M A N X F I N A N C I A L
GROUP PLC
ANNUAL REPORT 2011
Welcome to Manx Financial Group PLC
Integrity through innovation and independence
An independent banking group founded in 1935, domiciled in
the Isle of Man
Manx Financial Group PLC (MFG) is an
AIM listed company which holds the
entire issued share capital of a suite of
financial service companies based in
the UK and the Isle of Man. These
companies offer financial services to
both retail and commercial customers.
MFG's strategy is to grow organically
and through strategic acquisition to
further augment the range of services
it offers.
Principal wholly owned subsidiaries:
• Conister Bank Limited
• Conister Card Services Limited
• Edgewater Associates Limited
• ECF Asset Finance PLC
Contents
Financial Highlights 01
Chairman’s Statement 02
Directors and Advisers
04
Report of the Directors 06
Directors’ Remuneration Report 09
Statement of Directors’ Responsibilities 11
Report of the Independent Auditors 12
Consolidated Comprehensive Statement of Income 13
Consolidated and Company Statement of
Financial Position 14
Consolidated Statement of Cash Flows 15
Consolidated and Company Statement of
Changes in Equity 16
Notes to the Consolidated Financial Statements 17
Conister Card Services Limited (CCS)
is the Group's prepaid card division
providing business clients with
payment solutions that are cost-
effective and create new revenue
opportunities. CCS has in excess of
180,000 MasterCard® prepaid cards in
issue and loading circa £795 million a
year.
Conister Bank Limited (CBL) is a
licensed independent bank in the Isle
of Man and a full member of the
MasterCard® network and the Isle of
Man's Association of Licensed Banks.
Since its inception in 1935, CBL, has
assisted successive generations by
providing a variety of financial products
and
saving
accounts, fiduciary deposits, asset
financing, personal loans, loans to
small and medium sized entities
(SMEs), block discounting and other
specialist secured credit facilities to
both the Isle of Man and the UK
consumer and business sectors.
including
services,
ECF Asset Finance PLC was acquired
to become the Group’s UK hub for
asset finance sales focusing on loans
to SMEs.
Edgewater Associates Limited (EWA)
is one of the pre-eminent independent
financial advisers in the Isle of Man,
with offices in both Douglas and
Ramsey. It provides a bespoke and
personal service to
Isle of Man
residents and to the Group's business
and personal customers and manages
assets in excess of £130 million.
EWA specialise
the areas of
mortgages, wealth management and
retirement planning and combines
superior service with extensive local
knowledge.
in
® MasterCard is a registered trademark of MasterCard International Incorporated
Manx Financial Group PLC
Financial Highlights
01
Financial Highlights
Manx Financial Group PLC:
Net interest income £4.59 million (2010: £3.24 million)
Net trading income £5.04 million (2010: £3.19 million)
Operating income £5.45 million (2010: £3.80 million)
Loss before specific items £0.14 million (2010: profit £0.09 million)
Loss for the year £0.78 million (2010: £0.19 million)
Headcount 68 (2010: 82)
Conister Bank Limited:
Profit for the year £0.02 million (2010: £1.04 million)
Net loans and advances £49.59 million (2010: £48.76 million)
Deferred income £7.60 million (2010: £7.14 million)
New advances £27.60 million (2010: £24.47 million)
Deposits £55.91 million (2010: £52.75 million)
Edgewater Associates Limited:
Profit for the year £0.01 million (2010: £0.22 million)
Assets under management £130 million (2010: £110 million)
Renewal commission income £0.57 million (2010: £0.29 million)
Acquired a general insurer, Three Spires Insurance Services Limited
Conister Card Services Limited:
Profit for the year £0.18 million (2010: £0.14 million)
Cards in issue 0.18 million (2010: 0.12 million)
Manx Financial Group PLC
Chairman’s Statement
02
Review of performance
Manx Financial Group PLC
When I wrote to you at the Interim stage, I commented upon
the pessimism surrounding the British economy. Seven months
on, nothing has really changed and thus the economic situation
within which we operate remains unpredictable and
challenging. We have, however, adapted and have grown our
asset base in the face of this tough environment. It is
encouraging to note that our loan book arrears per cent has
remained constant throughout the year and remains historically
low and our bad debt write-offs only represent approximately
1% of net loans and advances. Whilst this prudent and
conservative underwriting policy has ensured a tightly
controlled risk profile, it has also meant that we have not been
able to grow interest income to the level which we anticipated
at the beginning of the year and this has had a consequent
impact on this year’s profitability.
We have maintained our liquidity throughout the current
economic turmoil. Indeed our issue has been an ability to
deploy that liquidity to fully maximise our returns by transacting
that meet our underwriting
business with borrowers
requirements. As I discussed in last year’s review, we
recognised that the need to develop new business lines, either
through partnership or acquisition, is paramount. We are,
therefore, placing a high priority on diversifying our loan
portfolio, and introducing new lending opportunities which will
allow us to gain efficiencies through the greater use of IT.
We have been successful seeking out new business lines, both
at Conister Bank by providing ‘blocking’ facilities to third-party
lenders and at Edgewater Associates by enhancing our general
insurance offering, and we anticipate that these and other
initiatives will increase our income in the coming months. In
addition, we have secured significant cost savings in both
headcount and infrastructure as we have continued to develop
a more efficient distribution network, especially serving the UK,
and we expect most of the benefit of these savings to be
reflected in the second half of the 2012 financial year. Our new
business lines now represent over 26% of our gross receivable
(2010: 11.7%) and the strategy of diversifying our lending
portfolio through partnering with existing niche market leaders
is continuing successfully.
Notwithstanding, our overall financial performance for the year
was disappointing despite growing our consolidated net
income to £4.59 million (2010: £3.24 million) which generated
a consolidated operating income increase of 43% to £5.45
million (2010: £3.80 million). Our consolidated operating
expenses increased significantly, however, following the
previous year’s acquisition of ECF Asset Finance PLC, but
much of this expense has been addressed by subsequent
cost-cutting. The loss before specific items, which excludes
any goodwill impairment or restructuring costs, was £0.14
million (2010: profit £0.09 million) for the year.
Jim Mellon
Chairman
In summary, we recognise that in order to achieve our targets
we will need to return to a sustainable level of profit and we are
continuing to restructure the business to achieve that goal but
without accepting an unacceptable level of risk. Sustainable
profitability will transform the business by allowing a continuing
ability to increase net interest income at Conister Bank by
utilising our strong capital base.
Conister Bank Limited
As reported previously one of the Bank’s targets was to better
manage the relationship between interest income and interest
expense. This year the Bank grew this income by £1.54 million
to £6.65 million (2010: £5.11 million) with only a modest
increase in associated expenses of £0.16 million to £1.90
million (2010: £1.74 million). This allowed us to grow net interest
income by £1.38 million to £4.75 million (2010: £3.37 million).
This gain was negated by last year’s one-off impairment credit
of £1.03 million and the full year impact of the ECF Asset
Finance PLC (ECF) cost base. This cost base has been
reduced to reflect ECF’s role of being the supplier of UK asset
backed lending opportunities to the Bank. The majority of this
cost reduction will flow through the financial statements in the
second half of 2012. Also the costs for the year under review
have been lessened by the inclusion of a one-off VAT
recoverable following our appeal against the application of the
Partial Exemption Special Method by the Isle of Man Customs
and Excise. Your Board is confident that the amount included
will be eventually recovered but will continue to review the
position as described in note 21 to these accounts should there
be any significant change. We have also, in conjunction with
our auditors, carefully reviewed our provisioning policy and the
level of provisions taken and the Board is comfortable that our
approach is both prudent and conservative, reflecting the
uncertainty in the general business environment.
The Bank remains solidly funded by retail deposits and this
funding model ensures ample access to liquidity to satisfy the
Bank’s new lending forecasts. The Bank is also not exposed
to the same market pressures as its competitors, who continue
to find their funding cost volatile as a result of the high levels of
political and fiscal uncertainty within the UK and the Eurozone.
The combination of plentiful access to liquidity and new
emerging distribution networks allowed the Bank to increase
advances by £3.13 million to £27.60 million (2010: £24.47
million) which in turn grew net deferred income by £0.46 million
to £7.60 million (2010: £7.14 million). The deferred income
balance has grown by over 67% in the last two years.
Manx Financial Group PLC
03
Edgewater Associates Limited
Outlook
In previous Statements I have discussed acquisitions as a key
component in generating the scale of operations the Group
requires. I and the Board are still determined to pursue this
process. We have reviewed many financial service businesses
as potential purchases in the year under review and in
subsequent months but without securing any targets to date.
We are committed to only acquiring businesses that operate
in profitable niche sectors with strong defensive qualities and
unfortunately such businesses are in short supply. However,
we continue to review candidates and I hope to be able to
make an announcement in this area in the coming months. In
the meantime, we will continue to grow a diversified distribution
network for the Bank and to introduce new products.
It is clear that there is no immediate resolution to current
economic uncertainty and this will be the environment in which
we operate throughout 2012 and beyond. In times like these,
we believe that we are correct to maintain our prudent
approach to underwriting quality by only granting loans to
customers with satisfactory credit quality. Thus I do not expect
an immediate return to profitability at the end of the first half of
2012, but I do expect a significant reduction in any losses by
the year end. I remain confident that despite this we will deliver
on executing our strategy of growing into a profitable,
sustainable and diversified financial services company. We
continue to maintain a strong balance sheet where others have
faltered.
Finally, I would like to thank you for your support as
shareholders as we continue to develop the Group.
Jim Mellon
Executive Chairman
25 May 2012
Whilst Edgewater is an Isle of Man licensed IFA and the Island
continues to show good GDP growth despite its major trading
partner being in recession, Edgewater has been impacted by
the turmoil in global and, in particular, European markets this
year. The FTSE opened the year at 6,000 and apart from brief
periods in February and April has traded below this figure
throughout. The second half of the year witnessed large falls,
with the Index mostly trading at well below 5,500 and at times
as low as 5,000. These trends are indicative of Global Markets,
with more pronounced losses in most European bourses.
Renewal income is becoming an increasingly important source
of revenue for Edgewater but this is dependent on the quantum
of assets under management (AUM). As the value of the AUM
reduced so did income, particularly in the second half of the
year. Notwithstanding, Edgewater managed to grow its AUM
to £130 million in the year (2010: £110 million).
