Paragon Grp Of Co's PAG Final Results

  Paragon Grp Of Co's (PAG) - Final Results

RNS Number : 5012R
Paragon Group Of Companies PLC
20 November 2012




Under embargo until Stock Exchange announcement: 7am, Tuesday 20 November 2012

                                      

                         PARAGON PRELIMINARY RESULTS

                                      

The Paragon Group of Companies PLC ("Paragon"), the specialist buy-to-let  and 
consumer finance  group,  today  announces  its results  for  the  year  ended 
30September 2012.



Highlights

Financial Performance

· Profit before tax of £95.5 million (2011: £80.8 million)

· Underlying  profit  increased by  16.2%  to £94.2  million  (2011:  £81.1 
million)

· Strong cash position and cash flow

· Step change  in dividend policy  with final dividend  at 4.50p per  share 
(2011: 2.65p per share). New  policy of targeting 3.0  - 3.5 times cover  over 
the medium term

· Shareholders' funds £803.5 million (2011: £742.0 million)

· Net asset value 269p per share (2011: 250p per share)



Strategic development

·  Three  consumer  loan  portfolio  investments,  total  £115.4   million, 
completed during the year

·  Buy-to-let  origination  franchise  well  established,  £184.3   million 
advanced (2011: £127.0 million)

· Two securitisations of buy-to-let loans completed

· Warehouse funding capacity increased by 125%



Commenting on the results, Nigel Terrington, Chief Executive of Paragon, said:

"The buy-to-let  and portfolio  purchase businesses  have grown  strongly  and 
contributed to record  profits. The  developments in funding  capacity in  the 
last fifteen  months  leave the  Group  well  funded to  support  the  further 
development of the buy-to-let business, while the strong operational cashflows
generated put the Group in a good position to continue to benefit from  future 
portfolio  acquisitions  and  servicing  opportunities  arising  out  of  bank 
de-leveraging."

For further information, please contact:

The Paragon Group of Companies PLC Fishburn Hedges
Nigel Terrington, Chief Executive  Paul Farrow
Nick Keen, Finance Director        Tel: 020 7544 3040
Tel: 0121 712 2327                 Mobile: 07530 269946



                                            The Paragon Group of Companies PLC



MANAGEMENT REPORT



During the year ended  30 September 2012 the  Group has pursued its  strategic 
objectives successfully and achieved strong  growth, resulting in the  highest 
profits  in  our  history.  We  have  invested  significantly  in   portfolio 
acquisitions,  increased  buy-to-let  lending,  entered  into  new   servicing 
contracts and completed our  first securitisation since  2007, with a  further 
securitisation,  on  materially  better  terms,  being  completed  after   the 
year-end. In addition, to facilitate the future development of our  buy-to-let 
franchise, new and enlarged funding lines have been agreed with our  bankers. 
The buy-to-let warehouse facility from  Macquarie Bank has been increased  and 
extended by a further two years and an additional warehouse facility agreement
has been signed  with Lloyds Bank,  more than doubling  the Group's  warehouse 
capacity to £450.0 million. The Group is well placed for future growth.



During the year  ended 30 September  2012 the Group's  profit before  taxation 
increased by 18.2% to £95.5 million (2011: £80.8 million). Underlying  profit, 
before exceptional and fair value items,  increased by 16.2% to £94.2  million 
for the year (2011: £81.1 million).



Earnings per share were 24.2p (2011:  20.2p), the increase of 19.8% from  last 
year reflecting the improved  profits earned by the  Group and a reduction  in 
the tax rate. The increase in profit  has also improved the Group's return  on 
equity (note 22) to 9.3% from 8.3% for the previous year.



The Group's strategic focus has remained unchanged; to generate growth through
our buy-to-let origination  franchise, through investment  in loan  portfolios 
and by exploiting new opportunities; and  to maintain close management of  the 
existing loan portfolio, which continued to perform well in the year.



Idem Capital, our dedicated investment  subsidiary, has successfully built  on 
the five portfolios purchased in  prior years with further investments  during 
the financial year  totalling £115.4 million.  Paragon Mortgages and  Mortgage 
Trust, our buy-to-let origination  brands, now fully re-established  following 
the recommencement  of new  lending  in 2010,  advanced  new loans  of  £184.3 
million (2011: £127.0 million) and a strong pipeline of business was in  place 
at the end of the  year, which, combined with  the 125% increase in  warehouse 
capacity, augurs well for lending volumes in the new financial year.



In view of the  results achieved and the  Board's confidence in the  prospects 
for the business, the Company's dividend policy has been amended. In line with
the new  policy,  outlined  under  Capital Management  below,  the  Board  has 
proposed a final dividend of 4.50p  per share (2011: 2.65p) which, when  added 
to the interim dividend of  1.50p, gives a total  dividend of 6.00p per  share 
for the year (2011: 4.00p), an increase  of 50.0%. Subject to approval at  the 
Annual General  Meeting on  7 February  2013,  the dividend  will be  paid  on 
11February 2013, by reference to a record date of 11 January 2013.



                               FINANCIAL REVIEW

                             CONSOLIDATED RESULTS

For the year ended 30 September 2012

                                                                2012    2011
                                                                 £m      £m
Interest receivable                                             293.8  258.0
Interest payable and similar charges                           (136.0) (122.2)
Net interest income                                             157.8  135.8
Other operating income                                           12.4   15.1
Total operating income                                          170.2  150.9
Operating expenses                                              (51.9)  (45.4)
Provisions for losses                                           (24.1)  (24.4)
Underlying profit                                                94.2   81.1
Fair value net gains / (losses)                                   1.3   (0.3)
Operating profit being profit on ordinary activities before                 
taxation
                                                                 95.5   80.8
Tax charge on profit on ordinary activities                     (23.3)  (21.2)
Profit on ordinary activities after taxation                     72.2   59.6
                                                                          
Dividend - Rate per share for the year                            6.0p    4.0p
Basic earnings per share                                         24.2p   20.2p
Diluted earnings per share                                       23.5p   19.6p



The Group is organised  into two major  operating divisions: First  Mortgages, 
which includes the  buy-to-let and  owner-occupied first  mortgage assets  and 
other sources  of income  derived from  first charge  mortgages; and  Consumer 
Finance, which includes  secured lending,  car, retail  finance and  unsecured 
loan books  and other  sources of  income derived  from consumer  loans.  Both 
divisions include internally originated  and acquired assets. These  divisions 
are the basis on which the Group reports primary segmental information.



The underlying operating profits of these business segments are detailed fully
in note 20.

                             2012 2011
                              £m   £m
Underlying operating profit
First Mortgages              61.6 67.3
Consumer Finance             32.6 13.8
                             94.2 81.1



Net interest  income  increased  by  16.2% to  £157.8  million  (2011:  £135.8 
million), reflecting  the  impact  of  new  loan  assets,  both  acquired  and 
originated, on  interest  income  and  margins, partially  offset  by  a  0.3% 
reduction in the size of the loan book during the year.



