_________________________________
ANNUAL REPORT 2013
Welcome to Manx Financial Group PLC
Integrity through independence and service
An independent banking group founded in 1935, domiciled in
the Isle of Man
Manx Financial Group PLC (MFG) is
an AIM listed company which holds
the entire issued share capital of a
suite of financial service companies
based in the UK and the Isle of Man.
These
financial
companies offer
services to both retail and commercial
customers. MFG's strategy is to grow
through strategic
organically and
acquisition
the
to
range of services it offers.
Principal wholly owned subsidiaries:
• Conister Bank Limited
• Edgewater Associates Limited
• Conister Card Services Limited.
further augment
Conister Bank Limited (the Bank) is a
licensed independent bank, regulated by
the Financial Supervision Commission in
the Isle of Man and a full member of the
MasterCard® network and the Isle of
Man’s Association of Licensed Banks.
The Bank provides a variety of financial
products and services, including saving
fiduciary deposits, asset
accounts,
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.
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
the Group’s
to
business and personal customers
and manages assets in excess of
£180 million.
EWA specialises in the areas of
wealth management, mortgage
and
general
and
retirement planning.
insurance,
Contents
Financial Highlights
Chairman’s Statement
Directors and Advisers
Directors’ Report
Directors’ Remuneration Report
Statement of Directors’ Responsibilities
Report of the Independent Auditors
Consolidated Income Statement
Consolidated Statement of Other Comprehensive
Income
Consolidated and Company Statement of
Financial Position
Consolidated Statement of Cash Flows
Consolidated and Company Statement of
Changes in Equity
Notes to the Consolidated Financial Statements
01
02
04
06
09
11
12
13
14
15
16
17
18
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.
® MasterCard is a registered trademark of MasterCard International Incorporated
Manx Financial Group PLC
Financial Highlights
01
Profit for the year
Profit before tax
Net interest income
Loans
Total assets
Deferred Income
Customer accounts
423%
£1.1m
2012 : Loss of £0.3m
250%
£1.1m
2012 : Loss of £0.7m
49%
£8.3m
2012 : £5.5m
30%
£75.8m
2012 : £58.5m
20%
£93.7m
2012 : £78.0m
90%
£16.6m
2012 : £8.7m
23%
£78.1m
2012 : £63.7m
Manx Financial Group PLC
Chairman’s Statement
02
Dear Shareholders,
I am extremely pleased to report that, for the first time since
being appointed Executive Chairman, the Group has returned to
net profitability, fulfilling my previous predictions by recording a
full year figure of nearly £1.1 million. This encouraging result
reinforces the strong performance recorded at the Interim stage.
I believe that we have now turned the corner to ensure that this
year’s performance is not just a one-off, but sustainable,
providing a stable platform for enhanced future profitability. The
2013 year showed not only a consistent gain in income, but also
allowed the full effect of the savings from our 2012 re-structuring
programme to filter to the bottom line. Thus we have become a
far more efficient business. This is reflected in our operating cost
to income ratio which has improved by 26 percentage points to
63%. This all bodes well for the future and I am confident that
2014 will show further strong growth.
Our share price opened the 2013 year at 6 pence. This reflected
a market capitalisation of approximately £6 million, and a
discount to our net asset value of 26%. At the time of writing this
statement, our share price is trading in the 18 – 19 pence range
and our market capitalisation has now
to
approximately £19 million: a premium to our year-end net asset
value of 121%. This represents an effective rate of growth in our
market capitalisation, since January 2013, of 350%, which I am
sure all shareholders will welcome, and provides the Group with
more flexible options when considering future acquisitions.
increased
Manx Financial Group PLC
We have now simplified the face of the Group accounts by
removing the Specific Items section. Thus the profit before
income tax recovery was £1.07 million (2012: loss of £0.72
million): a turnaround of £1.79 million. The net profit for the year
was thus £1.09 million (2012: loss of £0.34 million): an
improvement of £1.43 million. The basic earnings per share were
1.12 pence (2012: negative 0.38 pence).
Turning to the Statement of Financial Position, our total assets
have grown by 20.2% to £93.72 million (2012: £77.98 million).
Our total liabilities have grown by 20.4% to £85.19 million (2012:
£70.76 million), and the total liabilities plus equity by 20.2% to
£93.72 million (2012: £77.98 million). I am pleased to note the
growth in our loans and advances to customers balance to
£75.82 (2012: £58.50 million): an increase of 29.6%. This is
supported by a rise of 22.6% in our customer accounts balance
to £78.12 million (2012: £63.73 million).
Conister Bank Limited
The Bank continues to grow with interest income increasing by
37.8% to £10.75 million (2012: £7.80 million), driven by a 44.1%
increase in new lending to £54.96 million (2012: £38.15 million).
In turn the net loan book grew by 29.4% to £75.65 million (2012:
£58.48 million).This gain has increased our deferred income to
be recognised in future years by 89.9% to £16.56 million (2012:
£8.72 million): a significant achievement.
Jim Mellon
Chairman
Further progress has been made in matching loans to deposits,
as any over funding results in a negative impact on the income
statement. The loan to deposit ratio improved by 5 percentage
points to 97.1% and our goal is to achieve 100% by 2015. We
believe that our market penetration of the available Isle of Man
deposit market is no more than 1% so future growth should not
be limited by any lack of available depositor funding.
This growth has been achieved without compromising credit
quality. This is evidenced by the decrease in impaired loans,
both in absolute terms, having improved by £1.11 million to
£4.31 million (2012: £5.42 million) and as a percentage of net
loans, 5.7% (2012: 9.3%). Despite
this improved arrears
performance, the Bank has taken a conservative view by further
increasing the provisions buffer to cushion future years’ profit
from failures in prior years’ lending.
During the year, the Bank substantially reduced the provision
against the litigation funding debtor, arising from a business
stream
following certain
settlements and expects to have any remaining position fully
cleared by the next Interim report.
that was discontinued
in 2007,
As reported in my previous two annual statements, the Bank
considers its VAT recovery rate as being neither fair nor
reasonable and has raised this concern with the Isle of Man
Government’s Custom & Excise Division. Customs & Excise
confirmed that their decision would follow the outcome of the
Volkswagen Financial Services Limited case against HM
Revenue & Customs which had an appeal scheduled for autumn
2013. This hearing was adjourned until the European Court rules
on a case relating to a similar point of law which means no
decision is expected in relation to our VAT debtor until 2015.
The transitional period for the introduction of Basel III is currently
scheduled for 2015 with its full adoption on 1 January 2019.
Whilst this is still some time off, it is important we engage in
discussions with our Regulator on the impact of its adoption and
measure ourselves against its current methodology. Basel III
revises and tightens the definition of regulatory capital with a
minimum total capital plus conservation buffer requirement of
10.0%. The Bank’s equivalent ratio is currently 13.2%, and we
therefore believe that we should be able to increase the
deployment of non-reserve capital.
launch both online
Investment in our IT infrastructure has continued apace and in
2014 we will
lending and deposit
management systems which should greatly improve our existing
customers’ experience and introduce our products to a wider
market. The innovative use of IT will allow the Bank to compete
with high street majors by delivering both lending and deposit
solutions to customers in the most efficient manner.
We continue to manage the balance sheet conservatively and
indeed we are the only bank of which I am aware with a
positively matched loan book.
Manx Financial Group PLC
03
Outlook
The Isle of Man economy remains stable despite pressures and
UK economy now appears to be moving into a more buoyant
phase. As sentiment recovers, I expect this to translate into a
steady improvement in the economic environment. Competition
will inevitably increase slightly as more liquidity returns to the
market but as the high street banks still have considerable
balance sheet pruning to complete before they will be Basel III
compliant, it will still be some time before they can start lending
in earnest.
It is against this backdrop of unsatisfied demand that I believe
our own prudent balance sheet management will enable us to
increase our income streams in a controlled and profitable
manner. To supplement this growth, we intend to develop a
commercially funded UK asset backed loan book which will act
both as a parallel vehicle for additional profit and as an interest
hedge for the Group. We will continue with our success in
diversifying our lending streams to ensure that we minimise a
concentration risk in any one class or market.
As always, we continue to seek suitable potential acquisitions
that are both priced fairly and will add profitability.
Thus the outlook for the Group is very promising with the 2013
second half profit of £0.81 million following the £0.26 million
reported at the Interim stage. I would expect this trend of
increasing profits to continue in the year to come.
Finally I would like to put on record my thanks to staff and
shareholders alike for their continued support.
Jim Mellon
Executive Chairman
24 February 2014
We do not rely on behavioural adjustments to create a matched
position nor do we rely on the vagaries of the UK wholesale
market for funds. This conservatism comes at some cost to the
income statement but it is a cost that I believe protects future
earnings and positions our Bank well for the imminent changes
to UK and Isle of Man legislation driven by both the Vickers
report and the Basel committee.
We support the recommendations of the Vickers report and look
forward to their implementation as a more stable and transparent
banking sector will be created, providing additional opportunities
for us to grow. With our high regulatory capital base, we are
already in a positive position for the adoption of the Basel III
accord.
