Paragon Reports & Accounts C o n s o l i d a t e d p r o f i t a n d l o s s a c c o u n t f o r t h e y e a r t o 3 0 S e p t e m b e r 1 9 9 8 Interest receivable - continuing operations - acquisitions Interest payable and similar charges Net interest income Other operating income Total operating income Operating expenses Provisions for losses Operating profit, being profit on ordinary activities before taxation - continuing operations - acquisitions Tax charge on operating profit Profit on ordinary activities after taxation Dividend Retained profit Earnings per share Notes 1998 £m 1997 £m 129.3 30.2 159.5 (110.0) 49.5 11.1 60.6 (30.4) (5.1) 25.1 22.3 2.8 (1.2) 23.9 (3.1) 122.8 - 122.8 (85.1) 37.7 9.4 47.1 (20.3) (5.2) 21.6 - - - 21.6 (2.4) 4 5 7 8 10 20.8 19.2 11 22.8p 23.5p There is no material difference between the results disclosed in the profit and loss account and the results on an unmodified historic cost basis. 2 C o n s o l i d a t e d b a l a n c e s h e e t a t 3 0 S e p t e m b e r 1 9 9 8 Assets employed Fixed assets Tangible assets Loans to customers Investment in own shares Notes £m £m £m £m 1998 1997 12 13 14 21.8 1,379.2 2.8 21.6 1,095.2 1.7 1,403.8 1,118.5 Current assets Stocks Debtors falling due within one year Cash at banks and in hand 16 17 17.6 18.2 165.9 15.0 8.4 91.9 Financed by Equity shareholders’ funds Called up share capital Reserves 201.7 1,605.5 115.3 1,233.8 18 19 11.6 75.2 8.8 54.2 86.8 63.0 Creditors Amounts falling due within one year Amounts falling due after more than one year 21 21 37.2 1,481.5 27.9 1,142.9 1,518.7 1,605.5 1,170.8 1,233.8 Approved by the Board of Directors on 14 December 1998 Signed on behalf of the Board of Directors N S Terrington Chief Executive N Keen Finance Director 3 H o l d i n g C o m p a n y b a l a n c e s h e e t a t 3 0 S e p t e m b e r 1 9 9 8 Assets employed Fixed assets Investment in own shares Investment in subsidiaries Current assets Debtors falling due within one year Cash at banks and in hand Financed by Equity shareholders’ funds Called up share capital Reserves Creditors Amounts falling due within one year Notes £m £m £m £m 1998 1997 2.8 3.8 85.6 0.2 11.6 75.2 14 15 17 18 19 21 1.7 121.2 6.6 122.9 0.5 0.3 8.8 54.2 0.8 123.7 63.0 60.7 123.7 85.8 92.4 86.8 5.6 92.4 Approved by the Board of Directors on 14 December 1998 Signed on behalf of the Board of Directors N S Terrington Chief Executive N Keen Finance Director 4 Consolidated cash flow statement Statement of total recognised gains and losses f o r t h e y e a r t o 3 0 S e p t e m b e r 1 9 9 8 Notes £m £m £m £m 1998 1997 Consolidated cash flow statement Net cash inflow from operating activities 22(a) Taxation Capital expenditure and financial investment Net (increase)/decrease in loans to customers Other Acquisitions and disposals Equity dividends paid 22(b) 22(e) Management of liquid resources 22(f) Financing Net proceeds of rights issue Exercise of share options Increase/(decrease) in loans from banks and others 22(f) Increase/(decrease) in cash in the year 22(f) Statement of total recognised gains and losses Profit attributable to shareholders Reduction of unrealised surplus on revaluation of fixed assets, taken to the revaluation reserve Total recognised gains and losses for the year Movement in shareholders’ funds Profit attributable to shareholders Dividend Net proceeds of rights issue Exercise of share options Goodwill on acquisition Goodwill on disposals Revaluation of fixed assets Net movement in shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 5 25.8 0.2 (73.7) (2.1) 52.1 2.0 (75.8) (25.4) (2.5) (77.7) (16.0) 47.9 0.3 103.0 57.5 1998 £m 23.9 - 23.9 1998 £m 23.9 (3.1) 47.9 0.3 (45.2) - - 23.8 63.0 86.8 28.9 (0.1) 54.1 (4.7) (2.1) 76.1 (29.8) - - (92.1) (45.8) 1997 £m 21.6 (1.9) 19.7 1997 £m 21.6 (2.4) - - (4.6) 1.3 (1.9) 14.0 49.0 63.0 N o t e s t o t h e a c c o u n t s f o r t h e y e a r t o 3 0 S e p t e m b e r 1 9 9 8 1. Accounting policies The accounts and notes have been prepared in accordance with applicable accounting standards. The particular policies adopted are described below. (a) Accounting convention The accounts are prepared under the historical cost convention, as adjusted for the revaluation of certain fixed assets. (b) Basis of consolidation The consolidated accounts deal with the accounts of the Company and its subsidiaries made up to 30 September 1998. The results of businesses acquired during the year are dealt with in the consolidated accounts from the date of acquisition. (c) Tangible fixed assets Tangible fixed assets are stated at cost or valuation less accumulated