Interim Results
Paragon Group Of Companies PLC
22 May 2007
Under embargo until Stock Exchange announcement: 7am, Tuesday 22 May 2007
BUY-TO-LET SPECIALIST MAINTAINS GROWTH
--------------------------------------
The Paragon Group of Companies PLC ('Paragon'), the specialist buy-to-let and
consumer finance lender, today announces its interim results for the six months
ended 31 March 2007.
Highlights
Financial Performance
---------------------
•Pre-tax profits up 11.0% to £43.3m maintaining profit growth record for
the past 12 years. Fully taxed earnings per share up 12.8% to 27.3p
•Progressive dividend policy maintained with dividend per share rising
15.9% to 8.0p
•Continued focus on operating efficiency results in cost:income ratio
falling to 25.5% from 28.4% in H1 2006
Operations
----------
•Buy-to-let advances up 44.9% to £1,934.1m
•Buy-to-let portfolio up 45.0% to £8,651.5m
•Buy-to-let arrears low and stable
Capital and funding
-------------------
•Buy-back programme continued, with 760,000 shares purchased in the period
•Securitisation programme active, with three public issues (£3.3bn of
issuance) at Paragon's finest rates to date, emphasizing the quality of
Paragon's buy-to-let book
Commenting on the results, Nigel Terrington, Chief Executive of Paragon, said:
'The excellent results achieved by the Group for the first six months of the
financial year reflect the success of our brands in the expanding buy-to-let
market. Over the past ten years we have established a reputation as the
specialist buy-to-let lender and have built a high quality portfolio in a market
where short-term demand and long-term demographic trends point to sustainable
growth.'
For further information, please contact:
The Paragon Group of Companies PLC The Wriglesworth Consultancy
Nigel Terrington, Chief Executive Mark Baker
Nick Keen, Finance Director Tel: 020 7845 7900
Tel: 0121 712 2024 Mobile: 07980 635 243
______________________________________________________________________________
INTERIM FINANCIAL REPORT
The six months ended 31 March 2007 has seen further strong growth in Group
profits, business volumes and loan assets, attributable to activity within the
buy-to-let business. During the period, the Group has continued its strategy of
strongly promoting buy-to-let activity whilst limiting consumer lending
exposures.
During the period, profit on ordinary activities before taxation increased by
11.0% to £43.3 million from £39.0 million for the first half of 2006. Earnings
per share were 27.7p (2006 H1: 28.8p), the reduction from last year resulting
from the increase in the corporation tax charge rate from 16.7% to 29.1%. On a
fully taxed basis earnings per share increased to 27.3p from 24.2p, an increase
of 12.8% (note 4).
Total loan advances were 38.9% higher at £2,118.2 million compared with £1,525.0
million for the first half of 2006. At 31 March 2007, loan assets were £9,763.3
million (note 5), compared with £7,232.9 million at 31 March 2006, a year on
year increase of 35.0%.
The Board has declared an interim dividend of 8.0p per share, payable on 27 July
2007 to shareholders on the register at 29 June 2007, an increase of 15.9% from
last year's interim dividend of 6.9p per share.
The Group is organised into two major operating divisions: First Mortgages,
which includes the buy-to-let and owner-occupied first mortgage assets and other
sources of income derived from first charge mortgages; and Consumer Finance,
which includes secured lending, car and retail finance and the residual
unsecured loan book. These divisions are the basis on which the Group reports
primary segmental information. This is a change from the basis reported in 2006
in that the closed, owner-occupied first mortgage book, which at 31 March 2007
amounted to £354.9 million, and the closed, unsecured book of £66.4 million,
both of which comprised the 'Other Operations' category last year, are now
included within the First Mortgages and Consumer Finance segments respectively.
For reporting purposes these books were absorbed within the results from the two
main business areas because their reduced size had rendered the Other Operations
segment insignificant in terms of assets, revenue and net profits.
______________________________________________________________________________
INTERIM FINANCIAL REPORT (Continued)
The adjusted operating results of these business segments are detailed fully in
note 3 and are summarised below.
Six months to Six months to
31 March 31 March
2007 2006
£m £m
Operating result
First Mortgages 34.4 26.7
Consumer Finance 8.9 12.3
_________ _________
43.3 39.0
========= =========
Net interest income increased by 5.5% to £75.2 million from £71.3 million for
the first half of 2006. Portfolio growth has been concentrated on buy-to-let
assets which, commensurate with the credit quality, are lower margin, whilst the
higher margin consumer book has contracted over the year. Average margins in
each division were similar to those achieved in the first half of 2006.
