UK: High street pawnbroker Gold Bar is hit by fall in gold prices

Gold is falling in value

Gold is falling in value - Credit: Getty Images/Hemera

A chain of high street outlets set up by the UK’s biggest pawnbroker to take advantage of a surge in the price of gold could shut down in the next 12 months after the market slumped.

Gold Bar, which is owned by H&T, now has just five sites compared to 55 last year but has been hit by a crash in the price of the precious metal as well as competition from payday lenders.

H&T, which has 193 outlets overall, said its profits slumped by more than a third and were likely to drop further, prompting it to slash its interim shareholder dividend.

Its pre-tax earnings in the first half of the year were down 39% to £14.8million compared to the same period in 2012.

It also announced it was pulling out of the payday market - which is facing a Competition Commission investigation - to focus its financial services division on a new 12-month product.

Profits at H&T have surged over the last few years after it took advantage of surging gold prices by opening dozens of Gold Bar sites at shopping centres across the country.

The gold price, which tends to increase at times of financial turbulence as investors look for safe havens, was close to 1800 US dollars (£1160) per ounce last autumn but has since plunged to near 1300 US dollars (£840).

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Chief executive John Nichols said it was always intended that the Gold Bar stores, taken on short-term leases, would only be kept open for a limited period while the price was high.

Mr Nichols said of the remaining outlets: “It is likely that we will be closing those at some point in time.”

He said that this was likely in the next 12 months although they were currently performing well and if conditions improved it could be that the chain expanded again.

Mr Nichols said: “Trading conditions have been difficult for the group in the first half of 2013. The competitive environment, reduced volumes of gold in circulation and regulatory pressures have all impacted financial performance.”

He said trading was particularly hard hit in the second quarter amid a 25% slump in the price of the precious metal.

In response to the challenging conditions, H&T slashed its interim dividend by nearly half from 3.8p to 2.1p and said it was slowing its rate of expansion.

H&T said the outlook remained difficult and that profits in the second half would be lower again than the first six months of the year.

It also warned that increased competition for the high street alternative credit market in recent years was likely to lead to “a degree of consolidation or rationalisation” in the medium term.

Profits from the group’s financial services arm slipped from £1.9m to £1.8m as it cut payday loan applications amid the introduction of a new loan offering it said would be one of the most competitively-priced unsecured products available.

H&T said it was cooperating fully after the Office of Fair Trading referred the payday lending market to the Competition Commission for an investigation and that it “does not expect any material adverse issues”.

Retail profits were down 2.6% while profits from gold purchasing fell 32% year-on-year, the company said.

The group’s pledge book increased to £48.6 million from £46.8 million a year earlier - slowed by increased competition and reduced volumes of gold in circulation.