22nd Nov 2006 07:01
Paragon Group Of Companies PLC22 November 2006 Under embargo until Stock Exchange announcement: 7am, Wednesday 22 November 2006 STRONG GROWTH AT PARAGON ------------------------ The Paragon Group of Companies PLC ("Paragon"), one of the UK's largestspecialist lenders offering buy-to-let mortgages and consumer finance, todayannounces its Preliminary Results for the year ended 30 September 2006. Highlights include: • Profit before tax increased by 15.3% on a statutory basis to £82.8 million (2005: £71.8 million) and by 15.5% on a proforma basis (2005 proforma*: £71.7 million) • Earnings per share increased by 25.2% on a statutory basis to 61.2p (2005: 48.9p) and by 25.4% on a proforma basis (2005 proforma*: 48.8p) • Dividend per share up 34.9% to 17.0p (2005: 12.6p) • Loan advances increased by 68.5% to £3,412.6 million (2005: £2,025.6 million) • Buy-to-let loan advances up 82.2% to £3,038.3 million (2005: £1,667.8 million) • Loan assets increased by 29.1% on a statutory basis to £8,426.6 million (2005: £6,528.7 million) and by 31.0% on a proforma basis (2005 proforma* £6,431.1 million) • Mortgage pipeline significantly ahead of last year; strong start to new financial year • Pension scheme deficit eliminated * For all references to proforma numbers see note 10 Commenting on the results, Jonathan Perry, Chairman of Paragon, said: "The success of the Group in developing its buy-to-let mortgage businesses,Paragon Mortgages and Mortgage Trust, is evident in the increase in Paragon'sshare of the buy-to-let market and the strong business flows towards the end ofthe year, and beyond, have ensured a sound start to the current financial year.We are extremely well placed competitively and see opportunities in this sectorfor many years to come." For further information, please contact: The Paragon Group of Companies PLC The Wriglesworth ConsultancyNigel Terrington, Chief Executive Mark BakerNick Keen, Finance Director Tel: 020 7845 7900Tel: 0121 712 2024 Mobile: 07980 635 243________________________________________________________________________________ CHAIRMAN'S STATEMENT The year to 30 September 2006 has been another successful period for the Group,with profits, earnings, business volumes and loan assets all growing strongly.The Group has increased its market share within the buy-to-let sector, furtherstrengthening its position as a top lender to private sector landlords. During the year, profit on ordinary activities before taxation increased by15.3% on a statutory basis to £82.8 million from £71.8 million in the previousyear and by 15.5% from £71.7 million on a proforma basis (see below). Earningsper share increased by 25.4% on a proforma basis to 61.2p (2005: 48.8p) and by25.2% on a statutory basis from 48.9p. Total advances by the Group increased by 68.5% to £3,412.6 million (2005:£2,025.6 million), of which £3,038.3 million were buy-to-let advances, anincrease of 82.2% over the year. Total loan assets at 30 September 2006increased by 29.1% to £8,426.6 million from £6,528.7 million at 30 September2005 on a statutory basis and by 31.0% to £6,431.1 million on a proforma basis. The Board has declared an increased final dividend of 10.1p per share which,when added to the interim dividend of 6.9p paid on 31 July 2006, gives a totaldividend of 17.0p per share for the year, an increase of 34.9% over last year.Subject to approval at the Annual General Meeting on 8 February 2007, thedividend will be paid on 12 February 2007, by reference to a record date of12 January 2007. In adopting International Financial Reporting Standards ("IFRS") for the firsttime, the Group has not applied IAS 32 and IAS 39 in compiling the statutorycomparative figures for the year ended 30 September 2005 shown in this report.In order to aid comparison of the 2006 and 2005 results, additional proformainformation has been provided within this statement, showing the results forthat period as they would have been stated had the Group applied thoseprovisions of IAS 32 and IAS 39 relating to accounting for the Group's loanassets. Further information is given in note 10. For all references to proformadisclosures please refer to this note. A full statement of the effects of thetransition to IFRS was issued by the Company on 21 February 2006. CONSOLIDATED INCOME STATEMENTFor the year ended 30 