Other operating income  was £12.4 million  for the year,  compared with  £15.1 
million in 2011, the reduction reflecting, principally, a lower level of third
party  fee  income  as  a  result  of  the  purchase  of  accounts  previously 
administered by the Group, early in the year.



Operating expenses during the year were  14.3% higher at £51.9 million  (2011: 
£45.4 million). The increase is  primarily due to employment costs,  following 
the recruitment of additional staff, during the year and in the second half of
2011, to administer purchased and third party loan portfolios. The cost:income
ratio was in line  with our expectations  at 30.5% for the  year (note 19),  a 
similar level  to last  year,  and remains  significantly below  the  industry 
average. The Board remains focused on controlling operating costs through  the 
application  of  rigorous  budgeting,  management  reporting  and   monitoring 
procedures.



The charge for impairment provisions of £24.1 million was 1.2% lower than  the 
charge of £24.4 million for 2011, an  increase in the charge within the  First 
Mortgages division, to  more normal  levels from the  low level  of charge  in 
2011, being more than  offset by a reduction  in the impairment charge  within 
the Consumer Finance division. As a percentage of loans to customers (note  8) 
the charge has remained  at 0.28%, the figure  recorded in 2011. Low  interest 
rates have increased  affordability for customers,  reducing the incidence  of 
new arrears  and assisting  the correction  of past  arrears. The  loan  books 
continue to be carefully managed and  credit performance remains in line  with 
our expectations.



Yield curve  movements during  the year  resulted in  hedging instrument  fair 
value net gains of £1.3m (2011: losses  of £0.3 million), which do not  affect 
cash flow. As  the fair value  movements of hedged  assets or liabilities  are 
expected to trend to zero over time, this item is merely a timing  difference. 
The Group remains economically and appropriately hedged.



Cash generation has remained strong over the period. Free cash balances  stood 
at £127.7 million at 30 September 2012 (2011: £195.0 million), after investing
significantly in both asset purchases and in the development of our buy-to-let
lending business, detailed below.



Corporation tax has been charged at  an effective tax rate of 24.4%,  compared 
to 26.2% in  2011, the  decrease being attributable  to the  reduction in  the 
standard rate of corporation tax in the UK.



Profits after  taxation  of £72.2  million  (2011: £59.6  million)  have  been 
transferred to  shareholders'  funds, which  totalled  £803.5 million  at  the 
year-end (2011: £742.0 million), representing  269p per share (2011: 250p  per 
share) (note 21).





BUSINESS REVIEW

OPERATING SEGMENTS

First Mortgages

Buy-to-let loans advanced under the  Group's new lending products were  £184.3 
million for the year (2011: £127.0 million) and a further £4.6 million  (2011: 
£5.8 million) of loans were made  to existing borrowers in respect of  further 
advances. This brings  the total value  of completions under  the Group's  new 
products since the  recommencement of new  lending in October  2010 to  £311.3 
million. Application  levels continued  to increase  over the  year, with  the 
pipeline of applications and offers outstanding totalling £129.9 million at 30
September 2012 (2011: £67.5  million). The credit quality  of the new  lending 
business written in the year has been excellent, with an average loan to value
ratio of  70.1% (2011:  69.2%) and  no  arrears on  loans advanced  since  the 
recommencement of lending in October 2010.



The Group has  continued to  focus mainly  on the  higher margin  professional 
landlord business under  the Paragon Mortgages  brand. Paragon's  professional 
landlord business  is widely  sourced  from a  large  number of  mortgage  and 
commercial finance introducers, giving us  the capacity to support  materially 
higher business volumes in due course.



At 30 September 2012, the buy-to-let portfolio was £8,196.4 million,  compared 
with £8,231.7 million  a year earlier.  The redemption rate  on the back  book 
remained low at 2.2%  for the year (2011:  2.2%) with landlords continuing  to 
display a  long-term commitment  to  property investment,  whilst  alternative 
offerings from  other lenders  remain unattractive  as a  result of  generally 
higher funding and capital costs. 



The credit  performance  of  the  portfolio  over  the  year  has  again  been 
exemplary, with  the percentage  of  loans three  months  or more  in  arrears 
(including acquired loans and receivership cases but excluding possession  and 
receivership cases held for sale) standing  at 0.48% at 30September 2012  (30 
September 2011: 0.63%)  and remains  considerably better  than the  comparable 
market average of 1.51% as recorded by the Council of Mortgage Lenders ('CML')
at  that  date  (30  September  2011:  1.90%).  Despite  an  improved  arrears 
performance over  the  year,  the  impairment  charge  attributable  to  First 
Mortgages increased to £12.4 million for the year from £5.6 million for  2011, 
a return to normal  levels of provisioning  after a low  level of charge  last 
year and following an  increase in receiver of  rent activity, where a  charge 
for impairments may be made  for accounts that are  less than three months  in 
arrears.  At  30September  2012  there  were  1,504  properties  across   all 
portfolios where a receiver had been appointed (30September 2011: 1,483).  Of 
those available for letting, 94.2% were let (30September 2011: 93.9%).



The latest Royal  Institution of Chartered  Surveyors ('RICS') UK  Residential 
Lettings Survey again confirms that tenant demand has continued to grow whilst
landlord supply of property  new to the lettings  market has stabilised. As  a 
consequence of the high level of demand, the RICS survey indicates that  rents 
are expected  to  continue  to  increase. The  latest  survey  data  from  the 
Association of  Residential Letting  Agents confirms  a similar  picture  with 
agents on balance noting an increase  in achievable rents over the six  months 
to June 2012. Whilst  volumes remain low  by historical standards,  buy-to-let 
remains the only growth sector of the mortgage market, with the CML  reporting 
that the value of buy-to-let advances  increased by 25.6% to £15.7 billion  in 
the course of the financial year  (2011: £12.5 billion) whilst credit  quality 
in the sector continues to improve with industry-wide buy-to-let arrears  once 
again lower than in the owner-occupied market.



The owner-occupied book reduced  to £99.2 million  from £128.7 million  during 
the year  ended 30  September 2012  and  performed in  line with  the  Group's 
expectations. Save for the management of this book in run-off, there has  been 
little activity in recent years in this area as the Group has focused on other
lending  markets,  portfolio  acquisitions   and  other  sources  of   revenue 
generation.





Consumer Finance

At 30September  2012, the  total loans  outstanding on  the Consumer  Finance 
books were £399.0 million, compared with £363.8 million at 30September  2011, 
this increase being due to portfolio  purchases (covered fully below) and  the 
continuing low level of redemptions across the portfolios. The performance  of 
the Consumer Finance book, including the acquired assets, remains satisfactory
and in line with our expectations.



The Group's  secured  loan  portfolio  at 30  September  2012,  including  the 
acquired assets,  was £279.9  million (2011:  £340.1 million).  The  unsecured 
loan, retail  finance  and  car finance  portfolios,  including  the  acquired 
assets, totalled £119.1 million at 30 September 2012 (30September 2011: £23.7
million).





