H&T Group plc

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

20 August, 2008

Interim Condensed Financial Statements for the six months ended 30 June, 2008

H&T ANNOUNCES STRONG GROWTH ACROSS ALL AREAS OF THE BUSINESS

H&T Group plc, which trades under the H&T Pawnbrokers brand, is the UK's leading pawnbroking business by size of pledge book. The group today announces its interim results, for the period ended 30 June, 2008.

John Nichols, Chief Executive, commented: "I am delighted to report another excellent set of results. Against wider perception, pawnbroking is not overall a cyclical business and the weaker economic climate is not necessarily a driver for our business. This ongoing strong performance has been the result of a successful overall strategy based on sustained growth in the established estate, along with investment in new stores. 

We continue to improve our offering and customer service levels and the 14.2% like-for-like increase in retail turnover that we have achieved in current high street conditions is testament to this. Our interim dividend of 2.0 pence is up by 25%. 

While the Board is cautious about the impact of the current retail climate on our Christmas trading, we look forward to the rest of the year with confidence."

FINANCIAL HIGHLIGHTS

• Gross profit up 33% to £17.0m

• Operating profit before exceptional items up 61% to £6.4m

• Profit Before Taxation and before exceptional items up 79% to £5.5m

• Profit Before Taxation and after exceptional items up 40% to £4.6m

• Adjusted basic EPS up 64% to 10.87 pence

• Basic EPS up 25% to 8.94 pence

• Pledge book increased 14% to £29.1 million

• Interim dividend declared of 2.0p per share (2007: 1.6p) 

OPERATIONAL HIGHLIGHTS

• Strong growth across all revenue lines of the business 

• Retail has shown a 14.2% increase in turnover on a like-for-like basis despite the difficult trading environment

• Four new stores opened in the first half of 2008 (taking the total number of stores to 93 at 30 June 08)

• Scrap activity has benefited from the high gold price and the success of gold purchasing 

ENDS 

Enquiries:

Report of the Chief Executive Officer and Finance Director

H&T Group plc is pleased to report strong trading and financial performance for the first six months of 2008 ("H1 2008") with continued double digit growth across all business segments:

• Gross profit for H1 2008 was £17.0 million compared with £12.8 million for the first six months of 2007 ("H1 2007"), an increase of 32.8%

• Earnings before interest, tax, depreciation and amortisation ("EBITDA") before exceptional items rose by 53.8% from £4.7 million in H1 2007 to £7.1 million in H1 2008

• Operating profit before exceptional items increased by 60.8% to £6.4 million in H1 2008 (H1 2007: £4.0 million)

• The Group has taken advantage of the high price of gold through its scrap activity

Pawnbroking activities, comprising Pawn Service Charge and Disposition, performed strongly over the first six months of 2008, with gross profit increasing by 35.8% on the equivalent period last year. The Pawn Service Charge benefited from growth in the pledge book while Disposition took advantage of retail demand and high scrap profit due to the relatively higher gold price. The Financial Services segment's gross profit increased by 13.4% between H1 2007 and H1 2008.

In line with the Group's growth strategy, H&T has continued to increase its store estate with four new stores opening in the first half of 2008 (H1 2007: two). Of these, two were greenfield stores and two were acquired stores. Since 30 June, 2008, the Group has opened two additional stores. Taking into consideration these six new stores, at the date of this report, H&T operates through 95 stores across the United Kingdom.  

In light of the high level of uncertainty as to the delivery from the third party developer of the new point of sale system, the Board has decided to provide against the carrying value of the project. This resulted in an exceptional loss of £0.9 million in H1 2008.

The Board remains of the view that the general economic climate is not necessarily a driver for H&T's business as the pawnbroking industry is not cyclical. The strong performance of the Group is the result of a successful overall strategy based on continued growth in the established estate along with investment in new stores.

The H&T Group directors have approved a 2.0 pence interim dividend (2007 interim - 1.6 pence). This will be payable on 13 October, 2008 to all H&T shareholders on the register at the close of business on 12 September, 2008.  

 Operational review

Pawnbroking:

Pawnbroking activities contributed £15.1 million (H1 2007: £11.1 million) or 89% of the Group gross profit in H1 2008 (H1 2007: 87%).

The Group's pledge book increased by 14.3% to £29.2 million at 30 June, 2008 (£25.6 million at 30 June, 2007). 

Pawn Service Charge rose to £10.0 million in H1 2008, an increase of 18.5% on H1 2007 (£8.4 million).