September 2006 2006 2005 2005 Proforma Statutory £m £m £mInterest receivable 550.8 486.8 485.8Interest payable and similar charges (407.9) (355.9) (390.8) --------- --------- --------- Net interest income 142.9 130.9 95.0Other operating income 30.6 29.4 37.9 --------- --------- ---------Total operating income 173.5 160.3 132.9Operating expenses (45.4) (45.2) (45.2)Provisions for losses (47.8) (43.4) (15.9) --------- --------- --------- 80.3 71.7 71.8Fair value net gains 2.5 - - --------- --------- ---------Operating profit being profit on ordinaryactivities before taxation 82.8 71.7 71.8Tax charge on profit on ordinary activities (14.0) (16.0) (16.0) --------- --------- ---------Profit on ordinary activities after taxation 68.8 55.7 55.8 ========= ========= ========= Dividend for the year - Rate per share 17.0p 12.6p 12.6pBasic earnings per share 61.2p 48.8p 48.9pDiluted earnings per share 58.4p 46.8p 46.9p ========= ========= ========= For management purposes the Group is organised into two major operatingdivisions, Buy-to-Let Mortgages and Consumer Finance, which includes securedlending and car and retail finance. These divisions are the basis on which theGroup reports primary segmental information. Other Operations comprises closed loan books arising from owner-occupiedmortgages and unsecured personal lending operations where no further newbusiness is being written and existing assets are being run down. The adjusted operating results of these business segments are detailed fully innote 2 and are summarised below. 2006 2005 2005 Proforma Statutory £m £m £mOperating resultBuy-to-Let Mortgages 51.8 30.8 28.8Consumer Finance 22.0 25.4 20.8Other Operations 9.0 15.5 22.2 -------- -------- -------- 82.8 71.7 71.8 ======== ======== ======== Net interest income increased by 9.2% to £142.9 million from £130.9 million ona proforma basis, reflecting the growth in the loan book. Margins within eachdivision were at a similar level to 2005, although the sharp rise in expectedinterest rates in recent months has caused some contraction of margins in thesecond half compared to the first half. In due course market and official rateswill align as rates move towards their cyclical peak, at which time the marginsqueeze will diminish or reverse. Other operating income remained broadly flat on a proforma basis at £30.6million from £29.4 million (£37.9 million for 2005 on a statutory basis)compared to 2005. A greater proportion of this income has arisen from feesrather than commissions, reflecting a decline in insurance related income duringthe period. Operating expenses were £45.4 million, compared with £45.2 million for 2005, thetight control of costs and our low cost:income ratio reflecting our continuingfocus on cost effectiveness. The charge for loss provisions of £47.8 million compares with £43.4 million on aproforma basis for 2005. As a percentage of loans to customers the charge, at0.57%, is lower than the charge, on a proforma basis, of 0.67% for 2005. Thecharge includes amounts in respect of income which, although accountingstandards require it to be recognised, is not expected to be received by theGroup and hence also increases the charge for loan impairment. Under UK GAAPsuch income was not recognised. The Group has maintained its focus on growing its secured lending, principallyof high quality buy-to-let assets, whilst limiting exposure to unsecuredconsumer lending. The number of accounts in arrears across the portfolios waslower at 30 September 2006 than a year previously, both numerically and as apercentage of live accounts. The performance of the buy-to-let book remainsexemplary and the arrears performance of the consumer finance books continues tobe in line with expectations, following a policy of credit tightening. Fair value net gains of £2.5 million have arisen from the IFRS requirement thatmovements in the fair value of hedging instruments attributable toineffectiveness in the hedging arrangements should be credited or charged toincome and expense. Any ineffectiveness arising from differences between thefair value movements of hedging instruments and the fair value movements of thehedged assets or liabilities is expected to trend to zero over time. The charge to tax has been reduced by an exceptional credit of £4.3 million as aresult of the settlement of a prior year