ABM.L Regulatory News (ABM)

25 September 2012

ALBEMARLE & BOND HOLDINGS PLC

("Albemarle" or "the Group")

Final results for the twelve month period ended 30 June 2012

A Specialist Retail Financial Services Provider

Robust performance in a year of investment and changing market dynamics

Overview

·; Operating profits up 4% to £22.6m (2011: £21.7m) and profits before tax of £21.4m, up 2% (2011: £21.0m) for the year ended June 2012

·; Gold buying volumes have remained in line with Q4 levels and margins have remained above 30%. However, this represents a major reduction on H1 FY 2012 peak, and we do not currently expect any recovery in these trends

·; The Group has implemented planned mitigating action on the back of changed market conditions and has reduced its intended number of store openings for FY 2013 to 5 from the FY 2012 run rate of 25

·; Over the past three years, the business has doubled its store base by re-investing profits and cash generated from gold buying, capitalising on a market opportunity and earlier profit breakeven points for new stores

·; The Group's focus in the short to medium term is to drive additional revenue and products through the extended store base. There is significant opportunity to generate increased returns from these assets in the medium term

·; The Board are recommending an unchanged final dividend of 9.75p (2011: 9.75p) bringing the full year to 12.75p (2011 12.50p), a 2% increase in line with EPS growth

Financial Highlights

(*) Assumes a final dividend of 9.75p approved at the November AGM

·; Gross profits for the Group increased by 13% to £69.1m (2011: £61.1m)

·; Cost reduction initiatives in H2 resulted in operating cost growth slowing to 10% against a19% increase in the number of stores, giving a full year cost increase of 18%

·; Demand for small flexible loans continues to be strong with gross profits from Pawnbroking up 10% in line with Pledge Book growth of 12%

·; Gross profits from Gold Buying increased by 49% for the full year after an 87% increase in H1, with H2 profit growth slowing to 18%

·; Retail sales were down 6% overall. We saw a recovery to LFL growth in H2 driven by stock investment and the successful introduction of ranges of second hand prestige watches

·; Overall new stores are, on average, trading in line with five year plan expectations

Operational Highlights

·; The gold price was broadly stable through the year, after three years of more than 20% compound growth per annum, offering less potential to prudently increase lending rates on pawnbroking loans and make profits from scrapping ex pledge stock

·; Opened a further 25 full line stores including 2 acquisitions. As at 30 June 2012, 234 outlets were trading (30 June 2011: 197); 184 full line stores and 50 gold buying pop-up stores

·; Acquisition since the year end of two profitable pawnbroking stores in Southall, trading as the Gold Factory, for a combined consideration of £0.8m as part of building our capabilities in the important high carat gold market

·; Today we announce the acquisition since the year end of Early Pay Day Loans Ltd, a successful UK online payday loan provider, for £1.2m excluding cash acquired

Outlook

·; We are expecting continued strong demand for short-term flexible loans and instant cash

·; In Pawnbroking, with 38% of stores under 3 years old contributing at present just 14% of our pledgebook, the potential for future growth is clear

·; We expect gold buying volumes and margins to reduce against the exceptional performance in FY 2012

·; As a result, we expect the Group's profitability, despite the continued maturing of recent openings and mitigating actions management have put in place, to be down for FY 2013

·; With the addition of new products and services across our extended estate coming through, growth potential in the medium term is promising

Barry Stevenson, Chief Executive, commented: "I am pleased to report the Company has delivered an increase in revenues and profits for the year. Over the last three years our business has doubled in size. We have invested strong gold buying cashflows in this expansion and in so doing we have laid the foundations for the Company's long term profitability.

Over a third of the full line store portfolio is under 3 years old ensuring, based on the maturity cycle of pawnbroking stores, that there is significant embedded growth potential in our business.