depreciation. (d) Depreciation Depreciation is provided on cost or valuation in equal annual instalments over the lives of the assets. The rates of depreciation are as follows: Long leasehold premises Short leasehold premises Computer equipment 2% per annum over the life of the lease 25% per annum Furniture, fixtures and office equipment 15% per annum Motor vehicles 25% per annum (e) Loans to customers Loans are stated at cost less provision for diminution in value after taking into account the existence of insurances, guarantees and indemnities. Cashbacks and discounts are amortised over the redemption fee periods of the related mortgages. (f) Fixed assets - investments The Company’s investments in subsidiary companies are valued by the directors at the Company’s share of the book value of their underlying net tangible assets. The Company’s investments in its own shares are stated at the lower of cost or net realisable value. (g) Stocks Obligations to purchase vehicles from lessors at pre- arranged prices at the end of the lease term are included in stock at the prices to be paid, in accordance with Financial Reporting Standard 5 - ‘Reporting the Substance of Transactions’, less any provisions to reduce the prices to net realisable value. (h) Goodwill Goodwill arising from the purchase of subsidiary undertakings, representing the excess of the fair value of the purchase consideration over the fair value of the net assets acquired is written off on acquisition against group reserves. (i) Deferred taxation Deferred taxation is provided on timing differences, arising from the different treatment of items of income and expenditure for accounting and taxation purposes, which are expected to reverse in the future, calculated at the rates at which it is expected that tax will arise. 6 (j) Foreign currencies Assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange ruling at the end of the financial year or at other rates where covered by forward currency contracts. (k) Pension costs The expected cost of providing pensions within the funded defined benefit scheme, as calculated periodically by professionally qualified actuaries using the projected unit method, is charged to the profit and loss account so as to spread the cost over the service lives of employees in the scheme. (l) Funding costs Initial costs incurred in arranging funding facilities are amortised over the period of the facility. Unamortised initial costs are deducted from the associated liability. In addition, profits on the early repurchase of loan notes are included within interest payable and similar charges. The realised profits or losses on financial instrument transactions for hedging purposes are credited or charged to the profit and loss account over the life of the associated contract. (m)Operating leases Rental costs under operating leases are charged to the profit and loss account over the period of the leases. (n) Other operating income The turnover and gross profit of Paragon Vehicle Contracts Limited is not derived from the Group’s principal activities and the gross profit is therefore included in other operating income. The turnover is shown in note 5. 2. Acquisition and goodwill Acquisitions The issued share capital of Universal Credit Limited was acquired on 17 March 1998 for a consideration of £25.4m. This acquisition has been accounted for by the acquisition method of accounting. The amount of goodwill arising as a result of the acquisition is £45.2m. This has been written off direct to merger reserve. The profits after taxation of Universal Credit Limited, were as follows: Results prior to acquistion 1 January 1998 to the date of acquisition Preceding financial year ended 31 December 1997 Profit after tax £m 0.2 2.1 The following table explains the adjustments made to the book value of the major category of assets and liabilities acquired to arrive at the fair values included in the consolidation financial statements at the date of acquisition. The cashflow effects of the acquisition are given in note 22. 7 4. Interest payable and similar charges On loans repayable after more than five years Loan backed floating rate notes On bank loans, overdrafts and other loans repayable within five years Write off of commissions payable 1998 £m 95.2 8.6 6.2 1997 £m 73.8 11.3 - 110.0 85.1 5. Other operating income Other operating income includes the gross profit of the Group’s vehicle contract hire business as follows: Turnover Cost of sales Gross profit Included within turnover is income from operating leases of £0.1m (1997: £0.1m). 