ANNUAL REPORT 2009
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Welcome to Manx Financial Group PLC
Integrity through innovation and independence
An independent banking group since 1935,
domiciled in the Isle of Man.
Who we are
(“MFG”)
Manx Financial Group PLC
(formerly Conister Financial Group PLC
(“CFG”)) was formed as part of a “Scheme
of Arrangement”
in January 2008 to
establish a parent company for Conister
Bank Limited
(formerly Conister Trust
Limited) and TransSend Holdings Limited.
MFG is listed on the Alternative Investment
Market (“AIM”).
The shares of Conister Bank were one
of the first companies to be admitted to
trading on the AIM in 1995 and as part of
the “Scheme of Arrangement”, the shares
were replaced on AIM by those of Manx
Financial Group PLC.
Conister Bank Limited (formerly Conister
Trust Limited) (“the Bank”) is a licensed,
independent bank in the Isle of Man and a
full member of the MasterCard® network.
Since its inception in 1935, the Bank has
assisted successive generations to achieve
their financial goals by providing a variety of
financial products and services, including
taking deposits and the provision of credit
facilities and asset finance for personal and
business use.
The Bank has also diversified into the
insurance premium finance market and
fiduciary deposits for corporate and high
net worth clients and, through Conister
Wealth, provides
financial
advice on a range of life assurance, pension
and investment products to both personal
and business customers.
independent
Contents
Highlights
Chairman’s Statement
Chief Executive’s Business and Financial Review
Directors and Advisers
Report of the Directors
Directors’ Remuneration Report
Statement of Directors’ Responsibilities
Report of the Independent Auditor
01
02
04
06
08
10
12
13
Consolidated Comprehensive Statement of Income 14
Consolidated and Company Statement of
Financial Position
Consolidated Statement of Cash Flows
Consolidated and Company Statement
of Changes in Equity
Notes to the Consolidated Financial Statements
15
16
17
18
®MasterCard is a registered trademark of MasterCard International Incorporated.
Conister Card Services (formerly TransSend)
is the Group’s prepaid card division.
Conister Card Services provides business
clients with payment solutions that easily
their existing payment
integrate
process to produce highly controllable,
cost-effective ways of moving funds and
create new revenue opportunities.
into
issuer
The division is now positioned as a prepaid
card
leverage the
in order to
strengths of the existing group, and has
recently built further strategic alliances to
maximise distribution
and
revenues.
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Manx Financial Group PLC
Highlights
01
Financial Highlights
MFG, the Holding Company:
¥ The Group’s financial performance improved as its loss was reduced to £2.6 million (2008: £18.3 million) an improvement
of £15.7 million. Excluding the ESS transaction the underlying result has improved by £6.1 million compared to last year.
¥ The trend towards consolidated profitability continues with the loss reducing in the second half of 2009 to £0.8 million
(2008: £15.3 million) from £1.8 million in the first half of 2009 (2008: £3.0 million).
¥ The Group’s cost base reduced by £6.7 million year on year, the equivalent of a 42% decrease.
¥ The cost of the holding company excluding impairments reduced to £1.2 million (2008: £3.4 million), a 65% reduction
year on year.
¥ The Group successfully secured £1.22 million of supplementary capital in February 2010 to facilitate new lending
opportunities.
Conister Bank Limited:
¥ Despite the worsening economic climate the Bank’s financial performance from continuing operations was a reduced loss
of £1.2 million (2008: £1.3 million) a 7.7% improvement.
¥ The trend back towards profitability continued with the second half loss reducing to £0.5 million (2008: £1.2 million) from
£0.7 million in the first half of 2009 (2008: £0.1 million).
¥ The Bank’s cost base reduced by £1.5 million year on year, 18%.
¥ The Bank’s capital position has improved year on year with the Risk Asset Ratio remaining stable at 18% and with Tier 1
capital, having adopted BASEL II reporting criteria, increasing to 20.9% (2008: 15.6% under BASEL I).
¥ Substantial liquidity surplus to regulatory requirements, £10.7 million (2008: £10.1 million).
¥ The year end litigation funding net asset, a business segment in run off, has reduced by 87% to £0.2 million
(2008: £1.5 million).
¥ The Bank has no exposure to the sub-prime sector or to mortgages.
¥ The Bank has no wholesale funding and has a loan book which matches the duration of the depositors’ terms.
Conister Card Services:
¥ Financial performance greatly improved as the loss was significantly reduced to £0.4 million (2008: £3.5 million) as the
change in strategy started to impact positively on the income statement.
¥ In the second half of 2009 the business recorded a profit of £0.1 million (2008: loss of £1.9 million).
¥ Conister Card Services cost base reduced by £3.0 million, 72%, year on year. The number of active cards issued has
increased to 73,150 (2008: 34,729) an increase of 111%.
Operational Highlights
¥ The Bank has successfully installed a new banking system on time and under budget.
¥ The risk & compliance team has been strengthened to facilitate increased risk monitoring and reporting, and to support
the new business lines established in 2009.
¥ The Bank’s recent rebranding to more fully represent the services now provided has been an acclaimed success.
¥ The Bank has successfully commenced its Wealth and General Insurance businesses in 2009.
¥ Conister Card Services has completed its repositioning within the prepaid card market becoming a BIN sponsor.
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Manx Financial Group PLC
Chairman’s Statement
02
James Mellon
Chairman
Introduction
The final quarter of 2009 has shown signs that the global
macroeconomic environment is stabilising; however, we remain in a
period of high economic uncertainty. The US economy has emerged
from recession in the third quarter and the UK has shown signs
of improvement and recently exited recession. Inflation remains
modest and the consensus amongst UK, US and Continental
Europe commentators is that interest rates will not rise in the near
term.
Quantitative easing programmes by central banks are likely to
continue, or at least not be withdrawn, in an effort to support the
recovery during its initial stages, furthermore there remains a need
to support the main banks. Whilst this unprecedented and massive
liquidity injection has stimulated demand for financial assets and
saved some banks from collapse, it appears not to have stimulated
consumer demand to any great extent.
Much of the recovery in industrial production has not been a
result of stronger consumer demand, as consumers worry about
rising unemployment and taxes, and continue to reduce their
indebtedness rather than increase spending. In other words, in the
UK and in the Isle of Man the savings rate has risen markedly.
The Group continues to be well insulated against the pressures of
the economic environment due to its core focus on the Isle of Man,
a market which has avoided the severe recessions experienced by
its near neighbours and also, by avoiding any exposure to wholesale
money markets, the property market and sub-prime loans.
The macro environment has had two key effects on the Group
however, which are worth noting: 1. Default rates remain extremely
low, and we remain more than adequately provisioned for loan
impairments. 2. As the savings rates rise, people are less keen to
take on debt which makes it harder to grow our loan book, which
is our key objective. The last point is being addressed and with
increased capital we are taking advantage of lending opportunities
of the highest quality.
We have experienced none of the severe systemic issues suffered by
the major banks and today our capital ratios remain exceptionally high.
Manx Financial Group
During 2009 the Group changed its name to better reflect its
heritage and roots, to the Manx Financial Group PLC, an important
part in the evolution to a financial services company. The Group’s
financial performance continues to improve with the loss reduced to
£2.6 million (2008: £18.3 million), an improvement of £15.7 million
(£6.1 million excluding the ESS transaction) with a positive trend
towards profitability as the second half’s financial performance was
£1.0 million ahead of the first half of 2009 and £12.3 million ahead
of the corresponding period in 2008.
Also in 2009 the Group undertook a balance sheet efficiency review
resulting in the bank commencing a strategy to reconnect the
historical disconnection between its lending and how it was funded.
As a result our deposit balance has reduced to £49.5 million
(2008: £66.1 million) which more closely matches our advanced
balances. This reconnection will improve the financial performance
of the Group through reducing its cost of funds and it will more
efficiently use its surplus liquidity which stood at £10.7 million (2008:
£10.1 million) at the year end.
The trend in improving profitability is projected to increase steadily
and I am very confident of the outturn in the next few years.
The Board and Executive have now established one of the strongest
banks, with about as clean a balance sheet as any bank could hope
for. There are no hidden liabilities lurking in any part of our business
and confidence is very high.
In January 2010, following a successful EGM where all resolutions
were approved by the Shareholders in accordance with the
Company’s Memorandum and Articles of Association, a convertible
bond was issued to support new lending opportunities. It is the
Board’s current intention to raise further capital this year through a
general offer for subscription to all Shareholders to fund further new
lending opportunities and I hope you will take up this opportunity
to support the continued development of the Group. A further
announcement will be made in this regard if and when the details of
the offer are finalised by the Board.
The Group continues to review opportunities to grow through the
acquisition of businesses that complement the Bank or businesses
that would benefit from being part of a Group that owns a Bank.
However, whilst the current economic environment presents
opportunities we are determined to ensure that we make decisions
based on sound financial assessment and robust business due
diligence. We shall not acquire just for the sake of growth if the
business does not fit with our strategic vision.
Conister Bank
The Bank’s capital has remained steady with a Risk Asset Ratio
of 17.9% (2008: 17.6%) and a Tier 1 capital ratio of 20.9%.
The Bank has maintained a liquidity position in excess of its
regulatory requirements, driven by a higher number of customers
reinvesting maturing deposits than anticipated. This provides
evidence of the support the Bank enjoys from its core retail
customers and has resulted in the Bank not being required to
compete for expensive retail deposits during 2009 resulting in an
improved margin position.
The Bank’s financial performance also improved in 2009 with the
loss reducing to £1.2 million (2008: £1.3 million).
I continue to oversee the work of the executive team resulting in
improved processes and controls and this remains a focus of the
Board.
The Risk & Compliance team has been strengthened accordingly
to facilitate increased risk monitoring and reporting and further
develop operational processes and controls.
Two years ago, with the onset of the global downturn, the Bank
tightened its underwriting criteria and this has manifested itself in
near static provisioning levels for asset financing in 2009.
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Manx Financial Group PLC
03
Conister Bank will continue as the Isle of Man’s only independent
bank and will continue to leverage its unique position, in what is
its 75th anniversary year, through the provision of straightforward
products to strengthen and lengthen the customer relationship.
Conister Card Services will continue to exploit the Bank’s
MasterCard® membership and seek out new opportunities and take
advantage of strategic opportunities as the market consolidates
and grows.
The Bank’s balance sheet remains strong with no debt or toxic
assets. This together with the Board and Executives will drive
forward the business based on a stable and sound platform ably
assisted by an enthusiastic, motivated and customer focused team.
I would like to take this opportunity to again thank our staff and our
Shareholders for their support throughout the year.
AGM Resolutions
As always the Board would recommend the shareholders consider
and support the resolutions laid before them at the AGM.
James Mellon
Executive Chairman
30 April 2010
There has also been significant progress in resolving the outstanding
issues associated with the discontinued litigation funding business
stream with net assets at the year end reduced by 87% to
£0.2 million (2008: £1.5 million) and we can now foresee a successful
conclusion to this book.
Conister Card Services
The repositioning of this business in 2009 from a Programme
Manager to that of a BIN sponsor is now complete and the financial
improvement forecast from this strategic change has become
evident in the year end results. The loss for the year was reduced to
£0.4 million (2008: £3.5 million) and indeed the cards business made
a small profit in the second half of 2009. The business continues to
look for new programme managers with profitable contracts and
ways to leverage the Bank’s MasterCard® licence.
Our People
I continue to be impressed by the commitment and dedication of
our staff to the Group and to its customers and I thank them for all
their continued effort during 2009. I am pleased to welcome Nick
Sheard (Head of Risk and Compliance) and Douglas Grant (Group
Finance Director) to the Board in September 2009 and January 2010
respectively, both of whom bring valuable experience and skills.
Outlook
Market conditions appear to be improving, and if the global economy
can avoid any unforeseen shocks, the outlook for your Company is
very good over the next cycle.
The withdrawal of major banking groups from our core lending
market and the increased criteria and demands made by others
that have suffered from, sometimes, unconnected losses presents
a significant opportunity. We will continue to work to seek out new
business opportunities and partners to distribute our products
to a wider audience and take advantage of the opportunities this
presents.
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Manx Financial Group PLC
Chief Executive’s Business and Financial Review
04
Denham Eke
Chief Executive Officer
Manx Financial Group — the Holding Company
In my 2008 report I stated that our goal was to build upon the
strong foundations that had been laid and make a steady return
to profitability. I am pleased to report that significant progress has
been made with the Group meeting all of our internal business
and financial objectives. The Group’s financial performance for the
year was much improved with the loss reducing to £2.6 million
(2008: £18.3 million), an improvement of £15.7 million, and the
operational result, excluding the ESS share transaction, was an
improvement of £6.1 million. I am pleased to report a steadily
improving financial performance with the loss in the second half
of the year cut to £0.8 million (2008: £15.3 million) which was
£1.0 million and £2.2 million ahead of the first half of 2009 and the
first half of 2008 respectively.
As part of our balance sheet review the Board started to correct
the mismatch between lending returns and cost of funds which has
historically had a negative impact on the income statement through
the expense of carrying surplus deposits. With the uncertain
economic environment the Board planned for a decrease in lending
during 2009 and therefore took the necessary steps to more closely
align deposit balances with lending expectations. Also throughout
2009, the Bank historically carried high liquidity which enabled it to
comfortably absorb the shocks suffered by the rest of the global
banking system and meet the possibility of increased customer
withdrawal requests, although this was subsequently found to have
been unnecessary.
This action has resulted in a step change to the Group’s asset base
and, looking forward, the forecasted increase in lending will be
initially absorbed by utilising some of the Bank’s surplus liquidity
and then through increasing deposit balances. These actions have
and will continue to improve the income statement. Capitalising on
the Bank’s Isle of Man heritage and independence is a cornerstone
of our strategy and in the third quarter of 2009 we rebranded and
launched as Conister Bank with a focus on clearly communicating
the Bank’s primary product propositions and repositioning the
Bank as the Island’s only independent Bank. This has been a great
success. We also rebranded the Manx Financial Group and re-
launched the new corporate website early in 2010.