Despite the adverse market conditions, Edgewater’s renewal
income has increased by 280% in the last two years and
represented 49% of the business’s turnover in the year under
review. This is an undoubted and solid base from which to grow
future revenues.
The business is well placed for the introduction of Retail
Distribution Review and the recruitment of additional qualified
consultants will contribute positively from 2012 onwards.
Also, during the year the business acquired an Isle of Man
based general insurer who will offer general insurance products
to existing customers of both Edgewater and Conister Bank.
Conister Card Services Limited
The renewal of our major pre-paid contract for a minimum
period of 12 months has allowed us to consider the future of
this area of our business. Innovation continues to revolutionise
this market place, for example the partnering of pre-paid/debit
cards with mobile phones to allow cash to be loaded onto the
card via a mobile phone. Innovation such as this will continue
as mobile connectivity replaces traditional banking methods
and opportunities are most likely to arise initially in countries
with less developed banking systems. With all this in mind we
continue to discuss ways to further leverage our MasterCard™
membership and grow the card business.
Our People
I take great pleasure in welcoming Juan Kelly both to the Board
and as Managing Director of Conister Bank and subsidiaries.
Juan has already made a significant contribution to operations,
particularly with regard to our restructuring the sales, customer
functions to ensure greater
service and underwriting
efficiencies.
As always, I take this opportunity to thank all our staff for the
continuing loyalty and contribution to the Group, particularly in
a challenging year.
Manx Financial Group PLC
Directors and Advisers
04
Jim Mellon (55)‡
Executive Chairman
Denham Eke (60)‡
Chief Executive Officer
Juan Kelly (41)‡
Executive Director
Jim 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 Group 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, quoted on the Hong Kong Stock
Exchange, 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 and quoted on the London AIM market, which
has approximately US$ 3.48 billion of assets under
management.
Appointment
Appointed to the Board on 2 November 2007 and
appointed as Executive Chairman on 12 February 2009.
Denham Eke began his career in stockbroking before
moving into corporate planning for a major international
insurance broker. He is a director of many years' standing
of both public and private companies involved in the
financial services, property, mining, and manufacturing
sectors. On the Isle of Man, he is Chairman of Webis
Holdings PLC, Chief Operating Officer of Speymill PLC,
Finance Director of Emerging Metals Limited and Finance
Director of Copper Development Corporation - all quoted
on the London AIM market. He is also Managing Director
of Burnbrae Group Limited.
Appointment
Appointed to the Board on 2 November 2007 and
appointed as Chief Executive on 12 February 2009.
Juan Kelly was appointed as an Executive Director of Manx
Financial Group PLC and Managing Director of Conister
Bank Limited on 19th September 2011.
His career started with Maersk before moving
into structured finance with ABN AMRO in Chile and
subsequently The Netherlands. Following this he joined SG
Hambros in London, acting as adviser to a range of
transactions. In 2004, he joined the London based
Structured Finance team of Allied Irish Banks with a focus
on large ticket asset finance, before being posted to
Sydney as Head of Corporate & Asset Finance in the Asia
Pacific region.
Juan has a wide range of experience within commercial and
investment banking including building quality loan books
and reviewing merger and acquisition opportunities.
Appointment
Appointed to the Board on 19 September 2011.
Douglas Grant (47)‡
Executive Director
Nick Sheard (49)‡
Executive Director
Don McCrickard (75)‡
Non-Executive Director
Douglas Grant was 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.
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.
From 1975 to 1983 Don 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. He
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 on 2 November 2007.
* Member of the Audit, Risk and Compliance Committee
† Member of the Renumeration Committee
‡ Member of Nominations Committee
Manx Financial Group PLC
05
Arron Banks (46)‡
Non-Executive Director
Alan Clarke (61)‡†*
Non-Executive Director
David Gibson (65)‡†*
Non-Executive Director
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
insurance since 1987,
in
predominately at Director level with Lloyds, Haven (NU) and
Motorcycle Direct, which he co-founded.
involved
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 in
corporate finance and strategic consultancy, advising a
variety of both listed and private companies. He holds
several non-executive directorships and is Chairrnan of the
Investment Committee for the University of Manchester.
He is also a registered auditor, being the senior partner of
Downham Mayer Clarke.
Appointment
Appointment
Appointed to the Board on 2 November 2007.
Appointed to the Board on 2 Novernber 2007. Chairman
of the Audit, Risk and Compliance Committee and
Chairman of the Remuneration Committee.
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 forrnal 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 Deputy Chairman of commercial property
investment companies Chellbrook Properties pic and
Mountstephen Investments Limited and a Non-Executive
Director for Rivington Street Holding PLC, an Isle of Man
Finance Media conglomerate.
Appointment
Appointed to the Board on 12 February 2009.
Advisers
Company Secretary
Lesley Crossley
Registered Agent
CW Corporate Services
Limited
Bank Chambers,
15-19 Athol Street,
Douglas,
Isle of Man, IM1 1LB.
Registered Office
Clarendon House,
Victoria Street, Douglas,
Isle of Man, IM1 2LN.
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.
Long & Humphrey
The Old Courthouse,
Athol Street, Douglas,
Isle of Man, IM1 1LD.
Principal Bankers
Barclays Private Clients
International Limited
Barclays House,
Victoria Street, Douglas,
Isle of Man, IM99 1AJ.
Lloyds TSB Offshore
PO Box 103,
Peveril Buildings,
Peveril Square, Douglas,
Isle of Man, IM99 2LB.
Consulting Actuaries
BWCI Consulting Limited
Albert House,
South Esplanade,
St Peter Port,
Guernsey, GY1 3BY.
Pension Fund
Investment Manager
Thomas Miller Investment
(Isle of Man) Limited
Level 2,
Samual Harris House,
5-11 St George’s Street,
Douglas,
Isle of Man, IM1 1AJ.
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.
Presentation of Annual
Report and Accounts
Presented here is the
Annual Report and
Accounts of Manx
Financial Group PLC.
Company Information
The Annual and Interim
reports, along with other
supplementary
information of interest to
Shareholders, are
included on our website.
The address of the
website is www.mfg.im
which includes investor
relations information and
contact details.
Oliver Hare (47)‡
Non-Executive Director
Appointed as a Non-Executive Director in January 2011.
Oliver Hare is currently Managing Director of Commercial
Intellingence Funds Group and Executive Director of
Hawksburn Capital. He was previously Vice Chairman of
Helvetica Wealth Management Partners S.A. in Geneva.
Before founding Helvetica Wealth Management Partners in
2004, Mr Hare was a Managing Director at Banque Piguet,
a boutique Private Bank in Geneva. Prior to this he was a
Managing Director within the Equities division of UBS
(formerly S.G. Warburg), where he worked for over 15
years. His career started in UK equity trading and sales
before he took on management positions, including taking
charge of an equity sales team in Madrid, then the servicing
of institutional clients and product distribution in Paris, and,
finally being responsible for institutional equity and
derivatives distribution in Switzerland. He is also a partner
of Unicos Partnership LLP in Singapore.
Appointment
Appointed to the Board on 14 January 2011.
Manx Financial Group PLC
Report of the Directors
06
The Directors present their annual report and the audited financial
statements for the year ended 31 December 2011.
The Directors are not aware of any other individual holding of
greater than 3% as at 14 February 2012.
Principal activities
The principal activities of Manx Financial Group PLC (the Company)
and its subsidiaries (together referred to as the Group) are the
provision of asset and personal finance, investing activities, wealth
management, the provision of prepaid cards and “BIN”
sponsorship via the Conister Card Services division.
Conister Bank Limited (the Bank), a wholly owned subsidiary of the
Company 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.
Edgewater Associates Limited is authorised by the Isle of Man
Financial Supervision Commission under section 7 of the Financial
Services Act 2008 to conduct investment business as a class 2,
sub-classes (3) and (7) licence holder.
Results and dividends
The proposed transfers to and from reserves are as set out in the
Statement of Changes in Equity on page 16. The Directors do not
recommend the payment of a dividend (2010: nil).
Share capital
Particulars of the authorised and issued share capital of the
Company are set out in note 26 to the financial statements.
Significant shareholdings
The number of shares held and the percentage of the issued shares
which that number represented as at 14 February 2012 are:
Burnbrae Limited
Rene Nominees (IOM) Limited
Lynchwood Nominees Limited
J M Finn Nominees Limited
Island Farms Limited
David Hathersich-Jones
Number
16,000,000
15,049,825
7,505,912
5,289,144
4,222,319
4,154,291
%
17.86
16.80
8.38
5.91
4.71
4.64
Directors and Directors’ share interests
Details of current Directors are set out on pages 4 and 5. Details of
changes in Directors in the year are shown below:
Oliver Hare was appointed on 14 January 2011.
Juan Kelly was appointed on 19 September 2011.
Simon Hull resigned on 11 March 2011.
The number of shares held by the current Directors are as follows:
Jim Mellon*
Arron Banks†
Alan Clarke
David Gibson^
Douglas Grant
Oliver Hare¶
Don McCrickard>
Number
31/12/11
17,585,332
14,899,825
52,149
178,853
580,821
751,212
66,666
Number
31/12/10
17,085,332
14,899,825
52,149
178,853
580,821
751,212
66,666
* Burnbrae Limited holds 16,000,000 Ordinary Shares. Jim Mellon, Executive
Chairman of MFG, is a director of Burnbrae Limited. Burnbrae Limited is
wholly owned by a trustee of a settlement of which Jim Mellon has a life
interest. Denham Eke, CEO of MFG, is also a director of Burnbrae Limited.
Pershing Nominees Limited holds 918,666 Ordinary Shares on trust for Jim
Mellon. Jim Mellon holds 666,666 Ordinary Shares in his own name.
† Rene Nominees Limited (I0M) Limited holds 6,750,799 Ordinary Shares on
trust for Southern Rock Insurance Company Limited, 7,038,193 Ordinary
Shares on trust for Rock Holdings Limited and 1,110,833 Ordinary Shares
on trust for Arron Banks (1,077,500 Ordinary Shares held on trust for his
SIPP and 33,333 directly). Arron 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 48.41% of the issued share capital of
Southern Rock Insurance Company Limited. Arron Banks is a director of
Rock Holdings Limited and Southern Rock Insurance Company.
