H+T pledge book declines but retail sales jump 49%

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Pawnbroker planning to launch retail jewellery offer online in 2015.

Pawnbroker H&T has today released its interim results for the first six months of 2014 ended June 30, with retail sales climbing 49.3% and net profit reaching £2 million – a £2.6 million decline compared to H1 2013.

The business, which operates 191 units across its H&T Pawnbrokers and Est1897 retail fascias, is described as producing a "robust" performance in H1, despite a decline in its pledge book and gross profit.

In total, H&T’s pledge book decreased by 20.8% to £38.5m in H1, while gross profit reduced by 17.5% to £22.2 million (H1 2013: £26.9m) with £4.6 million of the reduction coming from the pawnbroking scrap and gold purchasing segments as a result of lower gold price and a decline in gold purchasing volumes.

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Its net profit totalled £2 million, compared to £4.6 million recorded in H1 2013. H&T’s net debt reduced by 52.6% to £13.5 million.

In terms of its operation performance, H&T’s retail sales remained positive, following an upswing in late 2013. In all, its retail sales reached 49.3% in H1 following a shift of focus focus for H&T, which included the opening of its retail-only second hand jewellery brand Est1897, rolled out across 36 H&T sites already existing in the UK. Like-for-like sales increased by 50.0% over the same period.

The group closed four stores in the year and opened one, resulting in 191 trading units at 30 June 2014. In light of the current trading environment a small number of stores are expected to close in the remainder of the year.

H&T Pawnbroking
H&T’s pledge book reduced to £38.5 million (30 June 2013: £48.6m) as a result of the competitive environment, a lower lending rate per gram and a reduction in aged pledge. The business says this reduction was expected and its management believes that the rate of decline has slowed as recent lending has stabilised, at 13 August 2014 the pledge book was £38.3 million.

Its Pawn Service Charge was £14.3m (H1 2013: £14.7m); the interest component of the Pawn Service Charge was £14.0m (H1 2013: £15.0m) which more accurately reflects the underlying performance of the pawnbroking segment than the total Pawn Service Charge. The yield on the pledge book has increased due to the improved ageing profile of the book and the higher average rate of interest.

The business has implemented a range of measures to improve lending volume and quality. These measures include the introduction of its Expert Eye – a system that enables high-definition magnified images of gemstones to be sent from a store to its main jewellery centre where the images are assessed and with telephone support the store is able to make a better loan decision.

H&T says this system has also helped in the identification and valuation of high-quality watches.


H&T Retail

The group says it has improved its retail proposition in H1 2014 with investment in store stock, a revised pricing strategy and selected promotional activity. Gross profit from retail increased 20.9% in H1 2014 versus the prior year.

The Group trialled its Discount Secondhand Jewellery proposition in a small number of underperforming stores during H2 2013 in order to improve returns from these locations. This concept has been refined during 2014 with the development of the Est1897 brand and extended to a total of 36 stores across the store estate.

This retail concept will be supported by a fully transactional website www.est1897.co.uk which will be launched in Q3 2014.

H&T Purchasing
The pawnbroker’s gold purchasing profits declined from £3.8 million in H1 2013 to £1.3 million in H1 2014 as a result of four key factors, namely gold price reductions, the closure of H&T’s GoldBar mall units, competitive pressure and changes to its business mix.

With a view to gold price reduction, H&T reports that the average gold price was £773 per troy ounce during H1 2014 (H1 2013: £987 per troy ounce) a reduction of 21.7% which impacts on the gross profit available on each transaction. The group’s GoldBar mall units contributed £0.6 million of profit in H1 2013 and were closed as volumes decreased during the course of 2013.

Within the wider market, competitive pressure has driven down the margins derived from gold purchasing, falling 24.6% in H1 2013 to 18.3% in H1 2014. Finally, H&T’s changing business mix shows that the increased cost of goods sold through retail means that a higher proportion of profits are realised in the retail segment rather than gold purchasing. Cost of goods sold through retail increased by 67.9% from H1 2013 to H1 2014.

H&T estimates that the weight of fine gold purchased in H&T Pawnbrokers stores fell by 2.1% from H1 2013 to H1 2014, with the trend in fine gold weight being flat since January 2014.

Strategy and Outlook
H&T group states that current trading is in line with management’s expectations for 2014 and we expect the full year results to be in line with market expectations.

Looking ahead, it will launch personal loans, jewellery retail and pawnbroking online in H2 2014 to provide a consistent offering online and in-store and develop this new channel to introduce more customers to its services.

H&T chief executive John Nichols said: “Despite the intense competitive environment and the fall in the gold price, the group has delivered a robust performance for the first half and we expect the full year results to be in line with market expectations.

"Our focus on delivering excellent service in our bright and welcoming stores continues, with strong progress made in the development of personal loans and lending on other asset types. We have dedicated, professional people delivering great service with the right range of products and are well placed to take advantage of the developments we expect in the market.”

To view H&T’s H1 interim results, click here. 

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