25th May 2005 07:00
Paragon Group Of Companies PLC25 May 2005 Under embargo until Stock Exchange announcement: 7am, Wednesday 25 May 2005 STRONG PROFIT GROWTH FOR PARAGON The Paragon Group of Companies PLC ("Paragon"), one of the UK's largestindependent specialist lenders offering buy-to-let mortgages, secured personalloans, vehicle finance and retail finance, today announces its interim resultsfor the six months ended 31 March 2005. Highlights include: •Profit before tax increased by 9.1% to £36.1 million (2004 H1: £33.1 million) •Operating profit (excluding goodwill)* increased by 11.5% to £33.9 million (2004 H1 : £30.4 million) •Earnings per share increased by 11.2% to 24.9p (2004 H1: 22.4p) •Interim dividend increased by 33.3% to 5.2p (2004 H1 : 3.9p) •Buy-to-let assets increased by 24.8% to £4,398.6 million (2004 H1: £3,524.6 million) •Share repurchase programme of up to £20 million announced * See note 7Commenting on the results, Jonathan Perry, Chairman of Paragon, said: "We are pleased to report strong growth in earnings for a half year wheremarkets have been disrupted by the introduction of mortgage and insuranceregulation and when housing market activity has been soft. Our buy-to-let assetshave shown a significant increase with lower volumes offset by lowerredemptions. Buy-to-let application flows have recovered well since February, a trend whichhas continued into the second half of the year, leading to strong growth in thepipeline of business awaiting completion. This bodes well for buy-to-let volumesin the second half of the year. The strength of the company's financial resources and the continued growth inprofits have justified both an acceleration in the rate of dividend increase andthe announcement of a share buy back programme to optimise the use of thecompany's capital." For further information, please contact: The Paragon Group of Companies PLC The Wriglesworth ConsultancyNigel Terrington, Chief Executive Mark BakerNick Keen, Finance Director John WriglesworthTel: 0121 712 2024 Tel: 020 7845 7900 Mobile: 07980 635 243 (MB)______________________________________________________________________________ THE PARAGON GROUP OF COMPANIES PLCCHAIRMAN'S STATEMENT During the six months ended 31 March 2005, the Group enjoyed further strongprofit growth, driven by continued growth in the loan portfolio, despite slowernew lending activity in the period compared with the first half of 2004. During the period, profit before tax increased by 9.1% to £36.1 million (2004H1: £33.1 million) and earnings per share increased by 11.2% to 24.9p (2004 H1:22.4p). Excluding the credit to the profit and loss account for goodwill,operating profit increased by 11.5% to £33.9 million (2004 H1: £30.4 million)(note 7). At 31 March 2005, net loan assets were £6,087.0 million (note 8), compared with£5,600.4 million at 31 March 2004. This reflected loan redemptions significantlybelow the level of new advances, with strong growth in the buy-to-let portfoliosmore than compensating for the run-off of the owner-occupied first mortgage andunsecured consumer books. Total advances, at £817.9 million, were 20.2% lowerthan in the previous period (2004 H1: £1,025.4 million). Of these, 93.3% weresecured on residential property (2004 H1: 92.0%). The Board has declared an interim dividend of 5.2p per share, payable on 29 July2005 to shareholders on the register on 1 July 2005, an increase of 33.3% fromlast year's interim dividend of 3.9p per share, thus accelerating our progresstowards the achievement of a market level of dividend cover. Net interest income increased by 11.7% to £46.0 million from £41.2 million forthe corresponding period last year, reflecting the growth in the loan book, andalso the lower cost of sales, principally commissions paid to businessintroducers. This compensated for the decrease in other operating income to£17.0 million (2004 H1: £18.8 million), similarly reflecting the impact ofreduced activity on fees and commissions earned. The average net interest marginon the loan book was similar to 2004. Operating expenses, excluding the £2.2 million credit for amortisation ofnegative goodwill, were £20.6 million, a reduction of 9.3% from £22.7 millionfor the corresponding period in 2004. The cost:income ratio, at 32.7%, decreasedfrom 37.8% for the first half of 2004 (note 4) following completion of theintegration of Mortgage Trust within the Group's operational structure last yearand general improvements in operating efficiencies around the Group. The Group has continued to implement its strategy of reducing exposure tounsecured consumer lending, focusing on growing its secured lending, principallyof high quality buy-to-let assets. The number of accounts in