22nd May 2007 07:01
Paragon Group Of Companies PLC22 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 andconsumer finance lender, today announces its interim results for the six monthsended 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 thefinancial year reflect the success of our brands in the expanding buy-to-letmarket. Over the past ten years we have established a reputation as thespecialist buy-to-let lender and have built a high quality portfolio in a marketwhere short-term demand and long-term demographic trends point to sustainablegrowth." 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______________________________________________________________________________ INTERIM FINANCIAL REPORT The six months ended 31 March 2007 has seen further strong growth in Groupprofits, business volumes and loan assets, attributable to activity within thebuy-to-let business. During the period, the Group has continued its strategy ofstrongly promoting buy-to-let activity whilst limiting consumer lendingexposures. During the period, profit on ordinary activities before taxation increased by11.0% to £43.3 million from £39.0 million for the first half of 2006. Earningsper share were 27.7p (2006 H1: 28.8p), the reduction from last year resultingfrom the increase in the corporation tax charge rate from 16.7% to 29.1%. On afully taxed basis earnings per share increased to 27.3p from 24.2p, an increaseof 12.8% (note 4). Total loan advances were 38.9% higher at £2,118.2 million compared with £1,525.0million for the first half of 2006. At 31 March 2007, loan assets were £9,763.3million (note 5), compared with £7,232.9 million at 31 March 2006, a year onyear increase of 35.0%. The Board has declared an interim dividend of 8.0p per share, payable on 27 July2007 to shareholders on the register at 29 June 2007, an increase of 15.9% fromlast 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 othersources of income derived from first charge mortgages; and Consumer Finance,which includes secured lending, car and retail finance and the residualunsecured loan book. These divisions are the basis on which the Group reportsprimary segmental information. This is a change from the basis reported in 2006in that the closed, owner-occupied first mortgage book, which at 31 March 2007amounted to £354.9 million, and the closed, unsecured book of £66.4 million,both of which comprised the "Other Operations" category last year, are nowincluded within the First Mortgages and Consumer Finance segments respectively.For reporting purposes these books were absorbed within the results from the twomain business areas because their reduced size had rendered the Other Operationssegment insignificant in terms of assets, revenue and net profits.______________________________________________________________________________ INTERIM FINANCIAL REPORT (Continued) The adjusted operating results of these business segments are detailed fully innote 3 and are summarised below. Six months to Six months to 31 March 31 March 2007 2006 £m £mOperating resultFirst Mortgages 34.4 26.7Consumer Finance 8.9 12.3 _________ _________ 43.3 39.0 ========= ========= Net interest income increased by 5.5% to £75.2 million from £71.3 million forthe first half of 2006. Portfolio growth has been concentrated on buy-to-letassets which, commensurate with the credit quality, are lower margin, whilst thehigher margin consumer book has contracted over the year. Average margins ineach 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 theConsumer Division being compensated by increased administration and servicingincome. Operating expenses decreased by 4.0% to £23.8 million from £24.8 million for thefirst half of 2006, reflecting tight cost controls across the business and areduced charge for share based payments. As a consequence, the cost:income ratioimproved to 25.5% from 28.4% in the comparable period last year. Control overoperating costs continues to be a major focus and is a significant driver forour competitive position in our lending markets.______________________________________________________________________________ INTERIM FINANCIAL REPORT (Continued) The charge for impairment provisions of £26.2 million compares with £23.6million for the first half of 2006. As a percentage of loans to customers (note5) 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 bereceived 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 becarefully managed and the arrears performance remains in line with ourexpectations, with the performance of the buy-to-let book continuing to beexemplary. Of the charge of £4.3 million attributed to the First Mortgagessegment 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 fromthe IFRS requirement that movements in the fair value of hedging instrumentsattributable to ineffectiveness in the hedging arrangements should be creditedor charged to income and expense. Any ineffectiveness arising from differencesbetween the fair value movements of hedging instruments and the fair valuemovements of the hedged assets or liabilities is expected