Disposition combines contributions from both the retail and scrap operations. Although the general trading environment on the high street proved challenging for retailers, H&T's trading remained strong with turnover in the first half of 2008 increasing by 30.7% on H1 2007 (14.2% on a like-for-like basis). The retail gross profit margin also rose from 45.6% in H1 2007 to 47.8% in H1 2008. This translated in an increase in retail gross profit of 37.2%, from £2.0 million in H1 2007 to £2.7 million in H1 2008. Scrap gross profit reached £2.4 million in H1 2008 (H1 2007: £0.7 million). This £1.7 million increase is the result of the rise in the price of gold (£1.0 million) and higher volume of scrap (£0.7 million), driven by the success of gold purchasing.

Financial Services:

In H1 2008, the Group Financial Services activities contributed £1.9 million (H1 2007: £1.7 million) or 11% of the Group's gross profit (H1 2007: 13%).

The cheque cashing and pay day advance gross profit increased from £1.6 million in H1 2007 to £1.8 million in H1 2008, an increase of 14.6%. The majority of this growth was driven by the pay day advance product while cheque cashing has been facing strong competition in a shrinking market. Bad debt as a percentage of turnover in H1 2008 remains comparable to the level recorded in the second half of 2007. 

In view of the current economic and credit outlook, at the beginning of 2008 the Group decided on a cautious approach as regards new customers to KwikLoan, the Group's unsecured loan product. As a result, its loan book remained flat at £0.5 million between 31 December, 2007 and 30 June, 2008. This strategy does not alter the potential foreseen by the Board in this product. 

Update on new Point of Sale development

As noted in the 2007 annual report and accounts, the development of the new Point of Sale system has taken longer than originally anticipated and was expected to be fully rolled out by late summer 2008. 

The company developing this new system has indicated that it intends to make it available for User Acceptance Testing in September, 2008. However, the failure of this company to deliver the new system on agreed dates and the significant delays to date have brought a high level of uncertainty to the project and the Board has consequently concluded that a provision against the carrying value of the asset is necessary. Since the contract is for a fixed price, no further cash outflow is foreseen and all the acquired hardware will be used. The Board is currently exploring alternative options should the software provider fail in its delivery. However, the current Point of Sale systems remain reliable and continue to support the business.

Strategy update

H&T's growth strategy is based on two streams. Each of them is progressing well, at least in line with the Board's expectations.

 1. Expand geographical footprint

As the Board highlighted in previous communications, the timing and nature of acquisitions depends on the availability of appropriate opportunities. The high price of gold has benefited not only H&T but also the rest of the industry, frequently resulting in unrealistic valuations from potential vendors. As a result, progress on business acquisitions has been slower than originally anticipated. Despite this, in February 2008 the Group managed to acquire two stores (H1 2007: one) in the North of England (in Darlington and Wallsend) and is pursuing other opportunities. 

During H1 2008, the Group opened two greenfield stores (H1 2007: one) in Cosham and Kilmarnock. Since 30 June, 2008, H&T has opened two further stores taking the total number of stores to 95. The Group has secured leases on four locations and is in final negotiations on a number of others. Subject to planning consent, the Board expects to have in excess of 100 stores trading by the end of 2008.

2. Develop and establish new products and services

In 2005 and 2006, H&T opened two trial stores under the "Get>Go" brand focussing on the cheque cashing market with a contemporary financial services image. This trial was aimed at providing the Group with a brand that could be used in the event of acquiring cheque cashing activities. Due to H&T's success with stores focussing primarily on pawnbroking and jewellery retail and the shortage in cheque cashing store acquisition opportunities, the Board has decided to end this trial and rebrand these two stores "H&T Pawnbrokers". The Group anticipates that the turnover from the current services offered should remain unchanged and the stores profitability should be increased by the development of pawnbroking and the introduction of jewellery retail.

The strategy introduced in 2007 to directly purchase gold and jewellery through all of H&T's stores has proved a success. While direct purchasing allows a more efficient use of capital, its main benefit has been to attract new customers into the stores. 

We continue to trial and explore new products and services responding to the demand of our customer base.

Trading outlook 

The Board is pleased with the overall trading performance of the Group and does not see the overall business as cyclical or benefiting from the credit crunch.

The pawnbroking business has continued to show steady positive growth while the scrap activity is taking advantage of the high price of gold. The Board has decided to protect a proportion of its current scrap margin and intends to enter into a gold forward selling contract for 2009 and 2010.

