LONDON (ShareCast) - (Sharecast News) - Pawnbroker and jewellery retailer H&T Group reported a robust fourth-quarter performance in an update on Tuesday, projecting a record profit increase of 40% year-on-year.

However, the AIM-traded firm said challenges during the pre-Christmas period, particularly in December, led to a 10% deviation from current market forecasts in reported pre-tax profits for the year.

It said its core pawnbroking product continued to see strong demand across all geographies in 2023.

Aggregate lending reached £260m, a 19% increase from the prior year, and the pledge book as of 31 December amounted to £131m, exceeding management's expectations.

The average loan size remained stable at £201, with redemption rates consistent at around 85% and loan-to-value ratios at 65%.

To manage valuation volatility in certain watch brands, the proportion of watch-based lending decreased from 17% in June to 14% in December, resulting in a reduction of around £1.25m in the pledge book's value.

Loans secured on watches currently represented 15% of the pledge book.

The group said it had implemented pricing structure changes for pledge lending to enhance yield and generate additional revenue, with strong loan demand noted in January.

In the retail sector, challenging trading conditions in the fourth quarter, driven by pressure on customers' disposable income, led to a 3% increase in sales by volume compared to the same period in 2022.

However, customers were cautious in their spending, favouring lower-priced items.

New jewellery items and coins had an average price point of £73, while pre-owned jewellery items and coins averaged £199, offering higher margins.

Sales of new items represented 62% of sales by volume in the quarter, compared to 53% in the fourth quarter of 2022, and 33% of sales by value, compared to 25% in the prior year.

Sales of watches grew 15% year-on-year in both volume and value, with an average price point of £1,600, indicating a recovery in margins from mid-2023 levels.

The shift in sales mix and margin contributed to an overall 3% reduction in sales by value year-on-year, resulting in lower gross profit, particularly in December.

In the foreign exchange and holiday money segment, full-year foreign exchange revenues grew 11% to £6.3m, with transaction volumes up 18% year-on-year.

The company said its 'click and collect' online service, launched in June, had shown promising early progress, with significantly higher average transaction values compared to over-the-counter transactions.

Gold purchase by value grew 18% for the full year, while scrap margins remained consistent.

Demand for money transfer services remained subdued due to reduced customer remittances amid economic pressures.

Cheque-cashing volumes and commissions meanwhile remained stable on the year.

Looking at costs, the group said it took decisive action to control inflation in the second half, resulting in moderated cost inflation compared to the first six months of the year.

However, the firm said it remained vigilant as it faced cost pressures, particularly due to the impending 10% rise in the minimum wage from April and price increases by key suppliers.

Ongoing efforts would be made to manage costs and achieve cost efficiencies, the board said.

"The group made significant progress in 2023, delivering record profits and strong growth," said chief executive officer Chris Gillespie.

"Demand for our core pawnbroking product continues to grow and is attracting increasing numbers of customers who are new to pawnbroking.

"We were delighted to welcome record numbers of retail customers in the pre-Christmas period."

However, Gillespie said that, as had been widely reported, customers were cautious in their spending, which impacted the firm's performance for 2023.

"We believe, despite this challenging backdrop, that we have the right product offering and have continued to invest in our store estate and our technology platforms."

Reporting by Josh White for Sharecast.com.

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