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2023 Report_________________________________ ANNUAL REPORT 2016 Welcome to Manx Financial Group PLC Welcome to Manx Financial Group PLC Welcome to Manx Financial Group PLC Welcome to Manx Financial Group PLC Integrity through independence and service An independent banking group founded in 1935, domiciled in the Isle of Man Conister Bank Limited (the “Bank”) is a licensed independent bank, regulated by the Financial Services Authority 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 services, including saving accounts, fiduciary deposits, asset financing, personal loans, loans to small and medium sized entities, block discounting and other specialist secured credit facilities the UK Isle of Man and to consumer and business sectors. products and the card pre-paid Conister Card Services Limited is the Group’s division providing clients with payment solutions that are both cost effective and create new revenue opportunities. business Edgewater Associates Limited (“EWA”) is one of the pre-eminent independent financial advisers in the Isle of Man. It provides a bespoke and personal service to Isle of Man residents and the Group’s to business and personal customers and manages assets in excess of £213 million. EWA specialises in the areas of wealth management, mortgage, general insurance, and retirement planning. Manx Incahoot Limited provides Employee Benefit solutions to the UK and Isle of Man employment market. This product was launched in November 2016. offer companies Manx Financial Group PLC (“MFG”) is an AIM-listed company (LSE: MFX.L) which has subsidiaries engaged in a suite of financial service companies based in the Isle of Man and the UK. financial These services to both retail and commercial customers. MFG’s strategy is to grow both organically and through strategic acquisition to further augment the range of services it offers. Principal wholly owned subsidiaries: • Conister Bank Limited • Edgewater Associates Limited • Conister Card Services Limited • Manx Incahoot Limited Contents 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 02 04 06 07 10 12 13 14 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 Chairman’s Statement 02 Dear Shareholders, Dear Shareholders, Dear Shareholders, Dear Shareholders, When I wrote to you in September 2016 presenting the Interim Results, I had every expectation that the full year would see a return to the previous levels of profitability. In the event, although net interest income has increased by 18% to £16.0 million (2015: £13.5 million), profit before tax for the year has fallen by 33% to £1.5 million (2015: £2.3 million). As I previously commented, the main reason for this reduction was the significant increase in the amounts paid away by our principal subsidiary, Conister Bank Limited (the “Bank”), to our UK introducers in commissions and the settlement of early terminations – a total of £9.1 million (2015: £7.0 million). However, whilst this overall result is disappointing, our second half profit before tax at £0.8 million (2015: £1.3 million) showed a respectable improvement of 17% over the first half as we changed our Bank’s lending mix to encompass a greater proportion of direct business, thus lessening our reliance on third-party introductions. Also, as a concomitant, we are experiencing a fall in early terminations. I anticipate that the full benefit of this change will be reflected in 2017 and already we are seeing considerable progress by the end of 2017 first quarter results. I will return to this point later. I am also encouraged that the second half operating income of £4.7 million (2015: £4.2 million) is the highest that we have ever achieved. Thus, I am confident that by re-focussing the lending mix, we have taken the correct steps to build a base for a profitable future. MaMaMaManx Financial Group PLC nx Financial Group PLC nx Financial Group PLC nx Financial Group PLC As stated, profit before income tax for the year was £1.5 million (2015: £2.3 million) on a net interest income of £16.0 million (2015: £13.5 million). Our key metrics remain positive: our return on equity was 10% (2015: 17%), which remains within the range of that of our peer group. Our lending grew by 15% (2015: 13%) over the year. The level of performing loans remains impressive at 94%, a testament to our prudent lending policy. Turning to the balance sheet, our loan book grew by £14.7 million to £116.1 million (2015: £101.4 million) and our deposit base increased to £126.0 million (2015: £106.3 million), a growth of 15% and 18% respectively. In turn, our equity increased by 8% to £13.2 million (2015: £12.1 million). It is important to remember that almost the entirety of this equity is used to support the regulatory capital base of the Bank. Each year, as we grow the Bank’s balance sheet, we require ever increasing Tier 1 capital, being the regulatory measure of applicable assets, to support that growth. One of the Board’s main aims is to reach the optimum size whereby we become Jim Mellon Jim Mellon Jim Mellon Jim Mellon Chairman self-supporting in our regulatory capital requirements, thus achieving a prudential balance between growth and the future ability to distribute any excess capital to our shareholders. It is important to remember that the cash and near-cash figure of £6.1 million (2015: £7.2 million) sitting on the balance sheet is solely available for further lending, representing as it does a mismatch between customers’ deposits and advances. Certain loans supporting the Bank’s capital provided by the principal shareholders – mostly from myself – will come up for renewal during the course of this year. I have indicated to the Board that I will renew these loans and, as before, the independent directors, in conjunction with our advisors, will determine fair and equitable renewal terms for the benefit of both parties. We made one acquisition in 2016, when on 23 December our wholly owned subsidiary, Edgewater Associates Limited, acquired the MBL book of Independent Financial Advisory (“IFA”) business. This acquisition created the largest IFA operation on the Isle of Man and I can report that the integration of the two businesses is proceeding as planned. The full benefit of this acquisition will materialise in future periods. Conister Bank Limited Conister Bank Limited Conister Bank Limited Conister Bank Limited Our strategy of providing our existing products to new markets and developing new products to our existing markets is creating consistent growth. During the year on the Isle of Man, we launched a unique bridging loan product, and an Approved Partner lending programme focused on SMEs – both attracting considerable interest. In the UK, we launched a PCP product in conjunction with one of our long-standing partners. We have entered the Jersey secured lending market on a local regulated basis, and we are currently evaluating a Hire Purchase product for the Irish market and intend to launch an Isle of Man PCP product shortly. With regard to the UK, we see continuing growth opportunities in both hire and lease purchase, block discounting and secured personal loans. Indeed, we will look to increase our UK presence during 2017 and beyond, by significantly broadening our lending distribution. However, our view of the UK unsecured lending market, now representing less than 6% of our total advances, has led us to become more cautious as the macro environment of increasing inflation and unprecedented levels of unsecured consumer debt will, we believe, drive future arrears. Furthermore, the competitive environment for this product has worsened with more liquidity driving down yields which is counter intuitive when the wider market dynamics are considered. Our risk appetite continues to be prudent and, therefore, we access this market through our capital indemnified partners which partially insulates us from suffering a loss. We test our entire loan book each month and it is a reflection of our careful credit scoring that our arrears’ profile continues at a low level. Manx Financial Group PLC 03 With loan advances increasing by 25% to £72.5 million (2015: £58.0 million), interest income increased by 16% to £19.1 million (2015: £16.5 million). Our net interest income margin showed a small increase to 83% (2015: 82%) as our cost of funds continued to decrease. Operating income, however, decreased by 0.2% to £6.9 million (2015: £7.0 million) as commissions paid to our introducers grew by 30% to £9.1 million (2015: £7.0 million). Our personnel and other costs increased by £0.9 million in the year, largely driven by additional headcount to support our forecasted plans for growth. New lending increased our loan book by 15% to £115.2 million (2015: £100.6 million). The most notable contributors to this positive performance were direct lending in the Isle of Man, our direct UK broker network and our block lending product. Provisions have increased by only 5% (despite a 15% increase in net loans) to £2.2 million (2015: £2.1 million) which represents 1.9% of the net loan book (2015: 2.1%). As I reported previously, we have ceased funding UK hand-held card terminals and our legal action continues to ensure we recover any losses to the fullest extent possible. This discontinued lending stream will be materially run off by the end of 2017. The Bank’s asset base grew by 17% to £147.5 million (2015: £126.2 million) and total equity increased by 2% to £13.0 million (2015: £12.6 million). As I reported in the Interim Accounts, under the HMRC’s Partial Exemption Special Method, we have increased our VAT debtor by a further £0.3 million, to a total of £0.8 million. Following further discussions and correspondence with the Isle of Man Customs & Excise, the Board remains confident that the VAT debtor claimed will be secured, reinforced by a very recent ruling by the Supreme Court that, despite referring the entire matter to the European Court of Justice, a 50% allowance is both fair and equitable. As our VAT debtor reflects 50% of the recoverable amount, this can only be positive news. Finally, I am pleased to welcome both Douglas Grant as the new Managing Director of the Bank, and James Smeed who takes his place as the Finance Director and joins the Board. I am pleased to note that both appointments are well deserved internal promotions, demonstrating that the Bank now offers meaningful career path at all levels. Edgewater Associates Limited Edgewater Associates Limited Edgewater Associates Limited Edgewater Associates Limited Our IFA business continues to grow, supported by its general insurance and loan brokering units. Indeed, 2016 was the most profitable year so far, with pre-MBL acquisition profit for the year increasing by 149% to £0.4 million (2015: £0.1 million) on a 6% increased (2015: £1.4 million). Edgewater Associates unconsolidated total assets have grown by 93% to £2.3 million (2015: £1.2 million) and equity has increased by 40% to £1.3 million (2015: £0.9 million). turnover of £1.5 million One pleasing fact to note is that assets under management have grown by 38% to £213 million following the MBL acquisition (2015: £154 million). The December 2016 MBL acquisition will enhance future profitability and brings with it talented staff who are already making a significant contribution to the business. As part of the overall acquisition transaction, we exercised the Lazenby Knox option at the beginning of 2017 which will further enhance profits and add to what is already the Isle of Man’s largest IFA business. We are well positioned to add other local IFA books to this business subject to strict due diligence. Other operating subsidiaries Other operating subsidiaries Other operating subsidiaries Other operating subsidiaries As I reported previously our foreign exchange advisory service, Manx FX Limited, is now trading profitably and continues to tender for new accounts and to look for additional ways to enhance its niche Isle of Man position. Our IT-enriched employee benefit subsidiary, Manx Incahoot Limited, was successfully re-launched at the Olympia UK Employee Benefit Show in London during November 2016. Following which, it is in advanced negotiations with a number of companies to provide their staff with tailor-made incentives to promote increased loyalty. I hope to be able to announce more on this in the near future. Outlook Outlook Outlook Outlook Following the internal publication of our Quarter 1, 2017 figures, I am confident we are well set for a meaningful increase in profit at both the Interim and full-year stage. Whilst I am the first to admit that our 2016 performance appears lack-lustre, we were able to implement certain changes in the second half which will serve us well in the next twelve months. We have placed additional emphasis on new business generation which is bearing fruit. We have moved Edgewater into being a main player in the Isle of Man market. We are reviewing our IT systems with a view to a further upgrade. But most importantly, we are considering a significant increase in our presence in the UK and elsewhere, bolstered by our belief that Brexit offers enhanced opportunities. This year will see a simplification of our capital structure and will be the year that we do more to reach out to the investing public. Finally, it remains for me to thank you, our shareholders; our excellent executive and staff who contribute so much to the development of business; and our customers, be they depositors or borrowers, for your continued loyalty. Jim Mellon Jim Mellon Jim Mellon Jim Mellon Executive Chairman 28 April 2017 2014 Manx Financial Group PLC Directors, Officers and Advisers 04 Executive Directors in Jim Mellon (60)‡ Executive Chairman Executive Chairman Jim Mellon is a well-known and successful entrepreneur, author and economic fund commentator, starting his career including biopharma, management