Interim Management Statement

RNS Number : 4228M

Paragon Group Of Companies PLC

29 January 2009

 

THE PARAGON GROUP OF COMPANIES PLC

Interim Management Statement

The Paragon Group of Companies PLC today publishes its Interim Management Statement based on unaudited financial information for the period from 1 October to 31 December 2008.

The Group remained profitable during the first quarter of the financial year, with operating profits before taxation of £7 million. During this period the business was affected by a number of factors, including exceptionally high LIBOR rates as a result of the unprecedented turbulence in banking markets. Whilst the range of possible outcomes for the current financial year remains wide, the Board currently expects the performance of the Group to be comfortably within the current range of analysts' forecasts*.

Trading

Trading conditions have been extremely difficult over the period, requiring continued close management of the portfolio as credit conditions tightened further, the banking markets faltered and short term money market rates, both in absolute terms and relative to official UK interest rates, showed significant fluctuations.  

Income and costs were in line with expectations during the quarter, although there was an increase in the charge for bad debts as a consequence of the difficult economic conditions. These conditions have impacted on borrower performance over the period, with very high LIBOR rates during the period affecting customers' ability to meet mortgage payments. Despite the high quality of the portfolio and the careful management of the assets, this resulted in an increase in arrears across the portfolio although arrears remain significantly below the latest published arrears data. On a like for like basis arrears on the buy to let portfolio stood at 107 bp at the end of the quarter, compared to the September 2008 CML data for the industry of 171 bp. Mortgage rates have now fallen significantly as a consequence of the reduction in interest rates. This should ease the pressure on arrears as we move through the remainder of the year. Free cash balances, at £61 million, remain at a prudent level. 

Business Activity

Credit market conditions continue to constrain new lending activity, with first mortgage activity being limited to further advances to existing landlords. Secured personal finance lending for the quarter has been at lower levels than those for the corresponding period last year, reflecting lower levels of activity in this market.  From April 2009 lending activity is likely to be limited to further advances to existing customers. 

During the quarter the Group acquired the remaining 67% of the issued capital of its associated company, The Business Mortgage Company Limited ('TBMC'), a strategically important mortgage broker operating in the buy to let mortgage market, from Mr A Young and Mr P Rockett for nil consideration. In January 2007 we supported the purchase of TBMC by its management, providing facilities of £15.75 million and receiving 33% of the equity in the business. TBMC has been accounted for as an associated company in our 2007 and 2008 accounts. At 31 December 2007 it had gross assets of £17.9 million and earned a profit before tax of £0.1 million for the year then ended.  With the significant downturn in market activity during 2008, TBMC's business has suffered and it is likely to report a loss for the year. In order to secure the future of this strategically important business channel for our buy to let business we agreed to temporarily suspend interest payments on our loan in exchange for the remaining equity.

Development continues on the new business lines on which we reported at the year-end, with one third party servicing contract signed during the quarter and a number of potential opportunities under negotiation.  

Outlook

UK interest rates are now at unprecedented low levels and are expected to remain so for a considerable period of time. This will affect the components of our earnings going forward. In common with other lending businesses, lower interest rates will reduce income from rate sensitive financial assets which form the bulk of our net assets. However this is likely to be balanced by improved margins as redemptions across the portfolio remain low and a higher proportion of the book moves to reversionary rates. In addition, customer payment performance should benefit from lower absolute rates with landlords benefiting from wider rental margins. 

The Group remains financially strong and, as has been demonstrated in recent months, continues to manage its portfolio carefully in the weakened economic environment. The Group continues to work on a range of income generating initiatives and further information on the progress of these initiatives will be provided when the results for the half year ending 31 March 2009 are announced.

Whilst the wholesale markets remain closed, we welcome the outline proposals from the Government to reopen the securitisation markets. We believe it is important that the detailed terms, when published, provide for a wide range of financial institutions, including non deposit taking institutions, who have consistently demonstrated a track record of prudent lending, to participate in the scheme.

* current pre-tax profit range £23 million to £56 million (Source: Reuters)

For further information, please contact:

Nigel S Terrington                  0121 712 2024

Chief Executive

Nicholas Keen                        0121 712 2000

Finance Director

Morgan Bone                          020 7544 3053

Fishburn Hedges

 

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