In the current uncertain and changeable economic environment
the Bank will continue to focus on our core competencies and has
made significant appointments in Marketing, Wealth Management
and Customer Services to ensure that we build a strong and stable
platform with an experienced management team to deliver future
growth. The successful implementation of a new Banking Platform
was delivered on time and under budget giving the Bank a market
leading platform to further enhance customer service.
The Risk and Compliance team was restructured during 2009 to
enable support for business lines such as Wealth Management as
well as providing greater support for the core businesses of Asset
Finance and Deposits. A new Executive Risk Committee was
established to coordinate a coherent risk management framework
which has resulted in a greater focus at Board level on key risk issues.
Treasury management has improved significantly with surplus cash
being invested in capital efficient instruments to effectively manage
excess liquidity and the Bank’s risk asset ratio.
I have continued our focus on cost reduction and I am pleased to
report that significant savings, in the order of £6.7 million, have been
made without significant job losses.
Conister Bank — Banking
Despite the poor trading conditions, financial performance for
the year improved by £0.1 million leading to a loss of £1.2 million
(2008: -£1.3 million). The Bank’s trend back to profitability continued
with the results for the second half of 2009, a reduced loss of £0.5
million (2008: -£1.2 million), from £0.7m in the first half of 2009,
(2008: -£0.1 million).
The Bank has introduced new income streams to reduce its reliance
on net interest income but also to grow the products that it can
offer customers in order to provide an alternative to the offerings
of the major banking groups. The Bank commenced the sale of
Guaranteed Asset Protection and Payment Protection products
during 2009 to provide added security for customers, and also
launched “Solo”, a packaged finance/GAP product initially through
the Isle of Man Car dealer network.
One of our most important strengths is our staff, who work and
live in the same communities as the majority of our customers.
This gives us an intimacy that centralised international banking
groups cannot offer. The launch of the Bank’s Wealth Management
proposition, Conister Wealth, towards the end of 2009, has been
well received by both old and new customers alike and after only a
few weeks of trading, assets under influence exceeded £2.5 million.
to show
The Bank’s deposit customers have continued
confidence in the bank with reinvestment rates from maturing
customers regularly exceeding 70% which has meant the Bank
has carried surplus liquidity throughout 2009. Cash balances stood
at £18.0 million (2008: £20.6 million). Consequently, the Bank has
not had to compete for expensive retail deposits in 2009 and has
reduced deposit rates accordingly.
The Bank has no exposure to wholesale funding and has utilised
its surplus liquidity to improve capital management by using UK
Government Treasury Bills as an alternative to bank deposits to
reduce further risk weighted assets. Unfortunately one consequence
of the UK government’s quantitative easing programme has been
to depress the return the Bank can achieve on such liquid assets.
The loan book has performed well with arrears remaining flat year
on year, providing evidence to support the Bank’s decision to
tighten lending criteria as the “credit crunch” hit in the latter half of
2008. However, we continue to work closely with our customers
during this difficult economic environment. Margins have improved
throughout 2009 in line with the falling cost of deposits.
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Manx Financial Group PLC
05
As part of my continuing review of operations, we reduced our
Premium Finance lending through 2009 and also withdrew from
Military Lending. The reduction in Premium Finance lending
has reduced the Bank’s exposure to this business line. This
was, effectively, an outsourced operation and our enhanced risk
management process had identified a number of operational
deficiencies that needed to be addressed. Military Lending is a
specialist niche and this line of business, being broker driven, was
of variable quality and questionable profitability. With regard to
Litigation Funding, a business segment in run off since 2007, the
mediation process has been completed and the book’s net debtor
is expected to run off to a successful conclusion by 2011.
Conister Card Services — BIN Sponsorship
TransSend has been renamed as Conister Card Services and now
acts as a BIN sponsor to prepaid card issuers in the Isle of Man and
to appropriate opportunities that may arise elsewhere that comply
with our regulatory requirements. This change in strategy is starting
to filter into the Group’s income statements and it is pleasing to
report that Conister Card Services reported a profit for the second
half of 2009, £0.1 million (2008: second half loss of £1.9 million).
The full year result was a greatly reduced loss of £0.4 million (2008:
£3.5 million) but encouragingly our position within the prepaid
market allowed card volumes to increase to 73,150 (2008: 34,729),
an increase of 111%.
The Future
It is clear that all business in financial services will continue to face
significant challenges for years to come with increased consumer
scrutiny and regulatory focus. However, the Isle of Man and UK
markets present significant opportunities for sustainable managed
growth.
I firmly believe that the Group has now put its legacy issues behind
it and is uniquely positioned to exploit the opportunities presented
by the fall out from the past two years.
In conclusion, I would like to thank all of our staff and all of our
business partners without whom I would not have been able to
make the changes that are necessary to build a strong, profitable
and compliant business for the future.
Denham Eke
Chief Executive Officer
30 April 2010
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Manx Financial Group PLC
Directors and Advisers
06
James Mellon (53)‡
Denham Eke (58)‡
Executive Chairman and Non-Executive Director
Chief Executive Officer
David Gibson (63)*‡
Non-Executive Director
James Mellon holds directorships in a number of
publicly quoted companies, many of which are in the
financial services sector. He is a life tenant of the trust
which owns Burnbrae Limited which, in turn, indirectly
holds approximately 20% of Manx Financial Group
PLC. He is the founder, principal shareholder and
co-chairman of the Regent Pacific Group with total
assets of approximately US$ 250 million. He is also
founder, principal shareholder and a non-executive
director of Charlemagne Capital, based on the Isle of
Man, which has approximately US$ 2.1 billion of assets
under management.
Appointment
Appointed to the Board on 2 November 2007.
Denham Eke began his career in stockbroking before
moving into corporate planning for a major UK insurance
broker. He is a director of many years’ standing of both
public and private companies involved in the retail,
manufacturing and financial services sectors. On the
Isle of Man, he is Chairman of Webis Holdings PLC
(internet wagering), Finance Director of Emerging Metals
Limited (mining) and a Director of Speymill PLC (property
management) – all quoted on AIM. He is also Managing
Director of Burnbrae Group Limited.
Appointment
Appointed to the Board on 2 November 2007 and
became Chief Executive on 12 February 2009.
David Gibson qualified as a certified accountant whilst
holding posts with Shell-Mex and BP and CIBA-Geigy
throughout the UK and abroad before transferring into
treasury management in senior positions with Turner
and Newall and Westland Helicopters where he qualified
as a corporate treasurer. He joined the Trustee Savings
Bank of the Channel Islands as Finance Director prior to
becoming General Manager Finance at TSB Retail Bank
where he gained his formal qualifications as a banker.
Prior to retiring from executive life for family reasons,
he was Group Finance Director of Portman Building
Society for 9 years. He is currently Vice Chairman of
National Counties Building Society, Deputy Chairman of
commercial property investment companies Chellbrook
Properties plc and Mountstephen Investments Limited.
Appointment
Appointed to the Board on 12 February 2009.
Alan Clarke (59)*†‡
Non-Executive Director
Arron Banks (44)‡
Non-Executive Director
Simon Hull (45)‡
Executive Director
in corporate
Alan Clarke is a chartered accountant and former
senior partner of Ernst & Young during which time he
worked closely with HSBC offshore operations in both
the Channel Islands and the Isle of Man. Currently
he specializes
finance and strategic
consultancy, advising a variety of both listed and private
companies. He holds several non-executive directorships
and is Chairman of the Investment Committee for the
University of Manchester Intellectual Property Company.
He is also a registered auditor, being the senior partner of
Downham Mayer Clarke.
Appointment
Appointed to the Board as a Non-Executive Director
on 2 November 2007. Chairman of the Audit, Risk
and Compliance Committee and Chairman of the
Remuneration Committee.
Arron Banks is the Co-founder and Insurance Director
of Brightside Group PLC, a direct insurance group
incorporating Commercial Vehicle Direct, One Business
Insurance Solutions, Motor & Home Direct Insurance
Services, Taxi Direct, eCar, eBike, eLife and eHome
insurance, as well as other non-insurance products
including Panacea Finance, a premium
finance
company. He has been involved in insurance since 1987,
predominately at Director level with Lloyds, Haven (NU)
and Motorcycle Direct, which he co-founded.
Appointment
Appointed to the Board on 2 November 2007, became
Chief Executive Officer on 25 April 2008. He subsequently
resigned on 12 February 2009 as CEO.
Simon is a Director of Manx Financial Group plc and
Managing Director of Conister Bank Limited. He has
over 20 years experience within the banking sector
and previously held the position of Managing Director
of Alliance and Leicester International Ltd on the Isle
of Man and prior to that held other senior roles within
Alliance and Leicester in the UK. Graduated from the
University of Wales in 1985, is a Chartered Director, a
Fellow of the Chartered Management Institute and holds
a Post Graduate Certificate in Financial Regulation and
Compliance Management.
Appointment
Appointed to the Board on 12 February 2009.
* Member of the Audit, Risk and Compliance Committee.
† Member of the Remuneration Committee.
‡ Member of the Nominations Committee.
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Manx Financial Group PLC
07
Ilyas Khan (47)†‡
Non-Executive Director
Don McCrickard (73)‡
Non-Executive Director
Douglas Grant (45)‡
Executive Director
Mr Khan is Executive Chairman of Crosby Capital Limited
which he co-founded in 1998 in Hong Kong. Prior to
founding Crosby Capital Limited, Mr Khan was a senior
member of the management team and a managing
director of Nomura, responsible for the Asian (non-
Japan) investment banking and fixed income business.
Mr Khan has more than 25 years’ corporate finance and
investment banking experience with financial institutions
such as Citicorp, UBS and Schroders.
Appointment
Appointed to the Board on 2 November 2007.
Appointed as the Group Finance Director in January 2010
having worked as a financial consultant to the Group
since November 2008. He has over 25 years experience
working in finance, initially with Scottish Power before
moving to the industrial sector to work with ICI and then
Allenwest. Prior to joining Manx Financial Group PLC
he was the Group Financial Controller and later Finance
Director of various UK and Isle of Man private sector
companies and has extensive capital raising experience.
Appointment
Appointed to the Board on 14 January 2010.
From 1975 to 1983 Mr McCrickard was employed by
American Express where he headed their businesses
in the UK, Europe/Middle East/Africa and Asia/Pacific/
Australia and was a Director of American Express
International. Mr McCrickard was employed by the TSB
Group (now Lloyds TSB Group) from 1983 to 1992 and
became group chief executive as well as Chairman of
Hill Samuel, the group’s merchant banking subsidiary.
He was Chairman of the group’s executive committee,
a member of the executive committee of the British
Bankers Association and a member of the Bank of
England’s Deposit Protection Board. He has since held
Chairmanships and directorships of a number of listed
and private companies and specialises in Far Eastern
affairs.
Appointment
Appointed to the Board as a Non-Executive Director on
2 November 2007.
Advisers
Company Secretary
Lesley Crossley
Registered Agent
CW Corporate Services Limited
(Appointed 15 January 2010)
50 Athol Street, Douglas
Isle of Man, IM1 1JB
Registered Office
Conister House, Isle of Man
Business Park,
Cooil Road, Braddan,
Isle of Man, IM2 2QZ
Independent Auditors
KPMG Audit LLC,
Heritage Court,
41 Athol Street, Douglas,
Isle of Man, IM99 1HN
Legal Advisers
Stephenson Harwood
1 St Paul’s Churchyard,
London, EC4M 8SH
Principal Bankers
Barclays Private Clients
International Limited,
Barclays House
Victoria Street, Douglas,
Isle of Man, IM99 1AJ
Nick Sheard (47)‡
Executive Director
Nick Sheard is a Director of Conister Bank Limited and
Head of Risk & Compliance for Manx Financial Group
PLC. Previously Nick was Deputy Director of Banking
Supervision for Jersey Financial Services Commission
having previously been in charge of the Isle of Man
Financial Supervision Commission Banking Supervision
team. He has over 25 years experience in banking and
financial markets having worked in senior roles in finance,
compliance and risk management for several major
investment banks, notably as Head of Regulatory Risk for
NatWest Markets Equities Businesses and Deputy Head
of Financial Regulation at CSFB Europe. Nick was born
and educated on the Isle of Man and has considerable
international experience having worked in London,
Frankfurt and Belgium. He holds an MSc in Financial
Regulation and Compliance Management and a BA Hons
in Accounting and Finance.
Appointment
Appointed to the Board on 15 September 2009.
Consulting Actuaries
BWCI Consulting Limited,
Albert House, South Esplanade,
St Peter Port,
Guernsey, GY1 3BY
Presentation of Annual Report
and Accounts
Presented here is the Annual Report
and Accounts of Manx Financial
Group PLC.
Pension Fund Investment
Manager
Close International Asset
Management Ltd
PO Box 373, Kingsgate House
55 Esplanade, St Helier
Jersey, JE4 8UQ
Nominated Adviser
Beaumont Cornish Limited,
2nd Floor
Bowman House
29 Wilson Street
London, EC2M 2SJ
Broker
Fairfax I.S. PLC,
46 Berkeley Square,
London, W1J 5AT
of
Company information
The Annual and Interim reports,
along with other supplementary
information
to
Shareholders, are included on our
website. The address of the website
is www.mfg.im which
includes
investor relations information and
contact details.
interest
Share dealing
Share dealing services are available
through Computershare
Investor
Services PLC which can be
accessed via the website www.
computershare.com where further
contact details of Computershare
are available for reference.