¶ Comprises 751,212 Ordinary Shares held by HSBC Global Custody Nominee
(UK) Limited on trust for Oliver Hare.
^ Comprises 178,853 Ordinary Shares held by TD Direct Investing Limited on
trust for David Gibson.
> Comprises 66,666 Ordinary Shares held by Hargreaves Landsdown
Nominees Limited on trust for Don McCrickard.
Manx Financial Group PLC
07
Directors’ liability insurance
The Group maintains insurance cover for Directors’ potential liability.
■ Oversight of Group operations.
■ Changes to structure and capital.
Fixed assets
The movement in fixed assets during the year is set out in note 19
to the financial statements.
Staff
At 31 December 2011 there were 68 members of staff (2010: 82),
of whom 10 were part-time (2010: 9).
Investments in subsidiaries
Investments in the Company’s subsidiaries are disclosed in note
20 to the financial statements.
Auditors
KPMG Audit LLC, being eligible, have expressed their willingness
to continue in office.
Corporate governance
The UK Corporate Governance Code (the Code) sets out
standards of good practice in relation to issues such as board
composition and development, remuneration, accountability and
audit and relations with shareholders. As an AIM listed company,
MFG materially complies with the provisions of the Code to the
extent which is appropriate to the Company’s nature and scale of
operations.
The Board of Directors
The Board currently consists of ten Directors. Five of these are Non-
Executive Directors and five are Executive Directors, including the
Chairman. Oliver Hare was appointed as a Non-Executive Director
in January 2011 and Juan Kelly was appointed as an Executive
Director in September 2011. The role of Executive Chairman is
undertaken by Jim Mellon and the role of Chief Executive by
Denham Eke. Brief biographical details of the Directors are provided
on pages 4 and 5 of the Report and Accounts.
Of the five Non-Executive Directors four are considered
independent. These are Alan Clarke, David Gibson, Don
McCrickard and Oliver Hare. The fifth, Arron Banks is not
considered independent as he has a significant interest in the
issued ordinary share capital of the Company.
The Company’s Articles of Association require that all Directors
seek election by Shareholders at the first Annual General Meeting
following their appointment and all Directors seek re-election at
least every three years.
The Board of Directors meets at least once a quarter and more
often if required and its responsibilities include:
■ Strategy and management of the Company including the
long-term objectives and commercial strategy.
■ Approval of the annual operational and capital expenditure
budgets.
The maintenance of effective financial reporting and controls.
Ensuring maintenance of a sound system of internal control and
risk management.
■ Approval of major capital projects.
■ Communication with Shareholders.
It is within the power of the Board, unless expressly forbidden by
the Articles of Association or statute, to delegate authority to a duly
authorised committee or a member of the Executive. Typically this
would relate to operational issues or processes which are within
agreed policy and not of strategic impact.
The Board has implemented a share dealing policy for the Directors
and applicable employees of all Group entities requiring observance
of AIM rules, the Model Code and the Takeover Code requirements.
All Non-Executive Directors may take independent professional
advice at the Company’s expense in order to fulfil their duties.
Risk management and internal control
The MFG risk management systems are designed to provide
assurance that risk is appropriately identified and effectively
managed. The Board has overall responsibility for risk management
and reviewing the effectiveness of internal controls with assistance
from the Audit, Risk & Compliance Committee. The Executive is
responsible for the implementation of Board strategies and the
maintenance of effective systems of control.
Board Committees
The Board has established three committees, The Audit, Risk &
Compliance Committee, The Remuneration Committee and The
Nomination Committee. The duties of each are formally delegated
by the Board and are detailed in specific Terms of Reference
approved by the Board each year. Copies of the Terms of
Reference are on the MFG website www.mfg.im.
The Audit, Risk & Compliance Committee (ARCC)
The ARCC meets quarterly or more often as required. It is
responsible for assisting the Board to discharge its responsibilities
relating to accounting policies, internal control and financial
reporting. The Committee members, Alan Clarke (Chairman) and
David Gibson, are qualified accountants and both of whom are
independent Non-Executive Directors with recent and relevant
financial experience.
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 Committee members.
■
■
Manx Financial Group PLC
Report of the Directors
08
The ARCC also monitors the provision of non-audit services by
the external Auditors to ensure the provision of such services does
not impair the external Auditors’ independence of objectivity.
The Remuneration Committee
Refer to the Directors’ Remuneration Report on page 9 for further
details.
The Nomination Committee
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.
By order of the Board
Lesley Crossley
Company Secretary
25 May 2012
Manx Financial Group PLC
Directors’ Remuneration Report
09
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 Remuneration Committee is constituted in accordance with
the recommendations of the Combined Code. It comprises two
Independent Non-Executive Directors, Alan Clarke (Chairman) and
David Gibson. 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:
■ Basic annual salary;
■ Benefits-in-kind;
■ Annual bonus payment;
■ Share option incentives; and
■ Pension arrangements.
Basic salary
Executive Directors and senior management 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 or senior management currently receive benefits-in-
kind.
Annual bonus payment
The Committee believes that any incentive compensation awarded
should be aligned 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 26 to the financial
statements.
Pension arrangements
Neither the Chief Executive Officer nor the Executive Chairman
receive pension contributions.
Non-Executive Directors
Non-Executive Directors have no fixed term of appointment and
are subject to re-appointment by Shareholders.
Manx Financial Group PLC
Directors’ Remuneration Report
10
Directors’ emoluments
Executive Chairman
Jim Mellon
Executive
Denham Eke
Juan Kelly*
Simon Hull*
Douglas Grant
Nick Sheard
Non-Executive
Arron Banks
Alan Clarke
David Gibson
Oliver Hare^
Ilyas Khan
Don McCrickard
Aggregate emoluments
Remuneration/
Fees
£
Bonus
£
Pension
£
2011
Total
£
2010
Total
£
25,000
25,000
39,519
48,308
127,917
91,833
12,500
37,500
37,500
23,782
–
37,500
506,359
–
–
–
–
–
–
–
–
–
–
–
–
–
–
25,000
25,000
–
3,425
3,418
12,500
8,683
–
–
–
–
–
–
25,000
42,944
51,726
140,417
100,516
12,500
37,500
37,500
23,782
–
37,500
25,000
–
164,400
154,584
101,940
12,500
37,500
37,500
–
12,500
37,500
28,026
534,385
608,424
*Simon Hull resigned on 11 March 2011.
*Juan Kelly was appointed on 19 September 2011.
^Oliver Hare was appointed on 14 January 2011.
Approval
This report was approved by the Board of Directors on 16 May 2012 and signed on its behalf by:
Alan Clarke
Chairman of the Remuneration Committee
25 May 2012
Manx Financial Group PLC
Statement of Directors’ Responsibilities in respect of the
Directors’ Report and the Financial Statements
11
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Parent
Company’s transactions and disclose with reasonable accuracy
at any time its financial position. 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.
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 financial statements in accordance with International Financial
Reporting Standards.
The 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 Company for that year.
In preparing these financial statements, the Directors are required
to:
select suitable accounting policies and then apply them
consistently;
■ make judgements and estimates that are reasonable and
prudent;
state whether they have been prepared in accordance with
International Financial Reporting Standards; and
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.
■
■
■
Manx Financial Group PLC
Report of the Independent Auditors
12
Report of the Independent Auditors, KPMG Audit LLC, to the
members of Manx Financial Group PLC
We have audited the financial statements of Manx Financial Group
PLC for the year ended 31 December 2011 which comprise the
Group Statement of Comprehensive Income, the Group and
Parent Company Statements of Financial Position, the Group
Statement of Cash Flows and the Group and Parent Company
Statements of Changes in Equity and the related notes. The
financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards (IFRSs).
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 Auditors
As explained more fully in the Directors’ Responsibilities Statement
set out on page 11, the Directors are responsible for the
preparation of financial statements that give a true and fair view.
Our responsibility is to audit, and express an opinion on, the
financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board’s
(APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate
to the Group’s circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant
accounting estimates made by the Directors; and the overall
presentation of the financial statements.
Opinion on the financial statements
In our opinion the financial statements:
give a true and fair view of the state of the Group’s and Parent
Company’s affairs as at 31 December 2011 and of the Group’s
loss for the year then ended; and
have been properly prepared in accordance with IFRSs.
Emphasis of Matter – Reclaim of Value Added Tax
In forming our opinion on the financial statements, which is not
modified, we have considered the adequacy of the disclosures
made in note 21 to the financial statements concerning the reclaim
of Value Added Tax (VAT).
Conister Bank Limited, as the Group VAT registered agent, has for
some time considered the VAT recovery rate obtained by the
business to be neither fair nor reasonable, specifically regarding
the attribution of part of the residual input tax relating to the Hire
Purchase business not being considered as a taxable supply and
have raised a number of queries with the Isle of Man Government
Customs and Excise Division (C&E) in this regard over a number
of years.
The Group considers that the Volkswagen Financial Services
Limited decision in August 2011 by the First Tier Tax Tribunal (the
Tribunal) of HM Revenue & Customs in relation to the basis of
calculation of VAT recovery on instalment credit transactions adds
significant weight to the case put forward by the Group to C&E,
including the request to C&E for a revised Partial Exemption
Special Method as submitted in December 2011. HM Revenue &
Customs have appealed the decision of the Tribunal, and it is
presently anticipated that the result of this Appeal will be available
in autumn 2012.
The Directors believe that the Group will be able to recover a
reclaim of VAT retrospectively, utilising the revised Partial
Exemption Special Method. The Directors are satisfied that the
Group will ultimately recover an amount of £684,000, and
accordingly this has been included in the financial statements for
the year ended 31 December 2011. Due to the inherent
uncertainty associated with the determination of the Tribunal
appeal and its impact on negotiations with C&E, the amount of
retrospective VAT recovered may differ materially from the amount
at which it is stated in the financial statements.
KPMG Audit LLC
Chartered Accountants
25 May 2012
Heritage Court,
41 Athol Street,
Douglas,
Isle of Man,
IM99 1HN.
