_________________________________
ANNUAL REPORT 2014
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 (LSE : MFX) which
holds the entire issued share capital of a
suite of financial service companies based
in the Isle of Man and the UK. These
companies offer financial services to both
retail and commercial customers. MFG's
strategy is to grow both organically and
to further
through strategic acquisition
augment the range of services it offers.
Principal wholly owned subsidiaries:
• Conister Bank Limited
• Edgewater Associates Limited
• Conister Card Services Limited.
Contents
Financial Highlights
Chairman’s Statement
Directors and Advisers
Directors’ Report
Corporate Governance Report
Directors’ Remuneration Report
Statement of Directors’ Responsibilities
Report of the Independent Auditors
Consolidated Income Statement
01
02
04
06
07
10
12
13
14
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
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.
fiduciary
deposits,
Associates
Edgewater
Limited
(“EWA”) is one of the pre-eminent
independent financial advisers in the
Isle of Man.
It provides a bespoke and personal
service to Isle of Man residents and to
the Group’s business and personal
customers and manages assets
in
excess of £157 million.
EWA specialises in the areas of
wealth management, mortgage and
general
retirement
planning.
insurance, and
Conister Card Services Limited (“CCS”)
is the Group’s pre-paid card division
providing business clients with payment
solutions that are both cost effective and
create new revenue opportunities.
Consolidated Statement of Other Comprehensive Income
15
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
16
17
18
19
® 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
Customer accounts
46%
£1.6 m
2013 : £1.1m
61%
£1.7 m
2013 : £1.1m
31%
£10.8 m
2013 : £8.3m
18%
£89.3 m
2013 : £75.8m
28%
£119.5 m
2013 : £93.7m
28%
£100.3 m
2013 : £78.1m
Manx Financial Group PLC
Chairman’s Statement
02
Dear Shareholders,
When I wrote to you last year, I commented that I believed that the
Group had turned a significant corner by moving into sustained
profitability. I am, therefore, pleased to report a record profit before tax
for the Group of £1.73 million (2013: £1.07 million). This represents a
growth of 61%, and has led to net profit for the year of £1.59 million
(2013: £1.09 million), an increase of 46%, continuing progress from
the 2014 Interim net profit of £0.72 million to a second half figure of
£0.87 million. This outcome has further helped strengthen our balance
sheet with a 17% increase in total equity to £9.98 million (2013: £8.53
million), providing a respectable Return on Equity of 15.9% and
confirming that our strategy of growing lending through wholesale
to
funding partnerships and
expenditure is working well for us. 2014 was also a year when we
achieved an important milestone whereby our total assets exceeded
£100 million for the first time, to reach nearly £120 million at year-end.
Whilst increased liquidity is returning to the lending market in both the
Isle of Man and the UK, there is still an imbalance between funding
requirements and available loan finance. We remain well placed to take
advantage of this gap.
retaining a disciplined approach
Having addressed the issue of profitability, we now intend to further
improve the Group’s systems to provide enhanced functionality to our
offering. Technology is rapidly changing how banks and financial
services providers interact with their customers. For banks, both
borrowers and lenders alike benefit from a more immediate delivery.
The time of fully staffed branch networks, ATMs and overseas call
centres is running out. New entrants to the lending market have taken
advantage of the High Street banks’ lack of appetite or ability to
embrace digital life. These new lenders recognise that customers now,
and even more so in the future, want to engage with their bank in ways
and at times convenient to themselves, and not be driven by the
constraints of defined opening hours and menu-driven telephone
systems. Equally, as the understanding of risk becomes ever more
sophisticated, the use of data-driven algorithms allows credit decisions
in real-time, rather than tardy rulings by remote committees. Unlike the
traditional banks, we are not shackled with expensive branch networks
or legacy IT systems which hamper implementing the service delivery
now required by customers. The advances in technology driven service
provision also benefit financial advisors, who are now able to offer
more focussed and more competitive solutions to their clients. As such,
we are in an enviable position to benefit from the enhancements
provided by this financial technology revolution and we intend to
invest in this area in the coming years.
Manx Financial Group PLC
In terms of the 2014 outcome, our net interest income increased by
31% to £10.83 million (2013: £8.26 million) and net trading income
rose by 13% to £7.25 million (2013: £6.42 million), which together led
to a 12% growth in operating income. Personnel and operations costs
increased by only 2% which resulted in profit before income tax
growing by 61% to £1.73 million (2013: £1.07 million). After taxation,
our profit for the year of £1.59 million (2013: £1.09 million), showed a
Jim Mellon
Chairman
growth of 46%. As a result, our basic earnings per share (“EPS”)
increased by 39% to 1.56 pence (2013: 1.12 pence), providing an
imputed earnings multiple of 7.9 (based on 12.29 pence, being the
Group’s share Volume Weighted Average Price for January 2015) and
our diluted EPS increased by 26% to 0.98 pence (2013: 0.78 pence).
Our total assets increased by 28% to £119.51 million (2013: (£93.72
million), including loans and advances rising by 18% to £89.34 million
(2013: £75.82 million) and cash and near equivalents growing by 89%
to £24.90 million (2013: £13.18 million). This was supported by a 28%
increase in our customer accounts to £100.26 million (2013: £78.12
million). During the period shareholder equity grew by 17% to £9.98
million (2013: £8.53 million).
We announced the formation of Manx Financial Limited in the second
half of 2014 and commenced trading in both the Isle of Man finance
broking and the Isle of Man foreign exchange broking markets. These
businesses are tapping into an unsatisfied demand and we already have
a significant pipeline of opportunity, demonstrating encouraging
progress to date. We expect all three new business streams to make a
positive contribution to the Group during the course of the new
financial year.
Conister Bank Limited
Net interest income grew by 26% to £10.83 million (2013: £8.61
million), leading to a 10% increase in net trading income to £6.02
million (2013: £5.46 million). Operating income grew by 11% to £6.15
million (2013: £5.54 million). Personnel and other costs reduced by
10% to £4.79 million (2013: £5.31 million). As a result, profit before
tax increased by almost 400% to £1.02 million (2013: £0.21 million).
This result was driven by a combination of improved lending through
our wholesale funding partnerships, our interest rate strategy of locking
in low cost of funds over the longer term, and by the prudent control of
costs.
We continue to take a conservative approach to lending as evidenced
by the 30% reduction in impaired loans to £3.00 million (2013: £4.31
million). The introduction of wholesale funding arrangements which
include a capital indemnity element provides an additional level of
security against losses.
We continue to match our loan and deposit books without the need to
make any behavioural adjustments. Whilst this is a very prudent
approach, we believe the reduced risk of any adverse liquidity event
provides a greater level of stability upon which to grow our deposit
base. Our matched funding also continues to provide a partial hedge
against any future rise in interest rates.
Manx Financial Group PLC
03
digitally to customers 24/7. Banking and financial services are rapidly
transforming from a people-intensive business to a data management
business. We intend fully to embrace this change which will allow our
staff
to concentrate on maintaining and developing business
relationships with enhanced customer services, both within our banking
and our financial advice divisions. Only by doing so will we ensure we
continue to deliver superior shareholder returns.
In 2014, the FCA initiated a review of every UK consumer credit
license holder as a consequence of the responsibility for regulation
moving from the Office of Fair Trading. The renewal process for FCA-
approved consumer lending will commence in 2015.
Thus the outlook for the Group remains very promising for 2015. I
anticipate that the trend of increasing profits will continue in the year to
come. In addition, and as I mention above, we continue to seek suitable
potential acquisitions for the banking and financial services divisions
that are both priced fairly and will add additional profitability to our
operations.
Finally, I would like to take this opportunity to thank both you, our
shareholders, and our staff alike for their continued support of the
Group and also remind you that 2015 will be the year that our principal
subsidiary, Conister Bank, will have served the Isle of Man community
continuously for 80 years – a notable achievement.
Jim Mellon
Executive Chairman
26 February 2015
on bevioural adjustments to create a matched position nor do we rely
on the vagaries of
Executive Chairman
24 February 2014
We continue to carry a VAT debtor of £589,000 in relation to an on-
going negotiation with the Isle of Man Government Customs & Excise
Division (C&E). We have believed for a number of years that the VAT
recovery rate for the business was neither fair nor reasonable and we
have raised a number of queries in this regard with C&E. In parallel,
there is a case being taken against HM Revenue & Customs by
Volkswagen Financial Services (UK) which covers substantially the
same issue and we have agreed with C&E to await the outcome of this
case before proceeding with ours. Currently, the re-appeal for this case
is scheduled for April 2015.
Edgewater Associates Limited
After a slow start to the year, driven mainly by Retail Distribution
Review factors, the business returned a second half growth in profit
pre-exceptional items of 12% to £0.18 million (2013: £0.16 million), a
run rate of £0.36 million in a full year. Our strategy is to focus on
renewal income to reduce earnings volatility. To achieve this, we
continue to recruit and employ the most experienced IFAs and also to
invest further in our IT platforms as part of the up-grading of our
Group-wide systems.
We continue to look for additional IFA acquisitions to develop and
consolidate this division of the Group’s business. We have considered
a number of potential targets and I hope to be able to announce some
progress in the near future.
Conister Card Services Limited
We continue to look for ways to monetise our MasterCard® licence to
issue pre-paid cards in the Isle of Man and the UK. Despite a number
of pre-paid card issuing companies struggling to gain market share and
attain profitability, we believe that we found a viable strategy for
success. As a consequence, I hope to be able to announce further
developments in this area shortly.
Outlook
It is clear that the banking and financial services landscape is reaching
a major watershed in which the twin forces of regulatory reform and
the development of financial technology will allow those players
capable of reacting quickly to gain a competitive advantage.