6. Directors and employees Individual directors’ remuneration The remuneration packages in respect of directors in office during the year were: 1998 £m 12.2 (9.7) 1997 £m 7.9 (5.6) 2.5 2.3 Executive J P L Perry N S Terrington N Keen M J R Kelly Non-executive D F Banks Professor A D Chambers D A Hoare F W Hulton 1998 1997 Salary and fees £000 Benefits in kind £000 Annual Pension bonus contributions £000 £000 150 207 155 100 19 21 19 21 692 729 10 11 6 - - - - - 27 27 - 140 100 - - - - - 240 265 - 18 42 - - - - - 60 65 1998 Total £000 160 376 303 100 19 21 19 21 1997 Total £000 275 334 238 165 17 20 17 20 1,019 1,086 1,086 Mr J P L Perry is the Chairman and Mr N S Terrington is the highest paid director. 8 N o t e s t o t h e a c c o u n t s c o n t i n u e d 2. Acquisition and goodwill continued Tangible fixed assets Loans to customers Debtors Creditors and provisions Taxation Goodwill Consideration Cash Costs of acquisition Book amount £m 1.1 234.9 7.1 (241.3) (1.1) Revaluation £m (0.2) (19.5) - - - Fair value to the group £m 0.9 215.4 7.1 (241.3) (1.1) 0.7 (19.7) (19.0) 45.2 26.2 25.4 0.8 26.2 The revaluation adjustment of £19.5m relates to a fair value adjustment made against loans to customers at the time of acquisition to bring the provisioning policy into line with the approach of the Group. Goodwill Goodwill written off in 1998 under the accounting policy stated in note 1 amounted to £45.2m (1997: £nil) in respect of the acquisition of Universal Credit Limited. The cumulative amount of goodwill charged to reserves is £56.4m (1997: £11.2m), net of amounts attributable to companies sold. 3.Analysis of acquisitions and other continuing operations Interest receivable Interest payable Net interest income Other operating income Total operating income Operating expenses Provisions for losses Operating profit Continuing operations Acquisitions £m £m 1998 Total £m 1997 Total £m 129.3 (96.0) 30.2 159.5 (14.0) (110.0) 122.8 (85.1) 33.3 8.7 42.0 (25.2) 5.5 16.2 2.4 18.6 (5.2) (10.6) 49.5 11.1 60.6 (30.4) (5.1) 37.7 9.4 47.1 (20.3) (5.2) 22.3 2.8 25.1 21.6 9 N o t e s t o t h e a c c o u n t s c o n t i n u e d 6. Directors and employees continued Mr N S Terrington and Mr N Keen were members of the Group defined benefit scheme during the year, from which their pension entitlement was as follows: Accrued pension at 30 September 1998 (note a) Increase in accrued pension during year (note b) £ 45,823 21,413 £ 13,613 5,410 Transfer value (net of director’s contribution) of increase in accrued pension (note c) £ 74,321 30,790 N S Terrington N Keen Notes to pension benefits a.The pension entitlement shown is that which would be paid annually on retirement based on service to the end of the Company’s financial year. b.The increase in accrued pension during the year excludes any increase for inflation. c.The transfer value has been calculated in accordance with Actuarial Guidance Note GN11 less directors’ contributions. Members of the Plan have the option to pay Additional Voluntary Contributions; neither the contributions nor the resulting benefits are included in the above table. The average number of persons (including directors) employed by the Group was 541 (1997 : 367). Staff costs incurred during the year in respect of these employees were: Wages and salaries Social Security costs Pension costs 1998 £m 11.2 0.9 0.6 12.7 1997 £m 8.7 0.7 0.4 9.8 The most recent actuarial valuation of the Group Pension Scheme was completed as at 1 April 1998 using the projected unit method, at which date the market value of the assets was £9.7m. The principal assumption used in the latest valuation was that the annual return on investment would be 2.0 per cent higher than the annual increase in salaries. The valuation revealed that the actuarial value of assets was sufficient to cover 100 per cent of the benefits that had accrued to members after allowing for future increases in earnings. 10 7. Profit before taxation Profit on ordinary activities before taxation is after charging: Depreciation Auditors’ remuneration (group)- audit services - non audit services Hire of plant and machinery Property rents The Company’s audit fee was £18,700 (1997: £18,150). 8. Taxation UK corporation tax at 31% (1997: 32%) based on the profit for the year Write-off of Advance Corporation Tax Deferred tax Prior year adjustments Current tax Deferred tax Tax charge on operating profit 1998 £m 1997 £m 1.7 0.3 0.6 0.3 1.4 1.3 0.2 0.5 0.4 1.7 1998 £m 1997 £m - (0.9) (0.7) 0.3 (0.9) (0.4) (0.3) - (0.3) (1.2) 0.1 0.3 0.4 - The taxation charge for the year has been increased by £0.3m (1997: £0.2m) in respect of expenditure not qualifying for tax relief and reduced by £6.9m (1997: £7.4m) in respect of movements in partially provided deferred tax assets. There are losses carried forward to offset against future income of appropriate Group companies of £27m (1997: £45m). In addition the Group has capital losses in excess of £75.0m which are available to offset against future capital gains in the relevant companies. 