PORTFOLIO OPPORTUNITIES

A major area of  strategic focus has been  the acquisition of loan  portfolios 
through Idem  Capital and  the servicing  of third  party loan  portfolios  as 
opportunities are created through the ongoing process of de-leveraging by  the 
larger banks and financial institutions, which  we expect to continue for  the 
foreseeable future. Idem Capital has firmly  established itself as one of  the 
top consumer debt buyers  in the UK, with  total investments in the  financial 
year of £115.4 million (2011: £22.7  million). In addition to assets  acquired 
in its own right, Idem, through its sister companies, Moorgate Loan  Servicing 
and Arden Credit Management, has established four new servicing contracts with
co-investment partners  during  the year.  These  add volume  to  the  Group's 
servicing  operations  and  enhance  earnings,  with  little  or  no   capital 
investment. Progress has  been excellent and  has resulted in  an increase  in 
operating profits  from  these  transactions  to  £26.3  million  (2011:  £7.6 
million) during the financial year.



Idem Capital

Idem Capital  invests  in loan  portfolios  either as  principal,  where  Idem 
acquires pools in its  own right, or as  co-investor alongside other  partners 
with, typically,  Moorgate  Loan  Servicing  appointed  to  act  as  servicer. 
Co-investing has the potential for higher returns where the Group also derives
income from servicing the loans  within the underlying portfolio.  Investments 
are made  only after  significant  due diligence  work  on the  portfolio  and 
sensitivity testing of potential returns.



In October  2011  Idem  Capital  completed the  purchase  of  a  portfolio  of 
unsecured consumer loans,  previously serviced  by the Group,  from The  Royal 
Bank of Scotland plc ('RBS') for  £43.2 million. In addition, under the  terms 
of a forward flow  agreement with RBS,  a total of  £0.6 million of  unsecured 
consumer loans  were  acquired in  the  year, and  further  opportunities  are 
anticipated.



Another significant portfolio  purchase was  completed in  December 2011  when 
Idem Capital acquired a  portfolio of closed UK  credit card receivables  from 
MBNA Europe Bank Limited, for £55.7 million. The management of these  accounts 
was transferred to the Group during the second quarter of the year.



The acquisition of a  further portfolio of closed  UK credit card  receivables 
from MBNA  Europe  Bank  Limited  was  announced  on  3  September  2012.  The 
consideration payable on completion  was £16.1 million  and the management  of 
these accounts was transferred to the Group before the year end.



By 30 September  2012, total investment  in portfolios by  Idem Capital  since 
2009 had reached £161.9 million.  A number of potential portfolio  investments 
are currently under  review and the  Group's track record  in loan  servicing, 
risk management and portfolio investment positions it well to exploit  similar 
opportunities as they arise in future.





Moorgate Loan Servicing

The Group's third party loan servicing business operates through Moorgate Loan
Servicing and  its  division,  Arden Credit  Management,  utilising  our  core 
administration and  collections  skills.  Our experience  in  loan  management 
established over many years has enabled us to extend this service to our third
party clients, providing significant added  value to the performance of  their 
loan portfolios.



During the year  Moorgate Loan  Servicing has  assumed the  servicing of  four 
further portfolios, comprising  149,000 accounts, on  behalf of third  parties 
(2011:  50,000  accounts)  with  the  result  that  49.9%  of  accounts  under 
management by the Group at 30 September  2012 were managed on behalf of  third 
parties (2011: 58.6%).



Moorgate is well  placed to  take advantage  of other  opportunities that  may 
arise over the coming years, particularly as portfolio disposals take place as
part of the wider financial sector de-leveraging process.





REGULATION

Regulation is undergoing material change across the financial services sector.
Some aspects will  affect the current  operations of the  Group, although  the 
impact is unlikely to be significant.



The Financial Services Authority ('FSA')  has concluded, through its  Mortgage 
Market  Review,  that  there  will  be  enhanced  prudential  supervision   of 
non-deposit takers engaged in regulated  lending. Regulation of second  charge 
mortgages will transfer from the Office of Fair Trading to the FSA's successor
bodies in 2014. Separately, it is  proposed that those successor bodies  will, 
in due course, assume  responsibility for the  regulation of consumer  credit. 
Certain of the Group's operations are already authorised by the FSA in respect
of residential mortgage and insurance activity and we expect to be well placed
to comply with the proposed changes in the regulatory framework.



The European Commission's proposed directive on credit agreements relating  to 
residential  property,  which  may  impose  additional  disclosure  and  other 
requirements for  all mortgage  lending to  consumers secured  on  residential 
property, has yet  to be concluded.  It remains unclear  to what extent  these 
obligations will apply to buy-to-let lending.



We will  continue to  maintain an  active dialogue  with the  UK and  European 
regulatory authorities as these proposals develop.





CAPITAL MANAGEMENT

The Group has continued to enjoy strong cash generation during the year.  Free 
cash balances were £127.7 million at  the year-end (30 September 2011:  £195.0 
million)  after  investments  to  support  new  buy-to-let  originations   and 
significant acquisitions by Idem Capital. The Company sees opportunities going
forward to deploy capital for new lending activities, which should continue to
increase, and  to  invest further  amounts  in loan  portfolios  through  Idem 
Capital as banks  and other  financial institutions  continue to  de-leverage. 
These cash balances, together with  future operational cashflow, will  support 
the Group's growth  through investment  in these  areas as  well as  providing 
returns to shareholders through dividends.



The Group's current progressive  dividend policy has  applied since 2008,  the 
dividend increasing  from 3.0p  per share  in  respect of  the year  ended  30 
September 2008 to 4.0p  per share in  respect of the  year ended 30  September 
2011. Since  that  policy was  established,  the Group  has  re-commenced  its 
buy-to-let mortgage  business,  demonstrated  that  it  can  access  warehouse 
funding and the  securitised funding  markets and established  a strong  asset 
purchase franchise which has contributed substantially to Group profit growth.
The Board keeps under review the appropriate level of capital for the business
to meet its operational requirements and strategic development objectives  and 
has determined  that in  view of  the strong  position of  the Group  and  its 
confidence in  the prospects  for the  business, a  higher level  of  dividend 
payment is now appropriate.



Consequently, the Board proposes,  subject to approval  at the Annual  General 
Meeting on 7February  2013, a final  dividend of 4.5p  per share which,  when 
added to the interim dividend of 1.5p, gives a dividend of 6.0p per share  for 
the year,  an increase  of 50.0%  from 2011.  The Board  intends to  pursue  a 
progressive dividend policy so  that, by 2016  and thereafter, dividend  cover 
will be maintained in the range 3.0 to 3.5 times.



In accordance with our usual practice, we will be proposing at the forthcoming
Annual  General   Meeting  a   special  resolution   seeking  authority   from 
shareholders for the Company to purchase up to 30.1 million of its own  shares 
(10% of the issued share capital). It is customary for companies to seek  such 
authority but we  would not  expect to utilise  the authority  unless, in  the 
light of market conditions prevailing at the  time, we consider that to do  so 
would enhance  earnings  per share  and  would be  in  the best  interests  of 
shareholders generally.  Given  the operational  and  strategic  opportunities 
described above and  the enhanced dividend  policy, the Board  has no  current 
intention of using this authority.





