Final Results
Paragon Group Of Companies PLC
20 November 2007
Under embargo until Stock Exchange announcement: 7am, Tuesday 20 November 2007
PARAGON PRELIMINARY RESULTS
---------------------------
The Paragon Group of Companies PLC ('Paragon'), the UK specialist buy-to-let and
consumer finance lender, today announces its preliminary results for the year
ended 30 September 2007.
Highlights
Financial Performance
---------------------
•Pre-tax profit up 9.9% to £91.0m (2006: £82.8m)
•Fully taxed earnings per share up 11.8% to 57.7p (2006: 51.6p)
•Cost:income ratio falls to 25.2% (2006: 25.8%)
Funding
-------
•Refinancing secured through equity standby underwriting for up to £280.0m
Operations
----------
•Buy-to-let advances up 34.3% to £4,079.3m (2006: £3,038.3m)
•Buy-to-let portfolio up 39.1% to £10,031.3m (2006: £7,212.3m)
•Buy-to-let arrears low and stable
Commenting on the results, Nigel Terrington, Chief Executive of Paragon, said:
'The Group has achieved record profits in 2007, the majority of which have
arisen from the Group's buy-to-let businesses, a sector with strong credit
defensive qualities and long-term growth prospects, reflecting increasing
structural demand for rented property in the UK.
The current environment, whilst immensely disruptive, is driven by market-wide
funding concerns and the actions taken by the Group will ensure that the
embedded value in the business is protected whilst providing a base for future
profitable lending when credit markets recover.'
For further information, please contact:
The Paragon Group of Companies PLC Fishburn Hedges
Nigel Terrington, Chief Executive Morgan Bone
Nick Keen, Finance Director Andy Berry
Tel: 0121 712 2024 Tel: 020 7839 4321
Mobile: 07767 622967
UBS Investment Bank
Adrian Haxby
Christopher Smith
Tel: 020 7568 8000
________________________________________________________________________________
The Paragon Group of Companies PLC
PRELIMINARY ANNOUNCEMENT
The year to 30 September 2007 was highly successful for the Group from a trading
perspective, with pre-tax profits, fully taxed earnings, business volumes and
loan assets all growing strongly and the Group continuing to increase its market
share within the buy-to-let sector whilst maintaining asset quality. However the
deep turmoil in the credit markets is affecting the normal financing activities
of the business. Whilst we expect the credit markets to recover from the current
distressed position during 2008, the timing and extent of the recovery will have
an impact on our outlook. In the Funding section we discuss the position of the
credit markets and its impact on our business and financing.
Discussions have taken place with our lending banks for renewal of our £280.0
million corporate facility, but the terms available are not attractive, as
discussed later in this announcement. To ensure that the facility is repaid when
it falls due in February 2008, thereby protecting the embedded value of the
Group's assets for shareholders, we have entered into a standby underwriting
agreement with UBS, supported by a group of our institutional shareholders. This
agreement provides us with the ability to launch an underwritten rights issue
for up to £280.0 million until 27 February 2008 unless satisfactory alternative
funding arrangements have been put in place prior to that time. The main terms
of this agreement are detailed in the Funding section below.
During the year, profit on ordinary activities before taxation increased by 9.9%
to £91.0 million from £82.8 million in the previous year. However, owing to the
reduction in the rate of corporation tax to 28% from next year, the Group's
deferred tax assets have been written down, resulting in a one-off increase in
the charge rate to 31.0% from a particularly low rate of 16.9% last year.
Earnings per share therefore decreased to 56.8p (2006: 61.2p), whilst on a fully
taxed basis (note 4) earnings per share increased by 11.8% to 57.7p (2006:
51.6p).
Total advances by the Group increased by 30.0% to £4,436.4 million (2006:
£3,412.6 million), of which £4,079.3 million were buy-to-let advances (2006:
£3,038.3 million), an increase of 34.3% over the year. Total loan assets at 30
September 2007 increased by 31.0% to £11,034.9 million from £8,426.6 million at
30 September 2006.
In view of the possibility of a rights issue in the near future, the Board
considers that it would be inappropriate to return any capital to shareholders
until a refinancing has been completed; hence the Group will not pay a final
dividend. The Board will reconsider the Company's distribution policy once the
funding position for the future is clarified.
________________________________________________________________________________
The Paragon Group of Companies PLC
PRELIMINARY ANNOUNCEMENT (Continued)
FUNDING
Current funding and environment
The Group's lending is funded largely by the securitisation of loan assets,
accounting for £9.9 billion of the Group's liabilities at 30 September 2007. New
lending is financed by a £2.3 billion warehouse facility provided by a banking
syndicate of which £932.0 million was drawn as at 30 September 2007 (2006:
£1,112.0 million). In addition, a corporate facility of £280.0 million, also
provided by a banking syndicate, is used to fund the Group's working capital
requirements together with a long-term bond issue of £120.0 million due in 2017.
The Group is not a deposit taker and has no retail depositor base.
Our use of securitisation substantially reduces the Group's liquidity risk by
matching the Group's funding maturity profile to the profile of the related
assets. Since the floating rate liabilities are matched with floating rate
assets which are predominantly LIBOR-linked or fixed rate assets hedged by the
use of interest rate swap or cap agreements, the Group's margins are largely
protected against movements in market interest rates, underpinning the value of
the Group's investments in the portfolios and the ongoing margin derived from
the loan assets.
The warehouse facility is an asset backed revolving credit line at a margin for
mortgages of 22.5 basis points over LIBOR. The revolving period expires on 29
February 2008, after which date no new drawings may be made to fund new loan
completions, although warehouse assets would be funded to maturity at a margin
over LIBOR of 67.5 basis points for mortgages with the characteristics of a
public securitisation SPV. The cost of this facility is not unattractive in
current market conditions and we would expect the assets within it to generate
positive margins over their residual lives. The £280.0 million corporate
facility falls due for repayment on 27 February 2008. It is currently priced at
90 basis points above LIBOR.
