REG - Paragon Grp Co PLC - Final Results <Origin Href="QuoteRef">PARA.L</Origin> - Part 2
24/11/2015 07:02
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capital at 30
September 2015 comfortably in excess of the regulatory requirement. Following
the acquisition of Five Arrows Leasing Group after the year end, the CET1
ratio will reduce by a little over two percentage points, the final amount to
be determined as part of the acquisition accounting.
The Board keeps under review the appropriate level of capital for the business
to meet its operational requirements and strategic development objectives. The
strength of the Paragon Mortgages and Idem Capital businesses, the
diversification which has been achieved in the funding base in recent years
and the further opportunities for growth and sustainability provided by
Paragon Bank, have now created the foundations on which to develop the Group's
next phase of growth.
In view of the strong capital base and low leverage in the Company's balance
sheet, the Board has determined that the Group should seek to utilise greater
levels of debt to support growth and reduce its over-reliance on equity
capital, improving returns for shareholders. To enhance this strategy the
Group regularly reviews the opportunities available to it to access the
sterling senior unsecured debt market and the UK retail bond market to add
incremental long-dated debt to the Group balance sheet.
In November 2014 the Group announced a share buy-back programme, initially for
up to £50.0 million, to be reviewed periodically to take account of
anticipated investment opportunities and the balance of the Group's debt and
equity capital resources. During the year the Group bought back 11.7 million
of its ordinary shares at a cost of £49.7 million, which are held in treasury.
The Board intends to extend the programme by up to £50.0 million in the
financial year ended 30 September 2016. These shares will also be held in
treasury.
The Company currently has the necessary shareholder approval to undertake such
share buy-backs and will propose the appropriate renewal of the relevant
authority at its 2016 Annual General Meeting, when a special resolution
seeking authority for the Company to purchase up to 29.6 million of its own
shares (10% of the issued share capital excluding treasury shares) will be put
to shareholders.
The Paragon Group of Companies PLC
MANAGEMENT REPORT
MANAGEMENT AND PEOPLE
During the year ended 30 September 2014 the Board reviewed the governance
arrangements for the Group. For the purposes of succession planning and to
ensure that the Board had in place sufficient non-executive directors to
maintain its independence balance in the future (taking into account the dates
at which the current non-executive directors would cease to be independent
under the requirements of the UK Code on Corporate Governance), it determined
that an additional non-executive director should be appointed. It also
considered that the increasing demands placed on non-executive directors by
the growing size and complexity of the Group further supported this decision.
Following this review, on 24 November 2014, Hugo Tudor was appointed to the
Board as a non-executive director. He spent 26 years in the fund management
industry, originally with Schroders and most recently with BlackRock, covering
a wide range of UK equities. He is a Chartered Financial Analyst and a
Chartered Accountant and brings a strong strategic and investor perspective to
the Board.
On 1 July 2015 Edward Tilly retired from the Board. Mr Tilly had been a
director of the Company since 2008, serving for over two years as Chairman of
the Remuneration Committee, before becoming Senior Independent Director in
July 2011. Ted's experience and wisdom have been invaluable and his presence
on the Board will be greatly missed.
Following a handover period, Fiona Clutterbuck succeeded Mr Tilly in the role
of Senior Independent Director of the Group and continues as Chairman of the
Risk and Compliance Committee.
The Group has always recognised that its people are its most important asset
and are key to its future growth and development. The learning and development
of its employees, together with a rigorous recruitment process are a key part
of the Group's organic growth strategy and underpin the strong progress it has
made. It retains its Gold Investor in People status, reflecting the quality of
its internal processes and during the year has continued to act, by
invitation, as an Investor in People Champion, sharing its experience with
other businesses. This places it in the top 1% of companies in the UK for
people development.
The Group prides itself on the fact that its people stay with it for a long
time. Its annual employee attrition rate of 11% is below the national average
and 33% of its people have been with Paragon for more than ten years, with 12%
having achieved over 20 years with the Group. We believe this is due to
providing quality development opportunities and creating a place at which
people want to work, which has in turn meant that knowledge and experience
have been retained in each of our specialist areas. We have continued to add
to the team over the past year with an excellent set of people at all levels
of the organisation, increasing numbers by 4.9% over the year. We believe our
people are well positioned to support the Group's future growth strategy.
The existing operation of Five Arrows Leasing Group, including its people,
will transfer across to form part of Paragon Bank. We are looking forward to
working with our new colleagues and learning from their skills and experience
in asset finance, to further develop our future growth plans.
Succession planning strategy has been an important area of focus during the
year, with our key roles identified from a leadership and specialist
perspective. Immediate successors are in place for the short term to provide
business continuity and our longer term succession plans are being developed,
for those with career ambitions and strong potential. This area will remain a
priority for the Board during the forthcoming year.