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Manx Financial Group PLC
Report of the Directors
08
The Directors present their annual report and the audited financial
statements for the year ended 31 December 2009.
Principal activities
The principal activities of Manx Financial Group PLC (referred to
as the “Company”) and its subsidiaries (together referred to as the
“Group”) are the provision of asset and personal finance (including
premium finance), litigation finance, investing activities, the provision
of prepaid cards and “BIN” sponsorship via the Conister Card
Services division. The Company ceased to provide new litigation
finance in June 2007 and premium financing in January 2010.
Conister Bank Limited (formerly Conister Trust Limited), a wholly
owned subsidiary of the Company (referred to as “the Bank”) holds
a banking licence issued under the Isle of Man Banking Act 1998
(as amended). Deposits made with the Bank are covered by the
Depositors’ Compensation Scheme contained in the Banking
Business (Compensation of Depositors) Regulations 1991.
Change of Name
On 23 July 2009 the Company changed its name from Conister
Financial Group PLC to Manx Financial Group PLC.
The Bank changed its name from Conister Trust Limited to Conister
Bank Limited on 19 October 2009.
TransSend IOM Limited, a subsidiary of Manx Financial Group PLC,
changed it name to Conister Card Services Limited on 14 January
2010.
Conversion to a 2006 Company
On 15 January 2010 the Company converted to a 2006 Company
as defined by Isle of Man Company Law.
Results and dividends
The proposed transfers to and from reserves are as set out in the
Statement of Changes in Equity on page 17. The Directors do not
recommend the payment of a dividend (2008: nil).
Share capital
Particulars of the authorised and issued share capital of the
Company are set out in note 27 to the financial statements.
Significant shareholdings
The number of shares held and the percentage of the issued shares
which that number represented as at 31 March 2010 are:
Number
12,000,000
Bumbrae Limited
7,889,645
STM Fidecs Nominees Limited
6,717,801
Lynchwood Nominees Limited
Island Farms Limited
4,222,319
Royal Bank of Canada Europe Limited 2,873,000
ISI Nominees Limited
2,275,000
HSBC Global Custody
2,191,658
Nominee (UK) Limited
Vidacos Nominees Limited (CLRLUX) 1,792,102
Vidacos Nominees Limited (CLRLUX2) 1,630,433
1,534,124
Rene Nominees (IOM) Limited
%
18.92
12.44
10.59
6.66
4.53
3.59
3.46
2.83
2.57
2.42
The Directors are not aware of any other individual holding of greater
than 3% as at 31 March 2010.
Directors and Directors’ share interests
Details of current Directors are set out on pages 6 and 7.
The number of shares held by the current Directors are as follows:
J Mellon*
A Banks†
A Clarke
S Hull~
I Khan‡
D Grant
D Gibson^
D McCrickard>
Number
31/12/09
Number
31/12/08
12,625,000 12,575,000
8,654,645
19,112
3,342
100,000
–
–
–
8,654,645
39,112
264,744
150,000
100,000
70,000
50,000
*
Burnbrae Limited holds 12,000,000 Ordinary Shares. J Mellon, Executive Chairman
of MFG, is a Director of Burnbrae Limited. Burnbrae Limited is wholly owned by a
trustee of a settlement of which J Mellon is a beneficiary. D Eke, CEO of MFG, is also
a Director of Burnbrae Limited. Pershing Nominees Limited holds 125,000 Ordinary
Shares on trust for J Mellon. J Mellon holds 500,000 Ordinary Shares in his own
name.
† STM Fidecs Nominees Limited holds 7,889,645 Ordinary Shares on trust for Rock
Holdings Limited (5,278,645 Ordinary Shares) and for Southern Rock Insurance
Company Limited (2,611,000 Ordinary Shares). Rene Nominees Limited (IOM)
Limited holds 765,000 Ordinary Shares on trust for Southern Rock Insurance
Company Limited (740,000 Ordinary Shares) and A Banks (25,000 Ordinary Shares).
A Banks, a Director of the Company, is beneficially interested in 51%. of the issued
share capital of Rock Holdings Limited and is beneficially interested in 37.5%. of the
issued share capital of Southern Rock Insurance Company Limited. A Banks is a
Director of Rock Holdings Limited and Southern Rock Insurance Company.
~ Comprises 251,700 ordinary shares held by Rene Nominees (IOM) Limited on trust
for S Hull and 13,044 ordinary shares held by Barclays Stockbrokers Nominees on
trust for S Hull.
‡ Comprises 55,000 ordinary shares held by Vidacos Nominees on trust for I Khan
and 95,000 ordinary shares held by Pershing Nominees on trust for I Khan.
^ Comprises 70,000 ordinary shares held by TD Waterhouse Nominees Limited on
trust for D Gibson.
> Comprises 50,000 ordinary shares held by Hargreaves Landsdown Nominees
Limited on trust for D McCrickard.
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Manx Financial Group PLC
09
The Remuneration Committee has access to external professional
advice and relevant company records and personnel. The primary
purpose of the Remuneration Committee is to attract, retain and
motivate Executive Directors and managers of a quality to drive
the business forward. A proportion of the Executive Directors’ and
senior managers’ remuneration is structured so as to link rewards
to corporate and individual performance. The performance related
elements of remuneration are designed to align Executive Directors’
and senior managers’ interests with those of the Shareholders and
to give them keen incentives to perform at the highest level. In that
regard, share options are not offered at a discount and no bonuses
or benefits-in-kind are pensionable. Further details are provided in
the Directors’ Remuneration Report.
The full Board forms the Nomination Committee which considers all
new Board appointments and succession planning in the light of the
needs of the Company from time to time. All Directors are required
to submit themselves for re-election. One third of Directors who are
subject to retirement by rotation shall retire from office by rotation at
every Annual General Meeting.
By order of the Board
Lesley Crossley
Company Secretary
30 April 2010
Directors’ liability insurance
The Group maintains insurance cover for Directors’ liability.
Fixed assets
The movement in fixed assets during the year is set out in note 21
to the financial statements.
Staff
At 31 December 2009 there were 39 members of staff, 7 of whom
were part-time (2008: 58 members of staff, 8 of whom were part-
time). The staff numbers for 2008 included 18 members of staff, 3
of whom were part-time who were made redundant as part of a
Group-wide restructure after the year end.
Investments in subsidiaries
Investments in the Company’s subsidiaries are disclosed in note 22
to the financial statements.
Auditor
KPMG Audit LLC, being eligible, have expressed their willingness to
continue in office.
Corporate governance
The Combined Code (“Code”) on Corporate Governance sets out
standards of good practice in relation to issues such as board
composition and development, remuneration, accountability and
audit and relations with Shareholders. The Company’s Board,
monitors the extent to which the Company’s established procedures
and corporate governance structures comply with the Code and
is satisfied that the Company complies with the provisions of the
Code to the extent which is appropriate to the Company’s nature
and scale of operations. The Board has maintained a majority of
Non-Executive Directors throughout the year. The Board delegates
authority to two main committees: the Audit, Risk and Compliance
Committee and the Remuneration Committee. Membership of
the committees is detailed on pages 6 and 7. The Audit Risk and
Compliance Committee is responsible for assisting the Board
to discharge its responsibilities relating to accounting policies,
internal control and financial reporting and is composed of two
Non-Executive Directors chaired by Mr A Clarke. The external
Auditors, Executive Directors and senior managers are invited to
attend meetings as appropriate, while the external Auditors and the
Internal Audit and Compliance functions have unfettered access to
the Committee members.
The Remuneration Committee recommends to the full Board
the terms and conditions, including annual remuneration, of the
Executive Directors and senior management. It is composed of
two Non-Executive Directors and is chaired by Mr A Clarke. The
members are independent of management and its Chairman is
free from any business or other relationship which could materially
interfere with the exercise of his independent judgement.
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Manx Financial Group PLC
Directors’ Remuneration Report
10
Introduction
As an Isle of Man registered company there is no requirement to
produce a Directors’ remuneration report. However, the Board
follows best practice and therefore has prepared such a report. In
preparing the report the Directors have referred to the regulations
and rules in force for UK companies as a basis. There is no Isle of
Man requirement for any part of this report to be audited.
Remuneration Committee
The Company has established a Remuneration Committee, which
is constituted in accordance with the recommendations of the
Combined Code. The members of the Committee are Mr A Clarke
and Mr I Khan, both independent Non-Executive Directors, and
the Committee is chaired by Mr A Clarke. The Committee makes
recommendations to the Board. No Director plays a part in any
discussion about his own remuneration.
Remuneration policy for the Executive Directors’ remuneration
packages is designed to attract, motivate and retain Directors of
the high calibre needed to enhance the Group’s position and to
reward them for improving Shareholder value. The performance
measurement of the Executive Directors and key members of senior
management and the determination of their annual remuneration
packages are undertaken by the Committee.
There are five potential elements of the remuneration package for
Executive Directors and senior management:
n Basic annual salary;
n Benefits-in-kind;
n Annual bonus payment;
n Share option incentives; and
n Pension arrangements.
Basic salary
An Executive Director’s basic salary is reviewed by the Committee
prior to the beginning of each year and when an individual
changes position or responsibility. In deciding appropriate levels,
the Committee considers the Group as a whole.
Benefits-in-kind
No Directors receive benefits-in-kind.
Annual bonus payment
The Committee believes that any incentive compensation awarded
should be tied to the interests of the Company’s Shareholders and
that the principal measure of their interest is total Shareholder return.
Account is also taken of the relative success of the different parts
of the business for which the Chief Executive Officer or Executive
Director is responsible and the extent to which the strategic
objectives set by the Board are being met.
Share option incentives
The Company believes these to be a key element of remuneration
given the direct link with Shareholder interests. Those awarded at
the balance sheet date are disclosed in Note 27 to the financial
statements.
Pension arrangements
Neither the Chief Executive Officer or the Executive Chairman
receive pension contributions.
Performance graph
UK Companies Acts require the performance of the Group to be
displayed in a chart form against the performance of a readily
available broad equity market index.
Although MFG is an Isle of Man company, it has chosen to adopt
the UK requirement as best practice. The graph below shows the
movement in share price in comparison to the price in the FTSE All
Share Bank Index to give an indication of Shareholder return. The
FTSE All Share Bank Index is a broadly based index of Shareholder
return. The information provided covers the year from January 2009
to December 2009.
Chief Executive Officer’s contract
On 12 February 2009 Mr D Eke was appointed as Chief Executive
Officer. The overall fee payable by the Group for the services of
Mr D Eke was unchanged on his appointment remaining at £25,000
per annum.
Former Chief Executive Officer’s contract
On 12 February 2009 Mr A F A Banks stepped down as Chief
Executive Officer. No ex gratia payment was made and the
entitlement to the 1,000,000 share options held at 31 December
2008 lapsed.
Non-Executive Directors
Non-Executive Directors have no fixed term of appointment. Non-
Executive Directors are subject to reappointment by Shareholders.
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Manx Financial Group PLC
11
Remuneration/
Fees
£
Bonus
£
Pension
£
2009
Total
£
2008
Total
£
25,000
—
—
25,000
25,000
8,333
142,000
—
82,846
11,458
37,500
25,000
36,458
12,500
37,500
—
418,595
—
—
—
1,000
—
—
—
—
—
—
—
1,000
—
1,141
—
7,618
—
—
—
—
—
—
—
8,759
8,333
143,141
—
91,464
11,458
37,500
25,000
36,458
12,500
37,500
—
428,354
87,500
—
447,930
—
—
29,167
25,262
17,050
21,875
29,167
21,875
704,826
Directors’ emoluments
Executive
Chairman
J Mellon
Executive
A F A Banks
S Hull
J F Linehan
N Sheard
Non-Executive
A F A Banks
A Clarke
D Eke
D Gibson
I T Khan
D C McCrickard
P Stamp
Aggregate emoluments
Approval
This report was approved by the Board of Directors on 30 April 2010 and signed on its behalf by:
James Mellon
Chairman
30 April 2010
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Manx Financial Group PLC
Statement of Directors’ Responsibilities in respect of the Directors’ Report
and the Financial Statements
12
The Directors are responsible for keeping proper accounting records
that disclose with reasonable accuracy at any time the financial
position of the Parent Company and to allow for the preparation
of financial statements. They have general responsibility for taking
such steps as are reasonably open to them to safeguard the assets
of the Group and to prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation governing the preparation and dissemination
of financial statements may differ from one jurisdiction to another.
The Directors are responsible for preparing the Directors’ Report
and the financial statements in accordance with applicable law and
regulations. In addition, the Directors have elected to prepare the
Group and Parent Company financial statements in accordance
with International Financial Reporting Standards.
The Group and Parent Company financial statements are required
to give a true and fair view of the state of affairs of the Group and
Parent Company and of the profit or loss of the Group for that
period.
In preparing
required to:
these
financial statements,
the Directors are
n select suitable accounting policies and then apply them
consistently;
n make judgements and estimates that are reasonable and
prudent;
n state whether they have been prepared in accordance with
International Financial Reporting Standards; and
n prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and Parent
Company will continue in business.
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Manx Financial Group PLC
Report of the Independent Auditor
13
Basis of opinion
We conducted our audit in accordance with International Standards
on Auditing (UK and Ireland) issued by the Auditing Practices Board.
An audit includes examination, on a test basis, of evidence relevant
to the amounts and disclosures in the financial statements. It also
includes an assessment of the significant estimates and judgements
made by the Directors in the preparation of the financial statements,
and of whether the accounting policies are appropriate to the
Group’s and Company’s circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary
in order to provide us with sufficient evidence to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view, in
accordance with International Financial Reporting Standards, of the
state of the Group and Parent Company’s affairs as at 31 December
2009 and of the Group’s loss for the year then ended.