FUNDING

On 10 November  2011 the Group  completed a £163.8  million securitisation  of 
buy-to-let loans, through Paragon Mortgages (No. 16) PLC. This securitisation,
the Group's  first  since 2007,  released  warehouse capacity  to  accommodate 
further lending growth. Notes totalling  £131.7 million, rated Aaa by  Moody's 
Investors Service and AAA  by Fitch Ratings, were  sold to investors with  the 
Group retaining the remaining, unrated, notes. This was an important  landmark 
for the Group, being the first buy-to-let securitisation by any issuer in  the 
UK since the  credit crunch. The  notes were  priced at LIBOR  plus 275  basis 
points, reflecting the poor  bond market conditions at  that time. Whilst  the 
notes match-fund the collateralised loans to maturity, we have the ability  to 
call the notes after three years.



After the year end, on 25 October  2012, the Group completed a £200.0  million 
securitisation of buy-to-let  loans, through  Paragon Mortgages  (No. 17)  PLC 
('PM 17'). PM 17 comprises £175.0 million of AAA rated notes, £10.5 million of
AA rated notes and £10.0 million of  Arated notes at margins of 135, 190  and 
290 basis  points  over  three  month  LIBOR  respectively.  £4.5  million  of 
subordinated notes  were  retained by  the  Group, which  also  invested  £6.0 
million in the first loss fund, bringing the Group's total investment in PM 17
to £10.5 million, or 5.25% of the issue amount.



The pricing of the  PM 17 transaction reflected  the strong credit profile  of 
the Group's buy-to-let assets and our experience as an issuer of high  quality 
bonds in  the mortgage  backed securities  market. This  was only  the  second 
securitisation of buy-to-let loans since the credit crunch, the first to issue
junior,  single  A  rated,  bonds  since   2008  and  was  the  Group's   55th 
securitisation since pioneering the methodology in 1987.



The Group funded its  mortgage originations during the  year through a  £200.0 
million revolving warehouse  provided by  Macquarie Bank.  This facility  was 
renewed and extended for a further two years after the year end and the amount
available for drawing increased to £250.0 million.



On 27 September 2012, the Group signed an additional £200.0 million  revolving 
warehouse facility  provided by  the wholesale  division of  Lloyds Bank.  The 
facility, rated by Fitch Ratings, will  be available to Paragon Fifth  Funding 
Limited, an  orphan special  purpose  vehicle company,  and interest  will  be 
charged on the amount drawn  at three month LIBOR  plus 275 basis points.  The 
facility  is  structured  with  a  three-year  term  to  permit  drawings  and 
re-drawings in its first  eighteen months, or  up to 24  months, subject to  a 
capital markets  refinancing of  part  of the  facility  in the  first  twelve 
months.



The Group uses the warehouse facilities  to originate mortgage loans prior  to 
arranging term  funding  in  the securitisation  markets  and,  following  the 
successful completion  of  the  issuances by  Paragon  Mortgages  (No.16)  and 
Paragon Mortgages (No. 17),  we plan to return  to the securitisation  markets 
regularly as  business  volumes  increase.  Dependant  on  volume  and  market 
conditions, additional warehousing capacity may be sought in due course.





BOARD OF DIRECTORS

On 9 February 2012 Richard  Woodman was appointed to  the Board as Director  - 
Corporate Development. He was also appointed Managing Director of Idem Capital
Limited. MrWoodman joined the  Group in 1989 and  he has held various  senior 
strategic and financial roles, latterly  as Director of Business Analysis  and 
Planning. More recently  he has  taken a lead  role in  the Group's  strategic 
development and, in particular, in the portfolio acquisition programme through
Idem Capital.



On 12  September  2012 Fiona  Clutterbuck  was appointed  as  a  non-executive 
director. She is currently the Head  of Strategy and Corporate Development  at 
the Phoenix Group and is  also a non-executive director  of WS Atkins plc.  Ms 
Clutterbuck brings  to the  Board  a substantial  level of  corporate  finance 
experience, having previously held the positions of Managing Director and Head
of Financial  Institutions  Advisory at  ABN  AMRO Investment  Bank,  Managing 
Director and Global Co-Head of Financial Institutions Group at HSBC Investment
Bank and Director at Hill Samuel Bank Limited.



On 31 March 2012 Terry  Eccles resigned from the  Board of Directors owing  to 
health reasons. Mr  Eccles was  appointed to the  Board in  February 2007  and 
served as Chairman of  the Remuneration Committee until  February 2009 and  as 
Senior Independent Director from February 2009 until July 2011. His experience
and wisdom have been invaluable  and his presence on  the Board will be  sadly 
missed. The Board wishes to thank Mr Eccles for his enormous contribution over
the past five years and wish him well for the future.



On 31 October  2011 Christopher Newell  resigned from the  Board of  Directors 
after ten  years  of  service  and  having been  Chairman  of  the  Audit  and 
Compliance Committee from March 2003 until July 2011. The Board would like  to 
record its gratitude for his considerable  support over the years and for  his 
able and professional chairmanship of the Audit and Compliance Committee.





CONCLUSION

The year ended 30  September 2012 has  been a very  successful period for  the 
Group. The buy-to-let  and portfolio purchase  businesses have grown  strongly 
and  contributed  to  record  profits  for  the  Group  for  the  year.   The 
developments  in  funding  capacity  during  the  year,  and  in  the   period 
immediately  after,  with   the  completion  of   two  public   securitisation 
transactions and a more than doubling of our buy-to-let warehouse  facilities, 
leave the  Group  well  funded  to support  the  further  development  of  the 
buy-to-let  business.  Alongside  this,   the  strong  operational   cashflows 
generated in the year put the Group in a good position to continue to  benefit 
from future portfolio acquisitions and servicing opportunities arising out  of 
the de-leveraging of banks and other financial institutions.



The strong trading position of the Group and the Board's confidence as to  the 
future prospects of the  business have led to  a substantial increase in  this 
year's proposed dividend and the adoption of a new policy aimed at moving  the 
Group's dividend towards 3.0 to 3.5  times coverage over the medium term.  The 
Group enters the new financial year with confidence.





