Implementation of IFRS - P1

Paragon Group Of Companies PLC 21 February 2006 IMPLEMENTATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS ------------------------------------------------------------- INTRODUCTION The Paragon Group of Companies PLC ('the Group'), along with other European listed entities, is required by regulators of the European Union ('EU') to prepare consolidated financial statements for the year ending 30 September 2006 and subsequent years in accordance with International Financial Reporting Standards ('IFRS'), as endorsed by the EU. Consequently, the Group is preparing to use IFRS as its accounting basis. Previously, the Group has prepared its Financial Statements in accordance with UK Generally Accepted Accounting Principles ('UK GAAP'). The Group's results for the six months ending 31 March 2006 will be the first to be published on an IFRS basis. This document explains how the Group's previously reported UK GAAP financial performance and position for the year ended 30 September 2005 are reported under IFRS. The Group's main financial statements have been restated including: â€¢ Income Statements for the periods ended 31 March and 30 September 2005; â€¢ Balance Sheets as at 1 October 2004, 31 March 2005, 30 September 2005 and 1 October 2005; â€¢ Statements of Recognised Income and Expense for the periods ended 31 March and 30 September 2005; and â€¢ Reconciliations of Movements in Equity for the periods ended 31 March and 30 September 2005. In addition, a reconciliation of the differences between UK GAAP and IFRS for each of the Income and Balance Sheet Statements is also included. The restated Financial Information included in this document is for the consolidated Group and will form the basis for the comparative information in any future results announcement. This document should be read in conjunction with the Group's interim and full year results for the year ended 30 September 2005 published on 25 May and 23 November 2005 respectively. Most of the changes required by IFRS are to be applied retrospectively from 1 October 2004 and fully reflected in the restated Financial Statements for the accounting period ended 30 September 2005. However, the standards that apply to financial instruments, IAS 32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement', are being implemented from 1 October 2005, and existing UK GAAP accounting policies are used to account for such items before this date. Therefore, the 2005 Financial Statements restated for IFRS to be included in the 2006 results will not be directly comparable with the accounting information for the year ending 30 September 2006. In order to assist readers to assess 2006 performance, illustrative financial information showing the effects of IAS 32 and IAS 39 on the way that the Group's loans to customers are accounted for, as if they had been applicable to the year ended 30 September 2005, has been included within this announcement. These provisions relate to the adoption of the Amortised Cost basis and the use of Impairment in accounting for these assets. ________________________________________________________________________________ Page 2 INTRODUCTION Whilst any 2005 equivalent impacts of the fair value provisions of IAS 39 have been omitted from the 2005 results, a schedule setting out their impact on the Balance Sheet as at 1 October 2005 has also been provided. These changes relate to the accounting for derivative financial instruments such as interest rate swaps, which the Group enters into for hedging purposes only. The fair value adjustments are not anticipated to have any material impact on the Group's earnings. The remainder of this document comprises the following sections: SECTION A: Highlights and summary adjustments to the Financial Information. SECTION B: Restatement of 2005 Financial Information under IFRS applicable to the year ended 30 September 2005 ('Statutory Basis'). The IFRS Statutory basis financial information for the 12 months ended 30 September 2005 and for the 6 months ended 31 March 2005 have been audited and reviewed respectively by Deloitte & Touche LLP, the Group's external auditors. Copies of the Auditors' opinions on these restatements are included on pages 21 to 24. SECTION C: Illustrative restatement of 2005 Financial Information under IFRS applicable to the year ending 30 September 2006, but including only those elements of IAS 32 and 39 relating to the use of the Amortised Cost basis and Impairment in valuing loan assets. ('Proforma Basis'). SECTION D: Illustrative restatement of the Balance Sheet as at 1 October 2005 under IFRS as it will be applied in the Group Accounts for the year ending 30 September 2006. ('On-going IFRS Basis') APPENDIX: Presentational changes to the published 2005 UK GAAP results to transfer them to IFRS format. The On-going Basis will be used in due course by the Group in reporting its 2006 interim and annual results. The information in this document has been prepared on the basis of the Group's expectation of the IFRS that will be applicable as at 30 September 2006. Financial Information prepared by the Group in future periods may differ from the information set out in this document due to the ongoing development and implementation of IFRS. These differences may occur due to the ongoing completion of the relevant legislation surrounding the implementation of IFRS, in particular IAS 32 and IAS 39 and to the emergence of best practice within the sector. ________________________________________________________________________________ Page 3 CONTENTS A Illustrative 2005 results under IFRS 4 B 2005 Financial Information - IFRS Statutory basis 10 C 2005 Financial Information - IFRS Proforma basis 38 D 1 October 2005 balance sheet under IFRS 55 Presentational changes to 2005 UK GAAP results 58 The information in this announcement does not comprise statutory accounts for the year ended 30 September 2005 within the meaning of Section 240 of the Companies Act 1985. Those accounts have been reported on by the Group's auditors. The report of the auditors was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. This document may contain forward-looking statements with respect to certain of the plans and current goals and expectations relating to the future financial conditions, 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. ________________________________________________________________________________ Page 4 ILLUSTRATIVE 2005 RESULTS UNDER IFRS HIGHLIGHTS Accounting under IFRS does not affect the fundamentals of the Group's business, but reflects a different basis of measurement and presentation of its performance in any one accounting period. The business, its cash flows and hedging policies are unaffected by what is principally an issue of the timing of the recognition of income, costs, assets and liabilities. Under UK GAAP, excluding the credit to the profit and loss account for goodwill, operating profit for the year to 30 September 2005 was Â£72.7m. Profit before tax was reported at Â£76.8m. In the Group's first IFRS accounts, the comparative figure for the operating profit for the year to 30 September 2005 will be restated as Â£71.8 million. Earnings per share for the year ended 30 September 2005 under IFRS is 48.9p, 4.4p less than under UK GAAP, largely as a result of the exclusion of the credit arising from amortisation of negative goodwill from IFRS earnings. The effects on profit before tax and earnings per share are set out below: -------------------------------------------------------------------------------- Impact of IFRS on profit and EPS Year to 30 September 2005 ================================================================================ Profit Profit Earnings before tax before tax per share excluding goodwill Â£m Â£m p As reported under UK GAAP 72.7 76.8 53.3 Negative goodwill - IFRS 3 - (4.1) (3.6) Defined benefit pension scheme - IAS 19 (0.3) (0.3) (0.2) Share based payments - IFRS 2 (0.2) (0.2) (0.2) Leasing - IAS 17 (0.4) (0.4) (0.4) ------------------------------------- Statutory comparative to be reported 71.8 71.8 48.9 in 2006 Effective interest rate - IAS 39 6.6 6.6 3.9 Impairment - IAS 39 (6.7) (6.7) (4.0) ------------------------------------- Comparable basis 71.7 71.7 48.8 ===================================== -------------------------------------------------------------------------------- The adjustments to profit arising from the use of IAS 39 in evaluating income generated by the Group's loan assets and impairment of these assets comprised increases to profit of Â£2.0m and Â£4.6m arising from the Group's buy-to-let mortgage and consumer finance businesses respectively, with a reduction of Â£6.7m relating to closed portfolios where the Group is not seeking new business. ________________________________________________________________________________ Page 5 ILLUSTRATIVE 2005 RESULTS UNDER IFRS -------------------------------------------------------------------------------------------------------- Analysis of adjustments to the Income Statement Year to 30 September 2005 ======================================================================================================== UK GAAP Statutory Statutory Proforma Proforma basis basis basis basis adjustments adjustments (1) (2) (3) Â£m Â£m Â£m Â£m Â£m Interest receivable 484.4 1.4 485.8 1.0 486.8 Interest payable (387.5) (3.3) (390.8) 34.9 (355.9) ------------------------------------------------------------------- Net interest income 96.9 (1.9) 95.0 35.9 130.9 Other operating income 35.9 2.0 37.9 (8.5) 29.4 ------------------------------------------------------------------- Total operating income 132.8 0.1 132.9 27.4 160.3 Operating expenses (44.2) (1.0) (45.2) - (45.2) Impairment losses (15.9) - (15.9) (27.5) (43.4) ------------------------------------------------------------------- 72.7 (0.9) 71.8 (0.1) 71.7 Amortisation of negative goodwill 4.1 (4.1) - - - ------------------------------------------------------------------- Operating profit before taxation 76.8 (5.0) 71.8 (0.1) 71.7 Taxation (16.1) 0.1 (16.0) - (16.0) ------------------------------------------------------------------- Operating profit after taxation 60.7 (4.9) 55.8 (0.1) 55.7 =================================================================== Earnings per share - basic 53.3p (4.4)p 48.9p (0.1)p 48.8p - diluted 51.1p (4.2)p 46.9p (0.1)p 46.8p =================================================================== -------------------------------------------------------------------------------------------------------- (1) UK GAAP presented in IFRS format. Analysis of the differences between these amounts and the published results are shown on pages 58 to 62. (2) Detailed analysis of the statutory basis adjustments is given on pages 10 to 37. (3) Detailed analysis of the proforma basis adjustments is given on pages 38 to 54. ________________________________________________________________________________________________________________________ Page 6 ILLUSTRATIVE 2005 RESULTS UNDER IFRS -------------------------------------------------------------------------------------------------------- Analysis of adjustments to the Balance Sheet 30 September 2005 ======================================================================================================== UK GAAP Statutory Statutory Proforma Proforma basis basis basis basis adjustments adjustments (1) (2) (3) Â£m Â£m Â£m Â£m Â£m Non-current assets Intangible assets (9.9) 10.2 0.3 - 0.3 Property, plant and equipment 8.7 11.0 19.7 - 19.7 Financial assets 5,538.7 990.0 6,528.7 (97.6) 6,431.1 Deferred tax asset - 5.7 5.7 29.2 34.9 ----------------------------------------------------------------------- 5,537.5 1,016.9 6,554.4 (68.4) 6,486.0 ----------------------------------------------------------------------- Current assets Other receivables 7.8 (1.2) 6.6 - 6.6 Cash and cash equivalents 445.2 85.2 530.4 - 530.4 ---------------------------------------------------------------------- 453.0 84.0 537.0 - 537.0 ---------------------------------------------------------------------- Total assets 5,990.5 1,100.9 7,091.4 (68.4) 7,023.0 ====================================================================== Equity shareholders' funds Share capital 12.1 - 12.1 - 12.1 Share premium 70.2 - 70.2 - 70.2 Merger reserve (70.2) - (70.2) - (70.2) Profit and loss account 318.7 4.8 323.5 (68.4) 255.1 ---------------------------------------------------------------------- Share capital and reserves 330.8 4.8 335.6 (68.4) 267.2 Own shares (22.8) - (22.8) - (22.8) ---------------------------------------------------------------------- 308.0 4.8 312.8 (68.4) 244.4 ---------------------------------------------------------------------- Current liabilities Financial liabilities - 0.9 0.9 - 0.9 Current tax liabilities - 12.9 12.9 - 12.9 Other liabilities 81.7 (21.8) 59.9 - 59.9 ---------------------------------------------------------------------- 81.7 (8.0) 73.7 - 73.7 ---------------------------------------------------------------------- Non-current liabilities Financial liabilities - 6,684.8 6,684.8 - 6,684.8 Deferred tax liability - 0.7 0.7 - 0.7 Retirement benefit obligations - 14.6 14.6 - 14.6 Provisions 2.8 (0.7) 2.1 - 2.1 Other liabilities 5,598.0 (5,595.3) 2.7 - 2.7 ---------------------------------------------------------------------- 5,600.8 1,104.1 6,704.9 - 6,704.9 ---------------------------------------------------------------------- Total liabilities 5,682.5 1,096.1 6,778.6 - 6,778.6 ---------------------------------------------------------------------- 5,990.5 1,100.9 7,091.4 (68.4) 7,023.0 ====================================================================== -------------------------------------------------------------------------------------------------------- (1) UK GAAP presented in IFRS format. Analysis of the differences between these amounts and the published results are shown on pages 58 to 62. (2) Detailed analysis of the statutory basis adjustments is given on pages 10 to 37. (3) Detailed analysis of the proforma basis adjustments is given on pages 38 to 54. ________________________________________________________________________________________________________ Page 7 ILLUSTRATIVE 2005 RESULTS UNDER IFRS -------------------------------------------------------------------------------------------------------- Analysis of adjustments to the Income Statement Six months to 31 March 2005 ======================================================================================================== UK GAAP Statutory Statutory Proforma Proforma basis basis basis basis adjustments adjustments (1) (2) (3) Â£m Â£m Â£m Â£m Â£m Interest receivable 240.9 0.7 241.6 (1.6) 240.0 Interest payable (194.9) (1.6) (196.5) 17.9 (178.6) ---------------------------------------------------------------------- Net interest income 46.0 (0.9) 45.1 16.3 61.4 Other operating income 17.0 1.0 18.0 (3.1) 14.9 ---------------------------------------------------------------------- Total operating income 63.0 0.1 63.1 13.2 76.3 Operating expenses (20.6) (0.5) (21.1) - (21.1) Impairment losses (8.5) - (8.5) (12.2) (20.7) ---------------------------------------------------------------------- 33.9 (0.4) 33.5 1.0 34.5 Amortisation of negative goodwill 2.2 (2.2) - - - ---------------------------------------------------------------------- Operating profit before taxation 36.1 (2.6) 33.5 1.0 34.5 Taxation (7.6) - (7.6) (0.3) (7.9) ---------------------------------------------------------------------- Operating profit after taxation 28.5 (2.6) 25.9 0.7 26.6 ====================================================================== Earnings per share - basic 24.9p (2.2)p 22.7p 0.6p 23.3p - diluted 23.9p (2.1)p 21.8p 0.6p 22.4p ====================================================================== -------------------------------------------------------------------------------------------------------- (1) UK GAAP presented in IFRS format. Analysis of the differences between these amounts and the published results are shown on pages 58 to 62. (2) Detailed analysis of the statutory basis adjustments is given on pages 10 to 37. (3) Detailed analysis of the proforma basis adjustments is given on pages 38 to 54. ________________________________________________________________________________________________________ Page 8 ILLUSTRATIVE 2005 RESULTS UNDER IFRS -------------------------------------------------------------------------------------------------------- Analysis of adjustments to the Balance Sheet 31 March 2005 ======================================================================================================== UK GAAP Statutory Statutory Proforma Proforma basis basis basis basis adjustments adjustments (1) (2) (3) Â£m Â£m Â£m Â£m Â£m Non-current assets Intangible assets (11.8) 12.1 0.3 - 0.3 Property, plant and equipment 9.1 11.4 20.5 - 20.5 Financial assets 4,885.9 1,201.1 6,087.0 (96.5) 5,990.5 Deferred tax asset - 5.7 5.7 28.9 34.6 ---------------------------------------------------------------------- 4,883.2 1,230.3 6,113.5 (67.6) 6,045.9 ---------------------------------------------------------------------- Current assets Other receivables 7.6 (1.2) 6.4 - 6.4 Cash and cash equivalents 452.5 96.7 549.2 - 549.2 ---------------------------------------------------------------------- 460.1 95.5 555.6 - 555.6 ---------------------------------------------------------------------- Total assets 5,343.3 1,325.8 6,669.1 (67.6) 6,601.5 ====================================================================== Equity shareholders' funds Share capital 12.0 - 12.0 - 12.0 Share premium 69.5 - 69.5 - 69.5 Merger reserve (70.2) - (70.2) - 70.2) Profit and loss account 293.8 4.0 297.8 (67.6) 230.2 ---------------------------------------------------------------------- Share capital and reserves 305.1 4.0 309.1 (67.6) 241.5 Own shares (13.8) - (13.8) - (13.8) ---------------------------------------------------------------------- 291.3 4.0 295.3 (67.6) 227.7 ---------------------------------------------------------------------- Current liabilities Financial liabilities - 1.0 1.0 - 1.0 Current tax liabilities - 13.6 13.6 - 13.6 Other liabilities 78.9 (19.6) 59.3 - 59.3 ---------------------------------------------------------------------- 78.9 (5.0) 73.9 - 73.9 ---------------------------------------------------------------------- Non-current liabilities Financial liabilities - 6,278.1 6,278.1 - 6,278.1 Deferred tax liability - 2.1 2.1 - 2.1 Retirement benefit obligations - 14.5 14.5 - 14.5 Provisions 4.5 (2.1) 2.4 - 2.4 Other liabilities 4,968.6 (4,965.8) 2.8 - 2.8 ---------------------------------------------------------------------- 4,973.1 1,326.8 6,299.9 - 6,299.9 ---------------------------------------------------------------------- Total liabilities 5,052.0 1,321.8 6,373.8 - 6,373.8 ---------------------------------------------------------------------- 5,343.3 1,325.8 6,669.1 (67.6) 6,601.5 ====================================================================== -------------------------------------------------------------------------------------------------------- (1) UK GAAP presented in IFRS format. Analysis of the differences between these amounts and the published results are shown on pages 58 to 62. (2) Detailed analysis of the statutory basis adjustments is given on pages 10 to 37. (3) Detailed analysis of the proforma basis adjustments is given on pages 38 to 54. ________________________________________________________________________________________________________ Page 9 ILLUSTRATIVE 2005 RESULTS UNDER IFRS -------------------------------------------------------------------------------------------------------- Analysis of adjustments to the Balance Sheet 1 October 2004 ======================================================================================================== UK GAAP Statutory Statutory Proforma Proforma basis basis basis basis adjustments adjustments (1) (2) (3) Â£m Â£m Â£m Â£m Â£m Non-current assets Intangible assets (14.0) 14.3 0.3 - 0.3 Property, plant and equipment 9.5 11.9 21.4 - 21.4 Financial assets 4,529.9 1,421.0 5,950.9 (97.5) 5,853.4 Deferred tax asset - 5.7 5.7 29.2 34.9 ---------------------------------------------------------------------- 4,525.4 1,452.9 5,978.3 (68.3) 5,910.0 ---------------------------------------------------------------------- Current assets Other receivables 8.9 (1.3) 7.6 - 7.6 Cash and cash equivalents 402.5 99.3 501.8 - 501.8 ---------------------------------------------------------------------- 411.4 98.0 509.4 - 509.4 ---------------------------------------------------------------------- Total assets 4,936.8 1,550.9 6,487.7 (68.3) 6,419.4 ====================================================================== Equity shareholders' funds Share capital 12.0 - 12.0 - 12.0 Share premium 68.8 - 68.8 - 68.8 Merger reserve (70.2) - (70.2) - (70.2) Profit and loss account 270.1 6.6 276.7 (68.3) 208.4 ---------------------------------------------------------------------- Share capital and reserves 280.7 6.6 287.3 (68.3) 219.0 Own shares (12.3) - (12.3) - (12.3) ---------------------------------------------------------------------- 268.4 6.6 275.0 (68.3) 206.7 ---------------------------------------------------------------------- Current liabilities Financial liabilities - 1.6 1.6 - 1.6 Current tax liabilities - 7.7 7.7 - 7.7 Other liabilities 68.0 (14.2) 53.8 - 53.8 ---------------------------------------------------------------------- 68.0 (4.9) 63.1 - 63.1 ---------------------------------------------------------------------- Non-current liabilities Financial liabilities - 6,126.5 6,126.5 - 6,126.5 Deferred tax liability - 2.1 2.1 - 2.1 Retirement benefit obligations - 14.3 14.3 - 14.3 Provisions 5.6 (2.1) 3.5 - 3.5 Other liabilities 4,594.8 (4,591.6) 3.2 - 3.2 ---------------------------------------------------------------------- 4,600.4 1,549.2 6,149.6 - 6,149.6 ---------------------------------------------------------------------- Total liabilities 4,668.4 1,544.3 6,212.7 - 6,212.7 ---------------------------------------------------------------------- 4,936.8 1,550.9 6,487.7 (68.3) 6,419.4 ====================================================================== -------------------------------------------------------------------------------------------------------- (1) UK GAAP presented in IFRS format. Analysis of the differences between these amounts and the published results are shown on pages 58 to 62. (2) Detailed analysis of the statutory basis adjustments is given on pages 10 to 37. (3) Detailed analysis of the proforma basis adjustments is given on pages 38 to 54. ________________________________________________________________________________________________________ Page 10 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS Introduction This section presents the Group's results for the year ended 30 September 2005 restated on the basis which will be used to prepare comparative information for that year for inclusion in its financial statements and interim report for the year ending 30 September 2006 (the 'Statutory Basis'). It is prepared in accordance with IFRS 1 - 'First Time Adoption of International Financial Reporting Standards' and other relevant standards expected to apply as at 30 September 2006. The financial information for the year ended 30 September 2005 and the balance sheet at 1 October 2004 have been audited by the Group's auditors. The financial information for the six months ended 31 March 2005 has been reviewed by the Group's auditors. Their audit and review opinions are set out on pages 21 to 24. The Board acknowledges its responsibility for the preparation of the preliminary IFRS information, which has been prepared in accordance with the International Financial Reporting Standards and Interpretations expected to be effective, and the policies expected to be adopted, when the Group prepares its first annual financial statements on an IFRS basis for the year ending 30 September 2006. Basis of Preparation The Group is required to prepare its consolidated financial statements for the year ending 30 September 2006 in accordance with International Financial Reporting Standards and Interpretations which will be effective and endorsed by the European Union ('EU') as at 30 September 2006. The Group has therefore prepared this information on the basis of all such standards in issue at the date of this document which are intended to be in force on this date. However, as permitted by IFRS 1, the information in this section has not been prepared in accordance with IAS 32 and IAS 39, the standards which deal with financial instruments, as the Group will apply those standards with effect from 1 October 2005. Instead, in this section, financial instruments (including loans to customers and borrowings) are accounted for under UK GAAP as applied in the Group accounts for the year ended 30 September 2005. The preliminary IFRS Financial Information is based on the statutory financial statements for the year ended 30 September 2005, which were approved by the Board on 23 November 2005. In accordance with IFRS 1 there have been no adjustments to the estimates made at the time of the preparation of the statutory financial statements. As this preliminary financial information is based upon the Group's present understanding of the requirements of IFRS, it is possible that amendments may be required before its inclusion in the financial statements for the year ending 30 September 2006 in the light of any revisions or changes to the Standards or to guidance and consensus on the application or interpretation of IFRS, or in the light of emerging best practice. ________________________________________________________________________________ Page 11 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS IFRS 1 Exemptions IFRS 1 sets out procedures which the Group must follow when it adopts IFRS for the first time as the basis of preparation of its consolidated financial statements. The Group is required to determine appropriate accounting policies in compliance with IFRS and, in general, to apply them retrospectively in determining the opening IFRS balance sheet at its date of transition, 1 October 2004. IFRS 1 provides a number of optional exemptions to this general principle. Those being adopted by the Group are described below. Business Combinations The Group has elected not to apply IFRS 3 retrospectively to business combinations that took place before the date of transition. Therefore no recalculation of the goodwill arising on any of the Group's acquisitions, all of which occurred before 1 October 2004, has taken place. Share based payment The Group has elected to apply IFRS 2 - 'Share-based Payment' only to share-based payment transactions granted after 7 November 2002 and not vested at 1 January 2005. Financial Instruments IFRS 1 allows IAS 32 - 'Financial Instruments: Disclosure and Presentation' and IAS 39 - 'Financial Instruments: Recognition and Measurement' to be applied with effect from 1 October 2005, without retrospective restatement of the balances reported in the financial statements for the year ended 30 September 2005. The Group has taken advantage of this exemption, and in this section financial instruments (including loans to customers and borrowings) are accounted for under UK GAAP, as applied in the Group accounts for the year ended 30 September 2005. Accounting policies The Group's accounting policies have been revised to comply with IFRS and are shown on pages 33 to 37. The key changes to policies, and their impacts on the Group's financial statements for the year ended 30 September 2005, are described below and their effects shown in the tables on pages 16 to 20. Where it is expected that a tax charge or credit will arise from the adjustment, provision for deferred tax is made at 30%, being the present rate of corporation tax in the UK. This is shown in the tables in the column showing the adjustment on which the charge or credit arises. Goodwill IFRS does not recognise the concept of negative goodwill. It therefore requires that any excess of the fair value of assets acquired over the fair value of consideration in an acquisition is written off immediately. Under UK GAAP the Group has carried a negative goodwill balance, which arose on the acquisition of Mortgage Trust in 2003, on its balance sheet which must therefore be released through opening reserves on transition to IFRS. Negative goodwill of Â£14.0m at 30 September 2004 will be released and no benefit from amortisation will be recognised in the income statement, reducing the operating profit for the year ended 30 September 2005 by Â£4.1m, and that for the six months ended 31 March 2005 by Â£2.2m. ________________________________________________________________________________ Page 12 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS Pensions IAS 19 - 'Employee benefits' requires that the deficit on the Group's defined benefit pension scheme be carried as a liability on the balance sheet. The Group has elected to adopt the provisions of the standard allowing actuarial gains or losses on the scheme to be recognised directly in equity and shown in the Statement of Recognised Income and Expenditure. Using this option, the accounting required by the international standard is very similar to that required by FRS 17 under UK GAAP. Disclosures relating to this calculation have been made in the Group accounts since 2001. The adjustment shown in the opening balance sheet represents the recognition of the pension scheme deficit at 30 September 2004 of Â£14.3m and the associated deferred tax asset of Â£4.3m, producing a reduction in reserves of Â£10.0m. The effect on the profit and loss account represents the reversal of the charge under SSAP 24 and its replacement with the charge required by IAS 19. A related tax credit has also been recognised. No actuarial gain or loss arose in the year ended 30 September 2005. Dividend Under IAS 10 - 'Events After the Balance Sheet Date', proposed dividends are not reflected in the accounts until approved by the shareholders at the Annual General Meeting, whereas under UK GAAP such amounts are normally accrued in the period to which they relate. The final dividend for the year ended 30 September 2004, which was approved at the Annual General Meeting on 9 February 2005, has been added back to opening reserves at 1 October 2004 and accounted for in the year ended 30 September 2005. The interim dividend paid in July 2005 has also been added back to reserves at 31 March 2005 and accounted for in the second half year. The final dividend proposed for the year ended 30 September 2005 has been added back to closing reserves and will be accounted for in the year ending 30 September 2006. Share based payment Under IFRS 2 the Group will recognise an expense in respect of share options granted under the Sharesave