M A N X F I N A N C I A L
GROUP PLC
ANNUAL REPORT 2012
Welcome to Manx Financial Group PLC
Integrity through independence and service
An independent banking group founded in 1935, domiciled in
the Isle of Man
Edgewater Associates Limited (EWA)
is one of the pre-eminent independent
financial advisers in the Isle of Man.
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 £156 million.
EWA specialises in the areas of wealth
management, mortgage and general
insurance, and retirement planning.
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
• Edgewater Associates Limited
• Conister Card Services Limited
the
Conister Bank Limited (The Bank) is a
licensed independent bank, regulated
Supervision
Financial
by
Commission in the Isle of Man and a
full member of the MasterCard®
network and
Isle of Man's
the
Association of Licensed Banks.
The Bank provides a variety of financial
products and services,
including
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.
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.
® 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 £5.5 million (2011: £4.6 million)
Net trading income £5.1 million (2011: £5.0 million)
Operating income £5.3 million (2011: £5.5 million)
Profit before specific items £0.4 million (2011: loss of £0.6 million)
Loss for the year £0.3 million (2011: loss of £0.8 million)
Headcount at 31 December 2012 was 54 people (2011: 68 people)
Conister Bank Limited:
Profit before specific items for the year £0.5 million (2011: loss of £0.9 million)
Net loans and advances £58.5 million (2011: £49.6 million)
Deferred income £8.7 million (2011: £7.6 million)
New advances £38.2 million (2011: £32.0 million)
Deposits £63.7 million (2011: £55.9 million)
Edgewater Associates Limited:
Profit before specific items for the year £0.024 million (2011: £0.010 million)
Assets under management £140 million (2011: £130 million)
Conister Card Services Limited:
Profit before specific items for the year £0.02 million (2011: £0.20 million)
Operating costs reduced to £0.6 million (2011: 0.7 million)
Manx Financial Group PLC
Chairman’s Statement
02
Jim Mellon
Chairman
Dear Shareholders,
Each year since I became Executive Chairman, I have ended
my reports to you with a commitment that the Group will
return to profitability. Although the 2012 results do not fully
reflect this - as inevitably this statement is largely retrospective
- I believe that we have at last turned the corner. The start to
the current year continues the promising performance for the
second half of 2012: our cost reductions taken in 2012 are
now filtering through to the Income Statement and our new
business generation is improving each month. I look forward
to being able to provide a positive update on this progress at
the half year.
Manx Financial Group PLC
As I stated in the 2012 Interim Report, I expected an
improvement in the second half of the year. I am pleased to
record that my confidence was not misplaced. By the end of
June 2012, our Profit before specific items was £92,000. At
the end of the full year this figure had increased to £390,000
(2011: loss of £641,000) – a turnaround of just over £1 million
in twelve months. Adding in the specific items, the Total
comprehensive loss at the Interim stood at a loss of £567,000
with the full year figure being a loss of £435,000 (2011: loss
of £799,000) – a positive improvement of £132,000.
figures might not
in themselves seem
Whilst these
noteworthy, they disguise the benefits following the extensive
restructuring undertaken in 2012 to deal with the considerable
legacy overhead issues. By the end of 2012, our Personnel
expenses had reduced by nearly 15% to £2.8 million (2011:
£3.3 million) and our Other expenses had reduced by nearly
8% to £2.1 million (2011: £2.3 million). Overall, the costs of
continuing operations had fallen by 16% to £5.3 million (2011:
£6.3 million).
Non-recurrent Acquisition and redundancy costs, together
with the provision for the Edgewater Associates variable final
acquisition payment, alone amounted to £864,000 (2011:
£537,000). Despite these one-off costs, the Group returned
a Total comprehensive profit of £132,000 in the second half
of the year (2011: a loss of £446,000).
Turning to the Statement of Financial Position, our Total
assets have grown 16% to £78.0 million (2011: £67.2 million).
Our Total liabilities have grown 19% to £70.8 million (2011:
£59.5 million), and Total liabilities and equity by 16% to £78.0
million (2011: £67.2 million). The most significant figures within
these totals are the growth in Loan and advances to £58.5
million (2011: £49.6 million) and the growth in Customer
accounts to £63.7 million (2011: £55.9 million).
Strategically, we will continue our short-term focus on organic
growth for the subsidiaries engaged in banking, prepaid cards
and financial advisory services to consolidate our profitability
and only consider acquisitions if the business rationale
warrants. This focus will eliminate over £500,000 worth of
aborted transaction fees incurred during 2012.
Conister Bank Limited
Our banking subsidiary continues to experience excellent
growth with interest income up 17% to £7.8 million (2011:
£6.7 million) driven by a 19% increase in new lending to £38.2
million (2011: £32.0 million). In turn, the Net loan book has
grown by just over 18% to £58.5 million (2011: £49.6 million).
This net loan book growth has in turn increased our deferred
income by 14% to £8.7 million (2011: £7.6 million). The
consistent application of our underwriting policies has allowed
provision levels to reduce by £0.2 million to £4.3 million (2011:
£4.5 million) whilst retaining prudent provision balances which
represented 6% of our gross loan book (2011: 7%).
Good progress has also been achieved in matching deposits
to loans and this key ratio improved by 3% to 92%. Also, the
cost income ratio before specific items improved by 15% as
the benefits of the rationalisation plan started to flow through
the Income statement. The deposit base remains loyal and
our brand awareness within the local deposit market is
positive. Growth should not be restrained as our ability to
attract deposits at competitive rates shows no sign of
abating.
In line with best banking practice, I am pleased to report that
our Tier 1 capital stood at nearly £10.0 million at the year-end
which provided a Regulatory Risk Asset Ratio of nearly 17%.
This figure is greatly in excess of the UK major banks and
provides a solid foundation for our banking business. We
believe that the provision of additional regulatory capital to
fuel our expansion plans will not be a concern, and indeed
our strategic plan for organic growth allows for the Bank to
become self-sufficient in capital generation by the third
quarter of 2013.
As I stated last year the Bank has for some time considered
its VAT recovery rate as being neither fair nor reasonable and
has raised this concern with the Isle of Man Government’s
Manx Financial Group PLC
03
Technology advances within the mobile and tablet arena are
providing new, more convenient connectivity opportunities for
both businesses and customers to send and receive
payments. Choosing the correct partners within this market
will be critical to the economic success of our entry into this
opportunity. We are currently engaged in discussions with a
mobile phone operator and a supermarket chain about
operating a test to prove the technology and to review the
market opportunity.