                                            The Paragon Group of Companies PLC

                                      

                        CONSOLIDATED INCOME STATEMENT

For the year ended 30 September 2012



                                                              2012     2011
                                                        Note    £m       £m
Interest receivable                                            293.8   258.0
Interest payable and similar charges                          (136.0)  (122.2)
Net interest income                                            157.8   135.8
Other operating income                                   4      12.4    15.1
Total operating income                                         170.2   150.9
Operating expenses                                             (51.9)   (45.4)
Provisions for losses                                          (24.1)   (24.4)
Operating profit before gains and fair value items                          

                                                                94.2    81.1
Fair value net gains / (losses)                          5       1.3    (0.3)
Operating profit being profit on ordinary activities                       
before taxation
                                                                           

                                                               95.5    80.8
Tax charge on profit on ordinary activities                                 

                                                               (23.3)   (21.2)
Profit on ordinary activities after taxation for the                        
financial year
                                                                72.2    59.6
                                                         
                                                                2012     2011
                                                        Note
Earnings per share
 - basic                                               6      24.2p    20.2p
 - diluted                                             6      23.5p    19.6p



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 2012



                                                        2012        2011
                                                     £m    £m    £m    £m
Profit for the year                                        72.2       59.6
Other comprehensive income
Actuarial (loss) on pension scheme                   (0.5)       (0.3)
Cash flow hedge (losses) / gains taken to equity                    

                                                     (1.5)        0.4
Tax on items taken directly to equity                               

                                                      0.2       (0.3)
Other comprehensive income for the year net of tax                        

                                                           (1.8)       (0.2)
Total comprehensive income for the year                                   

                                                           70.4       59.4

                                      

                                      



                                            The Paragon Group of Companies PLC

                                      

                          CONSOLIDATED BALANCE SHEET

30 September 2012



                                       2012      2011      2010
                               Note     £m        £m        £m
Assets employed
Non-current assets
Intangible assets               7         9.1      9.3      9.2
Property, plant and equipment            10.7     11.4     12.2
Financial assets                8     9,505.2  9,891.2 10,080.1
Deferred tax asset                        -      -      1.5
                                      9,525.0  9,911.9 10,103.0
Current assets
Other receivables                         7.3      4.7      5.9
Cash and cash equivalents       10      504.8    571.6    536.7
                                        512.1    576.3    542.6
Total assets                         10,037.1 10,488.2 10,645.6
Financed by
Equity shareholders' funds
Called-up share capital         11      301.8    299.7    299.4
Reserves                        12      550.2    490.7    445.8
Share capital and reserves              852.0    790.4    745.2
Own shares                              (48.5)    (48.4)    (53.2)
Total equity                            803.5    742.0    692.0
Current liabilities
Financial liabilities           14        2.0      1.8      1.2
Current tax liabilities                  13.3     10.7     16.2
Other liabilities                        36.7     38.3     32.4
                                         52.0     50.8     49.8
Non-current liabilities
Financial liabilities           14    9,159.0  9,674.5  9,885.7
Retirement benefit obligations           13.9     14.4     16.5
Deferred tax                              7.6      5.0      -
Other liabilities                         1.1      1.5      1.6
                                      9,181.6  9,695.4  9,903.8
Total liabilities                     9,233.6  9,746.2  9,953.6
                                     10,037.1 10,488.2 10,645.6



Approved by the Board of Directors on 20 November 2012.

Signed on behalf of the Board of Directors

N S  Terrington   N 
Keen

Chief    Executive 
Finance Director



                                            The Paragon Group of Companies PLC

                                      

                       CONSOLIDATED CASH FLOW STATEMENT

                     For the year ended 30 September 2012



                                                  2012    2011
                                           Note    £m      £m
Net cash generated by operating activities   16    117.3  246.1
Net cash (utilised) by investing activities  17     (2.2)   (2.1)
Net cash (utilised) by financing activities  18   (181.9) (209.6)
Net increase in cash and cash equivalents          (66.8)   34.4
Opening cash and cash equivalents                  571.0  536.6
Closing cash and cash equivalents                  504.2  571.0
Represented by balances within:
Cash and cash equivalents                          504.8  571.6
Financial liabilities                               (0.6)   (0.6)
                                                   504.2  571.0





                                            The Paragon Group of Companies PLC

                                      

                       STATEMENT OF MOVEMENTS IN EQUITY

                     For the year ended 30 September 2012



                                              2012   2011
                                       Note     £m     £m
Total comprehensive income for the year                   

                                                70.4  59.4
Dividends paid                           13    (12.3) (11.1)
Net movement in own shares                      (0.1)   4.8
(Deficit) on transactions in own shares         (0.2)  (5.2)
Charge for share based remuneration              2.8   2.0
Tax on share based remuneration                  0.9   0.1
Net movement in equity in the year              61.5  50.0
Equity at 30 September 2011                    742.0 692.0
Equity at 30 September 2012                    803.5 742.0



                                            The Paragon Group of Companies PLC

                                                                             

                      NOTES TO THE FINANCIAL INFORMATION

For the year ended 30 September 2012

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  2010,  30 
September 2011  or 30September  2012,  but is  derived from  those  statutory 
accounts, which have  been reported  on by the  Company's auditors.  Statutory 
accounts for the years ended 30September 2010 and 30 September 2011 have been
delivered to  the Registrar  of Companies  and  those for  the year  ended  30 
September 2012  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.



This document 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. By  their 
nature, all forward-looking  statements involve risk  and uncertainty  because 
they relate to future events and circumstances that are beyond the control  of 
the Group including, amongst other things, UK domestic and global economic and
business conditions, market related risk such as fluctuation in interest rates
and exchange rates, inflation, deflation,  the impact of competition,  changes 
in customer preferences, risks concerning  borrower credit quality, delays  in 
implementing proposals, the timing, impact  and other uncertainties of  future 
acquisitions or other  combinations within relevant  industries, the  policies 
and actions of regulatory authorities, the impact of tax or other  legislation 
and other  regulations  in  the  jurisdictions in  which  the  Group  and  its 
affiliates  operate.  As  a  result,  the  Group's  actual  future   financial 
condition, business performance  and results  may differ  materially from  the 
plans, goals and  expectations expressed or  implied in these  forward-looking 
statements. Nothing in this document should be construed as a profit forecast.



A copy of the Annual Report and Accounts for the year ended 30 September  2012 
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 St. Catherine's Court, Herbert Road, Solihull, West Midlands, B91  3QE, 
until 3 December 2012  and at 51  Homer Road Solihull,  West Midlands B91  3QJ 
thereafter.



2. ACCOUNTING POLICIES

The annual financial statements of the  Group for the year ended 30  September 
2012 have been prepared in  accordance with International Financial  Reporting 
Standards  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.  The  particular  accounting 
policies adopted are those described in the Annual Report and Accounts of  the 
Group for the year ended 30 September 2011.



Going concern basis



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 
this preliminary announcement. The principal risks and uncertainties affecting
the Group, and the steps taken to mitigate these risks are described on  pages 
33 to 34.



Note 5  to the  accounts for  the year  ended 30  September 2011  includes  an 
analysis of the Group's  working capital position and  policies, while note  6 
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  4.  The  position  and  policies 
described in  these notes  remain materially  unchanged to  the date  of  this 
preliminary announcement, except  as disclosed  in note  15. The  Group has  a 
formalised  process  of  budgeting,  reporting  and  review,  which   provides 
information to the directors which is used to ensure the adequacy of resources
available for the Group to meet its business objectives.



The securitisation  funding  structures described  in  note 6  ensure  that  a 
substantial  proportion   of  the   Group's  originated   loan  portfolio   is 
match-funded to  maturity.  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 described in note 6  are 
refinanced through securitisation from time to time. The Group's only  working 
capital debt is the £110.0 million corporate bond which does not mature  until 
2017. As a consequence the directors believe that the Group is well placed  to 
manage its business risks successfully despite the current uncertain  economic 
outlook.