■
■
Manx Financial Group PLC
Consolidated Statement
of Comprehensive Income
13
Notes
6
7
19
21
8
10
16
9
11
12
25
13
2011
£000
6,650)
(2,065)
2010
£000
5,103)
(1,866)
4,585)
3,237)
1,191)
(739)
452)
654)
(700)
(46)
5,037)
3,191)
903)
(485)
(10)
1,041)
(449)
12)
5,445)
3,795)
(3,314)
(234)
(2,309)
684)
(463)
–)
41)
15)
(135)
(111)
(537)
(783)
–)
(2,713)
(163)
(1,688)
–)
1,027)
2)
26)
(200)
86)
–)
(274)
(188)
–)
(783)
(188)
3)
(19)
(799)
(0.88)
–)
5)
(183)
(0.24)
For the year ended 31 December
Interest Income
Interest expense
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission income/(expense)
Net trading income
Other operating income
Programme costs
Foreign exchange (loss)/gain
Operating income
Personnel expenses
Depreciation
Other expenses
VAT recoverable
Provision for impairment of loan assets
Depositors’ Compensation Scheme
Realised gains on available-for-sale investments
Unrealised gain/(Ioss) on financial assets carried at fair value
(Loss)/profit before specific items
Impairment of goodwill
Acquisition and restructuring 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)/gain on defined benefit pension scheme
Total comprehensive loss for the period attributable to owners
Basic and diluted loss per share (pence)
The notes on pages 17 to 48 form part of these Financial Statements.
The Directors believe that all results derive from continuing activities.
Manx Financial Group PLC
Consolidated and Company
Statement of Financial Position
14
As at 31 December
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
Commissions receivable
Property, plant and equipment
Investment in Group undertakings
Trade and other receivables
Goodwill
Total assets
Liabilities
Customer accounts
Creditors and accrued charges
Amounts owed to Group undertakings
Loan notes
Deferred consideration
Pension liability
Total liabilities
Equity
Called up share capital
Profit and loss account
Total equity
Group
2011
£000
2010
£000
Company
2011
£000
2010
£000
Notes
15
16
17
18
19
20
21
20
22
23
24
23
25
26
2,335)
189)
10,495)
49,525)
234)
814)
–)
1,260)
2,344)
4,795)
174)
7,292)
48,678)
237)
760)
–)
449)
2,203)
–)
–)
–)
–)
–)
–)
12,067)
31)
–)
–)
174)
–)
–)
–)
–)
12,067)
15)
–)
67,196)
64,588)
12,098)
12,256)
55,910)
855)
–)
2,210)
492)
79)
52,745)
978)
–)
1,710)
475)
60)
–)
93)
2,962)
2,210)
492)
–)
–)
209)
2,418)
1,710)
475)
–)
59,546)
55,968)
5,757)
4,812)
18,433)
(10,783)
18,258)
(9,638)
18,433)
(12,092)
18,258)
(10,814)
7,650)
8,620)
6,341)
7,444)
Total liabilities and equity
67,196)
64,588)
12,098)
12,256)
The Financial Statements were approved by the Board of Directors on 25 May 2012 and signed on its behalf by:
Jim Mellon
Executive Chairman
Denham Eke
Chief Executive Officer
Douglas Grant
Group Finance Director
The notes on pages 17 to 48 form part of these Financial Statements.
Manx Financial Group PLC
Consolidated Statement of Cash Flows
For the year ended 31 December
RECONCILIATION OF LOSS BEFORE TAXATION TO OPERATING CASH FLOWS
Loss before tax on continuing activities
Unrealised (gain)/loss on financial assets carried at fair value
Loss on disposal of property, plant and equipment
Depreciation charge
Realised gains on available-for-sale investments
Shares issued in lieu of bonuses
Available-for-sale gains taken to equity
Actuarial (loss)/gain on defined benefit pension scheme taken to equity
Increase/(decrease) in pension liability
Share-based payment expense/(credit)
(Increase)/decrease in trade and other receivables
Decrease in trade and other payables
Decrease in commission debtors
Impairment of goodwill
Notes
11,19
26
25
25
26
Net cash outflow from trading activities
Increase in loans and advances to customers
Increase in deposit accounts
Cash inflow from operating activities
CASH FLOW STATEMENT
Cash flows from operating activities
Cash inflow from operating activities
Taxation paid
Net cash inflow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
(Purchase)/sale of available-for-sale financial instruments
Sale of property, plant and equipment
Acquisition of subsidiaries net of cash acquired
Payment of deferred consideration
Net cash outflow from investing activities
Cash flows from financing activities
Issue of loan notes
Issue of ordinary share capital
Repayment of subordinated loan
Net cash inflow from financing activities
Decrease in cash and cash equivalents
The notes on pages 17 to 48 form part of these Financial Statements.
19
17
20
24
26
29
15
2010
£000
(188)
200)
3)
163)
(26)
26)
–)
5)
(6)
(178)
69)
(589)
55)
–))
2011
£000
(783)
(15)
6)
234)
(41)
–)
3)
(19)
19)
4)
(820)
(123)
3)
111)
(1,421)
(466)
(1,058)
3,165)
(13)
3,202)
686)
2,723)
686)
–)
686)
(323)
(3,162)
29)
(32)
(158)
2,723)
–)
2,723)
(179)
2,723)
12)
(11,573)
–
(3,646)
(9,017)
500)
–)
–)
500)
1,710)
1,903)
(500)
3,113)
(2,460)
(3,181)
Manx Financial Group PLC
Consolidated and Company
Statement of Changes in Equity
16
For the year ended
Group
Balance as at 1 January
Loss for the year
Other comprehensive (expense)/income
Transactions with owners:
Arising on Shares issued in the year
Adjustment to deferred consideration
Shares to be issued (see note 23)
Share-based payment expense
Share
capital
£000
18,258)
–)
–
175)
–)
–)
Retained
earnings
£000
(9,638)
(783)
(16)
2011
£000
8,620)
(783)
(16)
2010
£000
6,052)
(188)
5)
(175)
(175)
4)
–)
2,404)
(175)
4)
–)
347)
Balance as at 31 December
18,433)
(10,783)
7,650)
8,620)
For the year ended
Company
Balance as at 1 January
Loss for the year
Transactions with owners:
Arising on Shares issued in the year
Adjustment to deferred consideration
Shares to be issued (see note 23)
Share-based payment expense
Share
capital
£000
18,258)
–
Retained
earnings
£000
(10,814)
(932)
2011
£000
7,444)
(932)
2010
£000
6,029)
(1,336)
175)
–)
–)
(175)
(175)
4)
–)
2,404)
(175)
4)
–)
347)
Balance as at 31 December
18,433)
(12,092)
6,341)
7,444)
The notes on pages 17 to 48 form part of these Financial Statements.
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
17
Reporting entity
1.
Manx Financial Group PLC is a company incorporated in the Isle of Man. The consolidated financial statements of Manx Financial Group
PLC (the Company) for the twelve months ended 31 December 2011 comprise the Company and its subsidiaries (the Group).
A summary of the principal accounting policies, which have been applied consistently, are 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 has continued to apply the accounting policies used for the 2010 annual report.
(b) Basis of measurement
The financial statements are prepared on a historical cost basis except:
financial instruments at fair value through profit or loss are measured at fair value; and
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(p).
Significant accounting policies
3.
(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.
■
■
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
18
Significant accounting policies (continued)
3.
(b) Accounting for business combinations
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control
is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from
its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable.
The Group measures goodwill at the acquisition date as:
The fair value of the consideration transferred; plus
The recognised amount of any non-controlling interests in the acquiree; plus
If the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less
The net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in the statement of comprehensive income.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are
generally recognised in the statement of comprehensive income.
(c) Property, plant and equipment
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.
The assets’ residual values and useful economic lives are reviewed, and adjusted if appropriate, at each reporting 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.
Leasehold improvements
Equipment
Vehicles
Furniture
7 years
4-5 years
4 years
10% per annum
(d) 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 HP and finance lease agreements, litigation finance loans, personal loans, block discounting,
secured commercial 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 (e)).
■
■
■
■
Manx Financial Group PLC
19
Significant accounting policies (continued)
3.
(d) Financial assets (continued)
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 reporting
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 in other comprehensive income until the investment is sold or impaired, whereupon the cumulative gains
and losses previously recognised in other comprehensive income 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.
(e) Impairment of financial assets
The Group assesses at each reporting 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 statement of
comprehensive income for the year.
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.
(f) 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.
(g) 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.
(h) 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.
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
20
Significant accounting policies (continued)
3.
(h) Employee benefits (continued)
Pension obligations (continued)
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 remuneration.
Under the defined benefit pension plan, in accordance with IAS 19 Employee benefits, the full service cost for the period, adjusted for
any changes to the plan, is charged to the statement of comprehensive 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 statement
of comprehensive 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 statement of comprehensive 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 statement of comprehensive 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.
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 statement of comprehensive income, with a corresponding
adjustment to equity.
The share option programme was originally set up for Group employees to subscribe for shares in Conister Trust Limited (now Conister
Bank Limited). Since the Scheme of Arrangement, the shareholders of Conister Bank Limited became shareholders of Manx Financial
Group PLC. 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.
(i) Leases
i) A Group company is the lessor
Finance leases and HP contracts
When assets are subject to a finance lease or HP 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. HP 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.
Manx Financial Group PLC
21
Significant accounting policies (continued)
3.
(i) Leases (continued)
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 statement of comprehensive
income on a straight-line basis over the period of the lease.
(j) 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 reporting date 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.
(k) Interest income and expense
Interest income and expense are recognised in the statement of comprehensive 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.
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.
(I) 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.
(m) 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.
(n) Segmental 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 segmental reporting is based on business
segments.
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
22
3.