The Paragon Group of Companies PLC
MANAGEMENT REPORT
CONCLUSION
I am delighted to report another year of excellent progress for Paragon, as we
continue our strategy of diversifying the Group's income and funding streams,
whilst continuing to improve shareholder returns. Paragon Bank's development
over a short space of time has been significant and the recent acquisition of
Five Arrows Leasing Group takes us into the SME finance market. We are looking
forward to working closely with the Five Arrows management team on a business
that has substantial growth potential under Paragon's ownership.
The Group's financial performance has been strong, including profit growth of
10.2%. Buy-to-let volumes increased by 102% and our pipeline at the year-end
was up 72%. The level of capacity and diversification we have achieved in our
funding, including over £950 million in retail deposits raised to date through
Paragon Bank, will allow us to capitalise on future growth opportunities.
Capital management remains a priority for the Group. We have delivered
improved return on equity, increased the dividend by over 22% and have
extended the share buy-back programme by a further £50.0 million as we
continue to balance strong growth with increased shareholder returns.
This set of results demonstrates the strength of the Group's existing
franchises which are being extended by the ongoing diversification of both our
funding and income streams.
NIGEL S TERRINGTON
Chief Executive
24 November 2015
The Paragon Group of Companies PLC
CONSOLIDATED INCOME STATEMENT
For the year ended 30 September 2015
2015 2014
Note £m £m
Interest receivable 341.0 302.4
Interest payable and similar charges (143.6) (123.0)
Net interest income 197.4 179.4
Other operating income 5 14.1 18.5
Total operating income 211.5 197.9
Operating expenses (71.2) (63.4)
Provisions for losses (5.6) (12.3)
Operating profit before fair value items 134.7 122.2
Fair value net (losses) / gains 6 (0.5) 0.6
Operating profit being profit on ordinary activities before taxation 134.2 122.8
Tax charge on profit on ordinary activities (27.1) (25.6)
Profit on ordinary activities after taxation for the financial year 107.1 97.2
2015 2014
Note
Earnings per share
- basic 7 35.5p 31.9p
- diluted 7 34.8p 31.1p
The results for the current and preceding years relate entirely to continuing
operations.
The Paragon Group of Companies PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2015
2015 2014
Note £m £m £m £m
Profit for the year 107.1 97.2
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Actuarial (loss) on pension scheme (4.3) (2.1)
Tax thereon 0.9 0.4
(3.4) (1.7)
Items that may be reclassified subsequently to profit or loss
Cash flow hedge (losses) / gains taken to equity (3.1) (1.4)
Tax thereon 0.6 0.3
(2.5) (1.1)
Other comprehensive income for the year net of tax (5.9) (2.8)
Total comprehensive income for the year 101.2 94.4
The Paragon Group of Companies PLC
CONSOLIDATED BALANCE SHEET
30 September 2015
2015 2014 2013
Note £m £m £m
Assets employed
Non-current assets
Intangible assets 8 7.7 7.9 8.5
Property, plant and equipment 22.1 22.9 9.6
Financial assets 9 10,745.8 9,969.6 9,715.3
10,775.6 10,000.4 9,733.4
Current assets
Other receivables 6.2 6.5 7.6
Short term investments 11 41.1 39.4 -
Cash and cash equivalents 12 1,056.0 848.8 587.3
1,103.3 894.7 594.9
Total assets 11,878.9 10,895.1 10,328.3
Financed by
Equity shareholders' funds
Called-up share capital 13 309.3 307.3 306.2
Reserves 14 760.2 688.0 614.7
Share capital and reserves 1,069.5 995.3 920.9
Own shares (100.0) (48.2) (47.6)
Total equity 969.5 947.1 873.3
Current liabilities
Financial liabilities 16 339.6 54.4 3.0
Current tax liabilities 12.5 11.9 5.9
Other liabilities 43.0 40.1 36.2
395.1 106.4 45.1
Non-current liabilities
Financial liabilities 16 10,481.4 9,814.0 9,383.4
Retirement benefit obligations 21.5 17.3 15.7
Deferred tax 11.3 10.1 9.9
Other liabilities 0.1 0.2 0.9
10,514.3 9,841.6 9,409.9
Total liabilities 10,909.4 9,948.0 9,455.0
11,878.9 10,895.1 10,328.3
Approved by the Board of Directors on 24 November 2015.