Edgewater Associates Limited
As reported in the Interims, our Isle of Man based wealth
management and general insurance subsidiary has made great
strides in improving its financial performance. The company
recorded a full year profit of £0.28 million (2012: £0.05 million)
and
financial
statements in 2014. The final financial liability relating to the
company’s acquisition was paid in the year with no dilution to the
Group’s shareholders and at no cost to this year’s income
statement.
further cost savings will
through
flow
the
Our financial targets for this company are twofold. Firstly, to
grow the renewal income element of turnover, currently standing
at 45.9%, to 75.0% of turnover within four years. By focusing on
renewal income, we will both increase earnings and reduce
earnings volatility. To do so will require investment in both our
people and the systems they use. Secondly, but interlinked, we
will increase market share in the provision of IFA and general
insurance services to businesses, potentially by acquisition, this
will be building on the successes we made in this market sector
this year.
I have previously explained that the Isle of Man has adopted the
Retail Distribution Review (“RDR”) and the company is fully RDR
compliant. Edgewater is well positioned to act as a consolidator
in the industry if any potential target is of sufficient quality.
Conister Card Services Limited
We continue to monitor the development of this industry and
whilst various opportunities have been reviewed their long term
profitability and hence their return on equity have been too
subjective for us to accept. That said, we will continue with our
Isle of Man based project which if successful could be rolled out
to the UK.
Manx Financial Group PLC
Directors and Advisers
04
Executive Directors
Jim Mellon (57)‡
Executive Chairman
Denham Eke (62) ‡
Chief Executive Officer
Juan Kelly (43) ‡
Executive Director
is
Denham Eke
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
and
financial
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
Investments
officer of Port Erin Biopharma
Limited, and a non-executive director of Billing
Services Group Limited – all quoted on the
London AIM market.
property, mining,
services,
Appointment
Appointed to the Board on 2 November 2007 and
appointed as Chief Executive on 12 February
2009.
Juan Kelly started his career 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.
Appointment
Appointed to the Board on 19 September
2011. He is Managing Director of Conister
Bank Limited.
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. He is also founder, principal
shareholder and non-executive director of
Charlemagne Capital, based on the Isle of Man
and quoted on the London AIM market.
Appointment
Appointed to the Board on 2 November 2007 and
appointed as Executive Chairman on 12 February
2009.
Douglas Grant (49) ‡
Group Finance Director
Douglas Grant 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 financial 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.
Non-Executive Directors
Manx Financial Group PLC
05
Don McCrickard (77) ‡
Non-Executive Director
Alan Clarke (63)‡†*
Non-Executive Director
David Gibson (66) ‡†*
Non-Executive Director
in
From 1975
to 1983 Don McCrickard was
employed by American Express where he headed
their businesses
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. He
is the Chairman of Conister Bank Limited.
*Member of the Audit, Risk and Compliance Committee
†Member of the Remunera(cid:27)on Commi(cid:28)ee
‡Member of the Nomina(cid:27)ons Commi(cid:28)ee
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 November 2007.
Chairman of the Audit, Risk and Compliance
Committee and Chairman of the Remuneration
Committee.
joined
treasurer. He
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
the Trustee
Savings Bank of the Channel Islands as finance
director prior to becoming general manager
finance at TSB Retail Bank where he gained his
formal qualifications as a banker. Prior to retiring
from executive life for family reasons, he was
group
finance director of Portman Building
Society for 9 years. He is currently deputy
chairman of commercial property investment
companies Chellbrook Properties plc and
Mountstephen Investments Limited.
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
Legal Advisers
Kerman & Co LLP
200 Strand
London WC2R 1DJ
Long & Humphrey
The Old Courthouse
Athol Street
Douglas
Isle of Man IM1 1LD
Independent Auditors
KPMG Audit LLC
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
Principal Bankers
Barclays Private Clients International Limited
Barclays House
Victoria Street
Douglas,
Isle of Man IM99 1AJ
Lloyds TSB Offshore
PO Box 103
Peveril Buildings
Peveril Square
Douglas
Isle of Man IM99 2LB
Consulting Actuaries
BWCI Consulting Limited
Albert House
South Esplanade
St Peter Port
Guernsey GY1 3BY
Pension Fund
Investment Manager
Thomas Miller Investment (Isle of Man) Limited
Level 2
Samuel 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
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.
Registrar
Computershare Investor Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
Jersey JE1 1ES
Manx Financial Group PLC
Directors’ Report
06
The Directors present their annual report and the audited financial
statements for the year ended 31 December 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.
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 17. The Directors do not
recommend the payment of a dividend (2012: nil).
Share capital
Particulars of the authorised and issued share capital of the
Company are set out in note 25 to the financial statements.
Significant shareholdings
The number of shares held and the percentage of the issued
shares which that number represented as at 12 February 2014
are:
Rene Nominees (IOM) Limited1
Jim Mellon
Lynchwood Nominees Limited
Island Farms Limited
Hargreaves Lansdown
(Nominees) Limited
Number
26,288,992
17,635,332
10,483,089
4,222,319
3,501,518
% of
issued
capital
25.76
17.28
10.27
4.14
3.43
1 Together with other holdings Arron Banks, a former Director of
the Group, is beneficially interested in 29,339,825 ordinary
shares (28.74%).
The Directors are not aware of any other individual holding of
greater than 3% as at 12 February 2014.
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:
Nick Sheard resigned on 22 March 2013.
The number of shares held by the current Directors is as follows:
Jim Mellon1
David Gibson2
Douglas Grant
Don McCrickard3
Alan Clarke
Juan Kelly
Number
31/12/13
17,635,332
1,300,000
680,821
66,666
52,149
27,860
Number
31/12/12
17,635,332
428,853
680,821
66,666
52,149
27,860
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 1,300,000 Ordinary Shares held by TD Direct Investing
Nominees (Europe) Limited on trust for David Gibson.
3 Comprises 66,666 Ordinary Shares held by Hargreaves Lansdown
(Nominees) Limited on trust for Don McCrickard.
The number of share options held by the current Directors is as
follows:
Douglas Grant
Number
31/12/13
342,466
Number
31/12/12
342,466
Manx Financial Group PLC
07
Directors’ liability insurance
The Group maintains insurance cover for Directors’ potential
liability.
Fixed assets
The movement in fixed assets during the year is set out in note 18
to the financial statements.
(cid:1) oversight of Group operations;
(cid:1) changes to the structure and capital;
(cid:1) the maintenance of effective financial reporting and
controls;
(cid:1) ensuring maintenance of a sound system of internal
control and risk management;
Staff
At 31 December 2013 there were 54 members of staff (2012: 54),
of whom 6 were part-time (2012: 5).
(cid:1) approval of major capital projects; and
(cid:1) communication with Shareholders.
Investment in subsidiaries
Investments in the Company’s subsidiaries are disclosed in note
19 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 the 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.
the
All of
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 meets at least once a quarter and more often if
required and its responsibilities include:
(cid:1) strategy and management of the Company including its
long-term objectives and commercial strategy;
(cid:1) approval of the annual operational and capital
expenditure budgets;
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
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.
responsibility
for
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.
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, financial reporting
and risk management. The Committee members, Alan Clarke
(Chairman) and David Gibson, are qualified accountants and
independent Non-Executive Directors with current and relevant
financial and banking 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
Directors’ Report
08
The ARCC also monitors the provision of non-audit services by
the external Auditors to ensure the provision of such services
does not
independence of
the external Auditors’
objectivity.
impair
Remuneration Committee
Refer to the Directors’ Remuneration Report on page 9 for
further details.
Nomination Committee
full Board
the Nomination Committee which
The
considers all new Board appointments and succession planning
in the light of the needs of the Company from time to time.
forms
By order of the Board
Lesley Crossley
Company Secretary
24 February 2014
Manx Financial Group PLC
Directors’ Remuneration Report
09
Introduction
Basic salary
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
their annual
remuneration packages are undertaken by the Committee.
the determination of
There are five potential elements of the remuneration package for
Executive Directors and senior management:
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 taxable
benefits-in-kind.
Annual performance related payments
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 25 to the financial
statements.
Pension arrangements
The Chief Executive Officer, the Executive Chairman and Non-
Executive Directors do not receive pension contributions.
Basic annual salaries;
Benefits-in-kind;
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
Annual performance related payments;
Non-Executive Directors
Share option incentives; and
Pension arrangements.
Non-Executive Directors have no fixed term appointments and are
subject to re-appointment by Shareholders.