Outlook
In conclusion, I am pleased to say that all our businesses are
on stream to achieve sustainable profitability. The Group’s
growth will be mainly driven by Conister Bank as I expect little
change in the current economic environment for some
considerable time. The benefit to us will be that during this
period the ‘High Street’ banks will continue on their present
course of balance sheet reconstruction which, inevitably, limits
lending. This will, in turn, provide a time of opportunity for
smaller banks such as our own to improve the quality of their
counterparties and become the longer term funder of choice.
We will continue to improve our system technology to ensure
that our customers benefit from the competitive efficiency that
an internet interface provides.
Thus this year’s objective is to build upon a solid platform of
sustainable profitability. With this achieved, we will be well
positioned to move the Group to the next stage of its
development which I anticipate will involve the consideration
of strategic acquisitions to both broaden and strengthen our
customer offering.
Finally, it remains for me to thank the executive and all our
staff for their hard work and loyalty during this transformational
year and to also thank you, our shareholders, for your
continued support.
Jim Mellon
Executive Chairman
28 May 2013
Customs & Excise Division. Some progress has been made
with a £0.1 million benefit agreed so far. The balance will
follow the decision of the Volkswagen Financial Services
Limited case against HM Revenue & Customs, with the next
appeal scheduled to be heard in Autumn 2013.
The continued absence of the traditional ‘High Street’ banks
from both the UK consumer and Small & Medium Enterprises
markets has created a void which our banking subsidiary is
in an advantageous position to help fill. With Conister Bank’s
easy access to the Isle of Man retail deposit market, it will not
be liquidity constrained and its rate structure should deliver
steady returns for the foreseeable future. This, in conjunction
with our growing UK distribution network, should ensure our
route to market is stronger and more comprehensive than has
been the case historically. In short, I believe that we have
created a strong platform for growth within profitable market
sectors.
Edgewater Associates Limited
Our Isle of Man regulated IFA business remains profitable and
is well placed to benefit from the introduction on 1 January
2014 of the Island’s equivalent to the UK’s Retail Distribution
Review whereby only those appropriately qualified can
provide financial advice. Although the current economic
climate is proving challenging to write new business,
Edgewater Associates had the foresight to move to a renewal
income model in 2010 which now represents over half of its
turnover.
The strategy for growth is two pronged. Firstly we will
continue to grow renewal income to cover the cost of the
business’s main asset, its people. This is expected to be
achieved in the first half of 2013. Secondly, we will accelerate
our new business income by increasing the ratio of sales to
support staff within the current establishment. The latter will
generate income greater than overheads and will create a
more consistent return on our investment. Whilst this will have
a positive impact in 2013, the full benefit of the re-structuring
will not flow through the financial statements until 2014. We
also continue to seek suitable acquisitions to increase the
business’ scale.
Conister Card Services Limited
We continue to act as a BIN sponsor whilst reviewing other
ways to monetise our MasterCard® Principal Membership.
Manx Financial Group PLC
Directors and Advisers
04
Jim Mellon (56)‡
Executive Chairman
Denham Eke (61)‡
Chief Executive Officer
Juan Kelly (42)‡
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
Denham Eke is the Managing Director of Burnbrae Group
Limited, a private
international asset management
company. Mr Eke began his career in stockbroking with
Sheppards & Chase before moving into corporate planning
for Hogg Robinson plc, a major multinational 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. He
is chairman of Webis Holdings PLC, chief executive officer
of Speymill PLC, chief finance officer of West African
Minerals Corporation Limited, chief finance officer of
Copper Development Corporation, chief finance officer of
Port Erin Biopharma Investments Limited, and a non-
executive director of Billing Services Group Limited - all
quoted on the London AIM market.
Juan Kelly was appointed as an Executive Director of Manx
Financial Group PLC and Managing Director of Conister
Bank Limited on 19 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 Bank 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.
Appointed to the Board on 2 November 2007 and
appointed as Executive Chairman on 12 February 2009.
Appointment
Appointed to the Board on 2 November 2007 and
appointed as Chief Executive on 12 February 2009.
Appointment
Appointed to the Board on 19 September 2011.
Douglas Grant (48)‡
Executive Director
Don McCrickard (76)‡
Non-Executive Director
Douglas Grant was appointed as the Group Finance
Director having worked as a financial consultant to the
Group since November 2008. He has over 25 years’
experience working in finance, initially with Scottish Power
before moving to the industrial sector to work with ICI and
then Allenwest. Prior to joining Manx Financial Group PLC
he was the group financial controller and later finance
director of various UK and Isle of Man private sector
companies and has extensive capital raising experience.
Appointment
Appointed to the Board on 14 January 2010.
From 1975 to 1983 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 Banking
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
Alan Clarke (62)‡†*
Non-Executive Director
David Gibson (66)‡†*
Non-Executive Director
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 specialises in
corporate finance and strategic consultancy, advising a
variety of both listed and private companies. He holds
several non-executive directorships and is chairman of the
investment committee for the University of Manchester.
He is also a registered auditor, being the senior partner of
Downham Mayer Clarke.
Appointment
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 plc and
Mountstephen Investments Limited and a non-executive
director for Rivington Street Holdings PLC, an Isle of Man
financial media conglomerate.
Appointment
Appointed to the Board on 12 February 2009.
Advisers
Company Secretary
Lesley Crossley
Registered Office
Clarendon House,
Victoria Street,
Douglas,
Isle of Man, IM1 2LN.
Registered Agent
CW Corporate Services
Limited
Bank Chambers,
15-19 Athol Street,
Douglas,
Isle of Man, IM1 1LB.
Independent Auditors
KPMG Audit LLC
Heritage Court,
41 Athol Street,
Douglas,
Isle of Man, IM99 1HN.
Legal Advisers
Kerman & Co LLP
200 Strand,
London, WC2R 1DJ.
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.
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.
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 Advisor
and Broker
Beaumont Cornish
Limited
2nd Floor,
Bowman House,
29 Wilson Street,
London, EC2M 2SJ.
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 2012.
The Directors are not aware of any other individual holding of
greater than 3% as at 29 April 2013.
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 and
wealth management.
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:
Arron Banks resigned on 19 July 2012, Oliver Hare on 11
September 2012 and Nick Sheard on 22 March 2013.