item and by £6.3 million as a result ofthe utilisation of prior year losses not previously recognised for accountingpurposes, resulting in an effective tax rate of 16.9% for the year. Profits after taxation of £68.8 million have been transferred to shareholders'funds. REVIEW OF OPERATIONS-------------------- BUY-TO-LET MORTGAGES Buy-to-let mortgage lending by the Group was £3,038.3 million for the year(2005: £1,667.8 million), an increase of 82.2%, evidencing the successful marketpenetration of our brands which saw our share of the buy-to-let market increaseduring the year to 10% from 8% a year earlier. With redemption rates stable,this strong lending performance produced a 42.5% increase in buy-to-let assetsto £7,212.3 million from £5,059.5 million on the proforma basis (43.3% increaseon the statutory basis from £5,031.6 million). Furthermore, strong applicationflows in the summer months have resulted in a significant increase in the newbusiness pipeline at 30 September 2006 compared to a year previously, ensuringan excellent start to the new financial year. The buy-to-let market has remained strong throughout the year. Data released bythe Council of Mortgage Lenders in August 2006 showed that buy-to-let advanceswere £17.5 billion for the half year to 30 June 2006, representing 11% of allmortgages and an increase of 20% over the previous half-year. Record levels of tenant demand and rental growth have been reported by the RoyalInstitute of Chartered Surveyors underpinning near-term growth prospects. Longerterm social, demographic and economic indicators point to further demand forprivate rented property and, therefore, to long-term growth in buy-to-letmortgage lending. During the period we have continued the development of our lending brands,Paragon Mortgages and Mortgage Trust, offering products to a wider range ofresidential property investors across various types of mortgage intermediaries,mortgage networks and mortgage packagers as well as direct to borrowers. We haveinvested significantly in underwriting and distribution technology, tofacilitate more efficient underwriting and enhance the quality of service tobrokers and borrowers. The Group remains well placed competitively in thismarket. The Group has maintained its strong credit standards for buy-to-let lending. Thecredit performance of the portfolio remains exemplary, with arrearssignificantly below industry averages. CONSUMER FINANCE The consumer credit market has remained weak during the year and, as aconsequence, our focus on cautious lending rather than volumes continues to beappropriate. As before, we have restricted our activities to areas with a lowincidence of arrears with an emphasis on secured lending. Aggregate loanadvances were £372.4 million during the year, an increase of 6.4% from £349.9million in the previous year. As at 30 September 2006, the total loansoutstanding on the consumer finance books were £709.6 million, compared with£690.3 million on a proforma basis at 30 September 2005 (£694.9 million on astatutory basis). Personal finance Weak consumer confidence and the prospect of higher interest rates has limitedthe appetite of consumers for further borrowing. With lower overall volumes,competition has been high in the prime secured second mortgage market, with somemarket participants relaxing their credit criteria to increase lending volumes.By contrast, we have tightened credit standards, limiting business flow to avoida reduction in credit performance of the portfolio. Secured personal financeadvances were £218.0 million during the year, 6.5% lower than £233.1 million forthe previous year. Looking forward, there are good prospects for a modest recovery in volumes asour introducer base has increased during the year. The recent strength of thehousing market will also provide more scope for home owners to access securedloans. Under the terms of an agreement entered into towards the end of the financialyear, Paragon has agreed to originate sub-prime secured loans on behalf ofMorgan Stanley International Bank. The Group will hold no principal position onthese loans but will earn fees for their origination. This will enable us tocontinue to support our brokers with a full range of products, thereby enhancingrelationships. The arrangement is expected to start generating additionalearnings in