23rd Nov 2005 07:02
Paragon Group Of Companies PLC23 November 2005 Under strict embargo until Stock Exchange announcement: 7am, Wednesday23 November 2005 STRONG GROWTH AT PARAGON ------------------------ The Paragon Group of Companies PLC ("Paragon"), one of the UK's largestspecialist lenders offering buy-to-let mortgages, personal loans, vehiclefinance and retail finance, today announces its Preliminary Results for the yearended 30 September 2005. Highlights include • Profit before tax up 8.2% to £76.8 million (2004: £71.0 million) • Operating profit (excluding goodwill)* up 10.5% to £72.7 million (2004: £65.8 million) • Earnings per share up 11.0% to 53.3p (2004: 48.0p) • Dividend per share up 31.3% to 12.6p (2004: 9.6p) • Total loan assets** up 9.7% to £6,528.7 million (2004: £5,950.9 million) • Buy-to-let loans up 23.8% to £5,031.6 million (2004: £4,064.1 million) • Cost:income ratio*** reduced to 33.3% (2004: 36.3%) • Strong start to the new financial year * - note 5 ** - note 7 *** - note 3 Commenting on the results, Jonathan Perry, Chairman of Paragon, said: "The Group has performed strongly in 2005, producing growth in profits and loanassets and further strengthening our franchise in our key lending market. Paragon's strategy has enabled the buy-to-let business to move forward on abroad front at a time when many lenders have seen a reduction in volumes becauseof lower levels of market activity generally and provides a strong base forfurther development going forward. The case for investing in residentialproperty remains sound and the Group is well placed to benefit from the longterm development of the buy-to-let market." For further information, please contact: The Paragon Group of Companies PLC The Wriglesworth ConsultancyNigel Terrington, Chief Executive John Wriglesworth / Mark BakerNick Keen, Finance Director Tel: 020 7845 7900Tel: 020 7786 8474 Mobile: 07980 635 243 (MB)______________________________________________________________________________ THE PARAGON GROUP OF COMPANIES PLCCHAIRMAN'S STATEMENT The Group has performed strongly in 2005, despite a more difficult tradingenvironment, producing growth in profits and loan assets and furtherstrengthening our franchise in our key lending market. Excluding the credit to profit and loss account for goodwill, operating profitincreased by 10.5% to £72.7 million (2004: £65.8 million) (note 5). Profitbefore tax increased by 8.2% to £76.8 million for the year, compared with £71.0million for the previous year. Earnings per share increased by 11.0% to 53.3pfrom 48.0p. The Board has declared an increased final dividend of 7.4p per share which, whenadded to the interim dividend of 5.2p paid on 29 July, gives a total dividend of12.6p per share for the year, an increase of 31.3% over last year. This isconsistent with the policy set out in our interim report, to accelerate paymentstowards a market level of dividend cover. Subject to approval at the AnnualGeneral Meeting on 9 February 2006, the dividend will be paid on 13 February2006, by reference to a record date of 13 January 2006. Total loan assets at 30 September 2005 increased by 9.7% to £6,528.7 millionfrom £5,950.9 million at 30 September 2004 (note 7). Of these, £6,165.6 million,or 94.4%, were secured on residential property, providing a base of high qualityassets. Total advances by the Group during the year were £2,025.6 million,compared with £2,124.3 million in the previous year, the reduction being due tomore subdued consumer lending. Buy-to-let lending volumes remained firm, despitethe general housing market slowdown and were significantly higher in the secondhalf of the financial year, up 64.2% from the first half. Net interest income increased by 20.2% to £96.9 million from £80.6 million,reflecting the growth in the loan book, reductions in funding costs and areduced charge for commissions paid in respect of new business generation. Thereduction in other operating income, from £40.2 million to £35.9 million,reflects the impact of reduced activity on commissions earned, particularly forthe Consumer Finance division. Operating expenses, excluding the impact of the goodwill credit of £4.1 million,were £44.2 million compared with £43.9 million (excluding the goodwill credit of£5.2 million) for 2004 despite an increase in pension costs and costs from sharebased payments, totalling £3.3 million during the year. The reduction in thecost:income ratio to 33.3% (2004: 36.3%) (note 3) reflects the beneficial impactof operational efficiencies introduced in 2004 and the continuing emphasis bymanagement on cost efficiency throughout the Group's operations. The Group has maintained its focus on growing its secured lending, principallyof high quality buy-to-let assets whilst reducing exposure to unsecured consumerlending. The number of accounts in arrears across the portfolios was lower