KPMG Audit LLC
Chartered Accountants
30 April 2010
Heritage Court
41 Athol Street
Douglas
Isle of Man
IM99 1HN
Report of the Independent Auditor, KPMG Audit LLC, to the
members of Manx Financial Group PLC (formerly Conister
Financial Group PLC)
We have audited the Group and Parent Company financial
statements (the “financial statements”) of Manx Financial Group
PLC (formerly Conister Financial Group PLC) for the year ended
31 December 2009 which comprise the Group Comprehensive
Statement of Income, the Group and Parent Company Statement
of Financial Position, the Group Statement of Cash Flows, and the
Group and Parent Company Statement of Changes in Equity, and
the related notes. These financial statements have been prepared
under the accounting policies set out therein.
This report is made solely to the Company’s members, as a body.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members,
as a body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of Directors and Auditor
The Directors’ responsibilities for preparing the financial statements
in accordance with applicable law and International Financial
Reporting Standards are set out in the Statement of Directors’
Responsibilities on page 12.
Our responsibility is to audit the financial statements in accordance
with relevant legal and regulatory requirements and International
Standards on Auditing (UK and Ireland). We report to you our
opinion as to whether the financial statements give a true and fair
view. We also report to you if, in our opinion, the Company has not
kept proper accounting records, or if we have not received all the
information and explanations we require for our audit.
We read the Directors’ Report and any other
information
accompanying the financial statements and consider the implications
for our report if we become aware of any apparent misstatements
or material inconsistencies with the audited financial statements.
Our responsibilities do not extend to any other information.
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Manx Financial Group PLC
Consolidated Comprehensive
Statement of Income
14
For the year ended 31 December 2009
Interest income
Interest expense
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission expense
Net trading income
Other operating income
Programme costs
Foreign exchange (loss)/gain
Operating income
Personnel expenses
Depreciation
Other expenses
Provision for impairment of loan assets
Depositors’ Compensation Scheme
Realised loss on sale of available-for-sale financial instruments
Dividend income from financial assets carried at fair value
Realised gains on available-for-sale investments
Unrealised gain/(loss) on financial assets carried at fair value
Loss before specific items
Net impairment loss on available-for-sale financial instruments
Re-structure costs
Project costs
Legal costs related to net impairment of available-for-sale financial instruments
Scheme of arrangement costs
Loss before income tax expense
Income tax expense
Loss for the year
Other comprehensive income
Available-for-sale gains taken to equity
Actuarial loss on defined benefit pension scheme
Total comprehensive loss for the period attributable to owners
Notes
3j, 6
3j, 7
3k
3l
3r
3b, 21
8
11
18
19
9
10
19
12
2009
£000
5,341
(3,222)
2008
£000
7,140
(3,552)
2,119
3,588
9
(459)
(450)
18
(727)
(709)
1,669
2,879
871
(591)
(26)
805
(505)
31
1,923
3,210
(2,425)
(102)
(1,395)
(643)
(89)
—
—
30
238
(4,421)
(77)
(3,366)
(1,363)
—
(454)
6
—
(162)
(2,463)
(6,627)
—
(158)
—
—
—
(9,638)
(1,425)
(494)
(76)
(45)
(2,621)
(18,305)
14
—
—
(2,621)
(18,305)
3g, 26
6
(111)
—
(43)
(2,726)
(18,348)
Basic and diluted loss per share (pence)
15
(4.13)
(32.8)
The notes on pages 18 to 48 form part of these Financial Statements.
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Manx Financial Group PLC
Consolidated and Company
Statement of Financial Position
15
Group
Company
Notes
2009
£000
2008
£000
7,976
374
9,989
37,554
601
—
450
20,589
136
—
55,916
192
—
1,389
56,944
78,222
49,544
1,282
66
66,058
3,094
314
50,892
69,466
17
18
19
20
21
22
23
24
25
26
27
27
2009
£000
—
—
—
—
6
6,191
24
6,221
—
192
—
192
15,854
6,142
(15,944)
15,854
6,142
(13,240)
6,052
8,756
56,944
78,222
15,854
6,142
(15,967)
6,029
6,221
2008
£000
—
—
—
—
—
9,610
472
10,082
—
1,059
—
1,059
15,854
6,142
(12,973)
9,023
10,082
As at 31 December 2009
Assets
Cash and cash equivalents
Financial assets at a fair value through profit or loss
Available-for-sale financial instruments
Loans and advances to customers
Property, plant and equipment
Investment in Group undertakings
Trade and other receivables
Total assets
Liabilities
Customer accounts
Creditor and accrued charges
Pension liability
Total liabilities
Equity
Called up share capital
Share premium account
Profit and loss account
Total equity
Total liabilities and equity
The Financial Statements were approved by the Board of Directors on 30 April 2010 and signed on their behalf by:
James Mellon
Chairman
Denham Eke
Chief Executive Officer
The notes on pages 18 to 48 form part of these Financial Statements.
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Manx Financial Group PLC
Consolidated Statement of Cash Flows
16
For the year ended 31 December 2009
RECONCILIATION OF LOSS BEFORE TAXATION TO OPERATING CASH FLOWS
Loss before tax on continuing activities
Realised loss on financial assets held at fair value through profit and loss
Unrealised (gain)/loss on financial assets carried at fair value
Net impairment loss on financial assets
Dividend income from financial assets carried at fair value through profit and loss
Loss on disposal of property, plant and equipment
Depreciation charge
Available-for-sale gains taken to equity
Actuarial losses on defined benefit pension scheme taken to equity
(Decrease)/increase in pension liability
Share-based payment expense
Decrease/(increase) in trade debtors
(Decrease)/increase in trade creditors
Net cash outflow from trading activities
Decrease in loans and advances to customers
(Decrease)/increase in deposit accounts
Cash outflow from operating activities
CASH FLOW STATEMENT
Cash flows from operating activities
Cash outflow from operating activities
Taxation paid
Net cash outflow from operating activities
Cash flows from investing activities
Purchase of tangible fixed assets
Purchase of available-for-sale financial instruments
Sale of financial assets at fair value through profit and loss
Sale of tangible fixed assets
Dividend income from financial assets carried at fair value
Net cash outflow from investing activities
Cash flows from financing activities
Issue of subordinated liabilities
Net cash inflow from financing activities
Decrease in cash and cash equivalents
The notes on pages 18 to 48 form part of these Financial Statements.
Notes
2009
£000
2008
£000
21
26
26
27
19
(2,621)
—
(238)
—
—
2
102
6
(111)
(248)
22
939
(1,812)
(18,305)
454
162
9,638
(6)
104
77
—
(43)
9
315
(651)
1,057
(3,959)
(7,189)
18,362
(16,514)
821
4,085
(2,111)
(2,283)
(2,111)
—
(2,283)
(1)
(2,111)
(2,284)
(526)
(9,989)
—
13
—
(10,502)
—
—
(96)
(909)
127
—
346
(532)
500
500
(12,613)
(2,316)
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Manx Financial Group PLC
Consolidated and Company
Statement of Changes in Equity
For the year ended 31 December 2009
Group
Balance as at 1 January
Loss for the year
Other comprehensive expense
Transactions with owners:
Arising on shares issued in the year
Share-based payment expense
Share
capital
£000
15,854
—
—
Share
premium
£000
Retained
earnings
£000
6,142
—
—
(13,240)
(2,621)
(105)
2009
£000
8,756
(2,621)
(105)
—
—
—
—
—
22
—
22
Balance as at 31 December 2009
15,854
6,142
(15,944)
6,052
17
2008
£000
17,473
(18,305)
(43)
9,316
315
8,756
For the year ended 31 December 2009
Company
Balance as at 1 January
Loss for the year
Transactions with owners:
Scheme of arrangement
Arising on shares issued in the year
Share-based payment expense
Share
capital
£000
15,854
—
—
—
—
Share
premium
£000
Retained
earnings
£000
2009
£000
2008
£000
6,142
—
(12,973)
(3,016)
9,023
(3,016)
–
(13,288)
—
—
—
—
—
22
—
—
22
12,680
9,316
315
Balance as at 31 December 2009
15,854
6,142
(15,967)
6,029
9,023
The notes on pages 18 to 48 form part of these Financial Statements.
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Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
18
Reporting entity
1.
Manx Financial Group PLC is a Company domiciled in the Isle of Man. The consolidated financial statements of Manx Financial Group
PLC (referred to hereafter as the “Company”) for the twelve months ended 31 December 2009 comprise the Company and its subsidiaries
(together referred to as the “Group”).
A summary of the principal accounting policies, which have been applied consistently, is set out below:
Basis of preparation
2.
(a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and
International Financial Reporting Interpretations Committee (IFRIC) interpretations applicable to companies reporting under IFRS.
The Group applies revised IAS 1 Presentation of Finance Statements (2007), which became effective as of 1 January 2009. As a result, the
Group presents in the consolidated statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity
are presented in the consolidated statement of comprehensive income. This presentation has been applied in these financial statements
as of and for the year ended on 31 December 2009. Comparative information has been re-presented so that it also is in conformity with
the revised standard.
Since the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.
(b) Basis of measurement
The financial statements are prepared on a historical cost basis except:
n financial instruments at fair value through profit or loss are measured at fair value; and
n equity settled share-based payment arrangements are measured at fair value.
(c) Functional and presentation currency
These financial statements are presented in sterling, which is the Group’s functional currency. Except as indicated, financial information
presented in sterling has been rounded to the nearest thousand. All subsidiaries of the Group have pounds sterling as their functional
currency.
(d) Use of estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application
of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period
in which the estimate is revised and in any future periods affected.
In particular, information about significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have
the most significant effect on the amounts recognised in the financial statements are described in note 3(o).
3.
Significant accounting policies
(a) Basis of consolidation of subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are
taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control
commences until the date that control ceases.
Intra-Group balances, income and expenses and unrealised losses or gains arising from intra-Group transactions, are eliminated in preparing
the consolidated financial statements.
(b) Property, plant and equipment continued
Items of property, plant and equipment are stated at historical cost less accumulated depreciation (see below). Historical cost includes
expenditure that is directly attributable to the acquisition of the items.
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19
Significant accounting policies continued
3.
(b) Property, plant and equipment continued
The assets’ residual values and useful economic lives are reviewed, and adjusted if appropriate, at each statement of financial position
date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount.
When parts of an item of property, plant and equipment have different useful lives, those components are accounted for as separate items
of property, plant and equipment.
Depreciation
Assets are depreciated on a straight-line basis except furniture, which is written down on the reducing balance basis, so as to write off the
book value over their estimated useful lives.
Equipment
Vehicles
Furniture
4–5 years
4 years
10% per annum
(c) Financial assets
Management have determined the classification of the Group’s financial assets into one of the following categories:
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
They arise when the Group provides money directly to a customer with no intention of trading the receivable. This classification includes
advances made to customers under hire purchase and finance lease agreements, premium financing, litigation finance loans, personal
loans and stocking plans.
Loans are recognised when cash is advanced to the borrowers. Loans and receivables are carried at amortised cost using the effective
interest rate method with all movements being recognised in the comprehensive statement of income after taking into account provision
for impairment losses (see (d)).
Financial assets at fair value through profit or loss
A financial asset is classified in this category if it is acquired principally for the purpose of selling in the short term or if so designated by
management. The fair value of the financial asset at fair value through profit or loss is based on the quoted bid price at the statement of
financial position date.
Available-for-sale financial instruments
Available-for-sale investments are non-derivative investments that are designated as available-for-sale or are not classified as another
category of financial assets. All other available-for-sale investments are carried at fair value.
Dividend income is recognised in the comprehensive statement of income when the Group becomes entitled to the dividend. Other
fair value changes are recognised directly in equity until the investment is sold or impaired, whereupon the cumulative gains and losses
previously recognised in equity are recognised in the comprehensive statement of income.
Investments in subsidiary undertakings
Investments in subsidiary undertakings are measured at cost less any provision for impairment.
(d) Impairment of financial assets
The Group assesses at each statement of financial position date whether there is objective evidence that a financial asset or Group of financial
assets is impaired. This arises if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the
initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial
asset, or Group of financial assets, that can be reliably estimated. Impairment losses are recognised in the comprehensive statement of income
for the year.
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Notes to the Consolidated
Financial Statements
20
Significant accounting policies continued
3.
(d) Impairment of financial assets continued
Objective evidence that financial assets are impaired can include default or delinquency by a borrower, restructuring of a loan or advance
by the Group on terms that the Group would not otherwise consider, indications that a borrower or issuer will enter bankruptcy or other
observable data relating to a Group of assets such as adverse changes in the payment status of borrowers.
Loans and other receivables are reviewed for impairment where there are repayment arrears and doubt exists regarding recoverability. The
impairment allowance is based on the level of arrears together with an assessment of the expected future cash flows, and the value of any
underlying collateral (after taking into account any irrecoverable interest due). Amounts are written off when it is considered that there is no
further prospect of recovery.
Where past experience has indicated that over time, a particular category of financial assets has suffered a trend of impairment losses, a
collective impairment allowance is made for expected losses to reflect the continuing historical trend.
(e) Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash equivalents comprise cash and deposit balances with an original maturity
date of three months or less.
(f) Financial liabilities
Financial liabilities consist of customer deposit accounts, other creditors and accrued charges. Customer accounts are recognised
immediately upon receipt of cash from the customer. Interest payable on customer deposits is provided for using the interest rate prevailing
for the type of account.
(g) Employee benefits
Pension obligations
The Group has pension obligations arising from both defined benefit and defined contribution pension plans.
A defined contribution pension plan is one under which the Group pays fixed contributions into a separate fund and has no legal or
constructive obligations to pay further contributions.
Defined benefit pension plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one
or more factors such as age, years of service and compensation.
