Trading Statement

Paragon Group Of Companies PLC 31 March 2008 THE PARAGON GROUP OF COMPANIES PLC PRE-CLOSE TRADING STATEMENT 31 March 2008 The following is an update on the trading position of The Paragon Group of Companies PLC ahead of its close period for the half year ending 31 March 2008. Financial Performance The results for the first six months of the financial year are expected to be in line with management's expectations. Operating profits, before exceptional costs and fair value movements, are expected to be marginally lower than the comparable period last year, with total income expected to be similar to H1 2007, underlying costs (excluding exceptionals) marginally lower and impairments marginally higher in the Consumer Finance Division. However, significant exceptional costs of up to £10 million relating principally to the recent rights issue standby facility and to staff redundancies are expected to reduce pre-tax profits, as will an expected negative movement in fair value for hedging instruments, as a consequence of significant yield curve movements. Shareholders' funds are expected to be in excess of £600 million at 31 March 2008. Despite the volatility of the money markets in recent months, cash flow from the loan portfolio remains strong and, notwithstanding significant cash costs associated with the rights issue and from operational restructuring, free cash levels are expected to be higher at 31 March 2008 than at the year end. Funding Following the successful completion of the recent rights issue, which raised, before costs, £287 million during the period, the Group's £280 million working capital facility was repaid on 27 February 2008. On 29 February 2008 the Group's warehouse facility, from which new lending was funded, was closed to new advances and, in accordance with its terms, converted to a £1.7 billion term loan repayable by 2050. Substantially all of the remaining loan portfolios are funded through securitisation structures and are thus match-funded to maturity. Whilst the Group continues to finance secured consumer finance originations and buy-to-let further advances through its current securitisation arrangements, in order to be able to write more normal levels of new business in the future, the Board continues to pursue all prudent funding options open to it, including forward flow agreements. Lending Activity As a result of current market conditions and the unavailability of warehouse finance at present, funding for new lending is limited and over the period completions, particularly in the buy-to-let businesses, have been managed down in a controlled manner. Across the period, total advances will be some 50% less than in H1 2007. Review of Resources The reduction in new business generation over the period has necessitated a review of the Group's resource requirements. With redundancies resulting from the migration of Mortgage Trust's new business processing function from Epsom to Solihull shortly after the year-end, redundancies in Solihull to reflect the reduction in new business activity and with natural wastage, the Group headcount is expected to be some 30% lower than at the beginning of the financial year. Capacity has nevertheless been maintained to resume lending at higher volumes, when it is possible to do so. Portfolio Performance The performance of the portfolio overall remains stable despite deterioration in the funding markets and the continuing impact of the credit crisis on LIBOR rates. Currently, 3 month LIBOR is some 75bp above base rates. The performance of the buy-to-let book remains exemplary with arrears at similarly low levels to recent years, whilst the consumer book continues to perform well in line with expectations. Across the portfolio, the total number of arrears accounts is expected to be lower at 31 March 2008 than a year ago, largely due to the continued orderly run-off of the closed unsecured loan book. Redemption rates on the buy-to-let portfolio are expected to be slightly higher than for 2007, although at similar levels to the latter period of 2007, which may in part be a consequence of the current high LIBOR rates. Outlook Whilst sentiment in the housing market has deteriorated in recent months, the private rented sector remains strong. Recent data from RICS for Q4 2007 demonstrated continuing high levels of tenant demand and strong rental growth, at more than twice the survey's long run average, as a consequence, in part, of the generally weaker state of the housing market. Landlord sales fell from 6.5% to 4.6%, the lowest since Q2 2006. Our view remains that the long-term prospects for the private rented sector remain strong. The credit environment remains difficult, impacting the workings of the money, banking and capital markets. We continue to expect a return to market stability and to more normal lending activity by the Group in due course. In the meantime, the Board will continue to apply its prudent management approach to the servicing of its loans and to the identification of funding sources for future loan originations. A full report on the progress of the Group will be issued when the Board announces the interim results on 20 May 2008. For further information, please contact: Nigel S Terrington Chief Executive Tel: 0121 712 2024 Nicholas Keen Finance Director Tel: 0121 712 2060 This information is provided by RNS The company news service from the London Stock Exchange
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