Significant accounting policies (continued)
(o) 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. These are detailed below:
New/revised International Accounting Standards/International Financial Reporting Standards (IAS/IFRS)
Effective date
(accounting periods
commencing on or after)
IAS 1 Presentation of Financial Statements - Amendments to revise the way
other comprehensive income is presented (June 2011)
IAS 12 Income Taxes – Limited scope amendment (recovery of underlying assets) (December 2010)
IAS 19 Employee Benefits - Amendment resulting from the Post-Employment Benefits
and Termination Benefits projects (as amended in June 2011)
IAS 27 Consolidated and Separate Financial Statements – Reissued as IAS 27
Separate Financial Statements (as amended in May 2011)
IAS 28 Investments in Associates – Reissued as IAS 28 Investments in Associates
and Joint Ventures (as amended in May 2011)
IAS 32 Financial Instruments Presentation – Amendments to application guidance
on the offsetting of financial assets and financial liabilities (December 2011)
IFRS 7 Financial Instruments: Disclosures – Amendments enhancing disclosures
about transfers of financial assets (October 2010)
IFRS 7 Financial Instruments: Disclosures – Amendments enhancing disclosures
about offsetting of financial assets and financial liabilities (December 2011)
IFRS 7 Financial Instruments: Disclosures – Amendments requiring disclosures about
the initial application of IFRS 9 (December 2011)
IFRS 9 Financial Instruments - Classification and measurement of financial assets
(as amended in December 2011)
IFRS 9 Financial Instruments – Accounting for financial liabilities and derecognition
(as amended in December 2011)
IFRS 10 Consolidated Financial Statements (May 2011)
IFRS 11 Joint Arrangements (May 2011)
IFRS 12 Disclosure of Interests in Other Entities (May 2011)
IFRS 13 Fair Value Measurement (May 2011)
1 July 2012
1 January 2012
1 January 2013
1 January 2013
1 January 2013
1 January 2014
1 July 2011
1 January 2013
1 January 2015
1 January 2015
1 January 2015
1 January 2013
1 January 2013
1 January 2013
1 January 2013
In 2009 and 2010, the IASB issued IFRS 9 Financial Instruments which contains new requirements for accounting for financial assets
and liabilities, and will contain new requirements for impairment and hedge accounting, replacing the corresponding requirements in IAS
39. It will lead to significant changes in the way that the Group accounts for impairment provisions. Expected losses (rather than only
incurred losses) will be reflected in impairment allowances for financial assets that are not classified as fair value through profit or loss.
Adoption is not mandatory until periods beginning on or after 1 January 2015. Earlier adoption is possible. At this stage, it is not possible
to fully determine the potential financial impacts of adoption of IFRS 9 on the Group.
In addition, the IASB has indicated that it will issue a new standard on accounting for leases. Under the proposals, lessees would be
required to recognise assets and liabilities arising from both operating and finance leases on the balance sheet.
The Directors do not expect the adoption of the standards and interpretations to have a material impact on the Group’s financial
statements in the period of initial application.
(p) 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(i), 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
surrounding it. The accuracy of the impairment allowances and provisions for counter clairns and legal costs depend on how closely
the estimated future cash flows mirror actual experience.
Manx Financial Group PLC
23
Significant accounting policies (continued)
3.
(q) Fiduciary deposits
Deposits received on behalf of clients by way of a fiduciary agreement are placed with external parties and are not recognised in the
statement of financial position. Income in respect of fiduciary deposit taking is included within interest income and recognised on an
accruals basis.
(r) 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 in the statement of financial
position.
(s) 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 reporting date. Transactions during the year are recorded at rates of exchange in effect when the transaction occurs. The
exchange movements are dealt with in the statement of comprehensive income.
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:
credit risk
liquidity risk
operational risk
■ 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 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 Board of Directors of the Bank (the Board of the Bank) delegated responsibility for risk management to the Executive Risk Committee
(ERC) which reports to the Audit Risk and Compliance Committee (ARCC). It is responsible for the effective risk management of the
Group. Operational responsibility for asset and liability management is delegated to the Executive Directors of the Bank, through the
Bank’s Assets and Liabilities Committee (ALCO).
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
obligation. 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, secured commercial loans, block discounting
and stocking plan loans. It is also exposed to credit risk with regard to cash balances and trade and other receivables.
■
■
■
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
24
Risk and capital management (continued)
4.
(a) Risk management (continued)
i) Credit risk (continued)
Management of credit risk
The Board 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:
Explicit credit policies, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal
procedures, and compliance with regulatory and statutory requirements.
■ 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 the Bank or the CC. The CC reviews lending
assessments in excess of individual credit control or executive discretionary limits.
■ 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).
Limiting concentrations of exposure to counterparties, geographies and industries (defining sector limits and lending caps).
Limiting the term of exposure to minimise interest rate risk.
Ensuring that appropriate records of all sanctioned facilities are maintained.
Ensuring regular account reviews are carried out for all accounts agreed by the CC.
Ensuring Board of the Bank 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
1 month but less than 2 months
2 months but less than 3 months
3 months and over
Carrying value
Neither past due nor impaired
2011
£000
2010
£000
49,525)
48,678)
189)
29)
5,954)
6,172)
(4,305)
193)
74)
6,267)
6,534)
(4,174)
1,867)
2,360)
(225)
(490)
1,996)
849)
207)
334)
3,386)
1,333)
823)
29)
25)
2,210)
44,497)
44,598)
1 Loans are graded A to C depending on the level of risk. Grade C relates to agreements with the highest of risk, Grade B with medium risk and Grade A relates to agreements with
the lowest risk.
■
■
■
■
■
■
Manx Financial Group PLC
25
Risk and capital management (continued)
4.
(a) Risk management (continued)
i) Credit risk (continued)
Management of 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 HP, finance leases, vehicle stocking plans, block discounting and secured commercial loan balances, which are sub-categories 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 within the
sub-categories listed above, the loan balances due are secured over the underlying assets held as collateral, see note 18 for further details.
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 HP and finance lease balances, litigation funding
balances, unsecured personal loans, secured commercial loans, block discounting 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.
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
26
Risk and capital management (continued)
4.
(a) Risk management (continued)
ii) Liquidity risk (continued)
Management of 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 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 the Bank 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 2011
Sight-
8 days
£000
> 8 days > 1 month > 3 months > 6 months
- 1 year
£000
- 1 month - 3 months - 6 months
£000
£000
£000
> 1 year
- 3 years
£000
> 3 years
- 5 years
£000
> 5 years
£000
Customer accounts
Other liabilities
1,482
855
2,132
–
2,021
–
4,262
334
20,179
–
20,158
158
10,230
2,210
Total liabilities
2,337
2,132
2,021
4,596
20,179
20,316
12,440
31 December 2010
Customer accounts
Other liabilities
Sight-
8 days
£000
3,319
978
> 8 days
- 1 month - 3 months
£000
> 1 month > 3 months > 6 months
- 1 year
- 6 months
£000
£000
£000
2,381
–
1,697
1,710
2,021
158
21,971
–
> 1 year
- 3 years
£000
19,810
317
> 3 years
- 5 years
£000
4,921
–
Total liabilities
4,297
2,381
3,407
2,179
21,971
20,127
4,921
–
79
79
> 5 years
£000
–
60
60
Total
£000
60,464
3,636
64,100
Total
£000
56,120
3,223
59,343
Manx Financial Group PLC
27
> 1 year
- 3 years
£000
> 3 years
- 5 years
£000
> 5 years
£000
Total
£000
Risk and capital management (continued)
4.
(a) Risk management (continued)
ii) Liquidity risk (continued)
Management of liquidity risk (continued)
Measurement of liquidity risk(continued)
Maturity of assets and liabilities at the balance sheet date
31 December 2011
Sight-
8 days - 1 month - 3 months - 6 months
£000
> 8 days > 1 month > 3 months > 6 months
- 1 year
£000
£000
£000
£000
Assets
Cash and cash equivalents 2,335
Available-for-sale financial
instruments
Customer accounts
receivable
Commission debtors
Other assets
2,322
–
–
1,000
–
9,495
1,226
73
–
–
–
–
–
–
–
–
–
–
–
–
–
3,274
143
–
5,103
7
–
8,720
11
90
23,532
–
179
5,348
–
179
–
–
4,159
2,335
10,495
49,525
234
4,607
Total assets
5,657
10,794
3,417
5,110
8,821
23,711
5,527
4,159
67,196
Liabilities
Customer accounts
Other liabilities
1,478
856
2,091
–
1,978
–
4,130
333
19,179
–
18,585
158
8,469
2,210
Total liabilities
2,334
2,091
1,978
4,463
19,179
18,743
10,679
–
79
79
55,910
3,636
59,546
31 December 2010
Sight-
8 days
£000
Assets
Cash and cash equivalents 4,795
Available-for-sale financial
instruments
Customer accounts
receivable
Commission debtors
Other assets
1,803
237
76
–
> 8 days > 1 month > 3 months > 6 months
- 1 year
- 1 month - 3 months - 6 months
£000
£000
£000
£000
> 1 year
- 3 years
£000
> 3 years
- 5 years
£000
> 5 years
£000
Total
£000
–
7,292
1,644
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,298
–
–
5,846
–
–
9,576
–
348
22,239
–
–
3,264
–
–
8
–
3,162
4,795
7,292
48,678
237
3,586
Total assets
6,911
8,936
4,928
5,846
9,924
22,239
3,264
3,170
64,588
Liabilities
Customer accounts
Other liabilities
4,205
978
1,470
–
1,673
1,710
1,975
158
21,040
–
18,360
317
4,022
–
Total liabilities
5,183
1,470
3,383
2,133
21,040
18,677
4,022
–
60
60
52,745
3,223
55,968
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
28
Risk and capital management (continued)
4.
(a) Risk management (continued)
iii) Operational risk
Operational risk arises from the potential for inadequate systems (including systems breakdown), errors, poor management, breaches in
intemal 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 Marsh 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 profit and loss. The only significant exposure relates to the financial asset carried at fair value through profit
and loss, which is an equity investment stated at market value. Given the size of this holding, £189,000 at 31 December 2011 (2010:
£174,000) the potential impact on the results of 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 2011
Sight* > 1 month > 3 months > 6 months
- 1 year
£000
- 1 month - 3 months - 6 months
£000
£000
£000
> 1 year
- 3 years
£000
> 3 years
- 5 years
£000
> 5 years
£000
Total
£000
Assets
Cash and cash equivalents
2,335
Available-for-sale financial instruments 10,495
3,548
Customer accounts receivable
72
Commission debtors
2,263
Other assets
Total assets
Liabilities
Customer accounts
Other liabilities
Total capital and reserves
Total liabilities and equity
Interest rate sensitivity gap
Cumulative
18,713
3,568
856
7,650
12,074
6,639
6,639
–
–
3,274
144
–
3,418
1,978
–
–
1,978
1,440
8,079
–
–
5,103
7
–
5,110
4,130
333
–
4,463
–
–
8,720
11
–
8,731
19,179
–
–
–
–
23,532
–
–
23,532
18,586
158
–
–
–
5,348
–
–
5,348
8,469
2,210
–
19,179
18,744
10,679
–
–
–
–
2,344
2,344
–
79
–
79
647
(10,448)
8,726
(1,722)
4,788
3,066
(5,331)
(2,265)
2,265
–
2,335
10,495
49,525
234
4,607
67,196
55,910
3,636
7,650
67,196
–
–
Manx Financial Group PLC
29
> 1 year
- 3 years
£000
> 3 years
- 5 years
£000
> 5 years
£000
Total
£000
Risk and capital management (continued)
4.