Under the defined benefit pension plan, in accordance with IAS19 Employee benefits, the full service cost for the period, adjusted for any
changes to the plan, is charged to the comprehensive statement of income. A charge equal to the expected increase in the present value of
the plan liabilities, as a result of the plan liabilities being one year closer to settlement, and a credit reflecting the long-term expected return
on assets based on the market value of the scheme assets at the beginning of the period, is included in the comprehensive statement of
income.
The statement of financial position records as an asset or liability (as appropriate), the difference between the market value of the plan
assets and the present value of the accrued plan liabilities. The difference between the expected return on assets and that actually achieved
in the period, is recognised in the comprehensive statement of income in the year in which they arise. The defined benefit pension plan
obligation is calculated by independent actuaries using the projected unit credit method and a discount rate based on the yield on AA rated
corporate bonds.
The Group’s defined contribution pension obligations arise from contributions paid to a Group personal pension plan, an ex gratia pension
plan, employee personal pension plans and employee co-operative insurance plans. For these pension plans, the amounts charged to the
comprehensive statement of income represent the contributions payable during the year.
Share-based compensation
The Group maintains a share option programme which allows certain Group employees to acquire shares of the Group. The change
in the fair value of options granted is recognised as an employee expense with a corresponding change in equity. The fair value of the options
is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options.
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21
Significant accounting policies continued
3.
(g) Employee benefits continued
Share-based compensation continued
At each statement of financial position date, the Group revises its estimate of the number of options that are expected to vest and recognises
the impact of the revision to original estimates, if any, in the comprehensive statement of income, with a corresponding adjustment to equity.
The share option programme was originally set up for Group employees to subscribe for shares in Conister Bank Limited. Since the
Scheme of Arrangement, the shareholders of Conister Bank Limited became shareholders of Manx Financial Group PLC and the share
option programme is now operated by Manx Financial Group PLC.
The fair value is estimated by an independent actuary using a proprietary binomial probability model.
The proceeds received, net of any directly attributable transaction costs, are credited to share capital (nominal value) and share premium
when the options are exercised.
Other obligations
Provision is made for short-term benefits payable for salaries, holiday pay, social security costs and sick leave on a prorated basis and is
included within creditors and accrued charges.
(h) Leases
i) A Group Company is the lessor
Finance leases and hire purchase contracts
When assets are subject to a finance lease or hire purchase contract, the present value of the lease payments is recognised as a receivable.
The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Hire
purchase and lease income is recognised over the term of the contract or lease reflecting a constant periodic rate of return on the net
investment in the contract or lease.
Initial direct costs, which may include commissions and legal fees directly attributable to negotiating and arranging the contract or lease,
are included in the measurement of the net investment of the contract or lease at inception.
ii) A Group Company is the lessee
Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-
line basis over the period of the lease.
(i) Deferred taxation
Deferred taxation is provided in full, using the liability method, on timing differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements. Deferred taxation is determined using tax rates (and laws) that have
been enacted or substantially enacted by the statement of financial position and are expected to apply when the related deferred income
tax is realised. Deferred taxation assets are recognised to the extent that it is probable that future taxable profit will be available against
which the temporary differences can be utilised.
(j) Interest income and expense
Interest income and expense are recognised in the comprehensive statement of income using the effective interest rate method.
Effective interest rate
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts of the financial instrument to the net
carrying amount of the financial asset or financial liability. The discount period is the expected life or, where appropriate, a shorter period.
The calculation includes all amounts receivable or payable by the Group that are an integral part of the overall return, including origination
fees, loan incentives, broker fees payable, estimated early repayment charges, balloon payments and all other premiums and discounts.
It also includes direct incremental transaction costs related to the acquisition or issue of the financial instrument. The calculation does not
consider future credit losses.
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Notes to the Consolidated
Financial Statements
22
Significant accounting policies continued
3.
(j) Interest income and expense continued
Effective interest rate continued
Once a financial asset or a group of similar financial assets has been written down as a result of impairment, subsequent interest income
continues to be recognised using the original effective interest rate applied to the reduced carrying value of the financial instrument.
(k) Fees and commission income
Fees and commission income other than that directly related to loans is recognised over the period for which service has been provided or
on completion of an act to which the fees relate.
(l) Programme costs
Programme costs are direct expenditure incurred in relation to prepaid card programmes. The costs are recognised over the period in which
income is derived from operating the programmes.
(m) Segment reporting
A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in
providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that
are different from those of other segments. The Group’s primary format for segment reporting is based on business segments.
(n) New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not yet effective for the year, and have not been applied in
preparing these consolidated financial statements:
New/Revised International Accounting Standards/International Financial Reporting Standards (IAS/IFRS)
IAS1 Presentation of Financial Statements (Revised 2009)
IAS7 Statement of Cash Flows (Revised 2009)
IAS17 Leases (Revised 2009)
IAS24 Related Party Disclosures — Revised definition of related parties
IAS27 Consolidated and Separate Financial Statements – Amendment relating to cost of an investment on
first-time adoption (Revised 2008)
IAS28 Investments in Associates — Consequential amendments resulting from amendments to IFRS3 (2008)
IAS31 Interests in Joint Ventures — Consequential amendments resulting from amendments to IFRS3 (2008)
IAS32 Financial Instruments: Presentation — Amendments relating to classification of rights issues
IAS36 Impairment of Assets (Revised 2009)
IAS38 Intangible Assets
IAS39 Financial Instruments: Recognition and Measurement — Amendments for embedded derivatives when
reclassifying financial instruments
IAS39 Financial Instruments: Recognition and Measurement — Amendments for eligible hedged items
IAS39 Financial Instruments: Recognition and Measurement (Revised 2009)
IFRS2 Share-based Payment — Amendments relating to Group cash-settled share-based payment transactions
IFRS3 Business Combinations — Comprehensive revision on applying the acquisition method
IFRS5 Non-current Assets Held for Sale and Discontinued Operations (Revised 2008)
IFRS5 Non-current Assets Held for Sale and Discontinued Operations (Revised 2009)
IFRS7 Disclosures for First-time Adopters (Amendment to IFRS1)
IFRS8 Operating Segments (Revised 2009)
IFRS9 Financial Instruments
IFRIC Interpretations
IFRIC9 Reassessment of Embedded Derivatives
IFRIC17 Distributions of Non-Cash Assets to Owners
IFRIC18 Transfers of Assets from Customers
IFRIC19 Extinguishing Financial Liabilities with Equity Instruments
Effective date
(accounting periods
commencing after)
1 January 2010
1 January 2010
1 January 2010
1 January 2011
1 July 2009
1 July 2009
1 July 2009
1 February 2010
1 January 2010
1 July 2009
30 June 2009
1 July 2009
1 January 2010
1 January 2010
1 July 2009
1 July 2009
1 January 2010
1 July 2010
1 January 2010
1 January 2013
30 June 2009
1 July 2009
1 July 2009
1 July 2010
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Manx Financial Group PLC
23
Significant accounting policies continued
3.
(n) New standards and interpretations not yet adopted continued
The Directors do not expect the adoption of the other standards and interpretations to have a material impact on the Group’s financial
statements in the period of initial application.
(o) Key sources of estimation uncertainty
Management believe that a key area of estimation and uncertainty is in respect of the impairment allowances on loans and advances to
customers. Loans and advances to customers are evaluated for impairment on a basis described in note 4, credit risk. The Group has
substantial historical data upon which to base collective estimates for impairment on HP Contracts, Finance Leases and Personal Loans.
The Litigation Funding loan book has in recent years seen volatility in repayment patterns and there is therefore greater uncertainty in
assessing impairment allowances on this loan book. The litigation described in note 32 has also made the assessment of the appropriate
impairment allowances on this loan book more difficult and there is the possibility that further litigation will be necessary to collect a number
of outstanding balances. This could delay the recovery of affected loans and make their recovery more costly than anticipated. Counter
claims have been received and there is the possibility of litigation being necessary. There is a risk of an adverse outcome in all litigation and
the costs and timescale to resolve these matters are uncertain. The costs of administering the future run off of the litigation funding loan
book are also therefore uncertain. The accuracy of the impairment allowances and provisions for counter claims and legal costs depend on
how closely the estimated future cash flows mirror actual experience.
(p) Fiduciary deposits
Deposits received on behalf of clients by way of a fiduciary agreement are placed with external parties and are not recognised on the
statement of financial position. Income in respect of fiduciary deposit taking is included within interest income and recognised on an
accruals basis.
(q) Prepaid card funds
The Group received funds for its prepaid card activities. These funds were held in a fiduciary capacity for the sole purpose of making
payments as and when card-holders utilise the credit on their cards, and were therefore not recognised on the statement of financial
position.
(r) Foreign exchange
Foreign currency assets and liabilities (applicable to the Conister Card Services division only) are translated at the rates of exchange ruling
at the year end. Transactions during the year are recorded at rates of exchange in effect when the transaction occurs. The exchange
movements are dealt with in the comprehensive statement of income.
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Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
24
Risk and capital management
4.
(a) Risk management
Introduction and overview
The Group has exposure to the following risks from its use of financial instruments:
n credit risk
n liquidity risk
n operational risk
n market risk
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for
managing risk and capital within the Bank. The Bank is the main operating entity exposed to these risks.
Risk management framework
The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework within the Group.
The Board of the Bank has established the Executive Risk Committee (ERC) which reports to the Audit Risk and Compliance Committee
(ARCC) and is responsible for developing and monitoring risk management policies in their specified areas. Operational responsibility for
asset and liability management is delegated to the Executive Directors of the Bank, and management through the Bank’s Assets and
Liabilities Committee (ALCO).
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and
controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in
market conditions. The Group has a disciplined and constructive control environment, in which all employees understand their roles and
obligations.
The ARCC is responsible for monitoring compliance with the Group’s risk management policies and procedures, and for reviewing the
adequacy of the risk management framework in relation to the risks faced by the Group. Internal Audit undertakes both regular and ad hoc
reviews of risk management controls and procedures, the results of which are reported to the ARCC.
i) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations. For risk management reporting purposes, the Group considers and consolidates all elements of credit risk exposure (such as
individual obligor default, country and sector risk).
The Group is principally exposed to credit risk with regard to loans and advances to customers, comprising HP and finance lease receivables,
premium finance loans, litigation funding loans, unsecured personal loans and stocking plan loans. It is also exposed to credit risk with
regard to cash balances and trade and other receivables. The administration of premium finance lending is outsourced and there is a credit
risk with regards to the clearing balance maintained in the outsourcing Company’s bank account.
Management of credit risk
The Board of Directors of the Bank has delegated responsibility for the management of credit risk to the Credit Committee (CC) for loans
and ALCO for other assets. The following measures are taken in order to manage the exposure to credit risk:
n Explicit credit policies, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal
procedures, and compliance with regulatory and statutory requirements.
n A rigorous authorisation structure for the approval and renewal of credit facilities. Each opportunity is researched for viability, legal/
regulatory restriction and risk. If recommended, the proposal is submitted to Board of Directors or the CC. The CC reviews lending
assessments in excess of individual credit control or executive discretionary limits.
n Reviewing and assessing existing credit risk and collateral. The CC assesses all credit exposures in excess of designated limits, as set
out in the underwriting manual (for asset and personal finance) or the Operating Model and Procedures (for premium finance).
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25
Risk and capital management continued
4.
(a) Risk management continued
Management of credit risk continued
i) Credit risk continued
n Limiting concentrations of exposure to counterparties, geographies and industries (defining sector limits and lending caps).
n Limiting the term of exposure to minimise interest rate risk.
n Ensuring that appropriate records of all sanctioned facilities are maintained.
n Ensuring regular account reviews are carried out for all accounts agreed by the CC.
n Ensuring Board approval is obtained on all decisions of the CC above the limits set out in the Bank’s Credit risk policy.
An analysis of the credit risk on loans and advances to customers is as follows:
Loans and advances to customers
Carrying amount
Individually impaired1
Grade A
Grade B
Grade C
Gross value
Allowance for impairment
Carrying value
Collective allowance for impairment
Past due but not impaired
Less than 1 month
More than 1 month but less than 2 months
More than 2 months but less than 3 months
Carrying value
Neither past due nor impaired
2009
£000
2008
£000
37,554
55,916
1,361
468
4,004
5,833
(4,103)
4,301
464
516
5,281
(3,397)
1,730
1,884
(333)
(768)
46
6
1
53
86
6
12
104
36,104
54,696
1 Loans are graded A to C depending on the level of risk. Grade A relates to agreements with the highest of risk, Grade B with medium risk and Grade C relates to agreements
with the lowest risk.
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Notes to the Consolidated
Financial Statements
26
Risk and capital management continued
4.
(a) Risk management continued
Management of credit risk continued
i) Credit risk continued
Impaired loans
Impaired loans are loans where the Group determines that it is probable that it will be unable to collect all principal and interest due
according to the contractual terms of the loan agreements.
Past due but not impaired loans
Past due but not impaired loans are loans where the contractual interest or principal payments are past due but the Group believes that
impairment is not appropriate on the basis of the level of security, collateral available and/or the stage of collection of amounts owed to the
Group.
Allowances for impairment
The Group establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main
components of this allowance are a specific loss allowance that relates to individually significant exposures, and a collective loan loss
allowance, which is established for the Group’s assets in respect of losses that have been incurred but have not been identified on
loans subject to individual assessment for impairment. The collective loan loss allowance is based on historical experience, the current
economic environment and an assessment of its impact on loan collectability. Guidelines regarding specific impairment allowances are
laid out in the Bank’s Debt Recovery Process Manual which is reviewed annually.
Write-off policy
The Group writes off a loan balance (and any related allowances for impairment losses) when management determines that the loans are
uncollectable. This determination is reached after considering information such as the occurrence of significant changes in the borrower’s
financial position such that the borrower can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back
the entire exposure.