We have conducted extensive discussions with our lending banks for the renewal
of the corporate facility and extension of the revolving period of the warehouse
facility. Whilst terms for renewal have been offered in principle, they are not
attractive for a variety of reasons, including the high cost of such facilities
in the current market environment and the short-term nature of the terms
available.
________________________________________________________________________________
The Paragon Group of Companies PLC
PRELIMINARY ANNOUNCEMENT (Continued)
The disruption of the capital and banking markets that has spread from
difficulties in the United States sub-prime mortgage market has had a
significant effect on the cost and availability of credit. Since the summer the
securitisation markets have been effectively closed to new issuance and, at the
same time, banks have become less willing to renew facilities in the ordinary
course. A small number of securitisation transactions were completed in early
November by UK and European issuers, which may be the first signs of a return to
normality. We expect the credit markets to recover during 2008 but, in the
meantime, we have adjusted our business activities in response to the current
disruption. This is discussed fully in the Business Review and Strategy section.
Limitations on new funding impact on the value created from new originations
rather than on the value embedded within the existing portfolio. This embedded
value is represented by the net assets of the business and also the value of the
future income stream match-funded to maturity. We are concerned that renewal of
facilities on the proposed terms would jeopardise shareholder value. The Board
has therefore taken the decision to enter into a standby agreement with UBS
which gives the Company up to the end of February 2008 to launch a fully
underwritten rights issue to raise up to £280.0 million. This both ensures that
current shareholder value does not dissipate and also provides time for the
Company to explore all potential options for the refinancing of the corporate
facility and new warehouse facilities. This process may include further
discussion with the Company's lending banks, releasing excess credit enhancement
held within our securitisation SPVs, asset sales and alternative funding
instruments. The objective will be to create a stable funding platform for the
Group which adequately protects net assets and the value of future revenues from
the existing SPV assets for shareholders and to secure new sources of funding to
allow the profitable creation of income streams from our lending originations to
continue.
Standby underwriting agreement
Under the standby agreement, the Company has the right to require UBS to
underwrite, in full, a rights issue of up to £280.0 million, before 27 February
2008. The issue or offer price of any new shares will be determined at the time
of launch of the issue in the light of the then prevailing market conditions.
________________________________________________________________________________
The Paragon Group of Companies PLC
PRELIMINARY ANNOUNCEMENT (Continued)
The obligation of UBS is subject to normal conditions, including all relevant
approvals for the rights issue, including shareholder approval, being obtained;
the absence of any material adverse change affecting the Group; and the absence
of any force majeure event. Such conditionality gives rise to a material
uncertainty related to events or conditions which may cast significant doubt on
the Group's ability to continue as a going concern and, therefore it may, if it
is unable to satisfy these conditions and in the absence of other funding
alternatives, be unable to realise its assets and discharge its liabilities in
the normal course of business.
On this basis we expect the report of the auditors on the 2007 financial
statements to contain a modified opinion including an emphasis of matter
paragraph in relation to going concern.
Securitisation activity in the year
Prior to the present period of market turmoil, the Group was an active issuer in
the capital markets. In October 2006, a £1.5 billion buy-to-let securitisation
was completed by Paragon Mortgages (No. 13) PLC; in January 2007, a £268.6
million securitisation to repackage certain older, owner-occupied, loan assets
was completed by First Flexible (No. 7) PLC; in March 2007, a further £1.5
billion buy-to-let securitisation was completed by Paragon Mortgages (No. 14)
PLC; and in July 2007, a £1.0 billion buy-to-let securitisation was completed by
Paragon Mortgages (No. 15) PLC.
For the avoidance of doubt, Paragon has no involvement in the US mortgage market
nor any investment, directly or indirectly, in US sub-prime mortgage backed
securities, specialised investment vehicles, collateralised debt obligations or
similar vehicles.
________________________________________________________________________________
The Paragon Group of Companies PLC
PRELIMINARY ANNOUNCEMENT (Continued)
FINANCIAL REVIEW
CONSOLIDATED INCOME STATEMENT
For the year ended 30 September 2007 (Unaudited)
2007 2006
£m £m
Interest receivable 747.5 550.8
Interest payable and similar charges (591.7) (407.9)
_________ _________
Net interest income 155.8 142.9
Income from associates 0.2 -
Other operating income 28.9 30.6
_________ _________
Total operating income 184.9 173.5
Operating expenses (47.7) (45.4)
Provisions for losses (50.5) (47.8)
_________ _________
86.7 80.3
Fair value net gains 4.3 2.5
_________ _________
Operating profit being profit on ordinary
activities before taxation 91.0 82.8
Tax charge on profit on ordinary activities (28.2) (14.0)
_________ _________
Profit on ordinary activities after taxation 62.8 68.8
========= =========
Dividend - Rate per share 8.0p 17.0p
Basic earnings per share 56.8p 61.2p
Diluted earnings per share 54.7p 58.4p
Fully taxed basic earnings per share 57.7p 51.6p
Fully taxed diluted earnings per share 55.6p 49.3p
========= =========
The Group is organised into two major operating divisions: First Mortgages,
which includes the buy-to-let and owner-occupied first mortgage assets and other
sources of income derived from first charge mortgages; and Consumer Finance,
which includes secured lending, car and retail finance and the residual
unsecured loan book. These divisions are the basis on which the Group reports
primary segmental information. This is a change from the basis reported in 2006
in that the closed, owner-occupied first mortgage book, which at 30 September
2007 amounted to £293.8 million, and the closed, unsecured book of £56.9
million, both of which comprised the 'Other Operations' category last year, are
now included within the First Mortgages and Consumer Finance segments
respectively. For reporting purposes these books were absorbed within the
results from the two main business areas because their reduced size had rendered
the Other Operations segment insignificant in terms of assets, revenue and net
profits.