In November 2014, the UK’s Competition and Markets Authority
announced that it would launch a full investigation into retail banking.
This is a move that we welcome and that we hope will produce positive
outcomes for businesses such as our own by evening out the
competitive landscape.
The second strand is the benefit available to consumers following the
digitisation of financial services. As I have already indicated, we see
acquiring suitable technology as our key priority to allow us access to
new distribution channels and enabling the provision of our services
Manx Financial Group PLC
Directors and Advisers
04
Executive Directors
Jim Mellon (58)‡
Executive Chairman
Denham Eke (63) ‡
Chief Executive Officer
Juan Kelly (44) ‡
Executive Director
Jim Mellon holds directorships in a number of publicly
quoted companies, many of which are in the financial
services sector. He is a life tenant of the trust which
owns Burnbrae Group Limited which, in turn, indirectly
holds approximately 17% 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.
international
Denham Eke is the Managing Director of Burnbrae
asset
Group Limited,
a private
in
management company. He began his career
stockbroking with Sheppards & Chase before moving
into corporate planning for Hogg Robinson plc, a major
multinational insurance broker. He is a director of
many years standing, of both public and private
companies involved in the financial services, property,
mining, and manufacturing sectors. He is chairman of
Webis Holdings PLC, chief executive officer of
Speymill PLC, chief finance officer of West African
Minerals Corporation Limited, chief finance officer of
Copper Development Corporation, chief finance officer
of Port Erin Biopharma Investments Limited, and a
non-executive director of Billing Services Group
Limited – all quoted on the London AIM market.
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
the Netherlands.
in Chile and subsequently
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 and 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.
Douglas Grant (50) ‡
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 (78) ‡
Non-Executive Director
Alan Clarke (64)‡†*
Non-Executive Director
David Gibson (67) ‡†*
Non-Executive Director
UK,
East/Africa
Europe/Middle
From 1975 to 1983 Don McCrickard was employed by
American Express where he headed their businesses in
the
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
the group’s merchant
chairman of Hill Samuel,
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
John Banks (46)
Non-Executive Director
John Banks is a solicitor qualified in both England and
Wales and Hong Kong. He has worked in private
practice with Lovells, in both England and Hong Kong
and as an in house counsel for Standard Chartered
Bank in Hong Kong. He joined Group Direct Limited,
later part of Brightside Group PLC as group legal
counsel in 2006, where he worked on the group’s
admission to trading on AIM. He joined Southern Rock
Insurance Company Limited and Eldon Insurance
Services Limited in 2013 and is a director of both
companies.
Gibson qualified as a certified accoun
Appointment
Appointed to the Board on 5 August 2014.
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 was chairman of the
investment
the University of
Manchester. He is also a registered auditor, being the
senior partner of Downham Mayer Clarke.
committee
for
Appointment
Appointed to the Board on 2 November 2007.
the Audit, Risk and Compliance
Chairman of
Committee and Chairman of
the Remuneration
Committee.
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
Long & Humphrey
The Old Courthouse
Athol Street
Douglas
Isle of Man IM1 1LD
Kerman & Co LLP
200 Strand
London WC2R 1DJ
Independent Auditors
KPMG Audit LLC
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
Principal Bankers
Royal Bank of Scotland
135 Bishopsgate
London
EC2M 3UR
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
David Gibson qualified as a certified accountant
whilst holding posts with Shell-Mex and BP and
CIBA-Geigy throughout the UK and abroad before
transferring into treasury management in senior
positions with Turner and Newall and Westland
Helicopters where he qualified as a corporate
treasurer. He joined the Trustee Savings Bank of the
Channel Islands as finance director prior to becoming
general manager finance at TSB Retail Bank where
he gained his formal qualifications as a banker. Prior
to retiring from executive life for family reasons, he
was group finance director of Portman Building
Society for 9 years. He is currently deputy chairman
investment companies
of commercial property
Chellbrook Properties plc
and Mountstephen
Investments Limited.
Appointment
Appointed to the Board on 12 February 2009.
Nominated Advisor
and Broker
Beaumont Cornish Limited
2nd Floor
Bowman House
29 Wilson Street
London EC2M 2SJ
Registrar
Computershare Investor
Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
Jersey JE1 1ES
of Annual
Presentation
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
is
www.mfg.im which includes
investor relations information
and contact details.
the website
Manx Financial Group PLC
Directors’ Report
06
The Directors present their annual report and the audited financial
statements for the year ended 31 December 2014.
The number of shares held by the current Directors is as follows:
Principal activities
The principal activities of Manx Financial Group PLC (the “Company”)
and its subsidiaries (together referred to as the “Group”) are the provision
investing activities and wealth
of asset and personal finance,
management.
Conister Bank Limited (the “Bank”), a wholly owned subsidiary of the
Company, holds a banking licence issued under section 7 of the Financial
Services Act 2008. 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), (6) 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 18. The Directors do not
recommend the payment of a dividend (2013: 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 9 February 2015 are:
Rene Nominees (IOM) Limited1
Jim Mellon
Lynchwood Nominees Limited
Island Farms Limited
Number
26,288,992
17,635,332
10,509,537
4,222,319
% of
issued capital
25.76
17.28
10.30
4.14
1 Together with other holdings, Arron Banks, a former Director of the
Group, is beneficially interested in 30,339,825 ordinary shares
(29.72%) of these 2,336,833 ordinary shares are held by Rene
Nominees (IOM) Ltd in trust for Mr Arron Banks, his underage
children and Mr John Banks’ underage children.
The Directors are not aware of any other individual holding of greater
than 3% as at 9 February 2015.
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:
John Banks was appointed on 5 August 2014.
Jim Mellon1
John Banks2
David Gibson3
Douglas Grant
Don McCrickard4
Alan Clarke
Juan Kelly
Number
31/12/14
17,635,332
2,336,833
1,400,000
505,821
66,666
52,149
27,860
Number
31/12/13
17,635,332
N/A
1,300,000
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 Jim Mellon. Denham Eke, CEO of MFG, is also a director
of Burnbrae Limited. Pershing Nominees Limited holds 968,666 Ordinary
Shares and Vidacos Nominees holds 666,666 Ordinary Shares in trust for Jim
Mellon.
2 Comprises 2,336,833 Ordinary Shares held by Rene Nominees (IOM) Ltd in
trust for Mr John Bank’s underage children and Mr Arron Banks and his
underage children.
3 Comprises 1,400,000 Ordinary Shares held by TD Direct Investing Nominees
(Europe) Limited in trust for David Gibson.
4 Comprises 66,666 Ordinary Shares held by Hargreaves Lansdown
(Nominees) Limited in trust for Don McCrickard.
The number of share options held by the current Directors is as follows:
Douglas Grant
Juan Kelly
Number
31/12/14
1,042,466
700,000
Number
31/12/13
342,466
-
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.
Staff
At 31 December 2014 there were 56 members of staff (2013: 54), of
whom 6 were part-time (2013: 6).
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.
Manx Financial Group PLC
Corporate Governance Report
07
Report on Corporate Governance
As an Isle of Man registered company there is no requirement to
produce a corporate governance report. However, the Board follows
best practice and therefore has prepared such a report.
This report illustrates how the Group would comply with the principles
set out in the UK Corporate Governance Code principles found in the
UK Corporate Governance Code 2012
to corporate
governance.
relating
Remuneration Committee
The Remuneration Committee usually meets at least twice a year and
comprises of two Non-executive Directors, with the Chairman of the
Board, Chief Executive Officer, Head of Human Resources and
external advisers attending by invitation when appropriate. It is chaired
by Alan Clarke, and is responsible for determining the remuneration of
the Chief Executive, the Chairman, the Executive Directors, the
Company Secretary and other members of the management. Committee
members do not take part in discussions concerning their own
remuneration.
Nomination Committee
The Nomination Committee, which meets at least once a year, is
comprised of the whole Board. It is chaired by Jim Mellon and is
responsible for making recommendations to the Board on matters
relating to the composition of the Board, including executive and non-
executive director succession planning, the appointment of new
directors and the election and re-election of directors.
The Role of the Board
Code Principle A.1: Every company should be headed by an effective
board, which is collectively responsible for the long-term success of the
company.
Group’s Approach
The Group’s Board is collectively responsible for the long-term
success of the organisation. Its principal function is to determine the
strategy and policies of MFG Group within an effective control
framework which enables risk to be assessed and managed. The Board
ensures that the necessary financial and human resources are in place
for the Group to meet its objectives and that business and management
performances are reviewed. Furthermore, the Board ensures that the
Group operates within its constitution, relevant legislation and
regulation and that proper accounting records and effective systems of
business control are established, maintained, documented and audited.
There are at least four formal Board meetings each year. All Board
members have the benefit, at the Group’s expense, of liability
insurance in respect of their responsibilities as Directors and have
access to independent legal or other professional advice if required.
The Board has a formal schedule of matters which are reserved for its
consideration and it has established three committees to consider
specific issues in greater detail, being the Group Audit, Risk and
Compliance, Remuneration and Nomination Committees. The Terms
of Reference for each of these committees is published on the Group’s
website.
Group Audit, Risk and Compliance Committee
The Group Audit, Risk and Compliance Committee meets at least three
times each year and comprises two Non-executive Directors, currently
Alan Clarke (Chairman) and David Gibson. The Executive Directors
and representatives from the internal and external auditors attend by
invitation. Its role is responsible for reviewing the integrity of the
financial statements and the balance of information disclosed in the
accompanying Directors’ Report, to review the effectiveness of internal
controls and risk management systems, to monitor and review the
effectiveness of the internal audit function and to consider and
recommend to the Board (for approval by the members) the
appointment or re-appointment of the external auditor. The Committee
reviews and monitors the external auditor’s objectivity, competence,
effectiveness and independence, ensuring that if they or their associates
are invited to undertake non-audit work it will not compromise auditor
objectivity and independence.