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 (2011: 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 29 April 2013 are:
The number of shares held by the current Directors is as follows:
Jim Mellon1
Douglas Grant
David Gibson2
Don McCrickard3
Alan Clarke
Juan Kelly
Number
31/12/12
17,635,332
680,821
428,853
66,666
52,149
27,860
Number
31/12/11
17,585,332
580,821
178,853
66,666
52,149
–
1 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 968,666 Ordinary Shares on trust for Jim
Mellon. Jim Mellon holds 666,666 Ordinary Shares in his own name.
2 Comprises 428,853 Ordinary Shares held by TD Direct Investing Nominees
(Europe) Ltd on trust for David Gibson.
3 Comprises 66,666 Ordinary Shares held by Hargreaves Landsdown
Nominees Limited on trust for Don McCrickard.
The number of share options held by the current Directors is as
follows:
Number
31/12/12
342,466
Number
31/12/11
342,466
Number
% of
issued capital
Douglas Grant
Jim Mellon
Arron Banks
Lynchwood Nominees Limited
Island Farms Limited
David Hathersich-Jones
Hargreaves Lansdown
(Nominees) Limited
17,635,332
16,124,825
7,485,412
4,222,319
4,154,291
4,133,012
19.69
18.00
8.36
4.71
4.64
4.61
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 2012 there were 54 members of staff (2011: 68),
of whom 5 were part-time (2011: 10).
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, relations with
shareholders, accountability and audit. 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 seven Directors. Three of these are
Non-Executive Directors and four are Executive Directors, including
the Chairman. 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.
All of the three Non-Executive Directors are considered
independent. These are Alan Clarke, David Gibson and Don
McCrickard.
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 its
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; and
■ 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 current 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
28 May 2013
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 Kelly1
Douglas Grant
Nick Sheard2
Simon Hull3
Non-Executive
Alan Clarke
David Gibson
Don McCrickard
Arron Banks4
Oliver Hare5
Aggregate emoluments
Remuneration/ Performance
Related Pay
£
Fees
£
Pension
£
2012
Total
£
2011
Total
£
25,000
25,000
135,740
128,740
93,740
–
37,500
37,500
37,500
7,292
18,750
546,762
–
–
–
–
–
–
–
–
–
–
–
–
–
25,000
25,000
–
13,700
12,500
9,000
–
–
–
–
–
–
25,000
149,440
141,240
102,740
–
37,500
37,500
37,500
7,292
18,750
25,000
42,944
140,417
100,516
51,726
37,500
37,500
37,500
12,500
23,782
35,200
581,962
534,385
1 Juan Kelly was appointed on 19 September 2011.
2 Nick Sheard resigned on 22 March 2013.
3 Simon Hull resigned on 11 March 2011.
4 Arron Banks resigned on 19 July 2012.
5 Oliver Hare resigned on 11 September 2012.
Approval
This report was approved by the Board of Directors on 28 May 2013 and signed on its behalf by:
Alan Clarke
Chairman of the Remuneration Committee
28 May 2013
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 (IFRS) as adopted by the EU.
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 Group 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
IFRS as adopted by the EU; 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 2012 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) as adopted by the EU.
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 Auditors’ 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 2012 and of the Group’s
loss for the year then ended; and
have been properly prepared in accordance with IFRSs as
adopted by the EU.
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).
The Bank’s total exposure in relation to this matter is £589,000,
comprising a debtor balance of £466,000 plus an additional
£123,000 VAT reclaimed under the Partial Exemption Special
Method in the period from Q4 2011 to Q3 2012.
Conister Bank Limited, as the Group VAT registered agent, has for
some time considered the VAT recovery rate being obtained by the
business to be 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 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 (“VWFS”) 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 added significant weight to the case put forward by
the Bank to C&E, including the request to C&E for a revised Partial
Exemption Special Method as submitted in December 2011. The
proposal put forward by the Bank was 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.
In November 2012, it was announced that the HMRC Upper
Tribunal had overturned the First-Tier Tribunal in relation to the
VWFS Decision. VWFS has subsequently been given leave to
appeal and this is scheduled to be heard in October 2013 (“the
VWFS Appeal”).
On the basis of the discussions and correspondence which have
taken place between the Bank and C&E, in addition to the VWFS
Appeal, the Directors are confident that the total VAT claimed of
£589,000 will be secured and accordingly a debtor balance of
£466,000 has been included in the financial statements for the year
ended 31 December 2012 and no provision has been made for
the possible repayment of the £123,000 VAT reclaimed to date,
which might become repayable depending on the ultimate
outcome of the VWFS decision. Due to the inherent uncertainty
associated with the outcome of the VWFS Appeal and its impact
on negotiations with C&E, the amount of retrospective VAT
recovered and the amount of provision in respect of VAT reclaimed
to date in relation to this matter may differ materially from the
amounts stated in the financial statements.
KPMG Audit LLC
Chartered Accountants
Heritage Court, 41 Athol Street,
Douglas, Isle of Man, IM99 1HN.
