Half Yearly Report

23rd Feb 2009 07:00



ALBEMARLE & BOND HOLDINGS PLC

("Albemarle" or the "Company")

INTERIM RESULTS FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2008

Albemarle & Bond is the UK's market leading pawnbroking business with 114 branches across the country providing pawnbroking, jewellery retailing and associated financial services. The Company is today pleased to announce its Interim results for the 6 months to 31 December 2008.

Building on 16 years of consecutive growth

As at 31 December 2008 the pawn loan book stood at £27.0 million an increase of 18% (31 December 2007: £22.9 million)

19% rise in profit before tax to £6.2million (2007: £5.2 million)

14% improvement in adjusted EPS* to 8.17p (2007: 7.16p)

12.5% increase in interim dividend to 2.25p (2007: 2.0p)

Interest cover of 6.6x

*Basic excluding amortisation of an intangible asset

Operational highlights

Favourable market conditions 

Continued successful integration of Herbert Brown including the remodeling of a further two stores, previously Albemarle & Bond branded

Increase in the availability and affordability of retail space leading to an increase in store expansion programme

Commenting on the results, Charles Nicolson, Chairman said, "This was a good trading performance positioning the Company to deliver a strong result for the full year. Reduced activity from mainstream lenders and strong gold prices combined to make this another favourable environment, with trading further enhanced by the continued excellent performance from Herbert Brown, the UK's third largest pawnbroker, acquired in July 2007. Whilst income from financial services was reduced in the face of more difficult trading conditions, the Board is confident in the Group's trading outlook and is recommending an increased dividend for this first six month period."

Enquiries:

Greville Nicholls Chief Executive	Albemarle & Bond Holdings plc	0118 955 8100
David Pattinson Finance Director
Nick Reeve David Abbott	Smith & Williamson Corporate Finance Limited	0117 376 2213
Tim Robertson Shan Shan Willenbrock Catherine Maitland	Cardew Group	020 7930 0777

To access more information on the company please visit: www.albemarlebond.com

Chairman's Statement

I am pleased to be able to report a strong performance for the 6 month period to 31 December 2008. A combination of positive market conditions and the continued successful integration of Herbert Brown has led to profit before tax increasing by 19% to £6.2m and pawn loans growing by 18% to £27.0 million. 

The number of customers using pawnbroking services increased and higher gold prices enabled the Group to increase loan sizes per pledge and to benefit from higher scrap prices. Profits from the sale of new jewellery increased slightly, however, retail market conditions are difficult and are not expected to improve in the short term. The worsening economic climate which forced the Group to tighten lending criteria in order to maintain historical default rates reduced the contribution from Speedloan. Cheque Cashing, for which the construction industry is an important constituent, also suffered and the overall contribution from financial services was down. However, these factors were more than offset by the very strong performance from pawnbroking and the business remains in an excellent position to deliver continued growth.

Albemarle has now entered its seventeenth year of uninterrupted growth, during which time the mainstream banking sector has become increasingly automated and inflexible, creating demand for more personalised, flexible and transparent lending services as offered by Albemarle. Individual stores continue to grow organically over many years driven by repeat custom from a long-term customer base. The Group therefore places significant emphasis on staff training aimed at providing an environment to which customers are comfortable making repeat visits. For the majority of customers, who borrow an average of £120 per pledge and repay within 3 months, Albemarle offers a reliable pawnbroking service which does not affect customer credit ratings and is free from penalties such as early repayment and extension charges.

Financial Performance

The principal growth driver for the business is the pawn loan book which grew by 18% to £27.0 million (2007: £22.9 million), resulting in gross profit growing by 11% to £20.1 million, of which 76% was derived from pawnbroking and sales of ex pawn jewellery. Financial services contributed 17% to gross profit compared with 23% in the previous year reflecting the more difficult economic conditions which resulted in the management decision last year to tighten underwriting terms. 