Gold buying remains a substantial part of the on-going business and the 2012 result demonstrates how well we have executed on this market opportunity. However the expected downturn in the gold buying market happened very quickly and has set a new level to which we have quickly adapted. We expect gold buying to continue to be a significant profit contributor to the Group albeit at much reduced levels to that achieved at the peak.

Reflecting this reduction in the cash generative gold buying business we have reduced and refocused the store opening programme on acquiring 5 established stores in FY 2013. The Group will focus on meeting the undoubted demand for short term flexible loans, optimising the value from the 69 most recent openings, trialling and introducing new products and increasing consumer access through the addition of new channels."

Enquiries:

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

The full annual report is expected to be available on the Group's web site from Monday 1st October 2012. Images of the Group's stores are available from the website.

Chief Executive's Statement

I am pleased to report good progress with our store expansion programme during FY 2012 adding a further 25 full line stores, mainly through greenfield openings taking the total number of trading outlets to 234.

Profits increased once more against the previous year despite the dilutive impact on profit of this and last year's openings. We also opened an additional 12 gold buying stores. Importantly, demand for short term cash and credit from UK consumers remained strong and with changing patterns of demand we will offer an increasing choice of ways that our customers' needs for cash can be satisfied.

Our strategy has also developed to reflect the shift in trading patterns in gold buying. We have adjusted our capital expenditure programme accordingly with planned additions in number of stores reduced to just 5 in FY 2013. This store expansion will come through selective acquisitions instead of greenfield openings reflecting another shift in our market place as independent operators become more realistic in their value expectations from a business sale. This will free up management to focus on the existing stores, in particular the less mature component of the store network where there is the most potential for growth, and to introduce new products and services.

There is in our view substantial scope to expand the range of services and channels through which our customers can access instant cash. Today, we are also pleased to announce the strategic acquisition of the Early Pay Day Loans Company for £1.2m in cash, enabling the Group to provide online services through an already established and proven platform in the short term loan market.

Financial Performance

Group gross profit increased by 13% to £69.1m, of which Pawnbroking contributed £34.8m, a 10% increase on the prior year. Gold Buying also contributed strongly, with a 49% increase in total gross profit to £21.7m.

Retail is showing signs of improvement helped by a H2 growth in sales of second hand jewellery and the introduction of pre-owned prestige watches. Nevertheless, gross profits for the full year were still down £0.7m, 10% on the previous year reflecting a weak Christmas trading period.

Other Financial Services, as anticipated, was affected by removal of the cheque guarantee card in July 2011 and this was the primary reason behind the £1.7m, (20% reduction) in gross profits for this division.

New stores (under three years) continue to trade on average in line with expectations. With 38% of our full line store base under 3 years old, we intend to focus hard on increasing the speed to maturity of these stores, and increasing the future profit contribution, despite the lack of a 'tailwind' from gold buying.

Cost reduction initiatives in H2 resulted in costs up only10%, significantly below the rate of increase in number of stores for the period.

Operating profits were up 4% to £22.6m (2011: £21.6m) and profit before tax was 2% ahead at £21.4m (2011: £21.0m) which led to EPS of28.55p (2011: 27.96p).

The Group's financial position remains strong. As at 30 June 2012 net debt excluding cash in stores was £43.4m (30 June2011: £36.7m), which represents net debt to EBITDA, our key leverage ratio, of 1.6x (2011: 1.5x).

Dividend

The Board's recommendations on dividend are made in light of the Group's profit and cash flow performance. As a reflection of our solid performance this year we are recommending an unchanged final dividend of 9.75p (2011: 9.75p). Together with the interim dividend of 3.00p (2011: 2.75p), this represents an increase of 2% for the total dividend compared to the prior year - consistent with EPS growth. Subject to approval at the Annual General Meeting, the dividend will be paid on 30 January 2013 to shareholders on the register on 28th December 2012.

