REG - Paragon Banking Grp - Final Results <Origin Href="QuoteRef">PARA.L</Origin> - Part 4
23/11/2017 07:05
- Part 4: For the preceding part double click ID:nRSW2948Xc
Liquidity buffer 615.0 315.0 286.0
ESOP cash 2.4 2.4 1.9
1,496.9 1,237.6 1,056.0
15. SHORT TERM INVESTMENTS
This amount represented fixed rate securities issued by the UK Government for which a liquid market exists and which were
held as part of the liquidity requirement of Paragon Bank PLC. As such they were designated as 'Available for Sale', as
defined by IAS 39 - 'Financial Instruments: Recognition and Measurement' and consequently shown at fair value which
corresponded to their market value. The Bank's liquidity requirements are currently met through central bank deposits and
liquidity facilities and therefore it is no longer necessary to hold treasury bills.
There were no securities held at 30 September 2017. The total nominal value of the securities at 30 September 2016 was
£7.0m, the weighted average coupon was 1.75% and their carrying value was £7.1m.
16. Loans to Customers
Note 2017 2016 2015
£m £m £m
Loans and receivables 10,636.1 10,391.8 10,019.0
Finance lease receivables 488.0 345.7 43.4
Loans to customers 11,124.1 10,737.5 10,062.4
Fair value adjustments from portfolio hedging (8.7) 12.5 5.2
11,115.4 10,750.0 10,067.6
The Group's loan assets at 30 September 2017, analysed between the segments described in note 8 are as follows:
Mortgages Commercial Finance Idem Capital Total
£m £m £m £m
At 30 September 2017
First mortgages 9,855.5 - - 9,855.5
Consumer loans 98.4 - 611.4 709.8
Motor finance - 163.0 - 163.0
Asset finance - 325.0 - 325.0
Development finance - 42.3 - 42.3
Other loans - 28.5 - 28.5
Loans to customers 9,953.9 558.8 611.4 11,124.1
At 30 September 2016
First mortgages 9,640.6 - - 9,640.6
Consumer loans 54.1 - 667.7 721.8
Motor finance 95.3 0.1 95.4
Asset finance - 250.4 - 250.4
Development finance - 9.1 - 9.1
Other loans - 20.2 - 20.2
Loans to customers 9,694.7 375.0 667.8 10,737.5
17. IMPAIRMENT PROVISIONS ON LOANS TO CUSTOMERS
The following amounts in respect of impairment provisions, net of allowances for recoveries of written off assets, have
been deducted from the appropriate assets in the balance sheet.
First mortgages Other Finance leases Total
loans and receivables
£m £m £m £m
At 1 October 2015 86.0 24.4 0.6 111.0
Amounts provided in the period 4.9 2.7 1.9 9.5
Amounts written off (2.1) (4.5) (1.3) (7.9)
At 30 September 2016 88.8 22.6 1.2 112.6
Amounts provided in the period 3.8 2.3 2.2 8.3
Amounts written off (3.5) (6.6) (0.2) (10.3)
At 30 September 2017 89.1 18.3 3.2 110.6
Of the above balances, the following provisions were held in respect of realised losses not charged off, which remain on
the balance sheet and provided for in full.
First mortgages Other Finance leases Total
loans and receivables
£m £m £m £m
At 30 September 2017 76.4 0.3 0.3 77.0
At 30 September 2016 72.4 0.1 0.1 72.6
The amounts charged to the profit and loss account, net of recoveries of previously provided amounts are set out below.
First mortgages Other Finance leases Total
loans and receivables
£m £m £m £m
Year ended 30 September 2017
Amounts provided in the year 3.8 2.3 2.2 8.3
Recovery of amounts previously provided (0.1) (0.7) (2.2) (3.0)
Net impairment for year 3.7 1.6 - 5.3
Year ended 30 September 2016
Amounts provided in the year 4.9 2.7 1.9 9.5
Recovery of amounts previously provided (0.1) (0.1) (1.6) (1.8)
Net impairment for year 4.8 2.6 0.3 7.7
18. Derivative Financial Assets and Liabilities
Note 2017 2016 2015
£m £m £m
Derivative financial assets 906.6 1,366.4 660.1
Derivative financial liabilities (7.1) (15.8) (6.7)
899.5 1,350.6 653.4
Of which:
Foreign exchange basis swaps 896.3 1,364.8 659.8
Other derivatives 3.2 (14.2) (6.4)
899.5 1,350.6 653.4
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.