scheme in the same way as such expenses are recognised for the other share-based remuneration arrangements, the UK GAAP accounting for which is already in accordance with the International Standard. Leases The provisions for determining whether a lease should accounted for as a finance lease under IFRS are different from those under UK GAAP. Consequently the sale and lease-back transaction on the Group's former freehold property in Solihull falls to be treated as a finance lease under IFRS. This requires the building to be re-instated in fixed assets, a finance lease creditor to be recognised, and the Â£2.5m profit on sale to be spread over the lease term. No deferred tax is provided on this adjustment as the potential deferred tax arose from the initial recognition of the property asset and the associated lease creditor. This change reduces profit for the year ended 30 September 2005 by Â£0.4m and profit for the six months ended 31 March 2005 by Â£0.2m. This is a result of the charging of finance lease interest and depreciation rather than the rent payable. The annual impact of this change will reduce in future periods. ________________________________________________________________________________ Page 13 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS The balance sheet adjustments arising from the change in treatment for this property are shown in the table below. -------------------------------------------------------------------------------- IFRS adjustments for building lease 30 September 2005, 31 March 2005 and 1 October 2004 ================================================================================ 30 September 2005 31 March 2005 1 October 2004 Â£m Â£m Â£m Property, plant and equipment Cost 16.6 16.6 16.6 Accumulated depreciation (5.3) (4.9) (4.4) ---------------------------------------- Net book value 11.3 11.7 12.2 ======================================== Finance lease liability Current 0.4 0.3 0.4 Non-current 14.3 14.5 14.6 ---------------------------------------- 14.7 14.8 15.0 ======================================== Unamortised profit on sale 1.7 1.8 1.9 ======================================== -------------------------------------------------------------------------------- Presentation The financial information in this document is presented in accordance with the requirements of IAS 1 - 'Presentation of Financial Statements'. The presentational differences between the UK GAAP profit and loss account and balance sheet and the IFRS income statement and balance sheet are shown in the appendix to this document. Significant presentational changes are; â€¢ Intangible assets IAS 38 - 'Intangible Assets' provides that computer software, unless it is integral to a related item of hardware, should be included as an intangible asset. This balance would be included within 'Tangible Fixed Assets' under UK GAAP. The computer software carried in the balance sheet of the Group had net book value as shown below; --------------------------------------------------------------------------- Computer software Net book values =========================================================================== 30 September 31 March 1 October 2005 2005 2004 Â£m Â£m Â£m Cost 1.3 1.7 1.6 Accumulated depreciation (1.0) (1.4) (1.3) -------------------------------------------- Net book value 0.3 0.3 0.3 ============================================ --------------------------------------------------------------------------- ________________________________________________________________________________ Page 14 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS â€¢ Linked presentation Under UK GAAP certain securitisation vehicle companies acquired with Mortgage Trust were accounted for as quasi-subsidiaries of the Group, with their loan assets and funding shown using a linked presentation. Under IFRS these companies are required to be consolidated as if they were true subsidiaries by SIC-12 'Consolidation - Special Purpose Entities'. This means that the loan assets of those companies are included with the Group's Financial Assets, their cash balances are included with those of the Group and the related funding is included within Financial Liabilities, whereas under UK GAAP the net of these balances was shown in fixed asset investments. The balances reanalysed are shown in the table below; --------------------------------------------------------------------------- Reanalysis of linked presentation items =========================================================================== 30 September 31 March 1 October 2005 2005 2004 Â£m Â£m Â£m Loans to customers 1,030.8 1,244.5 1,458.4 Included in financial assets under IFRS Cash and investment balances 85.2 96.7 99.3 Included in cash and cash equivalents under IFRS ------------------------------------ Assets subject to non recourse finance 1,116.0 1,341.2 1,557.7 Non-recourse finance (1,075.2) (1,297.8) (1,520.3) Included in financial liabilities under IFRS ------------------------------------ Net investment 40.8 43.4 37.4 Included in investments under UK GAAP ==================================== --------------------------------------------------------------------------- â€¢ Tax assets and liabilities IAS 1 requires that deferred and current tax assets and liabilities are shown on the face of the balance sheet, where under UK GAAP these balances would generally be shown in the notes to the accounts. Tax amounts included within other balances under UK GAAP and shown separately under IFRS are as follows; --------------------------------------------------------------------------- Reanalysis of tax balances =========================================================================== 30 September 31 March 1 October 2005 2005 2004 Â£m Â£m Â£m Tax debtors 1.1 1.2 1.2 Included in debtors under UK GAAP Corporation tax 12.9 13.6 7.7 Included in creditors: amounts falling within one year under UK GAAP Deferred tax 0.7 2.1 2.1 Included in provisions under UK GAAP ==================================== --------------------------------------------------------------------------- _______________________________________________________________________________ Page 15 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS â€¢ Financial Liabilities IAS 1 requires that financial liabilities are shown on the face of the balance sheet, where under UK GAAP these balances would generally be shown in the notes to the accounts. Accordingly the total of the amounts disclosed in the financial statements under UK GAAP as 'Bank loans and overdrafts', 'Asset backed loan notes' and 'Corporate bond' is shown on the face of the balance sheet under IFRS. The reanalysis of the creditor balances shown in the notes to the UK GAAP accounts is shown below; --------------------------------------------------------------------------- Reanalysis of creditor balances =========================================================================== 30 September 31 March 1 October 2005 2005 2004 Â£m Â£m Â£m Amounts falling due within one year Bank loans and overdrafts 0.5 0.7 1.2 Shown as financial liabilities under IFRS -------------------------------- Corporation tax 12.9 13.6 7.7 Shown separately under IFRS -------------------------------- Proposed dividend 8.8 6.3 6.8 Accruals 58.4 57.2 50.7 -------------------------------- Shown as other payables under IFRS 67.2 63.5 57.5 -------------------------------- UK GAAP creditors falling due within one year 80.6 77.8 66.4 ================================ Amounts falling due after more than one year Asset backed loan notes 4,486.6 4,149.8 3,690.0 Corporate bond 118.2 - - Bank loans 990.5 816.0 901.6 -------------------------------- Shown as financial liabilities under IFRS 5,595.3 4,965.8 4,591.6 Accruals 1.6 1.6 2.0 Shown as other payables under IFRS -------------------------------- UK GAAP creditors falling due after more than one year 5,596.9 4,967.4 4,593.6 ================================ --------------------------------------------------------------------------- Segmental Reporting Under IAS 14 the Group will be required to provide segmental information on each of its principal business areas. Having reviewed the Group's operations in the light of the requirements of the Standard, the Board has concluded that the segments which will be reported upon will be Buy-to-Let Mortgage Lending, Consumer Lending, including the Secured Lending, Car Finance and Retail Finance businesses, and other lending operations, which will principally comprise the closed books. ________________________________________________________________________________ Page 16 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS ------------------------------------------------------------------------------------------------------------------------ Analysis of adjustments to the Income Statement - Statutory basis Year ended 30 September 2005 ======================================================================================================================== UK Goodwill Pensions Dividend Share Leases Presentation Statutory Statutory GAAP based basis basis payment adjustments Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Interest receivable 484.4 - 1.4 - - - - 1.4 485.8 Interest payable (387.5) - (1.9) - - (1.4) - (3.3) (390.8) ------------------------------------------------------------------------------------------------ Net interest income 96.9 - (0.5) - - (1.4) - (1.9) 95.0 Other operating income 35.9 - - - - 2.0 - 2.0 37.9 ------------------------------------------------------------------------------------------------ Total operating income 132.8 - (0.5) - - 0.6 - 0.1 132.9 Operating expenses (44.2) - 0.2 - (0.2) (1.0) - (1.0) (45.2) Impairment losses (15.9) - - - - - - - (15.9) ------------------------------------------------------------------------------------------------ 72.7 - (0.3) - (0.2) (0.4) - (0.9) 71.8 Amortisation of goodwill 4.1 (4.1) - - - - - (4.1) - ------------------------------------------------------------------------------------------------ Operating profit before 76.8 (4.1) (0.3) - (0.2) (0.4) - (5.0) 71.8 taxation Taxation (16.1) - 0.1 - - - - 0.1 (16.0) ------------------------------------------------------------------------------------------------ Operating profit after taxation 60.7 (4.1) (0.2) - (0.2) (0.4) - (4.9) 55.8 ================================================================================================ ------------------------------------------------------------------------------------------------------------------------ ________________________________________________________________________________________________________________________ Page 17 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS ------------------------------------------------------------------------------------------------------------------------ Analysis of adjustments to the Balance Sheet - Statutory basis 30 September 2005 ======================================================================================================================== UK Goodwill Pensions Dividend Share Leases Presentation Statutory Statutory GAAP based basis basis payment adjustments Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Non-current assets Intangible assets (9.9) 9.9 - - - - 0.3 10.2 0.3 Property, plant and equipment 8.7 - - - - 11.3 (0.3) 11.0 19.7 Financial assets 5,538.7 - - - - - 990.0 990.0 6,528.7 Deferred tax asset - - 4.4 - 0.1 - 1.2 5.7 5.7 -------------------------------------------------------------------------------------------------- 5,537.5 9.9 4.4 - 0.1 11.3 991.2 1,016.9 6,554.4 -------------------------------------------------------------------------------------------------- Current assets Other receivables 7.8 - - - - - (1.2) (1.2) 6.6 Cash and cash equivalents 445.2 - - - - - 85.2 85.2 530.4 -------------------------------------------------------------------------------------------------- 453.0 - - - - - 84.0 84.0 537.0 -------------------------------------------------------------------------------------------------- Total assets 5,990.5 9.9 4.4 - 0.1 11.3 1,075.2 1,100.9 7,091.4 ================================================================================================== Equity shareholders' funds Share capital 12.1 - - - - - - - 12.1 Share premium 70.2 - - - - - - - 70.2 Merger reserve (70.2) - - - - - - - (70.2) Profit and loss account 318.7 9.9 (10.2) 8.8 1.4 (5.1) - 4.8 323.5 -------------------------------------------------------------------------------------------------- Share capital and reserves 330.8 9.9 (10.2) 8.8 1.4 (5.1) - 4.8 335.6 Own shares (22.8) - - - - - - - (22.8) ------------------------------------------------------------------------------------------------ 308.0 9.9 (10.2) 8.8 1.4 (5.1) - 4.8 312.8 -------------------------------------------------------------------------------------------------- Current liabilities Financial liabilities - - - - - 0.4 0.5 0.9 0.9 Current tax liabilities - - - - - - 12.9 12.9 12.9 Other liabilities 81.7 - - (8.8) (1.3) 1.7 (13.4) (21.8) 59.9 -------------------------------------------------------------------------------------------------- 81.7 - - (8.8) (1.3) 2.1 - (8.0) 73.7 -------------------------------------------------------------------------------------------------- Non-current liabilities Financial liabilities - - - - - 14.3 6,670.5 6,684.8 6,684.8 Deferred tax liability - - - - - - 0.7 0.7 0.7 Retirement benefit obligations - - 14.6 - - - - 14.6 14.6 Provisions 2.8 - - - - - (0.7) (0.7) 2.1 Other liabilities 5,598.0 - - - - - (5,595.3) (5,595.3) 2.7 -------------------------------------------------------------------------------------------------- 5,600.8 - 14.6 - - 14.3 1,075.2 1,104.1 6,704.9 -------------------------------------------------------------------------------------------------- 5,990.5 9.9 4.4 - 0.1 11.3 1,075.2 1,100.9 7,091.4 ================================================================================================== ------------------------------------------------------------------------------------------------------------------------ ________________________________________________________________________________________________________________________ Page 18 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS ----------------------------------------------------------------------------------------------------------------------- Analysis of adjustments to the Income statement - Statutory basis Six months ended 31 March 2005 ======================================================================================================================== UK Goodwill Pensions Dividend Share Leases Presentation Statutory Statutory GAAP based basis basis payment adjustments Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Interest receivable 240.9 - 0.7 - - - - 0.7 241.6 Interest payable (194.9) - (0.9) - - (0.7) - (1.6) (196.5) -------------------------------------------------------------------------------------------------- Net interest income 46.0 - (0.2) - - (0.7) - (0.9) 45.1 Other operating income 17.0 - - - - 1.0 - 1.0 18.0 -------------------------------------------------------------------------------------------------- Total operating income 63.0 - (0.2) - - 0.3 - 0.1 63.1 Operating expenses (20.6) - 0.1 - (0.1) (0.5) - (0.5) (21.1) Impairment losses (8.5) - - - - - - - (8.5) -------------------------------------------------------------------------------------------------- 33.9 - (0.1) - (0.1) (0.2) - (0.4) 33.5 Amortisation of goodwill 2.2 (2.2) - - - - - (2.2) - -------------------------------------------------------------------------------------------------- Operating profit before 36.1 (2.2) (0.1) - (0.1) (0.2) - (2.6) 33.5 taxation Taxation (7.6) - - - - - - - (7.6) -------------------------------------------------------------------------------------------------- Operating profit after taxation 28.5 (2.2) (0.1) - (0.1) (0.2) - (2.6) 25.9 ================================================================================================== ------------------------------------------------------------------------------------------------------------------------ ________________________________________________________________________________________________________________________ Page 19 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS ------------------------------------------------------------------------------------------------------------------------ Analysis of adjustments to the Balance Sheet - Statutory basis 31 March 2005 ======================================================================================================================== UK GAAP Goodwill Pensions Dividend Share Leases Presentation Statutory Statutory based basis basis payment adjustments Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Non-current assets Intangible assets (11.8) 11.8 - - - - 0.3 12.1 0.3 Property, plant and equipment 9.1 - - - - 11.7 (0.3) 11.4 20.5 Financial assets 4,885.9 - - - - - 1,201.1 1,201.1 6,087.0 Deferred tax asset - - 4.4 - 0.1 - 1.2 5.7 5.7 ---------------------------------------------------------------------------------------------------- 4,883.2 11.8 4.4 - 0.1 11.7 1,202.3 1,230.3 6,113.5 ---------------------------------------------------------------------------------------------------- Current assets Other receivables 7.6 - - - - - (1.2) (1.2) 6.4 Cash and cash equivalents 452.5 - - - - - 96.7 96.7 549.2 ---------------------------------------------------------------------------------------------------- 460.1 - - - - - 95.5 95.5 555.6 ---------------------------------------------------------------------------------------------------- Total assets 5,343.3 11.8 4.4 - 0.1 11.7 1,297.8 1,325.8 6,669.1 ==================================================================================================== Equity shareholders' funds Share 12.0 - - - - - - - 12.0 capital Share 69.5 - - - - - - - 69.5 premium Merger (70.2) - - - - - - - (70.2) reserve Profit and loss account 293.8 11.8 (10.1) 6.3 0.9 (4.9) - 4.0 297.8 ---------------------------------------------------------------------------------------------------- Share capital and reserves 305.1 11.8 (10.1) 6.3 0.9 (4.9) - 4.0 309.1 Own shares (13.8) - - - - - - - (13.8) ---------------------------------------------------------------------------------------------------- 291.3 11.8 (10.1) 6.3 0.9 (4.9) - 4.0 295.3 ---------------------------------------------------------------------------------------------------- Current liabilities Financial liabilities - - - - - 0.3 0.7 1.0 1.0 Current tax liabilities - - - - - - 13.6 13.6 13.6 Other liabilities 78.9 - - (6.3) (0.8) 1.8 (14.3) (19.6) 59.3 ---------------------------------------------------------------------------------------------------- 78.9 - - (6.3) (0.8) 2.1 - (5.0) 73.9 ---------------------------------------------------------------------------------------------------- Non-current liabilities Financial liabilities - - - - - 14.5 6,263.6 6,278.1 6,278.1 Deferred tax liability - - - - - - 2.1 2.1 2.1 Retirement benefit obligations - - 14.5 - - - - 14.5 14.5 Provisions 4.5 - - - - - (2.1) (2.1) 2.4 Other liabilities 4,968.6 - - - - - (4,965.8) (4,965.8) 2.8 ---------------------------------------------------------------------------------------------------- 4,973.1 - 14.5 - - 14.5 1,297.8 1,326.8 6,299.9 ---------------------------------------------------------------------------------------------------- 5,343.3 11.8 4.4 - 0.1 11.7 1,297.8 1,325.8 6,669.1 ==================================================================================================== ------------------------------------------------------------------------------------------------------------------------ ________________________________________________________________________________________________________________________ Page 20 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS ------------------------------------------------------------------------------------------------------------------------ Analysis of adjustments to the Balance Sheet - Statutory basis 1 October 2004 ======================================================================================================================== UK GAAP Goodwill Pensions Dividend Share Leases Presentation Statutory Statutory based basis basis payment adjustments Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Non-current assets Intangible assets (14.0) 14.0 - - - - 0.3 14.3 0.3 Property, plant and equipment 9.5 - - - - 12.2 (0.3) 11.9 21.4 Financial assets 4,529.9 - - - - - 1,421.0 1,421.0 5,950.9 Deferred tax asset - - 4.3 - 0.1 - 1.3 5.7 5.7 ---------------------------------------------------------------------------------------------------- 4,525.4 14.0 4.3 - 0.1 12.2 1,422.3 1,452.9 5,978.3 ---------------------------------------------------------------------------------------------------- Current assets Other receivables 8.9 - - - - - (1.3) (1.3) 7.6 Cash and cash equivalents 402.5 - - - - - 99.3 99.3 501.8 ---------------------------------------------------------------------------------------------------- 411.4 - - - - - 98.0 98.0 509.4 ---------------------------------------------------------------------------------------------------- Total assets 4,936.8 14.0 4.3 - 0.1 12.2 1,520.3 1,550.9 6,487.7 ==================================================================================================== Equity shareholders' funds Share 12.0 - - - - - - - 12.0 capital Share 68.8 - - - - - - - 68.8 premium Merger (70.2) - - - - - - - (70.2) reserve Profit and loss account 270.1 14.0 (10.0) 6.8 0.5 (4.7) - 6.6 276.7 ---------------------------------------------------------------------------------------------------- Share capital and reserves 280.7 14.0 (10.0) 6.8 0.5 (4.7) - 6.6 287.3 Own shares (12.3) - - - - - - - (12.3) ---------------------------------------------------------------------------------------------------- 268.4 14.0 (10.0) 6.8 0.5 (4.7) - 6.6 275.0 ==================================================================================================== Current liabilities Financial liabilities - - - - - 0.4 1.2 1.6 1.6 Current tax liabilities - - - - - - 7.7 7.7 7.7 Other liabilities 68.0 - - (6.8) (0.4) 1.9 (8.9) (14.2) 53.8 ---------------------------------------------------------------------------------------------------- 68.0 - - (6.8) (0.4) 2.3 - (4.9) 63.1 ---------------------------------------------------------------------------------------------------- Non-current liabilities Financial liabilities - - - - - 14.6 6,111.9 6,126.5 6,126.5 Deferred tax liability - - - - - - 2.1 2.1 2.1 Retirement benefit obligations - - 14.3 - - - - 14.3 14.3 Provisions 5.6 - - - - - (2.1) (2.1) 3.5 Other liabilities 4,594.8 - - - - - (4,591.6) (4,591.6) 3.2 ---------------------------------------------------------------------------------------------------- 4,600.4 - 14.3 - - 14.6 1,520.3 1,549.2 6,149.6 ---------------------------------------------------------------------------------------------------- 4,936.8 14.0 4.3 - 0.1 12.2 1,520.3 1,550.9 6,487.7 ==================================================================================================== ------------------------------------------------------------------------------------------------------------------------ ________________________________________________________________________________________________________________________ Page 21 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS -------------------------------------------------------------------------------- Opinions of the Group Auditors - Deloitte & Touche LLP ================================================================================ INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS OF THE PARAGON GROUP OF COMPANIES PLC ON THE PRELIMINARY OPENING AND COMPARATIVE IFRS BALANCE SHEETS We have audited the preliminary opening and comparative IFRS balance sheets of The Paragon Group of Companies PLC at 1 October 2004 and 30 September 2005, the income statement for the year ended 30 September 2005, the consolidated statement of recognised income and expense for the year ended 30 September 2005 and the related notes (together the 'Preliminary IFRS Financial Information') set out on pages 25 to 28 and pages 33 to 37. This report is made solely to the Board of Directors, in accordance with our engagement letter dated 25 November 2005 and the addendum dated 30 January 2006 and solely for the purpose of assisting with the transition to IFRS. Our audit work has been undertaken so that we might state to the company's board of directors those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our audit work, for our report, or for the opinions we have formed. Respective responsibilities of directors and auditors The company's directors are responsible for ensuring that the Company and the Group maintains proper accounting records and for the preparation of the Preliminary IFRS Financial Information on the basis set out on pages 33 to 37, which describes how IFRS will be applied under IFRS 1, including the assumptions the directors have made about the standards and interpretations expected to be effective, and the policies expected to be adopted, when the company prepares its first complete set of IFRS financial statements as at 30 September 2006. Our responsibility is to audit the Preliminary IFRS Financial Information in accordance with relevant United Kingdom legal and regulatory requirements and auditing standards and report to you our opinion as to whether the Preliminary IFRS Financial Information is prepared, in all material respects, on the basis set out on pages 33 to 37. Basis of audit opinion We conducted our audit in accordance with United Kingdom auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Preliminary IFRS Financial Information. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the Preliminary IFRS Financial Information and of whether the accounting policies are appropriate to the circumstances of the group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Preliminary IFRS Financial Information is free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the Preliminary IFRS Financial Information. ________________________________________________________________________________ Page 22 2005 FINANCIAL INFROMATION - IFRS STATUTORY BASIS Without qualifying our opinion, we draw attention to the fact that pages 33 to 37 explain why there is a possibility that the accompanying Preliminary IFRS Financial Information may require adjustment before constituting the final IFRS Financial Information. Moreover, we draw attention to the fact that, under IFRSs, only a complete set of financial statements comprising a balance sheet, income statement, statement of changes in equity, cash flow statement, together with comparative financial information and explanatory notes, can provide a fair presentation of the company's financial position, results of operations and cash flows in accordance with IFRSs. Opinion In our opinion the Preliminary IFRS Financial Information is prepared, in all material respects, on the basis set out on pages 33 to 37 which describes how IFRS will be applied under IFRS 1, including the assumptions the directors have made about the standards and interpretations expected to be effective, and the policies expected to be adopted, when the company prepares its first complete set of IFRS financial statements as at 30 September 2006. Deloitte & Touche LLP Chartered Accountants Birmingham 21 February 2006 ________________________________________________________________________________ Page 23 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS INDEPENDENT REVIEW REPORT TO THE BOARD OF DIRECTORS OF THE PARAGON GROUP OF COMPANIES PLC ON THE PRELIMINARY COMPARATIVE FINANCIAL INFORMATION FOR THE SIX MONTHS ENDED 31 MARCH 2005 We have reviewed the accompanying preliminary International Financial Reporting Standards (IFRS) consolidated financial information of The Paragon Group of Companies PLC ('the Company') and its subsidiaries (together, 'the Group') for the six months ended 31 March 2005 which comprises the consolidated income statement, the consolidated balance sheet, the consolidated statement of recognised income and expense and related notes set out on pages 29 to 37 inclusive (hereinafter referred to as 'preliminary financial information'). This preliminary financial information is the responsibility of the Company's directors. It has been prepared as part of the Company's conversion to IFRS in accordance with the basis set out pages 33 to 37 which describe how IFRSs have been applied under IFRS 1, including the assumptions the directors have made about the standards and interpretations expected to be effective, and the policies expected to be adopted, when the company prepares its first complete set of IFRS financial statements as at 30 September 2006. Our responsibility is to express an opinion on this preliminary IFRS comparative financial information based on our review. Our review report is made solely to the Company in accordance with Bulletin 1999 /4 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed. Review work performed We conducted our review in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. A review consists principally of making enquiries of management and applying analytical procedures to the preliminary financial information and underlying financial data and, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of control and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom auditing standards and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an opinion on the preliminary financial information. Emphasis of matter Without modifying our review conclusion, we draw attention to the fact that pages 33 to 37 explain why there is a possibility that the accompanying preliminary financial information may require adjustment before constituting the final IFRS comparative information for the six months ended 31 March 2005. Moreover, we draw attention to the fact that, under IFRSs, only a complete set of financial statements comprising an income statement, balance sheet, statement of changes in equity, cash flow statement, together with comparative financial information and explanatory notes, can provide a fair presentation of the Group's financial position, results of operations and cash flows in accordance with IFRSs. ________________________________________________________________________________ Page 24 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the preliminary financial information for the six months ended 31 March 2005 which has been prepared in accordance with the basis set out on pages 33 to 37. Deloitte & Touche LLP Chartered Accountants Birmingham 21 February 2006 ________________________________________________________________________________ Page 25 