________________________________________________________________________________
The Paragon Group of Companies PLC
PRELIMINARY ANNOUNCEMENT (Continued)
The operating results of these adjusted business segments are detailed fully in
note 3 to the financial information and are summarised below.
2007 2006
£m £m
Operating result (Unaudited)
First Mortgages 81.8 60.5
Consumer Finance 9.2 22.3
_________ _________
91.0 82.8
========= =========
During the year, we saw four quarter point increases in base rates and, by
virtue of a market expectation of rising rates, three-month LIBOR, in
particular, has been higher than base rates throughout the year. This has had an
adverse impact on margins, most noticeably in the Consumer Finance division,
where pricing is primarily set against base rates. In addition the change in
business mix in favour of first mortgages, which are of higher credit quality
than consumer finance loans, has resulted in a slight narrowing of overall
margins, although margins within the first mortgage businesses have remained
broadly similar to those in 2006. The growth of the loan book resulted in net
interest income increasing by 9.0% to £155.8 million from £142.9 million.
Partially compensating for this, the rising interest rate environment had a
positive effect on fair value net gains of £4.3 million (2006: £2.5 million),
which have arisen from the IFRS requirement that movements in the fair value of
hedging instruments attributable to ineffectiveness in the hedging arrangements
should be credited or charged to income and expense.
Other operating income reduced slightly to £28.9 million, from £30.6 million in
2006 attributable to a reduction in activity within the Consumer Finance
division, where other operating income decreased by 22.4%. This was offset by an
increase of 19.5% within First Mortgages as a result of increased buy-to-let
activity during the year. An increased proportion of this income has arisen from
fees rather than commissions, reflecting a continuation of the decline in
insurance related income in the Consumer Finance division reported last year.
Our continuing focus on cost effectiveness has resulted in a further reduction
in the cost:income ratio, to 25.2% from 25.8% (note 14). Operating expenses were
£47.7 million, compared with £45.4 million for 2006.
________________________________________________________________________________
The Paragon Group of Companies PLC
PRELIMINARY ANNOUNCEMENT (Continued)
The charge for loss provisions of £50.5 million compares with £47.8 million for
2006. As a percentage of loans to customers the charge, at 0.46%, is lower than
the charge of 0.57% for 2006. Of the total charge, only £3.7 million, or 7.3%,
relates to First Mortgages, with £1.5 million of this relating to the closed,
owner-occupied book. The charge in respect of Consumer Finance includes amounts
in respect of income which, although accounting standards require it to be
recognised, is not expected to be received by the Group and hence also increases
the charge for loan impairment. Under UK GAAP such income was not recognised.
The loan book continues to be carefully managed and the arrears performance
remains in line with our expectations, with the performance of the buy-to-let
book remaining exemplary.
The effective tax rate, at 31.0%, is slightly higher than the normal corporation
tax rate. This results from applying the reduced future corporation tax rate of
28% to the Group's deferred tax assets, which are expected to unwind over a
period of up to ten years. We expect the charge to be at or slightly below the
corporation tax rate next year.
Profits after taxation of £62.8 million have been transferred to shareholders'
funds, which totalled £313.3 million at the year-end.
BUSINESS REVIEW AND STRATEGY
FIRST MORTGAGES
The year ended 30 September 2007 was another strong year for buy-to-let and the
private rented sector, with demand for rented property running at high levels
all year. The Royal Institution of Chartered Surveyors confirmed in September
that landlords were experiencing record rental growth and that surveyors
expected further strong growth in the coming months. Similarly the latest
research from the Association of Residential Letting Agents ('ARLA'), also
published in September, reported tenant demand outstripping supply in all areas
of the rental market. Both organisations noted that tenant demand has been
boosted by higher borrowing costs and growing uncertainty in financial markets
as well as high levels of migration from the European Union.
________________________________________________________________________________
The Paragon Group of Companies PLC
PRELIMINARY ANNOUNCEMENT (Continued)
The latest data published by the Council of Mortgage Lenders ('CML') supports
the picture of a strong buy-to-let sector, both in absolute terms and
particularly when set against a softening owner occupier market. According to
the CML, buy-to-let lending represented 12% (£21.2 billion) of all new mortgage
advances in the first half of 2007, the highest proportion since the launch of
buy-to-let in 1996. Furthermore, the stock of buy-to-let mortgages increased to
£108 billion, an increase of 14% since the second half of 2006, with buy-to-let
accounting for 1 in 10 of all outstanding mortgages. This clearly reflects the
scale of the private rented sector in the United Kingdom relative to the housing
market as a whole. The CML data also confirms the continuing superior credit
quality of buy-to-let mortgages, with both arrears and possessions significantly
lower than for the market in general. The CML attributes this quality
differential in part to persistently strong tenant demand, shorter void periods
and rising rents.
During the year ended 30 September 2007 Paragon's two buy-to-let brands, Paragon
Mortgages and Mortgage Trust, both benefited from these strong trading
conditions. Buy-to-let mortgage advances by the Group were £4,079.3 million for
the year (2006: £3,038.3 million), an increase of 34.3%. This strong lending
performance produced a 39.1% increase in buy-to-let assets to £10,031.3 million
from £7,212.3 million. This strong growth has its roots in the two distinct
propositions offered by our two brands and in the excellent relationships the
mortgage business has developed with individual intermediaries and mortgage
adviser networks. Paragon has been successful in focusing on distribution and
service and has maintained its strong stance on credit quality, with the arrears
performance of the book remaining exemplary.