11 N o t e s t o t h e a c c o u n t s c o n t i n u e d 8.Taxation continued Deferred Taxation (a) The Group Deferred taxation movement for the year Balance at 1 October 1997 Current year charge Balance at 30 September 1998 £m (4.5) 0.9 (3.6) The potential liability for deferred taxation and the amounts for which provision has been made are: 1998 1997 Potential liability £m Provided £m Potential liability £m Provided £m Capital allowances in excess of depreciation Other timing differences 1.2 (10.3) 1.2 (4.8) 1.2 (15.1) 1.2 (5.7) (9.1) (3.6) (13.9) (4.5) The majority of other timing differences arise from trading losses that are being carried forward to set off against future taxable trading profits. (b) The Company There is no potential liability for deferred tax in the parent company either at 30 September 1998 or 30 September 1997. 9. Profit attributable to members of The Paragon Group of Companies PLC The parent company’s loss after tax for the financial year amounted to £9.3m (1997: profit of £7.9m). A separate profit and loss account has not been prepared for the holding company under the provisions of Section 230 of the Companies Act 1985. 10.Dividend On ordinary shares Interim Proposed final Per share 1998 1997 1998 £m 1997 £m 1.30p 1.70p 1.20p 1.50p 3.00p 2.70p 1.1 2.0 3.1 1.0 1.4 2.4 12 1 1 . Earnings per share Earnings per ordinary share is calculated as follows: Profit for the year £21,575,000 1998 1997 £23,900,000 Weighted average number of ordinary shares ranking for dividend during the year (1997 restated) 104,870,621 92,010,464 Earnings per ordinary share (1997 restated) 22.8p 23.5p 12. Tangible fixed assets Long Leasehold Premises £m Short Leasehold Premises £m Plant and Machinery £m Assets on operating leases to third parties £m Cost or valuation At 1 October 1997 Additions Disposals At 30 September 1998 Cost Valuation Accumulated depreciation At 1 October 1997 Charge for the year On disposals At 30 September 1998 Net book value At 30 September 1998 At 30 September 1997 21.0 - - 21.0 - 21.0 3.0 0.4 - 3.4 17.6 18.0 1.1 - - 1.1 1.1 - 0.5 0.1 - 0.6 0.5 0.6 Total £m 28.9 2.2 (0.5) 30.6 9.6 21.0 7.3 1.7 (0.2) 6.1 2.2 (0.1) 8.2 8.2 - 3.7 1.1 (0.1) 0.7 - (0.4) 0.3 0.3 - 0.1 0.1 (0.1) 4.7 0.1 8.8 3.5 2.4 0.2 0.6 21.8 21.6 Comparable amounts determined according to the historic cost convention: Cost Accumulated depreciation 16.0 (2.3) 1.1 (0.6) 8.2 (4.7) 0.3 (0.1) 25.6 (7.7) Net book value At 30 September 1998 At 30 September 1997 13.7 14.0 0.5 0.6 3.5 2.4 0.2 0.6 17.9 17.6 The long leasehold premises at Homer Road in Solihull were revalued on 30 September 1997 by the directors at £18.0m after accumulated depreciation of £3.0m. The remainder of the fixed assets above are stated at cost. 13 N o t e s t o t h e a c c o u n t s c o n t i n u e d 1 3 . Loans to customers Cost At 1 October 1997 Additions Other debits Repayments and redemptions At 30 September 1998 1998 £m 1997 £m 1,095.2 1,149.7 544.9 143.8 204.6 89.1 (404.7) (348.2) 1,379.2 1,095.2 Included in loans to customers are £32.5m (1997: £1.2m) of hire purchase receivables. The aggregate rentals receivable in respect of hire purchase contracts were £1.7m (1997: £0.1m). The cost of assets acquired by the Group for the purposes of letting under hire purchase contracts amounted to £38.1m (1997: £1.2m). 14. Investment in own shares 1998 £m 1997 £m Shares held by the trustee of the share option schemes 2.8 1.7 All of the shares are held in trust for the benefit of employees exercising their options under the Company’s share option schemes. The trustee’s costs are included in the operating expenses of the Company. At 30 September 1998, the trust held 3,130,667 shares (1997: 2,566,127) with a nominal value of £313,067 (1997: £256,612) and a market value of £4,680,347 (1997: £4,670,357). The dividends on these shares have not been waived. 