Division of Responsibilities
Code Principle A.2: There should be a clear division of responsibilities
at the head of the company between the running of the board and the
executive responsibility for the running of the company’s business. No
one individual should have unfettered powers of decision.
Group’s Approach
The offices of Chairman and Chief Executive are distinct and held by
different people. The role of each is set out in their respective job
descriptions. The Chairman is responsible for leading the Board,
ensuring its effectiveness in all aspects of its role, promoting a culture
of openness of debate and communicating with the Group’s members
on behalf of the Board. The Chief Executive is responsible for
managing the Group’s business and operations within the parameters
set by the Board.
The Chairman
Code Principle A.3: The Chairman is responsible for leadership of the
board and ensuring its effectiveness on all aspects of its role.
Group’s Approach
The Chairman sets the direction of the Board and promotes a culture of
openness and debate by facilitating the effective contribution of Non-
executive Directors and ensuring constructive relations between
Executive and Non-executive Directors. The Chairman also ensures
that Directors receive accurate, timely and clear information.
The Board of Directors is committed to best practice in corporate
governance. This report explains how the Group has regard to the
principles in the UK Corporate Governance Code issued by the
Financial Reporting Council in June 2010 and updated in September
2012 (the Code), which was the prevailing guidance for the year
covered by this report.
Non-executive Directors
Code Principle A.4: As part of their role as members of a unitary
board, non-executive directors should constructively challenge and
help develop proposals on strategy.
Manx Financial Group PLC
Corporate Governance Report
08
Group’s Approach
The Non-executive Directors are responsible for bringing independent
judgement to the discussions held by the Board, using their breadth of
experience
the business. Their key
responsibilities are to constructively challenge and contribute to
strategic proposals, and to monitor performance, resources, and
standards of conduct, compliance and control, whilst providing support
to executive management in developing the Group.
and understanding of
The Composition of the Board
Code Principle B.1: The board and its committees should have the
appropriate balance of skills, experience, independence and knowledge
of the company to enable them to discharge their respective duties and
responsibilities effectively.
Group’s Approach
At the year end, the Board comprised four Non-executive Directors and
four Executive Directors. All Non-executive Directors are considered
by the Board to be independent in character and judgement and to have
an appropriate balance of skills and experience. They are all also
considered to be free of any relationship or circumstances which could
materially interfere with the exercise of their judgement, impede the
provision of constructive challenge to management and provide
assistance with the development of strategy.
Development
Code Principle B.4: All directors should receive induction on joining
the board and should regularly update and refresh their skills and
knowledge.
Group’s Approach
All new Directors undergo formal induction with any training or
development needs being identified during this process. Directors
continue to attend external and internal seminars and presentations to
maintain and update their knowledge and skills.
Information and Support
Code Principle B.5: The board should be supplied in a timely manner
with information in a form and of a quality appropriate to enable it to
discharge its duties.
Group’s Approach
The Chairman ensures that the Board receives accurate, timely and
clear information in a form and of sufficient quality to enable it to fulfil
its responsibilities.
All Directors have access to the advice and services of the Secretary
who is responsible for ensuring compliance with all Board procedures
and advising the Board on governance matters.
Appointments to the Board
Code Principle B.2: There should be a formal, rigorous and
transparent procedure for the appointment of new directors to the
board.
Evaluation
Code Principle B.6: The board should undertake a formal and
rigorous annual evaluation of its own performance and that of its
committees and individual directors.
Group’s Approach
The principal purpose of the Nomination Committee is to undertake the
assessment of the balance of skills, experience, independence and
knowledge on the Board against the requirements of the business, with
a view to determining whether any shortages exist. Having completed
the assessment, the Committee makes recommendations to the Board
accordingly. Appointments to the Board are made on merit, with due
regard to the benefits of diversity, including gender. Within this
context, the paramount objective is the selection of the best candidate,
irrespective of background, and it is the view of the Board that
establishing quotas or targets for the diversity of the Board is not
appropriate.
All Director appointments must be approved by the Company’s
Nominated Adviser, as required under the AIM Rules, before they are
appointed to the Board.
Commitment
Code Principle B.3: All directors should be able to allocate sufficient
time to the company to discharge their responsibilities effectively.
to appointment Non-executive Directors are required
Group’s Approach
Prior
to
demonstrate that they are able to allocate sufficient time to undertake
their duties.
Group’s Approach
An internal process exists to evaluate, on an annual basis, the
performance and effectiveness of individual Directors and of the Board
and its committees. The Non-executive Directors are evaluated by the
Chairman, taking into account the views of other Directors. Executive
Directors are evaluated in accordance with the appraisal framework for
Group employees generally with the Chief Executive’s appraisal being
conducted by the Chairman, after taking into account the views of other
Directors and his immediate subordinates.
Re-election
Code Principle B.7: All directors should be submitted for re-election at
regular intervals, subject to continued satisfactory performance.
Group’s Approach
The Group’s Rules require that all Directors are submitted for election
at the AGM following their first appointment to the Board and one
third of the Directors are subject to retirement by rotation on an annual
basis and one third of the directors shall retire from office by rotation.
As stated above, the Nomination Committee is responsible for
recommending to the Board whether an individual should be submitted
for re-election.
Manx Financial Group PLC
09
Financial and Business Reporting
Code Principle C.1: The board should present a fair, balanced and
understandable assessment of the company’s position and prospects.
is fair, balanced and understandable and provides
Group’s Approach
The Board confirms that the annual report and accounts, taken as a
the
whole,
information necessary for members to assess the Group’s performance,
business model and strategy. The responsibilities of the Directors in
relation to the preparation of the Group’s accounts are set out on page
12. The Chairman’s Review on pages 2 and 3 provide a detailed review
of the Group’s business activities and future prospects.
Risk Management and Internal Control
Code Principle C.2: The board is responsible for determining the
nature and extent of the significant risks it is willing to take in
achieving its strategic objectives. The board should maintain sound
risk management and internal control systems.
Group’s Approach
The Board is responsible for determining a framework for risk
management and control, to include the Group’s risk appetite and
tolerance. Senior management are responsible for designing, operating
and monitoring risk management and internal control processes in line
with the risk appetite and tolerance while the Group Audit Risk &
Compliance Committee, on behalf of the Board, are responsible for
reviewing the adequacy and effective operation of these processes. The
role of the Group Audit, Risk and Compliance Committee is described
previously, and provides the Board with independent assurance that the
Group is operating specifically in accordance with the risk appetite
parameters determined and approved by the Board and to ensure that
the outcomes for the Group’s various activities are in line with those
parameters.
The system of internal control overall is designed to enable the Group
to achieve its corporate objectives within the Board’s pre-determined
risk appetite, not to eliminate risk. The internal audit function,
performed in-house, provides independent and objective assurance that
these processes are appropriate and effectively applied.
Audit Committee and Auditors
Code Principle C.3: The board should establish
formal and
transparent arrangements for considering how they should apply the
corporate reporting and risk management and internal control
principles and for maintaining an appropriate relationship with the
company’s auditors.
Group’s Approach
At the end of the year the Group Audit, Risk and Compliance
Committee comprised of two Non-executive Directors. The Chairman
of the Board is not a member of the Committee. The Board is satisfied
that the Committee is comprised of members with recent relevant
financial experience who are capable of discharging their duties and
responsibilities. The role of the Committee is to review the integrity of
the financial statements and the balance of information disclosed in the
accompanying Directors’ Report, to review the effectiveness of internal
controls and risk management systems, to monitor and review the
effectiveness of the internal audit function and to consider and
recommend to the Board (for approval by the members) the
appointment or re-appointment of the external auditor. The Committee
reviews and monitors the external auditor’s objectivity, competence,
effectiveness and independence, ensuring that if they or their associates
are invited to undertake non-audit work it will not compromise auditor
objectivity and independence. The activities of the Group’s internal
audit function, which is undertaken in-house, are overseen by the
Executives and have direct access to the Committee Chairman.
Remuneration
Code Principle D.1: Levels of remuneration should be sufficient to
attract, retain and motivate directors of the quality required to run the
company successfully, but a company should avoid paying more than is
necessary for this purpose. A significant proportion of executive
directors’ remuneration should be structured so as to link rewards to
corporate and individual performance.
Code Principle D.2: There should be a formal and transparent
procedure for developing policy on executive remuneration and for
fixing the remuneration packages of individual directors. No director
should be involved in deciding his or her own remuneration.
Group’s Approach
The Report on Directors’ Remuneration, prepared by the Chairman of
the Group’s Remuneration Committee, is to be found on pages 10 and
11 and explains how the Group complies with the Code Principles
relating to remuneration. Details of Directors’ Emoluments during
2014 can be found on page 11.
Dialogue with Shareholders
Code Principle E.1: There should be a dialogue with shareholders
based on the mutual understanding of objectives. The board as a whole
has responsibility for ensuring that a satisfactory dialogue with
shareholders takes place.
Group’s Approach
The Group is owned by both individual and institutional shareholders.
All shareholders are kept informed of developments and feedback is
encouraged both at the AGM and through communication on the
Group’s website.
Constructive Use of the AGM
Code Principle E.2: The board should use the AGM to communicate
with investors and to encourage their participation.