Other operating income was similar to the first half of 2006 at £15.0 million,
compared with £15.2 million, a reduction in insurance commissions in the
Consumer Division being compensated by increased administration and servicing
income.
Operating expenses decreased by 4.0% to £23.8 million from £24.8 million for the
first half of 2006, reflecting tight cost controls across the business and a
reduced charge for share based payments. As a consequence, the cost:income ratio
improved to 25.5% from 28.4% in the comparable period last year. Control over
operating costs continues to be a major focus and is a significant driver for
our competitive position in our lending markets.
______________________________________________________________________________
INTERIM FINANCIAL REPORT (Continued)
The charge for impairment provisions of £26.2 million compares with £23.6
million for the first half of 2006. As a percentage of loans to customers (note
5) the charge remained consistent with that for the first half of 2006 at 0.3%
(2006 H1: 0.3%). The charge includes amounts in respect of income which,
although accounting standards require it to be charged, is not expected to be
received by the Group and hence also inflates the charge for loan impairment.
Under UK GAAP such income was not recognised. The loan books continue to be
carefully managed and the arrears performance remains in line with our
expectations, with the performance of the buy-to-let book continuing to be
exemplary. Of the charge of £4.3 million attributed to the First Mortgages
segment only £0.9 million (or 0.01% of assets) relates to the buy-to-let book,
the remainder being attributable to the closed, owner-occupied book.
Fair value net gains of £3.1 million (2006 H1: £0.9 million) have arisen from
the IFRS requirement that movements in the fair value of hedging instruments
attributable to ineffectiveness in the hedging arrangements should be credited
or charged to income and expense. Any ineffectiveness arising from differences
between the fair value movements of hedging instruments and the fair value
movements of the hedged assets or liabilities is expected to trend to zero over
time.
Corporation tax has been charged at the rate of 29.1%, compared to 16.7% in the
first half last year, the latter benefiting from an exceptional credit arising
from settlement of a prior year item.
______________________________________________________________________________
INTERIM FINANCIAL REPORT (Continued)
REVIEW OF OPERATIONS
FIRST MORTGAGES
---------------
The First Mortgages segment comprises the Group's buy-to-let business and the
owner-occupied mortgage books.
New business origination in the first half has been strong in both the Group's
buy-to-let brands, Paragon Mortgages and Mortgage Trust. Completions were
£1,934.1 million for the six months to 31 March 2007, an increase of 44.9% from
£1,334.5 million for the corresponding period last year. With redemption rates
remaining low, the buy-to-let portfolio increased by 45.0% to £8,651.5 million
at 31 March 2007 from £5,964.9 million a year earlier. The pipeline of new
business at 31 March 2007 remained high, providing a strong start to the second
half of the year.
The buy-to-let market has remained strong, with landlords' investment activity
underpinned by continuing high tenant demand and rental growth. Figures released
by the Council of Mortgage Lenders in February 2007 showed that, at £38.4
billion, buy-to-let mortgages in 2006 represented 11% of all mortgage advances
made during the year, with total buy-to-let lending growing by 19% to £21
billion in the second half of that year.
Research with the Group's intermediaries confirms this picture, with confidence
levels, which we have monitored since 1995, at record levels and buy-to-let now
representing 22.5% of intermediary submissions to mortgage lenders. Survey data
recently published by the Royal Institution of Chartered Surveyors showed tenant
demand rising at its fastest pace for nine years, further supporting the near
term growth prospects for buy-to-let lending. Long term demand within the
private rented sector is supported by established social, economic and
demographic trends.
The credit performance of the Group's buy-to-let portfolio remains exemplary,
reflecting the high quality of the book as a result of the Group's focus on
prime lending in this market.
______________________________________________________________________________
INTERIM FINANCIAL REPORT (Continued)
The owner-occupied book reduced to £354.9 million from £431.5 million during the
six months ended 31 March 2007 and performed in line with expectations. Save for
the management of this book in run-off, there has been little activity in recent
years in this area as the Group has focused originations on buy-to-let. However,
since the period end, the Group has entered into an agreement to originate
owner-occupied loans with Morgan Stanley International Bank, effectively
extending the arrangement that was successfully launched with Morgan Stanley
towards the end of the previous year in the secured personal finance area. Under
the terms of this new agreement, we will originate loans from our network of
introducers for sale to Morgan Stanley, taking no principal position on these
loans but earning fees for each completion. We are very pleased to have extended
this forward flow agreement to cover first as well as second mortgages with such
a strong counterparty as Morgan Stanley, and we shall report on the progress of
this new initiative with our full year results.
