reporting date using historical shrinkage experience.

2.          Operating segments

For reporting purposes, the Group is currently organised into five segments - pawnbroking (being pawnbroking and pawnbroking scrap), retail, gold purchasing, foreign exchange and other services. Operating segments are reported in a manner consistent with the internal reporting provided to the Board of Directors, who are the chief operating decision-makers. The Board of Directors are responsible for allocating resources and assessing performance of the operating segments and has been identified as the steering committee that makes strategic decisions.

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% (2023: 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 2% and 10.5%. The contract is governed by the terms of the Consumer Credit Act 2008. 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.

Pawnbroking scrap comprises all other proceeds from gold scrap sales of the Group's inventory assets 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.

Retail:

The Group's retail proposition is primarily gold, jewellery and watches, 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 an amount of new or second-hand jewellery purchased from third parties by the Group.

Gold 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.

Foreign exchange:

The foreign exchange currency service where the Group earns a margin when selling or buying foreign currencies.

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.

●     Money Transfer commission earned on the Group's money transfer service.

●     Watch repair services provided by Group company, Swiss Time Services Limited

●     Personal loans income from the Group's former unsecured lending activities which ceased in April 2022. Personal loan revenues are stated at amortised cost after taking into consideration an assessment on a forward-looking basis of expected credit losses.

Cheque cashing is subject to bad debt risk which is reflected in the commissions and fees applied