(a) Risk management (continued)
(iv) Market risk (continued)
Interest risk re-pricing table (continued)
31 December 2010
Sight* > 1 month > 3 months > 6 months
- 1 year
£000
- 1 month - 3 months - 6 months
£000
£000
£000
Assets
Cash and cash equivalents
Available-for-sale financial instruments
Customer accounts receivable
Commission debtors
Other assets
Total assets
Liabilities
Customer accounts
Other liabilities
Total capital and reserves
Total liabilities and equity
Interest rate sensitivity gap
Cumulative
4,795
7,292
3,447
–
76
15,610
5,674
978
8,620
15,272
338
338
–
–
4,298
237
–
4,535
1,673
1,710
–
3,383
1,152
1,490
–
–
5,846
–
–
5,846
1,975
158
–
2,133
–
–
9,576
–
348
9,924
21,040
–
–
–
–
22,239
–
–
22,239
18,360
317
–
21,040
18,677
3,713
(11,116)
3,562
–
–
3,264
–
–
3,264
4,023
–
–
4,023
(759)
5,203
(5,913)
(2,351)
(3,110)
–
–
8
–
3,162
3,170
–
60
–
60
3,110
–
4,795
7,292
48,678
237
3,586
64,588
52,745
3,223
8,620
64,588
–
–
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 (2010: 2%). The following tables set out the estimated total impact of such a
change based on the mismatch at the balance sheet date.
31 December 2011
Interest rate
sensitivity gap
Weighting
£000
31 December 2010
Interest rate
sensitivity gap
Weighting
£000
Sight* > 1 month > 3 months > 6 months
- 1 year
£000
- 1 month - 3 months - 6 months
£000
£000
£000
> 1 year
- 3 years
£000
> 3 years
- 5 years
£000
> 5 years
£000
Total
£000
6,640
1,440
646
(10,448)
4,788
(5,331)
2,265
0.000
0.003
0.007
0.014
0.027
0.054
0.115
–
–
–
4
5
(146)
129
(288)
260
(36)
Sight* > 1 month > 3 months > 6 months
- 1 year
£000
- 1 month - 3 months - 6 months
£000
£000
£000
> 1 year
- 3 years
£000
> 3 years
- 5 years
£000
> 5 years
£000
Total
£000
338
1,152
3,713
(11,116)
3,562
(759)
3,110
0.000
0.003
0.007
0.014
0.027
0.054
0.115
–
–
–
3
26
(156)
96
(41)
358
286
*Sight to 1 month also includes non-interest bearing funds.
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
30
Risk and capital management (continued)
4.
(b) Capital Management (continued)
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.
Segmental analysis
5.
Segmental 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 four product orientated segments in addition to its investing
activities: Asset and Personal Finance (including provision of HP contracts, finance leases, personal loans, commercial loans and block
discounting); Litigation Finance; a Prepaid Card division, Conister Card Services; and a Wealth Management division, Edgewater
Associates Limited. The Group ceased to provide new Litigation Finance in June 2007.
Included within personnel expenses in the Consolidated Income Statement is £172,452 (2010: £265,316) relating to direct salary costs
for Conister Card Services.
For the year ended 31 December
Net interest income
Operating Income
Provision for impairment
Profit 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
4,242
3,565
(252)
448)
–
307
63,336
65,594
343
343
(211)
131
–
–
1,137
1,137
Conister
Card
Wealth
Services Management
£000
£000
–
369
–
181
–
–
144
10
–
1,168
–
6
–
16
2,389
455
Investing
Activities
£000
–
–
–
16
–
–
Total
2011
£000
4,585
5,445
(463)
782
(917)
(135)
323
190
67,196
–
67,196
Manx Financial Group PLC
5.
Segmental analysis (continued)
For the year ended 31 December
Net interest income
Operating Income
Provision for impairment
Profit/(loss) before unallocated items
Group central costs
Profit before specific items
Capital Expenditure
Total assets
Total liabilities and equity
Asset and
Personal
Finance
£000
2,999)
2,339)
361)
209)
–)
335)
61,042)
62,953)
Litigation
Finance
£000
238)
238)
666)
861)
–)
–)
1,011)
1,011)
Conister
Card
Wealth
Services Management
£000
£000
–)
579)
–)
107)
–)
–)
116)
59)
–)
621)
–)
274)
–)
1)
2,245)
565)
31
Total
2010
£000
3,237)
3,777)
1,027)
1,251)
(1,165)
86)
336)
Investing
Activities
£000
–)
–)
–)
(200)
–)
–)
174)
64,588)
–)
64,588)
Segmental 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 interest on bank balances.
7.
Interest expense
Payable to depositors
Payable on subordinated loan (note 29)
Payable on loan notes
2011
£000
1,901)
–)
164)
2010
£000
1,730)
10)
126)
2,065)
1,866)
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
32
8.
Allowance for impairment
The charge/(credit) in respect of specific allowances for impairment comprises:
Specific impairment allowances made
Reversal of allowances previously made
Total charge/(credit) for specific provision for impairment
The charge/(credit) in respect of collective allowances for impairment comprises:
Collective impairment allowances made
Release of allowances previously made
Total (credit)/charge for collective allowances for impairment
2011
£000
781)
(62)
2010
£000
194)
(1,250)
719)
(1,056)
2011
£000
129)
(385)
(256)
2010
£000
53)
(24)
29)
Total charge/(credit) for allowances for impairment
463)
(1,027)
9.
Acquisition and restructuring costs
Restructuring costs in the current year relate to a reorganisation and rationalisation across the Group.
Acquisition and restructuring costs in the prior year related to the purchase of Edgewater Associates Limited and ECF Asset Finance
PLC and the subsequent restructuring of the UK operations.
Acquisition costs
Legal and professional fees
Reorganisation of UK and IOM operations
Salary and redundancy costs
10. Depositors’ Compensation Scheme
Provision in respect of Kaupthing Singer & Friedlander (Isle of Man) Limited
2011
£000
–)
537)
537)
2011
£000
–)
–)
2010
£000
181)
93)
274)
2010
£000
(2)
(2)
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. A payment of £73,880 was made in the current period, in addition
to advances of £73,880 made into the Scheme during each of the previous two financial periods. The current year’s payment is
expected to be repaid, therefore no charge has been made to the Consolidated Statement of Comprehensive Income. The £2,000
credit in 2010 reflects the reversal of the over provision from 2009.
Manx Financial Group PLC
33
2010
£000
163)
3)
(178)
352)
188)
35)
33)
72)
–)
138)
68)
141)
2011
£000
234)
6)
4)
307)
199)
28)
–)
79)
4)
131)
122)
322)
11. Loss before taxation
The loss before taxation for the year is stated after charging/(crediting):
Depreciation
Loss on sale of fixed assets
Share option expense
Directors’ remuneration
Directors’ fees
Directors’ pensions
Directors’ bonuses
Auditors’ remuneration
as Auditors current year
as Auditors under-accrual for prior year
non-audit services
Pension cost defined contribution scheme
Operating lease rentals for property
12.
Income tax expense
The main rate of income tax in the Isle of Man is 0% (2010: 0%), however the profits of the Group’s Manx banking activities are taxed at
10% (2010: 10%). The profits of the Group’s subsidiaries that are subject to UK corporation tax are taxed at a rate of 26.5% (2010: 28%).
The Group had sufficient tax losses brought forward to offset any profits in income streams that are taxable at a rate above 0% and
therefore no provision is required.
The Group had unrecognised deferred assets of £0.5 million (2010: £0.5 million) in respect of tax losses carried forward, net of accelerated
capital allowances.
13. Loss per share
Loss for the year
Weighted average number of ordinary shares in issue
Basic and diluted loss per share
2011
£000
(783)
2010
£000
(188)
Number
Number
89,213,979)p
(0.88)p
76,143,178)p
(0.24)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.
Diluted earnings per share is the same as basic loss per share, as for the year ended 31 December 2010 there is no dilution from potential
ordinary shares.
14. Company loss
The loss on ordinary activities after taxation of the Company is £932,000 (2010: £1,336,000).
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
34
15. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
Group
2010
£000
2,656
2,139
4,795
2011
£000
1,789
546
2,335
Company
2011
£000
2010
£000
–
–
–
–
–
–
Cash at bank includes an amount of £8,949 (2010: £29,040) representing cheques issued in the course of transmission. The remaining
maturity of short-term deposits is as follows:
Less than 8 days
Group
Company
2011
£000
546
546
2010
£000
2,139
2,139
2011
£000
–
–
2010
£000
–
–
16. 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 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.
17. Available-for-sale financial instruments
UK Government Treasury Bills
Group
Company
2011
£000
10,495
10,495
2010
£000
7,292
7,292
2011
£000
–
–
2010
£000
–
–
UK Government Treasury Bills are stated at fair value and unrealised changes in the fair value are reflected in equity, see page 13.