CONSUMER FINANCE
----------------
Total advances by the consumer finance businesses were £183.9 million during the
period, down from £189.2 million during the corresponding period of the previous
year. At 31 March 2007, the total loans outstanding on the consumer finance
books were £756.9 million, compared with £786.6 million at 31 March 2006. This
reduction reflects both the general weakness in the consumer lending markets and
our objective of maintaining portfolio quality.
The division continues to focus on writing high quality loans, with bad debt
levels remaining stable in line with expectations and below industry averages.
______________________________________________________________________________
INTERIM FINANCIAL REPORT (Continued)
Personal finance
Secured personal finance advances were £103.3 million for the six months ended
31 March 2007, a reduction of 12.2% from £117.6 million in the first half of
2006. Of this total, £17.4 million was advanced on behalf of Morgan Stanley
International Bank under an arrangement entered into in September 2006. We hold
no principal position on these loans. For our own portfolio, the Group's focus
continues to be on prime business and, in an environment in which consumer
confidence has worsened and affordability is more stretched, we have not relaxed
our credit criteria in pursuit of business volumes.
The closed unsecured book continues to run down in accordance with our
expectations. The book totalled £66.4 million at 31 March 2007, compared to
£82.9 million a year before. During the period, balances with a book value of
£3.5 million were sold and similar, small disposals are expected in the second
half of the year.
Sales aid finance
The sales aid finance business, incorporating retail and car finance, achieved a
12.6% increase in new business volumes to £80.6 million during the six months
ended 31 March 2007 (2006 H1: £71.6 million).
The division has continued to focus upon transacting high quality business and
ensuring that bad debt levels remain below the market average. The division has
also continued to gain new introducer relationships and has improved operating
efficiency as a result of a greater number of introducers utilising our online
processing platform.
______________________________________________________________________________
INTERIM FINANCIAL REPORT (Continued)
FUNDING
The Group continued to be an active issuer in the capital markets during the
period. In October 2006, a £1.5 billion buy-to-let securitisation was completed
by Paragon Mortgages (No. 13) PLC; in January 2007, a £268.6 million
securitisation to repackage certain older, owner-occupied loan assets was
completed by First Flexible (No. 7) PLC; and, in March 2007, a further £1.5
billion buy-to-let securitisation was completed by Paragon Mortgages (No. 14)
PLC. Over the course of the series of buy-to-let transactions, coupons have
continued to reduce, reflecting the high quality of the Group's originations.
CAPITAL MANAGEMENT
During the period the Company bought 760,000 shares in the market at a cost of
£4.7 million with the result that, by 31 March 2007, a total of 6,004,000 shares
had been repurchased, at a total cost of £36.1 million, leaving £3.9 million to
be completed from the current £40 million programme. During the first half of
the financial year, we have continued the restructuring of the portfolio towards
secured lending from more capital-demanding unsecured originations and seen
further run-off of the closed books, both by natural redemption and disposal. As
this process is expected to continue in the second half of the year, we shall
review the share buy-back programme on completion of the current programme.
The progressive dividend growth continues to reflect our desire to reduce
dividend cover to a level comparable with the sector.
______________________________________________________________________________
INTERIM FINANCIAL REPORT (Continued)
CONCLUSION
The excellent results achieved by the Group for the first six months of the
financial year reflect the success of our brands in the expanding buy-to-let
market. Over the past ten years we have established a reputation as the
specialist buy-to-let lender and have built a high quality portfolio in a market
where short-term demand and long-term demographic trends point to sustainable
growth.
Across all our businesses our prudent approach to lending has ensured that
arrears and bad debts remain low and stable and, combined with our continuing
focus on tight cost control, provides a firm foundation for future growth.
The Board believes that the quality of the Group's businesses and asset
portfolios makes the Group well placed to operate successfully in our markets
across the current monetary cycle. We look forward to the remainder of the year
with confidence that the Group will achieve its objectives.