15. Investment in subsidiary companies Shares in Group companies At 1 October 1997 Additions during this year Revaluation (Charged)/credited to the profit and loss account (Charged)/credited to the revaluation reserve Loans to Group companies At 1 October 1997 Additions during the year Revaluation Charged to the profit and loss account At 30 September 1998 14 1998 £m 1997 £m 120.4 26.2 (132.9) (12.0) 88.4 13.8 9.7 8.5 1.7 120.4 0.8 13.9 2.3 4.5 (12.6) (6.0) 2.1 3.8 0.8 121.2 15. Investment in subsidiary companies continued Principal operating subsidiaries comprise Holding Direct subsidiaries of The Paragon Group of Companies PLC Principal Activity Paragon Finance PLC Homer Finance (No.3) PLC Paragon Mortgages Limited Homeloans No.1 PLC Homeloans No.2 PLC Homeloans No.3 PLC Finance for People (No.1) PLC Finance for People (No.2) PLC Finance for People (No.3) PLC Finance for People (No.4) PLC Paragon Vehicle Contracts Limited Paragon Car Finance Limited Paragon Personal Finance Limited Universal Credit Limited 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Residential mortgages Residential mortgages Residential mortgages Residential mortgages Residential mortgages Residential mortgages Residential mortgages Residential mortgages Unsecured and car loans Residential mortgages Vehicle fleet management Vehicle finance Unsecured lending Unsecured lending Subsidiaries of Paragon Mortgages Limited Paragon Second Funding Limited 100% Residential mortgages The issued share capital of all subsidiaries consists of ordinary share capital. The financial year end of all of the above companies is 30 September, and they are registered and operate in England and Wales. 16. Stocks Residual purchase obligations Vehicles on extended hire or held for resale 17. Debtors Amounts due within one year Amounts owed by group companies Other debtors Tax debtors Prepayments and accrued income 1998 £m 14.1 3.5 1997 £m 13.9 1.1 17.6 15.0 Group Company 1998 £m 1997 £m 1998 £m 1997 £m - 4.5 4.1 9.6 18.2 - 2.6 5.0 0.8 8.4 84.7 0.2 0.3 0.4 85.6 - 0.2 0.1 0.2 0.5 15 N o t e s t o t h e a c c o u n t s c o n t i n u e d 1 8 . Called-up share capital Authorised: 125,000,000 ordinary shares of 10p each Allotted and paid-up: 1998 £m 1997 £m 12.5 12.5 115,667,935 (1997: 87,855,955) ordinary shares of 10p each 11.6 8.8 During the year 27,454,985 ordinary shares of 10p with an aggregate par value of £2,745,499 were issued for an aggregate consideration of £49,418,973 under the terms of a 5 for 16 rights issue. In addition 220,387 ordinary shares (£22,039 par value) were issued for £220,972 and a further 136,608 (£13,661 par value) were issued for £119,210. These issues were made under the executive and employee share option schemes, respectively. 19. Reserves Share Premium Account £m Merger Reserve £m Revaluation Reserve £m Profit and Loss Account £m (a) The Group Balance at 1 October 1997 16.6 (81.4) Additional depreciation on revalued assets Rights issue premium (note 18) Rights issue costs Goodwill on acquisition Share options exercised Profit for the year - 46.6 (1.5) - 0.3 - - - - (45.2) - - 4.0 (0.1) 115.0 0.1 - - - - - - - - - 20.8 Total £m 54.2 - 46.6 (1.5) (45.2) 0.3 20.8 Balance at 30 September 1998 62.0 (126.6) 3.9 135.9 75.2 The cumulative amount of goodwill on acquisition written off to reserves is £56.4m (1997: £11.2m). The potential liability for deferred taxation of £0.6m (1997: £0.6m) on the revaluation of the long leasehold premises is included in the other timing differences in note 8(a) but available capital losses would reduce this liability to £nil. Share Premium Revaluation Reserve Account £m £m Profit and Loss Account £m Total £m (b) The Company Balance at 1 October 1997 Rights issue premium (note 18) Rights issue costs Revaluation of investments in subsidiaries Share options exercised Loss for the year 16.6 46.6 (1.5) - 0.3 - 12.2 25.4 - - (12.0) - - 54.2 46.6 (1.5) (12.0) 0.3 - - - - (12.4) (12.4) Balance at 30 September 1998 62.0 0.2 13.0 75.2 16 20. Share option schemes Options are outstanding under the executive share option and the all employee share option schemes to purchase 6,805,461 ordinary shares of 10p each as follows: Number Period exercisable Price 197,581 11/03/1996 to 11/03/2000 200,296 11/03/1996 to 11/03/2000 20,610 11/03/1996 to 11/03/2000 5,180 07/12/1996 to 07/12/2000 104,016 07/12/1996 to 07/12/2000 5,192 02/02/1997 to 02/02/2001 105,113 02/02/1997 to 02/02/2001 1,824,925 13/03/1998 to 13/03/2005 135,566 31/03/1998 to 31/03/2005 306,330 14/06/1998 to 14/06/2005 32,296 04/07/1998 to 04/07/2005 67,644 06/02/1999 to 06/02/2003 38,866 21/06/1999 to 21/06/2003 1,256,574 02/12/1999 to 02/12/2003 104,280 12/06/2000 to 12/06/2004 125,136 16/06/2000 to 16/06/2004 20,856 16/06/2000 to 16/06/2004 1,203,000 31/03/2001 to 31/03/2008 802,000 31/03/2001 to 31/03/2005 250,000 30/09/2001 to 30/09/2008 25.97p 10.39p 35.96p 86.3p 69.52p 196.57p 139.84p 97.33p 87.26p 103.56p 97.33p 100.68p 103.08p 105.48p 162.05p 160.62p 105.48p 218p 218p 162.5p A