Signed on behalf of the Board of Directors
N S Terrington R
J Woodman
Chief Executive
Group Finance Director
The Paragon Group of Companies PLC
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 30 September 2015
2015 2014
Note £m £m
Net cash (utilised) by operating activities 20 (25.9) (269.5)
Net cash (utilised) by investing activities 21 (3.6) (65.2)
Net cash generated by financing activities 22 237.1 596.5
Net increase in cash and cash equivalents 207.6 261.8
Opening cash and cash equivalents 847.7 585.9
Closing cash and cash equivalents 1,055.3 847.7
Represented by balances within:
Cash and cash equivalents 1,056.0 848.8
Financial liabilities (0.7) (1.1)
1,055.3 847.7
The Paragon Group of Companies PLC
CONSOLIDATED STATEMENT OF MOVEMENTS IN EQUITY
For the year ended 30 September 2015
2015 2014
Note £m £m
Total comprehensive income for the year 101.2 94.4
Dividends paid 15 (29.1) (23.7)
Net movement in own shares (51.8) (0.6)
(Deficit) / surplus on transactions in own shares (3.6) (0.8)
Charge for share based remuneration 4.5 3.2
Tax on share based remuneration 1.2 1.3
Net movement in equity in the year 22.4 73.8
Opening equity 947.1 873.3
Closing equity 969.5 947.1
The Paragon Group of Companies PLC
NOTES TO THE FINANCIAL INFORMATION
For the year ended 30 September 2015
1. GENERAL INFORMATION
The financial information set out in the announcement does not constitute the
Company's statutory accounts for the years ended 30 September 2013, 30
September 2014 or 30 September 2015, but is derived from those statutory
accounts, which have been reported on by the Company's auditors. Statutory
accounts for the years ended 30 September 2013 and 30 September 2014 have been
delivered to the Registrar of Companies and those for the year ended 30
September 2015 will be delivered to the Registrar following the Company's
Annual General Meeting. The reports of the auditors in each case were
unqualified, did not draw attention to any matters by way of emphasis and did
not contain an adverse statement under sections 498(2) or 498(3) of the
Companies Act 2006.
Sections of this preliminary announcement, including but not limited to the
Executive Summary and Management Report, 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. These have been made by the directors in good faith
using information available up to the date on which they approved this report.
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 and depend upon circumstances that may or may not occur
in the future. There are a number of factors that could cause actual future
financial conditions, business performance, results or developments to differ
materially from the plans, goals and expectations expressed or implied by
these forward-looking statements and forecasts. 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 2015
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 at 51 Homer Road, Solihull, West Midlands, B91 3QJ and on the Group's
website at www.paragon-group.co.uk.
2. ACCOUNTING POLICIES
The annual financial statements of the Group for the year ended 30 September
2015 have been prepared in accordance with International Financial Reporting
Standards ('IFRS') 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. Except as noted below, the
particular accounting policies adopted are those described in the Annual
Report and Accounts of the Group for the year ended 30 September 2014.
Going concern
The business activities of the Group, its current operations and those factors
likely to affect its future results and development, together with a
description of its financial position and funding position, are described in
the Management Report. The principal risks and uncertainties affecting the
Group are described on page 54.
Note 6 to the accounts for the year ended 30 September 2014 includes an
analysis of the Group's working and regulatory capital position and policies,
while note 7 includes a detailed description of its funding structures, its
use of financial instruments, its financial risk management objectives and
policies and its exposure to credit, interest rate and liquidity risk.
Critical accounting estimates affecting the results and financial position
disclosed in this annual report are discussed in note 5. The position and
polices described in these notes remain materially unchanged to the date of
this preliminary announcement.
The Group has a formalised process of budgeting, reporting and review. The
Group's planning procedures forecast its profitability, capital position,
funding requirement and cash flows. Detailed plans are produced for a rolling
24 month period with longer term forecasts covering a 5 year period. These
plans provide information to the directors which is used to ensure the
adequacy of resources available for the Group to meet its business objectives,
both on a short term and strategic basis.
The securitisation funding structures described in note 7 to the accounts for
the year ended 30 September 2014 ensure that both a substantial proportion of
the Group's originated loan portfolio and a significant amount of its acquired
Idem Capital assets are match-funded. Repayment of the securitisation
borrowings is restricted to funds generated by the underlying assets and there
is limited recourse to the Group's general funds. Recent and current loan
originations utilising the Group's available warehouse facilities are
refinanced through securitisation from time to time.
The Group's retail deposits of £708.7m, accepted through Paragon Bank are
repayable within five years. The liquidity exposure represented by these
deposits is monitored, a process supervised by the Asset and Liability
Committees of the Group and Paragon Bank. The Group is required to hold liquid
assets in Paragon Bank to mitigate this liquidity risk. At 30 September 2015
Paragon Bank held £364.4m in liquid assets, comprising £41.1m of short term
investments (note 11) and £323.3m of cash (note 12).
None of the Group's working capital debt matures before 2017, when the £110.0m
corporate bond is repayable.
During the year the Group raised a further £112.5m of working capital though
the issue of retail bonds, increasing the outstanding balance to £297.5m, none
of which is repayable before December 2020. The Group was also granted a
public BBB- rating by Fitch, which should increase its access to debt.
The Group also raised external debt finance for its acquired assets in the
past year and after the period end. The Group has therefore significantly
enhanced its access to funding for its business during the year and at 30
September 2015 the Group had free cash balances of £199.9m immediately
available for use (note 12).