______________________________________________________________________________
CONSOLIDATED INCOME STATEMENT
For the six months ended 31 March 2007 (Unaudited)
Note Six months to Six months to Year to
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Interest receivable 339.9 254.9 550.8
Interest payable and
similar charges (264.7) (183.6) (407.9)
_________ _________ _________
Net interest income 75.2 71.3 142.9
Other operating income 15.0 15.2 30.6
_________ _________ _________
Total operating income 90.2 86.5 173.5
Operating expenses (23.8) (24.8) (45.4)
Provisions for losses (26.2) (23.6) (47.8)
_________ _________ _________
40.2 38.1 80.3
Fair value net gains 3.1 0.9 2.5
_________ _________ _________
Operating profit being profit
on ordinary activities before
taxation 43.3 39.0 82.8
Tax charge on profit on
ordinary activities (12.6) (6.5) (14.0)
_________ _________ _________
Profit on ordinary activities
after taxation 30.7 32.5 68.8
========= ========= =========
Dividend - Rate per share
for the period 8 8.0p 6.9p 17.0p
Basic earnings per share 4 27.7p 28.8p 61.2p
Diluted earnings per share 4 26.5p 27.4p 58.4p
========= ========= =========
The results for the periods shown above relate entirely to continuing
operations.
______________________________________________________________________________
CONSOLIDATED BALANCE SHEET
31 March 2007 (Unaudited)
Note 31 March 31 March 30 September
2007 2006 2006
ASSETS EMPLOYED £m £m £m
Non-current assets
Intangible assets 0.6 0.4 0.6
Property, plant and equipment 21.0 19.8 20.2
Interests in associates 0.3 - -
Financial assets 5 9,795.5 7,276.4 8,432.9
Retirement benefit
obligations 2.2 - 0.3
Tax assets 34.1 36.5 33.6
_________ _________ _________
9,853.7 7,333.1 8,487.6
_________ _________ _________
Current assets
Other receivables 6.2 4.7 6.3
Cash and cash equivalents 1,097.5 734.5 622.7
_________ _________ _________
1,103.7 739.2 629.0
_________ _________ _________
Total assets 10,957.4 8,072.3 9,116.6
========= ========= =========
FINANCED BY
Equity shareholders' funds
Called-up share capital 6 12.1 12.1 12.1
Reserves 7 335.1 278.4 314.6
_________ _________ _________
Share capital and reserves 347.2 290.5 326.7
Own shares 9 (53.6) (28.4) (47.7)