As stated at the time of the 2007 interim results, seasonality within the business means that the second half of the year tends to make a larger contribution to the full year result than the first half. However, the extent of the impact of seasonality is affected by retail sentiment particularly during the Christmas period. Although the business has shown strong retail growth in the first half of the year, the Board remains cautious about the current and future high street trading conditions which could impact the retail revenue in the second half of 2008 (23.4% of total gross profit in H2 2007). However, any retail downturn would be partially offset by the capacity of the Group to scrap any retail stock at a profit. 

The remaining Group activities have good prospects for organic growth which will be supplemented by further branch openings in the second half of the year.

  Financial review

Turnover and gross profit

Turnover for the first six months of 2008 amounted to £24.1 million compared with £17.3 million for the corresponding period in 2007; a 39.3% increase driven by strong growth across all of the Group's activities. The combination of growth in Pawn Service Charge and financial services along with the increase in both turnover and gross margins in retail and scrap resulted in H1 2008 total gross profit of £17.0 million, an increase of 32.8% on H1 2007 (£12.8 million).

Other direct expenses and administrative expenses 

The Other direct expenses comprising all expenses associated with the operation of stores and collection centre were £7.4 million in H1 2008 compared with £6.3 million in H1 2007. This 17.4% increase was primarily driven by the development of 14 stores opened in H2 2007 and H1 2008. The Group's administrative expenses before exceptional items increased from £2.5 million in H1 2007 to £3.2 million in H1 2008.  

Operating profit 

The Group recorded an operating profit before exceptional items of £6.4 million in H1 2008 compared with £4.0 million in H1 2007 (60.8% increase). Earnings before interest, taxation, depreciation, amortisation and exceptional items (EBITDA before exceptional items as defined in note 3) increased by 53.8% between H1 2007 (£4.6 million) and H1 2008 (£7.1 million). 

Exceptional items

The Board decided to impair the carrying value of its new Point of Sale system resulting in an exceptional loss of £0.9 million in H1 2008.

The Group disposed of a freehold property in H1 2007 resulting in an exceptional gain of £0.2 million.

Finance costs and similar charges

Finance costs decreased by £0.1 million from £1.4 million in H1 2007 to £1.3 million in H1 2008.  

Under IFRS, movements in the fair value of the Group's interest rate swap are recognised in the income statement. As a result, the Group's recorded changes in the fair value of the instrument amounting to income of £0.3 million in H1 2008, compared with income of £0.5 million in H1 2007.

Profit before taxation

The Group recorded a profit before taxation of £4.6 million in H1 2008 compared with £3.3 million in H1 2007. In H1 2008, the Group incurred a £0.9 million exceptional loss (H1 2007: £0.2 million exceptional profit). Profit before taxation, fair value hedge accounting and exceptional items in H1 2008 was £5.2 million compared with £2.6 million in H1 2007. Profit before taxation and exceptional items in H1 2008 was £5.5 million compared with £3.1 million in H1 2007.

Earnings per share

Basic earnings per share rose by 25.0% to 8.94 pence in H1 2008 compared with 7.15 pence in H1 2007. After adjusting for exceptional items, adjusted basic earnings per share for H1 2008 were 10.87 pence compared with 6.64 pence in H1 2007. Basic and diluted earnings per share are very similar due to the negligible impact of share options.

 Debt structure

The Group repaid £1.0 million of senior debt (facility A) in H1 2008 (H1 2007: £0.75 million). Net debt (before unamortised debt issue costs) was £34.4 million at 30 June, 2008 compared with £32.2 million at 31 December, 2007. The increase in borrowings principally reflects an increase in the revolving credit facility which is secured on the Group pledge book. The Group has in place bank borrowings until May 2011 and a hedging agreement fixing the interest rate on £35.0 million of banking debt until 30 June, 2009.

Return On Capital Employed (ROCE)

ROCE, defined as profit before tax excluding exceptional items, interest receivable, finance costs and movement in fair value of interest swap as a proportion of net current assets and tangible and intangible fixed assets (excluding goodwill), increased from 9.6% in H1 2007 to 12.8% in H1 2008.

Dividends

On 19 August, 2008, the directors approved a 2.0 pence interim dividend (1.6 pence interim dividend in 2007) payable on 13 October, 2008, an increase of 25% on the prior period interim dividend. This dividend has not been provided for in these interim financial statements. In May 2008, the Group paid a 3.4 pence final dividend for the 2007 financial year results.

Interim Condensed Financial Statements

Unaudited condensed consolidated income statement

For the 6 months ended 30 June 2008