REG - Paragon Grp Co PLC - Half Yearly Report <Origin Href="QuoteRef">PARA.L</Origin> - Part 3
15/07/2015 18:14
- Part 3: For the preceding part double click ID:nRSS5695Nb
Note 31 March2015 31 March2014 30 September 2014 30 September 2013
£m £m £m £m
Current liabilities
Finance lease liability - - - 1.6
Retail deposits 22 101.1 - 53.3 -
Bank loans and overdrafts 0.2 1.0 1.1 1.4
101.3 1.0 54.4 3.0
Non-current liabilities
Asset backed loan notes 8,461.7 8,071.5 8,115.0 7,893.2
Corporate bond 110.0 110.0 110.0 110.0
Retail bonds 183.2 183.1 183.2 59.1
Finance lease liability - - - 8.6
Retail deposits 22 63.9 - 6.8 -
Bank loans and overdrafts 1,237.7 1,294.3 1,397.9 1,311.2
Derivative financial liabilities 14 5.0 0.7 1.1 1.3
10,061.5 9,659.6 9,814.0 9,383.4
Details of changes in the Group's borrowings since the year end are given in
note 23 below.
22. 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:
31 March2015 31 March2014 30 September 2014 30 September 2013
£m £m £m £m
Fixed rate 116.1 - 39.8 -
Variable rates 48.9 - 20.3 -
165.0 - 60.1 -
The weighted average interest rate on retail deposits, analysed by charging
method, was:
31 March2015 31 March2014 30 September 2014 30 September 2013
% % % %
Fixed rate 2.08 - 1.90 -
Variable rates 1.70 - 1.85 -
The contractual maturity of these deposits is analysed below.
31 March2015 31 March2014 30 September 2014 30 September 2013
£m £m £m £m
Amounts repayable
In less than three months 1.9 - - -
In more than three months but not more than one year 98.4 - 52.8 -
In more than one year, but not more than two years 31.0 - 6.8 -
In more than two years, but not more than five years 32.9 - - -
Total term deposits 164.2 - 59.6 -
Repayable on demand 0.8 - 0.5 -
165.0 - 60.1 -
Total falling due in less than one year 101.1 - 53.3 -
Total falling due in more than one year 63.9 - 6.8 -
165.0 - 60.1 -
23. BORROWINGS
All borrowings described in the Group Accounts for the year ended 30 September
2014 remained in place throughout the period.
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 13 November 2014, 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.
This structuring is similar to that used in pre-credit crisis transactions
which included euro notes and mitigates the currency risk inherent in the euro
borrowings. 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.
As with the Group's existing securitisation borrowings, these financings are
structured so that payments of interest and principal are limited to cash
generated from the funded assets and there is no recourse to other Group
funds. Therefore the issue of these new borrowings do not impact on the
liquidity risk of the Group.
During the year ended 30 September 2014 the facility provided by Macquarie
Bank plc to Paragon Fourth Funding was renewed on substantially the same terms
with a reduced margin of 1.750% above LIBOR, with effect from 12 December 2014
for a further two year period, and on 8 May 2015, after the period end the
facility was increased from £250.0m to £300.0m.
Following the period end on 15 May 2015 the facility provided by Lloyds Bank
to Paragon Fifth Funding was increased from £200.0m to £350.0m on its existing
terms. Together these bring the Group's warehouse capacity to £750.0m.
On 11 February 2013 the Company inaugurated a £1,000.0m Euro Medium Term Note
Programme under which it may issue retail bonds, or other notes, within a
twelve month period. The prospectus was updated, renewing the programme for a
further twelve month period on 23 October 2014.
Repayments made in respect of the Group's borrowings are shown in note 27.
24. RETIREMENT BENEFIT OBLIGATIONS
The defined benefit obligation at 31 March 2015 has been calculated on a
year-to-date basis, using the latest actuarial valuation for IAS 19 purposes
at 30 September 2014. There have been movements in financial market conditions
since that date, requiring an adjustment to the actuarial assumptions
underlying the calculation of the defined benefit obligation at 31 March 2015.