number of the above options are granted to former employees whose rights terminate at the later of twelve months following redundancy or forty-two months after the issue of the options. Details of individual options held by the directors at 30 September 1997 and 30 September 1998 Date from which exercisable Expiry date Option price J P L Perry N S Terrington N Keen M J R Kelly 11/03/1996 11/03/1996 11/03/1996 07/12/1996 07/12/1996 02/02/1997 02/02/1997 13/03/1998 14/06/1998 02/12/1999 11/03/2000 11/03/2000 11/03/2000 07/12/2000 07/12/2000 02/02/2001 02/02/2001 13/03/2005 14/06/2005 02/12/2003 25.97p 10.39p 35.96p 69.52p 86.3p 139.84p 196.57p 97.33p 103.56p 105.48p 52,570 58,548 5,479 25,028 1,252 - - 417,646 - 260,700 52,570 58,548 5,479 25,028 1,252 - - 261,226 104,280 260,700 26,285 29,275 2,740 12,514 626 - - 130,613 202,050 234,630 - - - - - 68,073 3,365 332,663 - - At 30 September 1997 Options exercised in the year 11/3/1996 Options granted in the year 31/3/2001 31/3/2001 11/3/2000 31/3/2008 31/3/2005 821,223 769,083 638,733 404,101 10.39p - - (10,000) 218p 218p 120,000 80,000 255,000 170,000 240,000 160,000 - - - At 30 September 1998 1,021,223 1,194,083 1,028,733 404,101 The options outstanding at 30 September 1997 have been adjusted following the rights issue during the year. At 30 September 1998 The Paragon Group of Companies PLC share price was 149.5p and the range during the year then ended was 149.5p to 253p. The exercise of options by Mr Keen took place on 2 September 1998, on which date the share price was 152p. Options are granted to directors and senior employees from time to time, on the basis of performance and at the discretion of the Remuneration Committee. 17 N o t e s t o t h e a c c o u n t s c o n t i n u e d 2 1 . Creditors Group Company Amounts falling due within one year Bank loans and overdrafts Amounts owed to group companies Proposed dividend Corporation tax Accruals Amounts falling due after more than one year Bank loans and notes Mortgage backed loan notes Accruals 1998 £m 1997 £m 1998 £m 6.3 - 2.0 1.5 1.8 - 1.4 1.0 27.4 23.7 37.2 27.9 124.7 1,347.3 9.5 165.5 967.3 10.1 1,481.5 1,142.9 - 2.1 2.0 0.3 1.2 5.6 - - - - 1997 £m 0.3 57.8 1.4 0.1 1.1 60.7 - - - - Bank loans and notes include sterling loans to Paragon Finance PLC of £98.8m (1997: £97.3m) which are secured on certain assets of the Company and all the assets of Paragon Finance PLC, and sterling loans to Paragon Second Funding Limited of £29.9m (1997: £68.2m) which are secured on all the assets of that company, Paragon Car Finance Limited and Paragon Personal Finance Limited. The mortgage backed loan notes are secured on portfolios of variable and fixed rate mortgage loans. These mortgage loans are secured by first charges over residential properties within England and Wales. The notes and loans are redeemable in part from time to time for an amount equal to the net capital receipts in respect of the mortgages. It is likely that a substantial proportion of the notes will be repaid within 5 years. Interest is payable on the notes and the loans at various rates between 0.06% and 1.30% over the London Interbank Offered Rate for 3-month sterling deposits. Under the terms of the refinancing of Paragon Finance PLC’s bank facilities dated 29 June 1992, it was agreed that a ‘success fee’ will become payable to the banks and noteholders on 31 December 1998. Following the capital reconstruction of the Company, this is now based on 0.83 per cent of the difference between the average share price of the Company during the 30 days prior to 25 November 1998 and 50p per share, multiplied by the number of ordinary shares of 15p each in issue on 29 June 1992. 18 2 1 . Creditors continued Bank loans and notes repayable within one year between one and two years between two and five years after more than five years Group 1997 £m - 2.9 94.4 68.2 1998 £m 4.0 11.8 83.0 29.9 128.7 165.5 At 30 September 1998 the total of bank loans and overdrafts was £131.0m (1997: £167.3m). The Company Movements in the amounts owed by the Company to other group companies include: Upstream Loan from Paragon Finance PLC At 1 October 1997 Interest charged during the year Interest paid during the year Loan repaid during the year At 30 September 1998 The Upstream Loan had a variable interest rate and no fixed maturity. Company 1998 £m 1997 £m - - - - - 82.7 8.9 (8.9) (82.7) - 19 N o t e s t o t h e a c c o u n t s c o n t i n u e d 2 2 . Consolidated cash flow statement (a) Reconciliation of operating profit to net cash flows from operating activities Operating profit Provision for losses Depreciation