at30 September 2005 than a year previously, both numerically and as a percentageof live accounts. The performance of the buy-to-let book remains exemplary, butthe impact of increased interest rates on the payment performance of theconsumer portfolios was the principal reason for an increase in the charge forprovisions for losses to £15.9 million for the year (2004: £11.1 million). After providing for corporation tax at a charge rate of 21% and for the dividendin respect of the year, profits of £46.3 million have been transferred toshareholders' funds, which were £308.0 million at 30 September 2005 (2004:£268.4 million). FIRST MORTGAGES Total first mortgage lending by the Group was £1,675.7 million for the year, ofwhich £1,667.8 million was buy-to-let (2004: £1,637.3 million), an increase of1.9%, evidencing the strong recovery in volumes during the second half of theyear following weaker performance during the first half. The small value ofowner-occupied loan advances relates to the provision of further advances toexisting customers, however this is not a sector being actively targeted. Housing market activity has been cooler in 2005 than in 2004 as a consequence ofincreased interest rates and general concerns over value and affordability. Therate of house price growth slowed during the year, with evidence stillsuggesting that house prices are heading for a soft landing. Recent improvementsin housing activity point to a more stable market. Buy-to-Let Loans Paragon's strategy in the buy-to-let sector is to offer a broad range ofproducts and services meeting the needs of professional and private investors inresidential rental property. The products are offered through Paragon Mortgagesand Mortgage Trust. The buy-to-let portfolio grew strongly to £5,031.6 million (2004: £4,064.1million), an increase of 23.8%. The new business pipeline at 30 September 2005was significantly higher than that at the half year, providing a strong level ofcompletions at the start of the new financial year, with advances in October2005 significantly ahead of October 2004. The new business pipeline was alsogreater at the end of October 2005 than a year previously. The Group's multi-brand strategy has delivered well-defined propositions withinthe buy-to-let market. Paragon Mortgages, with its focus on larger scaleprofessional investors, has continued to market to its existing customer baseand its network of individual specialist intermediaries. Product developmentsand individual service for large scale landlords, who own, on average, twelveproperties, have maintained strong customer support such that repeatapplications from existing customers still deliver around 70% of new business.The Mortgage Trust brand has been developed further over the year. Its focus onsmaller scale private investors, who across the portfolio own, on average, sevenproperties, has allowed greater utilisation of credit technology, together withcost-effective processing and administration. Of particular note has been thedelivery of additional intermediary distribution. This strategy has allowed the Group's buy-to-let business to move forward on abroad front, without compromising lending standards, at a time when many lendershave seen a reduction in volumes because of lower levels of market activitygenerally and provides a strong base for further development in the future. The case for investing in residential property remains sound, as uncertainty inthe general housing market has been beneficial to the private rented sector in anumber of respects. Survey data confirms the strength of tenant demand forprivate rented property. This has allowed landlords to improve rents, which inturn has resulted in an increase in yields. At the same time, competition forproperty has reduced, providing landlords with the opportunity to secure gooddeals on new purchases, again benefiting yields. Survey evidence continues to suggest that landlords are taking a long-term viewof their investments, rather than seeking to crystallise accrued gains. In ourown buy-to-let portfolio, we have seen little evidence of increased sellingactivity. Indeed, compared to the previous year, redemption rates have fallen.Overall, the prospects for the buy-to-let market remain sound and demand forprivate rented property is expected to rise, assisted by the record number ofstudents in higher education and the number of people migrating to the UK. Theeligibility of residential property for Self-Invested Personal Pensions("SIPPs") from 2006 may also have a positive effect on demand and we are wellpositioned to benefit from any activity in this regard through our joint venturewith James Hay, the UK's leading SIPPs administrator. Owner-Occupied Loans The owner-occupied portfolio declined, as expected, to £622.2 million from£952.2 million at 30 September 2004 and continued to perform in line