_________ _________ _________
Total equity 293.6 262.1 279.0
_________ _________ _________
Current liabilities
Financial liabilities 10 195.9 28.5 128.0
Current tax liabilities 8.7 10.8 1.4
Provisions 1.8 - 0.7
Other liabilities 96.8 58.8 78.2
_________ _________ _________
303.2 98.1 208.3
_________ _________ _________
Non-current liabilities
Financial liabilities 10 10,352.8 7,705.4 8,619.7
Retirement benefit
obligations - 0.3 -
Deferred tax liabilities - 0.7 -
Provisions 1.4 2.1 3.7
Other liabilities 6.4 3.6 5.9
_________ _________ _________
10,360.6 7,712.1 8,629.3
_________ _________ _________
Total liabilities 10,663.8 7,810.2 8,837.6
_________ _________ _________
10,957.4 8,072.3 9,116.6
========= ========= =========
The interim financial information was approved by the Board of Directors on
22 May 2007.
______________________________________________________________________________
CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 31 March 2007 (Unaudited)
Note Six months Six months Year
to to to
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Net cash flow (utilised) by
operating activities 12 (1,297.6) (779.4) (1,824.0)
Net cash (utilised) by
investing activities 13 (3.3) (2.0) (1.4)
Net cash generated by
financing activities 14 1,775.4 985.5 1,917.8
_________ _________ _________
Net increase in cash and cash
equivalents 474.5 204.1 92.4
Opening cash and cash
equivalents 622.3 529.9 529.9
_________ _________ _________
Closing cash and cash
equivalents 1,096.8 734.0 622.3
========= ========= =========
Represented by balances
within
Cash and cash equivalents 1,097.5 734.5 622.7
Financial liabilities (0.7) (0.5) (0.4)
_________ _________ _________
1,096.8 734.0 622.3
========= ========= =========
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENDITURE
Six months ended 31 March 2007 (Unaudited)
Six months Six months Year
to to to
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Profit for the period 30.7 32.5 68.8
Actuarial gain / (loss) on
pension scheme 1.5 (0.6) (0.6)
Cash flow hedge (losses) /
gains taken to equity (1.3) 1.0 1.5
Tax on items taken directly to
equity (0.1) (0.1) (0.2)
_________ _________ _________
Total recognised income and
expenditure for the period 30.8 32.8 69.5
Adoption of IAS 32 and IAS 39 - (72.5) (72.5)
_________ _________ _________
30.8 (39.7) (3.0)
========= ========= =========
______________________________________________________________________________
RECONCILIATION OF MOVEMENTS IN CONSOLIDATED EQUITY
Six months ended 31 March 2007 (Unaudited)
Note Six months Six months Year
to to to
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Total recognised income and
expenditure for the period 30.8 32.8 69.5
Dividends paid 8 (11.2) (8.4) (16.0)
Net movement in own shares (5.9) (5.6) (24.9)
(Deficit) / surplus on
transactions in own shares (0.9) 0.8 0.6
Charge for share based
remuneration 1.2 2.2 0.6
Tax on share based
remuneration 0.6 - 8.9
_________ _________ _________
Total movements in equity
in the period 14.6 21.8 38.7
_________ _________ _________
Equity at 30 September 2006 279.0 312.8 312.8
Adoption of IAS 32 and - (72.5) (72.5)
IAS 39
_________ _________ _________
Equity at 1 October 2006 279.0 240.3 240.3
_________ _________ _________
Closing equity 293.6 262.1 279.0
========= ========= =========
______________________________________________________________________________
NOTES TO THE INTERIM FINANCIAL INFORMATION
For the six months ended 31 March 2007 (Unaudited)
1. GENERAL INFORMATION
The interim financial information for the six months ended 31 March 2007 and
for the six months ended 31 March 2006 has not been audited.
The figures shown above for the year ended 30 September 2006 are not
statutory accounts. A copy of the statutory accounts has been delivered to
the Registrar of Companies, contained an unqualified audit report and did
not contain an adverse statement under sections 237 (2) or 237 (3) of the
Companies Act 1985.
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. Nothing in this
document should be construed as a profit forecast.
A copy of the Interim Statement will be posted to shareholders and
additional copies can be obtained from The Company Secretary, The Paragon
Group of Companies PLC, St. Catherine's Court, Herbert Road, Solihull, West
Midlands, B91 3QE.
2. ACCOUNTING POLICIES
The interim financial information has been prepared on the basis of the
accounting policies set out in the Annual Report and Accounts of the Group
for the year ended 30 September 2006, which are expected to be used in the
preparation of the financial statements of the Group for the year ending 30
September 2007.
The business segments reported on have been revised as described in note 3.
In addition, investments in associated companies are valued at the Group's
share of the net assets of the associate, as required by IAS 28 -
'Investments in Associates'.
______________________________________________________________________________
NOTES TO THE INTERIM FINANCIAL INFORMATION
For the six months ended 31 March 2007 (Unaudited)
3. SEGMENTAL RESULTS
For reporting purposes the Group is organised into two major operating
divisions, First Mortgages and Consumer Finance, which includes secured
lending, car and retail finance, and the residual unsecured loans book which
formed part of Other Operations last year. These divisions are the basis on
which the Group reports primary segmental information.
This represents a change from the basis reported in 2006 in that the closed,
owner-occupied first mortgage book and the closed unsecured book, which
together comprised the 'Other Operations' category last year, are now
included within the First Mortgages and Consumer Finance segments
respectively. For reporting purposes these books were absorbed within the
results from the two main business areas because their reduced size had
rendered the Other Operations segment insignificant in terms of assets,
revenue and net profits.
Financial information about these business segments is shown below. Results
forthe six months ended 31 March 2006 and the year ended 30 September 2006
have been reanalysed between the new segments as described above.