In response to the recent difficulties in the credit markets, we have taken
steps to reduce the origination flow whilst the cost of funding from the capital
markets remains uncertain, so as to limit the risk of writing new business at
unprofitable margins. This has been achieved by the withdrawal of a number of
our first mortgage products and by increasing the pricing on others. We
anticipate that volumes in the first half of 2008 will be around half the levels
in the corresponding period of 2007. The slow down is being managed carefully
with products directed at key intermediary relationships who have the potential
to provide increased volumes when markets stabilise, as well as providing
continuing new lending support for our existing landlord customers.
The rate of redemptions remained low during 2007, at a similar level to 2006, at
just under 15%. ARLA's September survey data continues to demonstrate that
landlords, on purchasing properties for rental, expect to hold the properties
for an average of sixteen years.
________________________________________________________________________________
The Paragon Group of Companies PLC
PRELIMINARY ANNOUNCEMENT (Continued)
As part of the Group's aim to ensure that we are operationally efficient, we are
rationalising our first mortgage processing function. This will result in the
migration of Mortgage Trust's new business processing function from Epsom to
Solihull, from where we will support both brands. This will be likely to result
in a reduction of more than 60 positions in our Epsom office.
The owner-occupied book reduced to £293.8 million from £431.5 million during the
year ended 30 September 2007 and performed in line with expectations. During the
year balances with a book value of £4.5 million were sold. Save for the
management of this book in run-off, there has been little activity in recent
years in this area as the Group has focussed originations on buy-to-let.
CONSUMER FINANCE
The consumer credit market has remained weak during the year and, as a
consequence, our focus within the Consumer Finance division on the quality of
lending rather than on volumes continues to be appropriate. As before, we have
restricted our activities to areas with a low incidence of arrears with an
emphasis on secured lending.
Aggregate loan advances were £356.8 million during the year, a decrease of 4.2%
from £372.4 million in the previous year. As at 30 September 2007, the total
loans outstanding on the Consumer Finance books were £709.8 million, compared
with £782.8 million at 30 September 2006.
Arrears levels continue to remain stable and at low levels, in line with
expectations.
Personal finance
Secured personal advances were £205.8 million during the year, a reduction of
5.6% from £218.0 million for the previous year. Despite the intensely
competitive environment, a gradual tightening of criteria within the prime
secured second charge market has been in evidence as the year has progressed.
Whilst this change to a credit stance closer to that of Paragon Personal Finance
has led to the business enjoying an improving market position, the overall
tightening of criteria has had an adverse effect on the broker-introduced
personal finance market. We do not, therefore, anticipate that business volumes
will benefit from improved market share in the short term, although we do expect
an improvement as we move through 2008.
________________________________________________________________________________
The Paragon Group of Companies PLC
PRELIMINARY ANNOUNCEMENT (Continued)
Insurance sales continue to diminish in the wake of negative sentiment for the
products, a trend we expect to continue. To address the fall in commission
revenue, we have introduced lender arrangement fees and adjusted our loan
pricing. We expect further re-pricing when the £25,000 threshold for Consumer
Credit Act regulated lending is abolished in April 2008.
The closed unsecured book continues to run down in accordance with our
expectations. The book totalled £56.9 million at 30 September 2007, compared to
£73.1 million a year before. During the period, balances with a book value of
£5.3 million were sold and similar disposals are expected in the coming year.
Sales aid finance
New business volumes were £151.0 million (2006: £154.4 million) and were in line
with our expectations. Both retail and car markets experienced contracting
volumes throughout the year as consumers, concerned about affordability, became
more wary of committing to large purchases. Given this environment the business
again tightened its underwriting criteria, the result of which has been a
further improvement in the credit quality of new business.
Throughout the year the key focus for the business has been on improving
profitability and increasing operational efficiency, both of which have been
achieved without compromising service standards or portfolio quality.
________________________________________________________________________________
The Paragon Group of Companies PLC
PRELIMINARY ANNOUNCEMENT (Continued)
CAPITAL MANAGEMENT
During the year the Company bought 1,445,000 shares in the market at a cost of
£8.1 million with the result that by 30 September 2007 a total of 6,689,000
shares had been repurchased since the buy-back programme was announced in 2005,
at a total cost of £39.5 million. Given current conditions and the
appropriateness of preserving liquidity, the Board has decided to suspend the
buy-back programme until further notice.
Over the period we have continued to reduce the risk profile of the Group's loan
assets through a disciplined restructuring of the portfolio from unsecured
towards less capital-demanding secured lending. In addition, the more
capital-demanding closed books have continued to decline, both from natural
run-off and from ongoing disposals. Further asset sales may be considered, as
appropriate, to supplement the organic run-down strategy.
BOARD
As we reported last year, Gavin Lickley, a non-executive director since 2002,
retired from the Board in October 2006 and we thank him for his service and
commitment during the years of his association with the Group.
Jonathan Perry, the former Chairman, retired from the Board in February 2007,
after fifteen years of service and Bob Dench was appointed Chairman at that
time. Jonathan Perry led the Group from the early 1990s as it developed its
current range of business operations and the Board expresses its thanks to him
for his consistently outstanding performance and contribution.
Terry Eccles joined the Board in February 2007 as an independent non-executive
director. Formerly Vice-Chairman of JPMorgan Cazenove, Terry brings to the Board
considerable experience in the financial sector.
________________________________________________________________________________
The Paragon Group of Companies PLC
PRELIMINARY ANNOUNCEMENT (Continued)
OUTLOOK
For the past twelve years the Group has pursued a strategy of careful growth in
core markets which offer high quality loan assets, funded portfolio by portfolio
to maturity through the securitisation markets. This has produced consistent
profit growth over the period.