and now property, mining and technology amongst his many investments. Jim holds directorships in a number of publicly quoted companies, many of which are in the financial services sector. He is the beneficial owner of Burnbrae Group Limited which, in turn, indirectly holds approximately 17% of Manx Financial Group PLC. He is the founder, principal shareholder and chairman of the Regent Pacific Group, quoted on the Hong Kong Stock Exchange. information Appointment Appointment Appointment Appointment Appointed to the Board on 2 November 2007 and appointed as Executive Chairman on 12 February 2009. Non-executive Directors Douglas Grant (52) ‡ Group Finance Director Douglas Grant has over 30 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 Appointment Appointment Appointment Appointed to the Board on 14 January 2010. He is Managing Director of Conister Bank Limited. is Denham Eke (65) ‡ Chief Executive Officer Chief Executive Officer Denham Eke the Managing Director of Burnbrae Group Limited, a private international asset management company. He began his career in stockbroking with Sheppards & Chase before moving into corporate planning for Hogg Robinson plc, a major multinational insurance broker. He is a director of many years standing of both public and private companies involved in the financial services, property, mining, and manufacturing sectors. He is chairman of Webis Holdings PLC, chief finance officer of West African Minerals Corporation Limited, chief finance officer of Life Science Developments Limited, 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 Appointment Appointment Appointment Appointed to the Board on 2 November 2007 and appointed as Chief Executive on 12 February 2009. Alan Clarke (66)‡†* Non-executive Director David Gibson (69) ‡†* ≠ Non-executive Director John Banks (48) ‡ Non-executive Director Alan Clarke is a chartered accountant and former senior partner of Ernst & Young during which time he worked closely with HSBC offshore operations in both the Channel Islands and the Isle of Man. Currently he specialises in corporate finance and strategic consultancy, advising a variety of both listed and private companies. He holds several non-executive directorships and is President of is also a registered ICAEW Manchester. He auditor, being the senior partner of Downham Mayer Clarke. Appointment Appointment Appointment Appointment Appointed to the Board on 2 November 2007. Chairman of the Audit, Risk and Compliance Committee and Chairman of the Remuneration Committee. David Gibson qualified as a certified accountant whilst holding posts with Shell-Mex and BP and CIBA-Geigy throughout the UK and abroad before transferring into treasury management in senior positions with Turner and Newall and Westland Helicopters where he qualified as a corporate treasurer. He joined the Trustee Savings Bank of the Channel Islands as finance director prior to becoming general manager finance at TSB Retail Bank where he gained his formal qualifications as a banker. Prior to retiring from executive life for family reasons, he was group finance director of Portman Building Society for 9 years. He is currently deputy chairman of commercial property investment companies Chellbrook Properties plc and Mountstephen Investments Limited. Appointment Appointment Appointment Appointment Appointed to the Board on 12 February 2009. 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 Appointment Appointment Appointment Appointed to the Board on 5 August 2014. Manx Financial Group PLC 05 * Member of the Audit, Risk and Compliance Committee † Member of the Remuneration Committee ‡ Member of the Nominations Committee ≠ Independent Non-executive Director Non-executive Directors Company secretary Neil Duggan (56) ‡* ≠ Non-executive Director Lesley Crossley (49) Company Secretary Neil Duggan is a qualified chartered accountant and up to September 2012 was a partner in KPMG in the Isle of Man. He was head of the audit practice in the Isle of Man and Gibraltar and also headed up KPMG’s transaction services delivery across a number of jurisdictions, including the Caribbean. His specialist areas were the finance sector and property. Currently, he holds a number of non-executive positions in Isle of Man based listed and private groups. a certified accoun Appointment Appointment Appointment Appointment Appointed to the Board on 1 July 2015. He is Chairman of Conister Bank Limited. Lesley Crossley is a Fellow of the Chartered Institute of Secretaries and Administrators and has 30 years of wide ranging experience in the financial services industry both in the UK and Isle of Man. Prior to joining Manx Financial Group PLC she held the position of Company Secretary for Scottish Provident International based on the Isle of Man. Appointment Appointment Appointment Appointment Appointed as Company Secretary on 29 September 2008. Nominated Advisor Nominated Advisor Nominated Advisor Nominated Advisor and Broker and Broker and Broker and Broker Beaumont Cornish Limited 2nd Floor Bowman House 29 Wilson Street London EC2M 2SJ Registrar Registrar Registrar Registrar Computershare Investor Services (Jersey) Limited Queensway House Hilgrove Street St Helier Jersey JE1 1ES Advisers Advisers Advisers Advisers Registered Office Registered Office Registered Office Registered Office Clarendon House Victoria Street Douglas Isle of Man IM1 2LN Registered Agent Registered Agent Registered Agent Registered Agent CW Corporate Services Limited Bank Chambers 15-19 Athol Street Douglas Isle of Man IM1 1LB Legal Advisers Legal Advisers Legal Advisers Legal Advisers As to Isle of Man law Long & Humphrey The Old Courthouse Athol Street Douglas Isle of Man IM1 1LD As to English law Hill Dickinson LLP The Broadgate Tower 20 Primrose Street London EC21 2EW Independent Auditors Independent Auditors Independent Auditors Independent Auditors KPMG Audit LLC Heritage Court 41 Athol Street Douglas Isle of Man IM99 1HN Principal Bankers Principal Bankers Principal Bankers Principal Bankers Royal Bank of Scotland 135 Bishopsgate London EC2M 3UR Consulting Actuaries Consulting Actuaries Consulting Actuaries Consulting Actuaries Boal & Co Ltd Marquis House Isle of Man Business Park Douglas Isle of Man IM2 2QZ Pension Fund Pension Fund Pension Fund Pension Fund Investment Manager Investment Manager Investment Manager 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 Presentation of Annual Presentation of Annual Presentation of Annual Presentation of Annual Report and Accounts Report and Accounts Report and Accounts Report and Accounts is Presented here Annual Accounts Financial Group PLC. the and Manx Report of Company Information Company Information Company Information Company Information The Annual and Interim Reports, along with other supplementary information of interest to Shareholders, are our website. The address of the website is www.mfg.im investor includes which relations information and contact details. included on Manx Financial Group PLC Directors’ Report 06 The Directors present their annual report and the audited financial statements for the year ended 31 December 2016. The number of shares held by the current Directors is as follows: Principal activities regulated activities Principal regulated activities activities regulated regulated Principal Principal The principal activities of Manx Financial Group PLC (the “Company”) and its subsidiaries (together referred to as the “Group”) are the provision of asset and personal finance, investing activities, prepaid cards and wealth management. Jim Mellon1 John Banks2 David Gibson3 Douglas Grant Alan Clarke Number Number Number Number 18181818////00004444/1/1/1/17777 17,635,332 17,635,332 17,635,332 17,635,332 2,336,833 2,336,833 2,336,833 2,336,833 1,721,433 1,721,433 1,721,433 1,721,433 505,821 505,821 505,821 505,821 52,149 52,149 52,149 52,149 Number Number Number Number 31/12/1 31/12/16666 31/12/1 31/12/1 17,635,332 17,635,332 17,635,332 17,635,332 2,336,833 2,336,833 2,336,833 2,336,833 1,721,433 1,721,433 1,721,433 1,721,433 505,821 505,821 505,821 505,821 52,149 52,149 52,149 52,149 Number 31/12/15 17,635,332 2,336,833 1,547,227 505,821 52,149 Conister Bank Limited, a wholly owned subsidiary of the Company, holds a class 1 deposit taking licence issued under section 7 of the Isle of Man Financial Services Act 2008. Deposits made with the Bank are covered by the Isle of Man Depositors’ Compensation Scheme contained the Banking Business (Compensation of Depositors) Regulations 1991. in Edgewater Associates Limited is authorised by the Isle of Man Financial Services Authority 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 Results and dividends Results and dividends 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 (2015: nil). 1 Burnbrae Limited holds 16,000,000 Ordinary Shares. Jim Mellon, Executive Chairman of Manx Financial Group plc (“MFG”), is a director of Burnbrae Limited. Burnbrae Limited is beneficially 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 for the benefit of Jim Mellon. 2 Comprises 2,336,833 Ordinary Shares held by Rene Nominees (IOM) Limited in trust for John Banks’ underage children, Arron Banks and his underage children. 3 Comprises 1,721,433 Ordinary Shares held by TD Direct Investing Nominees (Europe) Limited for the benefit of David Gibson. The number of share options held by the current Directors is as follows: Share capital Share capital Share capital Share capital Particulars of the authorised and issued share capital of the Company are set out in note 27 to the financial statements. Douglas Grant Number Number Number Number 18181818////00004444/1/1/1/17777 1,042,466 1,042,466 1,042,466 1,042,466 Number Number Number Number 31/12/1 31/12/16666 31/12/1 31/12/1 1,042,466 1,042,466 1,042,466 1,042,466 Number 31/12/15 1,042,466 holdings Significant shareholdings Significant share holdings holdings Significant share Significant share The number of shares held and the percentage of the issued shares which that number represented as at 18 April 2017 are: Rene Nominees (IOM) Limited1 Jim Mellon Lynchwood Nominees Limited Island Farms Limited Number Number Number Number 26,288,992 17,635,332 10,338,045 4,222,319 % of % of % of % of issued capital issued capital issued capital issued capital 25.76 17.28 10.18 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 which 2,336,833 ordinary shares are held by Rene Nominees (IOM) Limited in trust for Arron Banks, his underage children and John Banks’ underage children. The Directors are not aware of any other individual holding of greater than 3% as at 18 April 2017. Directors and Directors share interests Directors and Directors’’’’ share interests share interests share interests Directors and Directors Directors and Directors Details of current Directors are set out on pages 4 and 5. Juan Kelly resigned on 28 March 2017. Directors liability insurance Directors’’’’ liability insurance liability insurance liability insurance Directors Directors The Group maintains insurance cover for Directors’ potential liability. assets and intangible assets Fixed and intangible Fixed assets assets and intangible and intangible Fixed Fixed The movement in fixed and intangible assets during the year are set out in notes 18 and 19 respectively to the financial statements. StaffStaffStaffStaff At 31 December 2016 there were 73 members of staff (2015: 64), of whom 6 were part-time (2015: 6). Investment in subsidiaries Investment in subsidiaries Investment in subsidiaries Investment in subsidiaries Investments in the Company’s subsidiaries are disclosed in note 20 to the financial statements. Auditors Auditors Auditors Auditors KPMG Audit LLC, being eligible, have expressed their willingness to continue in office. Manx Financial Group PLC Corporate Governance Report 07 that Board ensures financial and human the necessary 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. Division of Responsibilities Division of Responsibilities Division of Responsibilities Division of Responsibilities Code Principle A.2: Code Principle A.2: There should be a clear division of Code Principle A.2: Code Principle A.2: 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. s Approach GroupGroupGroupGroup’’’’s Approach s Approach s Approach The offices of Chairman and Chief Executive Officer 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 Officer is responsible for managing the Group’s business and operations within the parameters set by the Board. The Chairman The Chairman The Chairman The Chairman Code Principle A.3: Code Principle A.3: The Chairman is responsible for leadership Code Principle A.3: Code Principle A.3: of the board and ensuring its effectiveness on all aspects of its role. GroupGroupGroupGroup’’’’s Approach s Approach s Approach 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. is committed to best practice The Board 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 April 2016 (the Code), which was the prevailing guidance for the year covered by this report. Report Corporate Governance Report Corporate Governance Report Report Corporate Governance 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 2016 relating to corporate governance. Remuneration Committee Remuneration Committee Remuneration Committee Remuneration Committee The Remuneration Committee usually meets at least twice a year and comprises of two Non-executive Directors, with the Executive Directors, 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 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 Nomination Committee Nomination Committee Nomination Committee The Nomination Committee is comprised of the whole Board. It is chaired by the Chairman of the Board and is responsible for making recommendations to the Board on matters relating to the composition of including Executive and Non- executive Director succession planning, the appointment