28 May 2013
■
■
Manx Financial Group PLC
Consolidated Statement
of Comprehensive Income
13
2012
£000
7,800)
(2,259)
1,226)
(612)
(1,032)
(2,831)
(2,144)
(7)
37)
(864)
71)
28)
)(128)
(214)
–)
2012
£000
2011
£000
6,650)
(2,065)
2011
£000
5,541)
4,585)
1,191)
(322)
(417)
(3,314)
(2,319)
(463)
–)
(537)
684)
41)
15)
(234)
(111)
452)
5,037)
418)
5,455)
(6,096)
(641)
(142)
(783)
–)
(783)
3)
(19)
(799)
(0.88)
(418)
5,123)
212)
5,335)
(4,945))
390)
(1,107)
(717)
380)
(337)
–)
(98)
(435)
(0.38)
Notes
6
11
7
8
10
9
21
16
19
11
12
17
25
13
For the year ended 31 December
Interest income
Interest expense
Net interest income
Fee and commission income
Fee and commission expense
Profit share on joint lending schemes
Net fee and commission (expense)/income
Net trading income
Other operating income
Operating income
Personnel expenses
Other expenses
Provision for impairment of loan assets
Depositors’ Compensation Scheme
Profit/(loss) before specific items
Acquisition and restructuring costs
VAT recoverable
Realised gains on available-for-sale investments
Unrealised (Ioss)/gain on financial assets carried at fair value
Depreciation
Impairment of goodwill
Loss before income tax recovery
Income tax recovery
Loss for the year
Other comprehensive income
Available-for-sale gains taken to equity
Actuarial loss on defined benefit pension scheme
Total comprehensive loss for the period attributable to owners
Basic and diluted loss per share (pence)
The notes on pages 17 to 44 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
Deferred tax asset
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
2012
£000
2011
£000
Company
2012
£000
2011
£000
Notes
15
16
17
18
19
20
21
12
20
22
23
24
23
25
26
1,918)
51)
12,484)
58,495)
312)
742)
–)
1,252)
380)
2,344)
2,335)
189)
10,495)
49,525)
234)
814)
–)
1,260)
–))
2,344)
–)
–)
–)
–)
–)
–)
12,072)
98)
–)
–)
–)
–)
–)
–)
–)
–)
12,067)
31)
–)
–)
77,978)
67,196)
12,170)
12,098)
63,731)
2,162)
–)
4,510)
160)
200)
55,910)
855)
–)
2,210)
492)
79)
–)
339)
1,512)
4,510)
160)
–)
–)
93)
2,962)
2,210)
492)
–)
70,763)
59,546)
6,521)
5,757)
18,433)
(11,218)
18,433)
(10,783)
18,433)
(12,784)
18,433)
(12,092)
7,215)
7,650)
5,649)
6,341)
Total liabilities and equity
77,978)
67,196)
12,170)
12,098)
The Financial Statements were approved by the Board of Directors on 28 May 2013 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 44 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 loss/(gain) on financial assets carried at fair value
(Gain)/loss on disposal of property, plant and equipment
Depreciation charge
Realised gains on available-for-sale investments
Available-for-sale gains taken to equity
Actuarial loss on defined benefit pension scheme taken to equity
Pension liability
Share-based payment credit
Decrease/(increase) in trade and other receivables
Increase /(decrease) in trade and other payables
(Increase)/decrease in commission debtors
Impairment of goodwill
Notes
11,19
25
25
26
2012
£000
(717)
128)
(7)
214)
(28)
–)
(98)
121)
–)
18)
1,307)
(78)
–)
15
2011
£000
(783)
(15)
6)
234)
(41)
3)
(19)
19)
4)
(820)
(123)
3)
111)
Net cash inflow/(outflow) from trading activities
Increase in loans and advances to customers
Increase in deposit accounts
Cash (outflow)/inflow from operating activities
CASH FLOW STATEMENT
Cash flows from operating activities
Cash (outflow)/inflow from operating activities
Taxation paid
Net cash (outflow)/inflow from operating activities
Cash (outflow)/inflow from investing activities
Purchase of property, plant and equipment
Purchase of available-for-sale financial instruments
Sale of property, plant and equipment
Acquisition of subsidiaries net of cash acquired
Payment of deferred consideration
860)
(1,421)
(8,970)
7,821)
(1,058)
3,165)
(289)
686)
(289)
–)
(289)
(186)
(1,961)
51)
–)
(332)
686)
–)
686)
(323)
(3,162)
29)
(32)
(158)
19
17
20
Net cash outflow from investing activities
(2,428)
(3,646)
Cash flows from financing activities
Issue of loan notes
Net cash inflow from financing activities
Decrease in cash and cash equivalents
Included in cash flows are:
Interest received - cash amounts
Interest paid - cash amounts
The notes on pages 17 to 44 form part of these Financial Statements.
24
2,300)
500)
2,300)
500)
(417)
(2,460)
8,003)
(2,396)
6,749)
(2,306)
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
Transactions with owners:
Shares to be issued (see note 23)
Share-based payment expense
Share
capital
£000
18,433)
–)
–)
Retained
earnings
£000
(10,783)
(337)
(98)
2012
£000
7,650)
(337)
(98)
2011
£000
8,620)
(783)
(16)
–)
–)
–)
–)
–)
–)
(175)
4)
Balance as at 31 December
18,433)
(11,218)
7,215)
7,650)
For the year ended
Company
Balance as at 1 January
Loss for the year
Transactions with owners:
Shares to be issued (see note 23)
Share-based payment expense
Share
capital
£000
18,433)
–)
Retained
earnings
£000
(12,092)
(692)
2012
£000
6,341)
(692)
2011
£000
7,444)
(932)
–)
–)
–)
–)
–)
–)
(175)
4)
Balance as at 31 December
18,433)
(12,784)
5,649)
6,341)
The notes on pages 17 to 44 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 year ended 31 December 2012 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) as
adopted by the EU 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 2011 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 and available for sale financial instruments 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 pounds sterling, which is the Group’s functional currency. Except as indicated, financial
information presented in pounds 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).
3.
Significant accounting policies
(a) Basis of consolidation of subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable
are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that
control commences until the date that control ceases.
Intra-Group balances, income and expenses and unrealised losses or gains arising from intra-Group transactions, are eliminated in
preparing the consolidated financial statements.
■
■
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 statement of comprehensive income after taking into account provision
for impairment losses (see note 3(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. Available-for-sale investments are carried at fair value.
Dividend income is recognised in the statement of comprehensive 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 statement of comprehensive income.
Investments in subsidiary undertakings
Investments in subsidiary undertakings in the parent company Statement of Financial Position 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 pro-rata 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 effective for the year and have not been applied in
preparing these consolidated financial statements.
New/revised International Accounting Standards/International Financial Reporting Standards (IAS/IFRS)
Presentation of Items of Other Comprehensive Income (Amendments to IAS 1)
Government Loans (Amendments to IFRS 1)
Disclosures: Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7)
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other Entities
Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities:
Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12)
IFRS 13 Fair Value Measurement
IAS 19 Employee Benefits (amended 2011)
IAS 27 Separate Financial Statements (2011)
IAS 28 Investments in Associates and Joint Ventures (2011)
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine
Annual Improvements to IFRS 2009-2011 Cycle – various standards
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32)
IFRS 9 Financial Instruments
1 July 2012
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2014
1 January 2014
1 January 2015
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 4a(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 receives funds for its prepaid card activities. These funds are held in a fiduciary capacity for the sole purpose of making
payments as and when card-holders utilise the credit on their cards, and are 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; and
■ 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) delegate 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, 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 delegates 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; and
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
2012
£000
2011
£000
58,495)
49,525)
–)
–)
5,423)
5,423)
(4,150)
189)
29)
5,954)
6,172)
(4,305)
1,273)
1,867)
(163)
(225)
819)
467)
555)
478)
2,319)
1,996)
849)
207)
334)
3,386)
55,066)
44,497)
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 and short dated UK Government Treasury Bills.