arrears across theportfolios was lower as at 31 March 2005 than a year previously, bothnumerically and as a percentage of live accounts. The mortgage books performedwell over the period and the performance of the buy-to-let book remainsexemplary. However, as reported in our recent trading statement, the burden ofincreased interest rates, together with the normal seasonal expenditures, causedsome deterioration in payment performance in the consumer portfolios, resultingin an increase in the charge for provisions for losses to £8.5 million for theperiod (2004 H1: £6.9 million). After providing for corporation tax at a charge rate of 21%, which we anticipatewill apply for the year, and providing for the proposed interim dividend,retained profits of £22.5 million have been transferred to shareholders' fundswhich were £291.3 million at 31 March 2005 (2004 H1: £246.1 million). REVIEW OF OPERATIONS FIRST MORTGAGES Our strategy has been to grow the high quality buy-to-let first mortgage assetswhilst running off the owner-occupied loans, the majority of which wereoriginated by Mortgage Trust prior to acquisition. Total first mortgagecompletions were £637.2 million for the six months to 31 March 2005, comparedwith £797.7 million advanced in the corresponding period of 2004. At 31 March2005, the Paragon Mortgages and Mortgage Trust buy-to-let portfolios hadincreased by 24.8% to £4,398.6 million from £3,524.6 million at 31 March 2004whilst total first mortgage assets, including the owner-occupied loans, were£5,178.2 million, an increase of 11.1% from £4,662.1 million at 31 March 2004.The owner-occupied portfolio declined, as expected, by 31.5% between 31 March2004 and 31 March 2005 from £1,137.5 million to £779.6 million. The Paragon Mortgages loan book increased by 27.4% to £2,908.5 million at31 March 2005 (2004 H1: £2,283.3 million), while Mortgage Trust had loans undermanagement of £2,142.3 million (2004 H1: £2,223.5 million) of which buy-to-letloans totalled £1,519.9 million (2004 H1: £1,287.1 million), an increase of18.1%. New lending by Paragon Mortgages was £464.8 million (2004 H1: £522.4million) whilst Mortgage Trust advanced new loans of £172.4 million (2004 H1:£275.3 million). Housing market activity has slowed since the summer of 2004 following a verybusy period for the market in the wake of the war in Iraq and as a consequenceof increased interest rates. The rate of house price growth has also slowed inrecent months, with the evidence so far this year suggesting that the market isheading for a soft landing. Uncertainty elsewhere in the housing market has, however, had positive effectson the buy-to-let market. Market data, and our own survey evidence, indicatethat tenant demand has been on the increase in most regions and for most typesof property. This has created upward pressure on rents which in turn hasresulted in an increase in yields for landlords. At the same time there is lesscompetition for property as it comes onto the market which has meant thatlandlords have been able to secure good deals on new acquisitions, thus againimpacting positively on yields. Survey evidence continues to suggest that landlords are taking a long term viewof their investments, rather than seeking to crystallise speculative gains. Inour own buy-to-let portfolio, we have seen little evidence of landlords sellingproperties, indeed, compared to the previous year, redemption rates have fallen. Application levels across our buy-to-let businesses were weaker towards the endof 2004 and during the early part of 2005, partly the result of general housingmarket uncertainties and partly due to the disruptive impact of the introductionof mortgage regulation. Since then, trading activity has been strong both atParagon Mortgages and at Mortgage Trust, with the result that the new businesspipelines have rebuilt strongly since February. This bodes well for lendingvolumes in the second half of the year. Looking further ahead, the prospects for the buy-to-let market remain strong anddemand for private rented property is expected to increase, the eligibility ofresidential property for Self-Invested Personal Pensions ("SIPPs") from 2006 mayalso have a positive effect on demand. In anticipation, we have recentlyannounced a joint venture with James Hay, the UK's leading provider of SIPPs toprovide, jointly, a range of products to support buy-to-let investors who wishto place residential property investments into their SIPP. The credit profile of our buy-to-let portfolio remains exceptionally high,evidenced by the continuing low arrears rate compared to the mortgage market asa whole and negligible losses. CONSUMER FINANCE The consumer finance market has been more challenging in the six