In order to assess the appropriateness of the going concern basis the
directors considered the Group's financial position, the cash flow
requirements laid out in its forecasts, its access to funding, the assumptions
underlying the forecasts and the potential risks affecting them.
After making enquiries, the directors have a reasonable expectation that the
Group will have adequate resources to continue in operational existence for
the foreseeable future. For this reason, they continue to adopt the going
concern basis in preparing the annual report and accounts.
3. Capital management
(a) Dividend cover
Following its rights issue in 2008 the Group pursued a progressive dividend
policy with the dividend being increased from 3.0p in respect of that year to
4.0p in respect of the year ended 30 September 2011. In 2012 as a result of
the progress of the business, the directors adopted a new policy under which
the dividends will increase so that, by the year ending 30 September 2016, the
level of dividend cover will be maintained in the range 3.0 to 3.5 times.
The most common measure of dividend cover used by financial analysts is based
on earnings and dividend per share. The Group has confirmed that its dividend
cover target will be based on this calculation. The expected level of dividend
cover on this basis in respect of the year, subject to the approval of the
final dividend at the Annual General Meeting, is shown below.
Note 2015 2014
Earnings per share (p) 7 35.5 31.9
Proposed dividend per share in respect of the year (p) 15 11.0 9.0
Dividend cover (times) 3.2 3.5
(b) Return on tangible equity
Return on tangible equity ('ROTE') is a measure of an entity's profitability
used by investors. ROTE is defined by the Group by comparing the profit after
tax for the year to the average of the opening and closing equity positions,
excluding intangible assets and goodwill.
The Group's ROTE for the year ended 30 September 2015 is derived as follows:
Note 2015 2014
£m £m
Profit for the year 107.1 97.2
Amortisation of intangible assets 1.4 1.3
Adjusted profit 108.5 98.5
Divided by
Opening equity 947.1 873.3
Opening intangible assets 8 (7.9) (8.5)
Opening tangible equity 939.2 864.8
Closing equity 969.5 947.1
Closing intangible assets 8 (7.7) (7.9)
Closing tangible equity 961.8 939.2
Average tangible equity 950.5 902.0
Return on Tangible Equity 11.4% 10.9%
In previous years the Group has disclosed return on equity ('ROE'), defined by
the Group by comparing the profit after tax for the year to the average of the
opening and closing equity positions, but it is considered that ROTE is a more
widely used measure.
There is no significant difference in the values of ROE and ROTE for either of
the years shown.
(c) Regulatory capital
The Group is subject to supervision by the PRA on a consolidated basis, as a
group containing an authorised bank. As part of this supervision the regulator
will issue individual capital guidance setting an amount of regulatory
capital, defined under the international Basel III rules, implemented through
the Capital Requirements Regulation and Directive ('CRD IV'), which the Group
is required to hold relative to its risk weighted assets in order to safeguard
depositors against the risk of losses being incurred by the Group.
The Group's regulatory capital is monitored by the Board of Directors and the
Asset and Liability Committee, who ensure that appropriate action is taken to
ensure compliance with the regulator's requirements. The future regulatory
capital requirement is also considered as part of the Group's forecasting and
strategic planning process.
At 30 September 2015 the Group's regulatory capital of £976.3m (2014: £981.1m)
was comfortably in excess of that required by the regulator.
The Group's regulatory capital differs from its equity as certain adjustments
are required by the regulator. A reconciliation of the Group's equity to its
regulatory capital determined in accordance with CRD IV at 30 September 2015
is set out below.
Note 2015 2014
£m £m
Total equity 969.5 947.1
Deductions
Proposed final dividend 15 (21.8) (18.3)
Intangible assets 8 (7.7) (7.9)
Deferred tax adjustment * (0.3) (0.5)
Common Equity Tier 1 ('CET1') capital 939.7 920.4
Other tier 1 capital - -
Total Tier 1 capital 939.7 920.4
Corporate bond 16 110.0 110.0
Less: amortisation adjustment † (75.8) (53.8)
34.2 56.2
Collectively assessed credit impairment allowances 2.4 4.5
Total Tier 2 capital 36.6 60.7
Total regulatory capital 976.3 981.1
* Deferred tax assets in subsidiary companies are required to be
deducted from regulatory capital. This balance is offset against the deferred
tax liability in the consolidated accounts
† When tier 2 capital instruments have less than five years to maturity
the amount eligible as regulatory capital reduces by 20% per annum. As the
Group's £110m Corporate Bond matures in 2017, this adjustment is required
The total exposure amount calculated under the CRD IV framework against which
this capital is held, and the proportion of these assets it represents, are
calculated as shown below.