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 assets and liabilities 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 2012
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
1,762
50
2,164
672
3,017
162
5,081
613
20,818
326
22,765
1,247
11,889
5,587
Total liabilities
1,812
2,836
3,179
5,694
21,144
24,012
17,476
31 December 2011
Customer accounts
Other liabilities
Sight-
8 days
£000
1,479
861
> 8 days
- 1 month - 3 months
£000
> 1 month > 3 months > 6 months
- 1 year
- 6 months
£000
£000
£000
2,094
16
1,986
41
5,081
396
20,818
129
> 1 year
- 3 years
£000
21,765
673
> 3 years
- 5 years
£000
11,889
2,803
Total liabilities
2,340
2,110
2,027
5,477
20,947
22,438
14,692
–
–
–
> 5 years
£000
–
–
–
Total
£000
67,496
8,657
76,153
Total
£000
65,112
4,919
70,031
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 2012
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 1,918
Available-for-sale financial
instruments
Customer accounts
receivable
Commission debtors
Other assets
1,307
–
–
–
–
–
3,229
152
–
–
5,497
3,623
128
–
–
–
5,368
24
–
–
6,987
9,343
8
90
–
–
–
–
–
–
29,389
–
179
6,236
–
179
–
–
4,321
1,918
12,484
58,495
312
4,769
Total assets
3,225
3,381
9,248
5,392
16,428
29,568
6,415
4,321
77,978
Liabilities
Customer accounts
Other liabilities
1,762
43
2,161
651
3,004
107
5,023
529
20,375
156
21,230
571
10,176
4,975
Total liabilities
1,805
2,812
3,111
5,552
20,531
21,801
15,151
–
–
–
63,731
7,032
70,763
31 December 2011
Sight-
8 days
£000
Assets
Cash and cash equivalents 2,335
Available-for-sale financial
instruments
Customer accounts
receivable
Commission debtors
Other assets
2,322
–
–
1,000
> 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
–
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
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 a 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. As at 31 December 2012 and 2011, the fair value of the financial instruments as
presented in the interest risk table below are considered to be equal to their carrying amounts.
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, which was £51,000 at 31 December 2012
(2011: £189,000) 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 the Bank. 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 their
earliest:
31 December 2012
Sight
- 1 month - 3 months - 6 months
£000
> 1 month > 3 months > 6 months
- 1 year
£000
£000
£000
> 1 year
- 3 years
£000
> 3 years
- 5 years
£000
Non-Interest
Bearing
£000
> 5 years
£000
Total
£000
Assets
Cash and cash equivalents
Available-for-sale financial instruments
Customer accounts receivable
Commission debtors
Other assets
1,918)
–)
4,536)
–)
–)
–)
5,497)
3,623)
–)
–)
–)
–)
5,368)
–)
–)
–)
6,987)
9,343)
–)
–)
–)
–)
29,389)
–)
–)
–)
–)
6,236)
–)
–)
Total assets
6,454)
9,120)
5,368)
16,330)
29,389)
6,236)
Liabilities
Customer accounts
Other liabilities
Total capital and reserves
3,923)
–)
–)
3,004)
–)
–)
5,023)
–)
–)
20,375)
–)
–)
21,230)
–)
–)
10,176)
–)
–)
Total liabilities and equity
3,923)
3,004)
5,023)
20,375)
21,230)
10,176)
Interest rate sensitivity gap
2,531)
6,116)
345)
(4,045)
8,159)
(3,940)
–)
–)
–)
–)
–)
–)
–)
–)
–)
–)
–)
–)
–)
–)
312)
4,769)
1,918)
12,484)
58,495)
312)
4,769)
5,081)
77,978)
–)
7,032)
7,215)
63,731)
7,032)
7,215)
14,247)
77,978)
(9,166)
–)
–)
Cumulative
2,531)
8,647)
8,992)
4,947)
13,106)
9,166)
9,166)
–)
Manx Financial Group PLC
29
Risk and capital management (continued)
4.
(a) Risk management (continued)
(iv) Market risk (continued)
Interest risk re-pricing table (continued)
31 December 2011
Sight
- 1 month
£000
> 1 month > 3 months > 6 months
- 1 year
- 6 months
- 3 months
£000
£000
£000
> 1 year
- 3 years
£000
> 3 years
- 5 years
£000
> 5 years
£000
Non-Interest
Bearing
£000
Total
£000
Assets
Cash and cash equivalents
2,335)
Available-for-sale financial instruments 10,495)
3,548)
Customer accounts receivable
–)
Commission debtors
–)
Other assets
–)
–)
3,274)
–)
–)
–)
–)
5,103)
–)
–)
–)
–)
8,720)
–)
–)
–)
–)
23,532)
–)
–)
–)
–)
5,348)
–)
–)
Total assets
16,378)
3,274)
5,103)
8,720)
23,532)
5,348)
Liabilities
Customer accounts
Other liabilities
Total capital and reserves
3,568)
–)
–)
1,978)
–)
–)
4,130)
–)
–)
19,179)
–)
–)
18,586)
–)
–)
8,469)
–)
–)
Total liabilities and equity
3,568)
1,978)
4,130)
19,179)
18,586)
8,469)
Interest rate sensitivity gap
12,810)
1,296)
973)
(10,459)
4,946)
(3,121)
–)
–)
–)
–)
–)
–)
–)
–)
–)
–)
–)
–)
–)
–)
234)
4,607)
2,335)
10,495)
49,525)
234)
4,607)
4,841)
67,196)
–)
3,636)
7,650)
55,910)
3,636)
7,650)
11,286)
67,196)
(6,445)
–)
–)
Cumulative
12,810)
14,106)
15,079)
4,620)
9,566)
6,445)
6,445)
–)
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 (2011: 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 2012
Sight
- 1 month - 3 months - 6 months
£000
> 1 month > 3 months > 6 months
- 1 year
£000
£000
£000
> 1 year
- 3 years
£000
> 3 years
- 5 years
£000
Non-Interest
Bearing
£000
> 5 years
£000
Interest rate sensitivity gap
2,531)
6,116
345)
(4,045)
8,159
(3,940)
–
(9,166)
Weighting
£000
31 December 2011
0.000
0.003
0.007
0.014
0.027
0.054
0.115
0.000
–
18
2)
(57)
220
(213)
–
–
(30)
Sight
- 1 month
£000
> 1 month > 3 months > 6 months
- 1 year
- 6 months
- 3 months
£000
£000
£000
> 1 year
- 3 years
£000
> 3 years
- 5 years
£000
> 5 years
£000
Non-Interest
Bearing
£000
Interest rate sensitivity gap
12,810)
1,296)
973)
(10,459)
4,946)
(3,121)
–)
(6,445)
Weighting
£000
0.000)
0.003)
0.007)
0.014)
0.027)
0.054)
0.115)
0.000)
–)
4)
7)
(146)
134)
(169)
–)
–)
(171)
Total
£000
–)
–)
Total
£000
–))
–)
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
30
Risk and capital management (continued)
4.
