Preliminary Results

RNS Number : 5208S

H&T Group PLC

12 March 2019

 

H&T Group Plc

Preliminary Results

For the year ended 31 December 2018

H&T Group ("H&T" or the "Group") today announces its preliminary results for the year ended

31 December 2018.

John Nichols, Chief Executive of H&T Group, said: 

"Against a challenging background we have produced a strong year's trading performance.

"Development of our digital strategy, which is focused on complementing our store estate, has been an important feature along with investments in improving our customer experience and partnerships.

"As a result, we saw significant growth in our secured pawnbroking lending, largely driven by increased customer numbers. We also saw good growth in our unsecured lending with many more customers qualifying for our lower cost loans, and where our focus primarily is now aimed at further leveraging our store estate.

"In retail we saw growth as we expanded our new jewellery range and the development of click-and-collect online sales. Click-and-collect also supported growth in our foreign exchange business.

"The Group's performance over the past three years demonstrates the continuing success of our strategy to access more customers and markets. Demand for our products remains strong and with further improvements to our delivery capability underway, we look forward to the future with confidence."

Financial highlights (£m unless stated)	2018		2017 (Restated* for IFRS9)		Change %
Gross profit	88.2		78.1		12.9%
EBITDA (note 7)	16.8		15.1		11.3%
Profit before tax	13.5		11.9		13.4%
Diluted earnings per share	29.2p		25.9p		12.7%
Dividend per share	11.0p		10.5p		4.8%

Key performance indicators	2018		2017 (Restated* for IFRS9)		Change %
Pledge book	£52.0m		£47.5m		9.5%
Redemption of annual lending **	83.5%		83.6%		(0.1%)
Retail gross profits	£13.2m		£12.9m		2.3%
Net personal loan book	£20.5m		£14.9m		37.6%
Personal loan revenue less impairment	£7.0m		£3.9m		79.5%
Number of stores	182		181		0.6%

*Certain comparative information in the financial statements has been restated as a result of the initial application of IFRS 9 as discussed in note 9.

** This is the actual percentage of lending in each year which was redeemed or renewed, the 2018 figure is an estimate based on recent trend and early performance.

Operational highlights:

·     Pledge book increased 9.5% to £52.0m (2017: £47.5m)

·     Number of Appointed Introducers and lending on high-value watches for pawnbroking both increased

·     Personal loans grew with the net loan book increasing 37.6% from £14.9m to £20.5m

·     The retail jewellery business continued momentum from 2017 with gross profits increasing by 2.3% from £12.9m to £13.2m

·     Traffic to the est1897.co.uk retail website has increased with higher volumes both of basket sales and click-and-collect store fulfilled sales

·     Strong growth from foreign currency offering, with gross profit increasing by 24.1% from £2.9m to £3.6m. 

Enquiries:

H&T Group plc 

Tel: [phone]
John Nichols, Chief Executive
Richard Withers, Interim Finance Director

Numis Securities (Broker and Nominated Adviser)

Tel: [phone]

Luke Bordewich, Nominated Adviser

Mark Lander, Corporate Broking

Haggie Partners (Public Relations)

Tel: [phone]

Damian Beeley

Sarah Shephard

Chairman's Statement

The Group has achieved growth in revenues from our core services of pawnbroking, retail and personal loans.  We have improved store profitability and have also made further progress in the development of our online channel, although there is still considerable work to do.

Our est1897.co.uk site for watches is a great example of how we can successfully use the internet for retailing backed up by our store network. The opportunity to build on this concept for our core services is clear and will be a key part of our future strategy.

These activities have repositioned the business within the wider alternative credit market and have allowed the Group to access a broader customer base.  The Board ensures that this growth is carefully managed with a clear focus on the changing risks, both regulatory and financial, that this product and channel diversification brings.

The growth in retail, FX and buyback also provide a degree of resilience to changes in the pawnbroking and lending marketplace.

FINANCIAL PERFORMANCE                               

The Group delivered profit after tax of £10.8m (2017: £9.5m) and diluted earnings per share of 29.2 pence (2017: 25.9 pence). Subject to shareholder approval, a final dividend of 6.6 pence per ordinary share (2017: 6.2 pence) will be paid on 31 May 2019 to those shareholders on the register at the close of business on 3 May 2019. This will bring the full year dividend to 11.0 pence per ordinary share (2017: 10.5 pence).

The Group's financial position is strong with growth in the combined personal loan and pawnbroking loan books to £72.5m (31 December 2017: £62.4m). The growth in these loan books has been funded through strong operating cashflows, with net debt increasing by just £0.3m to £13.6m at 31 December 2018 (31 December 2017: £13.3m). 

At year end the Group had available headroom of £10.0m on its £35.0m borrowing facilities (31 December 2017: £8.0m headroom on its £30.0m facility). 

STRATEGY

The demand for small-sum, short-term cash loans remains strong.  The Group continues to focus on strategies to grow its pawnbroking offering while expanding its unsecured lending product and retail offering through digital and online strategies to complement its store estate. 

We will continue to work towards our vision of helping our customers to protect and rebuild their credit history by expanding the proportion of them on products that falls outside high cost short-term lending. We will achieve this by continuing to focus on operational effectiveness aligned with the training, development and progression of our valuable staff.

We believe that our network of stores supports this development, whether through click-and-collect from the est1897 website or by providing a face-to-face underwriting decision for customers we cannot serve with an online loan. This real-world presence supported by an effective online and mobile proposition creates an important distinction between H&T and a purely online business.

In developing our Personal Loan product, we have a clear objective to provide our customers with a route to lower interest rate credit products as their relationship with H&T develops. We believe that this progression is beneficial to the customer, builds loyalty and meets the high standards required in this regulated marketplace.

REGULATION

We are focused on meeting the needs of our customers by ensuring that we carefully assess creditworthiness and affordability, and provide loans that achieve the best outcomes for our customers.

We engage proactively with the Financial Conduct Authority (FCA) directly and through our trade associations and fully support the high standards the regulator seeks to deliver. 