Manx Financial Group PLC
18. Loans and advances to customers
Group
HP balances
Finance lease balances
Litigation funding
Unsecured personal loans
Vehicle stocking plans
Block discounting
Secured commercial loans
Gross
Amount
£000
33,810)
5,640)
2,972)
3,399)
1,397)
3,724)
3,113)
2011
Impairment
Allowance
£000
(624)
(628)
(1,835)
(434)
–)
(9)
(1,000)
Carrying
Value
£000
33,186)
5,012)
1,137)
2,965)
1,397)
3,715)
2,113)
Gross
Amount
£000
30,420)
11,306)
2,634)
3,602)
1,341)
989)
3,049)
2010
Impairment
Allowance
£000
(1,062)
(1,209)
(1,623)
(522)
–)
–)
(247)
35
Carrying
Value
£000
29,358)
10,097)
1,011)
3,080)
1,341)
989)
2,802)
Collateral is held, in the form of underlying assets, for HP, finance leases, vehicle stocking plans, block discounting and secured commercial
loans. An estimate of the fair value of collateral on past due or impaired loans and advances is not disclosed as it would be impractical
to do so.
54,055)
(4,530)
49,525)
53,341)
(4,663)
48,678)
Specific allowance for impairment
Balance at 1 January
Provisions as a result of acquisition of business
Specific allowance for impairment made
Write-offs
Balance at 31 December
Collective allowance for impairment
Balance at 1 January
Provisions as a result of acquisition of business
Collective allowance for impairment made
Release of allowances previously made
Balance at 31 December
Total allowances for impairment
2011
£000
4,173)
–)
781)
(649)
2010
£000
4,103)
1,510)
(1,125)
(315)
4,305)
4,173)
2011
£000
490)
–)
129)
(394)
225)
2010
£000
333)
129)
52)
(24)
490)
4,530)
4,663)
Advances on preferential terms are available to all Directors, management and staff. As at 31 December 2011 £166,710 (2010: £144,539)
was lent on this basis. In the Group’s ordinary course of business, advances may be made to Shareholders but all such advancves are
made on normal commercial terms.
At the end of the current financial year three loan exposures exceeded 10% of the capital base on the Group see details below (2010:
two loan exposures).
Exposure
Finance lease
Secured commercial loan
Block discounting facility
On 29 March 2012 the full amount outstanding under the finance lease noted above was settled.
Outstanding Outstanding
balance
balance
2011
£000
Facility
limit
2010 (if applicable)
£000
£000
1,037
1,849
767
1,655
1,870
437
N/a
1,870
1,000
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
36
18. 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
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
19. Property, plant and equipment
Group
Cost
As at 1 January 2011
Additions
Disposals
As at 31 December 2011
Accumulated depreciation
As at 1 January 2011
Charge for year
Disposals
As at 31 December 2011
Carrying value at 31 December 2011
Carrying value at 31 December 2010
Leashold
IT Furniture &
Improvements Equipment Equipment
£000
£000
£000
31)
170)
(31)
170)
(11)
(6)
16)
(1)
169)
20)
763)
96)
(73)
786)
(286)
(147)
73)
(360)
426)
477)
593)
13)
(24)
582)
(415)
(45)
24)
(436)
146)
178)
2011
£000
19,295)
26,962)
2010
£000
20,131)
28,000)
46,257)
48,131)
2011
£000
16,049)
23,401)
2010
£000
16,951)
24,775)
39,450)
41,726)
Motor
Vehicles
£000
167)
44)
(27)
Total
£000
1,554)
323)
(155)
184)
1,722)
(82)
(36)
7)
(111)
73)
85)
(794)
(234)
120)
(908)
814)
760)
Fixed assets with a net book value of £629,000 (2010: £542,000) are held by Conister Bank Limited. These comprise furniture and
equipment of £43,000 (2010: £46,000), leasehold improvements of £168,000 (2010: £20,000) and IT equipment of £418,000 (2010:
£477,000).
Fixed assets with a net book value of £71,000 (2010: £69,000) are held by Conister Finance and Leasing Ltd, all of which relate to
motor vehicles.
Fixed assets with a net book value of £92,000 (2010: £86,000) are held by Edgewater Associates Limited. These comprise furniture
and equipment of £84,000 (2010: £86,000) and IT equipment £8,000 (2010: £nil).
Fixed assets with a net book value of £22,000 (2010: £63,000) are held by ECF Asset Finance PLC. These comprise furniture and
equipment of £19,000 (2010: £46,000) and motor vehicles of £3,000 (2010: £17,000).
Manx Financial Group PLC
37
Investment in Group undertakings
20.
The Company has the following investments in subsidiaries incorporated in the Isle of Man:
Carrying value of investments
Nature of
Business
31 December
2011
Date of
% Holding incorporation
Total
2011
£
Total
2010
£
Conister Bank Limited
TransSend Holdings Limited
Bradburn Limited
Edgewater Associates Limited
Asset and personal finance
Holding Company for prepaid card division
Holding Company
Wealth Management
100
100
100
100
5.12.1935
5.11.2007
15.05.2009
24.12.1996
10,067,000
–
1
2,000,000
10,067,000
–
1
2,000,000
Goodwill
Goodwill
Edgewater Associates Limited (EWA)
ECF Asset Finance PLC (ECF)
Three Spires Insurance Services Limited (Three Spires)
Acquisition adjustment ECF
Impairment ECF
12,067,001
12,067,001
Group
2011
£000
1,849
354
41
2,244
211
(111)
Group
2010
£000
1,849
354
–
2,203
–
–
2,344
2,203
Following a detailed review of the acquired ECF loan book at 30 June 2011 an adjustment was made to the fair value of the assets
acquired under the provisions of IFRS 3. A reduction of £211,000 (2010: nil) was made to the value of certain loan assets where evidence
from the review identified that the recoverable value assumed at the date of acquisition was overstated.
Goodwill on the ECF acquisition was reviewed for impairment based on anticipated future business and an impairment provision of
£111,000 (2010: nil) was made during the year.
Goodwill impairment
The goodwill is considered to have an indefinite life and is reviewed on an annual basis by comparing its estimated recoverable amount
with its carrying value. The estimated recoverable amount in relation to the goodwill generated on the purchase of EWA is based on
the forecasted 3 year profit numbers, extrapolated to 10 years using a 5% annual increment, and then discounted using a 10% discount
factor. The sensitivity of the analysis was tested using additional discount factors of 15% and 20% and stable profit levels.
The estimated recoverable amount in relation to the goodwill generated on the purchase of ECF is based on forecasted 3 year sales
interest income (calculated at 5% margin), extrapolated to 10 years using a 5% annual increment, and then discounted using a 10%
discount factor. The sensitivity of the analysis was tested using additional discount factors of 15% and 20% and varying sales volumes.
On the basis of the above reviews no impairment to goodwill has been made in the current year other than that noted separately above.
The goodwill generated on the purchase of Three Spires has not been reviewed at the current year end due to the short amount of time
between the acquisition and year end. The goodwill will be reviewed for impairment in a similar way to both EWA and ECF for future
years.
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
38
20.
Investment in Group Undertakings (continued)
Acquisitions
Three Spires
On 21 June 2011, EWA (a subsidiary of Manx Financial Group PLC) acquired the entire share capital of Three Spires, an Independent
Financial Advisor and General Insurance broker based in the Isle of Man. Three Spires is regulated by the Insurance and Pensions
Authority.
The following summarises the major classes of consideration transferred, and the recognised amounts of assets acquired and liabilities
assumed at the acquisition date:
Consideration transferred
Cash
Deferred consideration
Deferred consideration
2011
£000
57)
20)
77)
The deferred element of the consideration was payable in cash over the three month period from July to September 2011 on the last
day of the month.
Identifiable assets acquired and liabilities assumed
Cash
Trade and other receivables
Trade and other payables
Total identifiable net assets
Goodwill
Total consideration transferred
Fair value of identifiable net assets
Goodwill
2011
£000
45)
4)
(13)
36)
2011
£000
77)
(36)
41)
The goodwill attributable to Three Spires is in relation to its established IFA and general insurance client base and the skills and experience
of its staff.
Manx Financial Group PLC
39
Group
2010
£000
207
242
–
449
2011
£000
114
462
684
1,260
Company
2011
£000
2010
£000
–
20
11
31
–
9
6
15
21. Trade and other receivables
Trade debtors
Prepayments and other debtors
VAT recoverable
Included in trade and other receivables is an amount of £684,000 relating to a reclaim of value added tax (VAT).
Conister Bank Limited (the Bank), as the Group VAT registered entity, has for some time considered the VAT recovery rate being obtained
by the business was neither fair nor reasonable, specifically regarding the attribution of part of the residual input tax relating to the HP
business not being considered as a taxable supply. Queries have been raised with the Isle of Man Government Customs & Excise Division
(C&E), and several reviews of the mechanics of the recovery process were undertaken by the Company’s professional advisors.
The decision of the first-tier Tax Tribunal released 18 August 2011 in respect of Volkswagen Financial Services (UK) Limited v HM Revenue
& Customs (TC01401) (“VWFS Decision”) added significant weight to the case put by the Bank and a request for a revised Partial
Exemption Special Method was submitted in December 2011. The proposal put forward by the Bank is that the revised method would
allocate 50% of costs in respect of HP transactions to a taxable supply and 50% to an exempt supply. In addition at this time a Voluntary
Disclosure was made as a retrospective claim for input VAT under-claimed in the last 4 years, HM Revenue & Customs have appealed
the decision.
Discussions regarding the retrospective claim are ongoing, however, there has been an acknowledgement that the old partial exemption
special method was neither fair nor reasonable, and the revised Partial Exemption Special Method has been agreed to be not unreasonable
but is unlikely to be agreed prior to the appeal being heard. C&E have also confirmed that they are happy for this method to have been
applied in Quarter 4 2011, and to apply to future returns pending approval.
On the basis of the discussions and correspondence with C&E in addition to the VWFS Decision, the Directors believe that the VAT
claimed retrospectively will be secured.
22. Customer accounts
Retail customers: Term deposits
Corporate customers: Term deposits
2011
£000
54,569)
1,341)
2010
£000
50,878)
1,867)
55,910)
52,745)
Fiduciary deposits
The Bank acts as agent bank to a number of customers, for balances totalling £18,982,000 (2010: £48,396,641). 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 statement of financial position.