withexpectations. CONSUMER FINANCE Weaker consumer activity in the past twelve months has had an impact on consumerlending across the market and this weakness is likely to continue into the newfinancial year. In the light of this environment, we remain cautious in ourcredit policy to ensure the maintenance of high quality lending. In particular,no unsecured personal loans are now offered and the only loans made by the Groupwhich are not secured on residential property are the car and retail instalmentcredit advances made by the Sales Aid Finance division. As a consequence,consumer finance lending activity has been lower this year. Aggregate loanadvances were £349.9 million during the year, compared with £450.0 million inthe previous year. As at 30 September 2005 the Consumer Finance book, comprisingsecured and unsecured personal loans and sales aid finance, was reduced to£874.9 million (2004: £934.6 million). Personal Finance During the course of the year, higher interest rates impacted on the appetite ofconsumers for further borrowing. In addition, the revisions to the ConsumerCredit Act and the introduction of regulation over insurance business, which wereported at the half year, have adversely affected volumes as introducerschanged systems and working practices to ensure compliance. The effect of these,combined with the tightening of our credit criteria in anticipation of thechanging economic environment, has been to depress volumes. Secured personalfinance advances by the Group were £233.1 million during the year, compared with£305.4 million for the previous year. Despite the reduced activity, the securedbook increased slightly by the year end to £511.8 million (2004: £507.1million). Looking forward, we expect trading conditions to remain competitive in the moresubdued market environment. Against this background we shall continue ourcautious credit stance whilst developing products to maintain Paragon's presencein the broker market. In addition we shall seek new distribution sources for ourproducts over the course of the coming year. Sales Aid Finance The performance of the sales aid business was in line with our expectations,with new business volumes originated by the division decreasing to £116.7million (2004: £144.2 million). Substantial progress has been made during the year in refocusing the car andretail finance businesses to improve profitability. New business initiatives andproduct developments have been instrumental in the development of new sources ofdistribution and the integration of overlapping administration functions has ledto improvements in cost efficiency. FUNDING The Group continued to be an active issuer in the capital markets during theperiod. In October 2004, the Group completed a £1.0 billion securitisation byParagon Mortgages (No. 8) PLC; in December 2004 a £300 million securitisation ofsecured consumer loans was completed by Paragon Secured Finance (No. 1) PLC; inMay 2005, a £450 million securitisation of secured and unsecured consumer loanswas completed by Paragon Personal and Auto Finance (No. 3) PLC; in July 2005 a£700 million securitisation was completed by Paragon Mortgages (No. 9) PLC; and,in November 2005, a £1.0 billion securitisation was completed by ParagonMortgages (No. 10) PLC. Funding through securitisation continues to be attractive for the Group, withdemand for the notes issued through the Paragon securitisation programmeremaining high. This strong demand has had a beneficial impact on funding costs,with the average coupon on Paragon Mortgages (No. 10) PLC being the lowest yetin the Paragon programme. In April 2005 the Group issued £120 million 7% Callable Subordinated Notes due2017. This inaugural transaction provides long term capital at attractivepricing and improves the flexibility available to the Group in its capitalmanagement. CAPITAL MANAGEMENT The Board reviews, periodically, the appropriate level of capital to support itscurrent loan portfolios and to ensure that its business plans can be met. TheBoard has regard to a number of factors, including the capital needed to supportplanned business generation over the medium term, the risk characteristics ofthe portfolio and the capital being returned to the Group from organic cashgeneration. As a result of such a review in 2002, the Board decided to increase dividendsprogressively ahead of earnings growth in order to reduce dividend cover tomarket level over the medium term. Since that time, dividends have increasedannually at roughly double the rate of earnings growth. Whilst our new business generation targets remain stretching, the Group'sportfolio continues to generate capital. We have also reduced the portfolio'srisk profile by our disciplined restructuring of the portfolio from unsecuredtowards secured lending, which is less demanding of the Group's capital.Consumer loans, as a