PROSPECTS

The Board has regularly monitored the uncertainty surrounding Brexit during the year and we continue to evaluate the potential impacts on our staff, customers and suppliers, of various possible outcomes. We do have some EEA Nationals within our workforce, but we believe the potential impact of even unfavourable Brexit scenarios is likely to be limited. No product supply issues are foreseen.

While the macro economic impact is uncertain we believe our range of products is well positioned to take advantage of any eventuality. In the case of negative economic factors accompanying an unfavourable Brexit outcome a possible stabiliser exists if it is accompanied by weakness in sterling. Were this scenario to occur it would result in a higher sterling gold price which should provide an offsetting uplift to Group profits. The business has traded positively during the recent period of heightened uncertainty. Demand for our services remains strong and the development in our products and distribution enables us to capture a larger share of the significant alternative credit market.

Our thoughtful approach to growth reflects our intention to provide our consumers with a service that maintains the highest standards of affordability and seeks to avoid any consumer detriment.  

We have taken steps during the year to provide cover for our Finance Director Steve Fenerty, who is recovering from illness. We thank Richard Withers for his interim and ongoing support in this regard. Our thanks go to Malcolm Berryman, who has retired as a non-executive director for his excellent work on behalf of H&T and we wish him every success. We welcome Elaine Draper and Mark Smith to the board as non-executive-directors.

On behalf of the Board and our shareholders, I would like to thank everyone at H&T for their hard work and dedication over the past year.

Peter D McNamara

Chairman

Chief Executive's review

INTRODUCTION

The Group has produced a strong trading performance and has continued to make good progress in its strategic development.  Our intention is to get the best possible result from our core operations, develop a range of additional credit products and expand the online channel. We have delivered against all of those objectives in the past year.

The Group delivered profit before tax of £13.5m (2017: £11.9m) due to improved gross profits in the key segments of pawnbroking, retail and personal loans. 

THE MARKET

During 2018 despite uncertainties elsewhere we experienced relative stability in terms of external factors impacting our business, with a stable gold price and general UK economic stability. This has allowed us to continue to refine our propositions and expand our customer base. 

There remains a significant consumer requirement for carefully assessing the affordability of loans, together with offering a flexible product range.

OUR STRATEGY

The Group's strategy is to serve a customer base whose access to mainstream credit is limited and for whom small-sum loans can help to address short-term financial challenges. The Group will continue to deliver this strategy by developing a range of lending products, both secured and unsecured, offered in store and online. In expanding our credit products we aim to genuinely help our customers and have updated our vision statement to reinforce that vital message within the business.

Our Vision: "H&T will be the premier provider of alternative credit in the UK through a range of services that help our customers protect and rebuild their credit rating and return to the mainstream."

The development of a diversified suite of services including retail, buyback and FX, improves returns and reduces the Group's exposure to gold price volatility.

We continue to innovate and explore how to interact most effectively with our customers through the development of introducer channels, our online capability and our brand. This development is supported by our stores that provide our online customers with the opportunity to speak to a trained member of staff face to face or to collect an item that they reserved online.

REVIEW OF OPERATIONS

Pawnbroking

Pawnbroking is a small subset of the consumer credit market in the UK and a simple form of asset-backed lending where an item of value, known as a pledge (typically jewellery and watches), is given in exchange for a cash loan. Customers who repay the capital sum borrowed plus interest receive their pledged item back. If a customer fails to repay the loan we sell (retail, auction or scrap) the pledged

item in order to repay the amount borrowed plus interest. Should there be a surplus resulting from this process, the customer is paid that amount in full.

Pawnbroking is our core business, we are the largest UK pawnbroker in terms of number of outlets, customers and amounts lent. It is the key focus area for the business and where we invest most resource in terms of training and development. Yields are attractive, and the debt is always secured on the item pledged.

Gross profits from pawnbroking increased 5.5% to £30.9m (2017: £29.3m) and the pledge book increased 9.5% to £52.0m (31 December 2017: £47.5m) because of increased customer numbers and growth in higher value loans, in particular lending on higher carat gold and watches. We have seen increased lending through both our owned store estate and through our Appointed Introducer Relationships (brokerage arrangements).

The risk-adjusted margin (revenue as a percentage of the average net pledge book) was 62.2% (2017: 64.2%). The reduction in risk-adjusted margin is a result of the changing business mix to higher value, lower interest rate loans. Redemption of annual lending has remained consistently high at an estimated 83.5% for lending in 2018 (2017 actual: 83.6%).

The Group has benefitted from the expertise provided by the Expert Eye service, recently upgraded to Unity. This allows high quality images of assets in store to be assessed by our team of experts which in turn improves both the quality of decisions made and extends the range of assets on which we can lend. This has assisted the development of lending secured on watches and diamonds during the year.

The Group is investing in software to assist the management of customer enquiries in respect of pawnbroking as well as the acquisition of new partners to introduce customers to the business. This investment will allow an expansion to the broker and online channels in respect of pawnbroking during 2019.

Pawnbroking summary:

		Restated* for IFRS 9
	2018	2017	Change
	£'000	£'000	%
Year-end pledge book1	51,991	47,451	9.6%
Estimated average pledge book	49,721	45,637	8.9%
Revenue less impairment	30,912	29,299	5.5%
Annualised Risk-adjusted margin2	62.2%	64.2%
Notes to table
1 - Includes accrued interest and impairment
2 - Revenue less impairment as a percentage of average loan book

*Certain comparative information in the financial statements has been restated as a result of the initial application of IFRS 9 as discussed in note 9.

Retail

The Group offers a value for money proposition in new and second-hand jewellery. We believe there is further growth potential in this segment by leveraging our retail store estate and our e-commerce operations as well as by cross-selling to customers of other services.

Retail sales increased 8.5% to £38.3m (2017: £35.4m), gross profits increased 2.3% to £13.2m (2017: £12.9m) and margin reduced to 34.4% (2017: 36.3%). Margin reduction was due to a higher proportion of new items sold in 2018 as opposed to pre-owned, more lower margin watches sold and discounting on aged jewellery and watches during 2018.  