In particular, over the period since the 30 September 2014 actuarial
valuation, the discount rate has decreased by 0.7% per annum, whereas
expectations of long term inflation have decreased by 0.2% per annum. The net
effect of these changes has resulted in an increase in the value of the
defined benefit obligation at 31 March 2015. The impact of the change in
actuarial assumptions has been recognised as an actuarial loss in other
comprehensive income.
The defined benefit plan assets have been updated to reflect their market
value at 31 March 2015. In particular, over the period since 30 September 2014
the Plan assets have achieved results in excess of the assumptions made at 30
September 2014. The difference between the expected and actual return on
assets has been recognised as an actuarial gain in other comprehensive
income.
25. NET CASH FLOW FROM OPERATING ACTIVITIES
Six months to Six months to Year to
31 March2015 31 March2014 30 September 2014
£m £m £m
Profit before tax 62.6 58.2 122.8
Non-cash items included in profit and other adjustments
Depreciation of property, plant and equipment 0.8 0.9 1.6
Amortisation of intangible assets 0.7 0.6 1.3
Foreign exchange movements on borrowings 119.6 (131.5) (194.5)
Other non-cash movements on borrowings 2.3 1.9 4.9
Impairment losses on loans to customers 3.5 7.5 12.3
Charge for share based remuneration 2.6 1.6 3.2
Net (increase) / decrease in operating assets
Loans to customers (214.3) (308.7) (462.2)
Derivative financial instruments (117.0) 132.3 196.1
Fair value of portfolio hedges (2.8) 0.1 (0.5)
Other receivables 0.8 (0.7) 0.3
Net (decrease) / increase in operating liabilities
Retail deposits 104.8 - 60.1
Derivative financial instruments 3.9 (0.6) (0.2)
Other liabilities (4.0) (1.5) 2.7
Cash (utilised) by operations (36.5) (239.9) (252.1)
Income taxes (paid) (11.0) (6.5) (17.4)
Net cash flow (utilised) by operating activities (47.5) (246.4) (269.5)
26. NET CASH FLOW USED IN INVESTING ACTIVITIES
Six months to Six months to Year to
31 March2015 31 March2014 30 September 2014
£m £m £m
Purchases of property, plant and equipment (0.7) (24.9) (25.1)
Purchases of intangible assets (0.4) (0.3) (0.7)
Increase in short term investments (9.1) (0.5) (39.4)
Net cash (utilised) by investing activities (10.2) (25.7) (65.2)
27. NET CASH FLOW FROM FINANCING ACTIVITIES
Six months to Six months to Year to
31 March2015 31 March2014 30 September 2014
£m £m £m
Shares issued 1.2 0.1 -
Dividends paid (note 19) (18.3) (14.6) (23.7)
Issue of asset backed floating rate notes 533.4 468.5 862.8
Repayment of asset backed floating rate notes (308.7) (160.0) (450.2)
Issue of retail bonds - 123.9 123.9
Movement on bank facilities (162.9) (16.4) 85.1
Purchase of shares (note 20) (22.3) - (1.4)
Net cash generated by financing activities 22.4 401.5 596.5
28. RELATED PARTY TRANSACTIONS
In the six months ended 31 March 2015, the Group has continued the related
party relationships described in note 62 on page 171 of the Annual Report and
Accounts of the Group for the financial year ended 30 September 2014. Related
party transactions in the period comprise the compensation of the Group's key
management personnel, transactions with the Group Pension Plan and fees paid
to a non-executive director in respect of his appointment as a director of the
Corporate Trustee of the Group Pension Plan. There have been no changes in
these relationships which could have a material effect on the financial
position or performance of the Group in the period.
Save for the transactions referred to above, there have been no related party
transactions in the six months ended 31 March 2015.