The Group has achieved record profits in 2007, the majority of which have arisen
from the Group's buy-to-let businesses, a sector with strong credit defensive
qualities and long-term growth prospects, reflecting increasing structural
demand for rented property in the UK.
The present travails of the credit market coinciding with the expiry of our
syndicated credit facilities have created uncertainties over the Group's future
funding in the near term. Whilst we expect the capital markets to recover during
2008, it is important that we manage our new business generation cautiously to
ensure that new originations remain profitable, but also, fundamentally, to
protect the embedded value in the current portfolio.
The strength of profits in 2007 reflects the quality of income generated from
match-funded assets within existing securitisation vehicles, largely insulated,
as they are, from the sharp rise in the cost of credit. However the high cost
and short-term nature of replacement banking facilities are unattractive in the
current environment and we believe they would significantly erode shareholder
value.
For this reason, we have arranged the standby underwriting agreement referred to
above which, if called upon, will enable the repayment of the £280.0 million
corporate facility due at the end of February 2008. This will provide an
opportunity to explore alternative funding sources, and to seek new warehousing
arrangements for new lending activity in 2008 and beyond.
The prospects of the Group in the current year will depend substantially on the
reopening of the securitised funding markets to enable the Group to return to
normal levels of writing new business. If we are unable to secure new warehouse
facilities or alternative sources of access to the securitisation market, we
will have to scale back new lending activities significantly and manage costs
accordingly. Over a prolonged period this would have a negative impact on our
franchise. However, the embedded value of our existing portfolio of assets
remains strong and we expect it to continue to generate sound profits and cash
flow in the future.
We firmly believe that the private rented sector will continue to see growth for
many years to come. The investment required to enable this expansion will have
to be financed and therefore the Group's key products will remain in demand. The
current environment, whilst immensely disruptive, is driven by market-wide
funding concerns and the actions taken by the Group will ensure that the
embedded value in the business is protected whilst providing a base for future
profitable lending when credit markets recover.
20 November 2007
________________________________________________________________________________
The Paragon Group of Companies PLC
CONSOLIDATED INCOME STATEMENT
For the year ended 30 September 2007 (Unaudited)
2007 2006
Notes £m £m
Interest receivable 747.5 550.8
Interest payable and similar charges (591.7) (407.9)
_________ _________
Net interest income 155.8 142.9
Share of results of associate 0.2 -
Other operating income 28.9 30.6
_________ _________
Total operating income 184.9 173.5
Operating expenses (47.7) (45.4)
Provisions for losses (50.5) (47.8)
_________ _________
86.7 80.3
Fair value net gains 4.3 2.5
_________ _________
Operating profit being profit on ordinary
activities before taxation 91.0 82.8
Tax charge on profit on ordinary activities (28.2) (14.0)
_________ _________
Profit on ordinary activities after taxation for
the financial year 62.8 68.8
========= =========
Earnings per share
- basic 4 56.8p 61.2p
- diluted 4 54.7p 58.4p
========= =========
The results for the current and preceding years relate entirely to continuing
operations.
________________________________________________________________________________
The Paragon Group of Companies PLC
CONSOLIDATED BALANCE SHEET
30 September 2007 (Unaudited)
2007 2006
Notes £m £m £m £m
Assets employed
Non-current assets
Intangible assets 0.6 0.6
Property, plant and 21.9 20.2
equipment
Interest in associate 0.5 -
Financial assets 5 11,119.5 8,432.9
Retirement benefit 4.2 0.3
obligations
Deferred tax asset 16.1 33.6
_________ _________
11,162.8 8,487.6
Current assets
Other receivables 6.7 6.3
Cash and cash 6 927.7 622.7
equivalents
_________ _________
934.4 629.0
_________ _________
Total assets 12,097.2 9,116.6
========= =========
Financed by
Equity shareholders'
funds
Called-up share capital 7 12.1 12.1
Reserves 8 358.0 314.6
_________ _________
Share capital and 370.1 326.7
reserves
Own shares (56.8) (47.7)