Profit on disposal of investment (Increase)/decrease in stock (Increase)/decrease in debtors (Decrease)/increase in creditors 1998 £m 1997 £m 25.1 5.1 1.7 - (2.4) (3.6) (0.1) 21.6 2.4 1.3 (2.2) 0.9 1.5 3.4 Net cash inflow from operating activities 25.8 28.9 (b) Other capital expenditure and financial investment Expenditure on other fixed assets Proceeds from sales of fixed assets Acquisition of investment Proceeds from sales of investments Acquisition of own shares (c) Acquisitions and disposals Net assets acquired Fixed assets Loans to customers Stocks Debtors Creditors Taxation Goodwill Satisfied by Cash (1.3) 0.3 - - (1.1) (2.5) - (1.8) 6.3 - (2.1) 2.0 0.9 215.4 - 7.1 - - 11.1 - (241.3) (11.0) (1.1) (19.0) 45.2 - 0.1 4.6 26.2 4.7 The business acquired during the year contributed £11.7m to the Group’s net operating cash flows, utilised £22.1m in respect of net loans to customers and received £11.6m in respect of the increase in loans from banks and others. (d) Reconciliation of net cash flow to movement in net debt Increase/(decrease) in cash in year Cash (inflow)/outflow from (increase)/decrease in debt Cash outflow from increase in liquid resources Movement in net debt in year Net debt at 1 October 1997 Net debt at 30 September 1998 20 57.5 (45.8) (343.2) 16.0 92.1 29.8 (269.7) 76.1 (1,042.7) (1,118.8) (1,312.4) (1,042.7) 2 2 . Consolidated cash flow statement continued (e) Analysis of the net outflow of cash in respect of the purchase of subsidiary undertaking Cash consideration (f) Analysis of net debt Cash in hand, at bank Overdrafts 1998 £m 25.4 1997 £m 4.7 At 1 October 1997 £m 19.7 (1.8) Acquisition Cash (exc. cash and overdrafts) flows £m £m Other At non-cash 30 September changes £m 1998 £m 58.0 (0.5) 57.5 77.7 (2.3) Debt due after one year Debt due within one year (1,132.8) (101.6) (237.6) (1,472.0) - (1.4) - (2.6) (4.0) (103.0) (237.6) (2.6) Other liquid resources 72.2 16.0 88.2 Total (1,042.7) (29.5) (237.6) (2.6) (1312.4) Other liquid resources comprise term deposits with UK banks. 23. Capital commitments There were no capital commitments (1997: £nil) contracted but not provided for. 24. Financial commitments At 30 September 1998 the Group had commitments to make annual payments under operating leases which expire as follows: Plant and machinery Between two and five years Land and buildings Between two and five years Over five years 1998 £m 1997 £m 0.2 0.1 1.8 2.1 0.1 0.1 1.6 1.8 21 N o t i c e o f A n n u a l G e n e r a l To all shareholders NOTICE IS HEREBY GIVEN that the tenth Annual General Meeting of The Paragon Group of Companies PLC will be held at Stationers’ Hall, Ave Maria Lane, London EC4M 7DD on 28 January 1999 at 12.00 noon for the following purposes: As ordinary business 1 To receive and consider the Company’s Accounts for the year ended 30 September 1998 and the Reports of the Directors and the Auditors 2 To declare a dividend 3 To re-appoint as directors (a) Mr J P L Perry (b) Mr N S Terrington (c) Mr N Keen (d) Mr D A Hoare (e) Mr C Weiser 4 To re-appoint Deloitte & Touche as Auditors and to authorise the directors to fix their remuneration. As special business To consider and, if thought fit, to pass resolutions 5 and 8 as ordinary resolutions and resolutions 6 and 7 as special resolutions: Ordinary Resolution 5 “THAT the Board be and it is hereby generally and unconditionally authorised (in substitution for all subsisting authorities to the extent unused) to exercise all powers of the Company to allot relevant securities (within the meaning of Section 80 of the Companies Act 1985) up to an aggregate nominal amount of £3,855,000 PROVIDED THAT this authority shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution save that the Company may before such expiry make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the Board may allot relevant securities in pursuance of such an offer or agreement as if the authority conferred hereby had not expired.” Special Resolutions 6 “THAT, subject to the passing of the previous resolution, the Board be and it is hereby empowered pursuant to Section 95 of the Companies Act 1985 to allot equity securities (within the meaning of Section 94 of the said Act) for cash pursuant to the authority conferred by the previous resolution as if sub-section (1) of Section 89 of the said Act did not apply to any such allotment, PROVIDED THAT this power shall be limited: (a) to the allotment of equity securities in connection with a rights issue in favour of ordinary shareholders and in favour of all holders of any other class of equity security in accordance with the rights attached to such