29. Average NET MARGIN
The average net interest margin is calculated as follows:
Six months to Six months to Year to
31 March2015 31 March2014 30 September 2014
£m £m £m
Opening loans to customers 9,255.9 8,801.5 8,801.5
Closing loans to customers 9,468.3 9,105.9 9,255.9
Average loans to customers 9,362.1 8,953.7 9,028.7
Net interest 97.2 87.0 179.4
Annualised net interest margin 2.09% 1.96% 1.99%
Impairment provision 3.5 7.5 12.3
Impairment as a percentage of average loan balance (annualised) 0.07% 0.16% 0.14%
INDEPENDENT REVIEW REPORT
TO THE PARAGON GROUP OF COMPANIES PLC
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 31
March 2015 which comprises the income statement, the statement of
comprehensive income, the balance sheet, the cash flow statement, the
statement of movements in equity and related notes 1 to 29. We have read the
other information contained in the half-yearly financial report and considered
whether it contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim
Financial Information Performed by the Independent Auditor of the Entity'
issued by the Auditing Practices Board. Our work has been undertaken so that
we might state to the Company those matters we are required to state to it in
an independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company, for our review work, for this report, or for the conclusions
we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the Group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standard
34, 'Interim Financial Reporting,' as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 31 March 2015 is not prepared, in
all material respects, in accordance with International Accounting Standard 34
as adopted by the European Union and the Disclosure and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
Birmingham, United Kingdom
19 May 2015
The Paragon Group of Companies PLC
PRINCIPAL RISKS AND UNCERTAINTIES
There are a number of potential risks and uncertainties which could have a
material impact on the Group's performance over the remaining six months of
the financial year and could cause actual results to differ materially from
expected and historical results. In the opinion of the directors these risks
have not changed materially from those described in section A2.2 of the last
annual report and accounts of the Company for the year ended 30 September
2014. These risks are summarised below.
Business risk
The risk that UK economic conditions impact on the Group
Deterioration in the general economy of the UK, where all of the Group's
operations are situated, might adversely affect all aspects of the Group's
business.
The risk that the Group is unable to procure new assets
The UK financial services market is highly competitive and the Group faces
strong competition in all of the core markets in which it operates, including
its lending markets and the debt purchase and asset servicing markets.
Credit risk
The risk that the Group's loan assets will not be realised in cash
As a primary lender the Group faces credit risk as an inherent component of
its lending and asset purchase activities. Adverse changes in the credit
quality of the Group's borrowers or arising from systematic risks in UK and
global financial systems could reduce the recoverability and value of the
Group's assets.
Liquidity risk
The risk that the Group will not be able to finance its future plans
The Group relies on its access to sources of funding to finance the
origination of new business, portfolio acquisitions and working capital.
Market risk
The risk that net income from loan assets will be reduced
Changes in interest rates may adversely affect the Group's net income and
profitability. In particular the Group's profitability is determined by the
difference between the rates at which it lends and those at which it can
borrow. Therefore any changes in market interest rates which result in a
mismatch can impact the Group's profit.
Conduct risk
The risk that inappropriate or poor customer treatment could lead to customer
detriment
The Group provides a range of financial services products across several
brands to consumers and small business customers. As a result, the Group is
exposed to potential conduct risk should it fail to treat its customers
fairly.
Operational risk
The risk that regulation or legal changes will increase the cost or reduce the
scope of the Group's activities
The customers and market sectors to which the Group supplies products, and the
capital markets from which it obtains much of its funding, have been subject
to legislative and other intervention by UK Government, European Union and
other regulatory bodies. Certain of the Group's own activities are also
subject to direct regulation.
The risk that the Group's systems will be unable to support its operational
needs
The activities of the Group subject it to operational risks relating to its
ability to implement and maintain effective systems to process the high volume
of transactions with customers.
The risk that the Group will not have the required staff to execute its plans
The success of the Group is dependent on recruiting and retaining skilled
senior management and personnel at all levels of the organisation.
This information is provided by RNS
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