_________ _________
Total equity 313.3 279.0
_________ _________
Current liabilities
Financial liabilities 10 280.9 128.0
Current tax liabilities 3.1 1.4
Provisions 1.4 0.7
Other liabilities 111.1 78.2
_________ _________
396.5 208.3
Non-current liabilities
Financial liabilities 10 11,379.6 8,619.7
Provisions 0.6 3.7
Other liabilities 7.2 5.9
_________ _________
11,387.4 8,629.3
_________ _________
Total liabilities 11,783.9 8,837.6
_________ _________
12,097.2 9,116.6
========= =========
The preliminary financial information was approved by the Board of Directors on
20 November 2007.
Signed on behalf of the Board of Directors
N S Terrington N Keen
Chief Executive Finance Director
________________________________________________________________________________
The Paragon Group of Companies PLC
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 30 September 2007 (Unaudited)
2007 2006
Notes £m £m
Net cash (utilised) by operating activities 11 (2,511.6) (1,824.0)
Net cash (utilised) by investing activities 12 (6.2) (1.4)
Net cash generated by financing activities 13 2,822.7 1,917.8
_________ _________
Net increase in cash and cash equivalents 304.9 92.4
Opening cash and cash equivalents 622.3 529.9
_________ _________
Closing cash and cash equivalents 927.2 622.3
========= =========
Represented by balances within:
Cash and cash equivalents 927.7 622.7
Financial liabilities (0.5) (0.4)
_________ _________
927.2 622.3
========= =========
________________________________________________________________________________
The Paragon Group of Companies PLC
STATEMENT OF RECOGNISED INCOME AND EXPENDITURE
For the year ended 30 September 2007 (Unaudited)
2007 2006
£m £m
Profit for the year 62.8 68.8
Actuarial gain / (loss) on pension scheme 3.4 (0.6)
Cash flow hedge (losses) / gains taken to equity (1.4) 1.5
Tax on items taken directly to equity (0.5) (0.2)
_________ _________
Total recognised income and expenditure for
the year 64.3 69.5
Adoption of IAS 32 and IAS 39 - (72.5)
_________ _________
64.3 (3.0)
========= =========
RECONCILIATION OF MOVEMENTS IN EQUITY
For the year ended 30 September 2007 (Unaudited)
2007 2006
Notes £m £m
Total recognised income and expenditure for
the year 64.3 69.5
Dividends paid 9 (20.1) (16.0)
Net movement in own shares (9.1) (24.9)
(Deficit) / surplus on transactions in own
shares (1.5) 0.6
Charge for share based remuneration 2.6 0.6
Tax on share based remuneration (1.9) 8.9
_________ _________
Net movement in equity in the year 34.3 38.7
Equity at 30 September 2006 279.0 312.8
Adoption of IAS 32 and IAS 39 - (72.5)
_________ _________
Equity at 1 October 2006 279.0 240.3
_________ _________
Closing equity 313.3 279.0
========= =========
________________________________________________________________________________
The Paragon Group of Companies PLC
NOTES TO THE FINANCIAL INFORMATION
For the year ended 30 September 2007 (Unaudited)
1. GENERAL INFORMATION
The financial information set out in this preliminary announcement has not been
audited.
Although the preliminary financial information has been prepared in accordance
with the recognition and measurement criteria of International Financial
Reporting Standards (IFRS), this announcement does not itself contain sufficient
information to comply with IFRS.
The financial information set out in the announcement does not constitute the
Company's statutory accounts for the years ended 30 September 2006 or 30
September 2007. The financial information for the year ended 30 September 2006
is derived from the statutory accounts for that year which have been reported on
by the Company's auditors. These statutory accounts have been delivered to the
Registrar of Companies, contained an unqualified audit report and did not
contain an adverse statement under sections 237 (2) or 237 (3) of the Companies
Act 1985. The statutory accounts for the year ended 30 September 2007, which
have been prepared in accordance with IFRS, will be finalised on the basis of
the financial information presented in this preliminary announcement and will be
delivered to the Registrar of Companies following the Company's Annual General
Meeting.
This document may contain forward-looking statements with respect to certain of
the plans and current goals and expectations relating to the future financial
condition, business performance and results of the Group. By their nature, all
forward-looking statements involve risk and uncertainty because they relate to
future events and circumstances that are beyond the control of the Group
including, amongst other things, UK domestic and global economic and business
conditions, market related risk such as fluctuation in interest rates and
exchange rates, inflation, deflation, the impact of competition, changes in
customer preferences, risks concerning borrower credit quality, delays in
implementing proposals, the timing, impact and other uncertainties of future
acquisitions or other combinations within relevant industries, the policies and
actions of regulatory authorities, the impact of tax or other legislation and
other regulations in the jurisdictions in which the Group and its affiliates
operate. As a result, the Group's actual future financial condition, business
performance and results may differ materially from the plans, goals and
expectations expressed or implied in these forward-looking statements. Nothing
in this document should be construed as a profit forecast.
A copy of the Annual Report and Accounts for the year ended 30 September 2007
will be posted to shareholders in due course. Copies of this announcement can be
obtained from the Group Company Secretary, The Paragon Group of Companies PLC,
St. Catherine's Court, Herbert Road, Solihull, West Midlands, B91 3QE.
________________________________________________________________________________
The Paragon Group of Companies PLC
NOTES TO THE FINANCIAL INFORMATION
For the year ended 30 September 2007 (Unaudited)
2. ACCOUNTING POLICIES
The preliminary financial information has been prepared on the basis of the
accounting policies set out in the Annual Report and Accounts of the Group for
the year ended 30 September 2006. The business segments reported on have been
revised as described in note 3. In addition, investments in associated companies
are valued at the Group's share of the net assets of the associate, as required
by IAS 28 - 'Investments in Associates'.
Basis of preparation - Going concern
The Group has a £280.0m committed corporate syndicated sterling bank facility
which is used to provide working capital. This facility is fully drawn and falls
due for repayment on 27 February 2008. To enable the repayment of this facility
the Company has entered into an agreement with UBS, whereby the Company has the
right to require UBS to underwrite, in full, an equity financing of up to
£280.0m before expenses. The obligation of UBS is subject to the normal
conditions, including all relevant approvals, including shareholder approval,
being obtained; the absence of any material adverse change affecting the Group;
and the absence of any force majeure event. Such conditionality gives rise to a
material uncertainty related to events or conditions which may cast significant
doubt on the Group's ability to continue as a going concern and, therefore it
may, if it is unable to satisfy these conditions and in the absence of other
funding alternatives, be unable to realise its assets and discharge its
liabilities in the normal course of business.
After making enquiries, the directors have a reasonable expectation that a
rights issue will be completed or alternative funding will be put in place to
enable repayment of the corporate facility and that the Group will have adequate
resources to continue in operational existence for the foreseeable future. For
this reason, they continue to adopt the going concern basis in preparing the
accounts.
The financial information set out in this preliminary announcement has been
presented on a going concern basis. However until the outcome of the proposed
rights issue and Group's negotiations with its lenders and their implications
for the Group's future funding structure are known, there is material
uncertainty about the appropriateness of this basis of preparation. The
financial statements do not include any adjustments that would result if the
going concern basis were not appropriate.