of new Directors and the election and re-election of Directors. the Board, Group Audit, Risk and Compliance Committee Group Audit, Risk and Compliance Committee Group Audit, Risk and Compliance Committee Group Audit, Risk and Compliance Committee The Group Audit, Risk and Compliance Committee meets at least three times each year and comprises three Non-executive Directors, currently Alan Clarke (Chairman), David Gibson and Neil Duggan. Executive Directors and representatives from compliance and risk, the internal and external auditors attend by invitation. Its role is to be 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 external auditors. The Committee reviews and monitors the external auditors’ 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 Role of the Board The Role of the Board The Role of the Board The Role of the Board Code Principle A.1: Code Principle A.1: Every company should be headed by an Code Principle A.1: Code Principle A.1: effective board, which is collectively responsible for the long- term success of the company. GroupGroupGroupGroup’’’’s Approach s Approach s Approach s Approach The Board is collectively responsible for the long-term success of the organisation. Its principal function is to determine the strategy and policies of the Group within an effective control framework which enables risk to be assessed and managed. The Manx Financial Group PLC 08 NonNonNonNon----executive Directors executive Directors executive Directors executive Directors Code Principle A.4 Code Principle A.4: As part of their role as members of a unitary Code Principle A.4 Code Principle A.4 board, non-executive directors should constructively challenge and help develop proposals on strategy. GroupGroupGroupGroup’’’’s Approach s Approach s Approach s Approach Prior to appointment Non-executive Directors are required to demonstrate that they are able to allocate sufficient time to undertake their duties. GroupGroupGroupGroup’’’’s Approach s Approach s Approach s Approach for bringing The Non-executive Directors are responsible independent judgement to the discussions held by the Board, using their breadth of experience and understanding of the business. Their key 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. responsibilities are Development Development Development Development Code Principle B.4444: All directors should receive induction on Code Principle B Code Principle B Code Principle B joining the board and should regularly update and refresh their skills and knowledge. GroupGroupGroupGroup’’’’s Approach s Approach s Approach s Approach All new Directors undergo formal induction with any training or development needs being this process. Directors continue to attend external and internal seminars and presentations to maintain and update their knowledge and skills. identified during The Composition of the Board The Composition of the Board The Composition of the Board The Composition of the Board Code Principle B.1: The board and its committees should have Code Principle B.1: Code Principle B.1: Code Principle B.1: the appropriate balance of skills, experience, independence and knowledge of the company to enable them to discharge their respective duties and responsibilities effectively. Information and Support Information and Support Information and Support Information and Support Code Principle B.5: Code Principle B.5: The board should be supplied in a timely Code Principle B.5: Code Principle B.5: manner with information in a form and of a quality appropriate to enable it to discharge its duties. s Approach GroupGroupGroupGroup’’’’s Approach s Approach s Approach At the year end, the Board comprised four Non-executive Directors and four Executive Directors. At least two Non- executive Directors are considered by 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. the Board Appointments to the Board Appointments to the Board Appointments to the Board Appointments to the Board Code Code Code Code Principle B.2: Principle B.2: There should be a formal, rigorous and Principle B.2: Principle B.2: transparent procedure for the appointment of new directors to the board. the Board against GroupGroupGroupGroup’’’’s Approach s Approach s Approach 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 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 Commitment Commitment Commitment Code Principle B.3: All directors should be able to allocate Code Principle B.3: Code Principle B.3: Code Principle B.3: sufficient time to the company to discharge their responsibilities effectively. s Approach GroupGroupGroupGroup’’’’s Approach s Approach 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. Evaluation Evaluation Evaluation Evaluation Code Principle B.6: Code Principle B.6: The board should undertake a formal and Code Principle B.6: Code Principle B.6: rigorous annual evaluation of its own performance and that of its committees and individual directors. s Approach GroupGroupGroupGroup’’’’s Approach s Approach 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. election ReReReRe----election election election Code Principle B.7: Code Principle B.7: All directors should be submitted for re- Code Principle B.7: Code Principle B.7: election at regular intervals, subject to continued satisfactory performance. s Approach GroupGroupGroupGroup’’’’s Approach s Approach 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. Manx Financial Group PLC effectiveness 09 reviews and monitors effectiveness of the internal audit function and to consider and recommend to the Board (for approval by the members) the re-appointment of external auditors. The appointment or the external auditors’ Committee 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 Remuneration Remuneration Remuneration Code Principle D.1: Executive directors’ remuneration should be Code Principle D.1: Code Principle D.1: Code Principle D.1: designed to promote the long-term success of the company. Performance-related elements should be transparent, stretching and rigorously applied. Code Principle D.2: There should be a formal and transparent Code Principle D.2: Code Principle D.2: Code Principle D.2: 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. GroupGroupGroupGroup’’’’s Approach s Approach s Approach 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 2016 can be found on page 11. Dialogue with Shareholders Dialogue with Shareholders Dialogue with Shareholders Dialogue with Shareholders Code Principle E.1: There should be a dialogue with Code Principle E.1: Code Principle E.1: Code Principle E.1: 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. is owned by both s Approach GroupGroupGroupGroup’’’’s Approach s Approach s Approach institutional The Group shareholders. informed of All shareholders are kept developments and feedback is encouraged both at the AGM and through communication on the Group’s website. individual and Constructive Use of the AGM Constructive Use of the AGM Constructive Use of the AGM Constructive Use of the AGM Code Principle E.2: Code Principle E.2: The board should use general meetings to Code Principle E.2: Code Principle E.2: communicate with investors and to encourage their participation. s Approach GroupGroupGroupGroup’’’’s Approach s Approach 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 Approval Approval Approval This report was approved by the Board of Directors on 28 April 2017 and signed on its behalf by: Jim Mellon Jim Mellon Jim Mellon Jim Mellon Executive Chairman 28 April 2017 Financial and Business Reporting Financial and Business Reporting Business Reporting Business Reporting Financial and Financial and Code Principle C.1: Code Principle C.1: The board should present a fair, balanced Code Principle C.1: Code Principle C.1: and understandable assessment of the company’s position and prospects. GroupGroupGroupGroup’’’’s Approach s Approach s Approach s Approach The Board confirms that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the 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 Statement on pages 2 and 3 provide a detailed review of the Group’s business activities and future prospects. Risk Management and Internal Control Risk Management and Internal Control Risk Management and Internal Control Risk Management and Internal Control Code Principle C.2: Code Principle C.2: The board is responsible for determining the Code Principle C.2: Code Principle C.2: 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. responsible tolerance. Senior management are s Approach GroupGroupGroupGroup’’’’s Approach s Approach s Approach The Board is responsible for determining a framework for risk management and control, to include the Group’s risk appetite and for designing, operating and monitoring risk management and internal control processes in line with the risk appetite and tolerance while the Group Audit Risk and 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 independent and objective assurance that these processes are appropriate and effectively applied. in-house, provides Audit Committee and Auditors Audit Committee and Auditors Audit Committee and Auditors Audit Committee and Auditors Code Principle C.3: Code Principle C.3: The board should establish formal and Code Principle C.3: Code Principle C.3: 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. s Approach GroupGroupGroupGroup’’’’s Approach s Approach s Approach Currently, the Group Audit, Risk and Compliance Committee comprises of three 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 financial experience who are capable of recent relevant 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 Manx Financial Group PLC Directors’ Remuneration Report 10 Report Remuneration Report Directors’’’’ Remuneration Directors Report Report Remuneration Remuneration Directors Directors 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 2016 relating to Directors’ remuneration. The Group has adopted a Remuneration Policy. This Policy is reviewed periodically by the Remuneration Committee. The Level and Components of Executive Director Remuneration The Level and Components of Executive Director Remuneration The Level and Components of Executive Director Remuneration The Level and Components of Executive Director Remuneration Code Principle D.1: Code Principle D.1: Code Principle D.1: Code Principle D.1: Executive directors’ remuneration should be designed to promote the long-term success of the company. Performance- related elements should be transparent, stretching and rigorously applied. GroupGroupGroupGroup’’’’s Approach: s Approach: s Approach: 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 there is full transparency of the Group’s Remuneration Policy. • • In line with the Board’s approach, which reflects that adopted within the Group’s Remuneration Policy provides for the reward of Executive Directors through salaries and other benefits. organisations, comparable other Executive Directors Emoluments Executive Directors’’’’ Emoluments Emoluments Emoluments Executive Directors Executive Directors The their remuneration responsibilities. It comprises basic salary, performance related variable pay when this is considered appropriate, and various benefits detailed below. for Executive Directors reflects Performance related payments are not pensionable and are not contracted. 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 and The Group operates a non-contractual discretionary annual trading the related pay scheme based on performance performance of 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. the 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 payment 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 in all compliance requirements. 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. the Group guaranteed Where performance related pay, the contractual conditions must be considered by the Remuneration Committee. contractually operates Executive Directors Contractual Terms Executive Directors’’’’ Contractual Terms Contractual Terms Contractual Terms Executive Directors Executive Directors In keeping with current recommended practice, the standard terms for Executive Director appointments include a contractual notice period of 3 months. NonNonNonNon----executive Directors Remuneration executive Directors’’’’ Remuneration Remuneration Remuneration executive Directors executive Directors 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 to Non-executive Directors is assessed using benchmarks financial organisations. from a group of comparable Manx Financial Group PLC 11 The Procedure for Determining Remuneration The Procedure for Determining Remuneration The Procedure for Determining Remuneration The Procedure for Determining Remuneration Code Principle D.2: Code Principle D.2: There should be a formal and transparent procedure for developing policy on Executive remuneration and for Code Principle D.2: Code Principle D.2: fixing the remuneration packages of individual Directors. No Director should be involved in deciding his or her own remuneration. GroupGroupGroupGroup’’’’s Approach: s Approach: s Approach: 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. Committee members do not take part in discussions concerning their own remuneration. The basic Non-executive Director fee is set by the Executive Directors. The Chairman of the Committee reports at the Board meeting following a Committee meeting. It is the view of the Committee that Directors’ remuneration awarded across the Group 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 Group report. An analysis of Directors’ emoluments is as follows: emoluments Directors’’’’ emoluments Directors emoluments emoluments Directors Directors Executives Executives Executives Executives Denham Eke Douglas Grant Juan Kelly1 Jim Mellon NonNonNonNon----Executives Executives Executives Executives John Banks Alan Clarke Neil Duggan2 David Gibson Don McCrickard3 Remuneration/ Fees £ Performance Related Pay £ 25,000 150,300 154,186 25,000 25,000 40,000 40,000 40,000 - - 33,700 26,000 - - - - - - Pension £ - 15,020 15,408 - - - - - - 2012012012016666 Total Total Total Total ££££ 25,000 25,000 25,000 25,000 111199,020 99,020 99,020 99,020 191919195,594 5,594 5,594 5,594 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 40,000 40,000 40,000 40,000 44440,000 0,000 0,000 0,000 40,000 40,000 40,000 40,000 ---- 2015 Total £ 25,000 188,866 192,515 25,000 25,000 38,958 30,000 38,958 18,750 Aggregate emoluments 499,486 59,700 30,428 9,614 585858589,614 9,614 9,614 583,047 1 2 3 Juan Kelly resigned on 28 March 2017. Neil Duggan was appointed on 1 July 2015. Don McCrickard retired on 30 June 2015. Approval Approval Approval Approval This report was approved by the Board of Directors on 28 April 2017 and signed on its behalf by: Alan Clarke Alan Clarke Alan Clarke Alan Clarke Chairman of the Remuneration Committee 28 April 2017 Manx Financial Group PLC Statement of Directors’ Responsibilities in respect of the Directors’ Report and the financial statements 12 The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Parent Company’s transactions and disclose with reasonable accuracy at any time its financial position. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. The Directors are responsible for preparing the Directors’ Report and the financial statements in accordance with applicable law and regulations. In addition, the Directors, 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. 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 Emphasis of Matter –––– Reclaim of Value Added Tax (VAT) Reclaim of Value Added Tax (VAT) Emphasis of Matter Reclaim of Value Added Tax (VAT) Reclaim of Value Added Tax (VAT) Emphasis of Matter Emphasis of Matter In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosures made in note 21 to the financial statements concerning a reclaim of VAT in relation to a revised Partial Exemption Special Method. The Group’s total exposure in relation to this matter is £865,000, comprising a debtor balance of £752,000 in respect of retrospective VAT and an amount of £113,000 reclaimed under the revised method in the period from Q4 2011 to Q3 2012. As detailed in note 21, the ultimate recovery of the debtor balance and the decision as to whether the VAT already reclaimed will be required to be repaid rests on the outcome of discussions with the Isle of Man Government Customs and Excise Division (“C&E”), which in turn will take into account the final resolution of the dispute between Volkswagen Financial Services (UK) Limited v HM Revenue & Custom (“the VWFS case”). Due to the inherent uncertainty associated with the final resolution of the VWFS case and its impact on discussions with C&E, the amount of the VAT debtor balance recovered and the amount of the sum already reclaimed that will be required to be repaid may differ materially from the amounts stated in the financial statements. KPKPKPKPMMMMG Audit LLC G Audit LLC G Audit LLC G Audit LLC Chartered Accountants Heritage Court 41 Athol Street Douglas Isle of Man IM99 1HN 28 April 2017 Report of the Independent Auditors, KPMG Audit LLC , to the members Report of the Independent Auditors, KPMG Audit LLC, to the members , to the members , to the members Report of the Independent Auditors, KPMG Audit LLC Report of the Independent Auditors, KPMG Audit LLC of Manx Financial Group PLC of Manx Financial Group PLC of Manx Financial Group PLC of Manx Financial Group PLC We have audited the financial statements of Manx Financial Group PLC for the year ended 31 December 2016 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 (IFRS) 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 Respective responsibilities of Directors and Auditors Respective responsibilities of Directors and Auditors 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. of the audit of the financial statements Scope of the audit of the financial statements Scope of the audit of the financial statements of the audit of the financial statements Scope Scope 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. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on the financial statements Opinion on the financial statements Opinion on the financial statements Opinion on the financial statements In our opinion the financial statements: (cid:1) give a true and fair view of the state of the Group’s and Parent Company’s affairs as at 31 December 2016 and of the Group’s profit for the year then ended; and (cid:1) have been properly prepared in accordance with IFRS as adopted by the EU. Manx Financial Group PLC Consolidated Income Statement 14 For the year ended 31 December For the year ended 31 December For the year ended 31 December For the year ended 31 December Interest income Interest expense Net interest income Net interest income Net interest income Net interest income Fee and commission income Profit on joint venture Fee and commission expense Commission sharing schemes Net trading income Net trading income Net trading income Net trading income Other operating income Terminal funding Operating income Operating income Operating income Operating income Personnel expenses Other expenses Provision for impairment on loan assets Depositors’ Compensation Scheme recovery Depreciation Amortisation and impairment of intangibles VAT recovery Realised gains on available for sale financial assets Unrealised (loss) / gain on financial assets carried at fair value Gain on acquisition of subsidiary Bargain purchase Profit before tax payable Profit before tax payable Profit before tax payable Profit before tax payable Tax payable Profit for the year Profit for the year Profit for the year Profit for the year Basic earnings per share (pence) Diluted earnings per share (pence) The notes on pages 19 to 48 form part of these financial statements. The Directors believe that all results derive from continuing activities. Notes 6 10 20 3(t) 3(v) 7 8 9 18 19 21 16 15 20 20 10 11 12 12 (Note 33) 2012012012016666 000 ££££000 000 000 2015 £000 19191919,,,,369369369369 (3,3(3,3(3,3(3,368686868)))) 16,001 16,001 16,001 16,001 1,660 1,660 1,660 1,660 ---- (1,(1,(1,(1,222266666666)))) (7,840)))) (7,840 (7,840 (7,840 8,8,8,8,555555555555 191919198888 ((((151515154444)))) 8,8,8,8,595959599999 (3,(3,(3,(3,935935935935)))) (2,(2,(2,(2,706706706706)))) (447) (447) (447) (447) ---- (246) (246) (246) (246) (80(80(80(80)))) 222295959595 71717171 (6)(6)(6)(6) ---- ---- 1,1,1,1,545545545545 ((((222244444444)))) 1,1,1,1,301301301301 1.1.1.1.27272727 0000....87878787 16,545 (3,002) 13,543 1,527 28 (792) (6,196) 8,110 166 157 8,433 (3,515) (2,385) (397) 10 (226) (44) - 80 30 28 295 2,309 (207) 2,102 2.06 1.29 Manx Financial Group PLC Consolidated Statement of Other Comprehensive Income 15 (Note 33) 2012012012016666 000 ££££000 000 000 2015 £000 1,1,1,1,301301301301 2,102 16 26 12 12 (8)(8)(8)(8) (316) (316) (316) (316) 977977977977 0.960.960.960.96 0.0.0.0.66668888 - 19 2,121 2.08 1.30 For the year ended 31 December For the year ended 31 December For the year ended 31 December For the year ended 31 December Notes Profit for the year Profit for the year Profit for the year Profit for the year Other comprehensive income: Other comprehensive income: Other comprehensive income: Other comprehensive income: Items that will be reclassified to profit or loss Items that will be reclassified to profit or loss Items that will be reclassified to profit or loss Items that will be reclassified to profit or loss Losses on available for sale financial instruments taken to equity Items that will never be reclassified to profit or loss Items that will never be reclassified to profit or loss reclassified to profit or loss reclassified to profit or loss Items that will never be Items that will never be Actuarial (losses) / gains on defined benefit pension scheme taken to equity for the period attributable to owners otal comprehensive income for the period attributable to owners TTTTotal comprehensive income for the period attributable to owners for the period attributable to owners otal comprehensive income otal comprehensive income Basic earnings per share (pence) Diluted earnings per share (pence) The notes on pages 19 to 48 form part of these financial statements. Manx Financial Group PLC Consolidated and Company Statement of Financial Position 16 As at 31 December As at 31 December As at 31 December As at 31 December Assets Assets Assets 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 Intangible assets Investment in Group undertakings Amounts due from Group undertakings Trade and other receivables Subordinated loan Deferred tax asset Goodwill Total assets Total assets Total assets Total assets Liabilities Liabilities Liabilities Liabilities Customer accounts Creditors and accrued charges Block creditors Amounts owed to Group undertakings Loan notes Pension liability Deferred tax liability Total liabilities Total liabilities Total liabilities Total liabilities Equity Equity Equity Equity Called up share capital Profit and loss account Total equity Total equity Total equity Total equity Total liabilities and equity Total liabilities and equity Total liabilities and equity Total liabilities and equity 14 15 16 17 18 19 20 20 21 20 11 20 22 23 24 20 25 26 11 27 Notes Group 2012012012016666 ££££000000000000 2015 £000 2012012012016666 ££££000000000000 ---- ---- ---- ---- ---- 222200007777 ---- 12121212,,,,072072072072 296296296296 29292929 5,178 5,178 5,178 5,178 ---- ---- 17,17,17,17,782782782782 ---- 82828282 ---- 2222,,,,494949499999 8,545 8,545 8,545 8,545 ---- ---- Company 2015 £000 100 - - - - 247 - 12,072 285 98 4,078 - - 16,880 - 12 - 2,874 7,265 - - 11,126666 11,12 11,12 11,12 10,151 6,6,6,6,129129129129 70707070 23,991 23,991 23,991 23,991 116,050505053333 116, 116,116, 332332332332 719719719719 1,316 1,316 1,316 1,316 ---- ---- 1,1,1,1,732732732732 ---- ---- 2,344 2,344 2,344 2,344 151515152222,,,,666686868686 125,952 125,952 125,952 125,952 2,2,2,2,975975975975 1,390 1,390 1,390 1,390 ---- 8,545 8,545 8,545 8,545 614614614614 44440000 139,516516516516 139, 139,139, 7,156 77 15,981 101,356 361 872 398 - - 1,377 - 83 2,344 130,005 106,328 3,343 588 - 7,265 334 - 117,858 18,933 18,933 18,933 18,933 ((((5,5,5,5,777763636363)))) 13,13,13,13,170170170170 18,933 (6,786) 12,147 152,686868686 152,6 152,6 152,6 130,005 18,933 18,933 18,933 18,933 (1(1(1(12222,,,,277277277277)))) 6,656 6,656 6,656 6,656 17,782 17,782 17,782 17,782 18,933 (12,204) 6,729 16,880 The financial statements were approved by the Board of Directors on 28 April 2017 and signed on its behalf by: Jim Mellon Jim Mellon Jim Mellon Jim Mellon Executive Chairman Denham Eke Denham Eke Denham Eke Denham Eke Chief Executive Officer Group Finance Director Douglas Grant Douglas Grant Douglas Grant Douglas Grant The notes on pages 19 to 48 form part of these financial statements. Manx Financial Group PLC Consolidated Statement of Cash Flows For the year ended 31 December For the year ended 31 December For the year ended 31 December For the year ended 31 December Notes RECONCILIATION OF BEFORE TAXATION TO OPERATING CASH FLOWS PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS BEFORE TAXATION TO OPERATING CASH FLOWS PROFIT PROFIT RECONCILIATION OF RECONCILIATION OF Profit before tax on continuing activities Unrealised loss / (gain) on financial assets carried at fair value Gain on disposal of property, plant and equipment Profit on joint venture Gain on acquisition of subsidiary Depreciation Amortisation and impairment of intangibles Bargain purchase Actuarial (loss) / gain on defined benefit pension scheme taken to equity Increase / (decrease) in pension liability Share-based payment expense Increase in trade and other receivables Increase in trade and other payables Decrease / (increase) in commission debtors 20 18 19 20 26 26 27 2012012012016666 ££££000000000000 1,1,1,1,545545545545 6666 ---- ---- ---- 246246246246 80808080 ---- (316) (316) (316) (316) 280280280280 46464646 ((((355355355355)))) 47474747 29292929 17 2015 £000 2,309 (30) (12) (28) (28) 226 44 (295) 19 (54) 46 (208) 1,168 (35) Net cash inflow from trading activities Increase in loans and advances to customers Increase in deposit accounts 1,61,61,61,600008888 3,122 (14, (14,697697697697)))) (14, (14, 19,624 19,624 19,624 19,624 (11,369) 6,069 from operating activities (outflow) from operating activities Cash inflow / / / / (outflow) Cash inflow from operating activities from operating activities (outflow) (outflow) Cash inflow Cash inflow 6,56,56,56,535353535 (2,178) CASH FLOW STATEMENT CASH FLOW STATEMENT CASH FLOW STATEMENT CASH FLOW STATEMENT Cash flows from operating activities Cash flows from operating activities Cash flows from operating activities Cash flows from operating activities Cash inflow / (outflow) from operating activities Taxation paid from operating activities (outflow) from operating activities Net cash inflow / / / / (outflow) Net cash inflow from operating activities from operating activities (outflow) (outflow) Net cash inflow Net cash inflow Cash (outflow) from investing activities inflow from investing activities Cash (outflow) / / / / inflow from investing activities from investing activities inflow inflow Cash (outflow) Cash (outflow) Purchase of property, plant and equipment Purchase of intangible assets Acquisition of Incahoot Limited business Acquisition of Manx Financial Limited Acquisition of MBL business (Purchase) / sale of available for sale financial instruments Sale of property, plant and equipment Cash acquired on acquisition of subsidiary from investing activities inflow from investing activities Net cash (outflow) / / / / inflow Net cash (outflow) from investing activities from investing activities inflow inflow Net cash (outflow) Net cash (outflow) Cash flows from financing activities Cash flows from financing activities Cash flows from financing activities Cash flows from financing activities Receipt of loan notes Increase borrowings from block creditors activities Net cash inflow from financing activities Net cash inflow from financing activities activities Net cash inflow from financing Net cash inflow from financing ncrease in cash and cash equivalents (Decrease) / increase in cash and cash equivalents (Decrease) / i ncrease in cash and cash equivalents ncrease in cash and cash equivalents (Decrease) / i (Decrease) / i Included in cash flows are: Included in cash flows are: Included in cash flows are: Included in cash flows are: Interest received – cash amounts Interest paid – cash amounts The notes on pages 19 to 48 form part of these financial statements. 