Manx Financial Group PLC
Directors’ Remuneration Report
10
Directors’ emoluments
Executives
Jim Mellon
Denham Eke
Juan Kelly
Douglas Grant
Nick Sheard3
Non-Executives
Alan Clarke
David Gibson
Don McCrickard
Arron Banks1
Oliver Hare2
Remuneration/
Fees
£
Performance
Related Pay
£
25,000
25,000
142,531
135,938
47,160
37,500
37,500
37,500
-
-
-
-
15,000
15,000
-
-
-
-
-
-
Pension
£
-
-
14,253
13,469
4,304
-
-
-
-
-
Compensation
for loss of office
£
-
-
-
-
45,000
-
-
-
-
-
2013
Total
£
25,000
25,000
171,784
164,407
96,464
37,500
37,500
37,500
-
-
2012
Total
£
25,000
25,000
149,440
141,240
102,740
37,500
37,500
37,500
7,292
18,750
Aggregate emoluments
488,129
30,000
32,026
45,000
595,155
581,962
1 Arron Banks resigned on 19 July 2012.
2 Oliver Hare resigned on 11 September 2012.
3 Nick Sheard resigned on 22 March 2013.
Approval
This report was approved by the Board of Directors on 24 February 2014 and signed on its behalf by:
Alan Clarke
Chairman of the Remuneration Committee
24 February 2014
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 European Union
(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:
(cid:1)
select suitable accounting policies and then apply them
consistently;
(cid:1) make judgements and estimates that are reasonable
and prudent;
(cid:1)
(cid:1)
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
Income,
We have audited the financial statements of Manx Financial
Group PLC for the year ended 31 December 2013 which comprise
the Group
Income Statement, Group Statement of Other
the Group and Parent Company
Comprehensive
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
in
fully
As explained more
the Directors’ Responsibilities
Statements 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
Ethical Standards for Auditors.
Scope of the audit of the financial statements
in
the
financial statements sufficient
An audit involves obtaining evidence about the amounts and
to give
disclosures
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
the Group’s circumstances and have been
appropriate
the
consistently
reasonableness of significant accounting estimates made by the
Directors; and the overall presentation of the financial statements.
adequately
disclosed;
applied
and
to
Opinion on the financial statements
In our opinion the financial statements:
(cid:1) give a true and fair view of the state of the Group’s and
Parent Company’s affairs as at 31 December 2013 and of
the Group’s profit for the year then ended; and
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 was subsequently given leave to appeal
and this was scheduled to be heard in October 2013 (“the VWFS
Appeal”). However, this has now been delayed pending reference
to a relevant European Court of Human Rights judgement.
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 2013 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.
(cid:1)
have been properly prepared in accordance with IFRSs as
adopted by the EU.
Emphasis of Matter – Reclaim of Value Added Tax (VAT)
In forming our opinion on the financial statements, which is not
modified, we have considered the adequacy of the disclosures
made in note 20 to the financial statements concerning the reclaim
of VAT.
KPMG Audit LLC
Chartered Accountants
Heritage Court
41 Athol Street,
Douglas
Isle of Man IM99 1HN
24 February 2014
Manx Financial Group PLC
Consolidated Income Statement
13
Notes
6
10
3(t)
7
8
9
18
20
16
15
10
11
12
12
2013
£000
2012
£000
10,750
(2,493)
7,800
(2,259)
8,257
5,541
1,399
(990)
(2,249)
1,226
(612)
(1,032)
6,417
5,123
163
212
6,580
5,335
(2,863)
(1,657)
(850)
100
(252)
-
18
(3)
(3,202)
(2,637)
(7)
37
(214)
71
28
(128)
1,073
(717)
14
380
1,087
1.12
0.78
(337)
(0.38)
(0.38)
For the year ended 31 December
Interest income
Interest expense
Net interest income
Fee and commission income
Fee and commission expense
Commission share schemes
Net trading income
Other operating income
Operating income
Personnel expenses
Other expenses
Provision for impairment on loan assets
Depositors’ Compensation Scheme recovery
Depreciation
VAT recoverable
Realised gains on available-for-sale financial assets
Unrealised loss on financial assets carried at fair value
Profit/(loss) before income tax recovery
Income tax recovery
Profit/(loss) for the year
Basic earnings per share (pence)
Diluted earnings per share (pence)
The notes on pages 18 to 47 form part of these financial statements.
The Directors believe that all results derive from continuing activities.
Manx Financial Group PLC
Consolidated Statement of Other Comprehensive Income
14
For the year ended 31 December
Other comprehensive income:
Items that will be reclassified to profit or loss
Available-for-sale gains taken to equity
Items that will never be reclassified to profit or loss
Actuarial losses on defined benefit pension scheme taken to equity
Total comprehensive income for the period attributable to owners
Basic earnings/(loss) per share (pence)
Diluted earnings/(loss) per share (pence)
The notes on pages 18 to 47 form part of these financial statements.
Notes
2013
£000
2012
£000
16
24
12
12
10
(53)
1,044
1.08
0.76
-
(98)
(435)
(0.49)
(0.49)
Manx Financial Group PLC
Consolidated and Company Statement of Financial Position
As at 31 December
Notes
Group
2013
£000
2012
£000
Company
2013
£000
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
Total liabilities and equity
14
15
16
17
18
19
20
11
19
21
22
19
23
22
24
25
4,183
48
9,000
75,819
289
629
-
1,014
394
2,344
93,720
78,115
754
-
6,065
-
252
85,186
1,918
51
12,484
58,495
312
742
-
1,252
380
2,344
77,978
63,731
2,162
-
4,510
160
200
70,763
-
-
-
-
-
-
14,072
130
-
-
14,202
-
9
1,772
6,065
-
-
7,846
18,933
(10,399)
8,534
93,720
18,433
(11,218)
7,215
77,978
18,933
(12,577)
6,356
14,202
18,433
(12,784)
5,649
12,170
15
2012
£000
-
-
-
-
-
-
12,072
98
-
-
12,170
-
339
1,512
4,510
160
-
6,521
The financial statements were approved by the Board of Directors on 24 February 2014 and signed on its behalf by:
Jim Mellon
Executive Chairman
Denham Eke
Chief Executive Officer Group Finance Director
Douglas Grant
The notes on pages 18 to 47 form part of these financial statements.
Manx Financial Group PLC
Consolidated Statement of Cash Flows
16
For the year ended 31 December
Notes
RECONCILIATION OF PROFIT / (LOSS) BEFORE TAXATION TO OPERATING CASH
FLOWS
Profit/(loss) before tax on continuing activities
Unrealised loss on financial assets carried at fair value
Loss/(gain) on disposal of property, plant and equipment
Depreciation charge
Realised gains on available-for-sale investments
Actuarial loss on defined benefit pension scheme taken to equity
Pension liability
Share-based payment credit
Decrease in trade and other receivables
(Decrease)/increase in trade and other payables
Decrease/(increase) in commission debtors
18
24
24
25
Net cash inflow from trading activities
Increase in loans and advances to customers
Increase in deposit accounts
2013
£000
1,073
3
17
252
(18)
(53)
52
(50)
238
(1,408)
23
129
(17,324)
14,384
2012
£000
(717)
128
(7)
214
(28)
(98)
121
-
18
1,307
(78)
860
(8,970)
7,821
Cash outflow from operating activities
(2,811)
(289)
CASH FLOW STATEMENT
Cash flows from operating activities
Cash outflow from operating activities
Taxation paid
Net cash outflow from operating activities
Cash inflow/(outflow) from investing activities
Purchase of property, plant and equipment
Sale/(purchase) of available-for-sale financial instruments
Sale of property, plant and equipment
Payment of deferred consideration
(2,811)
-
(289)
-
(2,811)
(289)
18
16
(156)
3,512
-
(335)
(186)
(1,961)
51
(332)
Net cash inflow/(outflow) from investing activities
3,021
(2,428)
Cash flows from financing activities
Issue of loan notes
Net cash inflow from financing activities
Increase/(decrease) in cash and cash equivalents
Included in cash flows are:
Interest received – cash amounts
Interest paid – cash amounts
Significant non-cash flows in the year
Conversion of loan notes to share capital
The notes on pages 18 to 47 form part of these financial statements.
23
2,055
2,300
2,055
2,265
2,300
(417)
9,072
(2,101)
8,003
(2,396)
500
-
Manx Financial Group PLC
Consolidated and Company Statement of Changes in Equity
For the year ended 31 December
Group
Balance as at 1 January
Profit/(loss) for the year
Other comprehensive expense
Transactions with owners:
Shares issued
Shares to be issued (see note 22)
Share-based payment expense
Balance as at 31 December
For the year ended 31 December
Company
Balance as at 1 January
Profit/(loss) for the year
Transactions with owners:
Shares issued
Shares to be issued (see note 22)
Share-based payment expense
Balance as at 31 December
The notes on pages 18 to 47 form part of these financial statements.
Share
Capital
£000
18,433
-
-
500
-
-
Retained
Earnings
£000
(11,218)
1,087
(43)
-
(175)
(50)
18,933
(10,399)
Share
Capital
£000
18,433
-
500
-
-
Retained
Earnings
£000
(12,784)
432
-
(175)
(50)
18,933
(12,577)
2013
£000
7,215
1,087
(43)
500
(175)
(50)
8,534
2013
£000
5,649
432
500
(175)
(50)
6,356
17
2012
£000
7,650
(337)
(98)
-
-
-
7,215
2012
£000
6,341
(692)
-
-
-
5,649
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
18
1. Reporting entity
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 2013 comprise the Company and its subsidiaries (the Group).
A summary of the principal accounting policies, which have been applied consistently, are set out below.
2. Basis of preparation
(a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union (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 2012 annual report, with the exception of those detailed below.
The Group has adopted the following new standards and amendments to standards, including any consequential amendments to
other standards, with a date of initial application of 1 January 2013.