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS -------------------------------------------------------------------------------- Consolidated Income Statement - Statutory basis Year ended 30 September 2005 ================================================================================ IFRS Statutory basis UK GAAP Year ended Year ended 30 September 2005 30 September 2005 Â£m Â£m Interest receivable 485.8 484.4 Interest payable and similar charges (390.8) (387.5) -------------------------------------- Net interest income 95.0 96.9 Other operating income 37.9 35.9 -------------------------------------- Total operating income 132.9 132.8 Operating expenses (45.2) (44.2) Provisions for losses (15.9) (15.9) -------------------------------------- 71.8 72.7 Amortisation of goodwill - 4.1 -------------------------------------- Operating profit being profit on ordinary activities before taxation 71.8 76.8 Tax charge on profit on ordinary activities (16.0) (16.1) -------------------------------------- Profit on ordinary activities after taxation for the financial year 55.8 60.7 ====================================== Earnings per share - basic 48.9p 53.3p - diluted 46.9p 51.1p ====================================== The results for the year relate entirely to continuing operations. -------------------------------------------------------------------------------- UK GAAP profit and loss accounts are presented in accordance with IFRS format. ________________________________________________________________________________ Page 26 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS -------------------------------------------------------------------------------- Consolidated Balance Sheets - Statutory basis 30 September 2005 and 1 October 2004 =============================================================================== IFRS Statutory basis UK GAAP 30 1 30 1 September October September October 2005 2004 2005 2004 Â£m Â£m Â£m Â£m Assets employed Non-current assets Intangible assets 0.3 0.3 (9.9) (14.0) Property, plant and equipment 19.7 21.4 8.7 9.5 Financial assets 6,528.7 5,950.9 5,538.7 4,529.9 Deferred tax assets 5.7 5.7 - - ---------------------------------------------- 6,554.4 5,978.3 5,537.5 4,525.4 ---------------------------------------------- Current assets Other receivables 6.6 7.6 7.8 8.9 Cash and cash equivalents 530.4 501.8 445.2 402.5 ---------------------------------------------- 537.0 509.4 453.0 411.4 ---------------------------------------------- 7,091.4 6,487.7 5,990.5 4,936.8 ============================================== Financed by Equity shareholders' funds Called-up share capital 12.1 12.0 12.1 12.0 Share premium account 70.2 68.8 70.2 68.8 Merger reserve (70.2) (70.2) (70.2) (70.2) Profit and loss account 323.5 276.7 318.7 270.1 ---------------------------------------------- Share capital and reserves 335.6 287.3 330.8 280.7 Own shares (22.8) (12.3) (22.8) (12.3) ---------------------------------------------- 312.8 275.0 308.0 268.4 ---------------------------------------------- Current liabilities Financial liabilities 0.9 1.6 - - Current tax liabilities 12.9 7.7 - - Other liabilities 59.9 53.8 81.7 68.0 ---------------------------------------------- 73.7 63.1 81.7 68.0 ---------------------------------------------- Non-current liabilities Financial liabilities 6,684.8 6,126.5 - - Deferred tax liability 0.7 2.1 - - Retirement benefit obligations 14.6 14.3 - - Provisions 2.1 3.5 2.8 5.6 Other liabilities 2.7 3.2 5,598.0 4,594.8 ---------------------------------------------- 6,704.9 6,149.6 5,600.8 4,600.4 ---------------------------------------------- 7,091.4 6,487.7 5,990.5 4,936.8 ============================================== -------------------------------------------------------------------------------- UK GAAP balance sheets are presented in accordance with IFRS format. ________________________________________________________________________________ Page 27 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS -------------------------------------------------------------------------------- Consolidated Statement of Recognised Income and Expense - Statutory basis Year ended 30 September 2005 ================================================================================ IFRS Statutory basis UK GAAP Year ended Year ended 30 September 30 September 2005 2005 Â£m Â£m Profit for the period 55.8 60.7 Actuarial gain / (loss) on pension - - deficit Tax on items taken directly to equity - - ------------------------------- Total recognised income and expense for the period 55.8 60.7 =============================== -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Consolidated Reconciliation of Movements in Equity - Statutory basis Year ended 30 September 2005 ================================================================================ IFRS Statutory basis UK GAAP Year ended Year ended 30 September 2005 30 September 2005 Â£m Â£m Total recognised income and expense for the period 55.8 60.7 Dividends (12.4) (14.4) Net movement in own shares (10.5) (10.5) Surplus on transactions in own shares 2.3 2.3 Charge for share based payments 2.6 1.5 ---------------------------------------- Total movements in equity in the period 37.8 39.6 Opening equity 275.0 268.4 ---------------------------------------- Closing equity 312.8 308.0 ======================================== -------------------------------------------------------------------------------- ________________________________________________________________________________ Page 28 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS Earnings per share The basic earnings per share figures have been calculated by dividing the profit attributable to shareholders by the weighted average number of shares outstanding during the period. For the year ended 30 September 2005 the weighted average number of shares outstanding was 114.1 million. The diluted earnings per share figures have been calculated by adjusting the weighted average number of shares outstanding for the effects of all dilutive potential ordinary shares. For the year ended 30 September 2005 the adjusted weighted average number of shares outstanding was 119.0 million. Neither of the above numbers of shares is affected by the transition to IFRS. ________________________________________________________________________________ Page 29 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS -------------------------------------------------------------------------------- Consolidated Income Statement - Statutory basis Six months ended 31 March 2005 ================================================================================ IFRS Statutory basis UK GAAP Six months ended 31 March Six months ended 31 March 2005 2005 Â£m Â£m Interest receivable 241.6 240.9 Interest payable and similar charges (196.5) (194.9) -------------------------------------- Net interest income 45.1 46.0 Other operating income 18.0 17.0 -------------------------------------- Total operating income 63.1 63.0 Operating expenses (21.1) (20.6) Provisions for losses (8.5) (8.5) -------------------------------------- 33.5 33.9 Amortisation of goodwill - 2.2 -------------------------------------- Operating profit being profit on ordinary activities before taxation 33.5 36.1 Tax charge on profit on ordinary activities (7.6) (7.6) -------------------------------------- Profit on ordinary activities after taxation for the financial year 25.9 28.5 ====================================== Earnings per share - basic 22.7p 24.9p - diluted 21.8p 23.9p ====================================== The results for the year relate entirely to continuing operations. -------------------------------------------------------------------------------- UK GAAP profit and loss accounts are presented in accordance with IFRS format. ________________________________________________________________________________ Page 30 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS -------------------------------------------------------------------------------- Consolidated Balance Sheets - Statutory basis 31 March 2005 ================================================================================ IFRS Statutory basis UK GAAP 31 March 31 March 2005 2005 Â£m Â£m Assets employed Non-current assets Intangible assets 0.3 (11.8) Property, plant and equipment 20.5 9.1 Financial assets 6,087.0 4,885.9 Deferred tax assets 5.7 - ----------------------------- 6,113.5 4,883.2 ----------------------------- Current assets Other receivables 6.4 7.6 Cash and cash equivalents 549.2 452.5 ----------------------------- 555.6 460.1 ----------------------------- 6,669.1 5,343.3 ============================= Financed by Equity shareholders' funds Called-up share capital 12.0 12.0 Share premium account 69.5 69.5 Merger reserve (70.2) (70.2) Profit and loss account 297.8 293.8 ----------------------------- Share capital and reserves 309.1 305.1 Own shares (13.8) (13.8) ----------------------------- 295.3 291.3 ----------------------------- Current liabilities Financial liabilities 1.0 - Current tax liabilities 13.6 - Other liabilities 59.3 78.9 ----------------------------- 73.9 78.9 ----------------------------- Non-current liabilities Financial liabilities 6,278.1 - Deferred tax liability 2.1 - Retirement benefit obligations 14.5 - Provisions 2.4 4.5 Other liabilities 2.8 4,968.6 ----------------------------- 6,299.9 4,973.1 ----------------------------- 6,669.1 5,343.3 ============================= -------------------------------------------------------------------------------- UK GAAP balance sheets are presented in accordance with IFRS format. ________________________________________________________________________________ Page 31 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS -------------------------------------------------------------------------------- Consolidated Statement of Recognised Income and Expense - Statutory basis Six months ended 31 March 2005 ================================================================================ IFRS Statutory basis UK GAAP Six months ended Six months ended 31 March 31 March 2005 2005 Â£m Â£m Profit for the period 25.9 28.5 Actuarial gain / (loss) on pension - - deficit Tax on items taken directly to equity - - ------------------------------ Total recognised income and expense for the period 25.9 28.5 ============================== -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Consolidated Reconciliation of Movements in Equity - Statutory basis Six months ended 31 March 2005 ================================================================================ IFRS Statutory basis UK GAAP Six months ended 31 March Six months ended 31 March 2005 2005 Â£m Â£m Total recognised income and expense for the period 25.9 28.5 Dividends (6.5) (6.0) Net movement in own shares (1.5) (1.5) Surplus on transactions in own shares 1.3 1.3 Charge for share based payments 1.1 0.6 ------------------------------------- Total movements in equity in the period 20.3 22.9 Opening equity 275.0 268.4 ------------------------------------- Closing equity 295.3 291.3 ===================================== -------------------------------------------------------------------------------- ________________________________________________________________________________ Page 32 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS Earnings per share The basic earnings per share figures have been calculated by dividing the profit attributable to shareholders by the weighted average number of shares outstanding during the period. For the six months ended 31 March 2005 this number was 114.2 million. The diluted earnings per share figures have been calculated by adjusting the weighted average number of shares outstanding for the effects of all dilutive potential ordinary shares. For the six months ended 31 March 2005 this number was 119.0 million. Neither of the above numbers of shares is affected by the transition to IFRS. ________________________________________________________________________________ Page 33 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS -------------------------------------------------------------------------------- Accounting policies Statutory basis =============================================================================== The financial information has been prepared in accordance with International Financial Reporting Standards expected to be applicable in the preparation of the Group Financial Statements for the year ending 30 September 2006, except that, as permitted for the compilation of comparative information by IFRS 1 - 'First Time Adoption of International Financial Reporting Standards' the requirements of IAS 32 - 'Financial Instruments: Disclosure and Presentation' and IAS 39 - 'Financial Instruments: Recognition and Measurement' have not been applied in preparing the financial information relating to the year ended 30 September 2005. Financial instruments are accounted for using the policies and practices previously adopted under UK GAAP. The particular policies adopted are described below. (a) Accounting convention The financial information is prepared under the historical cost convention. (b) Basis of consolidation The consolidated accounts deal with the accounts of the Company and its subsidiaries made up to 30 September 2005. Subsidiaries comprise all those entities over which the Group has control. The results of businesses acquired are dealt with in the consolidated accounts from the date of acquisition. In accordance with SIC 12 - 'Consolidation: Special Purpose Entities' companies owned by charitable trusts into which loans originated by Mortgage Trust Limited were sold as part of its securitisation programme where the Group enjoys the benefits of ownership are treated as subsidiaries. Similarly trusts set up to hold shares in conjunction with the Group's employee share ownership arrangements are also treated as subsidiaries. (c) Goodwill Goodwill arising from the purchase of subsidiary undertakings, representing the excess of the fair values of acquired assets over the fair value of the purchase consideration, is held on the balance sheet and annually reviewed to determine whether any impairment has occurred. Negative goodwill is written off as it arises. As permitted by IFRS 1, the Group has elected not to apply IFRS 3 - 'Business Combinations' to combinations taking place before its transition date to IFRS (1 October 2004). Therefore any goodwill which was written off to reserves under UK GAAP will not be charged or credited to the profit and loss account on any future disposal of the business to which it relates. (d) Intangible assets Intangible assets comprise purchased computer software, which is capitalised where it has a sufficiently enduring nature. This is stated at cost less accumulated amortisation. Amortisation is provided in equal instalments at a rate of 25% per annum. ________________________________________________________________________________ Page 34 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS (e) Leases Leases are accounted for as operating or finance leases in accordance with IAS 17 - 'Leases'. A finance lease is deemed to be one which transfers substantially all of the risks and rewards of the ownership of the asset concerned. Any other lease is an operating lease. Rental income and costs under operating leases are credited or charged to the profit and loss account over the period of the leases. (f) Contract