18 19 20 20 19 16 20 25 6,56,56,56,535353535 (36) (36) (36) (36) (2,178) (6) 6,46,46,46,499999999 (2,184) (9(9(9(93333)))) (50) (50) (50) (50) ---- (500) (500) (500) (500) (948) (948) (948) (948) (8,017777)))) (8,01 (8,01 (8,01 ---- ---- (493) (21) (101) - - 2,794 12 926 (9,6(9,6(9,6(9,608)08)08)08) 3,117 1111,,,,280280280280 802802802802 2,082 2,082 2,082 2,082 100 - 100 (1,027) (1,027) (1,027) (1,027) 1,033 18,628 18,628 18,628 18,628 (3,260) (3,260) (3,260) (3,260) 17,203 (2,906) Manx Financial Group PLC Consolidated and Company Statement of Changes in Equity 18 31 December For the year ended 31 December For the year ended 31 December 31 December For the year ended For the year ended GroupGroupGroupGroup Balance as at 1 January Profit for the year Other comprehensive income Transactions with owners: Transactions with owners: Transactions with owners: Transactions with owners: Share-based payment expense (see notes 10 and 27) Balance as at 31 December For the year ended 31 December For the year ended 31 December 31 December 31 December For the year ended For the year ended Company Company Company Company Balance as at 1 January Loss for the year Share Share Share Share apital CCCCapital apital apital ££££000000000000 18,933 18,933 18,933 18,933 ---- ---- ---- 18,933 18,933 18,933 18,933 Share Share Share Share CCCCapital apital apital apital ££££000000000000 18,933 18,933 18,933 18,933 ---- Retained Retained Retained Retained arningssss EEEEarning arning arning ££££000000000000 ((((6,786 6,786)))) 6,786 6,786 1,1,1,1,301301301301 (324) (324) (324) (324) 46464646 ((((5,5,5,5,777766663333)))) Retained Retained Retained Retained arningssss EEEEarning arning arning ££££000000000000 (12,204204204204)))) (12, (12, (12, ((((119119119119)))) Transactions with owners: Transactions with owners: Transactions with owners: Transactions with owners: Share-based payment expense (see notes 10 and 27) Balance as at 31 December ---- 46464646 18,933 18,933 18,933 18,933 (12,277777777)))) (12,2 (12,2 (12,2 The notes on pages 19 to 48 form part of these financial statements. 2012012012016666 ££££000000000000 12,147 12,147 12,147 12,147 1,1,1,1,301301301301 (324) (324) (324) (324) 46464646 13,13,13,13,170170170170 2012012012016666 ££££000000000000 6,76,76,76,729292929 ((((119119119119)))) 46464646 6,6,6,6,656656656656 2015 £000 9,980 2,102 19 46 12,147 2015 £000 6,778 (95) 46 6,729 Manx Financial Group PLC Notes to the Consolidated Financial Statements 19 1.1.1.1. Reporting entity Reporting entity Reporting entity 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 2016 comprise the Company and its subsidiaries (the “Group”). A summary of the principal accounting policies, which have been applied consistently, are set out below. 2.2.2.2. Basis of preparation Basis of preparation Basis of preparation Basis of preparation (a)(a)(a)(a) Statement of compliance Statement of compliance Statement of compliance 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 2015 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 2016: (cid:1) IFRS 14 Regulatory Deferral Accounts; (cid:1) Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11); (cid:1) Investment Entities: Applying the Consideration Exception (Amendments to IFRS 10, 12 and IAS 28); (cid:1) Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38); (cid:1) Equity Method in Separate Financial Statements (Amendments to IAS 27); (cid:1) Disclosure Initiative (Amendments to IAS 1); and (cid:1) Annual Improvements to IFRSs 2012-2014 Cycle – various standards. No significant changes following the implementation of these standards and amendments. (b)(b)(b)(b) Basis of measurement Basis of measurement Basis of measurement Basis of measurement The financial statements are prepared on a historical cost basis except: (cid:1) financial instruments at fair value through profit or loss and available for sale financial instruments are measured at fair value; and (cid:1) equity settled share-based payment arrangements are measured at fair value. (c)(c)(c)(c) Functional and presentation currency Functional and presentation currency Functional and presentation currency 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)(d)(d)(d) Use of estimates and judgements Use of estimates and judgements Use of estimates and judgements 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). 3.3.3.3. Significant accounting policies Significant accounting policies Significant accounting policies Significant accounting policies (a)(a)(a)(a) Basis of consolidation of subsidiaries Basis of consolidation of subsidiaries Basis of consolidation of subsidiaries 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 3.3.3.3. Significant accounting policies (continued) Significant accounting policies (continued) Significant accounting policies (continued) (continued) Significant accounting policies (b)(b)(b)(b) Accounting for business combinations Accounting for business combinations combinations combinations Accounting for business Accounting for business Business combinations are accounted for by 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) (cid:1) (cid:1) (cid:1) the fair value of the consideration transferred; plus the recognised amount of any non-controlling interests in the acquiree; plus if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in the 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)(c)(c)(c) Property, plant and equipment and intangible assets Property, plant and equipment and intangible assets and intangible assets and intangible assets Property, plant and equipment 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. An intangible asset is an identifiable non-monetary asset without physical substance. An item is identifiable if it is separable or arises from contractual or other legal rights. The initial measurement of an intangible asset depends on whether it has been acquired separately or has been acquired as part of a business combination. Intangible assets that are acquired by an entity and having finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses. Intangible assets acquired as part of a business combination, with an indefinite useful live are measured at fair value. Intangible assets with indefinite useful lives are not amortised but instead are subject to impairment testing at least annually. and amortisation Depreciation and amortisation Depreciation and amortisation and amortisation Depreciation Depreciation Assets are depreciated or amortised on a straight-line basis, so as to write off the book value over their estimated useful lives. The useful lives of property, plant and equipment and intangibles are as follows: Property, plant and equipment Leasehold improvements Equipment Vehicles Furniture Intangible assets Customer contracts and lists Business intellectual property rights Website development costs to expiration of the lease 4-5 years 4 years 10 years to expiration of the agreement indefinite indefinite Manx Financial Group PLC 21 3.3.3.3. Significant accounting policies (continued) Significant accounting policies (continued) Significant accounting policies (continued) Significant accounting policies (continued) (d)(d)(d)(d) Financial assets Financial assets Financial assets 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 Loans and receivables 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, 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 Financial assets at fair value through profit or loss profit or loss profit or loss Financial assets at fair value through Financial assets at fair value through 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. financial instruments Available for sale financial instruments Available for sale financial instruments financial instruments Available for sale Available for sale 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 Investments in subsidiary undertakings 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 Fair value Fair value Fair value The fair value hierarchy is applied to all financial assets. Refer to note 4(c) for further information. Impairment of financial assets Impairment of financial assets Impairment of financial assets Impairment of financial assets (e)(e)(e)(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 asset has suffered a trend of impairment losses, a collective impairment allowance is made for expected losses to reflect the continuing historical trend. (f)(f)(f)(f) Cash and ca sh equivalents Cash and cash equivalents sh equivalents sh equivalents Cash and ca Cash and ca 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. Manx Financial Group PLC Notes to the Consolidated Financial Statements 22 3.3.3.3. Significant accounting policies (continued) Significant accounting policies (continued) Significant accounting policies (continued) Significant accounting policies (continued) (g)(g)(g)(g) Financial liabilities Financial liabilities Financial liabilities Financial liabilities Financial liabilities consist of customer deposit accounts, other creditors, loan notes, block creditors and accrued charges. Customer accounts are recognised immediately upon receipt of cash from the customer. Interest payable on customer deposits is provided for using the interest rate prevailing for the type of account. (h)(h)(h)(h) Long term e mployee benefits Long term employee benefits mployee benefits mployee benefits Long term e Long term e Pension obligations Pension obligations Pension obligations Pension obligations The Group has pension obligations arising from both defined benefit and defined contribution pension plans. A defined contribution pension plan is one under which the Group pays fixed contributions into a separate fund and has no legal or constructive obligations to pay further contributions. Defined benefit pension plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and 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 high quality 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. based compensation Share----based compensation Share based compensation based compensation Share Share 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 Other obligations Other obligations 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)(i)(i)(i) Leases Leases Leases Leases A Group company is the lessor A Group company is the lessor A Group company is the lessor A Group company is the lessor Finance leases and contracts Finance leases and HPHPHPHP contracts contracts contracts Finance leases and Finance leases and When assets are subject to a finance lease or HP contract, the present fair value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. HP and lease income is recognised over the term of the contract or lease reflecting a constant periodic rate of return on the net investment in the contract or lease. Initial direct costs, which may include commissions and legal fees directly attributable to negotiating and arranging the contract or lease, are included in the measurement of the net investment of the contract or lease at inception. Manx Financial Group PLC 23 3.3.3.3. Significant accounting policies (continued) Significant accounting policies (continued) Significant accounting policies (continued) Significant accounting policies (continued) (i) Leases (continued) (i) Leases (continued) (i) Leases (continued) (i) Leases (continued) A Group company is the lessee A Group company is the lessee A Group company is the lessee A Group company is the lessee Operating leases Operating leases Operating leases 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)(j)(j)(j) Current and d eferred taxation Current and deferred taxation eferred taxation eferred taxation Current and d Current and d 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 Interest income and expense Interest income and expense Interest income and expense (k)(k)(k)(k) Interest income and expense are recognised in the income statement using the effective interest rate method. Effective interest rate Effective interest rate Effective interest rate 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)(l)(l)(l) Fees and commission income Fees and commission income Fees and commission income 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 (m) Programme costs Programme costs Programme costs (m) (m) 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)(n)(n)(n) Segmental reporting Segmental reporting Segmental reporting 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 3.3.3.3. Significant accounting policies (continued) Significant accounting policies (continued) Significant accounting policies (continued) (continued) Significant accounting policies (o)(o)(o)(o) New standards and interpretations not yet adopted New standards and interpretations not yet adopted New standards and interpretations not yet adopted 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. (IAS/IFRS) ed International Accounting Standards/International Financial Reporting Standards (IAS/IFRS) New/revised International Accounting Standards/International Financial Reporting Standards New/revis (IAS/IFRS) (IAS/IFRS) ed International Accounting Standards/International Financial Reporting Standards ed International Accounting Standards/International Financial Reporting Standards New/revis New/revis Disclosure initiative (Amendments to IAS 7) Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12) Annual improvements to IFRSs 2014-2016 Cycle (Amendments to IFRS 12 Disclosure of Interests in Other Entities) IFRS 15 Revenue from Contracts with Customers IFRS 9 Financial Instruments Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2) Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (Amendments to IFRS 4) Transfers of Investment Property (Amendments to IAS 40) Annual Improvements to IFRSs 2014-2016 Cycle (Amendments to IFRS 1 First-time Adoption of IFRSs and IAS 28 Investments in Associates and Joint Ventures) IFRIC 22 Foreign Currency Transactions and Advance Consideration IFRS 16 Leases Effective date Effective date Effective date Effective date (accounting periods commencing on or after) 1 January 2017 1 January 2017 1 January 2017 1 January 2018 1 January 2018 1 January 2018 1 January 2018 1 January 2018 1 January 2018 1 January 2018 1 January 2019 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)(p)(p)(p) Key sources of estimation uncertainty Key sources of estimation uncertainty Key sources of estimation uncertainty 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, goodwill, defined benefit pension valuation and the Incahoot bargain purchase. 