19. INTangible assets
2017 2016 2015
£m £m £m
Goodwill 98.1 98.4 1.6
Computer software 2.0 2.1 1.6
Other intangible assets 4.3 4.9 4.5
104.4 105.4 7.7
Other intangible assets comprise brands and the benefit of business networks recognised on the acquisition of subsidiary
companies.
20. Retail deposits
The Group's retail deposits, held by Paragon Bank PLC, were received from customers in the UK 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:
2017 2016 2015
£m £m £m
Fixed rate 2,675.9 1,332.5 508.3
Variable rates 939.5 541.4 200.4
3,615.4 1,873.9 708.7
The weighted average interest rate on retail deposits at 30 September 2017, analysed by charging method, was:
2017 2016 2015
% % %
Fixed rate 1.89 2.11 2.33
Variable rates 1.21 1.65 1.62
The contractual maturity of these deposits is analysed below.
2017 2016 2015
£m £m £m
Amounts repayable
In less than three months 211.4 55.7 9.1
In more than three months but not more than one year 1,399.6 690.3 242.6
In more than one year, but not more than two years 770.0 572.9 181.7
In more than two years, but not more than five years 629.7 283.9 188.1
Total term deposits 3,010.7 1,602.8 621.5
Repayable on demand 604.7 271.1 87.2
3,615.4 1,873.9 708.7
Fair value adjustments for portfolio hedging (3.5) 0.8 -
3,611.9 1,874.7 708.7
21. BORROWINGS
All borrowings described in the Group Accounts for the year ended 30 September 2016 remained in place throughout the
period, except as noted below.
During the period the Group accessed further facilities under the Bank of England's Sterling Monetary Framework.
Drawings under the Term Funding Scheme have a maturity of four years and bear interest at bank base rate. The average
remaining maturity of the Group's drawings is 47 months and the drawings are secured against a designated pool of Paragon
Bank mortgage assets. Drawings under the TFS as at 30 September 2017 were £700.0m (2016: £nil).
On 20 October 2015, a Group company, Idem Luxembourg (No. 8) entered into an agreement under which £117.3m of sterling
floating rate notes have been issued to Citibank NA on a limited recourse basis. These notes bear interest at a rate of one
month LIBOR plus 3.50% and are secured on financial assets. A further £69.8m of notes was issued under the facility after
the end of the period. This issue was used to refinance existing Idem Capital unsecured loan assets.
Of the Group's borrowings at 30 September 2016, the mortgage backed floating rate notes issued by Paragon Mortgages (No.
18) PLC were repaid in December 2016, those issued by Paragon Mortgages (No. 19) PLC were repaid in May 2017 and those
issued by Paragon Mortgages (No.7) PLC were repaid in August 2017. The assets were financed through warehouse facilities
and retail deposits. The asset backed loan notes issued by Paragon Personal and Auto Finance (No. 3) PLC were repaid in
January 2017, following the purchase of its loan assets by other group companies, principally Paragon Bank.
During the period, the warehouse facility in Paragon Fourth Funding was not renewed. This has reduced the Group's available
warehouse capacity by £300.0m.
The Group's £110.0m corporate bond was repaid, in accordance with its terms of issue, in April 2017.
22. RETIREMENT BENEFIT OBLIGATIONS
The defined benefit obligation takes into account the results of the statutory funding valuation as at 31 March 2016, which
results in a reduction in the value of the defined benefit obligation at 30 September 2017. Since the last IAS 19 actuarial
valuation at 30 September 2016 there have also been movements in financial conditions, requiring an adjustment to the
actuarial assumptions underlying the calculation of the defined benefit obligation at 30 September 2017. In particular,
over the period since the 30 September 2016 actuarial valuation, the discount rate has increased by 0.3% per annum, whereas
expectations of long term inflation have increased by 0.1% per annum.