proportion of the portfolio, have been reducing year onyear, from 36% in 2002 to 13.4% as at 30 September 2005. Within this, theunsecured personal loan book has been declining in absolute terms since theproduct was withdrawn and as loans have redeemed, from £319.9 million at30 September 2002 to £180.0 million at 30 September 2005, representing 2.8% ofthe total loan book. As a result, we announced at the half year that surplus capital was availablefor distribution to shareholders. In addition to increasing the dividend for theyear by 31.3%, almost three times growth in earnings per share, thusaccelerating the Group's progress towards the objective of achieving a marketlevel of dividend cover within two years, the Company has also repurchased1,790,000 shares at an average price of £4.64 per share and a total cost of £8.3million as part of a £20 million repurchase programme. This programme is ongoingand the Board will keep under review the appropriate cost of capital to supportthe Group's business activities. INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS") The results for the year ended 30 September 2005 are the last to be preparedunder UK Generally Accepted Accounting Principles. The Board expects to providea comparative report to shareholders setting out the impact of the introductionof IFRS on the 2005 results in advance of the 2006 interim results, which willbe prepared under IFRS. OUTLOOK The fundamentals of the buy-to-let market remain strong, with increased rentaldemand translating into higher rents which, given more stable property prices,should result in improving yields. As a consequence, landlords are continuing totake a long term view of their property investments and we expect activitylevels to improve as landlords take advantage of the increased rental demand byexpanding their portfolios. The development of the Paragon Mortgages and Mortgage Trust brands willcontinue, aimed at providing a broad range of products and services tolandlords, thereby ensuring that the Group is well placed to benefit from thelong term development of this market. Jonathan P L PerryChairman23 November 2005______________________________________________________________________________ THE PARAGON GROUP OF COMPANIES PLCCONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year to 30 September 2005 2005 2004 £m £m £m £mInterest receivable 484.4 412.0Interest payable and similar (387.5) (331.4)charges _________ _________Net interest income 96.9 80.6Other operating income 35.9 40.2 _________ _________Total operating income 132.8 120.8Operating expenses Other operating expenses (44.2) (43.9) Amortisation of negative 4.1 5.2 goodwill _________ _________Total operating expenses (40.1) (38.7)Provisions for losses (15.9) (11.1) _________ _________Operating profit being profit on ordinary activities before taxation 76.8 71.0 Tax charge on profit on ordinary (16.1) (16.3) activities _________ _________Profit on ordinary activities after taxation for 60.7 54.7 the financial yearEquity dividend (14.4) (11.0) _________ _________Retained profit 46.3 43.7 ========= ========= Dividend - rate per share 12.6p 9.6p ========= ========= Earnings per share- basic 53.3p 48.0p- diluted 51.1p 46.2p ========= ========= The results for the current and preceding years relate entirely to continuingoperations. There is no material difference between the results as stated above and thosedetermined on the historical cost basis.______________________________________________________________________________ THE PARAGON GROUP OF COMPANIES PLCCONSOLIDATED BALANCE SHEET30 September 2005 2005 2004 £m £m £m £mASSETS EMPLOYEDFixed assetsIntangible assets Negative goodwill (9.9) (14.0)Tangible assets 3.6 3.4Investments Assets subject to non-recourse 1,116.0 1,557.7 finance Non-recourse finance (1,075.2) (1,520.3) _________ _________ 40.8 37.4 Loans to customers 5,497.9 4,492.5 _________ _________ 5,538.7 4,529.9 _________ _________ 5,532.4 4,519.3Current assetsStocks 3.0 3.4Debtors falling due within one 7.7 8.8yearInvestments 285.7 230.5Cash at bank and in hand 159.5 172.0 _________ _________ 455.9 414.7 _________ _________ 5,988.3 4,934.0 ========= =========FINANCED BYEquity shareholders' fundsCalled-up share capital 12.1 12.0Share premium account 70.2 68.8Merger reserve (70.2) (70.2)Profit and loss account 318.7 270.1 _________ _________ 318.7 268.7 _________ _________Share capital & reserves 330.8 280.7Own shares (22.8) (12.3) _________ _________ 308.0 268.4Provisions for liabilities and 2.8 5.6 chargesCreditors Amounts falling due within one 80.6 66.4 year Amounts falling due after more 5,596.9 4,593.6 than one year _________ _________ 5,677.5 4,660.0 _________ _________ 5,988.3 4,934.0 ========= ========= The preliminary financial information was approved by the Board of Directors on23 November 2005.