months to31 March 2005 than in the corresponding period last year. Rising interest ratesand a weaker housing market have resulted in an adjustment to borrowerbehaviour, with a consequential reduction in consumer finance business volumes.The Group has maintained its tight credit stance in the face of strongcompetitive pressure. This resulted in a 3.1% reduction in the Consumer Financebook which, at 31 March 2005, stood at £908.8 million, compared with £938.3million at 31 March 2004. Personal Finance Revisions to the Consumer Credit Act and the introduction of regulation overinsurance business have had an adverse effect on volumes as introducers havestruggled to adapt systems and working practices to ensure compliance. Thesedisruptive effects appear now to be receding, although higher interest rateshave had an impact on the appetite of consumers for further borrowing. This isunlikely to change over the remainder of the year. We continue to be cautious inour lending approach and have tightened criteria in anticipation of the changingeconomic environment. Accordingly secured personal finance advances were £125.4million in the period (2004 H1: £146.0 million). These advances were secured onUK residential property. We continue to manage the run-off of the unsecured personal loan portfolio. Netbalances were £190.7 million at 31 March 2005 compared to £226.8 million at31 March 2004. The impact of interest rates and pressures on personal cashflowover the Christmas period led to a deterioration in payment performance for somecustomers in arrears, although we saw a recovery during March and April asborrowers caught up on their missed payments. Sales Aid Finance In line with our strategy outlined in the year end results, we have continued tofocus upon profitability in the car and retail finance sectors as opposed tovolume. New loan advances by the division were £55.2 million, compared with£81.7 million for the corresponding period last year. The profitability of both businesses within Sales Aid Finance has improvedduring the half year along with the profile and quality of the business receiveddue to the removal of unprofitable relationships and the tightening of creditstandards. The principal focus of the division going forward is the generationof new sources of profitable business. FUNDING The Group continued to be an active issuer in the capital markets during theperiod. During October 2004, the Group completed a £1.0 billion securitisationby Paragon Mortgages (No. 8) PLC, the largest Paragon transaction to date. Thesecuritisation contained a £270 million cash reserve which was used to fundadditional buy-to-let assets in March 2004. In December 2004 a £300 million securitisation of secured consumer loans wascompleted by Paragon Secured Funding (No. 1) PLC. The securitisation contained a£59 million cash reserve which was used to fund additional second mortgageassets in April 2005. In May 2005, a £450 million securitisation of secured andunsecured consumer loans was completed by Paragon Personal and Auto Finance (No.3) PLC. 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 regularly reviews the appropriate level of capital to support itscurrent loan portfolios and to ensure that its business plans can be met. Inthis respect, the Board has regard to a number of factors, including the capitalneeded to support planned business generation over the medium term, the riskcharacteristics of the portfolio and the capital being returned to the Group asloans on the book mature. As a result of a similar review in 2002, the Board decided to increase dividendsprogressively ahead of earnings growth in order to reduce dividend cover overthe medium term. Since that time, dividends have increased annually at roughlydouble 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 on the Group's capital.Consumer loans, as a proportion of the portfolio, have been reducing year onyear from 36% in 2002 to 15% as at 31 March 2005. Within this the unsecuredpersonal loan book has been declining in absolute terms since the product waswithdrawn and as loans have redeemed, from £319.9 million at 30 September 2002to £190.7 million at 31 March 2005, 3% of the total loan book. Considering all these factors, the Board has identified that there is surpluscapital available for distribution to shareholders and has decided that, inaddition to increasing the interim dividend by 33.3%, thus accelerating theGroup's progress towards the objective of achieving a market level of dividendcover within two years, the Company should also set aside up to £20 million torepurchase shares from the market. This will be completed within the authoritygranted to the Company by shareholders at the 2005 Annual