The net effect of these changes has resulted in a decrease in the value of the defined benefit obligation at 30 September
2017. The impact of allowing for the results of the 31 March 2016 statutory funding valuation and the change in actuarial
assumptions has been recognised as an actuarial gain in other comprehensive income.
The movements in the deficit on the defined benefit plan during the year ended 30 September 2017 are summarised below.
Year to Year to
30 September 2017 30 September2016
£m £m
Opening pension deficit 58.4 21.5
Service cost 2.4 1.7
Net funding cost 1.3 0.8
Administrative expenses 0.4 0.4
Employer contributions (3.7) (3.2)
Amounts posted to other comprehensive income
Return on plan assets not included in interest (7.4) (7.7)
Actuarial (gain) arising from demographic assumptions (6.7) -
Actuarial (gain) arising from experience adjustments (4.2) -
Actuarial (gain)/loss from changes in financial assumptions (10.7) 44.9
Closing pension deficit 29.8 58.4
23. 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:
2017 2016
Number Number
Ordinary shares
At 1 October 2016 295,852,094 309,349,316
Shares issued 637,607 218,872
Shares cancelled (15,000,000) (13,716,094)
At 30 September 2017 281,489,701 295,852,094
During the year, the Company issued 637,607 shares (2016: 55,827) to satisfy options granted under sharesave schemes for a
consideration of £1,575,925 (2016: £68,070). In the year ended 30 September 2016, the Company had also issued 163,045
shares at par to the trustees of its Employee Share Ownership Plan ('ESOP') Trust in order that they could fulfil their
obligations under the Group's share based award arrangements.
On 1 June 2017 15,000,000 shares held in treasury were cancelled by the Company. (2016: 13,716,094 shares).
24. RESERVES
2017 2016 2015
£m £m £m
Share premium account 65.5 64.6 64.6
Capital redemption reserve 28.7 13.7 -
Merger reserve (70.2) (70.2) (70.2)
Cash flow hedging reserve 2.5 2.1 (1.9)
Profit and loss account 784.5 725.9 767.7
811.0 736.1 760.2
25. own shares
2017 2016
£m £m
Treasury shares
At 1 October 2016 46.2 89.2
Shares purchased 65.5 51.0
Shares cancelled (45.1) (94.0)
At 30 September 2017 66.6 46.2
ESOP shares
At 1 October 2016 16.3 10.8
Shares purchased 4.2 8.9
Shares subscribed for - 0.3
Options exercised (4.0) (3.7)
At 30 September 2017 16.5 16.3
Balance at 30 September 2017 83.1 62.5
Balance at 1 October 2016 62.5 100.0
At 30 September 2017, the number of the Company's own shares held in treasury was 15,693,643 (2016: 15,348,714). These
shares had a nominal value of £15,693,643 (2016: £15,348,714). These shares do not qualify for dividends.
The ESOP shares are held in trust for the benefit of employees exercising their options under the Company's share option
schemes and awards under the Paragon Performance Share Plan, Matching Share Plan and Deferred Bonus Plan. The trustees'
costs are included in the operating expenses of the Group.
At 30 September 2017, the trusts held 3,180,661 ordinary shares (2016: 3,594,175) with a nominal value of £3,180,661 (2016:
£3,594,175) and a market value of £13,975,824 (2016: £11,267,738). Options, or other share-based awards, were outstanding
against all of these shares at 30 September 2017 (2016: all). The dividends on all of these shares have been waived (2016:
all).
26. equity Dividend
Amounts recognised as distributions to equity shareholders in the Group and the Company in the period:
2017 2016 2017 2016
Per share Per share £m £m
Equity dividends on ordinary shares
Final dividend for the year ended 30 September 2016 9.2p 7.4p 25.5 21.7
Interim dividend for the year ended 30 September 2017 4.7p 4.3p 12.5 12.2
13.9p 11.7p 38.0 33.9
Amounts paid and proposed in respect of the year:
2017 2016 2017 2016
Per share Per share £m £m
Interim dividend for the year ended 30 September 2017 4.7p 4.3p 12.5 12.2
Proposed final dividend for the year ended 30 September 2017 11.0p 9.2p 28.9 25.5
15.7p 13.5p 41.4 37.7
The proposed final dividend for the year ended 30 September 2017 will be paid on 19 February 2018, subject to approval at
the Annual General Meeting, with a record date of 5 January 2018. The dividend will be recognised in the accounts when it
is paid.