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. SEGMENTAL INFORMATION

For internal  reporting  purposes  the  Group  is  organised  into  two  major 
operating divisions, First Mortgages and Consumer Finance. These divisions are
the basis on which the Group reports segmental information.



The revenue generated  by the  First Mortgages segment  includes interest  and 
fees generated by the buy-to-let and owner-occupied mortgage assets and  other 
income derived from first charge mortgages. Consumer Finance revenue  includes 
interest and fees generated by second  charge loans, the residual car,  retail 
finance and unsecured loan  assets, and other sources  of income derived  from 
consumer loans. Both of these  divisions include assets originated  internally 
and assets acquired from third parties.



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 is shown below.



Year ended 30 September 2012

                                 First Mortgages Consumer Finance  Total
                                       £m               £m          £m
Interest receivable                       231.1            62.7  293.8
Interest payable                         (128.1)            (7.9) (136.0)
Net interest income                       103.0            54.8  157.8
Other operating income                      6.2             6.2   12.4
Total operating income                    109.2            61.0  170.2
Operating expenses                        (35.2)           (16.7)  (51.9)
Provisions for losses                     (12.4)           (11.7)  (24.1)
                                           61.6            32.6   94.2
Fair value net gains / (losses)                                       

                                            1.6            (0.3)    1.3
Operating profit                           63.2            32.3   95.5
Tax charge                                                         (23.3)
Profit after tax                                                    72.2



Year ended 30 September 2011

                                 First Mortgages Consumer Finance  Total
                                       £m               £m          £m
Interest receivable                       214.7            43.3  258.0
Interest payable                         (114.0)            (8.2) (122.2)
Net interest income                       100.7            35.1  135.8
Other operating income                      7.0             8.1   15.1
Total operating income                    107.7            43.2  150.9
Operating expenses                        (34.8)           (10.6)  (45.4)
Provisions for losses                      (5.6)           (18.8)  (24.4)
                                           67.3            13.8   81.1
Fair value net (losses) / gains                                       

                                           (0.2)            (0.1)   (0.3)
Operating profit                           67.1            13.7   80.8
Tax charge                                                         (21.2)
Profit after tax                                                    59.6



The assets  and  liabilities  attributable  to each  of  the  segments  at  30 
September 2012, 30September 2011 and 30 September 2010 were:

                     First Mortgages Consumer Finance   Total
                           £m               £m           £m
30 September 2012
Segment assets              9,541.3           495.8 10,037.1
Segment liabilities        (8,862.4)          (371.2) (9,233.6)
                              678.9           124.6    803.5
30 September 2011
Segment assets             10,009.3           478.9 10,488.2
Segment liabilities        (9,400.2)          (346.0) (9,746.2)
                              609.1           132.9    742.0
30 September 2010
Segment assets             10,083.0           562.6 10,645.6
Segment liabilities        (9,531.6)          (422.0) (9,953.6)
                              551.4           140.6    692.0



All of the assets shown above were located in the United Kingdom.

4. OTHER OPERATING INCOME

                          2012 2011
                           £m   £m
Loan account fee income    5.0  5.7
Insurance income           2.5  1.9
Third party servicing      3.9  5.8
Other income               1.0  1.7
                          12.4 15.1



5. FAIR VALUE NET GAINS / (LOSSES)

The fair  value net  gain /  (loss) 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.



6. Earnings per share

Earnings per ordinary share is calculated as follows:

                                                                   2012  2011
Profit for the year (£m)                                            72.2  59.6
Basic weighted average number of ordinary shares ranking for                
dividend during the year (million)
                                                                   297.8 295.3
Dilutive effect of the weighted average number of share options             
and incentive plans in issue during the year (million)
                                                                            

                                                                     9.4   8.2
Diluted weighted average number of ordinary shares ranking for              
dividend during the year (million)
                                                                   307.2 303.5
Earnings per ordinary share  - basic             24.2p 20.2p
  -      23.5p 19.6p
diluted

7. INTangible assets

                         2012 2011 2010
                          £m   £m   £m
Goodwill                  1.6  1.6  1.6
Computer software         1.4  1.1  0.4
Other intangible assets   6.1  6.6  7.2
                          9.1  9.3  9.2



Other intangible assets comprise brands  and the benefit of business  networks 
recognised on the acquisition of subsidiary companies.



8. FInancial Assets

                                              Note  2012    2011     2010
                                                     £m      £m       £m
Loans to customers                                 8,694.6 8,724.2  8,911.2
Fair value adjustments from portfolio hedging                           

                                                       1.1     3.4      8.6
Investments in structured entities                     9.1    11.8        -
Derivative financial assets                    9     800.4 1,151.8  1,160.3
                                                   9,505.2 9,891.2 10,080.1

9. Derivative Financial Assets and Liabilities

                                    2012    2011     2010
                                      £m      £m       £m
Derivative financial assets      8  800.4 1,151.8 1,160.3
Derivative financial liabilities 14  (4.6)    (9.1)   (17.3)
                                    795.8 1,142.7 1,143.0
Of which:
Foreign exchange basis swaps        799.5 1,145.8 1,148.7
Other derivatives                    (3.7)    (3.1)    (5.7)
                                    795.8 1,142.7 1,143.0



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.



10. Cash and CASH EQUIVALENTS

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 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:



                     2012  2011  2010
                      £m    £m    £m
Free cash            127.7 195.0 147.8
Securitisation cash  374.9 374.1 387.2
ESOP cash              2.2   2.5   1.7
                     504.8 571.6 536.7



Cash and  Cash  Equivalents includes  current  bank balances  and  fixed  rate 
sterling term deposits with London banks.

11. 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:

                          2012        2011
                         Number      Number
Ordinary shares
At 1 October 2011      299,745,445 299,454,078
Shares issued            2,096,169     291,367
At 30 September 2012   301,841,614 299,745,445



During the year the Company issued 2,090,570 shares at par (2011: 291,367)  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 
5,599 shares (2011: nil)  to satisfy options  granted under sharesave  schemes 
for a consideration of £5,688 (2011: £nil).



12. RESERVES

                           2012   2011   2010
                            £m     £m     £m
Share premium account       64.1  64.1  64.1
Merger reserve             (70.2) (70.2) (70.2)
Cash flow hedging reserve    0.7   1.8   1.4
Profit and loss account    555.6 495.0 450.5
                           550.2 490.7 445.8

13. equity Dividend

Amounts recognised as distributions to equity shareholders in the period:

                                                   2012      2011    2012 2011
                                                 Per share Per share  £m   £m
Equity dividends on ordinary shares
Final dividend for the year ended 30 September                            
2011
                                                     2.65p     2.40p  7.9  7.1
Interim dividend for the year ended 30 September                          
2012
                                                     1.50p     1.35p  4.4  4.0
                                                     4.15p     3.75p 12.3 11.1



Amounts paid and proposed in respect of the year:

                                                   2012      2011    2012 2011
                                                 Per share Per share  £m   £m
Interim dividend for the year ended 30 September                          
2012
                                                     1.50p     1.35p  4.4  4.0
Proposed final dividend for the year ended 30                             
September 2012
                                                     4.50p     2.65p 13.4  7.9
                                                     6.00p     4.00p 17.8 11.9



The proposed final dividend for the year ended 30 September 2012 will be  paid 
on 11February 2013, subject to approval at the Annual General Meeting, with a
record date  of  11January 2013.  The  dividend  will be  recognised  in  the 
accounts when it is paid.