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)(q)(q)(q) Fiduciary deposits Fiduciary deposits Fiduciary deposits 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)(r)(r)(r) Prepaid c ard funds Prepaid card funds ard funds ard funds Prepaid c Prepaid c The Group could receive funds for its prepaid card activities. These funds would be held in a fiduciary capacity for the sole purpose of making payments as and when card-holders utilise the credit on their cards and therefore would not be recognised in the statement of financial position. Manx Financial Group PLC 25 3.3.3.3. Significant accounting policies (continued) Significant accounting policies (continued) Significant accounting policies (continued) Significant accounting policies (continued) (s)(s)(s)(s) Foreign exchange Foreign exchange Foreign exchange 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)(t)(t)(t) Commission shar schemes Commission sharinginginging schemes schemes schemes Commission shar Commission shar 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)(u)(u)(u) Joint ventures Joint ventures Joint ventures 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. (v)(v)(v)(v) Terminal fun Terminal fundingdingdingding Terminal fun Terminal fun In September 2014, the Bank discontinued funding handheld payment devices (referred to as Terminal Funding) due to the volume of write offs. Ever since, the book is being run off whilst the Bank vigorously pursues historical write offs. A decision was made by the Board this year to permanently cease funding and wind up the book upon the final repayment date of August 2019. 2012012012016666 ££££000000000000 601601601601 (166) (166) (166) (166) (589) (589) (589) (589) (154) (154) (154) (154) (note 33) 2015 £000 1,011 (192) (662) 157 Interest income Fee and commission expense Provision for impairment on loan assets 4.4.4.4. Risk and capital management Risk and capital management Risk and capital management Risk and capital management (a)(a)(a)(a) Risk management Risk management Risk management Risk management Introduction and overview Introduction and overview Introduction and overview Introduction and overview The Group has exposure to the following risks from its use of financial instruments: (cid:1) credit risk; (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 Risk management framework Risk management framework 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. Manx Financial Group PLC Notes to the Consolidated Financial Statements 26 4.4.4.4. Risk and capital management (continued) Risk and capital management (continued) Risk and capital management (continued) Risk and capital management (continued) (a)(a)(a)(a) Risk management (continued) Risk management (continued) (continued) (continued) Risk management Risk management 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 Bank. 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”). ARCC is responsible for monitoring compliance with the risk management policies and procedures faced by the Group’s regulated entities, and for reviewing the adequacy of the risk management framework. 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 Credit risk Credit risk Credit risk i)i)i)i) Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations. For risk management reporting purposes, the Bank considers and consolidates all elements of credit risk exposure, such as individual obligor default, country and sector risk. The Bank is principally exposed to credit risk with regard to loans and advances to customers, comprising HP and finance lease receivables, unsecured personal loans, secured commercial loans, block discounting and stocking plan loans. It is also exposed to credit risk with regard to cash balances and trade and other receivables. Management of credit risk Management of credit risk Management of credit risk 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 Carrying amount Carrying amount Carrying amount Individually impaired1 Grade A Grade B Grade C Gross value Allowance for impairment Carrying value Carrying value Carrying value Carrying value Collective allowance for impairment Collective allowance for impairment Collective allowance for impairment 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 Carrying value Carrying value Carrying value 2012012012016666 ££££000000000000 116,050505053333 116, 116,116, 2015 £000 101,356 ---- ---- 3,010 3,010 3,010 3,010 3,010 3,010 3,010 3,010 (2,0(2,0(2,0(2,099999999)))) 999911111111 (5(5(5(57777)))) 2,558 2,558 2,558 2,558 1,1,1,1,314314314314 575575575575 1,146 1,146 1,146 1,146 5,5,5,5,593593593593 - - 2,916 2,916 (2,011) 905 (50) 3,070 1,507 397 630 5,604 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. 109,600006666 109,6 109,6 109,6 94,897 Manx Financial Group PLC 27 4.4.4.4. Risk and capital management (continued) Risk and capital management (continued) Risk and capital management (continued) Risk and capital management (continued) (a)(a)(a)(a) Risk management (continued) Risk management (continued) Risk management (continued) Risk management (continued) i)i)i)i) Credit risk (continued) Credit risk (continued) Credit risk (continued) Credit risk (continued) Management of credit risk (continued) Management of credit risk (continued) Management of credit risk (continued) Management of credit risk (continued) Impaired loans Impaired loans Impaired loans 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 Past due but not impaired loans 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 Allowances for impairment Allowances for impairment 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. WriteWriteWriteWrite----off policy off policy off policy 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 Collateral Collateral 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, 2016: 54.4% of loans and advances (2015: 57.6%). 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 Concentration of credit risk Concentration of credit risk Concentration of credit risk Geographical Geographical Geographical Geographical Lending is restricted to individuals and entities with Isle of Man, UK or Channel Islands addresses. Segmental Segmental Segmental Segmental The Bank is exposed to credit risk with regard to customer loan accounts, comprising HP and finance lease balances, unsecured personal loans, secured commercial loans, block discounting and vehicle stocking plan loans. In addition, the Bank lends via significant introducers into the UK. There was one introducer that accounted for more than 20% of the Bank’s total lending portfolio at the end of 31 December 2016 (2015: two introducers). Liquidity risk Liquidity risk Liquidity risk Liquidity risk ii)ii)ii)ii) Liquidity risk is the risk that the Group will encounter difficulty in meeting financial liability obligations as they fall due. of liquidity risk Management of liquidity risk Management of liquidity risk of liquidity risk Management Management 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. 4. 4. 4. Risk and capital management (continued) Risk and capital management (continued) Risk and capital management (continued) capital management (continued) Risk and (a)(a)(a)(a) Risk management (continued) Risk management (continued) Risk management (continued) Risk management (continued) (ii)(ii)(ii)(ii) Liquidity risk (continued) Liquidity risk (continued) Liquidity risk (continued) Liquidity risk (continued) risk (continued) liquidity risk (continued) Management of liquidity Management of risk (continued) risk (continued) liquidity liquidity Management of Management of Minimum liquidity Minimum liquidity Minimum liquidity Minimum liquidity The Isle of Man Financial Services Authority (“FSA”) 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 FSA. Measurement of liquidity risk Measurement of liquidity risk Measurement of liquidity risk Measurement of liquidity risk The key measure used by the Bank 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. the balance sheet date (undiscounted) Residual contractual maturities of financial liabilities as at the balance sheet date (undiscounted) Residual contractual maturities of financial liabilities as at the balance sheet date (undiscounted) the balance sheet date (undiscounted) Residual contractual maturities of financial liabilities as at Residual contractual maturities of financial liabilities as at 31 December 2016666 31 December 201 31 December 201 31 December 201 Sight Sight---- SightSight 8 days 8 days 8 days 8 days ££££000000000000 >8 days >8 days >8 days >8 days 1 month ---- 1 month 1 month 1 month ££££000000000000 >1 month >1 month >1 month >1 month ---- 3 months 3 months 3 months 3 months ££££000000000000 >3 months >3 months >3 months >3 months ---- 6 months 6 months 6 months 6 months ££££000000000000 >6 months >6 months >6 months >6 months ---- 1 year 1 year 1 year 1 year ££££000000000000 >1 year >1 year >1 year >1 year ---- 3 years 3 years 3 years 3 years ££££000000000000 >3 years >3 years >3 years >3 years ---- 5 years 5 years 5 years 5 years ££££000000000000 >5 years >5 years >5 years >5 years ££££000000000000 Total Total Total Total ££££000000000000 Customer accounts Other liabilities 2,2,2,2,831831831831 3,026 3,026 3,026 3,026 4,601 4,601 4,601 4,601 90909090 8,257 8,257 8,257 8,257 198198198198 8,079 8,079 8,079 8,079 301301301301 35,517 35,517 35,517 35,517 2,509 2,509 2,509 2,509 53,280 53,280 53,280 53,280 3,787 3,787 3,787 3,787 18,024 18,024 18,024 18,024 3,691 3,691 3,691 3,691 ---- 614614614614 111130,589 30,589 30,589 30,589 14,14,14,14,216216216216 Total liabilities Total liabilities Total liabilities Total liabilities 5,5,5,5,857857857857 4,691 4,691 4,691 4,691 8,455 8,455 8,455 8,455 8,380 8,380 8,380 8,380 38,026 38,026 38,026 38,026 57,067 57,067 57,067 57,067 21,715 21,715 21,715 21,715 614614614614 144,805805805805 144, 144,144, 31 December 2015 Sight- 8 days £000 >8 days - 1 month £000 >1 month - 3 months £000 >3 months - 6 months £000 >6 months - 1 year £000 >1 year - 3 years £000 >3 years - 5 years £000 >5 years £000 Total £000 Customer accounts Other liabilities 2,312 3,353 1,176 58 2,287 131 4,213 199 25,279 1,288 52,859 4,061 23,533 3,386 - 334 111,659 12,810 Total liabilities 5,665 1,234 2,418 4,412 26,567 56,920 26,919 334 124,469 Manx Financial Group PLC 29 4. 4. 4. 4. Risk and capital management (continued) Risk and capital management (continued) Risk and capital management (continued) Risk and capital management (continued) (a)(a)(a)(a) Risk management (continued) Risk management (continued) Risk management (continued) Risk management (continued) ii) Liquidity risk (continued) ii) Liquidity risk (continued) Liquidity risk (continued) Liquidity risk (continued) ii) ii) Measurement of liquidity risk (continued) Measurement of liquidity risk (continued) Measurement of liquidity risk (continued) Measurement of liquidity risk (continued) balance sheet date Maturity of assets and liabilities at the balance sheet date Maturity of assets and liabilities at the balance sheet date balance sheet date Maturity of assets and liabilities at the Maturity of assets and liabilities at the 31 December 2016666 31 December 201 31 December 201 31 December 201 Assets Assets Assets Assets Cash & cash equivalents Available for sale financial instruments Customer accounts receivable Commission debtors Other assets Total assets Total assets Total assets Total assets Liabilities Liabilities Liabilities Liabilities Customer accounts Other liabilities Total liabilities Total liabilities Total liabilities Total liabilities 31 December 2015 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 Sight---- SightSight 8 days 8 days 8 days 8 days ££££000000000000 >8 days >8 days >8 days >8 days ---- 1 month 1 month 1 month 1 month ££££000000000000 >1 month >1 month >1 month >1 month ---- 3 months 3 months 3 months 3 months ££££000000000000 >3>3>3>3 monthmonthmonthmonth---- 6 months 6 months 6 months 6 months ££££000000000000 >6>6>6>6 monthmonthmonthmonth ---- 1 year 1 year 1 year 1 year ££££000000000000 >1 year >1 year >1 year >1 year ---- 3 years 3 years 3 years 3 years ££££000000000000 >3 years >3 years >3 years >3 years ---- 5 years 5 years 5 years 5 years ££££000000000000 >5 years >5 years >5 years >5 years ££££000000000000 Total Total Total Total ££££000000000000 6,129 6,129 6,129 6,129 ---- 4,4,4,4,191919198888 29292929 77770000 10,410,410,410,422226666 2,2,2,2,840840840840 3,028 3,028 3,028 3,028 5,5,5,5,868868868868 ---- 6,499 6,499 6,499 6,499 3,067 3,067 3,067 3,067 110110110110 ---- 9,676 9,676 9,676 9,676 4,597 4,597 4,597 4,597 39393939 4,636 4,636 4,636 4,636 ---- ---- 6,6,6,6,499499499499 10,993333 10,99 10,99 10,99 7,650 7,650 7,650 7,650 193193193193 ---- 14,342 14,342 14,342 14,342 8,235 8,235 8,235 8,235 104104104104 8888,,,,339339339339 10,037 10,037 10,037 10,037 ---- ---- 21,030 21,030 21,030 21,030 8,028 8,028 8,028 8,028 159159159159 8,187 8,187 8,187 8,187 ---- ---- 18,675 18,675 18,675 18,675 ---- ---- 8,675 11118,675 8,675 8,675 34,988 34,988 34,988 34,988 2,276 2,276 2,276 2,276 37,264 37,264 37,264 37,264 ---- ---- 54,074 54,074 54,074 54,074 ---- ---- 54,074 54,074 54,074 54,074 50,50,50,50,931931931931 3,754 3,754 3,754 3,754 55554444,,,,685685685685 ---- ---- 17,704 17,704 17,704 17,704 ---- ---- 17,704 17,704 17,704 17,704 16,333 16,333 16,333 16,333 3,590 3,590 3,590 3,590 19,923 19,923 19,923 19,923 ---- ---- 648648648648 ---- 6,6,6,6,111111111111 6,6,6,6,759759759759 ---- 614614614614 614614614614 6,129 6,129 6,129 6,129 23,991 23,991 23,991 23,991 111111116666,,,,050505053333 333332323232 6,16,16,16,181818181 111152,652,652,652,686868686 111125,952 25,952 25,952 25,952 13,13,13,13,564564564564 111139,39,39,39,516516516516 Sight- 8 days £000 >8 days - 1 month £000 >1 month - 3 months £000 >3 month- 6 months £000 >6 month - 1 year £000 >1 year - 3 years £000 >3 years - 5 years £000 >5 years £000 Total £000 7,156 - 2,054 33 77 9,320 2,313 3,343 5,656 - 3,000 1,765 88 - 4,853 1,175 28 1,203 - - 6,995 5,986 6,367 240 - 9,006 - - 13,602 14,992 2,283 56 2,339 4,179 84 4,263 - - 16,746 - - 16,746 24,869 1,072 25,941 - - - - 47,742 - - 16,782 - - 47,742 16,782 50,498 3,453 21,011 3,160 53,951 24,171 - - 894 - 5,074 5,968 - 334 334 7,156 15,981 101,356 361 5,151 130,005 106,328 11,530 117,858 Manx Financial Group PLC Notes to the Consolidated Financial Statements 30 4. 