Collateral
The Group holds collateral in the form of the underlying assets (typically private and commercial vehicles, plant and machinery) as security
for Hire Purchase and finance lease balances, which are a sub-category of loans and advances to customers. Estimates of fair value
are based on the value of collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually
assessed as impaired. At the time of granting credit for Hire Purchase and finance leases the loan balances due are secured over the
underlying assets held as collateral.
Concentration of credit risk
Geographical
Lending is restricted to individuals and entities with United Kingdom or Isle of Man addresses.
Segmental
The Group is exposed to credit risk with regard to customer loan accounts, comprising Hire Purchase and finance lease balances, premium
finance balances, litigation funding balances, unsecured personal loans and vehicle stocking plan loans.
ii) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting financial liability obligations as they fall due.
Management of liquidity risk
The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both
normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group uses various methods, including forecasting of cash positions, to monitor and manage its liquidity risk to avoid undue
concentration of funding requirements at any point in time or from any particular source. Maturity mismatches between lending and funding
are managed within internal risk policy limits.
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4. Risk and capital management continued
(a) Risk management continued
ii) Liquidity risk continued
Minimum liquidity
The Isle of Man Financial Supervision Commission (FSC) requires that the Bank should be able to meet its obligations for a period of at
least one month. In order to meet this requirement, the Bank measures and manages its cash flow commitments, and maintains its liquid
balances in a diversified portfolio of short-term bank balances.
Bank balances are only held with financial institutions approved by the Board of Directors and which meet the requirements of the FSC.
Measurement of liquidity risk
The key measure used by the Group for managing liquidity risk is the asset and liability maturity profile.
The table below shows the Group’s financial liabilities classified by their earliest possible contractual maturity, on an undiscounted basis
including interest due at the end of the deposit term. Based on historical data, the Group’s expected actual cash flow from these items vary
from this analysis due to the expected re-investment of maturing customer deposits.
Residual contractual maturities of financial liabilities as at the balance sheet date (undiscounted)
31 December 2009
Group
Sight- > 8 days > 1 month > 3 months > 6 months
- 1 year
8 days - 1 month - 3 months - 6 months
£000
£000
£000
£000
£000
> 1 year > 3 years
- 3 years
£000
- 5 years > 5 years
£000
£000
Customer accounts
Other liabilities
2,683
782
2,750
—
5,957
—
5,468
—
11,923
—
23,743
—
Total liabilities
3,465
2,750
5,957
5,468
11,923
23,743
—
500
500
—
66
66
Total
£000
52,524
1,348
53,872
31 December 2008
Group
Customer accounts
Other liabilities
Sight-
8 days
£000
782
2,594
> 8 days > 1 month > 3 months > 6 months
- 1 year
- 1 month - 3 months - 6 months
£000
£000
38,050
14,196
18
9
£000
3,441
6
£000
3,101
3
> 1 year > 3 years
- 3 years
£000
12,125
72
- 5 years > 5 years
£000
—
—
£000
—
706
Total
£000
71,695
3,408
Total liabilities
3,376
3,104
3,447
14,205
38,068
12,197
706
—
75,103
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Notes to the Consolidated
Financial Statements
28
4. Risk and capital management continued
(a) Risk management continued
Measurement of liquidity risk continued
Maturity of assets and liabilities at the balance sheet date
31 December 2009
Group
Sight- > 8 days > 1 month > 3 months > 6 months
- 1 year
8 days - 1 month - 3 months - 6 months
£000
£000
£000
£000
£000
> 1 year > 3 years
- 3 years
£000
- 5 years > 5 years
£000
£000
Total
£000
Assets
Cash and cash equivalents 7,976
Available-for-sale financial
instruments
Customer accounts
receivable
Other assets
597
—
—
—
—
1,999
7,990
—
—
—
—
—
—
—
—
—
—
7,976
9,989
2,577
—
6,383
—
6,544
—
7,832
—
12,300
—
1,321
—
—
1,425
37,554
1,425
Total assets
8,573
4,576
14,373
6,544
7,832
12,300
1,321
1,425
56,944
Liabilities
Customer accounts
Other liabilities
1,907
782
2,200
—
3,668
—
6,493
—
8,882
—
25,335
—
Total liabilities
2,689
2,200
3,668
6,493
8,882
25,335
—
500
500
1,059
66
49,544
1,348
1,125
50,892
31 December 2008
Group
Sight-
8 days
£000
Cash and cash equivalents 20,589
Customer accounts
receivable
Other assets
2,556
—
> 8 days > 1 month > 3 months > 6 months
- 1 year
- 1 month - 3 months - 6 months
£000
£000
£000
£000
> 1 year > 3 years
- 3 years
£000
- 5 years > 5 years
£000
£000
Total
£000
—
—
—
—
—
—
—
20,589
3,841
—
9,119
—
11,026
—
11,345
—
15,980
—
2,049
—
—
1,717
55,916
1,717
Total assets
23,145
3,841
9,119
11,026
11,345
15,980
2,049
1,717
78,222
Liabilities
Customer accounts
Other liabilities
781
2,594
2,970
3
3,400
6
10,900
9
37,240
18
10,767
72
Total liabilities
3,375
2,973
3,406
10,909
37,258
10,839
—
706
706
—
—
—
66,058
3,408
69,466
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29
4. Risk and capital management continued
(a) Risk management continued
Measurement of liquidity risk continued
iii) Operational risk
Operational risk arises from the potential for inadequate systems (including systems breakdown), errors, poor management, breaches
in internal controls, fraud and external events to result in financial loss or reputational damage. Operational risk also arises through the
use of an outsourcing partner, which is the case with the premium finance loan administration provider. The Group manages this risk
through appropriate risk controls and loss mitigation actions. These actions include a balance of policies, procedures, internal controls
and business continuity arrangements.
Operational risk across the Group is analysed and discussed at all Board meetings, with ongoing monitoring of actions arising to address
the risks identified.
iv) Market risk
Market risk is the risk that changes in the level of interest rates, changes in the rate of exchange between currencies or changes in the
price of securities and other financial contracts (including derivatives) will have an adverse financial impact. The primary market risk within
the Group is interest rate risk exposure in the Bank.
During the year the Group was exposed to market price risk through holding available for sale financial instruments, and a financial asset
carried at fair value through the profit and loss. There is no exposure at the year-end to the available for sale-financial instruments as the
instruments have either been disposed of or fully impaired (Equity Special Situations Limited) during the year. The exposure remaining
relates to the financial asset carried at fair value through the profit and loss in the Bank, which is an equity investment stated at a market
value. Given the size of this holding, £374,000 at 31 December 2009 (2008: £136,000) the potential impact on the results for the Group
is relatively small and no sensitivity analysis has been provided for the market price risk.
Interest rate risk
Interest rate risk exposure in the Bank arises from the difference between the maturity of capital and interest payable on customer deposit
accounts, and the maturity of capital and interest receivable on loans and financing. The differing maturities on these products create
interest rate risk exposures due to the imperfect matching of different financial assets and liabilities. The risk is managed on a continuous
basis by management and reviewed by the Board of Directors. The Bank monitors interest rate risk on a monthly basis via the ALCO.
The matching of the maturity interest rates of assets and liabilities is fundamental to the management of the Bank. The maturities of assets
and liabilities and the ability to replace, at an acceptable cost, interest bearing liabilities as they mature are important factors in assessing
the liquidity of the Bank and its exposure to changes in interest rates.
Interest risk re-pricing table
The following tables present the interest rate mismatch position between assets and liabilities over the respective maturity dates. The
maturity dates are presented on a worst case basis, with assets being recorded at their latest maturity and customer accounts at the
earliest:
31 December 2009
Sight- > 1 month > 3 months > 6 months
- 1 year
£000
- 1 month - 3 months - 6 months
£000
£000
£000
> 1 year > 3 years
- 3 years
£000
- 5 years > 5 years
£000
£000
Total
£000
Assets
Cash and cash equivalents
Available-for-sale financial instruments
Customer accounts receivable
Other assets
Total assets
Liabilities
Customer accounts
Other liabilities
Total capital and reserves
Total liabilities and equity
Interest rate
sensitivity gap
7,976
1,999
2,761
1,425
—
7,990
6,463
—
14,161
14,453
4,107
848
6,052
11,007
3,668
—
—
3,668
—
—
6,544
—
6,544
6,493
—
—
6,493
—
—
7,832
—
—
—
12,632
—
7,832
12,632
8,882
—
—
25,336
—
—
8,882
25,336
—
—
1,322
—
1,322
—
500
—
500
—
—
—
—
—
1,058
—
—
7,976
9,989
37,554
1,425
56,944
49,544
1,348
6,052
1,058
56,944
3,154
10,785
51
(1,050)
(12,704)
822
(1,058)
Cumulative
3,154
13,939
13,990
12,940
236
1,058
—
—
—
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Notes to the Consolidated
Financial Statements
30
4. Risk and capital management continued
(a) Risk management continued
31 December 2008
Assets
Cash and cash equivalents
Customer accounts receivable
Other assets
Sight- > 1 month > 3 months > 6 months
- 1 year
£000
- 1 month - 3 months - 6 months
£000
£000
£000
> 1 year > 3 years
- 3 years
£000
- 5 years > 5 years
£000
£000
Total
£000
20,589
6,395
1,717
—
9,118
—
—
11,025
—
—
11,345
—
—
15,979
—
—
2,054
—
Total assets
28,701
9,118
11,025
11,345
15,979
2,054
Liabilities
Customer accounts
Other liabilities
Total capital and reserves
Total liabilities and equity
Interest rate
sensitivity gap
3,751
2,908
8,756
3,400
—
—
10,900
—
—
37,240
—
—
10,767
—
—
15,415
3,400
10,900
37,240
10,767
—
500
—
500
13,286
5,718
125
(25,895)
5,212
1,554
Cumulative
13,286
19,004
19,129
(6,766)
(1,554)
—
* Sight to < 1 month also includes non-interest bearing funds.
—
—
—
—
—
—
—
—
—
—
20,589
55,916
1,717
78,222
66,058
3,408
8,756
78,222
—
—
Sensitivity analysis for interest rate risk
The Bank monitors the impact of changes in interest rates on interest rate mismatch positions using a method consistent with the FSC
required reporting standard. The methodology applies weightings to the net interest rate sensitivity gap in order to quantify the impact of
an adverse change in interest rates of 2% per annum (2008: 1%). The following tables set out the estimated total impact of such a change
based on the mismatch at the balance sheet date.
With the adoption of Basel II on 31 March 2009 the Bank has moved to the appropriate FSC required reporting standard which applies
weighting to the net interest rate sensitivity gap that quantifies the impact of an adverse change in interest rates of 2% per annum.
31 December 2009
Interest rate
sensitivity gap
Weighting
Sight- > 1 month > 3 months > 6 months
- 1 year
£000
- 1 month - 3 months - 6 months
£000
£000
£000
> 1 year > 3 years
- 3 years
£000
- 5 years > 5 years
£000
£000
Total
£000
3,154
10,785
51
(1,050)
(12,704)
822
(1,058)
0.000
0.003
0.007
0.014
0.027
0.054
0.115
—
—
Cumulative £000
—
34
—
(15)
(352)
48
(122)
(407)
Sight- > 1 month > 3 months > 6 months
- 1 year
£000
- 1 month - 3 months - 6 months
£000
£000
£000
> 1 year > 3 years
- 3 years
£000
- 5 years > 5 years
£000
£000
Total
£000
Cumulative £000
—
11
1
(181)
94
44
—
13,286
5,718
125
(25,895)
5,212
1,554
—
0.000
0.002
0.004
0.007
0.018
0.028
0.040
—
—
(31)
31 December 2008
Interest rate
sensitivity gap
Weighting
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31
4. Risk and capital management continued
(b) Capital management
Regulatory capital
The Group considers capital to comprise share capital, share premium, reserves and subordinated loans. Capital is deployed by the Board
of Directors to meet the commercial objectives of the Group, whilst meeting regulatory requirements in the Bank. The Group’s policy is to
maintain a strong capital base so as to maintain investor, creditor, depositor and market confidence and to sustain future development of
the business.
In implementing current capital requirements the capital position in the Bank is also subject to prescribed minimum requirements by the
FSC in respect of the ratio of total capital to total risk-weighted assets. This requirement applies to the Bank (a wholly owned subsidiary of
Manx Financial Group PLC) as a component of Manx Financial Group PLC and has been adhered to throughout the year.
The risk asset ratio of the Bank as a component of Manx Financial Group PLC was 18% (2008: 18%). This was above the minimum
prescribed by the FSC.
5. Segmental analysis
Segment information is presented in respect of the Group’s business segments. The Directors consider that the Group currently operates
in one geographic segment, the Isle of Man and UK. The primary format, business segments, is based on the Group’s management and
internal reporting structure. The Directors consider that the Group operates in three product orientated segments in addition to its investing
activities: Asset and Personal Finance (including provision of HP contracts, finance leases, personal loans and premium finance); Litigation
Finance; and a Prepaid Card division, Conister Card Services. The Group ceased to provide new Litigation Finance in June 2007.
Included within personnel expenses in the Consolidated Income Statement is £362,064 (2008: £1,579,000) relating to direct salary
costs for Conister Card Services.