Operational and Financial Review

Pawnbroking

Pawnbroking income grew by 10%, to £34.8m (2011: £31.5m). It remains the cornerstone of our business and meets the majority of customer demand for short term, highly flexible loans in an affordable way. The year end pledge book has grown by 12% to £40.2m.

The strongest driver of this increase in pledge book has been the growing contribution from new stores with the LFLs tore pledge book up by 4%, a satisfactory performance in the context of a stable gold price and the exceptional level of pledge book growth in FY 2011.

We have put in place market leading lending practices focused on providing customers with a friendly, competitive and efficient service which has the flexibility to suit each person's requirements including options to phase repayments through the life of a loan.

Gold Buying

Gold Buying recorded a 49% increase in gross profits driven by exceptional growth in the first half of the financial year.

The88% level of growth in Gold Buying profits seen in H1 was exceptional. These trends continued until a peak in March 2012 when we witnessed a sudden slowdown. Trading measured by cash paid for gold bought in the current year is running at approximately 80% of FY 2012 levels with margins slightly above 30%; in H1 2012 margins were 38%.Given the new lower levels of demand we believe this is a strong trading performance particularly in the light of our market and competitor intelligence.

Clearly, there remains uncertainty around any further drop off in gold buying volumes although over the medium term we would expect some competitors to exit the market.

Jewellery Retailing

Retailing had a better than expected H2 with improved second hand jewellery sales supported by strong growth from the sale of second hand prestige watches and the beginning of a planned investment in retail stock per store. Retail sales overall were still slightly down by 6% but there are encouraging signs of a recovery as H2 progressed with the return to LFL sales growth.

Total gross profit from jewellery retailing was £5.7m (2011: £6.4m) including the contribution from new stores.

Other Financial Services

The cheque guarantee card was withdrawn in July last year impacting income from our Cheque based Payday product. Payday Anyway™ was introduced to replace this strongly profitable cheque based legacy product. We have seen the cheque product book decline faster than expected with the Payday Anyway product taking time to reach breakeven this year as the book matured. This was the major contributor in the decline in profits from Other Financial Services with overall gross profits of£6.9m (2011: £8.6m).

Despite the decline in use of cheques, Third Party Cheque Cashing grew gross profits year on year by 25%, this was largely achieved by strong debt management and competitive pricing.

Our third financial services business, Speed loan, slowed following strong growth in FY 2011 and H1 FY 2012, but with weaker volumes in H2 delivered a satisfactory performance.

Acquisition of Early Pay Day Loans

The Company today announced the strategic acquisition of the Early Pay Day Loans Ltd ("EPDL"), a successful online payday loan provider.

Established in 2003, EPDL provides online pay day loans with a current active loan book of just under £300k. Under the terms of the acquisition, Albemarle has acquired EPDL for a total consideration of £1.2m on a cash and debt free basis.

The Board believes EPDL to be an excellent strategic fit with the Company's current payday services as it will accelerate Albemarle's ability to provide loans to customers through the online channel.

The payday loan market has been the fastest growing segment of short term loan market and it is estimated that gross lending will be around £3.5bn in 2014, compared to £2.0bn in 2010 (source: Datamonitor); the majority of payday customers prefer the convenience of transacting online.

By acquiring EPDL, Albemarle is gaining a profitable operation with an established customer base and a proven, scaleable IT platform. Initially, the EPDL website will be operated as a standalone business.

Five Year Plan (2010 - 2015)

Be More Accessible to More Customers

Since we started the five year plan we have doubled the number of stores in total and added 69 full line stores; these full line stores are relatively immature. We believe this expansion has increased our visibility substantially and raised our profile on a local and national level.

The expansion to date has been significantly funded by the profits we have generated from our Gold Buying division, however, with this market now showing signs of easing up we are switching to acquiring new stores over opening greenfield sites, thereby staying inline with the Group's cash generation and target cost to income ratios. We expect to acquire 5 new stores in the current financial year, with two stores already acquired.