The Group has reduced retail inventories during the year with average monthly balances being £1.7m, 5% lower during 2018 than 2017. The stock reduction has been primarily targeted around the reduction of aged items, which has been achieved by implementing targeted promotional activity and discounts during the year.

It is pleasing that the development of both our www.handt.co.uk and www.est1897.co.uk websites has led to a 238% increase in generated revenues over the year with revenue growing to £2.7m (2017: £0.8m).  The development of our on-line to store customer journey has resulted in 85% of the on-line generated items sold being fulfilled in-store.  These are generally higher value watches and jewellery, while opportunity exists to further develop our basket sales. 

Further website improvements are planned for our est1897 website, which currently holds more than 2,000 high-end pre-owned watches and jewellery items, and to our Customer Relationship Management system.  The intention is to include a larger range of items on our site and drive a higher proportion of basket fulfilled sales as opposed to in-store fulfilment. CRM enhancements are intended to improve the online to in-store experience and conversion rates.

Personal loans

The net personal loans book has increased by 37.6% to £20.5m (31 December 2017: £14.9m). Revenue less impairment is an important measure of the performance of personal loans as it represents the net profit derived directly from our lending activities. Revenue less impairment has increased by 79.5% to £7.0m (2017: £3.9m) because of increased customer numbers and the expansion in our longer term, lower interest rate loan product, delivered through our store estate.

The increase in the risk-adjusted margin (RAM) to 38.5% (2017: 35.8%) is the result of a slowdown in the growth of the book and therefore a lower proportion of the lending to new customers compared with 2017. Existing and repeat customers have a different risk profile.  We have proportionally more repeat customers in 2018 than we had in 2017. 

Impairment as a percentage of the average monthly net loan book has improved to 68.9% (2017: 75.0%), reflecting the increased mix of lower yield, higher quality loans.

In line with the strategy of providing larger loans over longer terms at a lower interest rate, our 49.9% APR product launched in May 2017 now represents £1.2m of the book as at 31 December 2018. This product is designed to provide a "near prime" option for our best customers. Because of these initiatives 59% of the personal loans loan book is now non-High-Cost-Short-Term (HCSTC).

New customer lending of £38.0m was made through our stores during 2018 vs £3.0m lent via our online channel. 

Personal loans summary:		Restated * for IFRS 9
	2018	2017	Change
	£m	£m	%
Year-end net loan book	20.5	14.9	37.6%
Average monthly net loan book	18.2	10.9	67.0%
Revenue	22.5	15.6	44.2%
Impairment	(15.5)	(11.7)	32.5%
Revenue less impairment	7.0	3.9	79.5%
Interest yield1	123.6%	143.1%
Impairment % of revenue	68.9%	75.0%
Impairment % of average monthly net loan book	85.2%	107.3%
Risk-adjusted margin2	38.5%	35.8%
Notes to table
1 - Revenue as a percentage of average loan book
2 - Revenue less impairment as a percentage of average loan book

*Certain comparative information in the financial statements has been restated as a result of the initial application of IFRS 9 as discussed in note 9.

Pawnbroking scrap

The average gold price during 2018 was £950 per troy ounce (2017: £976), a 2.7% decrease. The gold price directly impacts the revenue received on the sales of scrapped gold.

Gross profits reduced by 26.3% to £1.4m (2017: £1.9m), primarily due to a fall in gold price between the date the items were pledged and the date that they were scrapped.

Gold purchasing

Gross profits increased to £3.8m (2017: £3.4m) due to an increase in volume sold.

Other services

Other services principally comprise FX, buyback and cheque cashing. Gross profits from other services increased to £6.1m (2017: £5.9m).

The key growth components of FX and buyback improved in the year with gross profits from FX increasing to £3.6m (2017: £2.9m) and buyback increasing to £1.6m (2017: £0.9m). 

FX is a simple transactional product which attracts a new customer base to the business. During the year we have made improvements to currency holdings in store, offering a wider choice, and have enhanced our point of sale materials including the introduction of improved digital rate boards. We further expanded our FX customer catchment by introducing FX click and collect to our website.

Buyback enables the Group to service a customer base who may not have appropriate assets for a pawnbroking loan. The principal assets purchased are mobile phones, tablets and games consoles. During the year we invested further in system development to support the valuation and testing of the items in store. 

I would also like to add my great thanks to those of the Chairman, in recognising all our people whose skills, commitment and enthusiasm continue to drive our success, and who give us confidence in the future.

John G Nichols

Chief Executive

Finance review

FINANCIAL RESULTS

For the year ended 31 December 2018 gross profit increased 12.9% from £78.1m (restated for IFRS 9) to £88.2m driven by growth in the core segments of pawnbroking, retail and personal loans.

Total direct and administrative expenses increased by 12.5% to £73.9m from £65.7m. Of the £8.2m increase, £5.0m relates to increased impairment charges because of growth in the pawnbroking and personal loan books. The £3.2m, 7.2% increase in costs (excluding impairment) to £48.0m from £44.8m is principally a result of investment in staff to support business volumes in personal loans and new initiatives. The Board considers the continued investment in people and systems to be vital in repositioning the business to take advantage of the market conditions.

Finance costs increased 33% to £0.8m (2017: £0.6m), reflecting the higher utilisation of the Group external loan facility during 2018 following expansion in the pawnbroking and personal loan books.

Profit before tax increased by £1.6m to £13.5m, up 13.4% from £11.9m (restated for IFRS 9) in 2017.

CASH FLOW

The growth in profit for the year resulted in an increase in operating cash flows (before movements in working capital) of 12.7% to £16.9m (2017: £15.0m). 

The Group accelerated the growth in its pawnbroking secured lending and reduced the rate of growth in personal loans during 2018 resulting in an increase in receivables of £9.9m in the year (2017: £12.0m).  The retail inventory reduction of £4.9m and increased profits more than offset this growth, resulting in a cash inflow from operating activities of £5.9m (2017: outflow of £3.5m).