For the year ended 31 December 2009
Net interest income
Operating income
Provision for impairment
Loss before unallocated items
Group central costs
Loss before specific items
Capital expenditure
Total assets
Total liabilities and equity
Asset and
Personal
Finance
£000
Litigation
Finance
£000
Conister
Card
Services
£000
Investing
Activities
£000
1,866
1,447
28
(922)
—
526
56,183
56,598
253
253
(671)
(468)
—
—
188
188
—
223
—
(225)
—
—
199
158
—
—
—
268
—
—
374
—
Total
2009
£000
2,119
1,923
(643)
(1,347)
(1,116)
(2,463)
526
56,944
56,944
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Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
32
5. Segmental analysis continued
For the year ended 31 December 2008
Net interest income
Operating income
Provision for impairment
Loss before unallocated items
Group central costs
Loss before specific items
Capital expenditure
Total assets
Total liabilities and equity
Asset and
Personal
Finance
£000
Litigation
Finance
£000
3,337
2,842
(948)
(460)
96
76,425
76,719
163
187
(415)
(737)
—
1,503
1,503
Conister
card
services
£000
88
181
—
(3,721)
—
158
—
Investing
Activities
£000
Total
2008
£000
—
—
—
(610)
—
136
—
3,588
3,210
(1,363)
(5,528)
(1,099)
(6,627)
96
78,222
78,222
Segment capital expenditure is the total cost incurred during the year to acquire equipment and fund leasehold improvements.
Interest income
6.
Interest receivable and similar income represents charges and interest on finance and leasing agreements attributable to the year after
adjusting for early settlements, income on litigation funding receivables and premium financing and interest on bank balances.
7.
Interest expense
Payable to depositors
Payable on subordinated loan (note 30)
2009
£000
3,162
60
3,222
2008
£000
3,551
1
3,552
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33
2008
£000
1,388
180
(251)
(67)
(7)
1,243
2008
£000
229
(109)
120
1,363
2009
£000
1,163
319
(401)
—
(3)
1,078
2009
£000
35
(470)
(435)
643
8. Allowance for impairment
The charge in respect of specific allowances for impairment comprises:
Specific impairment allowances made
Amounts written off
Reversal of allowances previously made
Recovery of amounts previously made
Recovery of amounts previously written off
Total specific provision for impairment
The charge in respect of collective allowances for impairment comprises:
Collective impairment allowances made
Release of allowances previously made
Total collective provision for impairment
Total provision for impairment
9. Restructure costs
Restructure costs comprise: the cost of closure of the UK Conister Card Services operation, the costs of closure of two branch offices in
the UK, and the reorganisation of Isle of Man operational processes.
Closure of UK Conister Card Services operation
Administration expenses
Programme costs
Redundancy costs
Closure of UK branch offices
Redundancy costs
Reorganisation of Isle of Man operations process
Redundancy costs
Director’s ex gratia cost
Director’s share option cost
The ex gratia and share option costs in prior year relates to Mr J F Linehan.
2009
£000
2008
£000
—
—
101
101
—
57
—
—
57
320
127
117
564
61
429
264
107
800
158
1,425
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Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
34
10. Project costs
Costs of Conister Card Services sale
Costs of potential acquisition
11. Depositors’ Compensation Scheme
Provision in respect of Kaupthing Singer & Friedlander (Isle of Man) Limited
Recovery in respect of Bank of Credit & Commerce International SA
2009
£000
—
—
—
2009
£000
150
(61)
89
2008
£000
133
361
494
2008
£000
—
—
—
On 27 May 2009, the Isle of Man Government Depositors’ Compensation Scheme (“the Scheme”) was activated in connection with the
liquidation of Kaupthing Singer & Friedlander (Isle of Man) Limited. An initial payment of £73,880 was made into the Scheme during the
year. In addition, a further provision of £76,120 has been made resulting in a total charge for the year to the comprehensive statement of
income of £150,000.
On 3 August 2009, the Bank recovered £61,054 from the Scheme in respect of The Bank of Credit & Commerce International SA, a
Luxembourg banking company, the Bank of Credit and Commerce Overseas Limited, a Cayman bank, and various other companies in the
BCCI Group, which closed in July 1991.
12. Scheme of Arrangement costs (Prior Year)
Conister Bank Limited, following an Isle of Man Court sanctioned Scheme of Arrangement, became a wholly owned subsidiary of Manx
Financial Group PLC with effect from 31 January 2008. The legal and professional expenses attributable to the Scheme of Arrangement in
2008 totalled £45,000. No costs were incurred in 2009.
13. Loss before taxation
The loss before taxation for the year is stated after charging:
Depreciation
Loss on sale of fixed assets
Share option expense
Directors’ remuneration and fees
Directors’ pensions
Directors’ bonuses
Directors’ ex gratia fees
Auditors’ remuneration
as Auditor current year
as Auditor, under-accrual for prior year
non-audit services
Pension cost defined contribution scheme
Operating lease rentals for property
2009
£000
2008
£000
102
2
22
433
33
12
—
75
11
108
122
92
77
104
315
409
9
20
264
84
2
128
188
93
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14.
Income tax expense
(a) The Group and Company made losses during the year and therefore no change to taxation has been included in the comprehensive
statement of income.
(b) Statement of Financial Position at 31 December 2009
As a result of the Group and Company making continuing losses there is no outstanding liability to taxation at the end of the year.
15. Loss per share
Loss for the year
Weighted average number of ordinary shares in issue
Basic and diluted loss per share
2009
£000
2008
£000
(2,621)
(18,305)
Number
Number
63,416,450 55,866,457
(4.13)p
(32.8)p
The basic loss per share calculation is based upon loss for the year after taxation and the weighted average of the number of shares in
issue throughout the year.
The diluted loss per share calculation is based upon loss for the year after taxation and the weighted average of the number of shares in
issue after adjustment to assume conversion of all dilutive potential shares. Other than the employee share option scheme, there are no
other potentially dilutive instruments.
16. Company loss
The loss on ordinary activities after taxation of the Company is £3,016,000 (2008: £13,288,000).
17. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
Group
Company
2009
£000
3,908
4,068
7,976
2008
£000
12,989
7,600
20,589
2009
£000
—
—
—
2008
£000
—
—
—
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Notes to the Consolidated
Financial Statements
36
17. Cash and cash equivalents continued
Cash at bank includes an amount of £107,296 (2008: £164,045) representing cheques issued in the course of transmission. The remaining
maturity of short-term deposits is as follows:
Less than 8 days
8 days to less than 1 month
Group
Company
2009
£000
4,068
—
4,068
2008
£000
7,600
—
7,600
2009
£000
—
—
—
2008
£000
—
—
—
18. Financial assets at fair value through profit or loss
The investment represents shares in Billing Services Group PLC, a UK quoted company, which was elected to be classified as a financial
asset at fair value through the profit or loss. The investment is stated at market value. The cost of the shares was £471,000. The unrealised
difference between cost and market value has been taken to the income statement. Dividend income of £340,000 has been received from
this investment since it was made.
19. Available-for-sale financial instruments
UK Government Treasury Bills
Group
Company
2009
£000
9,989
9,989
2008
£000
—
—
2009
£000
—
—
2008
£000
—
—
UK Government Treasury Bills are stated at fair value and changes in the fair value are reflected in equity.
During the prior year the Group acquired shares in Equity Special Situations Limited (ESS), an AIM listed strategic investment company
incorporated in Guernsey. The transaction was done in two stages by way of a share-for-share exchange with a cash top up as detailed below:
Investment in ESS
Additions
23 June 2008
9 September 2008
Total shareholding
Impairment loss on available-for-sale financial instruments
Carrying value of available-for-sale financial instruments
%
Holding
Number
of Shares
9.9%
8.7%
2,042,705
2,206,090
£000
4,453
5,185
18.6%
4,248,795
9,638
(9,638)
—
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37
Total
£000
4,126
5,184
9,310
328
9,638
Share
Premium
£000
Share
Capital
£000
2,732
3,409
6,141
1,394
1,775
3,169
19. Available-for-sale financial instruments continued
Consideration comprised:
Share capital issued to ESS
23 June 2008: Issue of 5,575,150 ordinary MFG shares at 74p
9 September 2008: Issue of 7,101,798 ordinary MFG shares at 73p
23 June 2008: Cash paid
Total consideration
On 25 November 2008, the Directors of ESS announced the cancellation of the admission of the ordinary shares in ESS to trading on AIM.
ESS had been granted an interim injunction against Landsbanki and its agents, under which Landsbanki was prohibited from attempting
to sell certain shares owned by ESS, which were held at Landsbanki as security for a long-term loan facility with ESS. ESS subsequently
filed a legal claim against Landsbanki on 24 October 2008 and has been in discussions with certain creditors and other debt providers. The
value of the Company’s holding in ESS is uncertain, the Board believes it appropriate to fully impair the carrying value of the Company’s
holding in ESS and carry it at a £nil value. It is however possible that some recovery of value may be made in the future. Legal fees of
£76,000 were incurred during 2008 in relation to this matter.
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Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
38
20. Loans and advances to customers
Group
Hire purchase balances
Finance lease balances
Premium financing
Litigation funding
Unsecured personal loans
Vehicle stocking plans
Specific allowance for impairment
Balance at 1 January
Specific allowance for impairment made
Recoveries
Write-offs
Balance at 31 December
Collective allowance for impairment
Balance at 1 January
Collective allowance for impairment made
Release of allowances previously made
Balance at 31 December
Total allowances for impairment
Gross
2009
Impairment
Amount Allowance
£000
£000
24,058
1,407
7,198
2,443
5,961
923
(1,063)
(285)
—
(2,289)
(719)
(80)
Carrying
Value
£000
22,995
1,122
7,198
154
5,242
843
Gross
Amount
£000
30,921
2,436
17,726
3,182
5,260
556
2008
Impairment
Allowance
£000
(1,508)
(247)
(137)
(1,679)
(584)
(10)
Carrying
Value
£000
29,413
2,189
17,589
1,503
4,676
546
41,990
(4,436)
37,554
60,081
(4,165)
55,916
2009
£000
3,397
1,025
—
(319)
4,103
2009
£000
768
35
(470)
333
2008
£000
2,262
1,389
(74)
(180)
3,397
2008
£000
648
229
(109)
768
4,436
4,165
Advances on preferential terms are available to all Directors, management and staff. As at 31 December 2009, £161,283 (2008: £82,338)
was lent on this basis. In the Group’s ordinary course of business, advances may be made to Shareholders but all such advances are
made on normal commercial terms.
At the end of the current and prior financial years no loan exposure exceeded 10% of the total capital base of the Group (2008: nil).
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Manx Financial Group PLC
39
20. Loans and advances to customers continued
HP and Finance Lease Receivables
Loans and advances to customers include the following HP and finance lease receivables.
Gross investment in HP and finance lease receivables
Less than one year
Between one and five years
Unearned future income on finance leases
2009
£000
16,041
13,858
29,899
(4,434)
2008
£000
18,078
21,138
39,216
(5,859)
Investment in HP and finance lease receivables net of unearned income
25,465
33,357
The investment in HP and finance lease receivables net of unearned income comprises:
Less than one year
Between one and five years
Net investment in HP and finance lease receivables
21. Property, plant and equipment
Group
Cost
As at 1 January 2009
Additions
Disposals
As at 31 December 2009
Depreciation
As at 1 January 2009
Provided in the year
Eliminated on disposals
As at 31 December 2009
Carrying value at 31 December 2009
Carrying value at 31 December 2008
Leasehold
Furniture &
improvements equipment equipment
£000
£000
£000
IT
22
7
—
29
4
3
—
7
22
18
154
517
(2)
669
98
71
(2)
167
502
56
183
2
(13)
172
121
8
(12)
117
55
62
2009
£000
13,662
11,803
25,465
2008
£000
15,077
18,280
33,357
Vehicles
£000
Total
£000
106
—
(22)
84
50
20
(8)
62
22
56
465
526
(37)
954
273
102
(22)
353
601
192
Fixed assets with a net book value of £25,000 (2008: £56,000) are held by Conister Finance & Leasing Ltd. These comprise motor vehicles
of £25,000 (2008: £54,000) and furniture and equipment of £nil (2008: £2,000). The depreciation charge in respect of these assets was
£15,000 (2008: £16,000).
Fixed assets comprising a motor vehicle with a net book value of £nil (2008: £nil) are held by Conister Legal Management Services Limited.
The depreciation charge in respect of this asset was £nil (2008: £3,000).
Fixed assets comprising IT equipment were transferred from Conister Card Services to Manx Financial Group PLC at opening net book
value of £8,000 during the financial year.
The depreciation charge in respect of these assets was £2,000 and the closing net book value was £6,000.
Fixed assets with a net book value of £571,000 (2008: £129,000) are held by Conister Bank Limited. These comprise motor vehicles of
£nil (2008: £2,000), furniture and equipment of £53,000 (2008: £59,000), leasehold improvements of £22,000 (2008: £19,000) and IT
equipment of £496,000 (2008: £49,000).
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Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
40
22. Investment in Group undertakings
The Company has the following investments in subsidiaries incorporated within the Isle of Man:
Carrying value of investments
31 December
2009
Nature of
Date of
business % Holding incorporation
Conister Bank Limited
TransSend Holdings Limited
Asset and personal finance
Holding Co for prepaid card division
100
100
5.12.1935
5.11.2007
Total
2009
£000
6,191
—
6,191
Total
2008
£000
9,610
—
9,610
23. Trade and other receivables
Trade debtors
Prepayments and other debtors
Payments in advance for new banking system
VAT Recoverable
Loans to subsidiary undertakings:
TransSend Holdings Limited
24. Customer accounts
Retail customers: Term deposits
Corporate customers: Term deposits
Group
Company
2009
£000
34
378
—
38
—
450
2008
£000
511
504
342
32
—
1,389
2009
£000
—
18
—
6
—
24
2008
£000
15
—
—
32
425
472
2009
£000
47,994
1,550
2008
£000
64,842
1,216
49,544
66,058
Fiduciary deposits
At 31 December 2009 the Bank acted as agent bank to a number of customers, for balances totalling £8,411,145 (2008: £50,863,000).
The Bank invests these customer assets with third party banks on their behalf and in return for this service receives a fee. These balances
are not included within the balance sheet.