the current financial year and we will report further on theprogress of this new venture at the half 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 increasing by 32.3% to£154.4 million (2005: £116.7 million) despite contracting finance volumes bothin the car and larger retail goods markets and the implementation of stricterunderwriting parameters which have further strengthened credit performance. The rise in volumes has been achieved by a broadening of product distributionsupported by the establishment of a sales focused call centre, which hasbenefited both the car and retail finance businesses and has resulted in asignificant number of new introducers being signed up during the year.Additionally, the streamlining of both internal and external processes hasimproved operating efficiency and delivered an improved service to ourintroducers. FUNDING The Group continued to be an active issuer in the capital markets during theyear. In November 2005, a £1.0 billion securitisation was completed by ParagonMortgages (No. 10) PLC; in March 2006 a further £1.0 billion securitisation wascompleted by Paragon Mortgages (No. 11) PLC; in July 2006 a £1.5 billionsecuritisation was completed by Paragon Mortgages (No. 12) PLC; and, in October2006 a further £1.5 billion securitisation was completed by Paragon Mortgages(No. 13) PLC. Over the course of this series of transactions, coupons havereduced reflecting the positive demand for our buy-to-let products amongstcapital market investors. In order to provide finance for the increased level of loan completions, theGroup's committed sterling warehouse facility, provided by a consortium ofbanks, was increased in April 2006 from £1,425.0 million to £2,325.0 million, onfiner terms. PENSION SCHEME During the period the Group made a special contribution of £14.6 million to thestaff pension scheme. The amount was equal to the IAS 19 deficit at 30 September2005. The scheme had a small IAS 19 surplus at 30 September 2006. The specialcontribution places the scheme on a more secure financial footing, as well asminimising the Group's ongoing payments to the Pension Protection Fund. CAPITAL MANAGEMENT During the year the Company bought 3,454,000 shares in the market at a cost of£23.1 million with the result that by 30 September 2006 a total of 5,244,000shares had been repurchased since the buyback programme was announced in 2005,at a total cost of £31.4 million. On an annualised basis the share purchases todate will enhance earnings per share by approximately 3%. Over the period we have continued to reduce the risk profile of the Group's loanassets through a disciplined restructuring of the portfolio from unsecuredtowards less capital-demanding secured lending. In addition, the morecapital-demanding closed books have continued to decline, both from naturalrun-off and from ongoing disposals, the latter including the sale during theyear of the majority of the remaining NHL assets. Further asset sales may beconsidered as appropriate to supplement the organic run-down strategy. As aresult, the Board announced during the year that it would increase the amountset aside to repurchase shares in the market by a further £20.0 million, withinthe authority granted by shareholders at the 2006 Annual General Meeting. Ofthis, £8.6 million remains available for investment in the repurchase programmegoing forward. BOARD CHANGES In July we announced that I will be retiring from the Board at the end of theforthcoming Annual General Meeting and that Bob Dench, a non-executive directorsince 2004, will be taking over as Chairman from that time. The Group isfortunate in having a capable and stable management team and Bob, with hisconsiderable management experience in the financial sector, is eminentlysuitable for the job. The fourteen years since I became Chairman have beentremendously fulfilling and meeting the many challenges we encountered has pavedthe way for the success the Group enjoys today. Gavin Lickley, a non-executive director since 2002, retired from the Board inOctober 2006. We thank Gavin for his service and commitment during the years ofhis association with the Group. We were pleased to announce recently that Terry Eccles will be joining the Boardon 1 February 2007 as an independent non-executive director. Terry is currentlyVice-Chairman of JPMorgan