IFRS 10 Consolidated Financial Statements (2011)
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other Entities
IFRS 13 Fair Value Measurement
-
-
-
-
- Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7)
-
-
- Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36) (2013)
- Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39)
-
Presentation of Items of Other Comprehensive Income (Amendments to IAS 1)
IAS 19 Employee Benefits (2011)
IAS 36 Recoverable amount disclosures for non-financial assets
The nature and the effects of significant changes are explained below.
Subsidiaries, including structured entities
As a result of IFRS 10 (2011), the Group has changed its accounting policy for determining whether it has control over and
consequently whether it consolidates other entities. IFRS 10 (2011) introduces a new control model that focuses on whether the
Group has power over an investee, exposure or rights to variable returns from its involvement with the investee and the ability to use
its power to affect those returns. In accordance with the transitional provisions of IFRS 10 (2011), the Group reassessed its control
conclusions as of 1 January 2013. No changes resulted from this reassessment.
Fair value measurement
In accordance with the transitional provisions of IFRS 13, the Group has applied the new definition of fair value. Fair value is the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The
fair value of a liability reflects its non-performance risk.
This change had no significant impact on the measurements of the Group’s assets and liabilities, but the Group has included new
disclosures in the financial statements, which are required under IFRS 13.
In addition, the IASB has issued amendments to reverse the unintended requirement in IFRS 13 to disclose the recoverable amount
of every cash-generating unit to which significant goodwill or indefinite-lived intangible assets have been allocated. Under the
amendments, recoverable amount is required to be disclosed only when an impairment loss has been recognised or reversed. The
amendments apply retrospectively for annual periods beginning on or after 1 January 2014. Early application is permitted, which
means that the amendments can be adopted at the same time as IFRS 13.
Presentation of items of other comprehensive income (OCI)
As a result of the amendments to IAS 1, the Group has modified the presentation of items of OCI in its statement of comprehensive
income, to present items that would be reclassified to profit or loss in the future separately from those that would never be.
Comparative information has been re-presented on the same basis.
Manx Financial Group PLC
19
2. Basis of preparation (continued)
(b) Basis of measurement
The financial statements are prepared on a historical cost basis except:
(cid:1)
financial instruments at fair value through profit or loss and available for sale financial instruments are measured at fair value;
and
(cid:1) 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 power over an investee, exposure or rights to
variable returns from its involvement with the investee and the ability to use its power to affect those returns. In assessing control,
potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in
the consolidated financial statements from the date that control commences until the date that control ceases.
Intra-Group balances, income and expenses and unrealised losses or gains arising from intra-Group transactions, are eliminated in
preparing the consolidated financial statements.
(b) Accounting for business combinations
Business combinations are accounting 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:
(cid:1) The fair value of the consideration transferred; plus
(cid:1) The recognised amount of any non-controlling interests in the acquiree; plus
(cid:1)
(cid:1) The net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
If the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less
When the excess is negative, a bargain purchase gain is recognised immediately in the income statement.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are
generally recognised in the income statement.
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
20
3. Significant accounting policies (continued)
(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
10 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 income statement after taking into account provision for
impairment losses (see note 3(e)).
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.
Manx Financial Group PLC
21
3. Significant accounting policies (continued)
(d) Financial assets (continued)
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 income statement 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 income statement.
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.
Fair value
The fair value hierarchy is applied to all financial assets, refer to note 4(c) for further information.
(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 income statement
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
22
3. Significant accounting policies (continued)
(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 income statement. 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 income statement.
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 income statement 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 income statement 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 income statement, 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 Hire Purchase (HP) contracts
When assets are subject to a finance lease or HP contract, the present fair 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
23
3. Significant accounting policies (continued)
(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 income statement
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 income statement 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.
(l) Fees and commission income
Fees and commission income other than that directly related to the 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 s 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
24
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)
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32)
Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36)
IFRIC 21 Levies
Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39)
Defined Benefit Plans : Employee Contributions (Amendment to IAS 19)
IFRS 9 Financial Instruments
Effective date
(accounting periods
commencing on or
after)
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 July 2014
To be decided
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 the 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 accuracy of the impairment allowances and provisions for counter claims and legal costs depend on how closely
the estimated future cash flows mirror actual experience.
(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 income statement.
(t) Commission share schemes
This represents the cost incurred in relation to certain loan books where commission is paid based on the overall profitability of the
relevant book. Each such lending scheme has its own commercially agreed terms.
Manx Financial Group PLC
25
4. Risk and capital management
(a) Risk management
Introduction and overview
The Group has exposure to the following risks from its use of financial instruments:
liquidity risk;
(cid:1) credit risk;
(cid:1)
(cid:1) operational risk; and
(cid:1) 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
obligations. For risk management reporting purposes, the Group considers and consolidates all elements of credit risk exposure,
such as individual obligor default, country and sector risk.
The Group is principally exposed to credit risk with regard to loans and advances to customers, comprising HP and finance lease
receivables, litigation funding loans, unsecured personal loans, secured commercial loans, block discounting and stock 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
26
4. Risk and capital management (continued)
(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:
(cid:1) explicit credit policies, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal
procedures, and compliance with regulatory and statutory requirements;
(cid:1) 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;
(cid:1) 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;
(cid:1)
(cid:1)
(cid:1) ensuring that appropriate records of all sanctioned facilities are maintained;
(cid:1) ensuring regular account reviews are carried out for all accounts agreed by the CC; and
(cid:1)
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:
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
2013
£000
75,819
-
-
4,305
4,305
(3,578)
727
(179)
24
123
48
1,404
1,599
73,672
2012
£000
58,495
-
-
5,423
5,423
(4,150)
1,273
(163)
819
467
555
478
2,319
55,066
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
27
4. Risk and capital management (continued)
(a) Risk management (continued)
i)
Management of credit risk (continued)
Impaired loans
Credit risk (continued)
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, finances leases, vehicle stocking plans, block discounting and secured commercial loan balances, which are sub-
categories of loans and advances to customers. In addition, the commission share schemes have an element of capital indemnified.
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 17 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
28
4. Risk and capital management (continued)
(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 2013
Sight-
8 days
£000
>8 days
- 1 month
£000
>1 month
- 3 months
£000
>3 months
- 6 months
£000
>6 months
- 1 year
£000
>1 year
- 3 years
£000
>3 years
- 5 years
£000
>5 years
£000
Total
£000
Customer accounts
Other liabilities
617
754
1,817
-
1,270
-
5,359
51
28,766
1,600
30,517
5,790
13,690
-
-
252
82,036
8,447
Total liabilities
1,371
1,817
1,270
5,410
30,366
36,307
13,690