BALANCE SHEET

As at 31 December 2018, the Group had net assets of £107.0m (2017: £99.7m restated for IFRS 9) with year-end net debt of £13.6m (2017: £13.3m) delivering a reduction in gearing to 12.7% (2017: 13.3%).

The Group has a facility with Lloyds Bank plc allowing for maximum borrowings of £35.0m, subject to covenants, at a margin of between 1.75% and 2.75% above LIBOR. At year end £25.0m was drawn on the facility (2017: £22.0m) and the Group was well within the covenants with a net debt to EBITDA ratio of 0.72x and an EBITDA to interest ratio of 28.86 (see note 7 for the definition of EBITDA). The facility has a termination date of 30 April 2020.

The combination of low gearing and a secure long-term credit facility provides the Group with the ability to make selective investments in the future while maintaining appropriate headroom.

IFRS 9

IFRS 9 Financial Instruments was adopted for our 2018 financial results with 2017 comparatives restated. Under the new standard we reflect expected credit losses, as opposed to only incurred credit losses

under IAS 39. Under the impairment approach in IFRS 9, it is not necessary for a credit event to have occurred before credit losses are recognised. Under IFRS 9 there is an increase in both revenue and impairment for Pawnbroking and Personal Loans. The net impact of the change from IAS 39 to IFRS 9 provision on 2018 results has been to decrease revenue less impairment by £1.3m for Personal Loans and by £0.1m in relation to Pawnbroking. See note 9 for further details.

IFRS 15

IFRS 15 Revenue from Contracts and Customers was applied in 2018. Apart from providing more extensive disclosures for the Group's revenue transactions, application of IFRS 15 has not had an impact on the financial position and/or financial performance of the Group. See note 10 for further details.   

IFRS 16

IFRS 16 is a new standard on lease accounting which will be effective from 1 January 2019. The standard requires the recognition of significant leases on the balance sheet, increasing both the asset and liability and changes the nature of costs on the income statement, with a positive impact on EBITDA. The overall impact on the Group's Statement of Comprehensive Income for 2018 is likely to be favourable by £0.3m. See note 11 for further details.

ACQUISITIONS AND DISPOSALS

The Group acquired a single site pawnbroking business net of acquired cash for £0.6m during the year. Net assets were acquired at fair value.  No disposals of stores or loan books took place during the year.

IMPAIRMENT REVIEW

The Group performs an annual review of the expected earnings of each acquired store and considers whether the associated goodwill and other property, plant and equipment are impaired. There was no impairment charge during 2018 (2017: £nil).

SHARE PRICE AND EPS

At 31 December 2018, the share price was 264p (2017: 335p) and market capitalisation was £99.4m (2017: £124.6m). Basic earnings per share were 29.3p (2017: 26.0p), diluted earnings per share were 29.2p (2017: 25.9p).

James Thornton

Senior Independent Director and Chair of Audit Committee

Group statement of comprehensive income

For the year ended 31 December 2018

Continuing operations:	Note		2018 £'000	2017 (Restated*) £'000
Revenue	2		143,025	124,697
Cost of sales			(54,781)	(46,567)
Gross profit	2		88,244	78,130
Other direct expenses			(60,674)	(53,440)
Administrative expenses			(13,272)	(12,234)
Operating profit			14,298	12,456
Investment revenues			3	-
Finance costs			(767)	(567)
Profit before taxation			13,534	11,889
Tax charge on profit	4		(2,705)	(2,396)
Profit for the financial year and total comprehensive income			10,829	9,493
Earnings per share from continuing operations			2018 Pence	2017 Pence
Basic	5		29.35	26.02
Diluted	5		29.25	25.91

All profit for the year is attributable to equity shareholders.

*Certain comparative information has been restated because of the initial application of IFRS 9 as discussed in note 9

Group statement of changes in equity For the year ended 31 December 2018
				Share capital £'000	Share premium account £'000	Employee Benefit  Trust shares  reserve £'000	Retained earnings £'000	Total £'000
At 1 January 2017				1,852	25,754	(35)	71,276	98,847
IFRS 9 Restatement				-	-	-	(6,078)	(6,078)
Profit for the year*				-	-	-	9,493	9,493
Total comprehensive income				-	-	-	9,493	9,493
Share capital				20	887	-	-	907
Share option movement				-	-	-	96	96
Dividends paid				-	-	-	(3,564)	(3,564)
At 31 December 2017				1,872	26,641	(35)	71,223	99,701
At 1 January 2018				1,872	26,641	(35)	71,223	99,701
Profit for the year				-	-	-	10,829	10,829
Total comprehensive income				-	-	-	10,829	10,829
Issue of share capital				11	511	-	-	522
Share option movement				-	-	-	(72)	(72)
Dividends				-	-	-	(3,986)	(3,986)
At 31 December 2018				1,883	27,152	(35)	77,994	106,994

* Certain comparative information has been restated as a result of the initial application of IFRS 9 as discussed in note 9.

Group balance sheet As at 31 December 2018
			31 December 2018 £'000		31 December 2017 (Restated*) £'000
Non-current assets
Goodwill			17,643		17,643
Other intangible assets			343		331
Property, plant and equipment			6,032		6,381
Deferred tax assets			1,075		1,313
			25,093		25,668
Current assets
Inventories			29,262		34,102
Trade and other receivables			74,670		64,478
Other current assets			877		665
Cash and bank balances			11,414		8,676
			116,223		107,921
Total assets			141,316		133,589
Current liabilities
Trade and other payables			(7,384)		(9,731)
Current tax liabilities			(797)		(1,034)
			(8,181)		(10,765)
Net current assets			108,042		97,156
Non-current liabilities
Borrowings			(24,888)		(21,810)
Long term provisions			(1,253)		(1,313)
			(26,141)		(23,123)
Total liabilities			(34,322)		(33,888)
Net assets			106,994		99,701
Equity
Share capital			1,883		1,872
Share premium account			27,152		26,641
Employee Benefit Trust shares reserve			(35)		(35)
Retained earnings			77,994		71,223
Total equity attributable to equity holders			106,994		99,701

* Certain comparative information has been restated as a result of the initial application of IFRS 9 as discussed in note 9

The financial statements of H&T Group plc, registered number 05188117, were approved by the Board of Directors and authorised for issue on 11 March 2019.