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
40
23. Creditors and accrued charges
Creditors and accruals
Redundancy costs
VAT payable
Short-term employee benefits
Deferred consideration
Edgewater Associates Limited
Group
Company
2011
£000
698
–
81
76
855
2011
£000
492)
492)
2010
£000
672
102
135
69
978
2010
£000
475
475
2011
£000
93
–
–
–
93
2011
£000
492)
492)
2010
£000
209
–
–
–
209
2010
£000
475)
475)
Deferred consideration
The deferred consideration is payable to the previous shareholders of Edgewater Associates Limited between 2012 and 2013 on approval
of the respective company’s accounts for each of the financial years ending 31 December 2011 and 2012. The deferred element, payable
on the approval of the respective accounts, is:
31 December 2011: £333,000 in cash;
31 December 2012: £159,000 in cash and £175,000 payable in Consideration Shares; and
Total deferred cash and share consideration payable is £492,000 and £175,000 respectively.
The Consideration Shares shall be issued on the basis of the mean average offer price of the Group’s ordinary shares for the five business
days immediately preceding the date on which the obligation arises. The cash consideration will be financed from existing cash resources.
In March 2012 it was agreed by all parties that the full amount of deferred consideration due in respect of the 31 December 2011 Financial
Statements would be paid in cash and no Consideration Shares would be issued.
Incentive commission
It was also agreed that an incentive commission would be paid to Edgewater’s principals, calculated as 40% of the EBITDA in excess of
£400,000, £450,000 and £500,000 thresholds in each of the financial years ending 31 December 2010, 2011 and 2012 on a cumulative
basis so as to make good any prior year or years’ shortfall before triggering any additional consideration. The incentive commission will
be payable 50% in cash and 50% in the Group’s shares. Such additional shares will be issued at the same price as the Consideration
Shares for that year.
No incentive commission has been paid to date, and based on current expectations no provision has been made in the accounts of the
Group in respect of the incentive commission.
24. Loan notes
On 31 May 2011 MFG entered into a loan agreement with a related party company guaranteed by Burnbrae Limited for £0.5m. The loan
was repayable within one year and bore interest at a rate of 3.5% per annum. On 21 December 2011 this loan was repaid and another
loan agreement was entered into directly with Burnbrae Limited. This loan is repayable within five years and bears interest at 3.5% per
annum.
On 3 March 2010 MFG entered into a convertible loan agreement with the Company and Group’s Executive Chairman, Jim 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 Arron
Banks, a Non-Executive Director of MFC) for £0.46 million on 26 March 2010. These loans represent Related Party Transactions 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 insofar as the Shareholders of the Company are concerned. The Directors consider
that there is no equity element to these convertible loans.
■
■
■
Manx Financial Group PLC
41
25. 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 of the Scheme.
The most recent full actuarial valuation carried out at 1 April 2010 showed that the market value of the Scheme’s assets was £1,346,464,
representing 97.7% 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 2010.
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
2011
%
N/A
–
2.90
2.10
5.70
3.10
2010
%
3.70
–
3.40
2.20
5.70
5.20
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
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.
The amounts recognised in the Consolidated Statement of Financial Position 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
Cash
Other
2011
£000
1,192)
(1,271)
2010
£000
1,357)
(1,417)
(79)
(60)
2011
%
2010
%
24)
20)
18)
38)
–)
24)
25)
37)
7)
7)
100)
100)
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
42
25. Pension liability (continued)
Movement in the liability for defined benefit obligations
Opening defined benefit obligations at 1 January
Benefits paid by the plan
Interest on obligations
Actuarial (gain)/loss
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
Acturial (loss)/gain
Benefits paid
Closing fair value of plan assets at 31 December
Expense recognised in income statement
Interest on obligation
Expected return on plan assets
Total included in personnel costs
Actual return on plan assets
Income recognised in other comprehensive income and expense
Acturial (loss)/gain on plan assets
Acturial gain/(loss) on defined benefit obligations
2011
£000
1,417)
(200)
75)
(21)
1,271)
2011
£000
1,357)
65)
10)
(40)
(200)
1,192)
2011
£000
75)
(65)
10)
(25)
2011
£000
(40)
21)
(19)
2010
£000
1,391)
(55)
78)
3)
1,417)
2010
£000
1,325)
79)
–)
8)
(55)
1,357)
2010
£000
78)
(79)
(1)
(19)
2010
£000
8)
(3)
5)
Manx Financial Group PLC
43
26. Called up share capital
Following the approval by its Shareholders at the Company’s Extraordinary General Meeting held on 14 January 2010, it has now re-
registered as a company incorporated under the Isle of Man Companies Act 2006 (as amended).
As a result, the Company’s authorised share capital consists of 150,000,000 ordinary shares of no par value and the share premium
account was transferred to reserves.
Additional shares were issued as part consideration in the acquisition of Edgewater Associates Limited.
Authorised: Ordinary shares of no par value
At 31 December 2011
At 31 December 2010
Issued and fully paid: Ordinary shares of no par value
At 31 December 2010
Issued as part consideration for shares in Edgewater Associates Limited
As at 31 December 2011
Number
150,000,000
150,000,000
Number
88,186,853
1,383,399
£000
18,258
175
89,570,252
18,433
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
44
26. Called up share capital (continued)
Dates Exercisable
Executive Plan Options
Grant date
On 9 June 2003
Balance at 31 December 2010
Lapsed
Balance at 31 December 2011
On 28 April 2004
Balance at 31 December 2010
Lapsed
Balance at 31 December 2011
On 25 April 2005
Balance at 31 December 2010
Lapsed
Balance at 31 December 2011
On 1 November 2006
Balance at 31 December 2010
Lapsed
Balance at 31 December 2011
On 6 July 2007
Balance at 31 December 2010
Lapsed
Balance at 31 December 2011
On 1 February 2008
Balance at 31 December 2010
Lapsed
Balance at 31 December 2011
On 25 June 2010
Balance at 31 December 2010
Lapsed
Balance at 31 December 2011
Perfomance
Conditions
From
To
Exercise
Price
Fully vested
9 June 2009
9 Dec 2013
34p
Fully vested
28 Apr 2004
27 Apr 2014
29p
Fully vested
25 Apr 2005
24 Apr 2015
32p
1 Nov 2006
31 Oct 2011
54.1p
(a)
6 July 2007
6 July 2017
65p
(b)
1 Feb 2008
1 Feb 2018
70p
(c)
25 June 2010
25 June 2020
10.95p
Number
of ordinary
shares
2,092,500
28,500
–
28,500
350,000
68,500
–
68,500
205,500
25,000
(12,500)
12,500
1,375,000
–
–
–
625,000
50,000
–
50,000
1,275,000
100,000
–
100,000
1,410,447
1,410,447
634,293
776,154
Manx Financial Group PLC
45
26. Called up share capital (continued)
Performance conditions attached to share options that have not fully vested
(a) The options granted on 6 July 2007 vested as follows:
30% on the first anniversary of grant (i.e. 6 July 2008)
30% on the second anniversary of grant (i.e. 6 July 2009)
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 (e.g. 6 July 2010).
(b) The options granted on 1 February 2008 will vest if a mid market share price of £1.75, 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.
(c) The options granted on 25 June 2010 will vest if the mid market share price of £0.30 is achieved during the period of grant (10
years ending 25 June 2020).
No shares resulting from the exercise of an option may be sold for at least three years from the date of grant.
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
9 June
2003
£0.08
£0.34
£0.34
30%
10
0.00%
4.11%
0%
28 April
2004
25 April 1 November 6 July 2007
(Tranche 1)
2006*
2005
£0.03
£0.29
£0.29
30%
10
0.00%
4.96%
30%
£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%
■
■
■
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
46
26. Called up share capital (continued)
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 statement of comprehensive income
Share options granted in:
2003
2004
2005
2006
2007
2008
2010
6 July 2007 6 July 2007
(Tranche 3)
(Tranche 2)
1 February
2008
25 June
2010
£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%
£0.31
£0.77
£0.81
35%
10
0.00%
4.28%
0%
£0.03
£0.11
£0.11
47%
10
0.00%
2.24%
0%
2011
£000
2010
£000
–
–
–
–
–
–
4
4
–
–
–
–
1
–
5
6
2011
£000
19,968)
–)
–)
175)
–)
–)
500)
2010
£000
22,496)
1,903)
26)
475)
(6,142)
(500)
1,710)
20,643)
19,968)
27. Analysis of changes in financing during the year
Analysis of changes in financing during the year
Balance at 1 January
Issue of ordinary shares by way of general offer
Issue of ordinary shares in lieu of bonus to Executive Directors
Issue of ordinary shares as part consideration for purchase of subsidiary undertaking
Transfer of share premium account to reserves
Repayment of subordinated liabilities (note 29)
Issue of loan notes
Balance at 31 December
The 2011 closing balance is represented by £18,433,000 share capital and £2,210,000 of loan notes.
The 2010 closing balance was represented by £18,258,000 share capital and £1,710,000 of loan notes.
Manx Financial Group PLC
47
28. Regulator
Conister Bank Limited is licensed to undertake banking activities by the Isle of Man Government Financial Supervision Commission.
29. Related party transactions
Staff loans
Details of staff loans are given in note 18 to the financial statements.
Convertible loans and loan notes
Details of convertible loan arrangements and loan notes are given in note 24 to the financial statements.
Subordinated loan (prior year)
On 22 December 2008 the Bank entered into a subordinated loan agreement for £500,000 with Jim 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 insofar as the Shareholders of the Company were concerned.
On 3 March 2010 this loan was repaid by the Bank.
Key management personnel (including Executive Directors’) compensation
Short-term employee benefits
Share-based payments
Total
2011
£000
336)
–)
336)
The share based payments expense in prior year related to Shares in lieu of cash bonuses to two of the Executive Directors.
30. Operating leases
Non-cancellable lease rentals are payable in respect of property and motor vehicles as follows:
Less than one year
Between one and five years
Over five years
2011
2010
Leasehold
Property
£000
257)
789)
673)
1,719)
Other
£000
14)
6)
–)
20)
Leasehold
Property
£000
245)
658)
–)
903)
2010
£000
395)
26)
421)
Other
£000
15)
18)
–)
33)
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
48
31. Litigation
The Bank is vigorously pursuing the repayment of litigation funding loans made to clients of 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.
M A N X F I N A N C I A L
GROUP PLC
Conister House
Clarendon House
Victoria Street
Douglas
Isle of Man
IM1 2LN
Tel: (01624) 694694
Fax: (01624) 624278
www.mfg.im