252
90,483
31 December 2012
Sight-
8 days
£000
>8 days
- 1 month
£000
>1 month
- 3 months
£000
>3 months
- 6 months
£000
>6 months
- 1 year
£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
5,387
Total liabilities
1,812
2,836
3,179
5,694
21,144
24,012
17,276
-
200
200
Total
£000
67,496
8,657
76,153
Manx Financial Group PLC
29
Total
Total
Total
Total
£000
£000
£000£000
4,183
4,183
4,183
4,183
9,000
9,000
9,000
9,000
75,819
75,819
75,819
75,819
289289289289
4,429
4,429
4,429
4,429
93,720
93,720
93,720
93,720
78,115
78,115
78,115
78,115
7,071
7,071
7,071
7,071
85,186
85,186
85,186
85,186
4. Risk and capital management (continued)
(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 2013333
31 December 201
31 December 201
31 December 201
Assets
Assets
Assets
Assets
Cash & cash equivalents
Available-for-sale
financial instruments
Customer accounts
receivable
Commission debtors
Other assets
Total assets
Total assets
Total assets
Total assets
Liabilities
Liabilities
Liabilities
Liabilities
Customer accounts
Other liabilities
Total liabilities
Total liabilities
Total liabilities
Total liabilities
31 December 2012
Assets
Cash & cash equivalents
Available-for-sale
financial instruments
Customer accounts
receivable
Commission debtors
Other assets
Total assets
Liabilities
Customer accounts
Other liabilities
Total liabilities
4,183
4,183
4,183
4,183
7,000
7,000
7,000
7,000
1,043
1,043
1,043
1,043
16161616
48484848
12,290
12,290
12,290
12,290
609609609609
754754754754
1,363
1,363
1,363
1,363
Sight-
8 days
£000
1,918
-
1,307
-
-
3,225
1,762
43
1,805
Sight
Sight----
Sight
Sight
8 days
8 days
8 days
8 days
£000
£000
£000£000
>8 days
>8 days
>8 days
>8 days
---- 1 month
1 month
1 month
1 month
£000
£000
£000£000
>1 month
>1 month
>1 month
>1 month
---- 3 months
3 months
3 months
3 months
£000
£000
£000£000
>3 months
>3 months
>3 months
>3 months
---- 6 months
6 months
6 months
6 months
£000
£000
£000£000
>6 >6 >6 >6 months
months
months
months
---- 1 year
1 year
1 year
1 year
£000
£000
£000£000
>1 year
>1 year
>1 year
>1 year
---- 3 years
3 years
3 years
3 years
£000
£000
£000£000
>3 years
>3 years
>3 years
>3 years
---- 5 years
5 years
5 years
5 years
£000
£000
£000£000
>5 years
>5 years
>5 years
>5 years
£000
£000
£000£000
----
2,000
2,000
2,000
2,000
3,222
3,222
3,222
3,222
151151151151
----
5,373
5,373
5,373
5,373
1,815
1,815
1,815
1,815
----
1,815
1,815
1,815
1,815
----
----
4,4,4,4,679679679679
61616161
----
4,740
4,740
4,740
4,740
1,266
1,266
1,266
1,266
----
1,266
1,266
1,266
1,266
----
----
6,505
6,505
6,505
6,505
61616161
----
6,566
6,566
6,566
6,566
5,291
5,291
5,291
5,291
50505050
5,341
5,341
5,341
5,341
----
----
11,837
11,837
11,837
11,837
----
----
11,837
11,837
11,837
11,837
28,250
28,250
28,250
28,250
1,460
1,460
1,460
1,460
29,710
29,710
29,710
29,710
----
----
38,916
38,916
38,916
38,916
----
----
38,916
38,916
38,916
38,916
----
----
9,521
9,521
9,521
9,521
----
----
9,521
9,521
9,521
9,521
28,792
28,792
28,792
28,792
4,555
4,555
4,555
4,555
12,092
12,092
12,092
12,092
----
33,347
33,347
33,347
33,347
12,092
12,092
12,092
12,092
----
----
96969696
----
4,381
4,381
4,381
4,381
4,477
4,477
4,477
4,477
----
252252252252
252252252252
>8 days
- 1 month
£000
>1 month
- 3 months
£000
>3 months
- 6 months
£000
>6 months
- 1 year
£000
>1 year
- 3 years
£000
>3 years
- 5 years
£000
>5 years
£000
Total
£000
-
-
3,229
152
-
3,381
2,161
651
2,812
-
5,497
3,623
128
-
9,248
3,004
107
3,111
-
-
5,368
24
-
5,392
5,023
529
5,552
-
6,987
9,343
8
90
-
-
29,389
-
179
16,428
29,568
-
-
6,236
-
179
6,415
20,375
156
20,531
21,230
571
10,176
4,775
21,801
14,951
-
-
-
-
4,321
4,321
-
200
200
1,918
12,484
58,495
312
4,769
77,978
63,731
7,032
70,763
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
30
4. Risk and capital management (continued)
(a) Risk management (continued)
iii) Operational risk
Operational risk arises from the potential for inadequate systems including systems’ breakdown, errors, poor management, breaches
in internal controls, fraud and external events to result in financial loss or reputational damage. Operational risk also occurs when
lending through an outsourced partner. The Group manages the 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 2013 and 2012, 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 £48,000 at 31
December 2013 (2012: £51,000) 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 rate 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 2013333
31 December 201
31 December 201
31 December 201
Assets
Assets
Assets
Assets
Cash & cash equivalents
Available-for-sale financial instruments
Customer accounts receivable
Commission debtors
Other assets
Total assets
Total assets
Total assets
Total assets
Liabilities
Liabilities
Liabilities
Liabilities
Customer accounts
Other liabilities
Total capital and reserves
and equity
Total liabilities and equity
Total liabilities
Total liabilities
and equity
and equity
Total liabilities
Interest rate sensitivity gap
Cumulative
Cumulative
Cumulative
Cumulative
Sight
Sight----
Sight
Sight
1 month
1 month
1 month
1 month
£000
£000
£000£000
>1 month
>1 month
>1 month
>1 month
---- 3 3 3 3
months
months
months
months
£000
£000
£000£000
>3 month
>3 month
>3 month
>3 month
---- 6 6 6 6
months
months
months
months
£000
£000
£000£000
>6 months
>6 months
>6 months
>6 months
---- 1 year
1 year
1 year
1 year
£000
£000
£000£000
>1 year
>1 year
>1 year
>1 year
---- 3 years
3 years
3 years
3 years
£000
£000
£000£000
>3 years
>3 years
>3 years
>3 years
---- 5 years
5 years
5 years
5 years
£000
£000
£000£000
>5 years
>5 years
>5 years
>5 years
£000
£000
£000£000
4,183
4,183
4,183
4,183
9,000
9,000
9,000
9,000
4,265
4,265
4,265
4,265
----
----
17,448
17,448
17,448
17,448
2,424
2,424
2,424
2,424
754754754754
----
3,178
3,178
3,178
3,178
14,270
14,270
14,270
14,270
14,270
14,270
14,270
14,270
----
----
4,679
4,679
4,679
4,679
----
----
4,64,64,64,679797979
1,266
1,266
1,266
1,266
----
----
1,266
1,266
1,266
1,266
3,413
3,413
3,413
3,413
----
----
6,505
6,505
6,505
6,505
----
----
6,505
6,505
6,505
6,505
5,291
5,291
5,291
5,291
----
----
5,291
5,291
5,291
5,291
1,214
1,214
1,214
1,214
----
----
11,837
11,837
11,837
11,837
----
----
----
----
38,916
38,916
38,916
38,916
----
----
11,837
11,837
11,837
11,837
38,916
38,916
38,916
38,916
28,250
28,250
28,250
28,250
50505050
----
28,300
28,300
28,300
28,300
(16,463)
(16,463)
(16,463)
(16,463)
28,792
28,792
28,792
28,792
1,460
1,460
1,460
1,460
----
30,252
30,252
30,252
30,252
8,664
8,664
8,664
8,664
17,683
17,683
17,683
17,683
18,897
18,897
18,897
18,897
2,434
2,434
2,434
2,434
11,098
11,098
11,098
11,098
----
----
9,521
9,521
9,521
9,521
----
----
9,521
9,521
9,521
9,521
12,092
12,092
12,092
12,092
4,555
4,555
4,555
4,555
----
16,647
16,647
16,647
16,647
(7,126)
(7,126)
(7,126)
(7,126)
3,972
3,972
3,972
3,972
----
----
96969696
----
----
96969696
----
----
----
----
96969696
4,068
4,068
4,068
4,068
NonNonNonNon----
Interest
Interest
Interest
Interest
Bearing
Bearing
Bearing
Bearing
£000
£000
£000£000
----
----
----
289289289289
4,429
4,429
4,429
4,429
4,718
4,718
4,718
4,718
----
252252252252
8,534
8,534
8,534
8,534
8,786
8,786
8,786
8,786
(4,068)
(4,068)
(4,068)
(4,068)
----
Total
Total
Total
Total
£000
£000
£000£000
4,183
4,183
4,183
4,183
9,000
9,000
9,000
9,000
75,819
75,819
75,819
75,819
289289289289
4,429
4,429
4,429
4,429
93,720
93,720
93,720
93,720
78,115
78,115
78,115
78,115
7,071
7,071
7,071
7,071
8,534
8,534
8,534
8,534
93,720
93,720
93,720
93,720
----
----
Manx Financial Group PLC
31
4. Risk and capital management (continued)
(a) Risk management (continued)
(iv) Market risk (continued)
Interest risk re-pricing table (continued)
31 December 2012
Assets
Cash & cash equivalents
Available-for-sale financial
instruments
Customer accounts receivable
Commission debtors
Other assets
Total assets
Liabilities
Customer accounts
Other liabilities
Total capital and reserves
Total liabilities and equity
Interest rate sensitivity gap
Cumulative
Sight-
1 month
£000
>1 month
- 3 months
£000
>3 month
- 6 months
£000
>6 months
- 1 year
£000
>1 year
- 3 years
£000
>3 years
- 5 years
£000
>5 years
£000
1,918
1,918
1,918
1,918
----
4,536
4,536
4,536
4,536
----
----
6,454
6,454
6,454
6,454
3,923
3,923
3,923
3,923
----
----
3,923
3,923
3,923
3,923
2,531
2,531
2,531
2,531
2,531
2,531
2,531
2,531
----
5,497
5,497
5,497
5,497
3,623
3,623
3,623
3,623
----
----
9,120
9,120
9,120
9,120
3,004
3,004
3,004
3,004
----
----
3,004
3,004
3,004
3,004
6,116
6,116
6,116
6,116
8,647
8,647
8,647
8,647
----
----
5,368
5,368
5,368
5,368
----
----
5,368
5,368
5,368
5,368
5,023
5,023
5,023
5,023
----
----
5,023
5,023
5,023
5,023
345345345345
8,992
8,992
8,992
8,992
----
----
----
6,987
6,987
6,987
6,987
9,343
9,343
9,343
9,343
----
----
16,330
16,330
16,330
16,330
20,375
20,375
20,375
20,375
----
----
20,375
20,375
20,375
20,375
(4,045)
(4,045)
(4,045)
(4,045)
4,947
4,947
4,947
4,947
----
29,389
29,389
29,389
29,389
----
----
29,389
29,389
29,389
29,389
21,230
21,230
21,230
21,230
----
----
21,230
21,230
21,230
21,230
8,159
8,159
8,159
8,159
13,106
13,106
13,106
13,106
----
6,236
6,236
6,236
6,236
----
----
6,236
6,236
6,236
6,236
10,176
10,176
10,176
10,176
----
----
10,176
10,176
10,176
10,176
(3,940)
(3,940)
(3,940)
(3,940)
----
----
----
----
----
----
----
----
----
----
9,166
9,166
9,166
9,166
9,166
9,166
9,166
9,166
Non-
Interest
Bearing
£000
Total
£000
----
1,918
1,918
1,918
1,918
----
312312312312
4,769
4,769
4,769
4,769
5,081
5,081
5,081
5,081
----
7,032
7,032
7,032
7,032
7,215
7,215
7,215
7,215
14,247
14,247
14,247
14,247
(9,166)
(9,166)
(9,166)
(9,166)
----
12,484
12,484
12,484
12,484
58,495
58,495
58,495
58,495
312312312312
4,769
4,769
4,769
4,769
77,978
77,978
77,978
77,978
63,731
63,731
63,731
63,731
7,032
7,032
7,032
7,032
7,215
7,215
7,215
7,215
77,978
77,978
77,978
77,978
----
----
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 (2012: 2%). The following tables set out the estimated total impact of
such a change based on the mismatch at the balance sheet date.