They were signed on its behalf by:

J G Nichols

Chief Executive

Group cash flow statement For the year ended 31 December 2018
	Note		2018 £'000	2017 (Restated*) £'000
Net cash generated/(used in) from operating activities	6		5,906	(3,493)
Investing activities
Interest received			3	-
Proceeds on disposal of property, plant and equipment			-	7
Purchases of property, plant and equipment			(2,101)	(1,768)
Acquisition of trade and assets of businesses			(575)	(21)
Net cash used in investing activities			(2,673)	(1,782)
Financing activities
Dividends paid			(3,986)	(3,564)
Increase in borrowings			3,000	7,000
Debt restructuring costs			(31)	-
Proceeds on issue of shares			522	907
Net cash (used in) / generated from financing activities			(495)	4,343
Net increase / (decrease) in cash and cash equivalents			2,738	(932)
Cash and cash equivalents at beginning of the year			8,676	9,608
Cash and cash equivalents at end of the year			11,414	8,676

* Certain comparative information has been restated as a result of the initial application of IFRS 9 as discussed in note 9.

Notes to the preliminary announcement

For the year ended 31 December 2018

1.         Finance information and significant accounting policies

The financial information has been abridged from the audited financial statements for the year ended 31 December 2018.

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2018 or 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be filed with the Registrar in due course.  The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) Companies Act 2006 or equivalent preceding legislation.

Whilst the financial information included in this preliminary announcement has been prepared in accordance with International Financial Reporting Standards (as adopted for use in the EU) ('IFRS'), this announcement does not itself contain sufficient information to comply with IFRS.  The Group will be publishing full financial statements that comply with IFRS in April 2019.

IFRS 15 Revenue from Contracts with Customers

In the current year, the Group has applied IFRS 15 Revenue from Contracts with Customers (as amended in April 2016) which is effective for an annual periods beginning on and after 1 January 2018. IFRS 15 introduces a 5‑step approach to revenue recognition. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Details of the new requirements as well as their impact on the Group's consolidated financial statements are described below. The Group has applied IFRS 15 in accordance with the fully retrospective transitional approach without using the practical expedients.

IFRS 15 uses the terms 'contract asset' and 'contract liability' to describe what might more commonly be known as 'accrued income' and 'deferred income', however the Standard does not prohibit an entity from using alternative descriptions in the statement of financial position. The Group has retained the use of 'accrued revenue' and 'deferred revenue' in the financial statements.

The Group's accounting policies for its revenue streams are disclosed in detail in below. Apart from providing more extensive disclosures for the Group's revenue transactions, the application of IFRS 15 has not had an impact on the financial position and/or financial performance of the Group. Further information has been provided in note 10.

IFRS 9 Financial instruments

In the current year, the Group has applied IFRS 9 Financial Instruments. The Group has restated 2017 comparatives in respect of the classification and measurement of financial instruments. Additionally, the Group adopted consequential amendments to IFRS 7 Financial Instruments: Disclosures that were applied to the disclosures for 2018 and to the comparative period.

Notes to the preliminary announcement (continued)

For the year ended 31 December 2018

1.         Finance information and significant accounting policies (continued)

Classification and measurement

With respect to the classification and measurement of financial assets, the number of categories of financial assets under IFRS 9 has been reduced compared to IAS 39. Under IFRS 9 the classification of financial assets is based both on the business model within which the asset is held and the contractual cash flow characteristics of the asset.

There is no impact on the classification and measurement of the personal loans or pawnbroking trade receivables, both are measured at amortised cost.

There is no change in the accounting for any financial liabilities.

Impairment

The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses under IAS 39. Under the impairment approach in IFRS 9, it is not necessary for a credit event to have occurred before credit losses are recognised. Instead, an entity always accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses should be updated at each reporting date. Under IFRS 9 there is an increase in both revenue and impairment for Pawnbroking and Personal Loans.

In respect of the personal loan receivable the Group recognises a loss allowance for 12-month expected credit losses where the loan is not in arrears. As the loan falls into arrears the loss allowance is based on the lifetime expected credit losses as there has been a significant increase in credit risk. IFRS 9 also requires the external environment to be considered as part of the calculation of expected credit losses (ECL) the form of a macro-economic overlay. Due to the nature of the alternative credit sector and historical evidence, management have determined that the effect of traditional macro-economic downside indicators is minimal and therefore such an overlay is currently not necessary. Management will continue to monitor external macro-economic trends and their impact and apply an overlay should it become appropriate to do so.

In respect of the pawnbroking loan receivable the short-term nature of the agreement results in 12-month expected credit losses being the same as lifetime expected credit losses.

Further information on the restatement of the comparatives are provided in note 9.

IFRS 16 Leases

IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 Leases and the related interpretations when it becomes effective for accounting periods beginning on or after 1 January 2019. The Group currently expects to adopt IFRS 16 for the year ending 31 December 2019.

1.         Finance information and significant accounting policies (continued)

IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases (off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees (i.e. all on balance sheet) except for short-term leases and leases of low value assets. The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date.

Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. Furthermore, the classification of cash flows will also be affected because operating lease payments under IAS 17 are presented as operating cash flows; whereas under the IFRS 16 model, the lease payments will be split into a principal and an interest portion which will be presented as financing and operating cash flows respectively.

In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease. Furthermore, extensive disclosures are required by IFRS 16.

See note 11 for further information on the likely impact of IFRS 16 adoption.

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 the revenue can be reliably measured. The following specific recognition criteria must also be met before The Group recognises revenue from the following major sources:

• Pawnbroking, or Pawn Service Charge (PSC);

• Retail;

• Pawnbroking scrap and gold purchasing;

• Personal loans interest income; and

• Other services.