27. net cash flow from operating activities
2017 2016
£m £m
Profit before tax 144.8 143.2
Non-cash items included in profit and other adjustments:
Depreciation of operating property, plant and equipment 1.9 1.9
Profit on disposal of operating property, plant and equipment (0.1) (0.1)
Amortisation of intangible assets 1.6 1.6
Foreign exchange movement on borrowings (468.9) 699.9
Other non-cash movements on borrowings 6.4 14.3
Impairment losses on loans to customers 5.3 7.7
Charge for share based remuneration 4.2 4.4
Net (increase) / decrease in operating assets:
Operating lease assets (7.4) (5.4)
Loans to customers (391.9) (443.0)
Derivative financial instruments 459.8 (706.3)
Fair value of portfolio hedges 21.2 (7.3)
Other receivables - (2.1)
Net decrease / (increase) in operating liabilities:
Retail deposits 1,741.5 1,165.2
Derivative financial instruments (8.7) 9.1
Fair value of portfolio hedges (4.3) 0.8
Other liabilities (1.8) 4.9
Cash generated by operations 1,503.6 888.8
Income taxes (paid) (28.9) (23.6)
1,474.7 865.2
Cash flows relating to plant and equipment held for leasing under operating leases are classified as operating cash flows.
28. net cash flow from investing activities
2017 2016
£m £m
Proceeds from sales of operating property, plant and equipment 0.3 0.4
Purchases of operating property, plant and equipment (1.7) (1.5)
Purchases of intangible assets (0.9) (1.4)
Decrease in short term investments 7.1 34.0
Acquisitions (Note 7) (1.6) (310.1)
Net cash generated / (utilised) by investing activities 3.2 (278.6)
29. net cash flow from financing activities
2017 2016
£m £m
Shares issued 1.5 -
Dividends paid (note 26) (38.0) (33.9)
Issue of asset backed floating rate notes 69.8 531.0
Repayment of asset backed floating rate notes (1,503.0) (1,137.2)
Issue of corporate bonds - 149.0
Repayment of corporate bonds (110.0) -
Movement on central bank facilities 700.0 -
Movement on other bank facilities (268.6) 145.5
Purchase of shares (note 25) (69.7) (59.9)
Net cash (utilised) by financing activities (1,218.0) (405.5)
30. RELATED PARTY TRANSACTIONS
In the year ended 30 September 2017, the Group has continued the related party relationships described in note 66 on page
291 of the Annual Report and Accounts of the Group for the financial year ended 30 September 2016. 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 year end 30 September
2017.
ADDITIONAL FINANCIAL INFORMATION
For the year ended 30 September 2017
A. income statement ratios
The average net interest margin is calculated as follows:
Note 2017 2016
£m £m
Opening loans to customers 16 10,737.5 10,062.4
Closing loans to customers 16 11,124.1 10,737.5
Average loans to customers 10,930.8 10,400.0
Net interest 232.6 223.2
Net interest margin 2.13% 2.15%
Impairment provision 17 5.3 7.7
Impairment as a percentage of average loan balance 0.05% 0.07%
B. COST:INCOME RATIO
Cost:income ratio is derived as follows:
Note 2017 2016
£m £m
Cost - operating expenses 102.3 92.5
Total operating income 252.8 244.0
Cost / Income 40.5% 37.9%
C. Net asset value
Note 2017 2016
Total equity (£m) 1,009.4 969.5
Outstanding issued shares (m) 23 281.5 295.8
Treasury shares (m) 25 (15.7) (15.3)
Shares held by ESOP schemes (m) 25 (3.2) (3.6)
262.6 276.9
Net asset value per £1 ordinary share £3.84 £3.50
Tangible equity (£m) 5 905.0 864.1
Tangible net asset value per £1 ordinary share £3.45 £3.12
This information is provided by RNS
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