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Manx Financial Group PLC
41
Group
Company
2009
£000
780
—
—
500
2
1,282
2008
£000
1,526
607
447
500
14
3,094
2009
£000
192
—
—
—
—
192
2008
£000
534
391
127
—
7
1,059
25. Creditors and accrued charges
Creditors and accruals
Redundancy costs
Closure of UK TransSend operation
Subordinated loan (note 30)
Short-term employee benefits
26. Pension liability
The Group operates a funded defined benefit pension scheme, the Conister Trust Pension and Life Assurance Scheme (the Scheme),
providing benefits to members based on final pensionable pay. The Scheme was closed to new entrants on 31 March 1997. Contributions
to the Scheme are determined by a firm of independent actuaries employed by the Trustees.
The most recent full actuarial valuation was carried out at 1 April 2007 showed that the market value of the Scheme’s assets was
£952,000, representing 75.9% of the benefits that had accrued to members, after allowing for expected future increases in earnings. As
required by IAS19 this valuation has been updated by the actuary as at 31 December 2009.
The actuarial assumptions used to calculate scheme liabilities under IAS19 are as follows:
Rate of increase in salaries
Rate of increase in pension in payment:
— service up to 5 April 1997
— service from 6 April 1997 to 13 September 2005
— service from 14 September 2005
Discount rate applied to scheme liabilities
Return on assets
2009
%
3.80
—
3.50
2.30
5.70
5.95
2008
%
2.80
—
2.70
2.00
6.70
6.60
2007
%
3.40
—
3.40
2.40
5.80
7.90
2006
%
3.10
—
3.10
2.30
5.10
2.90
2005
%
2.90
—
2.80
2.00
4.90
2.90
The assumptions used by the actuary are best estimates chosen from a range of possible assumptions, which due to the timescale
covered, may not necessarily be borne out in practice.
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Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
42
26. Pension liability continued
The amounts recognised in the Consolidated Balance Sheet are as follows:
Total underfunding in funded plans recognised as a liability
Fair value of plan assets
Present value of funded obligations
Plan assets consist of the following:
Equity securities
Corporate bonds
Government bonds
Property
Cash
Other
Movement in the liability for defined benefit obligations:
Opening defined benefit obligations at 1 January
Benefits paid by the plan
Current service cost
Interest on obligations
Actuarial loss/(gain)
Liability for defined benefit obligations at 31 December
Movement in plan assets:
Opening fair value of plan assets at 1 January
Expected return on assets
Contribution by employer
Actuarial gain/(loss)
Benefits paid
Closing fair value of plan assets at 31 December
2009
£000
1,325
(1,391)
2008
£000
827
(1,141)
(66)
(314)
2009
%
2008
%
35
24
34
—
5
2
45
39
—
—
6
10
100
100
2009
£000
1,141
(55)
—
75
230
1,391
2009
£000
827
59
375
119
(55)
1,325
2008
£000
1,319
(55)
—
75
(198)
1,141
2008
£000
1,014
81
28
(241)
(55)
827
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Manx Financial Group PLC
43
2008
£000
—
75
(81)
(6)
160
2008
£000
(241)
198
(43)
2009
£000
—
75
(59)
16
(178)
2009
£000
119
(230)
(111)
Number
£000
150,000,000
37,500
150,000,000
37,500
Number
£000
63,416,450
15,854
63,416,450
15,854
26. Pension liability continued
Expense recognised in income statement:
Current service costs
Interest on obligation
Expected return on plan assets
Total included in personnel costs
Actual (return)/loss on plan assets
Income recognised in statement of recognised income and expense:
Actuarial gain/(loss) on plan assets
Actuarial (loss)/gain on defined benefit obligations
The Bank also paid an ex gratia pension to one former employee amounting to £1,320 in 2008.
27. Called up share capital and share premium
Authorised: Ordinary shares of 25p each
As at 31 December 2009
As at 31 December 2008
Issued and fully paid: Ordinary shares of 25p each
As at 31 December 2009
As at 31 December 2008
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Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
44
27. Called up share capital and share premium continued
Dates Exercisable
Executive Plan Options
Grant date
On 9 June 2003
Balance at 31 December 2008
Lapsed
Balance at 31 December 2009
On 28 April 2004
Balance at 31 December 2008
Lapsed
Balance at 31 December 2009
Performance
Conditions
From
To
Exercise
Price
Fully vested
9 June 2009
9 Dec 2013
34p
Fully vested
28 Apr 2004
27 Apr 2014
29p
Number
of ordinary
25p shares
2,092,500
59,000
(22,500)
36,500
350,000
111,000
(20,000)
91,000
On 25 April 2005
Fully vested
25 Apr 2005
24 Apr 2015
32p
205,500
Balance at 31 December 2008
and at 31 December 2009
On 1 November 2006
Balance at 31 December 2008
Lapsed
Balance at 31 December 2009
On 6 July 2007
Balance at 31 December 2008
Lapsed
Balance at 31 December 2009
On 1 February 2008
Balance at 31 December 2008
Lapsed
Balance at 31 December 2009
(a)
1 Nov 2006
31 Oct 2011
54.1p
(b)
6 July 2007
6 July 2017
65p
(c)
1 Feb 2008
1 Feb 2018
70p
32,500
1,375,000
1,375,000
(1,250,000)
125,000
625,000
625,000
(475,000)
150,000
1,275,000
1,275,000
(1,075,000)
200,000
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Manx Financial Group PLC
45
27. Called up share capital and share premium continued
Performance conditions attached to share options that have not fully vested
(a) The options granted on 1 November 2006 will vest if:
n the share price of 100p is achieved within 5 years from the date of grant (i.e. 1 November 2011) or
n earnings per share (EPS) as measured in the 2008 Audited Financial Statements of 4.5p per share as calculated in accordance with
prevailing accounting standards.
No shares resulting from the exercise of an option may be sold less than four years from the date of grant (i.e. 1 November 2010). The
share price target will be deemed achieved only if the mean average of the mid-market share price over 30 consecutive calendar days is
at least equal to 100p.
On 25 April 2008 dispensation over 1,000,000 2006 options was granted such that they vested, were exercisable and tradable: 500,000
at a price of 54.1p and 500,000 at a price of 65p.
(b) The options granted on 6 July 2007 will vest as follows:
n 30% on the first anniversary of grant (i.e. 6 July 2008)
n 30% on the second anniversary of grant (i.e. 6 July 2009)
n 40% on the third anniversary of grant (i.e. 6 July 2010)
No shares resulting from the exercise of an option may be sold by the employee until he/she has worked a minimum of three years for Manx
Financial Group PLC or a subsidiary company from the date of grant (i.e. 6 July 2010).
(c) The options granted on 1 February 2008 will vest if a mid market share price of 175p, over 30 consecutive days is achieved within three
years from the date of the grant.
No shares resulting from the exercise of an option may be sold unless the individual is an employee of the Company on 1 February 2011.
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Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
46
27. Called up share capital and share premium continued
The fair value of services received in return for share options granted is based on the fair value of share options granted, measured using
a binomial probability model with the following inputs for each award.
Fair value at date of grant
Share price
Exercise price
Expected volatility
Option life
Expected dividends
Risk-free interest rate (based on government bonds)
Forfeiture rate
* modified on 25 April 2008
Fair value at date of grant
Share price
Exercise price
Expected volatility
Option life
Expected dividends
Risk-free interest rate (based on government bonds)
Forfeiture rate
Expense in comprehensive statement of income
Share options granted in:
2003
2004
2005
2006
2007
2008
9 June
2003
28 April
2004
0.08
0.34
0.34
30%
10
0.00%
4.11%
0%
0.03
0.29
0.29
30%
10
0.00%
4.96%
30%
25 April 1 November 6 July 2007
(Tranche 1)
2006*
2005
0.03
0.32
0.32
30%
10
0.00%
4.62%
60%
0.14
0.55
0.54
35%
10
0.00%
4.40%
100%
0.24
0.60
0.65
36%
10
0.00%
5.71%
16%
6 July 2007 9 July 2007 1 February
2008
(Tranche 2)
(Tranche 3)
0.27
0.64
0.65
36%
10
0.00%
5.71%
0%
0.31
0.67
0.65
36%
10
0.00%
5.71%
0%
2009
£000
—
—
—
1
16
5
22
0.31
0.77
0.81
35%
10
0.00%
4.28%
0%
2008
£000
10
1
1
199
64
40
315
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Manx Financial Group PLC
47
2009
£000
22,496
—
—
—
—
2008
£000
—
12,686
3,169
6,141
500
22,496
22,496
28. Analysis of changes in financing during the year
Analysis of changes in financing during the year
Opening balance
Issue of shares by way of scheme of arrangement
Issue of shares by way of share for share exchange — share capital
— share premium
Issue of subordinated liabilities
Closing balance
The closing balance is represented by £15,854,000 share capital, £6,142,000 share premium and £500,000 subordinated liabilities.
29. Regulator
Conister Bank Limited is licensed to undertake banking activity by the Isle of Man Government Financial Supervision Commission.
30. Related party transactions
NewLaw
“Loans and advances to customers” include a loan due to Conister Bank Limited from NewLaw, a UK firm of solicitors. The loan
carries interest at 7.3% per annum and is repayable over 36 months. As at 31 December 2009 the balance on the loan was £139,084
(31 December 2008: £305,986). NewLaw is a related party of Mr Arron Banks who is a Non-Executive Director and significant Shareholder.
The loan is secured by a personal guarantee from Mr Banks.
Premium finance
Conister Bank Limited has an agreement with Group Direct Limited, a UK insurance broker, to provide premium financing of insurance
policies brokered by Group Direct. The majority of these policies are issued by Southern Rock Insurance Company Limited. In 2009 the
Group provided financing of £19 million (31 December 2008: £30.8 million), earning interest income of £1,024,000 (31 December 2008:
£1,280,000). Group Direct Limited and Southern Rock Insurance Company Limited are related parties of Mr Banks.
Cash deposits
During the year the Bank held cash on deposit on behalf of the following related individuals:
J Mellon and a Company related to him (Executive Chairman and Non-Executive Director)
A Company related to D Eke (Chief Executive Officer)
J Hemuss (Conister Trust Limited, Executive Director)
D Grant (Executive Director)
Normal commercial interest rates are paid on these deposits.
Subordinated Loan
On 22 December 2008 the Bank entered into a subordinated loan agreement for £500,000 with J Mellon. The loan was unsecured, bore
interest on commercial terms and no repayment of the loan was necessary in the first 5 years. This loan represented a Related Party
Transaction in accordance with AIM Rule 13. Accordingly, the Independent Directors consulted with the Group’s Nominated Adviser,
considered the terms of the transaction to be fair and reasonable in so far as the shareholders of the Company were concerned.
On 3 March 2010 this loan was repaid by the Bank and the capital formed part of the convertible loan arrangement as detailed in note 34.
Staff loans
Details of staff loans are given in note 20 to the financial statements.
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Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
48
30. Related party transactions continued
Key management personnel (including Executive Directors’) compensation
Short-term employee benefits
Share-based payments
Total
2009
£000
729
9
738
2008
£000
1,640
211
1,851
Short-term employee benefits include £nil (2008: £655,000) in respect of redundancy and settlement costs as a result of the reorganisation
of Isle of Man operational processes (note 9).
The 2008 share-based payment charge includes £107,000 in respect of the modifications to the share options held by J F Linehan.
31. Operating Leases
Non-cancellable operating lease rentals are payable in respect of property as follows:
Less than one year
Between one and five years
More than five years
Total operating lease rentals payable
2009
£000
86
301
—
387
2008
£000
86
387
—
473
Restructure costs in the prior year as detailed in note 9 to the financial statements, include a provision of £185,000 for rent and rates for
the closed UK office previously used by Conister Card Services.
32. Litigation
Manx Financial Group PLC’s wholly owned subsidiary, Conister Bank Limited, entered into litigation with a firm of solicitors involved in
litigation finance, following their refusal to repay loans made to a number of their clients. Mediation occurred on 6 May 2009 and agreement
was reached between the parties to settle this matter on 20 May 2009. As at 31 December 2009 the firm of solicitors had no outstanding
loan balance (2008: £387,000).
The Bank is vigorously pursuing the repayment of litigation funding loans made to clients of other solicitor firms and further litigation may
be required in this regard. Counter claims have been received and there is the possibility of litigation being necessary. There is a risk of an
adverse outcome in all litigation and the costs and timescale to resolve these matters are uncertain.
33. Transfer of investment in Conister Card Services to MFG
On 31 January 2008, following the Isle of Man Court sanctioned Scheme of Arrangement, the Bank became a wholly owned subsidiary of
MFG and ceased to govern the financial and operating policies of Conister Card Services, which comprises TransSend Holdings Limited,
TransSend Payments Limited and Conister Card Services Limited (formerly TransSend (IOM) Limited) with MFG becoming the controlling
party. The net assets were transferred to MFG at net book value.
34. Post-balance sheet events
On 15 January 2010 the Company converted to a 2006 company as defined by Isle of Man company law.
On 3 March 2010 MFG entered into a convertible loan agreement with J Mellon for £1.25 million. The loan is convertible into shares from
the first anniversary of the loan drawdown at £0.09 per share and bears interest until conversion at a rate of 9%. MFG also entered into an
identical agreement with Rock Holdings Limited (a company linked to A Banks) for £0.46 million on 26 March 2010. These loans represent
a Related Party Transaction in accordance with AIM Rule 13. Accordingly, the Independent Directors, having consulted with the Group’s
Nominated Adviser, consider the terms of the transaction to be fair and reasonable in so far as the shareholders of the Company are
concerned.
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Manx Financial Group PLC
rmerly TransSend)
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Conister House
Isle of Man Business Park
Cooil Road
Braddan
Isle of Man
IM2 2QZ
Tel: (01624) 694694
Fax: (01624) 624278
www.mfg.im
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