1.         Finance information and significant accounting policies (continued)

Pawnbroking, or Pawn Service Charge (PSC)

PSC comprises interest on pledge book loans, plus auction profit and 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

Retail comprises revenue from retail jewellery sales, with inventory sourced from unredeemed pawn loans, newly purchased inventory 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.

Pawnbroking scrap and gold purchasing

Scrap revenue comprises proceeds from gold scrap sales. Revenue is recognised when control of the goods has transferred, being at the point the smelter purchases the relevant metals.

Personal loans interest income

This comprises income from the Group's unsecured lending activities. Personal loan revenues are shown stated before impairment when in stages 1 and 2 of the expected credit loss model and net of impairment when in stage 3.  The impairment charge is included within other direct expenses in the Group statement of comprehensive income. Revenue is recognised over time in relation to the interest accrued, as dictated by IFRS 9.

Other services

Other services comprise revenues from third party cheque cashing, foreign exchange income, buyback and other income. Commission receivable on cheque cashing, foreign exchange income 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.

1.         Finance information and significant accounting policies (continued)

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.

Other direct expenses

Other direct expenses comprise all expenses associated with the operation of the various shops 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.

Inventories provisioning

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

Impairment of goodwill and other intangibles

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units (stores) to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit (CGU) and a suitable discount rate in order to calculate present value. The review is conducted annually, in the final quarter of the year. The impairment review is conducted at the level of each CGU, which for acquisitions represents the specific store or stores acquired.

There was no impairment loss recorded in the current year (2017: £nil). The principal assumptions applied by management in arriving at the value in use of each cash generating unit (CGU) are as follows:

The Group prepares cash flow forecasts over a five-year period for each CGU. Forecast EBITDA (used as a proxy for cashflows) has been derived by applying the Board approved base budget assumption to each individual stores' results for the twelve months to September 2018. For impairment review purposes, we have used conservative growth assumptions after 2018, even in this scenario there is still significant headroom on each CGU. A perpetuity formula has been applied to the cashflows i.e. we have made the assumption that periodic cashflows will be received indefinitely. The Group has discounted the cash flows at a pre-tax, risk adjusted rate of 11% (2017: 12%).

While the impairment review has been conducted based on the best available estimates at the impairment review date, the Group notes that actual events may vary from management expectation, but are comfortable that no impairment exists at the balance sheet date based on reasonably possible sensitivities.

2.         Operating segments

Business segments        

For reporting purposes, the Group is currently organised into six segments - pawnbroking, gold purchasing, retail, pawnbroking scrap, personal loans and other services.

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% 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 1.99% and 10.00%. The contract is governed by the terms of the Consumer Credit Act 2008 (previously the Consumer Credit Act 2002). 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.

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.

Retail: 

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

Pawnbroking scrap:

Pawnbroking scrap comprises all other proceeds from gold scrap sales 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.

Personal loans:

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

2.         Operating segments (continued)

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.

·     Buyback which is a service where items are purchased from customers, typically high-end electronics, and may be bought back up to 31 days later for a fee.

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

·     Western Union commission earned on the Group's money transfer service.

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

Further details on each activity are included in the Chief Executive's review.

Segment information about these businesses is presented below:

2018 Revenue	Pawnbroking £'000	Gold purchasing £'000	Retail £'000	Pawnbroking scrap £'000	Personal loans £'000		Other services £'000	For the year ended 2018 £'000
External revenue	41,278	20,745	38,338	14,059	22,472		6,133	143,025
Total revenue	41,278	20,745	38,338	14,059	22,472		6,133	143,025
Gross profit	41,278	3,757	13,203	1,401	22,472		6,133	88,244
Impairment	(10,366)	-	-	-	(15,515)		-	(25,881)
Segment result	30,912	3,757	13,203	1,401	6,957		6,133	62,363
Other direct expenses excluding impairment								(34,793)
Administrative expenses								(13,272)
Operating profit								14,298
Interest receivable								3
Finance costs								(767)
Profit before taxation								13,534
Tax charge on profit								(2,705)
Profit for the financial year and total comprehensive income								10,829

Notes to the preliminary announcement (continued)

For the year ended 31 December 2018

2. Operating segments (continued)

2017 (restated) Revenue	Pawnbroking £'000	Gold purchasing £'000	Retail £'000	Pawnbroking scrap £'000		Personal loans £'000		Other services £'000	Total £'000
External revenue	38,466	17,651	35,407	11,696		15,574		5,903	124,697
Total revenue	38,466	17,651	35,407	11,696		15,574		5,903	124,697
Gross profit	38,466	3,397	12,859	1,931		15,574		5,903	78,130
Impairment	(9,167)	-	-	-		(11,679)		-	(20,846)
Segment result	29,299	3,397	12,859	1,931		3,895		5,903	57,284
Other direct expenses excluding impairment									(32,594)
Administrative expenses									(12,234)
Operating profit									12,456
Investment revenues									-
Finance costs									(567)
Profit before taxation									11,889
Tax charge on profit									(2,396)
Profit for the financial year and total comprehensive income									9,493

Gross profit is stated after charging the direct costs of inventory items sold or scrapped in the period. Other operating expenses of the stores are included in other direct expenses. The Group is unable to meaningfully allocate the other direct expenses of operating the stores between segments as the activities are conducted from the same stores, utilising the same assets and staff. The Group is also unable to meaningfully allocate Group administrative expenses, or financing costs or income between the segments. Accordingly, the Group is unable to meaningfully disclose an allocation of items included in the consolidated statement of comprehensive income below gross profit, which represents the reported segment results.

The Group does not apply any inter-segment charges when items are transferred between the pawnbroking activity and the retail or pawnbroking scrap activities.