Group’s Approach
Each year the Group sends details of the AGM, including appointment
of proxy and voting forms, to members who are eligible to vote.
Approval
This report was approved by the Board of Directors on 26 February
2015 and signed on its behalf by:
Jim Mellon
Executive Chairman
26 February 2015
Manx Financial Group PLC
Directors’ Remuneration Report
10
Report on Directors’ Remuneration
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.
This report illustrates how the Group would comply with the principles
set out in the UK Corporate Governance Code principles found in the
UK Corporate Governance Code 2012
to Directors’
remuneration. The Group has adopted a Remuneration Policy. This
Policy is reviewed periodically by the Remuneration Committee.
relating
The Level and Components of Executive Director Remuneration
Code Principle D.1:
Levels of remuneration should be sufficient to attract, retain and
motivate Directors of the quality required to run the company
successfully, but a company should avoid paying more than is
necessary for this purpose. A significant proportion of Executive
Directors’ remuneration should be structured so as to link rewards to
corporate and individual performance.
Group’s Approach:
The Group’s remuneration policy reflects the Group’s business strategy
and objectives as well as sustained and long-term value creation for
shareholders. In addition, the policy aims to be fair and provide
equality of opportunity, ensuring that:
• The Group is able to attract, develop and retain high-performing
and motivated employees in the competitive local and wider UK
markets;
• employees are offered a competitive remuneration package to
encourage enhanced performance and are, in a fair and responsible
manner, rewarded for their individual contribution to the success of
the Group;
reflects our culture and values; and that
there is full transparency of the Group’s remuneration policy.
•
•
In line with the Board’s approach, which reflects that adopted within
other comparable organisations, the Group’s remuneration policy
provides for the reward of Executive Directors through salaries and
other benefits.
Executive Directors’ Emoluments
The remuneration for Executive Directors reflects their responsibilities.
It comprises basic salary, performance related variable pay when this is
considered appropriate, and various benefits detailed below.
Performance related payments are not pensionable.
As with staff generally, whose salaries are subject to annual reviews,
basic salaries payable to Executive Directors are reviewed each year
with reference to jobs carrying similar responsibilities in comparable
financial organisations, market conditions generally and
local
employment competition in view of the Group’s geographical position.
The Group operates a non-contractual discretionary annual
performance related pay scheme based on the trading performance of
the Group and the individual employee’s performance assessed for the
period under review in a manner which promotes sound risk
management and does not promote excess risk taking. The non-
contractual discretionary annual performance related pay scheme may
be paid in one year but that does not confer any entitlement in future
years.
Performance assessments are conducted annually to determine the
performance rating of each employees’ achievements against a mix
targets set and agreed at the beginning of each year between the
employee and their manager. No incentives are paid to employees or
executives where the performance rating reflects below an agreed
expected level for the role employed.
The non-contractual discretionary annual performance related pay
scheme may be disbursed as a cash bonus through payroll, share based
instruments (including share options) or a mixture of both. An element
of deferment to align the interests of the employee to the longer term
performance of the Group may also be included.
Financial Advisors are salaried and commission is calculated on a pre-
agreed percentage over target which is set at between 2 to 3 times
annual gross salary depending on the size of the Advisor’s client base
and their historical performance. Each Financial Advisor is set
objectives at the beginning of the year including a 100% pass or pass
with learning on their file checks. Where indemnified commission is
paid and the underlying client policy lapses and the commission is
clawed back then this is reviewed by an Executive Director in order to
monitor trends and is then clawed back from the relevant Financial
Advisor.
Where the Group operates a contractually guaranteed performance
bonus scheme, the contractual conditions must be considered by the
Remuneration Committee.
Executive Directors’ Contractual Terms
In keeping with current recommended practice, the standard terms for
Executive Director appointments include a contractual notice period of
6 months by the Executive Director.
Non-executive Directors’ Remuneration
Non-executive Directors do not receive any benefits other than their
fees and travelling expenses for which they are reimbursed. The level
of fees payable
is assessed using
to Non-executive Directors
benchmarks from a group of comparable financial organisations.
Manx Financial Group PLC
11
The Procedure for Determining Remuneration
Code Principle D.2: There should be a formal and transparent procedure for developing policy on Executive remuneration and for fixing the
remuneration packages of individual Directors. No Director should be involved in deciding his or her own remuneration.
Group’s Approach:
The Remuneration Committee, comprising two Non-executive Directors, is responsible for setting the remuneration of the Executive Directors and
is chaired by Alan Clarke. The Committee also sets the additional payments for the Chairman of the Board, with Committee members not taking
part in discussions concerning their own remuneration. The basic Non-executive Director fee is set by the Executive Directors. The Chairman of
the Committee usually reports at the Board meeting following a Committee meeting.
It is the view of the Committee that Directors’ remuneration for the year has been in accordance with the Group’s stated Remuneration Policy and
on behalf of the Committee, I recommend that you endorse this report. An analysis of Directors’ emoluments is as follows:
Directors’ emoluments
Executives
Denham Eke
Douglas Grant
Juan Kelly
Jim Mellon
Non-Executives
John Banks1
Alan Clarke
David Gibson
Don McCrickard
Remuneration/
Fees
£
Performance
Related Pay
£
25,000
140,619
146,192
25,000
10,417
37,500
37,500
37,500
-
30,000
30,000
-
-
-
-
-
Pension
£
-
14,135
14,693
-
-
-
-
-
2014
Total
£
25,000
184,754
190,885
25,000
10,417
37,500
37,500
37,500
2013
Total
£
25,000
164,407
171,784
25,000
-
37,500
37,500
37,500
Aggregate emoluments
459,728
60,000
28,828
548,556
595,155
1 John Banks was appointed on 5 August 2014.
Approval
This report was approved by the Board of Directors on 26 February 2015 and signed on its behalf by:
Alan Clarke
Chairman of the Remuneration Committee
26 February 2015
Manx Financial Group PLC
Statement of Directors’ Responsibilities
in respect of the Directors’ Report and the financial statements
12
The Directors are responsible for preparing the Directors’ Report and the
financial statements in accordance with applicable law and regulations. In
addition, the Directors, as required by AIM, 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.
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.
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
13
Report of the Independent Auditors, KPMG Audit LLC, to the members
of Manx Financial Group PLC
We have audited the financial statements of Manx Financial Group PLC for
the year ended 31 December 2014 which comprise the Consolidated Income
Statement, Consolidated Statement of Other Comprehensive Income, the
Consolidated and Parent Company Statements of Financial Position, the
Consolidated Statement of Cash Flows and the Consolidated and Parent
Company Statements of Changes in Equity and the related notes. The
financial reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards (IFRSs) as
adopted by the EU.
This report is made solely to the Company’s members, as a body. Our audit
work has been undertaken so that we might state to the Company’s members
those matters we are required to state to them in an Auditors’ report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and the Company’s
members, as a body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of Directors and Auditors
As explained more fully in the Directors’ Responsibilities Statements set out
on page 12, 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
An audit involves obtaining evidence about the amounts and disclosures in
the financial statements sufficient to give reasonable assurance that the
financial statements are free from material misstatement, whether caused by
fraud or error. This includes an assessment of: whether the accounting
policies are appropriate to the Group’s circumstances and have been
consistently applied and adequately disclosed; the reasonableness of
significant accounting estimates made by the Directors; and the overall
presentation of the financial statements.
Opinion on the financial statements
In our opinion the financial statements:
(cid:1)
(cid:1)
give a true and fair view of the state of the Group’s and Parent
Company’s affairs as at 31 December 2014 and of the Group’s profit
for the year then ended; and
have been properly prepared in accordance with IFRSs as adopted by
the EU.
Emphasis of Matter – Reclaim of Value Added Tax (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. 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 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 was delayed by HMRC pending
reference to a relevant European Court of Judgement in the case of Banco
Mais (C183/13). The judgement in this case was released on 10 July 2014 and
ruled against the taxpayer; however the impact of the judgement on the
VWFS case is unclear and the VWFS is still proceeding with the appeal to the
Court of Appeal. The re-appeal is now scheduled for April 2015.
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 2014 and no provision has been
made for the possible repayment of the £123,000 VAT reclaimed to date,
which might become repayable depending on the ultimate outcome of the
VWFS decision. Due to the inherent uncertainty associated with the outcome
of the VWFS Appeal and its impact on negotiations with C&E, the amount of
retrospective VAT recovered and the amount of provision in respect of VAT
reclaimed to date in relation to this matter may differ materially from the
amounts stated in the financial statements.
KPMG Audit LLC
Chartered Accountants
Heritage Court
41 Athol Street,
Douglas
Isle of Man IM99 1HN
26 February 2015
Manx Financial Group PLC
Consolidated Income Statement
14
For the year ended 31 December
Interest income
Interest expense
Net interest income
Fee and commission income
Loss on joint venture
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
Realised gains on available for sale financial assets
Unrealised loss on financial assets carried at fair value
Profit before tax (payable) / recovery
Tax (payable) / recovery
Profit for the year
Basic earnings per share (pence)
Diluted earnings per share (pence)
The notes on pages 19 to 46 form part of these financial statements.
The Directors believe that all results derive from continuing activities.
Notes
6
10
19
3(t)
7
8
9
18
16
15
10
11
12
12
2014
£000
2013
£000
13,634
(2,809)
10,825
1,276
(2)
(1,102)
(3,749)
7,248
97
7,345
(2,931)
(1,950)
(550)
11
(228)
32
(1)
1,728
(139)
1,589
1.56
0.98
10,750
(2,493)
8,257
1,399
-
(990)
(2,249)
6,417
163
6,580
(2,863)
(1,657)
(850)
100
(252)
18
(3)
1,073
14
1,087
1.12
0.78
Manx Financial Group PLC
Consolidated Statement of Other Comprehensive Income
15
Notes
2014
£000
2013
£000
16
24
12
12
6
10
(173)
1,422
1.39
0.89
(53)
1,044
1.08
0.76
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 per share (pence)
Diluted earnings per share (pence)
The notes on pages 19 to 46 form part of these financial statements.