(b) Capital Management
Regulatory capital
The Group considers capital to comprise share capital, share premium, reserves and subordinated loans. Capital is deployed by the
Board of Directors to meet the commercial objectives of the Group, whilst meeting regulatory requirements in the Bank. The Group’s
policy is to maintain a strong capital base so as to maintain investor, creditor, depositor and market confidence and to sustain future
development of the business.
In implementing current capital requirements the capital position in the Bank is also subject to prescribed minimum requirements by the
FSC in respect of the ratio of total capital to total risk-weighted assets. This requirement applies to the Bank (a wholly owned subsidiary
of Manx Financial Group PLC) as a component of Manx Financial Group PLC and has been adhered to throughout the year.
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.
For the year ended 31 December 2012
Net interest income
Operating income
Profit before specific items
Capital expenditure
Total assets
For the year ended 31 December 2011
Net interest income
Operating income
Loss before specific items
Capital expenditure
Total assets
Asset and
Personal
Finance
£000
5,782)
4,255)
610)
184)
76,367)
Asset and
Personal
Finance
£000
4,242)
3,575)
(1,174)
307)
Litigation
Finance
£000
–)
–)
141)
–)
899)
Litigation
Finance
£000
343)
343)
343)
–)
Conister
Card
Wealth
Services Management
£000
£000
–)
112)
16)
–)
134)
–)
1,205)
24)
2)
578)
Conister
Card
Wealth
Services Management
£000
£000
–)
369)
180)
–)
–)
1,168)
10)
16)
63,526)
1,137)
144)
2,389)
Investing
Activities
£000
(241)
(237)
(401)
–)
–)
Investing
Activities
£000
–)
–)
–)
–)
–)
Total
£000
5,541)
5,335)
390)
186)
77,978)
Total
£000
4,585)
5,455)
(641)
323)
67,196)
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.
Manx Financial Group PLC
31
2012
£000
1,032)
1,032)
2011
£000
417)
417)
7.
Profit share on joint lending schemes
Scheme one
On 3 February 2010, a joint lending scheme was entered into by the Bank. The development of this relationship has led to interest income
on loan advances funded by the Bank, being divided up between the parties in a profit sharing ratio. As at 31 December 2012 advances
had grown by £8.7 million to £18.9 million. The amount by which the other party has received in profits shared is analysed above.
8.
Allowance for impairment
The charge in respect of specific allowances for impairment comprises:
Specific impairment allowances made
Reversal of allowances previously made
Total charge for specific provision for impairment
The credit in respect of collective allowances for impairment comprises:
Collective impairment allowances made
Release of allowances previously made
Total credit for collective allowances for impairment
Total charge for allowances for impairment
9.
Acquisition and restructuring costs
Restructuring costs in the current and prior year relate to a re-organisation and rationalisation across the Group.
Acquisition costs
Legal, professional and other acquisition costs
Re-organisation of UK and IOM operations
Salary and redundancy costs
Notes
23
2012
£000
465)
(396)
69)
2012
£000
75)
(137)
(62)
7)
2012
£000
493)
371)
864)
2011
£000
781)
(62)
719)
2011
£000
129)
(385)
(256)
463)
2011
£000
–)
537)
537)
10. Depositors’ Compensation Scheme
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. Three payments of £73,880 were made in to the scheme. In 2011,
a payment was made which was expected to be repaid, therefore no charge was made to prior year’s Consolidated Statement of
Comprehensive Income. In the current year, a partial repayment from the Financial Supervision Commission of £133,506 from the
scheme released a £36,940 credit to the Consolidated Statement of Comprehensive Income. Further repayments from the scheme are
anticipated.
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
32
11. Loss before taxation
The loss before taxation for the year is stated after charging:
Interest expense payable to depositors
Interest expense payable on loan notes
Depreciation
(Profit)/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
2012
£000
2,018
241
214
(7)
–
362
159
35
–
72
–
133
35
300
2011
£000
1,901
164
234
6
4
307
199
28
–
79
4
131
122
322
The main rate of income tax in the Isle of Man is 0% (2011: 0%), however the profits of the Group’s Manx banking activities are taxed at
10% (2011: 10%). The profits of the Group’s subsidiaries that are subject to UK corporation tax are taxed at a rate of 26.5% (2011:
26.5%).
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 value of tax losses carried forward is £380,000 (2011: £nil) which has been recognised as a deferred
tax asset in the current year.
13. Loss per share
Loss for the year
Weighted average number of ordinary shares in issue
Basic and diluted loss per share
2012
£000
(337)
2011
£000
(783)
Number
Number
89,570,252 89,213,979
(0.88)p
(0.38)p
The basic loss per share calculation is based upon the 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 2011 there is no dilution from potential
ordinary shares.
14. Company loss
The loss on ordinary activities after taxation of the Company is £692,000 (2011: £932,000).
Manx Financial Group PLC
33
Group
2011
£000
1,789
546
2,335
2012
£000
1,872
46
1,918
Company
2012
£000
2011
£000
–
–
–
–
–
–
15. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
Cash at bank includes an amount of £18,809 (2011: £8,949) representing cheques issued in the course of transmission. The remaining
maturity of short-term deposits is as follows:
Less than 8 days
Group
Company
2012
£000
46
46
2011
£000
546
546
2012
£000
–
–
2011
£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 and is classified as a level 1 investment in the IFRS7 fair
value hierarchy. The cost of the shares was £471,000. The unrealised difference between cost and market value has been taken to the
income statement.
17. Available-for-sale financial instruments
UK Government Treasury Bills
Group
2012
£000
2011
£000
12,484
10,495
12,484
10,495
Company
2012
£000
–
–
2011
£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
Notes to the Consolidated
Financial Statements
34
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
37,955)
6,543)
2,526)
3,913)
1,404)
4,601)
5,866)
2012
Impairment
Allowance
£000
(883)
(696)
(1,627)
(362)
–)
–)
(745)
Carrying
Value
£000
37,072)
5,847)
899)
3,551)
1,404)
4,601)
5,121)
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)
62,808)
(4,313)
58,495)
54,055)
(4,530)
49,525)
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.