to trend to zero overtime. Corporation tax has been charged at the rate of 29.1%, compared to 16.7% in thefirst half last year, the latter benefiting from an exceptional credit arisingfrom 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 theowner-occupied mortgage books. New business origination in the first half has been strong in both the Group'sbuy-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 ratesremaining low, the buy-to-let portfolio increased by 45.0% to £8,651.5 millionat 31 March 2007 from £5,964.9 million a year earlier. The pipeline of newbusiness at 31 March 2007 remained high, providing a strong start to the secondhalf of the year. The buy-to-let market has remained strong, with landlords' investment activityunderpinned by continuing high tenant demand and rental growth. Figures releasedby the Council of Mortgage Lenders in February 2007 showed that, at £38.4billion, buy-to-let mortgages in 2006 represented 11% of all mortgage advancesmade during the year, with total buy-to-let lending growing by 19% to £21billion in the second half of that year. Research with the Group's intermediaries confirms this picture, with confidencelevels, which we have monitored since 1995, at record levels and buy-to-let nowrepresenting 22.5% of intermediary submissions to mortgage lenders. Survey datarecently published by the Royal Institution of Chartered Surveyors showed tenantdemand rising at its fastest pace for nine years, further supporting the nearterm growth prospects for buy-to-let lending. Long term demand within theprivate rented sector is supported by established social, economic anddemographic 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 onprime lending in this market.______________________________________________________________________________ INTERIM FINANCIAL REPORT (Continued) The owner-occupied book reduced to £354.9 million from £431.5 million during thesix months ended 31 March 2007 and performed in line with expectations. Save forthe management of this book in run-off, there has been little activity in recentyears 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 originateowner-occupied loans with Morgan Stanley International Bank, effectivelyextending the arrangement that was successfully launched with Morgan Stanleytowards the end of the previous year in the secured personal finance area. Underthe terms of this new agreement, we will originate loans from our network ofintroducers for sale to Morgan Stanley, taking no principal position on theseloans but earning fees for each completion. We are very pleased to have extendedthis forward flow agreement to cover first as well as second mortgages with sucha strong counterparty as Morgan Stanley, and we shall report on the progress ofthis new initiative with our full year results. CONSUMER FINANCE---------------- Total advances by the consumer finance businesses were £183.9 million during theperiod, down from £189.2 million during the corresponding period of the previousyear. At 31 March 2007, the total loans outstanding on the consumer financebooks were £756.9 million, compared with £786.6 million at 31 March 2006. Thisreduction reflects both the general weakness in the consumer lending markets andour objective of maintaining portfolio quality. The division continues to focus on writing high quality loans, with bad debtlevels 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 ended31 March 2007, a reduction of 12.2% from £117.6 million in the first half of2006. Of this total, £17.4 million was advanced on behalf of Morgan StanleyInternational Bank under an arrangement entered into in September 2006. We holdno principal position on these loans. For our own portfolio, the Group's focuscontinues to be on prime business and, in an environment in which consumerconfidence has worsened and affordability is more stretched, we have not relaxedour credit criteria in pursuit of business volumes. The closed unsecured book continues to run down in accordance with ourexpectations. 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 secondhalf of the year. Sales aid finance The sales aid finance business, incorporating retail and car finance, achieved a12.6% increase in new business volumes to £80.6 million during the six monthsended 31 March 2007 (2006 H1: £71.6 million). The division has continued to focus upon transacting high quality business andensuring that bad debt levels remain below the market average. The division hasalso continued to gain new introducer relationships and has improved operatingefficiency as a result of a greater number of introducers utilising our onlineprocessing platform.