Manx Financial Group PLC
Consolidated and Company Statement of Financial Position
16
As at 31 December
Notes
Group
2014
£000
2013
£000
Company
2014
£000
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
Amounts due from Group undertakings
Trade and other receivables
Investment in joint venture
Subordinated loan
Deferred tax asset
Goodwill
Total assets
Liabilities
Customer accounts
Creditors and accrued charges
Amounts owed to Group undertakings
Loan notes
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
19
20
19
19
11
19
21
22
19
23
24
25
6,123
47
18,775
89,338
326
605
-
-
1,166
499
-
284
2,344
119,507
100,259
1,715
-
7,165
388
109,527
18,933
(8,953)
9,980
119,507
4,183
48
9,000
75,819
289
629
-
-
1,014
-
-
394
2,344
93,720
78,115
754
-
6,065
252
85,186
-
-
-
-
-
-
12,072
350
62
-
3,900
-
-
16,384
-
20
2,421
7,165
-
9,606
18,933
(10,399)
8,534
93,720
18,933
(12,155)
6,778
16,384
-
-
-
-
-
-
12,072
76
130
-
2,000
-
-
14,278
-
9
1,848
6,065
-
7,922
18,933
(12,577)
6,356
14,278
The financial statements were approved by the Board of Directors on 26 February 2015 and signed on its behalf by:
Jim Mellon
Executive Chairman
Denham Eke
Chief Executive Officer
Douglas Grant
Group Finance Director
The notes on pages 19 to 46 form part of these financial statements.
Manx Financial Group PLC
Consolidated Statement of Cash Flows
For the year ended 31 December
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
Profit before tax on continuing activities
Unrealised loss on financial assets carried at fair value
(Gain) / loss on disposal of property, plant and equipment
Loss on joint venture
Depreciation charge
Realised gains on available for sale investments
Actuarial loss on defined benefit pension scheme taken to equity
Pension liability
Share-based payment expense / (credit)
(Increase) / decrease in trade and other receivables
Increase / (decrease) in trade and other payables
(Increase) / decrease in commission debtors
Notes
18
24
24
25
Net cash inflow from trading activities
Increase in loans and advances to customers
Increase in deposit accounts
17
2013
£000
1,073
3
17
-
252
(18)
(53)
52
(50)
238
(1,408)
23
129
(17,324)
14,384
2014
£000
1,728
1
(5)
2
228
(32)
(173)
136
24
(152)
934
(37)
2,654
(13,519)
22,144
Cash inflow / (outflow) from operating activities
11,279
(2,811)
CASH FLOW STATEMENT
Cash flows from operating activities
Cash inflow / (outflow) from operating activities
Taxation paid
11,279
-
(2,811)
-
Net cash inflow / (outflow) from operating activities
11,279
(2,811)
Cash (outflow) / inflow from investing activities
Purchase of property, plant and equipment
(Purchase) / sale of available for sale financial instruments
Sale of property, plant and equipment
Investment in joint venture
Payment of deferred consideration
18
16
19
(208)
(9,737)
7
(501)
-
(156)
3,512
-
-
(335)
Net cash (outflow) / inflow from investing activities
(10,439)
3,021
Cash flows from financing activities
Issue of loan notes
Net cash inflow from financing activities
Increase 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 19 to 46 form part of these financial statements.
23
1,100
2,055
1,100
1,940
2,055
2,265
13,360
(2,802)
9,072
(2,101)
-
500
Manx Financial Group PLC
Consolidated and Company Statement of Changes in Equity
18
For the year ended 31 December
Group
Balance as at 1 January
Profit for the year
Other comprehensive income
Transactions with owners:
Shares issued
Shares to be issued
Share-based payment credit / (expense) (see note 25)
Share
Capital
£000
18,933
-
-
-
-
-
Retained
Earnings
£000
(10,399)
1,589
(167)
-
-
24
2014
£000
8,534
1,589
(167)
-
-
24
Balance as at 31 December
18,933
(8,953)
9,980
For the year ended 31 December
Company
Balance as at 1 January
Profit for the year
Transactions with owners:
Shares issued
Shares to be issued
Share-based payment credit / (expense) (see note 25)
Share
Capital
£000
18,933
-
-
-
-
Retained
Earnings
£000
(12,577)
398
-
-
24
2014
£000
6,356
398
-
-
24
Balance as at 31 December
18,933
(12,155)
6,778
The notes on pages 19 to 46 form part of these financial statements.
2013
£000
7,215
1,087
(43)
500
(175)
(50)
8,534
2013
£000
5,649
432
500
(175)
(50)
6,356
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
19
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 2014 comprise the Company and its subsidiaries (the “Group”).
A summary of the principal accounting policies, which have been applied consistently, are set out below.
Basis of preparation
2.
(a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by
the European Union (EU) and International Financial Reporting Interpretations Committee (IFRIC) interpretations applicable to companies
reporting under IFRS, including International Accounting Standards (“IAS”).
The Group has continued to apply the accounting policies used for the 2013 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 2014.
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)
Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39)
IFRIC 21 Levies
No significant changes followed the implementation of these standards and amendments.
(b) Basis of measurement
The financial statements are prepared on a historical cost basis except:
(cid:1)
(cid:1)
financial instruments at fair value through profit or loss and available for sale financial instruments are measured at fair value; and
equity settled share-based payment arrangements are measured at fair value.
(c) Functional and presentation currency
These financial statements are presented in pounds sterling, which is the Group’s functional currency. Except as indicated, financial information
presented in pounds sterling has been rounded to the nearest thousand. All subsidiaries of the Group have pounds sterling as their functional
currency.
(d) Use of estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which
the estimate is revised and in any future periods affected.
In particular, information about significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the
most significant effect on the amounts recognised in the financial statements are described in note 3(p).
3.
Significant accounting policies
(a) Basis of consolidation of subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group has 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.
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
20
3.
Significant accounting policies
(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.
(c) Property, plant and equipment
Items of property, plant and equipment are stated at historical cost less accumulated depreciation (see below). Historical cost includes expenditure
that is directly attributable to the acquisition of the items.
The assets’ residual values and useful economic lives are reviewed, and adjusted if appropriate, at each reporting date. An asset’s carrying amount
is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
When parts of an item of property, plant and equipment have different useful lives, those components are accounted for as separate items of
property, plant and equipment.
Depreciation
Assets are depreciated on a straight-line basis except furniture, which is written down on the reducing balance basis, so as to write off the book
value over their estimated useful lives.
Leasehold improvements
Equipment
Vehicles
Furniture
7 years
4-5 years
4 years
10% per annum
(d) Financial assets
Management have determined the classification of the Group’s financial assets into one of the following categories:
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise
when the Group provides money directly to a customer with no intention of trading the receivable. This classification includes advances made to
customers under HP and finance lease agreements, litigation, finance loans, personal loans, block discounting, secured commercial loans and
stocking plans.
Loans are recognised when cash is advanced to the borrowers. Loans and receivables are carried at amortised cost using the effective interest rate
method with all movements being recognised in the 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
Significant accounting policies (continued)
3.
(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.
Impairment of financial assets
(e)
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, loan notes 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
Significant accounting policies (continued)
3.
(h) Employee benefits (continued)
Pension obligations (continued)
Defined benefit pension plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more
factors such as age, years of service and remuneration.
Under the defined benefit pension plan, in accordance with IAS 19 Employee benefits, the full service cost for the period, adjusted for any changes
to the plan, is charged to the 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 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)
Finance leases and Hire Purchase (“HP”) contracts
A Group company is the lessor
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
Significant accounting policies (continued)
3.
(i) Leases (continued)
ii) A Group company is the lessee
Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments
made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the
period of the lease.
(j) Current and deferred taxation
Current taxation relates to the estimated corporation tax payable in the current financial year. 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 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.
Interest income and expense
(k)
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 a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing
products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from
those of other segments. The Group’s primary format for segmental reporting is based on business segments.
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
24
Significant accounting policies (continued)
3.
(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)
Defined Benefit Plans: Employee Contributions (Amendments to IAS 19)
Annual Improvements to IFRSs 2010 – 2012 Cycle
Annual Improvements to IFRSs 2011 – 2013 Cycle
IFRS 14 Regulatory Deferral Accounts
Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)
Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38)
Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)
Equity Method in Separate Financial Statements (Amendments to IAS 27)
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and
IAS 28)
Annual Improvements to IFRSs 2012 – 2014 Cycle – various standards
IFRS 15 Revenue from Contracts with Customers
IFRS 9 Financial Instruments
Effective date
(accounting periods
commencing on or after)
1 July 2014
1 July 2014
1 July 2014
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2016
1 January 2017
1 January 2018
The Directors do not expect the adoption of the standards and interpretations to have a material impact on the Group’s financial statements in the
period of initial application with the exception of IFRS 9 Financial Instruments.
IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes
revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating
impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and de-
recognition of financial instruments from IAS 39. IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early
adoption permitted.
The Group is assessing the potential impact on its consolidated financial statements resulting from the application of IFRS 9.
Given the nature of the Group’s operations, this standard is expected to have a pervasive impact on the Group’s financial statements. In particular,
calculation of impairment of financial instruments on an expected credit loss basis is expected to result in an increase in the overall level of
impairment allowances.
