High street pawnbroker H&T has warned of tough times ahead after profits in the first six months of the year plunged by almost 40%.
The firm, whose Scottish portfolio includes outlets in Dundee and Kirkcaldy, said profits in the second half of the year were likely to be “materially” lower again following a major downturn in the gold price and increasing competition from payday lenders.
Profits had surged at H&T over the last few years as the public saw their disposable incomes squeezed as the economic downturn kicked in.
The firm even moved to open a chain of Gold Bar stores as the price of gold, traditionally seen as a safe investment in recessionary periods, climbed to more than £1,160 per ounce.
However, H&T’s fortunes have started to falter as the general economy starts to show signs of sustained recovery. The firm has closed 50 of its Gold Bar outlets in the past year, leaving just five stores in total.
Pre-tax profits in the first half of the year were down 38% to £4.64 million compared to the same period in 2012, while total revenues also dropped back by more than £15m to £50.45m.
H&T said the outlook remained difficult, and moved to slash its interim dividend payment to shareholders from 3.8p per share last year to 2.1p.
“In an environment of increased competition, regulatory pressure and lower gold purchasing volumes, the dynamics of the high street alternative credit market are changing,” the firm said in an interim update to the markets.
“In the last five years, operators have dramatically expanded footprints under the separately identifiable business models of cheque cashing, pawnbroking and buy-back.
“As a result of this increased competition and other market pressures, a diluted customer and asset base has encouraged the beginnings of a cross-over in business models.
“It is likely, in the board’s view, therefore, that a degree of consolidation or rationalisation may follow in the medium term. The board will continue to review the group’s cost base, leverage and product portfolio in Q3.
“In the short term, the group continues to focus on its core pawnbroking business.”
Chief executive John Nichols said the company remained strong operationally and the focus was now on increasing revenues and driving footfall into stores.
He said: “Trading in Q2 has been particularly tough following a 25% reduction in the sterling gold price leading to significantly reduced disposition profits and a reduction in lending as the group revises its lending rates accordingly.
“Responding to the competitive environment, the group has also launched new initiatives which weaken short-term profitability, but with the goal of improving long-term customer retention.
“The decision to reduce new payday loan applications has also impacted Q2 profitability.”
H&T confirmed it was cooperating fully with a Competition Commission investigation into the payday loans market and said it did not expect any “material adverse issues” to arise from the probe.