______________________________________________________________________________ INTERIM FINANCIAL REPORT (Continued) FUNDING The Group continued to be an active issuer in the capital markets during theperiod. In October 2006, a £1.5 billion buy-to-let securitisation was completedby Paragon Mortgages (No. 13) PLC; in January 2007, a £268.6 millionsecuritisation to repackage certain older, owner-occupied loan assets wascompleted by First Flexible (No. 7) PLC; and, in March 2007, a further £1.5billion buy-to-let securitisation was completed by Paragon Mortgages (No. 14)PLC. Over the course of the series of buy-to-let transactions, coupons havecontinued 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 shareshad been repurchased, at a total cost of £36.1 million, leaving £3.9 million tobe completed from the current £40 million programme. During the first half ofthe financial year, we have continued the restructuring of the portfolio towardssecured lending from more capital-demanding unsecured originations and seenfurther run-off of the closed books, both by natural redemption and disposal. Asthis process is expected to continue in the second half of the year, we shallreview the share buy-back programme on completion of the current programme. The progressive dividend growth continues to reflect our desire to reducedividend 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 thefinancial year reflect the success of our brands in the expanding buy-to-letmarket. Over the past ten years we have established a reputation as thespecialist buy-to-let lender and have built a high quality portfolio in a marketwhere short-term demand and long-term demographic trends point to sustainablegrowth. Across all our businesses our prudent approach to lending has ensured thatarrears and bad debts remain low and stable and, combined with our continuingfocus on tight cost control, provides a firm foundation for future growth. The Board believes that the quality of the Group's businesses and assetportfolios makes the Group well placed to operate successfully in our marketsacross the current monetary cycle. We look forward to the remainder of the yearwith 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 339.9 254.9 550.8Interest payable andsimilar charges (264.7) (183.6) (407.9) _________ _________ _________Net interest income 75.2 71.3 142.9Other operating income 15.0 15.2 30.6 _________ _________ _________Total operating income 90.2 86.5 173.5Operating expenses (23.8) (24.8) (45.4)Provisions for losses (26.2) (23.6) (47.8) _________ _________ _________ 40.2 38.1 80.3Fair value net gains 3.1 0.9 2.5 _________ _________ _________Operating profit being profit on ordinary activities before taxation 43.3 39.0 82.8Tax charge on profit onordinary activities (12.6) (6.5) (14.0) _________ _________ _________Profit on ordinary activities after taxation 30.7 32.5 68.8 ========= ========= ========= Dividend - Rate per sharefor the period 8 8.0p 6.9p 17.0pBasic earnings per share 4 27.7p 28.8p 61.2pDiluted earnings per share 4 26.5p 27.4p 58.4p ========= ========= ========= The results for the periods shown above relate entirely to continuingoperations.______________________________________________________________________________ CONSOLIDATED BALANCE SHEET 31 March 2007 (Unaudited) Note 31 March 31 March 30 September 2007 2006 2006ASSETS EMPLOYED £m £m £mNon-current assetsIntangible assets 0.6 0.4 0.6Property, plant and equipment 21.0 19.8 20.2Interests in associates 0.3 - -Financial assets 5 9,795.5 7,276.4 8,432.9Retirement benefit obligations 2.2 - 0.3Tax assets 34.1 36.5 33.6 _________ _________ _________ 9,853.7 7,333.1 8,487.6 _________ _________ _________Current assets Other receivables 6.2 4.7 6.3Cash 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 BYEquity shareholders' fundsCalled-up share capital 6 12.1 12.1 12.1Reserves 7 335.1 278.4 314.6 _________ _________ _________Share capital and reserves 347.2 290.5 326.7Own shares 9 (53.6) (28.4) (47.7) _________ _________ _________Total equity 293.6 262.1 279.0 _________ _________ _________Current liabilitiesFinancial liabilities 10 195.9 28.5 128.0Current tax liabilities 8.7 10.8 1.4Provisions 1.8 - 0.7Other 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 8,619.7Retirement benefit obligations - 0.3 -Deferred tax liabilities - 0.7 -Provisions 1.4 2.1 3.7Other 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 on22 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 cashequivalents 474.5 204.1 92.4Opening cash and cashequivalents 622.3 529.9 529.9 _________ _________ _________Closing cash and cashequivalents 1,096.8 734.0 622.3 ========= ========= =========Represented by balanceswithin 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 68.8Actuarial gain / (loss) on pension scheme 1.5 (0.6) (0.6)Cash flow hedge (losses) / gains taken to equity (1.3) 1.0 1.5Tax on items taken directly to equity (0.1) (0.1) (0.2) _________ _________ _________Total recognised income and expenditure for the period 30.8 32.8 69.5Adoption 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 £mTotal recognised income and expenditure for the period 30.8 32.8 69.5Dividends 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 0.6Charge for share based remuneration 1.2 2.2 0.6Tax 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 279.0 312.8 312.8Adoption 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 60.7 339.9Interest payable (237.1) (27.6) (264.7) _________ _________ _________Net interest income 42.1 33.1 