Six months ended 31 March 2007
First Mortgages Consumer Finance Total
£m £m £m
Interest receivable 279.2 60.7 339.9
Interest payable (237.1) (27.6) (264.7)
_________ _________ _________
Net interest income 42.1 33.1 75.2
Other operating income 7.1 7.9 15.0
_________ _________ _________
Total operating income 49.2 41.0 90.2
Operating expenses (13.5) (10.3) (23.8)
Provisions for losses (4.3) (21.9) (26.2)
_________ _________ _________
31.4 8.8 40.2
Fair value net gains 3.0 0.1 3.1
_________ _________ _________
Operating profit 34.4 8.9 43.3
========= ========= =========
______________________________________________________________________________
NOTES TO THE INTERIM FINANCIAL INFORMATION
For the six months ended 31 March 2007 (Unaudited)
3. SEGMENTAL RESULTS (Continued)
Six months ended 31 March 2006
First Mortgages Consumer Finance Total
£m £m £m
Interest receivable 191.6 63.3 254.9
Interest payable (158.6) (25.0) (183.6)
_________ _________ _________
Net interest income 33.0 38.3 71.3
Other operating income 5.9 9.3 15.2
_________ ________ _ _________
Total operating income 38.9 47.6 86.5
Operating expenses (12.9) (11.9) (24.8)
Provisions for losses (0.1) (23.5) (23.6)
_________ _________ _________
25.9 12.2 38.1
Fair value net gains 0.8 0.1 0.9
_________ _________ _________
Operating profit 26.7 12.3 39.0
========= ========= =========
Year ended 30 September 2006
First Mortgages Consumer Finance Total
£m £m £m
Interest receivable 428.8 122.0 550.8
Interest payable (356.8) (51.1) (407.9)
_________ _________ _________
Net interest income 72.0 70.9 142.9
Other operating income 12.3 18.3 30.6
_________ _________ _________
Total operating income 84.3 89.2 173.5
Operating expenses (23.7) (21.7) (45.4)
Provisions for losses (2.5) (45.3) (47.8)
_________ _________ _________
58.1 22.2 80.3
Fair value net gains 2.4 0.1 2.5
_________ _________ _________
Operating profit 60.5 22.3 82.8
========= ========= =========
______________________________________________________________________________
NOTES TO THE INTERIM FINANCIAL INFORMATION
For the six months ended 31 March 2007 (Unaudited)
4. EARNINGS PER SHARE
Earnings per ordinary share is calculated as follows:
31 March 2007 31 March 2006 30 September 2006
Profit for the period (£m) 30.7 32.5 68.8
_________ _________ _________
Basic weighted average
number of ordinary shares
ranking for dividend
during the period (million)
110.9 113.1 112.4
Dilutive effect of the
weighted average number of
share options and
incentive plans in issue
during the period (million) 5.2 5.6 5.3
_________ _________ _________
Diluted weighted average
number of ordinary shares
ranking for dividend
during the period (million) 116.1 118.7 117.7
========= ========= =========
Earnings per ordinary
share - basic 27.7p 28.8p 61.2p
- diluted 26.5p 27.4p 58.4p
========= ========= =========
Fully taxed earnings per ordinary share is based on earnings calculated by
reducing profit before tax for the period by a notional tax rate of 30%, the
standard rate of corporation tax in the United Kingdom. The numbers of shares
used are as shown above.
Fully taxed earnings per ordinary share is calculated as follows:
31 March 2007 31 March 2006 30 September 2006
Profit before tax for the
period (£m) 43.3 39.0 82.8
Notional tax at 30% (£m) (13.0) (11.7) (24.8)
_________ _________ _________
Fully taxed earnings for
the period (£m) 30.3 27.3 58.0
_________ _________ _________
Fully taxed earnings per
ordinary share - basic 27.3p 24.2p 51.6p
- diluted 26.2p 23.0p 49.3p
========= ========= =========
______________________________________________________________________________
NOTES TO THE INTERIM FINANCIAL INFORMATION
For the six months ended 31 March 2007 (Unaudited)
5. FINANCIAL ASSETS
31 March 2007 31 March 2006 30 September 2006
£m £m £m
Loans to customers 9,763.3 7,232.9 8,426.6
Fair value adjustments
from portfolio hedging (34.9) (1.0) (14.0)
Loans to associated
undertakings 15.2 - -
Derivative financial
assets 51.9 44.5 20.3
_________ _________ _________
9,795.5 7,276.4 8,432.9
========= ========= =========
______________________________________________________________________________
NOTES TO THE INTERIM FINANCIAL INFORMATION
For the six months ended 31 March 2007 (Unaudited)
6. CALLED-UP SHARE CAPITAL
31 March 2007 31 March 2006 30 September 2006
£m £m £m
Authorised:
175,000,000 ordinary
shares of 10p each 17.5 17.5 17.5
========= ========= =========
Allotted and paid-up:
Ordinary shares of 10p
each 12.1 12.1 12.1
========= ========= =========