As a consequence of this material uncertainty together with any events that may
arise up to the date that the accounts are to be signed, at the date of issuing
this statement the auditors have indicated to the directors that their audit
report is expected to be unqualified but modified to include an emphasis of
matter paragraph on this uncertainty which may cast significant doubt on the
Group's ability to continue as a going concern.
________________________________________________________________________________
The Paragon Group of Companies PLC
NOTES TO THE FINANCIAL INFORMATION
For the year ended 30 September 2007 (Unaudited)
3. SEGMENTAL INFORMATION
For management purposes the Group is organised into two major operating
divisions, First Mortgages and Consumer Finance, which includes secured lending,
car and retail finance and the residual unsecured loans book which formed part
of Other Operations in the year ending 30 September 2006. These divisions are
the basis on which the Group reports primary segmental information. All of the
Group's operations are conducted in the United Kingdom.
This represents a change from the basis reported in 2006 in that the closed,
owner-occupied first mortgage book and the closed unsecured book, which together
comprised the 'Other Operations' category last year, are now included within the
First Mortgages and Consumer Finance segments respectively. For reporting
purposes these books were absorbed within the results from the two main business
areas because their reduced size had rendered the Other Operations segment
insignificant in terms of assets, revenue and net profits.
Financial information about these business segments is shown below. Results for
the year ended 30 September 2006 have been reanalysed between the new segments
as described above.
Year ended 30 September 2007
First Mortgages Consumer Finance Total
£m £m £m
Interest receivable 629.2 118.3 747.5
Interest payable (534.6) (57.1) (591.7)
_________ _________ _________
Net interest income 94.6 61.2 155.8
Income from associates 0.2 - 0.2
Other operating income 14.7 14.2 28.9
_________ _________ _________
Total operating income 109.5 75.4 184.9
Operating expenses (28.1) (19.6) (47.7)
Provisions for losses (3.7) (46.8) (50.5)
_________ _________ _________
77.7 9.0 86.7
Fair value net gains 4.1 0.2 4.3
_________ _________ _________
Operating profit 81.8 9.2 91.0
Tax charge (28.2)
_________
Profit after tax 62.8
=========
________________________________________________________________________________
The Paragon Group of Companies PLC
NOTES TO THE FINANCIAL INFORMATION
For the year ended 30 September 2007 (Unaudited)
3. SEGMENTAL INFORMATION (Continued)
Year ended 30 September 2006
First Mortgages Consumer Finance Total
£m £m £m
Interest receivable 428.8 122.0 550.8
Interest payable (356.8) (51.1) (407.9)
_________ _________ _________
Net interest income 72.0 70.9 142.9
Income from associates - - -
Other operating income 12.3 18.3 30.6
_________ _________ _________
Total operating income 84.3 89.2 173.5
Operating expenses (23.7) (21.7) (45.4)
Provisions for losses (2.5) (45.3) (47.8)
_________ _________ _________
58.1 22.2 80.3
Fair value net gains 2.4 0.1 2.5
_________ _________ _________
Operating profit 60.5 22.3 82.8
Tax charge (14.0)
_________
Profit after tax 68.8
=========
________________________________________________________________________________
The Paragon Group of Companies PLC
NOTES TO THE FINANCIAL INFORMATION
For the year ended 30 September 2007 (Unaudited)
4. EARNINGS PER SHARE
Earnings per ordinary share is calculated as follows:
2007 2006
Profit for the year (£m) 62.8 68.8
_________ _________
Basic weighted average number of ordinary shares
ranking for dividend during the year (million) 110.5 112.4
Dilutive effect of the weighted average number of
share options and incentive plans in issue during the
year (million) 4.2 5.3
_________ _________
Diluted weighted average number of ordinary shares
ranking for dividend during the year (million) 114.7 117.7
========= =========
Earnings per ordinary share - basic 56.8p 61.2p
- diluted 54.7p 58.4p
========= =========
Fully taxed earnings per ordinary share is based on earnings calculated by
reducing profit before tax for the period by a notional tax rate of 30%, the
standard rate of corporation tax in the United Kingdom. The numbers of shares
used are as shown above.
Fully taxed earnings per ordinary share is calculated as follows:
2007 2006
Profit before tax for the year (£m) 91.0 82.8
Notional tax at 30% (£m) (27.3) (24.8)
_________ _________
Fully taxed earnings for the year (£m) 63.7 58.0
_________ _________
Fully taxed earnings per ordinary share - basic 57.7p 51.6p
- diluted 55.6p 49.3p
========= =========
5. FINANCIAL ASSETS
2007 2006
£m £m
Loans to customers 11,034.9 8,426.6
Fair value adjustments from portfolio hedging (22.8) (14.0)
Loans to associate 15.4 -
Derivative financial assets 92.0 20.3
_________ _________
11,119.5 8,432.9
========= =========
________________________________________________________________________________
The Paragon Group of Companies PLC
NOTES TO THE FINANCIAL INFORMATION
For the year ended 30 September 2007 (Unaudited)
6. CASH AND CASH EQUIVALENTS
Cash received in respect of loan assets is not immediately available for Group
purposes, due to the terms of the warehouse facilities and the securitisations.
Included within 'Cash and Cash Equivalents' at 30 September 2007 is £875.1m
subject to such restrictions (2006: £601.2m).
'Cash and Cash Equivalents' also includes £2.2m (2006: £0.9m) held by the
Trustees of the Paragon Employee Share Ownership Plans which may only be used
to invest in the shares of the Company, pursuant to the aims of those plans.