Sight
Sight----
Sight
Sight
1 month
1 month
1 month
1 month
£000
£000
£000£000
>1 month
>1 month
>1 month
>1 month
---- 3 months
3 months
3 months
3 months
£000
£000
£000£000
>3 month
>3 month
>3 month
>3 month
---- 6 months
6 months
6 months
6 months
£000
£000
£000£000
>6 months
>6 months
>6 months
>6 months
---- 1 year
1 year
1 year
1 year
£000
£000
£000£000
>1 year
>1 year
>1 year
>1 year
---- 3 years
3 years
3 years
3 years
£000
£000
£000£000
>3 years
>3 years
>3 years
>3 years
---- 5 years
5 years
5 years
5 years
£000
£000
£000£000
>5 years
>5 years
>5 years
>5 years
£000
£000
£000£000
31 December 2013333
31 December 201
31 December 201
31 December 201
Interest rate sensitivity gap
Weighting
£000
31 December 2012
Interest rate sensitivity gap
Weighting
£000
14,270
14,270
14,270
14,270
0.000
----
Sight-
1 month
£000
2,531
0.000
-
3,413
3,413
3,413
3,413
0.003
10101010
>1 month
- 3
months
£000
6,116
0.003
18
1,214
1,214
1,214
1,214
0.007
(16,463)
(16,463)
(16,463)
(16,463)
0.014
8,664
8,664
8,664
8,664
0.027
(7,126)
(7,126)
(7,126)
(7,126)
0.054
8888
(230)
(230)
(230)
(230)
234234234234
(385)
(385)
(385)
(385)
96969696
0.115
11111111
>3 month
- 6 months
£000
>6 months
- 1 year
£000
>1 year
- 3 years
£000
>3 years
- 5 years
£000
>5 years
£000
Non-
Interest
Bearing
£000
345
0.007
2
(4,045)
0.014
(57)
8,159
0.027
220
(3,940)
0.054
(213)
-
(9,166)
0.115
0.000
-
-
(30)
NonNonNonNon----
Interest
Interest
Interest
Interest
Bearing
Bearing
Bearing
Bearing
£000
£000
£000£000
(4,068)
(4,068)
(4,068)
(4,068)
0.000
Total
Total
Total
Total
£000
£000
£000£000
----
-
----
(352)
(352)
(352)
(352)
Total
£000
-
-
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
32
4. Risk and capital management (continued)
(b) Capital Management
Regulatory capital
The Group considers capital to comprise share capital, share premium, reserves and subordinated loans. Capital is deployed by the
Board 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. The 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.
(c) Fair value of financial instruments
The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or
dealer price quotations. For all other financial instruments, the Group determines fair values using other valuation techniques.
For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying
degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks
affecting the specific instrument.
Valuation models
The Group measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making
the measurements:
(cid:1) Level 1: inputs that are quoted market prices (unadjusted) in active markets for identical instruments;
(cid:1) Level 2: inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or
indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active
markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than
active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data;
and
(cid:1) Level 3: inputs that are unobservable. This category includes all instruments for which the valuation technique includes
inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation.
This category includes instruments that are valued based on quoted prices for similar instruments for which significant
unobservable adjustments or assumptions are required to reflect differences between the instruments.
Financial instruments measured at fair value – fair value hierarchy
The following table analyses financial instruments measured at fair value at the reporting date, by the level in the fair value hierarchy
into which the fair value measurement is categorised. The amounts are based on the values recognised in the statement of financial
position.
31 December 2013
Investment securities
Government bonds
Equities
Level 1
£000
Level 2
£000
Level 3
£000
9,000
48
9,048
-
-
-
-
-
-
Total
£000
9,000
48
9,048
Manx Financial Group PLC
33
4. Risk and capital management (continued)
(c) Fair value of financial instruments (continued)
Financial instruments not measured at fair value
The following table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the
fair value hierarchy into which each fair value measurement is categorised.
31 December 2013
Assets
Cash and cash equivalents
Loans and advances to customers
Commissions receivable
Trade and other receivables
Liabilities
Customer accounts
Creditors and accrued charges
Loan notes
Level 1
£000
Level 2
£000
Level 3
£000
-
-
-
-
-
-
-
-
-
4,183
75,819
289
1,014
81,305
78,115
754
6,065
84,934
-
-
-
-
-
-
-
-
-
Total fair
values
£000
4,183
75,819
289
1,014
81,305
78,115
754
6,065
84,934
Total
carrying
amount
£000
4,183
75,819
289
1,014
81,305
78,115
754
6,065
84,934
Where available, the fair value of loans and advances is based on observable market transactions. Where observable market
transactions are not available, fair value is estimated using valuation models, such as discounted cash flow techniques. Input into the
valuation techniques includes expected lifetime credit losses, interest rates, prepayment rates and primary origination or secondary
market spreads. For collateral-dependent impaired loans, the fair value is measured based on the value of the underlying collateral.
Input into the models may include data from third party brokers based on over the counter trading activity, and information obtained
from other market participants, which includes observed primary and secondary transactions.
5. Segmental analysis
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 2013
Net interest income
Operating income
Profit/(loss) before income tax
recovery
Asset and
Personal
Finance
£000
Litigation
Finance
£000
Conister
Card
Services
£000
Wealth
Management
£000
Investing
Activities
£000
8,614
5,548
1,165
-
-
(214)
-
1,375
276
(357)
(357)
(168)
Total
£000
8,257
6,580
1,073
Capital expenditure
156
-
-
-
156
Total assets
92,044
677
220
649
130
93,720
-
14
14
-
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
34
5. Segmental analysis (continued)
For the year ended 31 December 2012
Net interest income
Operating income
Asset and
Personal
Finance
£000
5,782
4,255
Litigation
Finance
£000
-
-
Profit/(loss) before income tax
recovery
(497)
141
Capital expenditure
Total assets
6.
Interest income
184
76,269
-
899
Conister
Card
Services
£000
Wealth
Management
£000
Investing
Activities
£000
-
112
16
-
134
-
1,205
24
2
578
(241)
(237)
(401)
-
98
Total
£000
5,541
5,335
(717)
186
77,978
Interest receivable and similar income represents charges and interest on finance and leasing agreements attributable to the year
after adjusting for early settlements, income on litigation funding receivables and interest on bank balances.
7. Other expenses
Professional and legal fees
Marketing costs
IT costs
Establishment costs
Communication costs
Travel costs
Bank charges
Insurance
Irrecoverable VAT
Other costs
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 charge/(credit) in respect of collective allowances for impairment comprises:
Collective impairment allowances made
Release of allowances previously made
Total charge/(credit) for collective allowances for impairment
Total charge for allowances for impairment
2013
£000
281
122
298
502
48
94
77
97
(41)
179
2012
£000
737
148
303
472
46
95
47
102
139
548
1,657
2,637
2013
£000
833
-
833
2013
£000
17
-
17
850
2012
£000
465
(396)
69
2012
£000
75
(137)
(62)
7
9. Depositors’ Compensation Scheme
Provision in respect of Kaupthing Singer & Friedlander (Isle of Man) Limited
Manx Financial Group PLC
35
2013
£000
100
100
2012
£000
37
37
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 the income statement in that regard.
Repayments from the Financial Supervision Commission of £133,506 and £32,737 have been received and a further £44,315 is
expected from the Scheme.
10. Profit / (loss) before income tax recovery
The profit / (loss) before income tax recovery for the year is stated after charging:
Interest expense payable to depositors
Interest expense payable on loan notes
Depreciation
Loss/(profit) on sale of fixed assets
Share options credit
Directors’ remuneration
Directors’ fees
Directors’ pensions
Directors’ bonuses
Auditors’ remuneration:
as Auditors current year
non-audit services
Pension cost defined contribution scheme
Operating lease rentals for property
Acquisition and restructuring costs
11. Income tax expense
2013
£000
2,136
357
252
17
(50)
325
163
32
30
72
18
9
331
51
2012
£000
2,018
241
214
(7)
-
362
159
35
-
72
133
35
300
864
The main rate of income tax in the Isle of Man is 0% (2012: 0%). However the profits of the Group’s Manx banking activities are
taxed at 10% (2012: 10%). The profits of the Group’s subsidiaries that are subject to UK corporation tax are taxed at a rate of 20%
(2012: 20%).