Notes to the preliminary announcement (continued)

For the year ended 31 December 2018

2. Operating segments (continued)

2018	Pawn-broking £'000	Gold purchasing £'000	Retail £'000	Pawn-broking scrap £'000	Personal loans £'000	Other services £'000	Unallocated assets/ (liabilities) £'000	For the year ended £'000
Other information
Capital additions (*)							2,279	2,279
Depreciation and amortisation (*)							2,483	2,483
Balance sheet
Assets
Segment assets	51,991	720	28,876	543	20,491	-		102,621
Unallocated corporate assets							33,933	33,933
Consolidated total assets								141,316
Liabilities
Segment liabilities	-	-	(646)	-	-	(34)		(680)
Unallocated corporate liabilities							(33,642)	(33,642)
Consolidated total liabilities								(34,322)

2017 (restated)	Pawn-broking £'000	Gold purchasing £'000	Retail £'000	Pawn-broking scrap £'000	Personal loans £'000	Other services £'000	Unallocated assets/ (liabilities) £'000	Total £'000
Other information
Capital additions (*)							1,980	1,980
Depreciation and amortisation (*)							2,628	2,628
Balance sheet
Assets
Segment assets	47,451	1,658	31,858	1,251	14,930	-		97,148
Unallocated corporate assets							31,833	31,833
Consolidated total assets								133,589
Liabilities
Segment liabilities	-	-	(650)	-	-	(100)		(750)
Unallocated corporate liabilities							(33,138)	(33,138)
Consolidated total liabilities								(33,888)

(*)               The Group cannot meaningfully allocate this information by segment due to the fact that all the segments operate from the same stores and the assets in use are common to all segments.

Notes to the preliminary announcement (continued)

For the year ended 31 December 2018

2.    Operating segments (continued)

Geographical segments

The Group's revenue from external customers by geographical location are detailed below:

						2018 £'000	2017 (Restated) £'000
United Kingdom						141,273	123,492
Other						1,755	1,205
						143,028	124,697

The Group's non-current assets are located entirely in the United Kingdom. Accordingly, no further geographical segments analysis is presented.

3.            Finance costs

			2018 £'000	2017 £'000
Interest on bank loans			657	472
Other interest			1	1
Amortisation of debt issue costs			109	94
Total interest expense			767	567

Notes to the preliminary announcement (continued)

For the year ended 31 December 2018

4.            Tax charge on profit

(a)          Tax on profit on ordinary activities

Current tax			2018 £'000	2017 (Restated) £'000
United Kingdom corporation tax charge at 19% (2017: 19.25%) based on the profit for the year			2,633	2,316
Adjustments in respect of prior years			(94)	181
Total current tax			2,539	2,497
Deferred tax
Timing differences, origination and reversal			133	(100)
Adjustments in respect of prior years			33	(1)
Effects of change in tax rate			-	-
Total deferred tax			166	(101)
Tax charge on profit			2,705	2,396

(b)          Factors affecting the tax charge for the year

The tax assessed for the year is higher than that resulting from applying a standard rate of corporation tax in the UK of 19% (2017: 19.25%). The differences are explained below:

			2018 £'000	2017 (Restated) £'000
Profit before taxation			13,534	11,889
Tax charge on profit at standard rate			2,571	2,289
Effects of:
Disallowed expenses and non-taxable income			11	(81)
Non-qualifying depreciation			115	118
Movement in short-term timing differences			69	(110)
Adjustments to tax charge in respect of prior years			(61)	180
Tax charge on profit			2,705	2,396

In addition to the amount charged to the income statement and in accordance with IAS 12, the excess of current and deferred tax over and above the relative related cumulative remuneration expense under IFRS 2 has been recognised directly in equity. The amount taken to equity in the current period was £72,000 (2017: release of £96,000).

5.         Earnings per share

Basic earnings per share is calculated by dividing the profit for the year attributable to equity shareholders by the weighted average number of ordinary shares in issue during the year.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. With respect to the Group these represent share options and conditional shares granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year.

Reconciliations of the earnings per ordinary share and weighted average number of shares used in the calculations are set out below:

	Year ended 31 December 2018			Year ended 31 December 2017 (Restated)
	Earnings £'000	Weighted average number of shares	Per-share amount pence	Earnings £'000	Weighted average number of shares	Per-share amount pence
Earnings per share: basic	10,829	36,895,316	29.35	9,493	36,479,426	26.02
Effect of dilutive securities
Options and conditional shares	-	126,277	(0.10)	-	155,374	(0.11)
Earnings per share: diluted	10,829	37,021,593	29.25	9,493	36,634,800	25.91

Notes to the preliminary announcement (continued)

For the year ended 31 December 2018

6.            Notes to the Cash Flow Statement

		2018 £'000	2017 (Restated) £'000
Profit for the year		10,829	9,493
Adjustments for:
Investment revenues		(3)	-
Finance costs		767	567
Decrease in provisions		(60)	(185)
Income tax expense		2,705	2,396
Depreciation of property, plant and equipment		2,333	2,428
Amortisation of intangible assets		150	200
Loss on disposal of property, plant and equipment		133	69
Operating cash flows before movements in working capital		16,854	14,969
Decrease/(Increase) in inventories		4,884	(4,311)
(Increase)/Decrease in other current assets		(212)	184
Increase in receivables		(9,851)	(11,989)
(Decrease)/Increase in payables		(2,351)	618
Cash generated/(used in) from operations		9,324	(529)
Income taxes paid		(2,776)	(2,508)
Interest paid		(642)	(456)
Net cash generated/(used in) from operating activities		5,906	(3,493)

Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.

Notes to the preliminary announcement (continued)

For the year ended 31 December 2018

7.         Earnings before interest, tax, depreciation and amortisation ("EBITDA")

EBITDA

EBITDA is defined as earnings before interest, taxation, depreciation and amortisation. It is calculated by adding back depreciation and amortisation to the operating profit as follows:

			2018 £'000	2017 (Restated) £'000
Operating profit			14,298	12,456
Depreciation and amortisation			2,482	2,629
EBITDA			16,780	15,085

The Board consider EBITDA to be a key performance measure as the Group borrowing facility includes a number of loan covenants based on it.

8.         Events after the balance sheet date

The Directors have proposed a final dividend for the year ended 31 December 2018 of 6.6p (2017: 6.2p).