Cazenove and will bring to the Board considerableexperience in the financial sector. The Nomination Committee is currently considering a further non-executiveappointment. OUTLOOK The Group has enjoyed another year of strong growth. Income generating assetsincreased by 31.0% on a proforma basis through the addition of high qualityloans, whilst exposure to the more risky assets in the book was further reduced.Secured loans now account for 96.8% of loan assets. A strong cash position hasenabled the Group to make a special contribution to the staff pension scheme,thus eliminating the deficit reported last year, and to make considerableprogress with the extended share buy-back programme. The success of the Group in developing its buy-to-let mortgage businesses,Paragon Mortgages and Mortgage Trust, is evident in the increase in Paragon'sshare of the buy-to-let market and the strong business flows towards the end ofthe year, and beyond, have ensured a sound start to the current financial year. As I prepare to leave the Group in February, after fifteen years of service, Iam delighted with progress over this period. More important, however, is myconfidence in Paragon's future. The Group is financially and professionallystrong with an excellent management team and a dedicated staff with whom it hasbeen a privilege to work closely over this period. Paragon's principalbuy-to-let activity is now well understood and most major banking groups are nowactive participants in this market. We are extremely well placed competitivelyand see opportunities in this sector for many years to come. Other promisingbusiness streams are reviewed, tested and, as my report indicates, implementedwhere appropriate. My successor, Bob Dench, has the qualities and relevant experience to continueParagon's successful development. I wish him and the Paragon team great successin the future. Jonathan PerryChairman22 November 2006________________________________________________________________________________ CONSOLIDATED INCOME STATEMENTFor the year ended 30 September 2006 Note 2006 2005 £m £m Interest receivable 550.8 485.8Interest payable and similar charges (407.9) (390.8) --------- --------- Net interest income 142.9 95.0Other operating income 30.6 37.9 --------- ---------Total operating income 173.5 132.9Operating expenses (45.4) (45.2)Provisions for losses (47.8) (15.9) --------- --------- 80.3 71.8Fair value net gains 2.5 - --------- ---------Operating profit being profit on ordinary activitiesbefore taxation 82.8 71.8Tax charge on profit on ordinary activities (14.0) (16.0) --------- ---------Profit on ordinary activities after taxation 68.8 55.8 ========= ========= Dividend - Rate per share 4 17.0p 12.6pBasic earnings per share 3 61.2p 48.9pDiluted earnings per share 3 58.4p 46.9p ========= ========= The results for the periods shown above relate entirely to continuingoperations.________________________________________________________________________________ CONSOLIDATED BALANCE SHEET30 September 2006 Note 2006 2005ASSETS EMPLOYED £m £mNon-current assetsIntangible assets 0.6 0.3Property, plant and equipment 20.2 19.7Financial assets 5 8,432.9 6,528.7Retirement benefit obligations 0.3 -Tax assets 33.6 5.7 --------- --------- 8,487.6 6,554.4 --------- ---------Current assetsOther receivables 6.3 6.6Cash and cash equivalents 622.7 530.4 --------- --------- 629.0 537.0 --------- ---------Total assets 9,116.6 7,091.4 ========= ========= FINANCED BYEquity shareholders' fundsCalled-up share capital 12.1 12.1Reserves 314.6 323.5 --------- ---------Share capital and reserves 326.7 335.6Own shares (47.7) (22.8) --------- ---------Total equity 279.0 312.8 --------- ---------Current liabilitiesFinancial liabilities 6 128.0 0.9Current tax liabilities 1.4 12.9Provisions 0.7 -Other liabilities 78.2 59.9 --------- --------- 208.3 73.7 --------- ---------Non-current liabilitiesFinancial liabilities 6 8,619.7 6,684.8Retirement benefit obligations - 14.6Deferred tax liabilities - 0.7Provisions 3.7 2.1Other liabilities 5.9 2.7 --------- --------- 8,629.3 6,704.9 --------- ---------Total liabilities 8,837.6 6,778.6 --------- --------- 9,116.6 7,091.4 ========= ========= The preliminary financial information was approved by the Board of Directors on22 November 2006.