class where the equity securities respectively attributable to the interests of all such persons are proportionate to the respective numbers of equity securities held by them or are otherwise allotted in accordance with the rights attaching to such equity securities (subject in either case to such exclusions or other arrangements as the Board may deem necessary or expedient in relation to fractional entitlements or legal or practical problems under the laws of, or the requirements of, any regulatory body or any stock exchange in any territory or otherwise howsoever); and (b) to the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal value of £578,300 and shall expire upon the renewal of this power or, if earlier, at the conclusion of the next Annual General Meeting of the Company after the passing of this 22 resolution, save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Board may allot equity securities in pursuance of such an offer or agreement as if the power conferred hereby had not expired.” 7 “THAT the Articles of Association of the Company be amended as follows: (i) Article 2: By the deletion after the phrase “The Stock Exchange” of the words “means the International Stock Exchange of the United Kingdom and the Republic of Ireland Limited;” and replacing them with the words “means the London Stock Exchange Limited;” (ii) Article 31: By the addition of the following words to the end of the Article: “...provided that where such shares are admitted to the Official List of the Stock Exchange, such discretion may not be exercised in such way as to prevent dealings in shares of the relevant class from taking place on an open and proper basis.” (iii) Article 77: By the deletion of the words in brackets beginning on line two and ending on line four: “... (other than a director exempt from retirement by rotation under any other provision of these Articles)” (iv) Article 78: By the addition to line six of the Article after the sentence ending “...be determined by lot.” the words “In addition any director who would not otherwise be required to retire shall retire by rotation at the third annual general meeting after his last appointment or reappointment.” (v) Article 104: By deletion of the clause beginning on line two and ending on line three reading: “shall not, while holding that office, be subject to retirement by rotation, but” and the addition of the word “retirement”, on the last line of the Article before the word “resignation”.” Ordinary Resolution 8 “THAT (a) the Directors be and they are hereby authorised to establish the Paragon 1999 Sharesave Scheme in the form presented to the meeting; and (b) the Directors be and they are hereby authorised to vote and be counted in the quorum on any matter connected with the said scheme, notwithstanding that they may be interested in the same (except that no Director may be counted in a quorum or vote in respect of his own participation) and the prohibition on voting by interested Directors contained in the Articles of Association of the Company be and is hereby relaxed accordingly.” By order of the Board J G Gemmell Company Secretary Registered and Head Office: St. Catherine’s Court, Herbert Road, Solihull, West Midlands B91 3QE 14 December 1998 Registered in England No. 2336032 A member entitled to attend and vote at this meeting may appoint a proxy to attend on his behalf and, on a poll, to vote instead of such member. A proxy need not also be a member of the Company. A proxy form is enclosed for use in connection with the meeting. Proxy forms should be lodged with the Registrar of the Company at the address shown on the reverse of the proxy form not less than forty-eight hours before the time appointed for the holding of the meeting. The appointment of a proxy will not preclude a shareholder from attending and voting at the meeting. 23 C o m p a n y I n f o r m a t i o n Registered and Head Office St Catherine’s Court Herbert Road Solihull West Midlands B91 3QE Telephone: 0121 712 2323 London Offices 28 King Street London EC2V 8EH 6 Greencoat Place London SW1P 1PL Telephone: 0171 726 4054 Telephone: 0171 957 9701 Internet www.paragon-group.co.uk Auditors Deloitte & Touche Chartered Accountants Colmore Gate 2 Colmore Row Birmingham B3 2BN Solicitors Slaughter and May 35 Basinghall Street London EC2V 5DB Registrars and Transfer Office Computershare Services PLC P.O. Box 82 Caxton House Redcliffe Way Bristol BS99 7NH Brokers HSBC James Capel Thames Exchange 10 Queen Street Place London EC4R 1BL Financial Advisors HSBC Investment Bank plc Vintners Place 68 Upper Thames Street London EC4V 3BJ 24