hire Motor vehicles acquired in connection with contract hire arrangements are sold to finance houses, who lease them to customers for a pre- determined period. The Group has undertaken to repurchase these vehicles at the end of the lease term. In accordance with the requirements of IAS 17, the assets are not derecognised on the sale to the finance house and remain as the Group's assets and the consideration received is spread over the customer's lease term. (g) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation. Cost for property held under a sale and leaseback transaction represents the sale value. Depreciation is provided on cost in equal annual instalments over the lives of the assets. The rates of depreciation are as follows: Short leasehold premises over the term of the lease Computer hardware 25% per annum Furniture, fixtures and office equipment 15% per annum Company motor vehicles 25% per annum Motor vehicles subject to contract hire over the term of the lease arrangements (h) Loans to customers Loans are stated at cost, inclusive of brokers' commissions payable on origination, less provision for diminution in value. The amount provided is an estimate of the amount needed to reduce the carrying value of the asset to its expected recoverable amount and is based on the application of formulae which take into account the nature of each portfolio, borrower payment profile and expected losses. Interest arising on loans is recognised in the profit and loss account as it is charged to borrowers, to the extent that is expected to be recoverable. Other fee income arising from borrower accounts is recognised in 'other income' as it is charged. This is the policy adopted under UK GAAP and will thus not be applicable in accounting for these assets from 1 October 2005. (i) Finance lease receivables Finance lease receivables are included within 'Loans to Customers' at the total amount receivable less interest not yet accrued, unamortised commissions and provision for doubtful debts. Income from finance lease contracts is accounted for on the actuarial basis. ________________________________________________________________________________ Page 35 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS (j) Brokers' commissions Brokers' commissions payable on mortgage loans are amortised over an appropriate period. Unamortised commission balances are included within 'Loans to Customers'. Brokers' commissions payable on other loans are amortised on a straight -line basis over the period of the loans to which they relate. The balances being amortised are included within 'Loans to Customers'. Amortisation of brokers' commissions is recognised within interest payable. This is the policy adopted under UK GAAP and will thus not be applicable in accounting for these assets from 1 October 2005. (k) Cash and cash equivalents Balances shown as cash and cash equivalents in the balance sheet comprise demand deposits and short-term deposits with banks with maturities of not more than 90 days. (l) Own shares Shares in The Paragon Group of Companies PLC held in treasury or by the trustee of the Group's employee share ownership plans are shown on the balance sheet as a deduction in arriving at total equity. Own shares are stated at cost. (m) Taxation The charge for taxation is based on the profit for the period and takes into account taxation deferred because of temporary differences. Temporary differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Tax relating to items taken directly to equity is also taken directly to equity. (n) Borrowings Borrowings are stated at their outstanding value less unamortised issue costs and discounts on issue. Discounts on issue of borrowings and initial costs incurred in arranging funding facilities are amortised over the period of the facility. (o) Finance lease payables Balances due on the lease arising from the sale and leaseback of a Group property are recognised in creditors at the total amount payable less interest not yet accrued. Interest is accrued for on the actuarial basis. The profit which arose on the sale and leaseback transaction is held in accruals and deferred income and is being credited to profit over the lease term on a straight line basis. (p) Financial instruments Derivative instruments utilised by the Group comprise currency swap, interest rate swap, interest rate option and forward interest rate agreements. All such instruments are used for hedging purposes to alter the risk profile of the existing underlying exposure of the Group in line with the Group's risk management policies. Amounts payable or receivable in respect of interest rate swaps are recognised as adjustments to interest expense over the period of the contracts. The Group does not enter into speculative derivative contracts. This is the policy adopted under UK GAAP and will thus not be applicable in accounting for these assets from 1 October 2005. ________________________________________________________________________________ Page 36 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS (q) Deferred taxation Deferred taxation is provided in full on temporary differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Deferred tax assets are recognised to the extent that it is regarded as probable that they will be recovered. As required by IAS 12 - 'Income Taxes', deferred tax assets and liabilities are not discounted to take account of the expected timing of realisation. It is assumed that all taxable IFRS transition adjustments give rise to tax adjustments to reserves at the current UK tax rate of 30%, although this has yet to be confirmed by HM Revenue and Customs. (r) Retirement benefit obligations The expected cost of providing pensions within the funded defined benefit scheme, determined on the basis of annual valuations by professionally qualified actuaries using the projected unit method, is charged to the profit and loss account. Actuarial gains and losses are recognised in full in the period in which they occur and do not form part of the result for the period, being recognised in the Statement of Recognised Income and Expenditure. The retirement benefit obligation recognised in the Balance Sheet represents the present value of the defined benefit obligation, as adjusted for unrecognised past service cost, and as reduced by the fair value of scheme assets at the balance sheet date. Both the return on investment expected in the period and the expected financing cost of the liability, as estimated at the beginning of the period are recognised in the result for the period. Any variances against these estimates in the year form part of the actuarial gain or loss. The assets of the scheme are held separately from those of the Group in an independently administered fund. The charge to the profit and loss account for providing pensions under defined contribution pension schemes is equal to the contributions payable to such schemes for the year. (s) Provisions Provisions are recognised where there is a present obligation as a result of a past event, it is probable that this obligation will result in an outflow of resources and this outflow can be reliably quantified. Provisions are discounted where this effect is material. (t) Fee and commission income Other income includes administration fees charged to borrowers, which are credited when the related service is performed and commissions receivable on the sale of insurances, which are taken to profit at the point at which the Group becomes unconditionally entitled to the income. (u) Share based payment In accordance with IFRS 2 - 'Share based payment', the fair value at the date of grant of awards to be made in respect of options and shares granted under the terms of the Group's various share based employee incentive arrangements is charged to the profit and loss account over the period between the date of grant and the vesting date. As permitted by IFRS 1, only those options and awards granted after 7 November 2002 and not vested at 1 January 2005 have been restated on transition to IFRS. ________________________________________________________________________________ Page 37 2005 FINANCIAL INFORMATION - IFRS STATUTORY BASIS (v) Dividends In accordance with IAS 10 - 'Events after the balance sheet date', dividends payable on ordinary shares are recognised in equity once they are appropriately authorised and are no longer at the discretion of the Company. Dividends declared after the balance sheet date, but before the authorisation of the financial statements remain within Shareholders' Funds. ________________________________________________________________________________ Page 38 2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS Introduction As already noted under 'IFRS 1 Exemptions', the Group will not apply IAS 32 and 39 in the comparative figures to be published within the 2006 Financial Statements. These standards will therefore be adopted with effect from 1 October 2005. In order to provide information comparable to the 2006 Financial Statements, this section sets out illustrative financial information for the year ended 30 September 2005 analysing most of the changes arising from the implementation of these two standards. This includes primarily the effects of these standards on the Group's accounting for its loan balances with customers. This section does not address the impact of the fair value provisions of IAS 39, which will primarily affect the accounting for those derivative contracts entered into by the Group for hedging purposes. Basis of preparation The Group is required to prepare its consolidated financial statements for the year ending 30 September 2006 in accordance with International Financial Reporting Standards and Interpretations which will be effective and endorsed by the European Union ('EU') as at 30 September 2006. In preparing this additional illustrative information the Group has applied the requirements of IAS 32 and IAS 39 in as far as they relate to the accounting for its loans to customers and borrowings balances, but not those requirements related to the fair valuing of derivative financial instruments. Such instruments are held by the Group for hedging purposes only, and no trading in such items takes place. IAS 39 provides specific rules under which the effect on the result of the fair value provisions of IAS 39 is mitigated in the case of instruments held for hedging purposes; however such treatment is only permitted when the required hedging documentation is in place. IAS 39 was not issued in its final form until December 2004 and the Group was unable to put the relevant documentation in place to allow the appropriate treatment throughout the year ended 30 September 2005, rendering any results produced on a strict IFRS basis for that year potentially misleading. Hence these provisions are ignored for the purposes of this illustration. The treatment shown represents the Group's present understanding of the effect which the EIR and Impairment provisions of IAS 32 and IAS 39 will have on the Group's accounting for its loan assets in the accounts for the year ending 30 September 2006. It is therefore possible that these treatments may change, in the light of any changes to IFRS or its interpretation or emerging market practice before those accounts are produced. IFRS 1 exemptions The exemptions applied in the preparation of this illustrative financial information are the same as those described in the previous section, with the exception that certain provisions of IAS 32 and IAS 39 have been adopted. Accounting policies The Group's accounting policies have been revised to comply with IFRS. Those changes required to adopt the 'statutory' basis are described in the previous section on pages 11 to 20. The additional changes to policies, and their impacts on the Group's financial statements for the year ended 30 September 2005 to adopt the 'proforma' basis, are described below and their effects shown in the tables on pages 42 to 46. Where it is expected that a tax charge or credit will arise from the adjustment, provision for deferred tax is made at 30%, being the present rate of corporation tax in the UK. This is shown in the tables in the column showing the adjustment on which the charge or credit arises. _______________________________________________________________________________ Page 39 2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS Effective interest rate - 'EIR' Under IAS 39, the Group's loan assets are required to be accounted for on the 'amortised cost' basis. This requires that, for all loan assets other than those arising from hire purchase agreements, revenue be recognised on a constant basis over the estimated actual (not contractual) life of the loan, taking into account all costs and fees attributable to the loan, in the same way that all these factors would be taken into account in determining an investment return for a product. The rate at which income is recognised is referred to as the 'Effective Interest Rate' ('EIR'). The revenue stream includes estimated early redemption penalties. For the Group this means that costs such as commissions and other external (but not internal) fees paid would be spread across the expected life of the loan, income such as up front fees would be spread on a similar basis and the effect of discounts offered would be spread over the expected life of the loan rather than the discount period. Similarly where fees or penalties are payable at the point of settlement, these also are required to be estimated and included in the EIR calculation. For items such as commissions, which are already spread under the Group's UK GAAP accounting policies, the new basis involves a change in the period over which they are spread, but for completion fees and similar items the income would be deferred rather than being taken at the advance date. The impact of these changes, analysed by business segment, is shown in the table on page 40. The adjustments in respect of the buy-to-let assets arise principally from spreading commissions paid over a longer period and the carry forward of fee income within loans to customers, while those on consumer finance assets relate principally to changes in the periods over which commissions are spread and the inclusion of terminal charges in the EIR calculations. The adjustments on other assets, which affect primarily owner-occupied mortgages written by Mortgage Trust before its acquisition by the Group, relate to changes in the periods over which commissions are spread and the spreading of initial fees and terminal fees. Impairment IAS 39 replaces the concept of provision for losses on customer loans with 'loan impairment'. An impairment is only recognised when there is evidence to suggest, at the balance sheet date that the value of the loan is impaired. Under IFRS the amount of impairment provision required on any loan is that amount which would reduce the carrying value of the asset to the value of the future cash flows related to the loan, discounted at the original EIR. Where security exists, the security value can be used to offset any shortfall arising from the discounting approach. In the Group's UK GAAP provisioning methodology discounting is not used and therefore additional provisions are required by IFRS where balances are to be collected over a long period, as is the case with many of the assets held within the Group's closed