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 for income tax is required. The value of tax losses carried forward increased to £394,000 (2012: £380,000)
which has been recognised as a deferred tax asset and results in a £14,000 credit to the income statement.
12. Earnings per share
Profit/(loss) for the year
Weighted average number of ordinary shares in issue
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Total comprehensive income for the period
Weighted average number of ordinary shares in issue
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
2013
2012
£1,087,000
£(337,000)
96,899,019
1.12p
0.78p
89,570,252
(0.38)p
(0.38)p
£1,044,000
£(435,000)
96,899,019
1.08p
0.76p
89,570,252
(0.49)p
(0.49)p
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
36
12. Earnings per share (continued)
The basic earnings/(loss) per share calculation is based upon the profit/(loss) for the year after taxation and the weighted average of
the number of shares in issue throughout the year.
The diluted earnings/(loss) per share calculation assumes that all convertible loan notes, warrants and share options have been
converted/exercised at the beginning of the year where they are dilutive.
13. Company profit
The profit on ordinary activities after taxation of the Company is £432,000 (2012: loss of £692,000).
14. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
Group
Company
2013
£000
4,137
46
4,183
2012
£000
1,872
46
1,918
2013
£000
-
-
-
Cash at bank includes an amount of £241,699 (2012: £18,809) representing cheques issued in the course of transmission.
The remaining maturity of short-term deposits is as follows:
Less than 8 days
Group
Company
2013
£000
46
46
2012
£000
46
46
2013
£000
-
-
2012
£000
-
-
-
2012
£000
-
-
15. Financial assets at fair value through profit or loss
The investment represents shares in 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.
Dividend income of £350,000 has been received from this investment since it was made.
16. Available-for-sale financial instruments
UK Government Treasury Bills
Group
Company
2013
£000
9,000
9,000
2012
£000
12,484
12,484
2013
£000
-
-
2012
£000
-
-
UK Government Treasury Bills are stated at fair value and unrealised changes in the fair value are reflected in equity.
Manx Financial Group PLC
17. Loans and advances to customers
Group
HP balances
Finance lease balances
Litigation funding
Unsecured personal loans
Vehicle stocking plans
Block discounting
Secured commercial loans
Secured personal loans
Gross
Amount
£000
2013
Impairment
Allowance
£000
46,222
8,882
2,164
3,815
1,476
5,192
6,991
4,834
(813)
(707)
(1,487)
(306)
-
-
(435)
(9)
Carrying
Value
£000
45,409
8,175
677
3,509
1,476
5,192
6,556
4,825
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)
-
37
Carrying
Value
£000
37,072
5,847
899
3,551
1,404
4,601
5,121
-
Collateral is held, in the form of underlying assets, for HP, finance leases, vehicles 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.
79,576
(3,757)
75,819
62,808
(4,313)
58,495
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
2013
£000
4,150
460
(1,032)
3,578
2013
£000
162
17
-
179
3,757
2012
£000
4,305
69
(224)
4,150
2012
£000
225
-
(62)
163
4,313
Advances on preferential terms are available to all Directors, management and staff. As at 31 December 2013 £93,187 (2012:
£133,740) had been 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 two loan exposures exceeded 10% of the capital base of the Group (2012:
one loan exposures).
Exposure
Secured commercial loan
Block discounting facility
Outstanding
Balance
2013
£000
-
2,229
Outstanding
Balance
2012
£000
4,176
-
Facility
limit
£000
N/A
2,850
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
38
Loans and advances to customers (continued)
17.
HP and finance lease receivables
Loans and advances to customers include the following HP and finance lease receivables:
Less than one year
Between one and five years
2013
£000
25,495
42,754
2012
£000
21,841
30,520
Gross investment in HP and finance lease receivables
68,249
52,361
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
18.
Property, plant and equipment
2013
£000
19,540
35,564
2012
£000
18,454
26,044
55,104
44,498
Group
Cost
As at 1 January 2013
Additions
Disposals
As at 31 December 2013
Accumulated depreciation
As at 1 January 2013
Charge for year
Disposals
As at 31 December 2013
Carrying value at 31 December 2013
Carrying value at 31 December 2012
Leasehold
Improvements
£000
IT
Equipment
£000
Furniture &
Equipment
£000
Motor
Vehicles
£000
179
3
-
182
7
31
-
38
144
172
928
153
-
1,081
522
192
-
714
367
406
617
-
(17)
600
471
17
-
488
112
146
84
-
-
84
66
12
-
78
6
18
Total
£000
1,808
156
(17)
1,947
1,066
252
-
1,318
629
742
Manx Financial Group PLC
Investment in Group undertakings
19.
The Company has the following investments in subsidiaries incorporated in the Isle of Man:
Carrying value of investments
Nature of
Business
31 December
2013
% Holding
Date of
Incorporation
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
05.12.1935
05.11.2007
15.05.2009
24.12.1996
39
Total
2012
£000
10,067
-
-
2,005
12,072
Total
2013
£000
12,067
-
-
2,005
14,072
Amounts owed to group undertakings are unsecured, interest-free and repayable on demand.
MFG issued two subordinated loans to the Bank during 2013 of £1 million each, with a repayment term of 6 years and 7% interest
payable per annum levied at the discretion of the lender.
Goodwill
Edgewater Associates Limited (EWA)
ECF Asset finance PLC (ECF)
Three Spires Insurance Services Limited (Three Spires)
Group
2013
£000
1,849
454
41
2,344
Group
2012
£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. 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. The sensitivity of the analysis was tested using additional discount factors of 15% and 20% on varying sales volumes.
There has been no change in the detailed method of measurement for EWA and ECF when compared to 2012.
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.
On the basis of the above reviews no impairment to goodwill has been made in the current year.
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
40
20.
Trade and other receivables
Trade debtors
Prepayments and other debtors
VAT recoverable
Group
Company
2013
£000
116
432
466
2012
£000
53
733
466
1,014
1,252
2013
£000
-
27
103
130
2012
£000
-
30
68
98
Included in trade and other receivables is an amount of £466,000 (2012: £466,000) 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 was scheduled to be heard in October 2013. However, this has
now been delayed pending reference to a relevant European Court of Human Rights judgement.
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 (from Q4 2012 the Bank
reverted back to the previous method).
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.
21.
Customer accounts
Retail customers: term deposits
Corporate customers: term deposits
2013
£000
75,989
2,126
78,115
2012
£000
61,647
2,084
63,731
Fiduciary deposits
The Bank acts as agent bank to a number of customers, for balances totalling £7.8 million (2012: £19.9 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
41
2012
£000
-
339
339
2012
£000
160
160
Group
Company
2013
£000
577
177
754
2013
£000
-
-
2012
£000
1,474
688
2,162
2012
£000
160
160
2013
£000
-
9
9
2013
£000
-
-
22.
Creditors and accrued charges
Commission creditors
Other creditors and accruals
Deferred consideration
Edgewater Associates Limited
Deferred consideration
The deferred consideration of £160,000 in cash and £175,000 in shares payable to the previous shareholders of Edgewater Associates
Limited on approval of the respective company’s accounts for each of the financial year ending 31 December 2012 was settled during
2013. A top up payment was also settled in the year including £175,000 shares to be issued.
It was agreed by all parties that the full amount of deferred consideration due in respect of the 31 December 2012 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 would be payable 50% in cash and 50% in the Group’s shares. Such additional shares would be issued at the
same price as the consideration shares for that year.
No incentive commission has been paid and no provision has been made in the accounts of the Group in respect of the incentive
commission. All payments in relation to the Edgewater Associates Limited acquisition have been made, as the terms were not met.
23.
Loan notes
Related parties
J Mellon
Burnbrae Limited
Southern Rock Insurance Company Limited
Copper Development Corporation
Rock Holdings Limited
Unrelated parties
Group
Company
Notes
JM
BL
SR
CDC
RH
UP
2013
£000
1,750
1,200
460
500
-
3,910
2,155
6,065
2012
£000
1,750
1,200
500
500
460
4,410
100
4,510
2013
£000
1,750
1,200
460
500
-
3,910
2,155
6,065
2012
£000
1,750
1,200
500
500
460
4,410
100
4,510
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
42
23. Loan notes (continued)
JM – Two loans, one of £500,000 maturing on 31 July 2017 with interest payable of 7% per annum, and one of £1,250,000 maturing
on 26 February 2015 paying interest of 9% per annum. 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% per annum. 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 previously consisting of £500,000 maturing on 24 October 2017, paying interest of 7% per annum was converted into
equity on 31 May 2013 at a rate of 4 pence, and remains entitled to 8.3 million warrants at an exercise price of 6 pence. Arron
Banks, a significant shareholder holds a 100% stake in SR. On 24 April 2013 RH assigned its loan of £460,000 to SR.