(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
and goodwill. 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. An impairment review is performed annually for goodwill at different discount rates to allow for any uncertainty.
(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.
Manx Financial Group PLC
25
Significant accounting policies (continued)
3.
(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.
(u) Joint ventures
Investments in joint ventures are initially recognised at cost. Joint ventures are those entities over whose activities the Group has joint control,
established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Joint ventures are accounted
for using the equity method. The consolidated financial statements include the Group’s share of the income and expenses of the equity accounted
investees, after adjustments to align the accounting policies with those of the Group, from the date that joint control commences until it ceases.
When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest is reduced to nil and the
recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.
Unrealised gains on transactions between the Company and its equity accounted investees are eliminated to the extent of the Company’s interest in
the equity accounted investees. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset
transferred.
Investments in joint ventures and associates are kept under review for impairment. Where, in the opinion of the Directors, the net realisable value
of an investment falls below the carrying value, a provision is made against the investment and charged to the income statement.
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:
credit risk;
(cid:1)
(cid:1)
liquidity risk;
(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”).
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
26
4. Risk and capital management (continued)
(a) Risk management (continued)
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.
Credit risk
i)
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 Hire
Purchase 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.
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;
(cid:1) limiting concentrations of exposure to counterparties, geographies and industries defining sector limits, lending caps and exposure to minimise
interest rate risk;
(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
2014
£000
89,338
-
-
3,043
3,043
(1,754)
1,289
(51)
712
1,001
305
371
2,389
2013
£000
75,819
-
-
4,305
4,305
(3,578)
727
(179)
24
123
48
1,404
1,599
Neither past due nor impaired
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.
73,672
85,711
Manx Financial Group PLC
27
4. Risk and capital management (continued)
(a) Risk management (continued)
i)
Credit risk (continued)
Management of credit risk (continued)
Impaired loans
Impaired loans are loans where the Group determines that it is probable that it will be unable to collect all principal and interest due according to
the contractual terms of the loan agreements.
Past due but not impaired loans
Past due but not impaired loans are loans where the contractual interest or principal payments are past due but the Group believes that impairment
is not appropriate on the basis of the level of security, collateral available and/or the stage of collection of amounts owed to the Group.
Allowances for impairment
The Group establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components
of this allowance are a specific loss allowance that relates to individually significant exposures, and a collective loan loss allowance, which is
established for the Group’s assets in respect of losses that have been incurred but have not been identified on loans subject to individual assessment
for impairment. The collective loan loss allowance is based on historical experience, the current economic environment and an assessment of its
impact on loan collectability. Guidelines regarding specific impairment allowances are laid out in the Bank’s Debt Recovery Process Manual
which is reviewed annually.
Write-off policy
The Group writes off a loan balance (and any related allowances for impairment losses) when management determines that the loans are
uncollectable. This determination is reached after considering information such as the occurrence of significant changes in the borrower’s financial
position such that the borrower can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire
exposure.
Collateral
The Group holds collateral in the form of the underlying assets (typically private and commercial vehicles, plant and machinery) as security for
HP, 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 Isle of Man or United Kingdom addresses.
Segmental
The Group is exposed to credit risk with regard to customer loan accounts, comprising Hire Purchase 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)
i)
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 2014
Customer accounts
Other liabilities
Sight-
8 days
£000
1,865
1,725
>8 days
- 1 month
£000
>1 month
- 3 months
£000
>3 months
- 6 months
£000
>6 months
- 1 year
£000
2,429
29
2,646
1,028
4,282
346
35,498
489
>1 year
- 3 years
£000
36,904
4,173
>3 years
- 5 years
£000
21,791
1,990
Total liabilities
3,590
2,458
3,674
4,628
35,987
41,077
23,781
31 December 2013
Customer accounts
Other liabilities
Sight-
8 days
£000
617
754
Total liabilities
1,371
1,817
-
1,817
>8 days
- 1 month
£000
>1 month
- 3 months
£000
>3 months
- 6 months
£000
>6 months
- 1 year
£000
1,270
-
5,359
51
28,766
1,600
>1 year
- 3 years
£000
30,517
5,790
>3 years
- 5 years
£000
13,690
-
1,270
5,410
30,366
36,307
13,690
>5 years
£000
-
388
388
>5 years
£000
-
252
252
Total
£000
105,415
10,168
115,583
Total
£000
82,036
8,447
90,483
Manx Financial Group PLC
29
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 2014
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
31 December 2013
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
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
6,123
-
166
29
47
6,365
1,861
1,715
3,576
-
2,000
2,681
80
-
4,761
2,427
-
2,427
-
10,789
6,519
217
-
-
5,986
9,061
-
-
17,525
15,047
2,639
960
3,599
4,250
250
4,500
-
-
17,107
-
-
17,107
34,936
300
35,236
-
-
40,478
-
-
40,478
34,851
3,750
38,601
-
-
13,138
-
-
13,138
19,295
1,905
21,200
-
-
188
-
4,898
5,086
-
388
388
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
4,183
7,000
1,043
16
48
12,290
609
754
1,363
-
2,000
3,222
151
-
5,373
1,815
-
1,815
-
-
4,679
61
-
4,740
1,266
-
1,266
-
-
6,505
61
-
6,566
5,291
50
5,341
-
-
11,837
-
-
11,837
28,250
1,460
29,710
-
-
38,916
-
-
38,916
-
-
9,521
-
-
9,521
28,792
4,555
12,092
-
33,347
12,092
-
-
96
-
4,381
4,477
-
252
252
6,123
18,775
89,338
326
4,945
119,507
100,259
9,268
109,527
Total
£000
4,183
9,000
75,819
289
4,429
93,720
78,115
7,071
85,186
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
30
4. Risk and capital management (continued)
(a) Risk management (continued)
ii) 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.
iii) 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 2014 and 2013, 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 £47,000 at 31 December 2014 (2013: £48,000) 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 2014
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
>1
month
- 3
months
£000
Sight-
1 month
£000
>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
6,123
2,000
2,847
-
-
10,970
1,861
-
-
1,861
9,109
9,109
10,789
6,519
-
-
17,308
2,427
-
-
2,427
14,881
23,990
5,986
9,061
-
-
15,047
2,639
960
-
3,599
11,448
35,438
-
17,107
-
-
17,107
4,250
250
-
4,500
12,607
48,045
-
40,478
-
-
40,478
34,936
300
-
35,236
5,242
53,287
-
13,138
-
-
13,138
34,851
3,750
-
-
188
-
-
188
19,295
1,905
-
-
-
326
4,945
5,271
-
2,103
9,980
38,601
(25,463)
21,200
(21,012)
12,083
(6,812)
27,824
6,812
-
Total
£000
6,123
18,775
89,338
326
4,945
119,507
100,259
9,268
9,980
119,507
-
-
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 2013
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
4,183
9,000
4,265
-
-
17,448
2,424
754
-
3,178
14,270
14,270
-
-
-
-
-
4,679
-
-
4,679
1,266
-
-
1,266
3,413
-
6,505
-
-
6,505
5,291
-
-
5,291
1,214
-
11,837
-
-
11,837
28,250
50
-
28,300
(16,463)
17,683
18,897
2,434
-
38,916
-
-
38,916
28,792
1,460
-
30,252
8,664
11,098
-
-
9,521
-
-
9,521
12,092
4,555
-
16,647
(7,126)
-
-
96
-
-
96
-
-
-
-
96
3,972
4,068
Non-
Interest
Bearing
£000
Total
£000
-
4,183
-
-
289
4,429
4,718
-
252
8,534
8,786
(4,068)
-
9,000
75,819
289
4,429
93,720
78,115
7,071
8,534
93,720
-
-
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 (2013: 2%). The following tables set out the estimated total impact of such a change based on the mismatch at the
balance sheet date.
31 December 2014
Interest rate sensitivity gap
Weighting
£000
31 December 2013
Interest rate sensitivity gap
Weighting
£000
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
Non-
Interest
Bearing
£000
9,109
0.000
-
14,881
0.003
45
11,448
0.007
80
12,607
0.014
5,242
0.027
(25,463)
(21,012)
0.054
0.115
(6,812)
0.000
177
142
(1,375)
(2,416)
-
(3,347)
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
14,270
0.000
-
3,413
0.003
10
1,214
0.007
(16,463)
0.014
8
(230)
8,664
0.027
234
(7,126)
0.054
(385)
96
0.115
11
Non-
Interest
Bearing
£000
(4,068)
0.000
Total
£000
-
-
-
(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 2014
Investment securities
Government bonds
Equities
Level 1
£000
Level 2
£000
Level 3
£000
18,775
47
18,822
-
-
-
-
-
-
Total
£000
18,775
47
18,822
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 2014
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
-
-
-
-
-
-
-
-
-
6,123
89,338
326
1,167
96,954
100,259
1,715
7,165
109,139
-
-
-
-
-
-
-
-
-
Total fair
values
£000
6,123
89,338
326
1,167
96,954
100,259
1,715
7,165
109,139
Total
carrying
amount
£000
6,123
89,338
326
1,167
96,954
100,259
1,715
7,165
109,139
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 2014
Asset and
Personal
Finance
£000
Litigation
Finance
£000
Conister
Card
Services
£000
Wealth
Management
£000
Investing
Activities
£000
Net interest income
Operating income
Profit/(loss) before tax
(expense) / recovery
Capital expenditure
Total assets
10,825
8,492
1,733
183
118,515
-
-
45
-
-
-
(108)
(150)
-
106
-
1,255
146
25
824
Total
£000
10,825
7,345
-
-
(46)
1,728
-
62
208
119,507
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
34
5.