loan books. The change in definitions and the compulsory discounting methodology have resulted in changes to the Group's provisioning methodologies, with differing results on different asset portfolios. These are summarised in the table on page 40. The largest part of the adjustment arises from the Group's closed portfolios, on loans arising from those business areas in which the Group is no longer active. The effect on the active businesses is not great, due in the greater part to their exemplary credit quality. ________________________________________________________________________________ Page 40 2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS -------------------------------------------------------------------------------- Changes arising from the use of EIR and IFRS Impairment model Illustrative financial information ================================================================================ 30 31 1 September March October 2005 2005 2004 Â£m Â£m Â£m BALANCE SHEET Increase / (decrease) in loans to customers Buy-to-let - EIR 1.2 1.2 (0.8) Buy-to-let - Impairment (0.1) 0.2 - ------------------------- 1.1 1.4 (0.8) ------------------------- Consumer finance - EIR (0.1) (5.1) (6.6) Consumer finance - Impairment (3.8) (1.8) (1.8) ------------------------- (3.9) (6.9) (8.4) ------------------------- Other assets - EIR 2.1 2.8 4.0 Other assets - Impairment (96.9) (93.8) (92.3) ------------------------- (94.8) (91.0) (88.3) ------------------------- Total EIR 3.2 (1.1) (3.4) Total Impairment (100.8) (95.4) (94.1) ------------------------- (97.6) (96.5) (97.5) ========================= INCOME STATEMENT Increase / (decrease) in profit for the year / six months then ended Buy-to-let - EIR 2.1 2.1 Buy-to-let - Impairment (0.1) 0.2 --------------- 2.0 2.3 --------------- Consumer finance - EIR 6.5 1.4 Consumer finance - Impairment (1.9) - --------------- 4.6 1.4 --------------- Other assets - EIR (2.0) (1.2) Other assets - Impairment (4.7) (1.5) --------------- (6.7) (2.7) --------------- Total EIR 6.6 2.3 Total Impairment (6.7) (1.3) --------------- (0.1) 1.0 =============== -------------------------------------------------------------------------------- ________________________________________________________________________________ Page 41 2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS Income recognition The application of the EIR methodology to the loan book and the provisioning calculation changes the method by which it is assessed, under IAS 18, where an amount charged to a borrower is irrecoverable at the time at which the charge is made and therefore may not be recognised as revenue. The application of this new methodology results in the recognition in income of interest on delinquent accounts which had previously not been recognised on the grounds that it was expected to be irrecoverable. This has a corresponding effect on the charge for impairment. The financial effect of this change is an increase in interest income of Â£10.9m being recognised in the income statement for the six months ended 31 March 2005, and an increase in interest income of Â£20.8m in the income statement for the year ended 30 September 2005, with, in each case, an equal increase in the amount charged for impairment. Presentation Under UK GAAP the Group has accounted for the cost of commissions paid to business introducers within interest payable and mortgage fee income as other income. Under IFRS both of these amounts form part of interest income and hence must be transferred to this line in the profit and loss account. In the year ended 30 September 2005 the amount included in interest payable for commissions was Â£34.9m and in the six months to 31 March 2005, Â£17.9m. Other operating income of Â£8.5m credited in the year ended 30 September 2005 and Â£3.1m credited in the six months ended 31 March 2005 has been included in the EIR calculation under IFRS. ________________________________________________________________________________________________________________________ Page 42 2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS ------------------------------------------------------------------------------------------------------------------------ Analysis of adjustments to the Income Statement - Proforma basis Year ended 30 September 2005 ======================================================================================================================== UK Statutory EIR Impairment Income Presentation Proforma Proforma GAAP basis recognition basis basis adjustments adjustments Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Interest receivable 484.4 1.4 6.6 - 20.8 (26.4) 1.0 486.8 Interest payable (387.5) (3.3) - - - 34.9 34.9 (355.9) ----------------------------------------------------------------------------------------------- Net interest income 96.9 (1.9) 6.6 - 20.8 8.5 35.9 130.9 Other operating income 35.9 2.0 - - - (8.5) (8.5) 29.4 ----------------------------------------------------------------------------------------------- Total operating income 132.8 0.1 6.6 - 20.8 - 27.4 160.3 Operating expenses (44.2) (1.0) - - - - - (45.2) Impairment losses (15.9) - - (6.7) (20.8) - (27.5) (43.4) ----------------------------------------------------------------------------------------------- 72.7 (0.9) 6.6 (6.7) - - (0.1) 71.7 Amortisation of goodwill 4.1 (4.1) - - - - - - ----------------------------------------------------------------------------------------------- Operating profit before 76.8 (5.0) 6.6 (6.7) - - (0.1) 71.7 taxation Taxation (16.1) 0.1 (2.1) 2.1 - - - (16.0) ----------------------------------------------------------------------------------------------- Operating profit after taxation 60.7 (4.9) 4.5 (4.6) - - (0.1) 55.7 =============================================================================================== ------------------------------------------------------------------------------------------------------------------------ ________________________________________________________________________________________________________________________ Page 43 2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS ------------------------------------------------------------------------------------------------------------------------ Analysis of adjustments to the Balance Sheet - Proforma basis 30 September 2005 ======================================================================================================================== UK GAAP Statutory EIR Impairment Income Presentation Proforma Proforma basis recognition basis basis adjustments adjustments Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Non-current assets Intangible assets (9.9) 10.2 - - - - - 0.3 Property, plant and equipment 8.7 11.0 - - - - - 19.7 Financial assets 5,538.7 990.0 3.2 (100.8) - - (97.6) 6,431.1 Deferred tax asset - 5.7 (1.0) 30.2 - - 29.2 34.9 ------------------------------------------------------------------------------------------------ 5,537.5 1,016.9 2.2 (70.6) - - (68.4) 6,486.0 ------------------------------------------------------------------------------------------------ Current assets Other receivables 7.8 (1.2) - - - - - 6.6 Cash and cash equivalents 445.2 85.2 - - - - - 530.4 ------------------------------------------------------------------------------------------------ 453.0 84.0 - - - - - 537.0 ------------------------------------------------------------------------------------------------ Total assets 5,990.5 1,100.9 2.2 (70.6) - - (68.4) 7,023.0 ================================================================================================ Equity shareholders' funds Share 12.1 - - - - - - 12.1 capital Share 70.2 - - - - - - 70.2 premium Merger (70.2) - - - - - - (70.2) reserve Profit and loss account 318.7 4.8 2.2 (70.6) - - (68.4) 255.1 ------------------------------------------------------------------------------------------------ Share capital and reserves 330.8 4.8 2.2 (70.6) - - (68.4) 267.2 Own shares (22.8) - - - - - - (22.8) ------------------------------------------------------------------------------------------------ 308.0 4.8 2.2 (70.6) - - (68.4) 244.4 ------------------------------------------------------------------------------------------------ Current liabilities Financial liabilities - 0.9 - - - - - 0.9 Current tax liabilities - 12.9 - - - - - 12.9 Other liabilities 81.7 (21.8) - - - - - 59.9 ------------------------------------------------------------------------------------------------ 81.7 (8.0) - - - - - 73.7 ------------------------------------------------------------------------------------------------ Non-current liabilities Financial liabilities - 6,684.8 - - - - - 6,684.8 Deferred tax liability - 0.7 - - - - - 0.7 Retirement benefit obligations - 14.6 - - - - - 14.6 Provisions 2.8 (0.7) - - - - - 2.1 Other liabilities 5,598.0 (5,595.3) - - - - - 2.7 ------------------------------------------------------------------------------------------------ 5,600.8 1,104.1 - - - - - 6,704.9 ------------------------------------------------------------------------------------------------ 5,990.5 1,100.9 2.2 (70.6) - - (68.4) 7,023.0 ================================================================================================ ------------------------------------------------------------------------------------------------------------------------ ________________________________________________________________________________________________________________________ Page 44 2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS ------------------------------------------------------------------------------------------------------------------------ Analysis of adjustments to the Income Statement - Proforma basis Six months ended 31 March 2005 ======================================================================================================================== UK Statutory EIR Impairment Income Presentation Proforma Proforma GAAP basis recognition basis basis adjustments adjustments Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Interest receivable 240.9 0.7 2.3 - 10.9 (14.8) (1.6) 240.0 Interest payable (194.9) (1.6) - - - 17.9 17.9 (178.6) ----------------------------------------------------------------------------------------------- Net interest income 46.0 (0.9) 2.3 - 10.9 3.1 16.3 61.4 Other operating income 17.0 1.0 - - - (3.1) (3.1) 14.9 ----------------------------------------------------------------------------------------------- Total operating income 63.0 0.1 2.3 - 10.9 - 13.2 76.3 Operating expenses (20.6) (0.5) - - - - - (21.1) Impairment losses (8.5) - - (1.3) (10.9) - (12.2) (20.7) ----------------------------------------------------------------------------------------------- 33.9 (0.4) 2.3 (1.3) - - 1.0 34.5 Amortisation of goodwill 2.2 (2.2) - - - - - - ----------------------------------------------------------------------------------------------- Operating profit before 36.1 (2.6) 2.3 (1.3) - - 1.0 34.5 taxation Taxation (7.6) - (0.7) 0.4 - - (0.3) (7.9) ----------------------------------------------------------------------------------------------- Operating profit after taxation 28.5 (2.6) 1.6 (0.9) - - 0.7 26.6 =============================================================================================== ------------------------------------------------------------------------------------------------------------------------ ________________________________________________________________________________________________________________________ Page 45 2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS ------------------------------------------------------------------------------------------------------------------------ Analysis of adjustments to the Balance Sheet - Proforma basis 31 March 2005 ======================================================================================================================== UK GAAP Statutory EIR Impairment Income Presentation Proforma Proforma basis recognition basis basis adjustments adjustments Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Non-current assets Intangible assets (11.8) 12.1 - - - - - 0.3 Property, plant and equipment 9.1 11.4 - - - - - 20.5 Financial assets 4,885.9 1,201.1 (1.1) (95.4) - - (96.5) 5,990.5 Deferred tax asset - 5.7 0.3 28.6 - - 28.9 34.6 ------------------------------------------------------------------------------------------------ 4,883.2 1,230.3 (0.8) (66.8) - - (67.6) 6,045.9 ------------------------------------------------------------------------------------------------ Current assets Other receivables 7.6 (1.2) - - - - - 6.4 Cash and cash equivalents 452.5 96.7 - - - - - 549.2 ------------------------------------------------------------------------------------------------ 460.1 95.5 - - - - - 555.6 ------------------------------------------------------------------------------------------------ Total assets 5,343.3 1,325.8 (0.8) (66.8) - - (67.6) 6,601.5 ================================================================================================ Equity shareholders' funds Share 12.0 - - - - - - 12.0 capital Share 69.5 - - - - - - 69.5 premium Merger (70.2) - - - - - - (70.2) reserve Profit and loss account 293.8 4.0 (0.8) (66.8) - - (67.6) 230.2 ------------------------------------------------------------------------------------------------ Share capital and reserves 305.1 4.0 (0.8) (66.8) - - (67.6) 241.5 Own shares (13.8) - - - - - - (13.8) ------------------------------------------------------------------------------------------------ 291.3 4.0 (0.8) (66.8) - - (67.6) 227.7 ------------------------------------------------------------------------------------------------ Current liabilities Financial liabilities - 1.0 - - - - - 1.0 Current tax liabilities - 13.6 - - - - - 13.6 Other liabilities 78.9 (19.6) - - - - - 59.3 ------------------------------------------------------------------------------------------------ 78.9 (5.0) - - - - - 73.9 ------------------------------------------------------------------------------------------------ Non-current liabilities Financial liabilities - 6,278.1 - - - - - 6,278.1 Deferred tax liability - 2.1 - - - - - 2.1 Retirement benefit obligations - 14.5 - - - - - 14.5 Provisions 4.5 (2.1) - - - - - 2.4 Other liabilities 4,968.6 (4,965.8) - - - - - 2.8 ------------------------------------------------------------------------------------------------- 4,973.1 1,326.8 - - - - - 6,299.9 ------------------------------------------------------------------------------------------------- 5,343.3 1,325.8 (0.8) (66.8) - - (67.6) 6,601.5 ================================================================================================= ------------------------------------------------------------------------------------------------------------------------ ________________________________________________________________________________________________________________________ Page 46 2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS ------------------------------------------------------------------------------------------------------------------------ Analysis of adjustments to the Balance Sheet - Proforma basis 1 October 2004 ======================================================================================================================== UK GAAP Statutory EIR Impairment Income Presentation Proforma Proforma basis recognition basis basis adjustments adjustments Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Non-current assets Intangible