The Company remains in a strong financial position; net debt is £37.9m with interest cover at a conservative 6.6x. The Company's loan facilities, which were renegotiated in 2008, have a further 3.5 years to run and are sufficient to support the Company achieving its current commercial objectives. In September 2007 the Company partially hedged scrap gold prices through to June 2011 in order to lock in the then record value of gold. Since that date gold prices have been above the strike price. During the six months Albemarle has benefited from higher gold prices but as a result of the hedge contract has surrendered £0.46 million of the gain.

This positive performance by the Company led to adjusted earnings per share increasing by 14% to 8.17p (2007: 7.16p).

Dividend

Demonstrating the Board's confidence in the future, it is pleased to propose an increased interim dividend of 2.25p (2007: 2.00p). This represents an increase of 12.5% compared to the same period last year.

Operations

During the six months under review our strategy has been to continue to focus on organic growth across the store portfolio; further integration of Herbert Brown business with particular emphasis on growing its pawn loan book and financial services offering; and pursuing opportunities to exploit new markets through new branch openings. 

Pawnbroking

Focusing on high value low bulk items, the Company's pawn broking business provides pawn loans secured against jewellery only. Pawnbroking is the largest part and the key driver for our business, and we are pleased to report that the pawn loan book stood at £27 million as at 31 December 2008, an 18% increase up from £22.9 million as at 31 December 2007. Within this total, Herbert Brown's pawn loan book increased to £7.2m, an increase of 33% (2007: £5.4m), reflecting the benefits of the recent integration.

Pawnbroking income and income derived from the sales of ex pawn jewellery grew by 22% to £15.7 million driven by the increase in demand from new and existing clients and better scrapping prices. Sales of ex pawn stock were 3% lower but the retail margin was 5% up as less discounting of old stock was necessary because of the higher price of gold. Pawnbroking contributed 76% of gross profit compared with 69% in the same period last year.

New Jewellery Retailing

Through the acquisition of Herbert Brown the Company's expertise in jewellery retailing has expanded, due to the greater retail focus of Herbert Brown stores. With the gross margin improving to 50%, primarily from improved buying, the Company recorded an increase in profits from the sale of new jewellery to £1.46 million (2007: £1.39 million) despite sales reducing by 6% to £2.9 million (2007: £3.1 million).

Financial Services

In worsening economic conditions Albemarle took the decision last year to increase underwriting in its unsecured Speedloan and Pay Day Advances sectors. This has resulted in fewer 'Speedloans' being approved and older less profitable loans have eroded margins. Pay Day Advances have broadly maintained their margin on slightly lower volumes. Cheque Cashing is a product which we believe will continue to decline over several years with the increased use of alternative methods of payment. This trend was accelerated in recent months due to the reduction in casual labour in the construction industry. 

A key part of the integration strategy of Herbert Brown was to increase net income from financial services and during the period Herbert Brown stores contributed £0.50 million to net income compared to £0.34 million in the previous period.  Despite the increased contribution from Herbert Brown overall net income from financial services was £3.4 million (2007: £4.1 million). While the trading performance from this division has been impacted in this half, financial services will continue to be an important contributor to group profitability and Speedloan's contribution should improve in the second half as older less profitable loans run out and are replaced by better quality loans. 

Store Portfolio

The Company has always focused on pursuing opportunities to expand into new geographic areas both organically and through acquisition. For some time there has been substantial scope to expand the business across the UK, and the challenge historically has been the lack of available retail space that meets our investment criteria in terms of location, size, and rent. This is now changing following the impact of the economic environment on the property and retail sectors, leading to more space becoming available at more attractive rates. Consequently, the Company believes it can now step up the number of store openings to take advantage of this market opportunity. 

At the period end, the company operated a portfolio of 114 stores of which 84 were Albemarle & Bond stores and 30 were Herbert Brown. In August 2008, the Company acquired the trade and assets of a well established independent pawnbroker in Rhyl, North Wales. A greenfield site in Tooting was opened as an Albemarle & Bond store in early November. The new store is located in Tooting high street and has made a positive start benefiting from high levels of passing trade in this busy residential area. Since the half-year end, the Company acquired a store in Bermondsey which is currently being integrated into the Group. 