________________________________________________________________________________ CONSOLIDATED CASH FLOW STATEMENTFor the year ended 30 September 2006 Note 2006 2005 £m £m Net cash flow (used in) operating activities 7 (1,824.0) (500.7)Net cash (used in) investing activities 8 (1.4) (0.3)Net cash from financing activities 9 1,917.8 530.3 --------- --------- Net increase in cash and cash equivalents 92.4 29.3Opening cash and cash equivalents 529.9 500.6 --------- ---------Closing cash and cash equivalents 622.3 529.9 ========= =========Represented by balances withinCash and cash equivalents 622.7 530.4Financial liabilities (0.4) (0.5) --------- --------- 622.3 529.9 ========= ========= CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENDITUREFor the year ended 30 September 2006 2006 2005 £m £m Profit for the year 68.8 55.8Actuarial (loss) on pension scheme (0.6) -Cash flow hedge gains taken to equity 1.5 -Tax on items taken directly to equity (0.2) - --------- ---------Total recognised income and expenditure for the year 69.5 55.8Adoption of IAS 32 and IAS 39 (72.5) - --------- --------- (3.0) 55.8 ========= =========________________________________________________________________________________ RECONCILIATION OF MOVEMENTS IN CONSOLIDATED EQUITYFor the year ended 30 September 2006 Note 2006 2005 £m £mTotal recognised income and expenditure for the year 69.5 55.8Dividends paid 4 (16.0) (12.4)Net movement in own shares (24.9) (10.5)Surplus on transactions in own shares 0.6 2.3Charge for share based remuneration 0.6 2.6Tax on share based remuneration 8.9 - ------- -------Total movements in equity in the year 38.7 37.8 ------- -------Equity at 30 September 2005 312.8 275.0Adoption of IAS 32 and IAS 39 (72.5) - ------- -------Equity at 1 October 2005 240.3 275.0 ------- -------Closing equity 279.0 312.8 ======= =======________________________________________________________________________________ NOTES TO THE PRELIMINARY FINANCIAL INFORMATIONFor the year ended 30 September 2006 1. GENERAL INFORMATION The annual financial statements of the Group for the year ended 30 September 2006 have been prepared in accordance with International Financial Reporting Standards as adopted for use in the European Union. Accordingly, the preliminary financial information has been prepared in accordance with the recognition and measurement criteria of IFRS. The particular accounting policies adopted are those described in the Group's interim report published on 23 May 2006. The financial information set out in the announcement does not constitute the Company's statutory accounts for the years ended 30 September 2005 or 30 September 2006, 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 2005, which were prepared under UK GAAP, have been delivered to the Registrar of Companies and those for the year ended 30 September 2006 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. This document may contain forward-looking statements with respect to certain of the plans and current goals and expectations relating to the future financial condition, 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 Annual Report and Accounts for the year ended 30 September 2006 will be posted to shareholders in due course. Copies of this announcement can be obtained from the Group Company Secretary, The Paragon Group of Companies PLC, St. Catherine's Court, Herbert Road, Solihull, West Midlands, B91 3QE.________________________________________________________________________________ NOTES TO THE PRELIMINARY FINANCIAL INFORMATIONFor the year ended 30 September 2006 2. SEGMENTAL RESULTS For management purposes the Group is organised into two major operating divisions, Buy-to-Let Mortgages and Consumer Lending, which includes secured lending and car and retail finance. These divisions are the basis on which the Group reports primary segmental information. All of the Group's operations are conducted in the United Kingdom. Other Operations comprises closed loan books arising from owner-occupied mortgages and unsecured personal lending operations where no further new business is being written and existing assets are being run down. Financial information about these business segments is shown below. Year ended 30 September 2006 Buy-to-Let Consumer Other Total Mortgages Lending Operations £m £m £m £m Interest receivable 385.8 61.5 103.5 550.8 Interest payable (326.5) (42.8) (38.6) (407.9) -------- -------- -------- -------- Net interest income 59.3 18.7 64.9 142.9 Other operating income 8.4 16.1 6.1 30.6 -------- -------- -------- -------- Total operating income 67.7 34.8 71.0 173.5 Operating expenses (16.8) (8.0) (20.6) (45.4) Provisions for losses (1.5) (4.9) (41.4) (47.8) -------- -------- -------- -------- 49.4 21.9 9.0 80.3 Fair value net gains 2.4 0.1 - 2.5 -------- -------- -------- -------- Operating profit 51.8 22.0 9.0 82.8 ======== ======== ======== ======== Year ended 30 September 2005 Buy-to-Let Consumer Other Total Mortgages Lending Operations £m £m £m £m Interest receivable 298.2 84.7 102.9 485.8 Interest payable (263.7) (68.6) (58.5) (390.8) -------- -------- -------- -------- Net interest income 34.5 16.1 44.4 95.0 Other operating income 13.7 17.2 7.0 37.9 -------- -------- -------- -------- Total operating income 48.2 33.3 51.4 132.9 Operating expenses (18.2) (7.9) (19.1) (45.2) Provisions for losses (1.2) (4.6) (10.1) (15.9) -------- -------- -------- -------- 28.8 20.8 22.2 71.8 Fair value net gains - - - - -------- -------- -------- -------- Operating profit 28.8 20.8 22.2 71.8 ======== ======== ======== ========________________________________________________________________________________ NOTES TO THE PRELIMINARY FINANCIAL INFORMATIONFor the year ended 30 September 2006 3. EARNINGS PER SHARE Earnings per ordinary share is calculated as follows: 2006 2005 Profit for the period (£m) 68.8 55.8 ------- ------- Basic weighted average number of ordinary shares ranking for dividend during the year (million) 112.4 114.1 Dilutive effect of the weighted average number of share options and incentive plans in issue during the year (million) 5.3 4.9 ------- ------- Diluted weighted average number of ordinary shares ranking for dividend during the year (million) 117.7 119.0 ======= ======= Earnings per ordinary share - basic 61.2p 48.9p - diluted 58.4p 46.9p ======= ======= 4. DIVIDENDS Amounts recognised as distributions to equity shareholders in the period: 2006 2005 2006 2005 Per share Per share £m £m Equity dividends on ordinary shares Final dividend for the year ended 30 September 2005 7.4p 5.7p 8.4 6.5 Interim dividend for the year ended 30 September 2006 6.9p 5.2p 7.6 5.9 ------ ------ ------ ------ 14.3p 10.9p 16.0 12.4 ====== ====== ====== ====== Amounts paid and proposed in respect of the year: 2006 2005 2006 2005 Per share Per share £m £m Interim dividend for the year ended 30 September 2006 6.9p 5.2p 7.6 5.9 Proposed final dividend for the year ended 30 September 2006 10.1p 7.4p 12.3 8.4 ------ ------ ------ ------ 17.0p 12.6p 19.9 14.3 ====== ====== ====== ====== The proposed final dividend is subject to approval by the Shareholders at the Annual General Meeting. Subject to that approval the final dividend will be payable on 12 February 2007 with a record date of 12 January 2007. This dividend will be recognised in the accounts when it is paid.________________________________________________________________________________ NOTES TO THE PRELIMINARY FINANCIAL INFORMATIONFor the year ended 30 September 2006 5. FINANCIAL ASSETS 2006 2005 £m £m Loans to customers 8,426.6 6,528.7 Fair value adjustments from portfolio hedging (14.0) - Derivative financial assets 20.3 - --------- --------- 8,432.9 6,528.7 ========= ========= 6. FINANCIAL LIABILITIES 2006 2005 £m £m Current liabilities Finance lease liability 0.4 0.4 Bank loans and overdrafts 127.6 0.5 --------- --------- 128.0 0.9 ========= ========= Non-current liabilities Asset backed loan notes 7,057.7 5,530.0 Corporate bond 117.9 118.2 Finance lease liability 13.9 14.3 Bank loans and overdrafts 1,267.9 1,022.3 Derivative financial liabilities 162.3 - --------- --------- 8,619.7 6,684.8 ========= =========________________________________________________________________________________ NOTES TO THE PRELIMINARY FINANCIAL INFORMATIONFor the year ended 30 September 2006 7. NET CASHFLOW FROM OPERATING ACTIVITIES 2006 2005 £m £m Profit before tax 82.8 71.8 Non-cash items included in profit and other adjustments: Depreciation of property, plant and equipment 3.5 3.8 Amortisation of intangible assets 0.2 0.2 Non-cash movements on borrowings (114.0) 7.4 Impairment losses on loans to customers 47.8 15.9 Charge for share based remuneration 0.6 2.6 Profit on sale of subsidiary - (0.9) Net (increase) / decrease in operating assets: Loans to customers (1,951.2) (594.4) Derivative financial instruments 3.6 - Fair value of portfolio hedges 14.0 - Other receivables (2.3) 1.0 Net increase in operating liabilities: Derivative financial instruments 100.9 - Sundry liabilities 5.5 4.1 --------- --------- Cash utilised by operations (1,808.6) (488.5) Income taxes paid (15.4) (12.2) --------- --------- Net cash flow (used in) operating activities (1,824.0) (500.7) ========= ========= 8. NET CASHFLOW FROM INVESTING ACTIVITIES 2006 2005 £m £m Proceeds on disposal of property, plant and equipment 1.2 1.6 Purchases of property, plant and equipment (5.2) (3.7) Purchases of intangible assets (0.5) (0.2) Acquisition of subsidiary undertakings net of cash acquired 3.1 - Sale of subsidiary undertaking - 2.0 --------- --------- Net cash (used in) investing activities (1.4) (0.3) ========= =========________________________________________________________________________________ NOTES TO THE PRELIMINARY FINANCIAL INFORMATIONFor the year ended 30 September 2006 9. NET CASHFLOW FROM FINANCING ACTIVITIES 2006 2005 £m £m Dividends paid (16.0) (12.4) Issue of corporate bond - 118.0 Issue of asset backed floating rate notes 3,493.6 2,444.7 Repayment of asset backed floating rate notes (1,906.6) (2,102.1) Capital element of finance lease payments (0.4) (0.3) Movement on bank facilities 371.5 90.6 Purchase of shares (27.4) (12.4) Exercise of options under ESOP scheme 1.9 1.5 Exercise of other share options 1.2 2.7 ---------- ---------- Net cash generated by financing activities 1,917.8 530.3 ========== ==========________________________________________________________________________________ NOTES TO THE PRELIMINARY FINANCIAL INFORMATIONFor the year ended 30 September 2006 10. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS As described in Note 1, these results are presented in accordance with International Financial Reporting Standards as endorsed by the European Union ('IFRS'). On 21 February 2006 the Group announced details of the adjustments to its accounting policies required in order to convert the previously published results to an IFRS basis. All IFRS information relating to the year ended 30 September 2005 disclosed in this statement is derived from that announcement. This document also included reconciliations of the balance sheets and profit and loss accounts previously published to those shown as comparative amounts in this preliminary financial information. The Group has taken advantage of the transitional provisions of IFRS 1 and these comparative figures do not show the effect of the adoption of IAS 32 and IAS 39. To enable a more meaningful presentation of results, in addition to the statutory comparative information, the results for the year ended 30 September 2005 have been compiled on a proforma basis. This shows the Group's customer loan balances, borrowings and interest income as they would have been shown had IAS 32 and IAS 39 applied to these balances. The remaining adjustments required by these standards relate to fair values and hedging and cannot be applied as the required documentation for these arrangements was not in place at 1 October 2004. A reconciliation between the statutory comparatives and the proforma information was given in the announcement of 21 February 2006. The differences in the segment results and segmental 'loans to customers' figures between the statutory and proforma bases are also detailed in the announcement. Financial highlights for 2005 on the proforma and statutory bases are shown below: 2005 2005 Proforma Statutory £m £m Profit before taxation 71.7 71.8 Profit after taxation 55.7 55.8 Total loan assets 6,431.1 6,528.7 Shareholders' funds 244.4 312.8 ========= ========= 2005 2005 Proforma Statutory Earnings per share - basic 48.8p 48.9p - diluted 46.8p 46.9p Dividend per ordinary share 12.6p 12.6p ========= ========= The cash flow statements have also been restated to comply with the requirements of IAS 7 - 'Cash Flow Statements'. These changes represent the re-classification of balances only. Copies of the announcement made on 21 February 2006 are available from the Group's website at www.paragon-group.co.uk or from the Group Company Secretary, 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:
Paragon Group