14. FInancial Liabilities

(a) The Group

                                 Note  2012    2011    2010
                                        £m      £m      £m
Current liabilities
Finance lease liability                   1.4     1.2     1.1
Bank loans and overdrafts                 0.6     0.6     0.1
                                          2.0     1.8     1.2
Non-current liabilities
Asset backed loan notes               7,580.9 8,049.7 8,336.2
Corporate bond                          110.0   112.0   115.8
Finance lease liability                  10.2    11.6    12.8
Bank loans and overdrafts             1,453.3 1,492.1 1,403.6
Derivative financial instruments  9       4.6     9.1    17.3
                                      9,159.0 9,674.5 9,885.7



A maturity  analysis of  the above  borrowings and  further details  of  asset 
backed loan notes and bank loans are given in note 15.



15. BORROWINGS

All borrowings described in the Group Accounts for the year ended 30 September
2011 remained in place throughout the period.



In November  2011 a  Group  company, Paragon  Mortgages  (No. 16)  PLC  issued 
£131.7m Class A Senior notes, rated AAA by Fitch and Aaa by Moody's. The Group
retained £32.1m Class Z junior notes and advanced a cash fund of £5.4m.



On 25 October  2012 a Group  company, Paragon Mortgages  (No. 17) PLC,  issued 
£195.5m of sterling mortgage backed floating rate notes at par. £175.0m of the
notes were rated AAA, £10.5m rated AA and £10.0m rated A. The average interest
margin above LIBOR on the notes was  145.9% and the proceeds were used to  pay 
down existing warehouse debt. The Group retained £4.5m of subordinated  notes, 
which also  invested £6.0m  in the  first loss  fund, which  brings its  total 
investment to £10.5m, or 5.25% of the issue amount.



To provide further funding  for new lending, on  27 September 2012, the  Group 
entered into a £200.0m committed  sterling facility provided to Paragon  Fifth 
Funding Limited by  the wholesale division  of Lloyds Bank.  This facility  is 
secured on all the assets of  Paragon Fifth Funding Limited and is  structured 
with a  three  year term  to  permit drawings  and  re-drawings in  its  first 
eighteen months, or up to 24 months, subject to a capital markets  refinancing 
of the facility in its first twelve months. Loans originated in this warehouse
will be refinanced in the mortgage  backed securitisation market from time  to 
time when appropriate. Interest on this loan is payable monthly in sterling at
2.75% above three month LIBOR. The facility has a renewal process that  allows 
the Group to agree a new commitment period prior to the expiry of the existing
commitment period. As with the  other warehouses, repayments on this  facility 
are limited to principal cash received from the funded assets.



Repayments made in respect of the Group's borrowings are shown in note 18.

16. net cash flow from operating activities

                                                              2012    2011
                                                               £m      £m
Profit before tax                                              95.5  80.8
Non-cash items included in profit and other adjustments:
Depreciation of property, plant and equipment                   2.1   2.0
Amortisation of intangible assets                               1.0   0.9
Foreign exchange movement on borrowings                      (344.9)  (3.2)
Other non-cash movements on borrowings                         (0.7)  (1.2)
Impairment losses on loans to customers                        24.1  24.4
Charge for share based remuneration                             2.8   2.0
(Profit) / loss on disposal of property, plant and equipment    -  (0.1)
Net decrease / (increase) in operating assets:
Loans to customers                                              8.2 150.8
Derivative financial instruments                              351.4   8.5
Fair value of portfolio hedges                                  2.3   5.2
Other receivables                                               -   1.2
Net (decrease) / increase in operating liabilities:
Derivative financial instruments                               (4.5)  (8.2)
Other liabilities                                              (3.0)   3.4
Cash generated by operations                                  134.3 266.5
Income taxes (paid)                                           (17.0) (20.4)
                                                              117.3 246.1



17. net cash flow from investing activities

                                                       2012  2011
                                                        £m    £m
Proceeds on disposal of property, plant and equipment           

                                                        0.2  0.9
Purchases of property, plant and equipment             (1.6) (2.0)
Purchases of intangible assets                         (0.8) (1.0)
Net cash (utilised) by investing activities            (2.2) (2.1)

18. net cash flow from financing activities

                                                2012    2011
                                                 £m      £m
Dividends paid (note 13)                        (12.3)  (11.1)
Issue of asset backed floating rate notes       129.9    -
Repayment of asset backed floating rate notes  (254.9) (284.1)
Capital element of finance lease payments        (1.2)   (1.1)
Movement on bank facilities                     (43.1)   87.1
Purchase of shares                               (0.5)   (1.2)
Sale of shares                                    0.2    0.8
Net cash (utilised) by financing activities    (181.9) (209.6)



19. COST:INCOME RATIO

Cost:income ratio is derived as follows:

                           2012  2011
                            £m    £m
Cost - operating expenses   51.9  45.4
Total operating income     170.2 150.9
Cost / Income              30.5% 30.1%

20. UNDERLYING PROFIT

Underlying profit is determined by excluding from the operating result certain
costs of  a one‑off  nature,  which do  not  reflect the  underlying  business 
performance of the Group,  gains on the repurchase  of debt which result  from 
the illiquidity  of the  credit markets  rather  than the  fair value  of  the 
security and  fair  value  accounting adjustments  arising  from  the  Group's 
hedging arrangements.

                                           2012  2011
                                            £m    £m
First Mortgages
Profit before tax for the period (note 3)  63.2 67.1
Less: Fair value losses / (gains)       (1.6)  0.2
                                            61.6 67.3
Consumer Finance
Profit before tax for the period (note 3)  32.3 13.7
Less: Fair value losses / (gains)        0.3  0.1
                                           32.6 13.8
Total
Profit before tax for the period (note 3)  95.5 80.8
Less: Fair value losses / (gains)       (1.3)  0.3
                                           94.2 81.1

21. Net asset value per share

Net asset value per share is derived as follows:

                                      Note  2012   2011
Total equity (£m)                          803.5 742.0
Outstanding issued shares (m)          11  301.8 299.7
Treasury shares (m)                         (0.7)  (0.7)
Shares held by ESOP schemes (m)             (2.3)  (2.5)
                                           298.8 296.5
Net asset value per £1 ordinary share        269p   250p

22. Return on Equity

Return on equity is defined by the Group by comparing the profit after tax for
the year to the  average of the  opening and closing  equity positions and  is 
derived as follows:

                     2012  2011
                      £m    £m
Profit for the year   72.2  59.6
Divided by
Opening equity       742.0 692.0
Closing equity       803.5 742.0
Average equity       772.7 717.0
Return on equity      9.3%  8.3%





23. RELATED PARTY TRANSACTIONS

On 27 May 2010, Mr A K Fletcher, an independent non-executive director of  the 
Company, was appointed as a trustee of  the Group Pension Plan. In respect  of 
this appointment he was paid  £10,000 in the year  ended 30 September 2012  by 
Paragon Finance plc, the sponsoring company of the Plan (2011: £10,000).