Segmental analysis (continued)
For the year ended 31 December 2013
Net interest income
Operating income
Profit/(loss) before tax recovery
Capital expenditure
Total assets
6.
Interest income
Asset and
Personal
Finance
£000
Litigation
Finance
£000
Conister
Card
Services
£000
Wealth
Management
£000
Investing
Activities
£000
8,614
5,548
1,165
156
92,044
-
-
(214)
-
677
-
14
14
-
220
-
1,375
276
-
649
Total
£000
8,257
6,580
1,073
(357)
(357)
(168)
-
156
130
93,720
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 (credit) / charge in respect of collective allowances for impairment comprises:
Collective impairment allowances made
Release of allowances previously made
Total (credit) / charge for collective allowances for impairment
Total charge for allowances for impairment
2014
£000
496
131
348
355
71
72
71
111
206
89
2013
£000
281
122
298
502
48
94
77
97
(41)
179
1,950
1,657
2014
£000
890
(212)
678
2014
£000
23
(151)
(128)
550
2013
£000
1,249
(416)
833
2013
£000
17
-
17
850
Manx Financial Group PLC
35
2014
£000
11
2013
£000
100
9. Depositors’ Compensation Scheme
Provision in respect of the Isle of Man Government Depositors’ Compensation Scheme
On 27 May 2009, Kaupthing Singer & Friedlander (Isle of Man) Limited activated the Isle of Man Government Depositors’ Compensation Scheme
(the Scheme) in connection with its liquidation. Three payments of £73,880 were made in to the Scheme. Repayments from the Financial
Supervision Commission of £133,506 and £34,424 have been received and a further £53,710 is expected from the Scheme.
10. Profit before tax (payable) / recovery
The profit before tax (payable) / recovery for the year is stated after charging:
Interest expense payable to depositors
Interest expense payable on loan notes
(Profit) / loss on sale of fixed assets
Share options expense / (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
11. Tax expense
Current tax expense
Current year
Deferred tax expense
Origination and reversal of temporary differences
Utilisation of previously recognised tax losses
Changes to estimates for prior years
Total tax expense / (recovery)
2014
£000
2,360
449
(5)
24
286
179
29
60
85
26
12
213
2014
£000
29
12
123
(25)
110
139
Reconciliation of effective tax rate
Profit before tax on continuing operations
Tax using the Banking division’s domestic tax rate
Effect of tax rates in foreign jurisdictions
Non-deductible expenses
Tax exempt income
Timing differences in current year
Origination and reversal of temporary differences in deferred tax
Changes to estimates for prior years
2014
£000
1,728
173
12
40
(58)
(15)
12
(25)
10.0%
-
40.1%
(79.4)%
(14.0)%
(36.4)%
(23.4)%
10.0%
0.9%
2.3%
(3.3)%
(0.9)%
0.6%
(1.5)%
Total tax expense
8.1%
139
(13.1)%
2013
£000
2,136
357
17
(50)
325
163
32
30
72
18
9
331
2013
£000
-
(39)
50
(25)
(14)
(14)
2013
£000
1,073
107
-
43
(85)
(15)
(39)
(25)
(14)
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
36
11. Tax expense (continued)
The main rate of corporation tax in the Isle of Man is 0% (2013: 0%). However the profits of the Group’s Manx banking activities are taxed at
10% (2013: 10%). The profits of the Group’s subsidiaries that are subject to UK corporation tax are taxed at a rate of 21.5% (2013: 20%).
The value of tax losses carried forward and timing differences reduced to £284,000 (2013: £394,000) and resulted in an expense of £110,000
(2013: £14,000 credit) to the income statement.
12. Earnings per share
Profit for the year
Weighted average number of ordinary shares in issue
Basic earnings per share
Diluted earnings per share
Total comprehensive income for the period
Weighted average number of ordinary shares in issue
Basic earnings per share
Diluted earnings per share
2014
2013
£1,589,000
£1,087,000
102,070,252
1.56p
0.98p
96,899,019
1.12p
0.78p
£1,422,000
£1,044,000
102,070,252
1.39p
0.89p
96,899,019
1.08p
0.76p
The basic earnings per share calculation is based upon the profit for the year after taxation and the weighted average of the number of shares in
issue throughout the year.
The diluted earnings 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 £398,000 (2013: £432,000).
14. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
Group
Company
2014
£000
6,123
-
6,123
2013
£000
4,137
46
4,183
2014
£000
-
-
-
Cash at bank includes an amount of £25,000 (2013: £241,699) representing receipts which are in the course of transmission.
The remaining maturity of short-term deposits is as follows:
Less than 8 days
Group
Company
2014
£000
-
-
2013
£000
46
46
2014
£000
-
-
2013
£000
-
-
-
2013
£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.
Manx Financial Group PLC
37
16. Available for sale financial instruments
UK Government Treasury Bills
Group
Company
2014
£000
18,775
18,775
2013
£000
9,000
9,000
2014
£000
-
-
2013
£000
-
-
UK Government Treasury Bills are stated at fair value and unrealised changes in the fair value are reflected in equity.
17. Loans and advances to customers
Group
Hire Purchase balances
Finance lease balances
Litigation funding
Unsecured personal loans
Vehicle stocking plans
Block discounting
Secured commercial loans
Secured personal loans
Gross
Amount
£000
52,059
11,422
-
3,514
1,284
6,766
7,347
8,751
91,143
2014
Impairment
Allowance
£000
(881)
(714)
-
(148)
-
-
(62)
-
(1,805)
Carrying
Value
£000
51,178
10,708
-
3,366
1,284
6,766
7,285
8,751
89,338
Gross
Amount
£000
46,222
8,882
2,164
3,815
1,476
5,192
6,991
4,834
79,576
2013
Impairment
Allowance
£000
(813)
(707)
(1,487)
(306)
-
-
(435)
(9)
(3,757)
Carrying
Value
£000
45,409
8,175
677
3,509
1,476
5,192
6,556
4,825
75,819
Collateral is held, in the form of underlying assets, for Hire Purchase, finance leases, vehicles stocking plans, block discounting, secured
commercial and personal loans. An estimate of the fair value of collateral on past due or impaired loans and advances is not disclosed as it would
be impractical to do so.
Specific allowance for impairment
Balance at 1 January
Specific allowance for impairment made
Release of allowances previously 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
2014
£000
3,578
890
(212)
(2,502)
1,754
2014
£000
179
23
(151)
51
1,805
2013
£000
4,150
460
-
(1,032)
3,578
2013
£000
162
17
-
179
3,757
Advances on preferential terms are available to all Directors, management and staff. As at 31 December 2014 £125,983 (2013: £93,187) 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.
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
38
17. Loans and advances to customers (continued)
As detailed below, at the end of the current financial year two loan exposures exceeded 10% of the capital base of the Group (2013: two loan
exposures).
Exposure
Block discounting facility
Outstanding
Balance
2014
£000
3,501
Outstanding
Balance
2013
£000
2,229
Facility
limit
£000
5,500
Hire Purchase and finance lease receivables
Loans and advances to customers include the following Hire Purchase and finance lease receivables:
Less than one year
Between one and five years
Gross investment in Hire Purchase and finance lease receivables
The investment in Hire Purchase and finance lease receivables net of unearned income comprises:
Less than one year
Between one and five years
Net investment in Hire Purchase and finance lease receivables
18. Property, plant and equipment
2014
£000
30,615
50,456
81,071
2014
£000
22,514
40,967
63,481
Group
Cost
As at 1 January 2014
Additions
Disposals
As at 31 December 2014
Accumulated depreciation
As at 1 January 2014
Charge for year
Disposals
As at 31 December 2014
Carrying value at 31 December 2014
Carrying value at 31 December 2013
Leasehold
Improvements
£000
IT
Equipment
£000
Furniture &
Equipment
£000
Motor
Vehicles
£000
182
-
-
182
38
18
-
56
126
144
1,081
182
-
1,263
714
179
-
893
370
367
600
-
-
600
488
22
-
510
90
112
84
26
(30)
80
78
9
(26)
61
19
6
2013
£000
25,495
42,754
68,249
2013
£000
19,540
35,564
55,104
Total
£000
1,947
208
(30)
2,125
1,318
228
(28)
1,520
605
629
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
2014
% 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
2013
£000
10,067
-
-
2,005
12,072
Total
2014
£000
10,067
-
-
2,005
12,072
Amounts owed to and from group undertakings are unsecured, interest-free and repayable on demand.
Subordinated loans
MFG has issued several subordinated loans as part of its equity funding into the Bank. Interest charged is at the discretion of the lender.
Creation
Maturity
Interest rate
Company
2014
£000
Company
2013
£000
22 July 2013
25 October 2013
11 February 2014
27 May 2014
9 July 2014
17 September 2014
Total subordinated loans
Goodwill
22 July 2018
22 October 2020
11 February 2024
27 May 2024
9 July 2024
17 September 2026
7.00%
7.00%
7.00%
7.00%
7.00%
7.00%
Edgewater Associates Limited (“EWA”)
ECF Asset Finance PLC (“ECF”)
Three Spires Insurance Services Limited (“Three Spires”)
Goodwill impairment
1,000
1,000
500
500
500
400
3,900
Group
2014
£000
1,849
454
41
2,344
1,000
1,000
-
-
-
-
2,000
Group
2013
£000
1,849
454
41
2,344
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.
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
40
19.
Investment in Group undertakings (continued)
Goodwill impairment (continued)
There has been no change in the detailed method of measurement for EWA and ECF when compared to 2013. 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.