2015 2014
£m £m
Credit risk
Balance sheet assets 4,426.8 4,146.6
Off balance sheet 88.7 37.1
Total credit risk 4,515.5 4,183.7
Operational risk 363.6 337.1
Market risk - -
Other 50.2 108.7
Total exposure amount 4,929.3 4,629.5
% %
Solvency ratios
CET1 19.1 19.9
Total regulatory capital 19.8 21.2
The CRD IV risk weightings for credit risk exposures are calculated using the
Standardised approach, while the basic indicator approach for operational risk
is used.
The table below shows the calculation of the leverage ratio, based on the
consolidated balance sheet assets adjusted as shown below.
2015 2014
£m £m
Total balance sheet assets 11,878.9 10,895.1
Less: Derivative assets (660.1) (693.9)
On-balance sheet items 11,218.8 10,201.2
Less: Intangible assets (7.7) (7.9)
Total on balance sheet exposures 11,211.1 10,193.3
Derivative assets 660.1 693.9
Potential future exposure on derivatives 69.1 70.7
Total derivative exposures 729.2 764.6
Post offer pipeline at gross notional amount 482.3 209.8
Adjustment to convert to credit equivalent amounts (241.1) (104.9)
Off balance sheet items 241.2 104.9
Tier 1 capital 939.7 920.4
Total leverage exposure 12,181.5 11,062.8
Basel III leverage ratio 7.7% 8.3%
The Group has revised its calculation of the leverage ratio above to take
account of the CRD IV rules for leverage disclosures, which the Financial
Policy Committee of the Bank of England has indicated will be used for
regulatory purposes in the UK.
The Group has also revised its calculation of the credit conversion factors in
respect of pipeline assets used in both leverage and capital ratios to more
closely correspond with CRD IV guidance. Corresponding figures have been
adjusted for consistency, although the recalculated ratios differ from those
already reported by insignificant amounts.
4. SEGMENTAL INFORMATION
The Group continues to adopt the segmental reporting format introduced in
2014. This analysis is based on the entities within the Group generating its
assets and reflects current internal management structures and the differing
regulatory environments in which the Group operates. It is also used for
reporting internally.
The business is analysed between the three divisions described below.
· Paragon Mortgages includes revenue, in the form of interest and ancillary
income, from the Group's first mortgage operations, other than the buy-to-let
lending of Paragon Bank, and from other assets remaining in legacy portfolios
· Idem Capital includes revenue generated from assets purchased by the
Group's debt investment business, Idem Capital Holdings Limited and third
party loan administration activity
· Paragon Bank includes revenue, in the form of interest and ancillary
income, generated from the Group's regulated banking business, Paragon Bank
PLC
Each of these businesses invests in consumer finance assets, and an analysis
of the Group's financial assets by type and segment is shown in note 9.
Dedicated financing and administration costs of each of these businesses are
allocated to the segment. Shared costs, and the financing costs of the Group's
working capital invested, are allocated based on the segment's use of those
resources.
All of the Group's operations are conducted in the United Kingdom, all
revenues arise from external customers and there are no inter-segment
revenues. No customer contributes more than 10% of the revenue of the Group.
Financial information about these business segments, prepared on the same
basis as used in the consolidated accounts of the Group, is shown below.
Year ended 30 September 2015
Paragon Mortgages IdemCapital Paragon Bank Total
£m £m £m £m
Interest receivable 263.2 71.6 6.2 341.0
Interest payable (128.1) (9.9) (5.6) (143.6)
Net interest income 135.1 61.7 0.6 197.4
Other operating income 8.5 5.3 0.3 14.1
Total operating income 143.6 67.0 0.9 211.5
Operating expenses (44.0) (17.7) (9.5) (71.2)
Provisions for losses (5.6) - - (5.6)
94.0 49.3 (8.6) 134.7
Fair value net gains / (losses) (0.4) - (0.1) (0.5)
Operating profit / (loss) 93.6 49.3 (8.7) 134.2
Tax charge (27.1)
Profit after tax 107.1
Year ended 30 September 2014
Paragon Mortgages IdemCapital Paragon Bank Total
£m £m £m £m
Interest receivable 241.9 60.4 0.1 302.4
Interest payable (115.3) (7.5) (0.2) (123.0)
Net interest income 126.6 52.9 (0.1) 179.4
Other operating income 7.5 11.0 - 18.5
Total operating income 134.1 63.9 (0.1) 197.9
Operating expenses (41.3) (15.8) (6.3) (63.4)
Provisions for losses (12.3) - - (12.3)
80.5 48.1 (6.4) 122.2
Fair value net gains / (losses) 0.6 - - 0.6
Operating profit / (loss) 81.1 48.1 (6.4) 122.8
Tax charge (25.6)
Profit after tax 97.2
The assets and liabilities attributable to each of the segments at 30
September 2015, 30 September 2014 and 30 September 2013 were:
Paragon Mortgages IdemCapital Paragon Bank Total
£m £m £m £m
30 September 2015
Segment assets 10,622.9 481.2 774.8 11,878.9
Segment liabilities (9,927.7) (276.5) (705.2) (10,909.4)
695.2 204.7 69.6 969.5
30 September 2014
Segment assets 10,343.3 445.8 106.0 10,895.1
Segment liabilities (9,658.8) (226.6) (62.6) (9,948.0)
684.5 219.2 43.4 947.1
30 September 2013
Segment assets 10,127.4 200.9 - 10,328.3
Segment liabilities (9,338.6) (115.1) (1.3) (9,455.0)
788.8 85.8 (1.3) 873.3
All of the assets shown above were located in the United Kingdom.