Since the successful acquisition of Herbert Brown in July 2007, the Company has been focused on integrating the enlarged portfolio of stores and remodeling selected stores to maximise their potential based on the management's view as to whether a store would prosper more under either the Albemarle & Bond or the Herbert Brown brand. The main difference being that Herbert Brown has a stronger retail presentation and is therefore more suited to a slightly different target market.

Outlook

Demand for small flexible loans remains strong and this is reflected in the Group's performance over the last six months, building on 16 years of uninterrupted growth. Looking ahead, we expect pawnbroking, which represents 76% of group revenues, to continue to benefit from the reduction in mainstream lending. In addition, we believe there is an opportunity to take advantage of the weakening retail environment to increase our new store opening programme as more high street space becomes available at more realistic prices. Since the half year end, trading has been positive and the Board is confident of delivering a strong performance for the full year.

Consolidated Income statement
	6 months ended		6 months ended		Year ended
	31.12.08		31.12.07		30.06.08
	(unaudited)		(unaudited & restated)
	£'000		£'000		£'000
Revenue	26,478		24,917		46,855
Cost of sales	(6,403)		(6,928)		(10,436)
Gross profit	20,075		17,989		36,419
Administrative expenses excluding amortisation	(12,744)		(11,196)		(23,505)
Amortisation of intangible assets	(79)		(365)		(722)
Total administrative expenses	(12,823)		(11,561)		(24,227)
Other operating income	17		25		67
Operating profit	7,269		6,453		12,259
Finance income	6		14		20
Finance costs	(1,102)		(1,269)		(2,536)
Profit before taxation	6,173		5,198		9,743
Tax on profit on ordinary activities	(1,728)		(1,642)		(2,507)
Profit for the period	4,445		3,556		7,236
Earnings per share
Basic	8.17p		6.65p		13.43p
Diluted	8.12p		6.54p		13.24p

Consolidated Balance sheet
	31.12.08		31.12.07		30.06.08
	(unaudited)		(unaudited & restated)
	£'000		£'000		£'000
Non current assets
Goodwill	23,042		22,852		22,876
Other intangible assets	719		895		568
Property, plant and equipment	6,786		6,492		6,567
Deferred taxation	1,287		669		754
Total non current assets	31,834		30,908		30,765
Current assets
Inventories	15,903		14,920		15,060
Trade and other receivables	45,295		41,253		42,444
Cash at bank and in hand	2,929		3,919		2,782
Total current assets	64,127		60,092		60,286
Total assets	95,961		91,000		91,051
Non - current liabilities
Long term borrowings	38,867		37,384		36,826
Finance leases and hire purchase	64		61		48
Derivative financial instruments	4,899		2,197		2,995
Total non current liabilities	43,830		39,642		39,869
Current liabilities
Bank overdrafts	-		84		576
Bank loans	1,916		1,916		1,916
Finance leases and hire purchase	66		99		77
Trade payables	1,027		821		1,519
Current tax liabilities	1,715		2,084		1,484
Accrued liabilities and provisions	264		2,432		1,299
Dividend payable	2,477		1,913		-
Total current liabilities	7,465		9,349		6,871
Total liabilities	51,295		48,991		46,740
Equity
Share capital	2,202		2,187		2,202
Share premium	20,062		19,602		20,062
Capital redemption reserve	1,018		1,018		1,018
Share-based payments reserve	1,106		834		955
Other reserve	(555)		(757)		(1,060)
Hedging reserve	(3,527)		(1,582)		(2,157)
Retained earnings	24,360		20,707		23,291
Total equity	44,666		42,009		44,311
Total equity and liabilities	95,961		91,000		91,051