Specific allowance for impairment
Balance at 1 January
Specific allowance for impairment made
Write-offs
Balance at 31 December
Collective allowance for impairment
Balance at 1 January
Collective allowance for impairment made
Release of allowances previously made
Balance at 31 December
Total allowances for impairment
2012
£000
4,305)
69)
(224)
2011
£000
4,173)
781)
(649)
4,150)
4,305)
2012
£000
225)
–)
(62)
163)
2011
£000
490)
129)
(394)
225)
4,313)
4,530)
Advances on preferential terms are available to all Directors, management and staff. As at 31 December 2012 £133,740 (2011: £166,710)
was lent on this basis. In the Group’s ordinary course of business, advances may be made to Shareholders but all such advances are
made on normal commercial terms.
As detailed below, at the end of the current financial year one loan exposure exceeded 10% of the capital base of the Group (2011: three
loan exposures).
Exposure
Finance lease
Secured commercial loan
Block discounting facility
Outstanding Outstanding
balance
balance
2012
£000
Facility
limit
2011 (if applicable)
£000
£000
–)
4,176)
–)
1,037)
1,849)
767)
N/a)
5,000)
1,000)
Manx Financial Group PLC
35
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 2012
Additions
Disposals
As at 31 December 2012
Accumulated depreciation
As at 1 January 2012
Charge for year
Disposals
As at 31 December 2012
Carrying value at 31 December 2012
Carrying value at 31 December 2011
Leashold
IT Furniture &
Improvements Equipment Equipment
£000
£000
£000
170)
10)
–)
180)
(1)
(6)
–)
(7)
173)
169)
786)
143)
–)
929)
(360)
(161)
6)
(515)
414)
426)
582)
33)
–)
615)
(436)
(42)
–)
(478)
137)
146)
2012
£000
21,841)
30,520)
2011
£000
19,295)
26,962)
52,361)
46,257)
2012
£000
18,454)
26,044)
2011
£000
16,049)
23,401)
44,498)
39,450)
Motor
Vehicles
£000
184)
–)
(100)
Total
£000
1,722)
186)
(100)
84)
1,808)
(111)
(5)
50)
(908)
(214)
56)
(66)
(1,066)
18)
73)
742)
814)
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
36
Investment in Group undertakings
20.
The Company has the following investments in subsidiaries incorporated in the Isle of Man:
Carrying value of investments
31 December
2012
Date of
Nature of
Business % Holding incorporation
Total
2012
£
Total
2011
£
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
2,005,000
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)
12,072,001
12,067,001
Group
2012
£000
1,849)
454)
41)
2,344)
Group
2011
£000
1,849)
454)
41)
2,344
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 cash flow projections, extrapolated to 10 years using a 5% annual increment, and then discounted using a 12%
discount factor (2011: discount factor 10%). The sensitivity of the analysis was tested using additional discount factors of 15% and
20% on 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 12%
discount factor (2011: discount factor 10%). The sensitivity of the analysis was tested using additional discount factors of 15% and
20% on varying sales volumes.
On the basis of the above reviews no impairment to goodwill has been made in the current year.
The goodwill generated on the purchase of Three Spires has been reviewed at the current year end and is considered adequate given
its income streams referred to EWA.
Manx Financial Group PLC
37
Group
Company
2012
£000
53)
733)
466)
2011
£000
114)
462)
684)
1,252)
1,260)
2012
£000
–)
30)
68)
98)
2011
£000
–)
20)
11)
31)
21. Trade and other receivables
Trade debtors
Prepayments and other debtors
VAT recoverable
Included in trade and other receivables is an amount of £466,000 (2011: £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 was 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.
In November 2012, it was announced that the HMRC Upper Tribunal had overturned the First-Tier Tribunal in relation to the VWFS
Decision. VWFS has subsequently been given leave to appeal and this is scheduled to be heard in October 2013.
The Bank’s total exposure in relation to this matter is £589,000, comprising the debtor balance referred to above plus an additional
£123,000 VAT reclaimed under the Partial Exemption Special Method, in the period from Q4 2011 to Q3 2012.
On the basis of the discussions and correspondence which have taken place between the Bank and C&E, in addition to the VWFS
appeal, the Directors are confident that the VAT claimed referred to above will be secured.
22. Customer accounts
Retail customers: Term deposits
Corporate customers: Term deposits
2012
£000
61,647)
2,084)
2011
£000
54,569)
1,341)
63,731)
55,910)
Fiduciary deposits
The Bank acts as agent bank to a number of customers, for balances totalling £19.9 million (2011: £19.0 million). 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
38
23. Creditors and accrued charges
Creditors and accruals
VAT payable
Short-term employee benefits
Deferred consideration
Edgewater Associates Limited
Group
Company
2011
£000
698)
81)
76)
855)
2011
£000
492
492
2012
£000
339)
–)
–)
339)
2012
£000
160)
160)
2011
£000
93)
–)
–)
93)
2011
£000
492)
492)
2012
£000
2,153)
–)
9)
2,162)
2012
£000
160)
160)
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 2012: £160,000 in cash and £175,000 payable in consideration shares; and
■ A top up payment, payable in cash to reimburse the shortfall in consideration shares previously issued.
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 Associates Limited’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
Related parties
J Mellon
Burnbrae Limited
Southern Rock Insurance Company Limited
Copper Development Corporation
Rock Holdings Limited
Unrelated parties
Notes
JM
BL
SR
CDC
RH
UP
Group
Company
2011
£000
1,750
–
–
–
460
2,210
–
2,210
2012
£000
1,750
1,200
500
500
460
4,410
100
4,510
2011
£000
1,750
–
–
–
460
2,210
–
2,210
2012
£000
1,750
1,200
500
500
460
4,410
100
4,510
■
Manx Financial Group PLC
39
24. Loan notes (continued)
JM - Two loans consisting of £500,000, maturing on 31 July 2017 with interest payable of 7% p.a. and £1,250,000 maturing on 26
February 2015 paying interest of 9% p.a. Both loans are convertible at the rate of 4 pence and 9 pence respectively. The £500,000
loan is also entitled to 8.3 million warrants at an exercise price of 6 pence.
