Pawnbroker describes tough start to year; pledgebook hits £48.6m.
Pawnbroker H&T Group has described a tough start to 2013 today, having released its interim figures for the six months ending June 30.
The company, which operates more than 190 stores in the UK, has reported a 2.9% fall in profit before tax to £4.6 million, down from the £7.5m recorded in H1 2012.
It has linked the fall in profit to increased competition in the pawnbroking field, a reduced gold price and increased regulation; stating that both pawnbrokers and the wider high street alternative credit industry now face tougher market conditions.
H&T’s pledge book increased by 3.9% to £48.6m, up from £46.8m in H1 last year, and its pawn service charge increased by £1m to £14.8m. It has also refinanced the business, securing a four year £50m facility with Lloyds TSB Bank plc in January 2013.
H&T Group chief executive John Nichols said: “Trading conditions have been difficult for the group in the first half of 2013. The competitive environment, reduced volumes of gold in circulation and regulatory pressures have all impacted financial performance with the group recording profit before tax of £4.6m in H1 2013.
"Trading in Q2 has been particularly tough following a 25% reduction in the sterling gold price leading to significantly reduced disposition profits and a reduction in lending as the group revises its lending rates accordingly. Responding to the competitive environment, the group has also launched new initiatives which weaken short term profitability but with the goal of improving long term customer retention. The decision to reduce new payday loan applications has also impacted Q2 profitability."
In terms of its operational highlights, H&T has opened four greenfield sites and acquired three stores in H1 2013, taking the total store estate to 193 as at June 30 2013. The company has also launched a foreign exchange service as an additional product offering across the store estate
H&T has also reintroduced a paydown service for pawnbroking, something it says has improved customer affordability and improved redemption rates
Nichols added: "With continued investment in its people and stores our group remains strong operationally. Aimed at increasing ancillary revenues but more importantly at driving footfall to the stores, we have launched several new initiatives in H1 13 to ensure the group is best positioned for longer term success. Foreign exchange is now offered across the estate, a new Sona Loans store and brand focuses on the asset rich Asian community, and a buy-back service on high end electronics has been rolled out to several trial stores.”
H&T Group’s gross profits in H1 2013 fell to £26.9m, down from H1 2012’s total of £30.6m, predominantly as a result of a lower gold price reducing pawnbroking scrap revenues and lower gold purchasing volumes.
The group’s pawn service charge increased to £14.8m and its pawnbroking operations, comprising pawn service charge, pawnbroking scrap and retail, now account for 77% of gross profits, up on H1 2012.
The group’s operating expenses have reduced from £22.5m in H1 12 to £21.9m in H1 13 as reduced staffing costs have more than offset the costs of the increased store footprint.
H&T’s pawnbroking scrap profits of £1.9m have fallen considerably year on year from the £3.8m recorded in H1 2012, as a combination of increased lending rates in 2012 and the recent fall in the sterling gold price have impacted margins.
A key focus for the group in H2 2013 is to increase the overall redemption rate and to improve its wholesale and retail disposition routes so as to minimise exposure to potential adverse movements in the gold price. In response to falling customer numbers at the group’s larger and more competed stores, focus continues on our product and service offerings in order to attract new customers to the core pawnbroking service.
With a view to the company’s retail results, retail sales fell by 2.6% to £8.9m in H1 2012, down from the £9.1m reported in H1 2012. On a like-for-like basis its retail sales fell 12% year-on-year.
H&T’s retail gross profits decreased to £4.0m as an increased average loan on forfeited pledges reduced the group’s disposition margins.
The company says it continues to invest in its retail operations via staff training, store refurbishments and maintaining appropriate stock levels. It stated that retail remains important to the long term success of H&T acting both as an attractor to pawnbroking customers and as a hedge in the event of a falling gold price.
H&T’s gold purchasing profits fell 32% year on year both as a result of declining volumes as anticipated and a falling gold price. Gold purchasing profits in H1 2013 contributed £3.8m, or 14.0%, of gross profits compared to H1 2012 when the contributing figure stood at £5.5m, or 18.0%.
The H&T board says it has "always anticipated a reduction in gold purchasing profits", and in all investment proposals – whether acquisitions or new stores – an assumption has been made for a 50% fall in gold purchasing profits in both years one and two.
Looking ahead, H&T says current trading conditions remain difficult. In response to the competitive conditions, the company is in the process of undertaking initiatives that impact short term profitability for the benefit of longer term customer retention. Partly as a result of this the group anticipates that its pledge book is likely to show a small decrease for the remainder of 2013.
Combined with lower than expected disposition profits from both scrap and purchasing segments, the group states that profit before tax for H2 2013 is likely to be "materially below that achieved in H1 2013".
A statement from H&T said: "In an environment of increased competition, regulatory pressures and lower gold purchasing volumes, the dynamics of the high-street alternative credit market are changing. In the last five years, operators have dramatically expanded footprints under the separately identifiable business models of cheque cashing, pawnbroking and buy-back. As a result of this increased competition and other market pressures, a diluted customer and asset base has encouraged the beginnings of a cross over in business models. It is likely, in the board’s view, therefore that a degree of consolidation or rationalisation may follow in the medium term.
"The board will continue to review the group’s cost base, leverage and product portfolio in Q3. In the short term, the group continues to focus on its core pawnbroking business. By maintaining standards, ethics and most importantly continuing to invest in our people and customers, the group has excellent foundations for long term success. The focus continues to be on attracting new customers and H2 2013 will see the group seek to expand its secured lending by widening the asset base, as well as improving disposition values and launching a revised unsecured product".