Investment in joint venture
On 7 August 2014, a joint venture agreement was entered into between Manx Financial Limited, previously a subsidiary of the Group, and Andrew
Flowers. Additional shares were issued such that 49.9% of the voting share capital was sold for £500,000, creating £1,000 share premium in the
company. Control was lost on this day and consequently the assets and liabilities of the subsidiary were derecognised. There was no profit or loss
incurred upon ceding control. Manx Financial Group PLC has invested £501,000 for 50.1% of the voting share capital and has provided a
corporate guarantee to block funders in Manx Financial Limited.
20. Trade and other receivables
Prepayments and other debtors
Depositors Compensation Scheme Receivable
VAT recoverable
Group
Company
2014
£000
646
54
466
2013
£000
471
77
466
1,166
1,014
2014
£000
62
-
-
62
2013
£000
130
-
130
Included in trade and other receivables is an amount of £466,000 (2013: £466,000) relating to a reclaim of value added tax (“VAT”).
Conister Bank Limited, 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 (“VWFS”) 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 was delayed by HMRC
pending reference to a relevant European Court of judgement in the case of Banco Mais (C183/13). The judgement in this case was released on 10
July 2014 and ruled against the taxpayer; however the impact of the judgement on the VWFS case is unclear and the VWFS is still proceeding with
the appeal to the Court of Appeal. The re-appeal is now scheduled for April 2015.
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.
Manx Financial Group PLC
2014
£000
98,420
1,839
100,259
Group
Company
2014
£000
1,389
326
1,715
2013
£000
577
177
754
2014
£000
-
20
20
Group
Company
Notes
JM
BL
SR
CDC
UP
2014
£000
1,750
1,200
460
500
3,910
3,255
7,165
2013
£000
1,750
1,200
460
500
3,910
2,155
6,065
2014
£000
1,750
1,200
460
500
3,910
3,255
7,165
41
2013
£000
75,989
2,126
78,115
2013
£000
-
9
9
2013
£000
1,750
1,200
460
500
3,910
2,155
6,065
21. Customer accounts
Retail customers: term deposits
Corporate customers: term deposits
22. Creditors and accrued charges
Commission creditors
Other creditors and accruals
23.
Loan notes
Related parties
J Mellon
Burnbrae Limited
Southern Rock Insurance Company Limited
Copper Development Corporation
Unrelated parties
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. JM is also entitled to
8.3 million warrants at an exercise price of 6 pence which lapse on 31 July 2017. See note 30 for an extension of this loan note subsequent to the
year end.
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. BL is also entitled to 20 million warrants at an exercise price
of 6 pence which lapse on 31 July 2017.
SR – One loan consisting of £460,000 maturing on 26 February 2015 with interest payable of 9% per annum. The loan is convertible at a rate of 9
pence. SR is also entitled to 8.3 million warrants at an exercise price of 6 pence which lapse on 24 October 2017. Arron Banks, a significant
Shareholder, a non-executive Director, holds a major stake in SR. John Banks a non-executive Director is also a director of SR. See note 30 for an
extension of this loan subsequent to the year end.
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.
UP – Fifteen loans consisting of an average £217,000, with an average interest payable of 5.33% per annum. The earliest maturity date is 28 April
2015 and the latest maturity is 14 July 2019.
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.
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
42
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; and
(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.
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 2014 (2013: 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.
Manx Financial Group PLC
43
24. Pension liability (continued)
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 2014.
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
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
2014
£000
1,345
(1,733)
(388)
2014
£000
1,497
(62)
70
228
1,733
2014
£000
1,245
58
49
55
(62)
1,345
2014
£000
70
(58)
12
113
2014
£000
55
(228)
(173)
2013
£000
1,245
(1,497)
(252)
2013
£000
1,427
(66)
68
68
1,497
2013
£000
1,227
59
10
15
(66)
1,245
2013
£000
68
(59)
9
74
2013
£000
15
(68)
(53)
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
44
24. Pension liability (continued)
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
Rate of increase in deferred pensions
Discount rate applied to scheme liabilities
Inflation
2014
%
-
2.70
2.00
5.00
3.80
2.80
2013
%
-
3.10
2.10
5.00
4.80
3.20
2012
%
-
2.30
1.80
5.00
4.90
2.25
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.
25. Called up share capital
Authorised: Ordinary shares of no par value
At 31 December 2013 & 2014
Issued and fully paid: Ordinary shares of no par value
At 31 December 2013 & 2014
Number
150,000,000
Number
102,070,252
£000
18,933
There are a number of convertible loans at 31 December 2014 of £3.41 million (2013: £3.41 million) involving warrants of 28.3 million (31
December 2013: 28.3 million) (see note 23 for further details). The total number of warrants in issue at 31 December 2014 is 36.6 million (2013:
36.6 million) (see note 23 for further details).
On 23 June 2014, 1.75 million share options were issued to Executive Directors and senior management within the Group at an exercise price of 14
pence. The options vest over three years with a charge based on the fair value of 8 pence per option at the date of grant.
Share options
Share option reserve
As at 31 December 2013
Grant of options
Lapses
As at 31 December 2014
No of Shares
000
1,056
1,750
-
2,806
Value
£000
118
24
-
142
Performance and service conditions attached to share options that have not fully vested are as follows:
(a) The options granted on 25 June 2010 (1,056,000 options) will vest if the mid-market share price of £0.30 is achieved during the period of
grant (10 years ending 25 June 2020).
(b) The options granted on 25 June 2010 and 23 June 2014 require a minimum of three years continuous employment service in order to exercise
upon the vesting date.
Manx Financial Group PLC
45
25. Called up share capital (continued)
The fair value of services received in return for share options granted is based on the fair value of share options granted, measured using a binomial
probability model with the following inputs for each award:
Fair value at date of grant
Share price
Exercise price
Expected volatility
Option life
Risk-free interest rate (based on government bonds)
Forfeiture rate
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
25 June
2010
£0.03
£0.11
£0.11
47%
3
2.24%
0%
2014
£000
24,998
1,100
26,098
23 June
2014
£0.08
£0.14
£0.14
55%
3
0.50%
0%
2013
£000
22,943
2,055
24,998
The 2014 closing balance is represented by £18.933 million share capital (2013: £18.933 million) and £7.165 million of loan notes (2013: £6.065
million).
27. Regulator
The Group is regulated by the Isle of Man Government Financial Supervision Commission licensed to undertake banking activities and conduct
investment business. In addition the Group is regulated by the Financial Conduct Authority in the United Kingdom for credit and brokerage
related activities.
28. Related party transactions
Cash deposits
During the year the Bank held cash on deposit on behalf of Jim Mellon (Executive Chairman of MFG) and companies related to Jim Mellon and
Denham Eke (Chief Executive Officer of MFG). Total deposits amounted to £0.067 million (2013: £0.069 million), with normal commercial
interest rates in accordance with the standard rates offered by the Bank are paid on these deposits.
Funds held in a fiduciary capacity
Fiduciary deposits
The Bank acts as agent bank to a number of customers, for balances totalling £4.9 million (2013: £7.8 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.
A number of funds were held and accounts maintained in connection with the fiduciary services that the Bank offers to companies connected with
Jim Mellon and Denham Eke. As at 31 December 2014, total balances held were £4,803,972 (2013: £7,596,279).
Staff and Commercial loans
Details of staff loans are given in note 17 to the financial statements.
Normal commercial loans are made to various companies connected to Jim Mellon and Denham Eke. As at 31 December 2014, £0.193 million of
capital and interest was outstanding (2013: £0.343 million).
Intercompany recharges
Various intercompany recharges are made during the course of the year as a result of the Bank settling debts in other Group companies. In
addition, MFG provided investment management and administration services for £0.439 million (2013: £0.600 million).
Manx Financial Group PLC
Notes to Consolidated Financial Statements
46
28. Related party transactions (continued)
Investments
The Bank’s only equity investment (note 15) is in a company whose largest shareholder is Jim Mellon and Denham Eke acts as a non-executive
director.
Subordinated loans
Manx Financial Group PLC has advanced £1.9 million of subordinated loans in 2014 (2013: £2.0 million) with various maturity dates (see note
19).
Loan notes
See note 23 for a list of related party loan notes as at 31 December 2014 and 2013.
Key management personal (including Executive Directors’) remuneration
Short-term employee benefits
29. Operating leases
Non-cancellable lease rentals are payable in respect of property and motor vehicles as follows:
2014
£000
397
Less than one year
Between one and five years
Over five years
30. Subsequent events
2014
2013
Leasehold
Property
£000
317
493
213
1,023
Other
£000
-
-
-
-
Leasehold
Property
£000
297
825
336
1,458
2013
£000
371
Other
£000
-
-
-
-
The two outstanding Convertible Loan Notes ("Notes") that were otherwise due for maturity on 26 February 2015 (see note 23) have been
extended by five years. The Notes together total £1.71 million, of which Jim Mellon, the Group's Executive Chairman, holds £1.25 million and
Rock Holdings Limited (subsequently assigned to Southern Rock Insurance Limited), a company connected with John Banks, a non-executive
Director of the Group, holds £0.46 million.
As a result, and having considered other methods of raising capital, the independent Directors have resolved, following negotiations with the
lenders, to extend the two Notes for a further five years to 26 February 2020 at a reduced interest rate of 6.5%, down from the previous 9.0%. All
other terms remain as those announced on 2 March 2010.
Clarendon House
Victoria Street
Douglas
Isle of Man
IM1 2LN
Tel: (01624) 694694
Fax: (01624) 624278
www.mfg.im