7. CALLED-UP SHARE CAPITAL
2007 2006
£m £m
Authorised:
175,000,000 (2006: 175,000,000) ordinary shares of
10p each 17.5 17.5
========= =========
Allotted and paid-up:
121,493,242 (2006: 121,452,366) ordinary shares of
10p each 12.1 12.1
========= =========
Movements in the issued share capital in the year were:
2007 2006
Number Number
Ordinary shares of 10p each
At 1 October 2006 121,452,366 120,762,342
Shares issued in respect of share option schemes 40,876 690,024
_____________ ____________
At 30 September 2007 121,493,242 121,452,366
============= ============
8. RESERVES
2007 2006
£m £m
Share premium account 71.5 71.4
Merger reserve (70.2) (70.2)
Cash flow hedging reserve (2.4) (1.5)
Profit and loss account 359.1 314.9
_________ _________
358.0 314.6
========= =========
________________________________________________________________________________
The Paragon Group of Companies PLC
NOTES TO THE FINANCIAL INFORMATION
For the year ended 30 September 2007 (Unaudited)
9. EQUITY DIVIDEND
Amounts recognised as distributions to equity shareholders in the period:
2007 2006 2007 2006
Per share Per share £m £m
Equity dividends on ordinary
shares
Final dividend for the year
ended 30 September 2006 10.1p 7.4p 11.2 8.4
Interim dividend for the year
ended 30 September 2007 8.0p 6.9p 8.9 7.6
_________ _________ _________ _________
18.1p 14.3p 20.1 16.0
========= ========= ========= =========
Amounts paid and proposed in respect of the year:
2007 2006 2007 2006
Per share Per share £m £m
Interim dividend for the year
ended 30 September 2007 8.0p 6.9p 8.9 7.6
Proposed final dividend for
the year ended 30 September
2007 - 10.1p - 11.2
_________ _________ _________ _________
8.0p 17.0p 8.9 18.8
========= ========= ========= =========
10. FINANCIAL LIABILITIES
2007 2006
£m £m
Current liabilities
Finance lease liability 0.5 0.4
Bank loans and overdrafts 280.4 127.6
_________ _________
280.9 128.0
========= =========
Non-current liabilities
Asset backed loan notes 9,892.6 7,057.7
Corporate bond 115.8 117.9
Finance lease liability 13.4 13.9
Bank loans and overdrafts 931.7 1,267.9
Derivative financial instruments 426.1 162.3
_________ _________
11,379.6 8,619.7
========= =========
The Group's securitisation borrowings are denominated in sterling, euros and US
dollars. All currency borrowings are swapped at inception so that they have the
effect of sterling borrowings. These swaps provide an effective hedge against
exchange rate movements, but the requirement to carry them at fair value leads,
when exchange rates have moved significantly since the issue of the notes, to
large balances for the swaps being carried in the balance sheet. This is
currently the case with US dollar swaps, although the credit balance is
compensated for by retranslating the borrowings at the current exchange rate.
________________________________________________________________________________
The Paragon Group of Companies PLC
NOTES TO THE FINANCIAL INFORMATION
For the year ended 30 September 2007 (Unaudited)
11. NET CASH FLOW FROM OPERATING ACTIVITIES
2007 2006
£m £m
Profit before tax 91.0 82.8
Non-cash items included in profit and other adjustments:
Depreciation of property, plant and equipment 3.9 3.5
Amortisation of intangible assets 0.2 0.2
Share of profit of associated undertakings (0.2) -
Foreign exchange movement on borrowings (208.8) (119.3)
Other non-cash movements on borrowings 2.9 5.3
Impairment losses on loans to customers 50.5 47.8
Charge for share based remuneration 2.6 0.6
Loss on disposal of property plant and equipment 0.1 -
Net (increase) / decrease in operating assets:
Loans to customers (2,658.7) (1,951.2)
Loans to associates (15.4) -
Derivative financial instruments (71.7) 3.6
Fair value of portfolio hedges 8.8 14.0
Other receivables (4.3) (2.3)
Net increase in operating liabilities:
Derivative financial instruments 263.8 100.9
Other liabilities 35.1 5.5
_________ _________
Cash (utilised) by operations (2,500.2) (1,808.6)
Income taxes paid (11.4) (15.4)
_________ _________
(2,511.6) (1,824.0)
========= =========
12. NET CASH FLOW FROM INVESTING ACTIVITIES
2007 2006
£m £m
Proceeds on disposal of property, plant and
equipment 1.3 1.2
Purchases of property, plant and equipment (7.0) (5.2)
Purchases of intangible assets (0.2) (0.5)
Acquisition of subsidiary undertakings net of
cash acquired - 3.1
Investment in associated undertakings (0.3) -
_________ _________
Net cash (utilised) by investing activities (6.2) (1.4)
========= =========
________________________________________________________________________________
The Paragon Group of Companies PLC
NOTES TO THE FINANCIAL INFORMATION
For the year ended 30 September 2007 (Unaudited)
13. NET CASH FLOW FROM FINANCING ACTIVITIES
2007 2006
£m £m
Dividends paid (20.1) (16.0)
Issue of asset backed floating rate notes 4,262.1 3,493.6
Repayment of asset backed floating rate notes (1,223.7) (1,906.6)
Capital element of finance lease payments (0.4) (0.4)
Movement on bank facilities (184.6) 371.5
Purchase of shares (11.5) (27.4)
Exercise of options under ESOP scheme 0.8 1.9
Exercise of other share options 0.1 1.2
_________ _________
Net cash generated by financing activities 2,822.7 1,917.8
========= =========
14. COST:INCOME RATIO
Cost:income ratio is derived as follows:
2007 2006
£m £m
Operating expenses 47.7 45.4
_________ _________
Cost 47.7 45.4
_________ _________
Total operating income 184.9 173.5
Fair value net gains 4.3 2.5
_________ _________
Income 189.2 176.0
_________ _________
Cost:income 25.2% 25.8%
========= =========
This information is provided by RNS
The company news service from the London Stock Exchange
Friday, 31st May 2024
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