Notes to the preliminary announcement (continued)

For the year ended 31 December 2018

9.         Explanation of transition from IAS 39 to IFRS 9

In the current year, the Group has applied IFRS 9 Financial Instruments (as revised in July 2014) and the related consequential amendments to other IFRS Standards that are effective for an annual period that begins on or after 1 January 2018. The transition provisions of IFRS 9 allow an entity not to restate comparatives. However, the Group has elected to restate comparatives in respect of the classification and measurement of financial instruments.

Details of these new requirements as well as their impact on the Group's consolidated financial statements are described below.

(a) Classification and measurement of financial assets

The Directors of the Company reviewed and assessed the Group's existing financial assets as at 1 January 2018 based on the facts and circumstances that existed at that date and concluded that the initial application of IFRS 9 has had the following impact on the Group's financial assets as regards their classification and measurement: financial assets classified as held-to-maturity and loans and receivables under IAS 39 that were measured at amortised cost continue to be measured at amortised cost under IFRS 9 as they are held within a business model to collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal amount outstanding.

There have been no other reclassifications of financial assets have had any impact on the Group's financial position, profit or loss, other comprehensive income or total comprehensive income in either year.

(b) Impairment of financial assets

As the Group has elected to restate comparatives, for the purpose of assessing whether there has been a significant increase in credit risk since initial recognition of financial instruments that remain recognised on the date of initial application of IFRS 9 (i.e. 1 January 2018), the Directors have compared the credit risk of the respective financial instruments on the date of their initial recognition to their credit risk as at 1 January 2017.

The result of the assessment is as follows:

Notes to the preliminary announcement (continued)

For the year ended 31 December 2018

9.         Explanation of transition from IAS 39 to IFRS 9 (continued)

		Cumulative additional loss allowance recognised on:
Items existing as at 1 January 2018 that are subject to the impairment provision of IFRS 9	Credit risk attributable at 1 January 2017 and 2018	1 January 2017 £'000	1 January 2018 £'000
Pledge Book	A proportion of these balances are assessed to have credit risk other than low. Accordingly, the Group recognises lifetime ECL for these loans until they are derecognised. For the remaining proportion the Group has assessed that the credit risk on these financial instruments has not increased significantly since initial recognition and have recognised 12-months ECL for these assets.	5,101	5,473
Trade receivables (loan book)		1,486	3,326
Cash and bank balances	All bank balances are assessed to have low credit risk at each reporting date as they are held with reputable international banking institutions.	-	-

The additional credit loss allowance of £8,799,000 as at 1 January 2018 and £6,587,000 as at 1 January 2017 has been recognised against retained earnings on the respective dates, net of their related tax impact of £878,000 and £509,000 respectively, resulting in a net decrease in retained earnings of £7,921,000 and £6,078,000 as at 1 January 2018 and 2017 respectively. The additional loss allowance is charged against the respective asset. The application of the IFRS 9 impairment requirements has resulted in additional loss allowance of £1,843,000 to be recognised in year ended 31 December 2017.

	Original measurement category under IAS 39	New measurement category under IFRS 9	Original carrying amount under IAS 39	Additional loss allowance recognised under IFRS 9	New carrying amount under IFRS 9
Trade and other receivables	Loans and receivables	Financial assets at amortised cost	73,277	(8,799)	64,478

9.         Explanation of transition from IAS 39 to IFRS 9 (continued)

The tables below show the amount of adjustment for each financial statement line item affected by the application of IFRS 9 for the prior year.

Impact on profit or loss, other comprehensive income and total comprehensive income as at 31 December 2017	£'000
Increase in revenue	14,363
Increase in administrative expenses	(16,575)
Decrease in income tax	369
Decrease in profit for the year	(1,843)
Impact on assets, liabilities and equity as at 1 January 2017
Decrease in trade and other receivables	(6,587)
Increase in deferred tax assets	509
Total effect on net assets	(6,078)
Retained earnings	(6,078)
Impact on assets, liabilities and equity as at 31 December 2017
Decrease in trade and other receivables	(8,799)
Increase in deferred tax assets	452
Decrease in tax liabilities	426
Total effect on net assets	(7,921)
Retained earnings	(7,921)

The application of IFRS 9 has had no impact on the consolidated cash flows of the Group.

Notes to the preliminary announcement (continued)

For the year ended 31 December 2018

10.    IFRS 15 Revenue from Contracts with Customers

In the current year, the Group has applied IFRS 15 Revenue from Contracts with Customers which is effective for an annual periods beginning on and after 1 January 2018. IFRS 15 introduces a 5‑step approach to revenue recognition. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios.

The Group has applied IFRS 15 in accordance with the fully retrospective transitional approach without using the practical expedients. Apart from providing more extensive disclosures for the Group's revenue transactions, the application of IFRS 15 has not had an impact on the financial position and/or financial performance of the Group.

11.    IFRS 16 Leases

IFRS16 is a new standard on lease accounting which will be introduced for year ended 31 December 2019. The standard requires the recognition of significant leases on balance sheet, increasing both the asset and liability and will change the nature of costs on the income statement, with a positive impact on EBITDA.   

As at 31 December 2018, the Group has non-cancellable operating lease commitments of £25,297,000. IAS 17 does not require the recognition of any right-of-use asset or liability for future payments for these leases; instead, certain information is disclosed as operating lease commitments. Our assessment indicates that these arrangements will meet the definition of a lease under IFRS 16, and hence the Group will recognise a right-of-use asset and a corresponding liability in respect of all these leases unless they qualify for low value or short-term leases upon the application of IFRS 16. The new requirement to recognise a right-of-use asset and a related lease liability is expected to have a significant impact on the amounts recognised in the Group's consolidated financial statements.  Preliminary calculations indicate that the impact on the balance sheet will be a net reduction in retained earnings of £2.8m as at 31 December 2018, with the fixed asset capitalised at net book value of £19.8m offset by lease liability of £22.6m. The impact on the Group's Statement of Comprehensive Income for 2018 is likely to be favourable by £0.3m.

 

END

 

 

FR CKDDDKBKBKND