4. 4. 4. Risk and capital management (continued) Risk and capital management (continued) Risk and capital management (continued) Risk and capital management (continued) Risk management (continued) (a) Risk management (continued) (a) Risk management (continued) Risk management (continued) (a) (a) (iii) Operational risk (iii) Operational risk Operational risk Operational risk (iii)(iii) Operational risk arises from the potential for inadequate systems including systems’ breakdown, errors, poor management, breaches in internal controls, fraud and external events to result in financial loss or reputational damage. Operational risk also occurs when lending through an outsourced partner. The Group manages the risk through appropriate risk controls and loss mitigation actions. These actions include a balance of policies, procedures, internal controls and business continuity arrangements. Operational risk across the Group is analysed and discussed at all Board meetings, with ongoing monitoring of actions arising to address the risks identified. (iv) Market risk (iv) Market risk Market risk Market risk (iv) (iv) 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 2016 and 2015, 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 £70,000 at 31 December 2016 (2015: £77,000) 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 Interest rate 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 Interest rate re----pricing table pricing table pricing table Interest rate re Interest rate re 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. Sight Sight---- SightSight 1 month 1 month 1 month 1 month ££££000000000000 >1month >1month >1month >1month 3monthhhh ----3mont 3mont 3mont ££££000000000000 >3month >3month---- >3month >3month 6months 6months 6months 6months ££££000000000000 >6montttthhhh >6mon >6mon >6mon ---- 1111 year year year year ££££000000000000 >1 year >1 year >1 year >1 year ---- 3 years 3 years 3 years 3 years ££££000000000000 >3 years >3 years >3 years >3 years ---- 5 years 5 years 5 years 5 years ££££000000000000 >5 years >5 years >5 years >5 years ££££000000000000 NonNonNonNon----Int Int.... IntInt Bearing Bearing Bearing Bearing ££££000000000000 Total Total Total Total ££££000000000000 ---- ---- ---- ---- ---- ---- ---- 6,129 6,129 6,129 6,129 Total assets Total assets Total assets Total assets 10,410,410,410,422226666 9,676 9,676 9,676 9,676 14,342 14,342 14,342 14,342 21,030 21,030 21,030 21,030 8,675 11118,675 8,675 8,675 54,074 54,074 54,074 54,074 17,704 17,704 17,704 17,704 6,499 6,499 6,499 6,499 3,067 3,067 3,067 3,067 110110110110 ---- 6,6,6,6,499499499499 7,650 7,650 7,650 7,650 193193193193 ---- 10,993 10,993 10,993 10,993 10,037 10,037 10,037 10,037 ---- ---- ---- 18,675 18,675 18,675 18,675 ---- ---- ---- 54,074 54,074 54,074 54,074 ---- ---- ---- 17,704 17,704 17,704 17,704 ---- ---- 4,597 4,597 4,597 4,597 39393939 ---- 4,636 4,636 4,636 4,636 5,040 5,040 5,040 5,040 8,235 8,235 8,235 8,235 104104104104 ---- 8888,,,,339339339339 6,003 6,003 6,003 6,003 8,028 8,028 8,028 8,028 159159159159 ---- 34,988 34,988 34,988 34,988 2,276 2,276 2,276 2,276 ---- 50,50,50,50,931931931931 3,754 3,754 3,754 3,754 ---- 16,333 16,333 16,333 16,333 3,590 3,590 3,590 3,590 ---- ---- 614614614614 11113,3,3,3,170170170170 8,187 8,187 8,187 8,187 12,843 12,843 12,843 12,843 37,264 37,264 37,264 37,264 18,589)))) ((((18,589 18,589 18,589 55554444,,,,685685685685 ((((611611611611)))) 19,923 19,923 19,923 19,923 (2,219) (2,219) (2,219) (2,219) 13,13,13,13,784784784784 ((((7,7,7,7,025025025025)))) 9,9,9,9,598598598598 15,15,15,15,601601601601 28,28,28,28,444444444444 9,855 9,855 9,855 9,855 9,9,9,9,222244444444 7,7,7,7,025025025025 ---- ---- ---- 648648648648 ---- 6,6,6,6,111111111111 6,6,6,6,759759759759 23,991 23,991 23,991 23,991 111116,16,16,16,053053053053 333332323232 6,16,16,16,181818181 111152,652,652,652,686868686 111125,952 25,952 25,952 25,952 13,13,13,13,564564564564 11113,3,3,3,170170170170 111152,652,652,652,686868686 ---- 31 December 2016666 31 December 201 31 December 201 31 December 201 Assets Assets Assets Assets Cash & cash equivalents Available for sale financial instruments Customer accounts receivable Commission debtors Other assets 6,129 6,129 6,129 6,129 ---- 4,4,4,4,191919198888 29292929 77770000 Liabilities Liabilities Liabilities Liabilities Customer accounts Other liabilities Total capital and reserves Total liabilities and equity Total liabilities and equity Total liabilities and equity Total liabilities and equity Interest rate sensitivity gap Cumulative Cumulative Cumulative Cumulative 2,2,2,2,840840840840 3,028 3,028 3,028 3,028 ---- 5,5,5,5,868868868868 4,4,4,4,558558558558 4,4,4,4,558558558558 Manx Financial Group PLC 31 4. 4. 4. 4. Risk and capital management (continued) Risk and capital management (continued) Risk and capital management (continued) Risk and capital management (continued) Risk management (continued) (a) Risk management (continued) (a) Risk management (continued) Risk management (continued) (a) (a) (iv) Market risk (continued) (iv) Market risk (continued) Market risk (continued) Market risk (continued) (iv) (iv) pricing table (continued) Interest risk re----pricing table (continued) Interest risk re pricing table (continued) pricing table (continued) Interest risk re Interest risk re Sight- 1 month £000 >1month -3month £000 >3month- 6months £000 >6month - 1 year £000 >1 year - 3 years £000 >3 years - 5 years £000 >5 years £000 Non-Int. Bearing £000 Total £000 31 December 2015 Assets Cash & cash equivalents Available for sale financial instruments Customer accounts receivable Commission debtors Other assets 7,156 3,000 3,819 - - - - - - - 6,995 6,367 - - 5,986 9,006 - - - 16,746 - - - 47,742 - - - 16,782 - - Total assets 13,975 13,362 14,992 16,746 47,742 16,782 Liabilities Customer accounts Other liabilities Total capital and reserves 3,488 28 - 2,283 56 - 4,179 84 - 24,869 1,072 - 50,498 3,453 - 21,011 3,160 - Total liabilities and equity Interest rate sensitivity gap 3,516 10,459 2,339 11,023 4,263 10,729 25,941 (9,195) 53,951 (6,209) 24,171 (7,389) - - 894 - - 894 - 334 - 334 560 - 7,156 - - 361 5,151 5,512 - 3,343 12,147 15,490 (9,978) 15,981 101,356 361 5,151 130,005 106,328 11,530 12,147 130,005 - Cumulative 10,459 21,482 32,211 23,016 16,807 9,418 9,978 - - Sensitivity analysis for interest rate risk Sensitivity analysis for interest rate risk Sensitivity analysis for interest rate risk 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 FSA 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 2.0% per annum (2015: 2.0%). The following tables set out the estimated total impact of such a change based on the mismatch at the balance sheet date. 31 December 2016666 31 December 201 31 December 201 31 December 201 Interest rate sensitivity gap Weighting £000 Sight Sight---- SightSight 1 month 1 month 1 month 1 month ££££000000000000 >1month---- >1month >1month >1month 3month 3month 3month 3month ££££000000000000 >3month >3month---- >3month >3month 6months 6months 6months 6months ££££000000000000 >6montttthhhh >6mon >6mon >6mon ---- 1111 year year year year ££££000000000000 >1 year >1 year >1 year >1 year ---- 3 years 3 years 3 years 3 years ££££000000000000 >3 years >3 years >3 years >3 years ---- 5 years 5 years 5 years 5 years ££££000000000000 >5 years >5 years >5 years >5 years ££££000000000000 NonNonNonNon----Int Int.... IntInt Bearing Bearing Bearing Bearing ££££000000000000 4,4,4,4,558558558558 0.000 0.000 0.000 0.000 ---- 5,040 5,040 5,040 5,040 0.003 0.003 0.003 0.003 15151515 6,003 6,003 6,003 6,003 0.007 0.007 0.007 0.007 42424242 12,843 12,843 12,843 12,843 18,589)))) ((((18,589 18,589 18,589 ((((611611611611)))) (2,219) (2,219) (2,219) (2,219) 0.014 0.014 0.014 0.014 180180180180 0.027 0.027 0.027 0.027 ((((502502502502)))) 0.054 0.054 0.054 0.054 0.115 0.115 0.115 0.115 ((((33333333)))) (255) (255) (255) (255) ---- (55(55(55(553333)))) ((((7,7,7,7,025025025025)))) 0.000 0.000 0.000 0.000 31 December 2015 Sight- 1 month £000 >1month- 3month £000 >3month- 6months £000 >6month - 1 year £000 >1 year - 3 years £000 >3 years - 5 years £000 >5 years £000 Non-Int. Bearing £000 Interest rate sensitivity gap 10,459 Weighting £000 0.000 - 11,023 0.003 33 10,729 (9,195) (6,209) (7,389) 0.007 0.014 0.027 75 (129) (168) 0.054 (399) 560 0.115 63 (9,978) 0.000 - (525) Total Total Total Total ££££000000000000 ---- ---- Total £000 - - Manx Financial Group PLC Notes to the Consolidated Financial Statements 32 4. 4. 4. 4. Risk and capital management (continued) Risk and capital management (continued) Risk and capital management (continued) Risk and capital management (continued) Capital Management (b)(b)(b)(b) Capital Management Capital Management Capital Management Regulatory capital Regulatory capital Regulatory capital 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 FSA 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) value of financial instruments (c) Fair Fair Fair Fair value of financial instruments value of financial instruments value of financial instruments (c) (c) 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 Valuation models Valuation models 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 2016666 31 December 201 31 December 201 31 December 201 Investment securities Investment securities Investment securities Investment securities Government bonds Equities Level 1 Level 1 Level 1 Level 1 ££££000000000000 Level 2 Level 2 Level 2 Level 2 ££££000000000000 Level 3 Level 3 Level 3 Level 3 ££££000000000000 Total Total Total Total ££££000000000000 23,991 23,991 23,991 23,991 77770000 24,061 24,061 24,061 24,061 ---- ---- ---- ---- ---- ---- 23,991 23,991 23,991 23,991 77770000 24,061 24,061 24,061 24,061 Manx Financial Group PLC 33 4. 4. 4. 4. Risk and capital management (continued) Risk and capital management (continued) Risk and capital management (continued) Risk and capital management (continued) (continued) Fair value of financial instruments (continued) (c)(c)(c)(c) Fair value of financial instruments (continued) (continued) Fair value of financial instruments Fair value of financial instruments (continued) Valuation models (continued) Valuation models (continued) (continued) Valuation models Valuation models 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. December 2016666 31313131 December 201 December 201 December 201 Assets Assets Assets Assets Cash and cash equivalents Loans and advances to customers Commissions receivable Trade and other receivables Liabilities Liabilities Liabilities Liabilities Customer accounts Creditors and accrued charges Block creditors Loan notes Level 1 Level 1 Level 1 Level 1 ££££000000000000 Level 2 Level 2 Level 2 Level 2 ££££000000000000 Level 3 Level 3 Level 3 Level 3 ££££000000000000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 6,129 6,129 6,129 6,129 116,050505053333 116, 116,116, 332332332332 1,1,1,1,732732732732 124,246246246246 124, 124,124, 125,952 125,952 125,952 125,952 2,2,2,2,975975975975 1,390 1,390 1,390 1,390 8,545 8,545 8,545 8,545 138,862862862862 138, 138,138, ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Total fair Total fair Total fair Total fair values values values values ££££000000000000 6,129 6,129 6,129 6,129 116,050505053333 116, 116,116, 332332332332 1,1,1,1,732732732732 Total Total Total Total carrying carrying carrying carrying amount amount amount amount ££££000000000000 6,129 6,129 6,129 6,129 116,050505053333 116, 116,116, 332332332332 1,1,1,1,732732732732 124,246246246246 124, 124,124, 124,246246246246 124, 124,124, 125,952 125,952 125,952 125,952 2,2,2,2,975975975975 1,390 1,390 1,390 1,390 8,545 8,545 8,545 8,545 138,862862862862 138, 138,138, 125,952 125,952 125,952 125,952 2,2,2,2,975975975975 1,390 1,390 1,390 1,390 8,545 8,545 8,545 8,545 138,862862862862 138, 138,138, 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. 5.5.5.5. Segmental analysis Segmental analysis Segmental analysis 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, UK and Channel Islands. 