The acquired stores will come with existing customer bases and increase our reach into lucrative markets, such as London. Acquired stores, now that we are seeing more reasonable expectations of multiples demanded by the vendors, are typically profit accretive in year one.

The EPDL acquisition also offers opportunities to reach significantly more new customers.

Increase Appeal and Awareness

We pride ourselves on knowing our customers and over the last three years we have invested consistently in consumer research in addition to listening to our customers directly through our 234 strong store network. We now have a customer Datamart which will enable more precise and direct targeting of our marketing investment.

A key part of the appeal of our stores is the flexibility of our product offerings. Customers demand for short term cash and credit is robust and the Group is focusing on providing alternative products to meet this need, and help customers who have limited options available.

As an example, we are currently trialling a product to buy customers old mobile phones, this has proven to be a natural extension to our existing services and the offer is currently being rolled out across all stores.

Become More Efficient and Responsive

The Group saw real progress in H2 in managing its cost base more effectively as a Group and in driving operational benefits from the creation of a combined Store Support Centre in Wakefield. The creation of centralised property, IT and HR teams has allowed the Group to operate more efficiently and more consistently across its formats. Strict control on central recruitment and a real focus on cost management brought cost inflation in H2 down to 10% year on year, well below the 19% increase in store base. We are making good progress with the major replacement of our front end systems and we are already live with our initial modules in branches. The full system will progressively come on stream over the course of the next 9 months. This replacement programme, when fully complete, will give us significant improvement in our capability to trade multi-channel and enable new product and marketing innovation.

Build a Differentiated and Exceptional Customer Experience

We continue to focus on offering an exceptional level of customer experience in stores. During the financial year we have invested in additional operational field support to continue to train and coach the teams in our newer stores and to roll out a 'Golden Nuggets' training manual to ensure that the product awareness of our store teams and their customer service is leading in our sector.

The new products and services we are introducing this year, such as cash for mobile phones, will further differentiate our stores on the High Street by providing a wider choice of simple cash solutions.

Be The UK's First Choice Pawnbroker

Being the first choice pawnbroker is not about simply being the largest operator. We have expanded the business substantially but it is the combination of the services we offer and ability of our staff to match the right product to the customer that is critical. Development of our store base, product offer and staff development are key to driving profitable growth in the loan book. We pride ourselves on having an unredeemed rate lower than the industry average, whilst offering very competitive lending rates. All this depends on our understanding of the product dynamics and the undoubted skills of our store teams.

People

Any retail business is only as good as the people who serve the customers and the central teams who support the store teams in this task. With the shifting dynamics of our market place this has been a challenging year for our teams, but they have responded magnificently and I would like to express a very sincere thank you to all my colleagues for their hard work and dedication in achieving the 2012 results.

Corporate Governance

John Allkins has indicated that he will not stand for re-election at the forthcoming AGM. I would like to thank John for his contribution as a non executive director. John has played a leading role during the last three years of rapid expansion for the Group with John as a key support in chairing the Audit Committee and in formalising corporate governance. A search for John's replacement as independent non executive director and Chair of the Audit Committee is underway.

In addition Tracey Graham will replace Tom Roberts as Chair of the Remuneration Committee and that Greville Nicholls will step down from this Committee effective on 26th September 2012. This means the Chair of the Remuneration Committee is an independent non executive director, and the committee has a majority of independent non executive directors.

Outlook

UK consumers continue to need access to short term credit or instant cash on affordable and flexible terms and the Group is ideally placed to meet this need.

We have a 234 strong network of stores, more than one third of which are still to reach maturity and we will continue to expand this store base albeit at a slower rate than the last 3 years. In addition we now have the capability to reach customers through other channels.

In the short term, profits will be impacted by a reduced gold buying market. In the medium term, the Group and its shareholders will benefit from the fundamental underlying demand from c.10m UK consumers, the embedded value of its maturing store base and the new products and channels being introduced to extend our offer.