5. OTHER OPERATING INCOME
2015 2014
£m £m
Loan account fee income 6.7 4.9
Insurance income 1.2 2.0
Third party servicing 4.9 10.8
Other income 1.3 0.8
14.1 18.5
6. FAIR VALUE NET (losses) / GAINS
The fair value net gain represents the accounting volatility on derivative
instruments which are matching risk exposure on an economic basis generated by
the requirements of IAS 39. Some accounting volatility arises on these items
due to accounting ineffectiveness on designated hedges, or because hedge
accounting has not been adopted or is not achievable on certain items. The
losses and gains are primarily due to timing differences in income recognition
between the derivative instruments and the economically hedged assets and
liabilities. Such differences will reverse over time and have no impact on the
cash flows of the Group.
7. Earnings per share
Earnings per ordinary share is calculated as follows:
2015 2014
Profit for the year (£m) 107.1 97.2
Basic weighted average number of ordinary shares ranking for dividend during the year (million) 301.9 304.6
Dilutive effect of the weighted average number of share options and incentive plans in issueduring the year (million) 5.9 7.6
Diluted weighted average number of ordinary shares ranking for dividend during the year (million) 307.8 312.2
Earnings per ordinary share - basic 35.5p 31.9p
- diluted 34.8p 31.1p
8. INTangible assets
2015 2014 2013
£m £m £m
Goodwill 1.6 1.6 1.6
Computer software 1.6 1.3 1.4
Other intangible assets 4.5 5.0 5.5
At 30 September 2015 7.7 7.9 8.5
Other intangible assets comprise brands and the benefit of business networks
recognised on the acquisition of subsidiary companies.
9. FInancial Assets
Note 2015 2014 2013
£m £m £m
Loans to customers 10,062.4 9,255.9 8,801.5
Fair value adjustments from portfolio hedging 5.2 0.5 -
Investments in structured entities 18.1 19.3 23.8
Derivative financial assets 10 660.1 693.9 890.0
10,745.8 9,969.6 9,715.3
The Group's loan assets and investments in structured entities at 30 September
2015, analysed between the segments described in note 4 are as follows:
Paragon Mortgages Idem Capital Paragon Bank Total
£m £m £m £m
At 30 September 2015
First mortgages 9,046.7 14.5 349.6 9,410.8
Consumer loans 175.0 418.4 58.2 651.6
Loans to customers 9,221.7 432.9 407.8 10,062.4
Investments in structured entities - 18.1 - 18.1
Total investments in loans 9,221.7 451.0 407.8 10,080.5
At 30 September 2014
First mortgages 8,635.2 16.0 0.5 8,651.7
Consumer loans 207.7 391.2 5.3 604.2
Loans to customers 8,842.9 407.2 5.8 9,255.9
Investments in structured entities - 19.3 - 19.3
Total investments in loans 8,842.9 426.5 5.8 9,275.2
The Group calculates its headline arrears measure for buy-to-let mortgages
based on the numbers of accounts three months or more in arrears, including
purchased Idem Capital assets, but excluding those cases in possession and
receiver of rent cases designated for sale. Other receivership cases are
included. This is consistent with the methodology used by the CML in compiling
statistics for the buy-to-let mortgage market as a whole.
In the debt purchase industry, Estimated Remaining Collections ('ERC') is
commonly used as a measure of the value of a portfolio. This is defined as the
sum of the undiscounted cash flows expected to be received over a specified
future period. In the Group's view, this measure may be suitable for heavily
discounted, unsecured, distressed portfolios, but is less applicable for the
types of portfolio in which the Group has invested, where cash flows are
higher on acquisition, loans may be secured on property and customers may not
be in default. In such cases, the IAS 39 amortised cost balance, at which
these assets are carried in the Group balance sheet, provides a better
indication of value.
However, to aid comparability the 84 and 120 month ERC values for the Group's
purchased assets included in the Idem Capital division, are set out below,
analysed by the balance sheet line on which they appear. These are derived
using the same models and assumptions used in the EIR calculations, but the
differing bases of calculation lead to different outcomes.
2015 2015 2015 2014 2014 2014
Carrying value 84 month ERC 120 month ERC Carrying value 84 month ERC 120 month ERC
£m £m £m £m £m £m
Loans to customers 432.9 555.1 647.3 407.2 554.8 649.9
Investments in structured entities 18.1 25.7 30.4 19.3 26.6 32.3
451.0 580.8 677.7 426.5 581.4 682.2
Amounts shown as loans to customers above include loans disclosed as first
mortgages and other loans.