75.2Other operating income 7.1 7.9 15.0 _________ _________ _________Total operating income 49.2 41.0 90.2Operating expenses (13.5) (10.3) (23.8)Provisions for losses (4.3) (21.9) (26.2) _________ _________ _________ 31.4 8.8 40.2Fair 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 63.3 254.9Interest payable (158.6) (25.0) (183.6) _________ _________ _________Net interest income 33.0 38.3 71.3Other operating income 5.9 9.3 15.2 _________ ________ _ _________Total operating income 38.9 47.6 86.5Operating expenses (12.9) (11.9) (24.8)Provisions for losses (0.1) (23.5) (23.6) _________ _________ _________ 25.9 12.2 38.1Fair 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 428.8 122.0 550.8Interest payable (356.8) (51.1) (407.9) _________ _________ _________Net interest income 72.0 70.9 142.9Other operating income 12.3 18.3 30.6 _________ _________ _________Total operating income 84.3 89.2 173.5Operating expenses (23.7) (21.7) (45.4)Provisions for losses (2.5) (45.3) (47.8) _________ _________ _________ 58.1 22.2 80.3Fair 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) 110.9 113.1 112.4Dilutive 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 byreducing profit before tax for the period by a notional tax rate of 30%, thestandard rate of corporation tax in the United Kingdom. The numbers of sharesused 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 82.8Notional 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 8,426.6Fair 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 eachAt 1 October 2006 121,452,366 120,762,342 120,762,342Shares 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 71.4Merger 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 £mFinal dividend for the year ended 30 September 2005 of 7.4p per share - 8.4 8.4Interim dividend for the year ended 30 September 2006 of 6.9p per share - - 7.6Final 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 expectedto be absorbed by this dividend, based on the number of shares in issue at thebalance sheet date is £8.9m. The interim dividend will be recognised in theaccounts when it is paid. 9. OWN SHARES 31 March 2007 31 March 2006 30 September 2006 £m £m £mTreasury sharesAt 1 October 2006 31.4 8.3 8.3Shares purchased 4.7 3.3 23.1 ____________ ____________ ____________At 31 March 2007 36.1 11.6 31.4 ____________ ____________ ____________ESOP sharesAt 1 October 2006 16.3 14.5 14.5Shares purchased 2.7 3.5 4.3Options 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 heldTreasury 6,004,000 2,219,000 5,244,000ESOP 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 liabilitiesFinance lease liability 0.4 0.4 0.4Bank loans and overdrafts 195.5 28.1 127.6 __________ __________ __________ 195.9 28.5 128.0 __________ __________ __________Non-current liabilitiesAsset backed loan notes 9,611.9 7,084.4 7,057.7Corporate bond 115.0 119.3 117.9Finance lease liability 13.7 14.1 13.9Bank loans and overdrafts 280.3 466.0 1,267.9Derivative 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 innote 11 below. 11. BORROWINGS During the six months ended 31 March 2007 the Group issued £3,269.1m of mortgagebacked 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 MarginSterling notes £m %Paragon Mortgages (No.13) PLC 22/10/06 15/01/39 15/10/11 194.0 0.16Paragon Mortgages (No.14) PLC 26/03/07 15/09/39 15/03/12 196.9 0.15First 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 0.01Paragon Mortgages (No.14) PLC 26/03/07 15/09/39 15/03/12 1,900.0 0.02 Euro notes •m %ParagonMortgages (No.13) PLC 22/10/06 15/01/39 15/10/11 480.0 0.18Paragon 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 FlexibleNo. 1 PLC and First Flexible No. 3 PLC were repaid in full in the period. Allbank facilities other than those drawn by Paragon Finance PLC and Paragon SecondFunding Limited were repaid and cancelled in the period. All other borrowings described in the Group Accounts for the year ended 30September 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 1.2Purchases 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 - - 3.1Investment 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 3,493.6Repayment 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) 371.5Purchase of shares (7.4) (6.7) (27.4)Exercise of options under ESOP scheme 0.5 1.2 1.9Exercise 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 REPORTTO THE PARAGON GROUP OF COMPANIES PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 31 March 2007 which comprises the income statement, thebalance sheet, the cash flow statement, the statement of recognised income andexpenditure, the reconciliation of movements in consolidated equity and relatednotes 1 to 14. We have read the other information contained in the interimreport and considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) 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 thatshould be made to the financial information as presented for the six monthsended 31 March 2007. Deloitte & Touche LLPChartered AccountantsBirmingham, United Kingdom22 May 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Paragon Group