Movements in the issued share capital in the period were:
Six months to Six months to Year to
31 March 2007 31 March 2006 30 September 2006
Number Number Number
Ordinary shares of 10p each
At 1 October 2006 121,452,366 120,762,342 120,762,342
Shares issued in respect
of share option schemes 33,911 324,282 690,024
_____________ _____________ _____________
121,486,277 121,086,624 121,452,366
============= ============= =============
7. RESERVES
31 March 2007 31 March 2006 30 September 2006
£m £m £m
Share premium account 71.5 70.8 71.4
Merger reserve (70.2) (70.2) (70.2)
Cash flow hedging reserve (2.5) (1.9) (1.5)
Profit and loss account 336.3 279.7 314.9
_________ _________ _________
335.1 278.4 314.6
========= ========= =========
______________________________________________________________________________
NOTES TO THE INTERIM FINANCIAL INFORMATION
For the six months ended 31 March 2007 (Unaudited)
8. EQUITY DIVIDEND
Amounts recognised as distributions to equity shareholders in the period:
31 March 2007 31 March 2006 30 September 2006
£m £m £m
Final dividend for the
year ended 30 September
2005 of 7.4p per share - 8.4 8.4
Interim dividend for the
year ended 30 September
2006 of 6.9p per share - - 7.6
Final dividend for the
year ended 30 September
2006 of 10.1p per share 11.2 - -
_________ _________ _________
11.2 8.4 16.0
========= ========= =========
An interim dividend of 8.0p per share is proposed (2006: 6.9p per share),
payable on 27 July 2007 with a record date of 29 June 2007. The amount expected
to be absorbed by this dividend, based on the number of shares in issue at the
balance sheet date is £8.9m. The interim dividend will be recognised in the
accounts when it is paid.
9. OWN SHARES
31 March 2007 31 March 2006 30 September 2006
£m £m £m
Treasury shares
At 1 October 2006 31.4 8.3 8.3
Shares purchased 4.7 3.3 23.1
____________ ____________ ____________
At 31 March 2007 36.1 11.6 31.4
____________ ____________ ____________
ESOP shares
At 1 October 2006 16.3 14.5 14.5
Shares purchased 2.7 3.5 4.3
Options exercised (1.5) (1.2) (2.5)
____________ ____________ ____________
At 31 March 2007 17.5 16.8 16.3
____________ ____________ ____________
Balance at 31 March 2007 53.6 28.4 47.7
============ ============ ============
Number of shares held
Treasury 6,004,000 2,219,000 5,244,000
ESOP 4,778,518 5,700,117 5,028,353
____________ ____________ ____________
Balance at 31 March 2007 10,782,518 7,919,117 10,272,353
============ ============ ============
______________________________________________________________________________
NOTES TO THE INTERIM FINANCIAL INFORMATION
For the six months ended 31 March 2007 (Unaudited)
10. FINANCIAL LIABILITIES
31 March 2007 31 March 2006 30 September 2006
£m £m £m
Current liabilities
Finance lease liability 0.4 0.4 0.4
Bank loans and overdrafts 195.5 28.1 127.6
__________ __________ __________
195.9 28.5 128.0
__________ __________ __________
Non-current liabilities
Asset backed loan notes 9,611.9 7,084.4 7,057.7
Corporate bond 115.0 119.3 117.9
Finance lease liability 13.7 14.1 13.9
Bank loans and overdrafts 280.3 466.0 1,267.9
Derivative financial
liabilities 331.9 21.6 162.3
__________ __________ __________
10,352.8 7,705.4 8,619.7
========== ========== ==========
Details of changes in the Group's borrowings since the year end are given in
note 11 below.
11. BORROWINGS
During the six months ended 31 March 2007 the Group issued £3,269.1m of mortgage
backed floating rate loan notes, denominated in sterling, US dollars and euros.
The principal terms of these notes on issue are shown below.
Issue Maturity Call Principal Average
date date date issued Interest Margin
Sterling notes £m %
Paragon
Mortgages
(No.13) PLC 22/10/06 15/01/39 15/10/11 194.0 0.16
Paragon
Mortgages
(No.14) PLC 26/03/07 15/09/39 15/03/12 196.9 0.15
First Flexible 25/01/07 15/07/33 15/03/12 268.6 0.12
(No.7) PLC
US dollar notes $m %
Paragon
Mortgages
(No.13) PLC 22/10/06 15/01/39 15/10/11 1,850.0 0.01
Paragon
Mortgages
(No.14) PLC 26/03/07 15/09/39 15/03/12 1,900.0 0.02
Euro notes €m %
Paragon
Mortgages
(No.13) PLC 22/10/06 15/01/39 15/10/11 480.0 0.18
Paragon
Mortgages
(No.14) PLC 26/03/07 15/09/39 15/03/12 470.3 0.20
========= ========= ========= ========= =========
The mortgage backed floating rate notes which had been issued by First Flexible
No. 1 PLC and First Flexible No. 3 PLC were repaid in full in the period. All
bank facilities other than those drawn by Paragon Finance PLC and Paragon Second
Funding Limited were repaid and cancelled in the period.