10. Derivative Financial Assets and Liabilities
Note 2015 2014 2013
£m £m £m
Derivative financial assets 9 660.1 693.9 890.0
Derivative financial liabilities 16 (6.7) (1.1) (1.3)
653.4 692.8 888.7
Of which:
Foreign exchange basis swaps 659.8 693.5 889.6
Other derivatives (6.4) (0.7) (0.9)
653.4 692.8 888.7
The Group's securitisation borrowings are denominated in sterling, euros and
US dollars. All currency borrowings are swapped at inception so that they have
the effect of sterling borrowings. These swaps provide an effective hedge
against exchange rate movements, but the requirement to carry them at fair
value leads, when exchange rates have moved significantly since the issue of
the notes, to large balances for the swaps being carried in the balance sheet.
This is currently the case with both euro and US dollar swaps, although the
debit balance is compensated for by retranslating the borrowings at the
current exchange rate.
11. SHORT TERM INVESTMENTS
This amount represents fixed rate securities issued by the UK Government for
which a liquid market exists and are held as part of the liquidity requirement
of Paragon Bank PLC. As such they are designated as 'Available for Sale', as
defined by IAS 39 - 'Financial Instruments: Recognition and Measurement' and
are consequently shown at fair value which corresponds to their market value.
The total nominal value of the securities at 30 September 2015 was £40.0m
(2014: £37.5m), the weighted average coupon was 4.41% (2014: 3.88%) and their
carrying value was £41.1m (2014: £39.4m).
12. Cash and CASH EQUIVALENTS
2015 2014 2013
£m £m £m
Balances with central banks 286.0 - -
Balances with other banks 770.0 848.8 587.3
1,056.0 848.8 587.3
Only 'Free Cash' is unrestrictedly available for the Group's general purposes.
Cash received in respect of loan assets is not immediately available, due to
the terms of the warehouse facilities and the securitisations. Cash held in
the Group's banking subsidiary is subject to regulatory rules covering
liquidity and capital adequacy and is shown as 'Bank Cash' below.
'Cash and Cash Equivalents' also includes balances held by the Trustees of the
Paragon Employee Share Ownership Plans which may only be used to invest in the
shares of the Company, pursuant to the aims of those plans.
The total consolidated 'Cash and Cash Equivalents' balance may be analysed as
shown below:
2015 2014 2013
£m £m £m
Free cash 199.9 177.3 170.8
Securitisation cash 530.9 609.0 414.1
Bank cash 323.3 60.6 -
ESOP cash 1.9 1.9 2.4
1,056.0 848.8 587.3
'Cash and Cash Equivalents' includes current bank balances, money market
placements and fixed rate sterling term deposits with London banks, and
balances with the Bank of England.
13. Called-up share capital
The share capital of the Company consists of a single class of £1 ordinary
shares.
Movements in the issued share capital in the year were:
2015 2014
Number Number
Ordinary shares
At 1 October 2014 307,308,283 306,213,215
Shares issued 2,041,033 1,095,068
At 30 September 2015 309,349,316 307,308,283
During the year the Company issued 1,050,000 shares at par (2014: 1,060,000)
to the trustees of its ESOP Trusts in order that they could fulfil their
obligations under the Group's share based award arrangements. It also issued
991,033 shares (2014: 35,068) to satisfy options granted under sharesave
schemes for a consideration of £1,365,944 (2014: £36,884).
14. RESERVES
2015 2014 2013
£m £m £m
Share premium account 64.6 64.1 64.1
Merger reserve (70.2) (70.2) (70.2)
Cash flow hedging reserve (1.9) 0.6 1.7
Profit and loss account 767.7 693.5 619.1
760.2 688.0 614.7
15. equity Dividend
Amounts recognised as distributions to equity shareholders in the Group and
the Company in the period:
2015 2014 2015 2014
Per share Per share £m £m
Equity dividends on ordinary shares
Final dividend for the year ended 30 September 2014 6.0p 4.8p 18.3 14.6
Interim dividend for the year ended 30 September 2015 3.6p 3.0p 10.8 9.1
9.6p 7.8p 29.1 23.7
Amounts paid and proposed in respect of the year:
2015 2014 2015 2014
Per share Per share £m £m
Interim dividend for the year ended 30 September 2015 3.6p 3.0p 10.8 9.1
Proposed final dividend for the year ended 30 September 2015 7.4p 6.0p 21.8 18.3
11.0p 9.0p 32.6 27.4
The proposed final dividend for the year ended 30 September 2015 will be paid
on 15 February 2016, subject to approval at the Annual General Meeting, with a
record date of 8 January 2016. The dividend will be recognised in the accounts
when it is paid.