General Meeting. The Board will continue to keep under review the appropriate capitalisation ofthe business. CONCLUSION The outlook for landlords remains positive with increased rental demandtranslating into higher rents and improving yields. Survey evidence and our ownexperience suggests landlords are continuing to take a long term view of theirproperty investments. Whilst trading volumes were subdued throughout the wintermonths, redemption rates have fallen leading to continued strong growth in theportfolio. Further, application flows have recovered well since February, atrend which has continued into the second half year leading to strong growth inthe pipeline of business awaiting completion. This bodes well for completionvolumes in the second half of the year. The Board remains confident that the Group will meet its business objectives forthe year. Jonathan PerryChairman25 May 2005______________________________________________________________________________ THE PARAGON GROUP OF COMPANIES PLCCONSOLIDATED PROFIT AND LOSS ACCOUNTFor the six months ended 31 March 2005 (Unaudited) Six months to Six months to Year to 31 March 31 March 30 September 2005 2004 2004 £m £m £m Interest receivable 240.9 192.7 412.0Interest payable and similarcharges (194.9) (151.5) (331.4) _________ _________ _________Net interest income 46.0 41.2 80.6Other operating income 17.0 18.8 40.2 _________ _________ _________Total operating income 63.0 60.0 120.8 Operating expenses Other operating expenses (20.6) (22.7) (43.9) Amortisation of negative goodwill 2.2 2.7 5.2 _________ _________ _________Total operating expenses (18.4) (20.0) (38.7) Provisions for losses (8.5) (6.9) (11.1) _________ _________ _________Operating profit being profit onordinary activities beforetaxation 36.1 33.1 71.0Tax charge on profit on ordinaryactivities (7.6) (7.6) (16.3) _________ _________ _________Profit on ordinary activitiesafter taxation 28.5 25.5 54.7Equity dividend (6.0) (4.5) (11.0) _________ _________ _________Retained profit 22.5 21.0 43.7 ========= ========= ========= Dividend - Rate per share 5.2p 3.9p 9.6pBasic earnings per share 24.9p 22.4p 48.0pDiluted earnings per share 23.9p 21.6p 46.2p ========= ========= ========= There have been no recognised gains or losses other than the profit for theperiods shown. The results for the periods shown above relate entirely to continuingoperations.______________________________________________________________________________ THE PARAGON GROUP OF COMPANIES PLCCONSOLIDATED BALANCE SHEET31 March 2005 (Unaudited) 31 March 31 March 30 September 2005 2004 2004ASSETS EMPLOYED £m £m £mFixed assetsIntangible assets - negative goodwill (11.8) (16.1) (14.0)Tangible assets 3.7 3.6 3.4Investments Assets subject to non-recourse finance 1,341.2 1,797.5 1,557.7 Non-recourse finance (1,297.8) (1,751.6) (1,520.3) _________ _________ _________ 43.4 45.9 37.4 Loans to customers 4,842.5 3,909.2 4,492.5 _________ _________ _________ 4,885.9 3,955.1 4,529.9 _________ _________ _________ 4,877.8 3,942.6 4,519.3 _________ _________ _________Current assetsStocks 3.2 3.4 3.4Debtors falling due within one year 7.5 10.6 8.8Cash at bank and investments 452.5 345.9 402.5 _________ _________ _________ 463.2 359.9 414.7 _________ _________ _________ 5,341.0 4,302.5 4,934.0 ========= ========= =========FINANCED BYCalled-up share capital 12.0 12.0 12.0Share premium account 69.5 68.6 68.8Merger reserve (70.2) (70.2) (70.2)Profit and loss account 293.8 247.2 270.1 _________ _________ _________Share capital and reserves 305.1 257.6 280.7Own shares (13.8) (11.5) (12.3) _________ _________ _________Equity shareholders' funds 291.3 246.1 268.4 Provisions for liabilities and charges 4.5 5.3 5.6Creditors Amounts falling due within one year 77.8 45.9 66.4 Amounts falling due after more than one year 4,967.4 4,005.2 4,593.6 _________ _________ _________ 5,341.0 4,302.5 4,934.0 ========= ========= ========= The interim financial information was approved by the Board of Directors on25 May 2005.______________________________________________________________________________ THE PARAGON GROUP OF COMPANIES PLCCONSOLIDATED CASH FLOW STATEMENTFor the six months to 31 March 2005 (Unaudited) Six months to Six months to Year to 31 March 31 March 30 September 2005 2004 2004 £m £m £mNet cash inflow from operatingactivities 66.6 55.0 129.3Taxation (1.6) (10.6) (14.6)Capital expenditure and financialinvestment Net decrease in assets subject to non-recourse funding 216.5 562.6 800.2 Net increase in loans to customers (377.3) (881.9) (1,485.2) Other (0.7) (1.8) (0.8)Acquisitions and disposals 2.0 - -Equity dividends paid (6.5) (4.2) (8.6)Management of liquid resources (48.8) (37.5) (85.7)Financing 151.5 331.5 