All other borrowings described in the Group Accounts for the year ended 30
September 2006 remained in place throughout the period.
______________________________________________________________________________
NOTES TO THE INTERIM FINANCIAL INFORMATION
For the six months ended 31 March 2007 (Unaudited)
12. NET CASHFLOW FROM OPERATING ACTIVITIES
Six months Six months Year
to to to
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Profit before tax 43.3 39.0 82.8
Non-cash items included in profit and
other adjustments
Depreciation of property, plant and
equipment 1.9 1.6 3.5
Amortisation of intangible assets 0.1 0.1 0.2
Foreign exchange movements on
borrowings (162.4) 58.8 (119.3)
Other non-cash movements on
borrowings (1.2) 2.4 5.3
Impairment losses on loans to
customers 26.2 23.6 47.8
Charge for share based remuneration 1.2 2.2 0.6
Loss on disposal of property, plant
and equipment 0.2 0.1 -
Net (increase) / decrease in operating
assets
Loans to customers (1,362.8) (824.9) (1,951.2)
Loans to associates (15.2) - -
Derivative financial instruments (31.6) (20.6) 3.6
Fair value of portfolio hedges 20.9 1.0 14.0
Other receivables (1.8) (0.4) (2.3)
Net increase / (decrease) in operating
liabilities
Derivative financial instruments 169.6 (39.7) 100.9
Other liabilities 19.3 (14.0) 5.5
_________ _________ _________
Cash (utilised) by operations (1,292.3) (770.8) (1,808.6)
Income taxes paid (5.3) (8.6) (15.4)
_________ _________ _________
Net cash flow (utilised) by
operating activities (1,297.6) (779.4) (1,824.0)
========= ========= =========
______________________________________________________________________________
NOTES TO THE INTERIM FINANCIAL INFORMATION
For the six months ended 31 March 2007 (Unaudited)
13. NET CASHFLOW USED IN INVESTING ACTIVITIES
Six months Six months Year
to to to
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Proceeds on disposal of
property, plant and equipment 0.6 0.7 1.2
Purchases of property, plant
and equipment (3.5) (2.5) (5.2)
Purchases of intangible assets (0.1) (0.2) (0.5)
Acquisition of subsidiary
undertakings net of cash acquired - - 3.1
Investment in associates (0.3) - -
_________ _________ _________
Net cash (utilised) by
investing activities (3.3) (2.0) (1.4)
========= ========= =========
14. NET CASHFLOW FROM FINANCING ACTIVITIES
Six months Six months Year
to to to
31 March 31 March 30 September
2007 2006 2006
£m £m £m
Dividends paid (11.2) (8.4) (16.0)
Issue of asset backed floating
rate notes 3,263.0 1,996.6 3,493.6
Repayment of asset backed
floating rate notes (548.8) (468.3) (1,906.6)
Capital element of finance lease
payments (0.2) (0.3) (0.4)
Movement on bank facilities (920.6) (529.3) 371.5
Purchase of shares (7.4) (6.7) (27.4)
Exercise of options under ESOP
scheme 0.5 1.2 1.9
Exercise of other share options 0.1 0.7 1.2
_________ _________ _________
Net cash generated by financing
activities 1,775.4 985.5 1,917.8
========= ========= =========
______________________________________________________________________________
INDEPENDENT REVIEW REPORT
TO THE PARAGON GROUP OF COMPANIES PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 31 March 2007 which comprises the income statement, the
balance sheet, the cash flow statement, the statement of recognised income and
expenditure, the reconciliation of movements in consolidated equity and related
notes 1 to 14. We have read the other information contained in the interim
report and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This 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.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 March 2007.
Deloitte & Touche LLP
Chartered Accountants
Birmingham, United Kingdom
22 May 2007
This information is provided by RNS
The company news service from the London Stock Exchange