BL - One loan consisting of £1,200,000, maturing on 31 July 2017 with interest payable of 7% p.a. Jim Mellon is the beneficial owner
of BL and Denham Eke is also a director. The loan is convertible at a rate of 4 pence and is entitled to 20 million warrants at an exercise
price of 6 pence.
SR - One loan consisting of £500,000, maturing on 9 October 2017, paying interest of 7% p.a. Arron Banks, a significant shareholder
and previous Non-Executive Director holds a 100% stake in SR. The loan is convertible at the rate of 4 pence, with an entitlement to
8.3 million warrants at an exercise price of 6 pence. See note 32 for details of converting this loan post year end.
CDC - Two loans consisting of £350,000, maturing on 7 September 2017 with interest payable of 5% p.a. and £150,000 maturing on
4 October 2017 paying interest of 5% p.a. Denham Eke is a director of CDC.
RH - One loan consisting of £460,000, maturing on 26 February 2015 with interest payable of 9% p.a. The loan is convertable at the
rate of 9 pence. RH is linked to Arron Banks. See note 32 for details on assigning this loan to SR post year end.
UP - One loan consisting of £100,000, maturing on 16 November 2017 with interest payable of 5% p.a.
With respect to the convertable loans, the interest rate applied was deemed by the Directors to be equivalent to the market rate with
no conversion option hence no equity component has been recognised with respect to any of these loans.
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 2012.
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
2012
%
N/A
–
2.30
1.80
4.90
2.90
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
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
2012
£000
1,227)
(1,427)
(200)
2011
£000
1,192)
(1,271)
(79)
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
40
25. Pension liability (continued)
Plan assets consist of the following
Equity securities
Corporate bonds
Government bonds
Cash
Movement in the liability for defined benefit obligations
Opening defined benefit obligations at 1 January
Benefits paid by the plan
Interest on obligations
Actuarial loss/(gain)
Liability for defined benefit obligations at 31 December
Movement in plan assets
Opening fair value of plan assets at 1 January
Expected return on assets
Contribution by employer
Acturial gain/(loss)
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 gain/(loss) on plan assets
Acturial (loss)/gain on defined benefit obligations
2012
%
33)
39)
22)
6)
2011
%
24)
20)
18)
38)
)100)
100)
2012
£000
1,271)
(57)
72)
141)
1,427)
2012
£000
1,192)
39)
10)
43)
(57)
1,227)
2012
£000
72)
(37)
35)
(93)
2012
£000
43)
(141)
(98)
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)
Manx Financial Group PLC
41
Number
150,000,000
Number
£000
89,570,252
18,433
26. Called up share capital
Authorised: Ordinary shares of no par value
At 31 December 2011 & 2012
Issued and fully paid: Ordinary shares of no par value
As at 31 December 2011 & 2012
The number of warrants in issue at 31 December 2012 is 36.6 million (2011: nil) (see note 24 for further details). In addition there are a
number of convertible loans (see note 24 for futher details).
Share options
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.
■
■
■
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
42
26. Called up share capital (continued)
Dates Exercisable
Executive Plan Options
Grant date
On 9 June 2003
Balance at 31 December 2011
Lapsed
Balance at 31 December 2012
On 28 April 2004
Balance at 31 December 2011
Lapsed
Balance at 31 December 2012
On 25 April 2005
Balance at 31 December 2011
Lapsed
Balance at 31 December 2012
On 1 November 2006
Balance at 31 December 2011
Lapsed
Balance at 31 December 2012
On 6 July 2007
Balance at 31 December 2011
Lapsed
Balance at 31 December 2012
On 1 February 2008
Balance at 31 December 2011
Lapsed
Balance at 31 December 2012
On 25 June 2010
Balance at 31 December 2011
Lapsed
Balance at 31 December 2012
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
Fully vested (a)
6 July 2007
6 July 2017
65p
Fully vested (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
12,500
–
12,500
1,375,000
–
–
–
625,000
50,000
–
50,000
1,275,000
100,000
–
100,000
1,410,447
776,154
–
776,154
Manx Financial Group PLC
43
26. Called up share capital (continued)
The fair value of services received in return for share options granted is based on the fair value of share options granted, measured
using a binomial probability model with the following inputs for each award:
Fair value at date of grant
Share price
Exercise price
Expected volatility
Option life
Expected dividends
Risk-free interest rate (based on government bonds)
Forfeiture rate
*modified on 25 April 2008
Fair value at date of grant
Share price
Exercise price
Expected volatility
Option life
Expected dividends
Risk-free interest rate (based on government bonds)
Forfeiture rate
Expense in statement of comprehensive income
Share options granted in:
2003
2004
2005
2006
2007
2008
2010
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%
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%
2012
£000
2011
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4
4
Manx Financial Group PLC
Notes to the Consolidated
Financial Statements
44
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 as part consideration for purchase of subsidiary undertaking
Issue of loan notes
Balance at 31 December
2012
£000
20,643)
–)
2,300)
2011
£000
19,968)
175)
500)
22,943)
20,643
The 2012 closing balance is represented by £18,433,000 (2011: £18,433,000) share capital and £4,510,000 (2011: £2,210,000) of loan
notes.
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.
Edgewater Subordinated Loan
On 14 May 2012, the Company made a subordinated loan to Edgewater Associates Limited for £128,000. This is an unsecured loan
for 5 years and interest is charged at 7% per annum.
Convertible loans and loan notes
Details of convertible loan arrangements and loan notes are given in note 24 to the financial statements.
Key management personnel (including Executive Directors’) compensation
Short-term employee benefits
Total
30. Operating leases
Non-cancellable lease rentals are payable in respect of property and motor vehicles as follows:
2012
£000
397)
397)
Less than one year
Between one and five years
Over five years
31. Litigation
2012
2011
Leasehold
Property
£000
Other
£000
Leasehold
Property
£000
297)
825)
1,078)
2,200)
6)
–)
–)
6)
257)
789)
673)
1,719)
2011
£000
336)
336)
Other
£000
14)
6)
–)
20)
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.
32. Post balance sheet events
On 24 April 2013, Rock Holdings Limited assigned £460,000 loan note to Southern Rock Insurance Company Limited. Southern Rock
Insurance Company has also sent a conversion notice in respect of the £500,000 loan note and these will be converted into equity at
the rate of 4 pence per share on 31 May 2013.
M A N X F I N A N C I A L
GROUP PLC
Clarendon House
Victoria Street
Douglas
Isle of Man
IM1 2LN
Tel: (01624) 694694
Fax: (01624) 624278
www.mfg.im