assets (14.0) 14.3 - - - - - 0.3 Property, plant and equipment 9.5 11.9 - - - - - 21.4 Financial assets 4,529.9 1,421.0 (3.4) (94.1) - - (97.5) 5,853.4 Deferred tax asset - 5.7 1.0 28.2 - - 29.2 34.9 ------------------------------------------------------------------------------------------------ 4,525.4 1,452.9 (2.4) (65.9) - - (68.3) 5,910.0 ------------------------------------------------------------------------------------------------ Current assets Other receivables 8.9 (1.3) - - - - - 7.6 Cash and cash equivalents 402.5 99.3 - - - - - 501.8 ------------------------------------------------------------------------------------------------ 411.4 98.0 - - - - - 509.4 ------------------------------------------------------------------------------------------------ Total assets 4,936.8 1,550.9 (2.4) (65.9) - - (68.3) 6,419.4 ================================================================================================ Equity shareholders' funds Share 12.0 - - - - - - 12.0 capital Share 68.8 - - - - - - 68.8 premium Merger (70.2) - - - - - - (70.2) reserve Profit and loss account 270.1 6.6 (2.4) (65.9) - - (68.3) 208.4 ------------------------------------------------------------------------------------------------ Share capital and reserves 280.7 6.6 (2.4) (65.9) - - (68.3) 219.0 Own shares (12.3) - - - - - - (12.3) ------------------------------------------------------------------------------------------------ 268.4 6.6 (2.4) (65.9) - - (68.3) 206.7 ------------------------------------------------------------------------------------------------ Current liabilities Financial liabilities - 1.6 - - - - - 1.6 Current tax liabilities - 7.7 - - - - - 7.7 Other liabilities 68.0 (14.2) - - - - - 53.8 ------------------------------------------------------------------------------------------------ 68.0 (4.9) - - - - - 63.1 ------------------------------------------------------------------------------------------------ Non-current liabilities Financial liabilities - 6,126.5 - - - - - 6,126.5 Deferred tax liability - 2.1 - - - - - 2.1 Retirement benefit obligations - 14.3 - - - - - 14.3 Provisions 5.6 (2.1) - - - - - 3.5 Other liabilities 4,594.8 (4,591.6) - - - - - 3.2 ------------------------------------------------------------------------------------------------ 4,600.4 1,549.2 - - - - - 6,149.6 ------------------------------------------------------------------------------------------------ 4,936.8 1,550.9 (2.4) (65.9) - - (68.3) 6,419.4 ================================================================================================ ------------------------------------------------------------------------------------------------------------------------ ________________________________________________________________________________________________________________________ Page 47 2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS -------------------------------------------------------------------------------- Consolidated Income Statement - Proforma basis Year ended 30 September 2005 ================================================================================= IFRS Proforma basis UK GAAP Year ended Year ended 30 September 2005 30 September 2005 Â£m Â£m Interest receivable 486.8 484.4 Interest payable and similar charges (355.9) (387.5) ------------------------------------- Net interest income 130.9 96.9 Other operating income 29.4 35.9 ------------------------------------- Total operating income 160.3 132.8 Operating expenses (45.2) (44.2) Provisions for losses (43.4) (15.9) ------------------------------------- 71.7 72.7 Amortisation of goodwill - 4.1 ------------------------------------- Operating profit being profit on ordinary activities before taxation 71.7 76.8 Tax charge on profit on ordinary activities (16.0) (16.1) ------------------------------------- Profit on ordinary activities after taxation for the financial year 55.7 60.7 ===================================== Earnings per share - basic 48.8p 53.3p - diluted 46.8p 51.1p ===================================== The results for the year relate entirely to continuing operations. -------------------------------------------------------------------------------- UK GAAP profit and loss accounts are presented in accordance with IFRS format. ________________________________________________________________________________ Page 48 2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS -------------------------------------------------------------------------------- Consolidated Balance Sheets - Proforma basis 30 September 2005 and 1 October 2004 ================================================================================ IFRS Proforma basis UK GAAP 30 September 1 October 30 September 1 October 2005 2004 2005 2004 Â£m Â£m Â£m Â£m Assets employed Non-current assets Intangible assets 0.3 0.3 (9.9) (14.0) Property, plant and equipment 19.7 21.4 8.7 9.5 Financial assets 6,431.1 5,853.4 5,538.7 4,529.9 Deferred tax assets 34.9 34.9 - - -------------------------------------------------- 6,486.0 5,910.0 5,537.5 4,525.4 -------------------------------------------------- Current assets Other receivables 6.6 7.6 7.8 8.9 Cash and cash equivalents 530.4 501.8 445.2 402.5 -------------------------------------------------- 537.0 509.4 453.0 411.4 -------------------------------------------------- 7,023.0 6,419.4 5,990.5 4,936.8 ================================================== Financed by Equity shareholders' funds Called-up share capital 12.1 12.0 12.1 12.0 Share premium account 70.2 68.8 70.2 68.8 Merger reserve (70.2) (70.2) (70.2) (70.2) Profit and loss account 255.1 208.4 318.7 270.1 -------------------------------------------------- Share capital and reserves 267.2 219.0 330.8 280.7 Own shares (22.8) (12.3) (22.8) (12.3) -------------------------------------------------- 244.4 206.7 308.0 268.4 -------------------------------------------------- Current liabilities Financial liabilities 0.9 1.6 - - Current tax liabilities 12.9 7.7 - - Other liabilities 59.9 53.8 81.7 68.0 -------------------------------------------------- 73.7 63.1 81.7 68.0 -------------------------------------------------- Non-current liabilities Financial liabilities 6,684.8 6,126.5 - - Deferred tax liability 0.7 2.1 - - Retirement benefit obligations 14.6 14.3 - - Provisions 2.1 3.5 2.8 5.6 Other liabilities 2.7 3.2 5,598.0 4,594.8 -------------------------------------------------- 6,704.9 6,149.6 5,600.8 4,600.4 -------------------------------------------------- 7,023.0 6,419.4 5,990.5 4,936.8 ================================================== -------------------------------------------------------------------------------- UK GAAP balance sheets are presented in accordance with IFRS format. ________________________________________________________________________________ Page 49 2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS -------------------------------------------------------------------------------- Consolidated Statement of Recognised Income and Expense - Proforma basis Year ended 30 September 2005 ================================================================================ IFRS Proforma basis UK GAAP Year ended Year ended 30 September 30 September 2005 2005 Â£m Â£m Profit for the period 55.7 60.7 Actuarial gain / (loss) on pension - - deficit Tax on items taken directly to equity - - ----------------------------- Total recognised income and expense for the period 55.7 60.7 ============================= -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Consolidated Reconciliation of Movements in Equity - Proforma basis Year ended 30 September 2005 ================================================================================ IFRS Proforma basis UK GAAP Year ended Year ended 30 September 2005 30 September 2005 Â£m Â£m Total recognised income and expense for the period 55.7 60.7 Dividends (12.4) (14.4) Net movement in own shares (10.5) (10.5) Surplus on transactions in own shares 2.3 2.3 Charge for share based payments 2.6 1.5 -------------------------------------- Total movements in equity in the period 37.7 39.6 Opening equity 206.7 268.4 -------------------------------------- Closing equity 244.4 308.0 ====================================== -------------------------------------------------------------------------------- ________________________________________________________________________________ Page 50 2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS Earnings per share The basic earnings per share figures have been calculated by dividing the profit attributable to shareholders by the weighted average number of shares outstanding during the period. For the year ended 30 September 2005 the weighted average number of shares outstanding was 114.1 million. The diluted earnings per share figures have been calculated by adjusting the weighted average number of shares outstanding for the effects of all dilutive potential ordinary shares. For the year ended 30 September 2005 the adjusted weighted average number of shares outstanding was 119.0 million. Neither of the above numbers of shares is affected by the transition to IFRS. ________________________________________________________________________________ Page 51 2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS -------------------------------------------------------------------------------- Consolidated Income Statement - Proforma basis Six months ended 31 March 2005 ================================================================================ IFRS Proforma basis UK GAAP Six months ended 31 March Six months ended 31 March 2005 2005 Â£m Â£m Interest receivable 240.0 240.9 Interest payable and similar charges (178.6) (194.9) ------------------------------------- Net interest income 61.4 46.0 Other operating income 14.9 17.0 ------------------------------------- Total operating income 76.3 63.0 Operating expenses (21.1) (20.6) Provisions for losses (20.7) (8.5) ------------------------------------- 34.5 33.9 Amortisation of goodwill - 2.2 ------------------------------------- Operating profit being profit on ordinary activities before taxation 34.5 36.1 Tax charge on profit on ordinary activities (7.9) (7.6) ------------------------------------ Profit on ordinary activities after taxation for the financial year 26.6 28.5 ==================================== Earnings per share - basic 23.3p 24.9p - diluted 22.4p 23.9p ==================================== The results for the year relate entirely to continuing operations. -------------------------------------------------------------------------------- UK GAAP profit and loss accounts are presented in accordance with IFRS format. ________________________________________________________________________________ Page 52 2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS -------------------------------------------------------------------------------- Consolidated Balance Sheet - Proforma basis 31 March 2005 ================================================================================ IFRS Proforma basis UK GAAP 31 March 31 March 2005 2005 Â£m Â£m Assets employed Non-current assets Intangible assets 0.3 (11.8) Property, plant and equipment 20.5 9.1 Financial assets 5,990.5 4,885.9 Deferred tax assets 34.6 - ---------------------------- 6,045.9 4,883.2 ---------------------------- Current assets Other receivables 6.4 7.6 Cash and cash equivalents 549.2 452.5 ---------------------------- 555.6 460.1 ---------------------------- 6,601.5 5,343.3 ============================ Financed by Equity shareholders' funds Called-up share capital 12.0 12.0 Share premium account 69.5 69.5 Merger reserve (70.2) (70.2) Profit and loss account 230.2 293.8 ---------------------------- Share capital and reserves 241.5 305.1 Own shares (13.8) (13.8) ---------------------------- 227.7 291.3 ---------------------------- Current liabilities Financial liabilities 1.0 - Current tax liabilities 13.6 - Other liabilities 59.3 78.9 ---------------------------- 73.9 78.9 ---------------------------- Non-current liabilities Financial liabilities 6,278.1 - Deferred tax liability 2.1 - Retirement benefit obligations 14.5 - Provisions 2.4 4.5 Other liabilities 2.8 4,968.6 ---------------------------- 6,299.9 4,973.1 ---------------------------- 6,601.5 5,343.3 ============================ -------------------------------------------------------------------------------- UK GAAP balance sheets are presented in accordance with IFRS format. ________________________________________________________________________________ Page 53 2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS -------------------------------------------------------------------------------- Consolidated Statement of Recognised Income and Expense - Proforma basis Six months ended 31 March 2005 ================================================================================ IFRS Proforma basis UK GAAP Six months ended Six months ended 31 March 31 March 2005 2005 Â£m Â£m Profit for the period 26.6 28.5 Actuarial gain / (loss) on pension - - deficit Tax on items taken directly to equity - - -------------------------------- Total recognised income and expense for the period 26.6 28.5 ================================ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Consolidated Reconciliation of Movements in Equity - Proforma basis Six months ended 31 March 2005 ================================================================================ IFRS Proforma basis UK GAAP Six months ended Six months ended 31 March 31 March 2005 2005 Â£m Â£m Total recognised income and expense for the period 26.6 28.5 Dividends (6.5) (6.0) Net movement in own shares (1.5) (1.5) Surplus on transactions in own shares 1.3 1.3 Charge for share based payments 1.1 0.6 ---------------------------------------- Total movements in equity in the period 21.0 22.9 Opening equity 206.7 268.4 ---------------------------------------- Closing equity 227.7 291.3 ======================================== -------------------------------------------------------------------------------- ________________________________________________________________________________ Page 54 2005 FINANCIAL INFORMATION - IFRS PROFORMA BASIS Earnings per share The basic earnings per share figures have been calculated by dividing the profit attributable to shareholders by the weighted average number of shares outstanding during the period. For the six months ended 31 March 2005 this number was 114.2 million. The diluted earnings per share figures have been calculated by adjusting the weighted average number of shares outstanding for the effects of all dilutive potential ordinary shares. For the six months ended 31 March 2005 this number was 119.0 million. Neither of the above numbers of shares is affected by the transition to IFRS. ________________________________________________________________________________ This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOW FR BCGDDXGDGGLG

Companies

Paragon Banking Group (PAG)

Friday, 31st May 2024

COMPANIES COVERED:

JD. FLTR NWG

Flutter shares tank as primary listing moves to New York and the CFO steps aside, JD Sports struggles to impress despite sales growth in challenging market and Nat West buys £1.24bn of its own stock back from the government.

Full Archive

UK 100

Latest directors dealings

2 days ago FDM Group (Holdings)
2 days ago Neo Energy Metals
2 days ago DCC (CDI)
2 days ago 3i Group
2 days ago 3i Group

All directors dealings today