The Group Pension Plan is a related party of the Group. Transactions with  the 
plan are of a similar nature to  those disclosed in the accounts for the  year 
ended 30 September 2011.



The Group had no  other transactions with related  parties other than the  key 
management compensation.



                                            The Paragon Group of Companies PLC

                                      

                   STATEMENT OF DIRECTORS' RESPONSIBILITIES

                     in relation to financial statements



The responsibility statement below  has been prepared  in connection with  the 
full annual accounts  of the  Company for the  year ended  30 September  2012. 
Certain parts of these accounts are not presented within this announcement.



The directors  are  responsible  for  preparing  the  Annual  Report  and  the 
financial statements. The directors are  required to prepare accounts for  the 
Group in accordance with International Financial Reporting Standards  ('IFRS') 
and have also elected  to prepare company  financial statements in  accordance 
with IFRS.  In respect  of the  financial  statements for  the year  ended  30 
September 2012, company law requires  the directors to prepare such  financial 
statements in accordance with International Financial Reporting Standards, the
Companies Act 2006 and Article 4 of the IAS Regulation.



International Accounting Standard 1  - 'Presentation of Financial  Statements' 
requires that financial statements present fairly for each financial year  the 
Company's financial  position,  financial  performance and  cash  flows.  This 
requires the faithful  representation of  the effects  of transactions,  other 
events and  conditions  in accordance  with  the definitions  and  recognition 
criteria  for  assets,  liabilities,  income  and  expenses  set  out  in  the 
International Accounting Standards Board's 'Framework for the Preparation  and 
Presentation of Financial Statements'. In virtually all circumstances, a  fair 
presentation will be achieved by compliance with all applicable  International 
Financial Reporting Standards. Directors are also required to:



· properly select and apply accounting policies;

· present information,  including accounting  policies, in  a manner  that 
provides relevant, reliable, comparable and understandable information; and

·  provide  additional  disclosures  when  compliance  with  the  specific 
requirements in International Financial Reporting Standards is insufficient to
enable users to understand the impact of particular transactions, other events
and conditions on the entity's financial position and financial performance.



The directors  are responsible  for keeping  proper accounting  records  which 
disclose with reasonable accuracy  at any time the  financial position of  the 
company, for  safeguarding the  assets, for  taking reasonable  steps for  the 
prevention and  detection  of  fraud  and other  irregularities  and  for  the 
preparation of a  directors' report and  directors' remuneration report  which 
comply with the applicable requirements of the Companies Act 2006.



The directors  are  responsible  for  the maintenance  and  integrity  of  the 
Company's website. Legislation in the United Kingdom governing the preparation
and dissemination of  financial statements differs  from legislation in  other 
jurisdictions.



The directors confirm that, to the best of their knowledge:



· the  financial statements,  prepared  in accordance  with  International 
Financial Reporting Standards as  adopted by the European  Union, give a  true 
and fair view  of the assets,  liabilities, financial position  and profit  or 
loss of the Company and of the Group taken as a whole; and

· the business review, which  is incorporated into the Directors'  Report, 
includes a fair review of the development and performance of the business  and 
the position of the Group taken as a whole, together with a description of the
principal risks and uncertainties it faces.



Approved by the Board of Directors and signed on behalf of the Board.





JOHN G GEMMELL

Company Secretary

20 November 2012

                                            The Paragon Group of Companies PLC

                                                                             

                      PRINCIPAL RISKS AND UNCERTAINTIES

For the year ended 30 September 2012



There are a  number of potential  risks and uncertainties  which could have  a 
material impact on the Group's performance  and could cause actual results  to 
differ materially from expected and historical results. The Group's system  of 
risk management,  which includes  risk  review and  an active  internal  audit 
function, is monitored by the Audit and Compliance Committee.



The principal risks to which the Group is exposed include the following:



Economic environment



A further  deterioration  in the  general  economy may  adversely  affect  all 
aspects of the  Group's business. Adverse  economic conditions might  increase 
the number  of borrowers  that  default on  their  loans or  adversely  affect 
funding structures, which  may in turn  increase the Group's  costs and  could 
result in losses on some of the Group's assets, or restrict the ability of the
Group to develop in the future.



The general economic factors affecting the Group in the period going  forward, 
together with  the steps  taken by  the Group's  management to  address  these 
issues are described in more detail in the management report.



Changes in interest  rates may  adversely affect  the Group's  net income  and 
profitability. The steps taken by the Group to mitigate against the long  term 
effects of interest rate  movements, through the  structuring of its  products 
and the use of hedging procedures are described in note6 to the accounts.



Credit risk



As a primary lender the  Group faces credit risk  as an inherent component  of 
its lending activities. Adverse changes in  the credit quality of the  Group's 
borrowers, a  general  deterioration  in UK  economic  conditions  or  adverse 
changes arising from systematic risks in UK and global financial systems could
reduce the recoverability and value of the Group's assets.



Operational risk



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. A significant  breakdown of the IT systems  of 
the Group  might adversely  impact the  ability of  the Group  to operate  its 
business effectively.



To address  these  risks, the  Group's  internal audit  function  carries  out 
targeted reviews of critical systems to  ensure that they remain adequate  for 
their purpose. The Group has a  business continuity plan, which is kept  under 
regular review and is designed to  ensure that any breakdown in systems  would 
not cause significant disruption to the business.



Competitor risk



The Group faces  strong competition in  all of  the core markets  in which  it 
operates. There is a danger that its profitability and /or market share may be
impaired.



To mitigate this risk  the Group maintains  relationships with its  customers, 
business introducers  and other  significant participants  in the  markets  in 
which it is active, as well as being active in industry-wide organisations and
initiatives. This enables market trends to be identified and addressed  within 
the relevant business strategy.



Governmental, legislative and regulatory risk



The market  sectors to  which the  Group supplies  products, and  the  capital 
markets from which it has historically obtained much of its funding, have been
subject to intervention by United Kingdom Government, European Union and other
regulatory bodies.  Current  regulatory  developments  are  discussed  in  the 
section of the management report headed 'Regulation'. To the extent that  such 
actions disadvantage the  Group, when compared  to other market  participants, 
they present a risk to the Group.



In order to mitigate  this risk the  Group has been  active in explaining  its 
position  to  the  authorities   in  order  that   it  is  not   inadvertently 
disadvantaged.



Management



The success of  the Group  is dependent  on recruiting  and retaining  skilled 
senior management and personnel.



Working capital



The Group's capital position and its policies in respect of capital management
are described  in  the accounts.  These  policies and  their  application  are 
described more fully in the section  of the management report headed  'Capital 
Management'.



Financial risk



The Group's exposure to  other financial risks,  including liquidity risk  and 
foreign currency risk, and the procedures in place to mitigate those risks are
described in detail in the accounts.



                     This information is provided by RNS
           The company news service from the London Stock Exchange

END


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