16. FInancial Liabilities
Note 2015 2014 2013
£m £m £m
Current liabilities
Finance lease liability - - 1.6
Retail deposits 17 338.9 53.3 -
Bank loans and overdrafts 0.7 1.1 1.4
339.6 54.4 3.0
Non-current liabilities
Asset backed loan notes 8,274.6 8,115.0 7,893.2
Corporate bond 110.0 110.0 110.0
Retail bonds 294.9 183.2 59.1
Finance lease liability - - 8.6
Retail deposits 17 369.8 6.8 -
Bank loans and overdrafts 1,425.4 1,397.9 1,311.2
Derivative financial instruments 10 6.7 1.1 1.3
10,481.4 9,814.0 9,383.4
Further details of asset backed loan notes, bank loans, corporate and retail
bonds are given in note 18.
17. Retail deposits
The Group's retail deposits, held by Paragon Bank PLC, were received from
customers in the United Kingdom and are denominated in sterling. The deposits
comprise principally term deposits and 120 day notice accounts. The method of
interest calculation on these deposits is analysed as follows:
2015 2014 2013
£m £m £m
Fixed rate 508.3 39.8 -
Variable rates 200.4 20.3 -
708.7 60.1 -
The weighted average interest rate on retail deposits at 30 September 2015,
analysed by charging method, was:
2015 2014 2013
% % %
Fixed rate 2.33 1.90 -
Variable rates 1.62 1.85 -
The contractual maturity of these deposits is analysed below.
2015 2014 2013
£m £m £m
Amounts repayable
In less than three months 9.1 - -
In more than three months but not more than one year 242.6 52.8 -
In more than one year, but not more than two years 181.7 6.8 -
In more than two years, but not more than five years 188.1 - -
Total term deposits 621.5 59.6 -
Repayable on demand 87.2 0.5 -
708.7 60.1 -
Total falling due in less than one year 338.9 53.3 -
Total falling due in more than one year 369.8 6.8 -
708.7 60.1 -
18. BORROWINGS
All borrowings described in the Group Accounts for the year ended 30 September
2014 remained in place throughout the period, except as described below.
On 13 November 2014, a Group company, Paragon Mortgages (No. 21) PLC, issued
£243.7m of sterling mortgage backed floating rate notes to external investors
at par. £217.9m of the notes were class A notes, rated AAA by Standard and
Poor's and Aaa by Moody's, £17.7m were class B notes, rated AA by Standard and
Poor's and Aa2 by Moody's and £8.1m were class C notes rated A by Standard and
Poor's and A1 by Moody's. The interest margins above LIBOR on the notes were
0.80% on the A notes, 1.40% on the B notes and 1.75% on the C notes, an
average of 0.88% and the proceeds were used to pay down existing warehouse
debt. The Group retained £6.3m of D notes and also invested £6.2m in the first
loss fund, bringing its total investment to £12.5m, or 5.0% of the issued
notes.
On 25 March 2015, a Group company, Paragon Mortgages (No. 22) PLC, issued
E164.0m of euro mortgage backed floating rate notes and £175.7m of sterling
mortgage backed floating rate notes to external investors at par. The euro
notes were class A1 notes, rated AAA by Fitch and Aaa by Moody's and bearing
interest at 0.5% above EURIBOR. £151.7m of the sterling notes were class A2
notes, rated AAA by Fitch and Aaa by Moody's, £12.0m were class B notes, rated
AA by Fitch and Aa2 by Moody's and £12.0m were class C notes rated A+ by Fitch
and A1 by Moody's. The interest margins above LIBOR on the sterling notes were
0.80% on the A2 notes, 1.35% on the B notes and 1.65% on the C notes.
Cross-currency basis swaps were entered into at the time of the transaction,
effectively translating the euro notes into a LIBOR linked sterling liability.
The average interest margin on the transaction, taking swap costs into account
was 0.95% and the proceeds were used to pay down existing warehouse debt. The
Group retained £7.5m of class E notes and also invested £7.5m in the first
loss fund, bringing its total investment to £15.0m, or 5.0% of the issued
notes.
On 23 July 2015, a Group company, Paragon Mortgages (No. 23) PLC, issued
E105.0m of euro mortgage backed floating rate notes and £219.2m of sterling
mortgage backed floating rate notes to external investors at par. The euro
notes were class A1 notes, rated AAA by Fitch and Aaa by Moody's and bearing
interest at 0.7% above EURIBOR. £188.6m of the sterling notes were class A2
notes, rated AAA by Fitch and Aaa by Moody's, £14.8m were class B notes, rated
AA by Fitch and Aa2 by Moody's and £15.8m were class C notes rated A+ by Fitch
and A1 by Moody's. The interest margins above LIBOR on the sterling notes were
1.10% on the A2 notes, 1.65% on the B notes and 2.20% on the C notes.
Cross-currency basis swaps were entered into at the time of the transaction,
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