686.5 _________ _________ _________Increase in cash in the period 1.7 13.1 21.1 ========= ========= ========= 1. Reconciliation of operating profit to net cash inflow from operating activities Six months to Six months to Year to 31 March 31 March 30 September 2005 2004 2004 £m £m £m Operating profit 36.1 33.1 71.0Provision for losses 8.5 6.9 11.1Depreciation 0.4 0.7 1.6Amortisation of broker commissions 17.9 19.1 37.2Amortisation of negative goodwill (2.2) (2.7) (5.2)Charge for long term incentiveplan 0.6 0.7 0.9(Increase) / decrease in stock (0.1) 0.2 -Profit on sale of subsidiary (0.9) - -Decrease / (increase) in debtors 1.2 (1.2) 0.7Increase / (decrease) in creditors 5.1 (1.8) 12.0 _________ _________ _________ 66.6 55.0 129.3 ========= ========= ========= 2. Reconciliation of movement in cash with movement in net debt Six months to Six months to Year to 31 March 31 March 30 September 2005 2004 2004 £m £m £m Increase in cash in the period 1.7 13.1 21.1Cash inflow from increase in debt (151.7) (330.7) (687.2)Cash movement from change inliquid resources 48.8 37.5 85.7 _________ _________ _________Movement in net debt (101.2) (280.1) (580.4)Opening net debt (5,710.6) (5,130.2) (5,130.2) _________ _________ _________Closing net debt (5,811.8) (5,410.3) (5,710.6) ========= ========= =========______________________________________________________________________________ THE PARAGON GROUP OF COMPANIES PLCNOTES TO THE INTERIM FINANCIAL INFORMATIONFor the six months ended 31 March 2005 (Unaudited) 1. The interim financial information for the six months ended 31 March 2005 and for the six months ended 31 March 2004 has not been audited. 2. The interim financial information has been prepared on the basis of the accounting policies set out in the group accounts for the year ended 30 September 2004. 3. An interim dividend of 5.2p per share is proposed, payable on 29 July 2005 with a record date of 1 July 2005. 4. The cost:income ratio for the six months ended 31 March 2005 is calculated by dividing operating expenses, excluding the amortisation of negative goodwill (£2.2m - 2004: £2.7m), of £20.6m (2004: £22.7m) by total operating income of £63.0m (2004: £60.0m) to give 32.7% (2004: 37.8%). 5. The basic earnings per share figures have been calculated by dividing the profit attributable to shareholders (being the profit on ordinary activities after taxation) by the weighted average number of ordinary shares outstanding during the period. For the six months ended 31 March 2005 the weighted average number of ordinary shares outstanding was 114.2 million (2004: 113.9 million). For the year ended 30 September 2004 the weighted average was 113.9 million. 6. The diluted earnings per share figures have been calculated by adjusting the weighted average number of shares outstanding for the effects of all dilutive potential ordinary shares. For the six months ended 31 March 2005 the adjusted weighted average number of ordinary shares outstanding was 119.0 million (2004: 118.3 million). For the year ended 30 September 2004 the adjusted weighted average was 118.3 million. 7. The operating profit for the period excluding goodwill comprises the operating profit of £36.1m (2004: £33.1m) less the credit for the amortisation of negative goodwill of £2.2m (2004: £2.7m). 8. Net loan assets includes Loans to Customers shown on the face of the balance sheet of £4,842.5m (2004: £3,909.2m) and similar assets subject to non-recourse finance arrangements of £1,244.5m (2004: £1,691.2m). 9. The figures shown above for the year ended 30 September 2004 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. 10. 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.______________________________________________________________________________ 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 2005 which comprises the profit and loss account,the balance sheet, the cash flow statement and related notes 1 to 10 togetherwith the reconciliation of operating profit to net cash flow from operatingactivities and the reconciliation of movement in cash with movement in net debt.We have read the other information contained in the interim report andconsidered 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 which we are required to state to themin an independent 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 we haveformed. 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 United Kingdom auditing standards and thereforeprovides a lower level of assurance than an audit. Accordingly, we do notexpress 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 2005. Deloitte & Touche LLPChartered AccountantsBirmingham25 May 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Paragon Group