Consolidated Statement of Cash Flow
		6 months ended		6 months ended		Year ended
		31.12.08		31.12.07		30.06.08
		(unaudited)		(unaudited & restated)
		£'000		£'000		£'000
Cash generated by operating activities		3,174		4,964		8,397
Taxes paid		(1,497)		(1,634)		(1,414)
Net cash inflow from operating activities		1,677		3,330		6,983
Investing activities
Acquisition of subsidiaries (net of cash acquired)		(307)		(24,824)		(24,844)
Purchase of property, plant and equipment		(909)		(1,108)		(1,627)
Purchase of intangible assets		(230)		(30)		(60)
Proceeds from sale of plant and equipment		15		19		55
Net cash outflow in investing activities		(1,431)		(25,943)		(26,476)
Financing activities
Interest paid		(1,150)		(1,197)		(2,474)
Dividends paid to company shareholders		-		-		(3,009)
Exercise of share options less EBT acquisition of shares		(393)		(346)		(667)
Increase in borrowings		3,000		15,130		15,530
Repayment of borrowings		(958)		-		(958)
Repayment of obligations under finance leases		(22)		(57)		(116)
Net proceeds from issue of shares		-		11,791		12,266
Net cash inflow from financing		477		25,321		20,572
Net increase in cash and cash equivalents		723		2,708		1,079
Summary of cash and cash equivalents
Cash at bank and in hand		2,929		3,919		2,782
Bank overdrafts		-		(84)		(576)
Cash and cash equivalents		2,929		3,835		2,206

Notes
1	The figures for the six months ended 31 December 2008 and 31 December 2007 are unaudited and do not constitute statutory accounts. The interim results have been prepared using accounting policies which are consistent with International Financial Reporting Standards as adopted by the European Union.
2	A copy of this accouncement is being sent to shareholders and is available at the company's registered office.
3	Earnings per share have been calculated based on the profit after tax and the weighted average number of shares in issue during the half year ended 31 December 2008 of 54,400,220 (31 December 2007 - 53,503,358; 30 June 2008 - 53,870,936). The diluted earnings per share also include weighted average unexercised share options at 31 December 2008 of 326,290 (31 December 2007 - 898,174; 30 June 2008 - 771,640).
4	Taxation is based on the unaudited results and provision has been estimated at the rate applicable to the company at the time of this statement.
5	Dividends approved on 18 September 2008 were paid on 28 January 2009. Interim dividends of 2.25p per share (2007: 2.00p per share) will be paid on 26 May 2009 to members on the register at 24 April 2009. This dividend has not been included within the results for the six months to 31 December 2008.
6	The Directors have elected not to apply IAS 34 Interim financial reporting.
7	The interim report is prepared on the basis of the accounting policies set out in the most recent set of annual financial statements.

Five Year Half-Yearly Analysis
	IFRS				UK GAAP
	6 months ended		6 months ended		6 months ended		6 months ended		6 months ended
	31.12.08		31.12.07		31.12.06		31.12.05		31.12.04
	£'000		£'000		£'000		£'000		£'000
Revenue	26,478		24,917		17,237		14,930		12,696
Cost of sales	(6,403)		(6,928)		(4,866)		(4,630)		(3,883)
Gross profit	20,075		17,989		12,371		10,300		8,813
Administrative expenses	(12,806)		(11,536)		(7,907)		(6,536)		(5,499)
Interest payable and similar charges	(1,096)		(1,255)		(536)		(423)		(328)
Profit before tax	6,173		5,198		3,928		3,341		2,986
Earnings per share
- basic	8.17p		6.65p		5.87p		5.10p		4.53p
- diluted	8.12p		6.54p		5.72p		4.96p		4.41p
Dividend per share	2.25p		2.00p		1.75p		1.50p		1.35p
Adjustments from UK GAAP to IFRS in the years 2004 to 2006 would be similar in nature to those disclosed in 2007 and 2008 as set out in note 37 of the previous year end accounts.

Dated: 23 February 2009

ENDIR PUURAPUPBGQU

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