CDC – One loan of £350,000 maturing on 5 September 2017 with interest payable of 5% per annum, and another loan of £150,000
maturing on 3 October 2017 paying interest of 5% per annum. Denham Eke is a director of CDC.
RH – Previously one loan consisting of £460,000, maturing on 26 February 2015 with interest payable of 9% per annum. The loan is
convertible at the rate of 9 pence. RH is linked to Arron Banks, a significant shareholder. This loan was assigned to SR on 24 April
2013.
UP – Eleven loans consisting of an average £196,000, with an average interest payable of 3.5% per annum. The earliest maturity
date is 22 October 2014 and the latest maturity is 20 November 2018.
With respect to the convertible 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.
24. Pension liability
The Conister Trust Pension and Life Assurance Scheme (Scheme) operated by the Company is a funded defined benefit
arrangement which provides retirement benefits based on final pensionable salary. The Scheme is closed to new entrants and the
last active member of the Scheme left pensionable service in 2011.
The Scheme is approved in the Isle of Man by the Assessor of Income Tax under the Income Tax (Retirement Benefit Schemes) Act
1978 and must comply with the relevant legislation. In addition, it is registered as an authorised scheme with the Insurance and
Pensions Authority (IPA) in the Isle of Man under the Retirement Benefits Scheme Act 2000. The Scheme is subject to regulation by
the IPA but there is no minimum funding regime in the Isle of Man.
The Scheme is governed by two corporate trustees, Conister Bank Limited and Boal & Co (Pensions) Limited. The trustees are
responsible for the Scheme’s investment policy and for the exercise of discretionary powers in respect of the Scheme’s benefits.
The rules of the Scheme state: “Each Employer shall pay such sums in each Scheme Year as are estimated to be required to
provide the benefits of the Scheme in respect of the Members in its employ”.
Exposure to risk
The Company is exposed to the risk that additional contributions will be required in order to fund the Scheme as a result of poor
experience. Some of the key factors that could lead to shortfalls are:
investment performance – the return achieved on the Scheme’s assets may be lower than expected; amd
(cid:1)
(cid:1) mortality – members could live longer than foreseen. This would mean that benefits are paid for longer than expected,
increasing the value of the related liabilities.
Manx Financial Group PLC
43
24. Pension liability (continued)
In order to assess the sensitivity of the Scheme’s pension liability to these risks, sensitivity analyses have been carried out. Each
sensitivity analysis is based on changing one of the assumptions used in the calculations, with no change in the other assumptions.
The same method has been applied as was used to calculate the original pension liability and the results are presented in
comparison to that liability. It should be noted that in practice it is unlikely that one assumption will change without a movement in the
other assumptions; there may also be some correlation between some of these assumptions. It should also be noted that the value
placed on the liabilities does not change on a straight line basis when one of the assumptions is changed. For example, a 2% change
in an assumption will not necessarily produce twice the effect on the liabilities of a 1% change.
No changes have been made to the method or to the assumptions stress-tested for these sensitivity analyses compared to the
previous period. The investment strategy of the Scheme has been set with regard to the liability profile of the Scheme. However,
there are no explicit asset-liability matching strategies in place.
Restriction of assets
No adjustments have been made to the balance sheet items as a result of the requirements of IFRIC 14 issued by IASB’s
International Financial Reporting Interpretations Committee.
Scheme amendments
There have not been any past service costs or settlements in the financial year ending 31 December 2013 (2012: none).
Funding policy
The funding method employed to calculate the value of previously accrued benefits is the Projected Unit Method. Following the
cessation of accrual of benefits when the last active member left service in 2011, regular future service contributions to the Scheme
are no longer required. However, additional contributions will still be required to cover any shortfalls that might arise following each
funding valuation.
The most recent full actuarial valuation was carried out at 1 April 2013, which showed that the market value of the Scheme’s assets
was £1,283,000 representing 80.0% of the benefits that had accrued to members, after allowing for expected future increases in
earnings. As required by IAS 19 this valuation has been updated by the actuary as at 31 December 2013.
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
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
Liability for defined benefit obligations at 31 December
2013
£000
1,245
(1,497)
(252)
2013
£000
1,427
(66)
68
68
1,497
2012
£000
1,227
(1,427)
(200)
2012
£000
1,271
(57)
72
141
1,427
Manx Financial Group PLC
Notes to Consolidated Financial Statements
44
24. Pension liability (continued)
Movement in plan assets
Opening fair value of plan assets at 1 January
Expected return on assets
Contribution by employer
Actuarial gain
Benefits paid
Closing fair value of plan assets at 31 December
Expense recognised in income statement
Interest on obligation
Expected return on plan assets
Total included in personnel costs
Actual return on plan assets
Expense recognised in other comprehensive income
Actuarial gain on plan assets
Actuarial loss on defined benefit obligations
Plan assets consist of the following
Equity securities
Corporate bonds
Government bonds
Cash
Other
2013
£000
1,227
59
10
15
(66)
1,245
2013
£000
68
(59)
9
74
2013
£000
15
(68)
(53)
2013
%
37
39
20
1
3
100
The actuarial assumptions used to calculate Scheme liabilities
under IAS19 are as follows:
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
2013
%
-
3.10
2.10
4.80
4.80
2012
%
-
2.30
1.80
4.90
2.90
2011
%
-
2.90
2.10
5.70
3.10
2010
%
-
3.40
2.20
5.70
5.20
2012
£000
1,192
39
10
43
(57)
1,227
2012
£000
72
(37)
35
(93)
2012
£000
43
(141)
(98)
2012
%
33
39
22
6
-
100
2009
%
-
3.50
2.30
5.70
5.95
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.
Manx Financial Group PLC
45
£000
18,433
18,933
Number
150,000,000
Number
89,570,252
102,070,252
25. Called up share capital
Authorised: Ordinary shares of no par value
At 31 December 2012 & 2013
Issued and fully paid: Ordinary shares of no par value
At 31 December 2012
At 31 December 2013
The number of warrants in issue at 31 December 2013 is £36.6 million (2012: 36.6 million) (see note 23 for further details). In addition
there are a number of convertible loans (see note 23 for further details).
Share options
Share option reserve
As at 31 December 2012
Grant of options
Lapses
As at 31 December 2013
No of Shares
000
1,369
-
(313)
1,056
Value
£000
168
-
(50)
118
Performance conditions attached to share options that have not fully vested are as follows:
(a) The options granted on 25 June 2010 will vest if the mid market share price of £0.30 is achieved during the period of grant (10
years ending 25 June 2020).
No shares resulting from the exercise of an option may be sold for at least three years from the date of grant.
The fair value of services received in return for share options granted is based on the fair value of share options granted, measured
using a binomial probability model with the following inputs for each award:
Fair value at date of grant
Share price
Exercise price
Expected volatility
Option life
Expected dividends
Risk-free interest rate (based on government bonds)
Forfeiture rate
* modified on 25 April 2008
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
9 June
2003
£0.08
£0.34
£0.34
30%
10
0.00%
4.11%
0%
28 April
2004
25 April
2005
1 November
2006*
6 July 2007
(Tranche 1)
£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
(Tranche 2)
6 July 2007
(Tranche 3)
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%
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
46
26. Analysis of changes in financing during the year
Analysis of changes in financing during the year
Balance at 1 January
Issue of loan notes
2013
£000
22,943
2,055
2012
£000
20,643
2,300
24,998
22,943
The 2013 closing balance is represented by £18,933,000 (2012: £18,433,000) share capital and £6,065,000 (2012: £4,510,000) of
loan notes.
27. Regulator
Conister Bank Limited is licensed to undertake banking activities by the Isle of Man Government Financial Supervision Commission.
28. Related party transactions
Staff loans
Details of staff loans are given in note 17 to the financial statements.
Commercial loans
Normal commercial loans are made to various companies connected to Jim Mellon. As at 31 December 2013, £343,415 of capital
and interest was outstanding (2012: £273,566).
Edgewater Associates Limited subordinated loan
On 28 February 2013, the Company made a subordinated loan to Edgewater Associates Limited of £50,000. 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 23 to the financial statements.
Key management personal (including Executive Directors’) compensation
Short-term employee benefits
29. Operating leases
Non-cancellable lease rentals are payable in respect of property and motor vehicles as follows:
2013
£000
371
2012
£000
397
Less than one year
Between one and five years
Over five years
2013
2012
Leasehold
Property
£000
297
825
871
1,993
Other
£000
Leasehold
Property
£000
-
-
-
-
297
825
1,078
2,200
Other
£000
6
-
-
6
Manx Financial Group PLC
47
30. Litigation
The Bank is vigorously pursuing the repayment of litigation funding loans made to clients of solicitor firms and further litigation may be
required in this regard. Counter claims have been received and there is the possibility of litigation being necessary. There is a risk of
an adverse outcome in all litigation and the costs and timescale to resolve these matters are uncertain.
31. Subsequent events
No significant subsequent events have occurred following 31 December 2013.
Manx Financial Group PLC
Shareholders’ Notes
48
Clarendon House
Victoria Street
Douglas
Isle of Man
IM1 2LN
Tel: (01624) 694694
Fax: (01624) 624278
www.mfg.im