______________________________________________________________________________ THE PARAGON GROUP OF COMPANIES PLCCONSOLIDATED CASH FLOW STATEMENTFor year to 30 September 2005 2005 2004 £m £mNet cash inflow from operating activities 132.3 129.3Taxation (12.2) (14.6)Capital expenditure and financial investment (616.7) (685.8)Acquisitions and disposals 2.0 -Equity dividends paid (12.4) (8.6) _________ _________ (507.0) (579.7)Management of liquid resources (55.2) (85.7)Financing 550.4 686.5 _________ _________(Decrease) / increase in cash in the year (11.8) 21.1 ========= ========= (a) Reconciliation of operating profit to net cash flows from operating activities 2005 2004 £m £mOperating profit 76.8 71.0Provisions for losses 15.9 11.1Depreciation 1.3 1.6Amortisation of brokers' commissions 34.9 37.2Amortisation of negative goodwill (4.1) (5.2)Charge for long term incentive plan 1.5 0.9Profit on sale of subsidiary (0.9) -(Increase) in stock (0.1) -Decrease in debtors 1.0 0.7Increase in creditors 6.0 12.0 _________ _________Net cash inflow from operating activities 132.3 129.3 ========= ========= (b) Analysis of cash flows for headings netted in the cash flow statement 2005 2004 £m £mCapital expenditure and financial investmentNet decrease in assets subject to non-recoursefunding 441.2 800.2Net increase in loans to customers (1,056.4) (1,485.2)Expenditure on other fixed assets (1.7) (1.0)Proceeds from sales of other fixed assets 0.2 0.2 _________ _________ (616.7) (685.8) ========= ========= (c) Reconciliation of net cash flow to movement in net debt 2005 2004 £m £m(Decrease) / increase in cash in year (11.8) 21.1Cash inflow from increase in debt (558.6) (687.2)Cash movement from change in liquid resources 55.2 85.7 _________ _________Movement in net debt in year (515.2) (580.4)Net debt at 1 October 2004 (5,710.6) (5,130.2) _________ _________Net debt at 30 September 2005 (6,225.8) (5,710.6) ========= =========______________________________________________________________________________ THE PARAGON GROUP OF COMPANIES PLCNOTES TO THE FINANCIAL INFORMATIONFor the year ended 30 September 2005 1. A final dividend of 7.4p per share is proposed, payable on 13 February 2006 with a record date of 13 January 2006. 2. The financial information has been prepared using the same accounting policies as were used in preparing the statutory accounts of the Company for the year to 30 September 2004. 3. The cost:income ratio for the year is calculated by dividing operating expenses, excluding amortisation of negative goodwill of £4.1m (2004: £5.2m), of £44.2m (2004: £43.9m) by total operating income of £132.8m (2004: £120.8m) to give 33.3% (2004: 36.3%). 4. Earnings per ordinary share is calculated as follows: 2005 2004 Profit for the year £60,700,000 £54,700,000 _____________ _____________ Basic weighted average number of ordinaryshares ranking for dividend during the year 114,055,451 113,942,576Dilutive effect of the weighted average numberof share options in issue during the year 4,949,671 4,364,990 _____________ _____________Diluted weighted average number of ordinaryshares ranking for dividend during the year 119,005,122 118,307,566 ============= =============Earnings per ordinary share - basic 53.3p 48.0p - diluted 51.1p 46.2p ============= ============= 5. The operating profit for the period excluding goodwill comprises the operating profit of £76.8m (2004: £71.0m) less the credit for the amortisation of negative goodwill of £4.1m (2004: £5.2m). 6. Assets subject to non-recourse finance comprises Loans to Customers of £1,030.8m (2004: £1,458.4m) and cash of £85.2m (2004: £99.3m). 7. 'Total loan assets' includes Loans to Customers shown on the face of the balance sheet of £5,497.9m (2004: £4,492.5m) and similar assets subject to non-recourse finance arrangements of £1,030.8m (2004: £1,458.4m). 8. The financial information set out in the announcement does not constitute the Company's statutory accounts for the years ended 30 September 2004 or 30 September 2005, but is derived from those statutory accounts, which have been reported on by the Company's auditors. Statutory accounts for the year ended 30 September 2004 have been delivered to the Registrar of Companies and those for the year ended 30 September 2005 will be delivered to the Registrar following the Company's Annual General Meeting. The reports of the auditors in both cases were unqualified and did not contain an adverse statement under sections 237 (2) or 237 (3) of the Companies Act 1985. 9. A copy of the Annual Report and Accounts for the year to 30 September 2005 will be posted to shareholders in due course. Copies of this announcement can be obtained from The Paragon Group of Companies PLC, St. Catherine's Court, Herbert Road, Solihull, West Midlands, B91 3QE. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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