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); Manx Incahoot; Conister Card Services; and Edgewater Associates Limited. For the year ended 31 December 2016666 For the year ended 31 December 201 For the year ended 31 December 201 For the year ended 31 December 201 Net interest income Operating income payable Profit/(loss) before tax payable Profit/(loss) before tax payable payable Profit/(loss) before tax Profit/(loss) before tax Capital expenditure Total assets Total assets Total assets Total assets Asset and Asset and Asset and Asset and Personal Personal Personal Personal Finance Finance Finance Finance ££££000000000000 16,001 16,001 16,001 16,001 7,07,07,07,044447777 1,1,1,1,787787787787 66669999 148,523523523523 148, 148,148, ManxManxManxManx Incahoot Incahoot Incahoot Incahoot ££££000000000000 ---- 81818181 (205) (205) (205) (205) 52525252 418418418418 Conister Conister Conister Conister CardCardCardCard Services Services Services Services ££££000000000000 ---- (106) (106) (106) (106) (223) (223) (223) (223) ---- 2222 Edgewater Edgewater Edgewater Edgewater Associates Associates Associates Associates ££££000000000000 Investing Investing Investing Investing Activities Activities Activities Activities ££££000000000000 Total Total Total Total ££££000000000000 11116,001 6,001 6,001 6,001 8,58,58,58,599999999 ---- 1,465 1,465 1,465 1,465 371371371371 ---- 112112112112 (185)))) (185 (185(185 1,1,1,1,545545545545 970970970970 ---- 1,091 1,091 1,091 1,091 1,546 1,546 1,546 1,546 2,197 2,197 2,197 2,197 152,686868686 152,6 152,6 152,6 Manx Financial Group PLC Notes to the Consolidated Financial Statements 34 5.5.5.5. Segmental analysis (continued) Segmental analysis (continued) Segmental analysis (continued) Segmental analysis (continued) For the year ended 31 December 2015 Net interest income Operating income Profit/(loss) before tax payable Capital expenditure Total assets 6.6.6.6. Interest income Interest income Interest income Interest income Asset and Personal Finance £000 13,543 6,929 2,299 173 128,357 Manx Incahoot £000 Conister Card Services £000 Edgewater Associates £000 Investing Activities £000 - 84 203 122 447 - (98) (71) - 123 - 1,369 148 44 580 Total £000 13,543 8,433 - 149 (270) 2,309 274 613 498 130,005 Interest receivable and similar income represents charges and interest on finance and leasing agreements attributable to the year after adjusting for early settlements and interest on bank balances. 7.7.7.7. Other expenses Other expenses Other expenses Other expenses Professional and legal fees Marketing costs IT costs Establishment costs Communication costs Travel costs Bank charges Insurance Irrecoverable VAT Other costs 8.8.8.8. Allowance for impairment Allowance for impairment Allowance for impairment 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 Total charge for specific provision for impairment Total charge for specific provision for impairment Total charge for specific provision for impairment The charge / (credit) in respect of collective allowances for impairment comprises: Collective impairment allowances made Release of allowances previously made for collective allowances for impairment credit)))) for collective allowances for impairment charge / (credit Total charge / ( Total for collective allowances for impairment for collective allowances for impairment credit credit charge / ( charge / ( Total Total Total charge for allowances for impairment Total charge for allowances for impairment Total charge for allowances for impairment Total charge for allowances for impairment 2012012012016666 ££££000000000000 858858858858 167167167167 425425425425 362362362362 61616161 79797979 136136136136 112112112112 238238238238 268268268268 2015 £000 654 161 339 547 66 75 115 115 228 85 2,2,2,2,706706706706 2,385 2012012012016666 ££££000000000000 999915151515 ((((475475475475)))) 444440404040 2012012012016666 ££££000000000000 11112222 ((((5555)))) 7777 447447447447 (note 33) 2015 £000 593 (195) 398 (note 33) 2015 £000 2 (3) (1) 397 9.9.9.9. Depositors Compensation Scheme Depositors’’’’ Compensation Scheme Compensation Scheme Compensation Scheme Depositors Depositors Receipt in respect of the Isle of Man Government Depositors’ Compensation Scheme Manx Financial Group PLC 35 2012012012016666 ££££000000000000 ---- 2015 £000 10 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 FSA of £133,506 and £34,424 have been received and a further £53,710 is expected from the Scheme. In 2015, the Bank received a final repayment for a Scheme for the Bank of Credit and Commerce Overseas Limited launched in 1991. 10.10.10.10. Profit payable before tax payable Profit before tax payable payable before tax before tax Profit Profit The profit before tax payable for the year is stated after charging: Interest expense payable to depositors Interest expense payable on loan notes Interest expense payable to block funders Profit on sale of fixed assets Share options expense Directors’ remuneration Directors’ fees Directors’ pensions Directors’ performance related pay Auditors’ remuneration: as Auditors current year non-audit services Pension cost defined benefit scheme Operating lease rentals for property 11.11.11.11. Tax Tax Tax Tax expense expense expense expense Current tax expense Current tax expense Current tax expense Current tax expense Current year Changes to estimates for prior years Deferred tax expense Deferred tax expense Deferred tax expense Deferred tax expense Origination and reversal of temporary differences Utilisation of previously recognised tax losses Changes to estimates for prior years Total tax expense Total tax expense Total tax expense Total tax expense Reconciliation of effective tax rate Reconciliation of effective tax rate Reconciliation of effective tax rate 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 2012012012016666 ££££000000000000 1,1,1,1,545545545545 155155155155 24242424 28282828 ((((6666)))) ((((9999)))) 24242424 22228888 10.0%10.0%10.0%10.0% 1.1.1.1.5555%%%% 1.1.1.1.8888%%%% (0.(0.(0.(0.4444)%)%)%)% (0.(0.(0.(0.6666)%)%)%)% 1.1.1.1.6666%%%% 1.1.1.1.8888%%%% 2012012012016666 ££££000000000000 2,795 2,795 2,795 2,795 474747475555 98989898 ---- 46464646 304304304304 195195195195 30303030 60606060 78787878 38383838 11113333 231231231231 2015 £000 2,544 429 29 (12) 46 297 202 30 54 86 19 14 342 2012012012016666 ££££000000000000 2015 £000 111111114444 7777 111122221111 24242424 78787878 21212121 121212123333 222244444444 10.0% 0.4% 0.6% (0.8)% (0.8)% 0.3% (0.7)% 21 (15) 6 6 197 (2) 201 207 2015 £000 2,309 231 8 15 (18) (18) 6 (17) Total tax expense Total tax expense Total tax expense Total tax expense 11115555....8888%%%% 222244444444 9.0% 207 Manx Financial Group PLC Notes to the Consolidated Financial Statements 36 11.11.11.11. Tax Tax Tax Tax expense (continued) expense (continued) expense (continued) expense (continued) The main rate of corporation tax in the Isle of Man is 0.0% (2015: 0.0%). However the profits of the Group’s Manx banking activities are taxed at 10.0% (2015: 10.0%). The profits of the Group’s subsidiaries that are subject to UK corporation tax are taxed at a rate of 20.0% (2015: 20.0%). The value of tax losses carried forward reduced to nil and there is now a timing difference related to accelerated capital allowances resulting in a £40,000 liability (2015: £83,000 asset). This resulted in an expense of £123,000 (2015: £201,000) to the income statement. 12.12.12.12. Earnings per share Earnings per share Earnings per share Earnings per share Profit for the year Profit for the year Profit for the year Profit for the year Weighted average number of ordinary shares in issue Basic earnings per share (pence) Diluted earnings per share (pence) Total comprehensive income for the period Total comprehensive income for the period Total comprehensive income for the period Total comprehensive income for the period Weighted average number of ordinary shares in issue Basic earnings per share (pence) Diluted earnings per share (pence) 2012012012016666 2015 ,000 ££££1,1,1,1,301301301301,000 ,000,000 £2,102,000 102,070,252 102,070,252 102,070,252 102,070,252 1.1.1.1.27272727 0.0.0.0.87878787 102,070,252 2.06 1.29 ,000 ££££977977977977,000 ,000,000 £2,121,000 102,070,252 102,070,252 102,070,252 102,070,252 0000....99996666 0.0.0.0.68686868 102,070,252 2.08 1.30 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. Reconciliation of w between basic and eighted average number of ordinary shares in issue between basic and Reconciliation of weighted average number of ordinary shares in issue between basic and between basic and eighted average number of ordinary shares in issue eighted average number of ordinary shares in issue Reconciliation of w Reconciliation of w diluted earnings per share diluted earnings per share diluted earnings per share diluted earnings per share As per basic earnings per share Number of shares issued if all convertible loan notes were exchanged for equity (note 25) Dilutive element of warrants if taken up (note 25) Dilutive element of share options if exercised (note 27) As per dilutive earnings per share Reconciliation of earnings between basic and diluted earnings per share Reconciliation of earnings between basic and diluted earnings per share diluted earnings per share diluted earnings per share Reconciliation of earnings between basic and Reconciliation of earnings between basic and As per basic earnings per share Interest expense saved if all convertible loan notes were exchanged for equity (note 25) As per dilutive earnings per share 2012012012016666 2015 102,070,252 102,070,252 102,070,252 102,070,252 61,500,000 61,500,000 61,500,000 61,500,000 12,733,968 12,733,968 12,733,968 12,733,968 ---- 102,070,252 61,500,000 17,641,990 22,665 176,304,220 176,304,220 176,304,220 176,304,220 181,234,907 £1,£1,£1,£1,301301301301,000 ,000 ,000,000 £230,150 £230,150 £230,150 £230,150 £2,102,000 £230,150 ,150 £1,£1,£1,£1,531531531531,150 ,150,150 £2,332,150 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. 13.13.13.13. Company loss Company loss loss loss Company Company The loss on ordinary activities after taxation of the Company is £119,000 (2015: £95,000). 14.14.14.14. Cash and cash equivalents Cash and cash equivalents Cash and cash equivalents Cash and cash equivalents Cash at bank and in hand Short-term deposits Group Company 2012012012016666 ££££000000000000 6666,1,1,1,129292929 ---- 6,129 6,129 6,129 6,129 2015 £000 7,156 - 7,156 2012012012016666 ££££000000000000 ---- ---- ---- 2015 £000 100 - 100 Cash at bank includes an amount of £63,000 (2015: £140,000) representing receipts which are in the course of transmission. Manx Financial Group PLC 37 15.15.15.15. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss The investment represents shares in a UK quoted company, 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 IFRS 13 fair value hierarchy. The cost of the shares was £471,000. The unrealised difference between cost and market value has been taken to the income statement. Dividend income of £350,000 has been received from this investment since it was made. 16.16.16.16. Available for sale instruments financial instruments Available for sale financial instruments instruments financial financial Available for sale Available for sale UK Government Treasury Bills Group Company 2012012012016666 ££££000000000000 23,991 23,991 23,991 23,991 23,991 23,991 23,991 23,991 2015 £000 15,981 15,981 2012012012016666 ££££000000000000 ---- ---- 2015 £000 - - UK Government Treasury Bills are stated at fair value and unrealised changes in the fair value are reflected in equity. 17.17.17.17. LoLoLoLoanananans and advances to customers s and advances to customers s and advances to customers s and advances to customers GroupGroupGroupGroup Hire Purchase balances Finance lease balances Unsecured personal loans Vehicle stocking plans Block discounting Secured commercial loans Secured personal loans GrossGrossGrossGross Amount Amount Amount Amount ££££000000000000 61,952 61,952 61,952 61,952 14,779 14,779 14,779 14,779 6,638 6,638 6,638 6,638 1,366 1,366 1,366 1,366 13,213 13,213 13,213 13,213 2,2,2,2,252525257777 18,004 18,004 18,004 18,004 2012012012016666 Impairment Impairment Impairment Impairment Allowance Allowance Allowance Allowance ££££000000000000 (1,(1,(1,(1,309309309309)))) (6(6(6(673737373)))) (1(1(1(162626262)))) ---- ---- ((((12121212)))) ---- Carrying Carrying Carrying Carrying Value Value ValueValue ££££000000000000 66660,643 0,643 0,643 0,643 14,106 14,106 14,106 14,106 6,476 6,476 6,476 6,476 ,366 1111,366 ,366,366 13,213 13,213 13,213 13,213 2,2,2,2,245245245245 18,004 18,004 18,004 18,004 Gross Amount £000 62,814 10,240 4,023 1,119 8,935 4,947 11,339 2015 Impairment Allowance £000 (1,136) (656) (180) - - (89) - Carrying Value £000 61,678 9,584 3,843 1,119 8,935 4,858 11,339 118,209999 118,20 118,20 118,20 (2,(2,(2,(2,156156156156)))) 111111116666,,,,050505053333 103,417 (2,061) 101,356 Collateral is held, in the form of underlying assets, for HP, 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 Specific allowance for impairment Specific allowance for impairment Specific allowance for impairment Balance at 1 January Specific allowance for impairment made Release of allowances previously made Write-offs Balance at 31 December Balance at 31 December Balance at 31 December Balance at 31 December Collective allowance for impairment Collective allowance for impairment Collective allowance for impairment Collective allowance for impairment Balance at 1 January Collective allowance for impairment made Release of allowances previously made Balance at 31 December Balance at 31 December Balance at 31 December Balance at 31 December Total allowances for impairment Total allowances for impairment Total allowances for impairment Total allowances for impairment 2012012012016666 ££££000000000000 2,011 2,011 2,011 2,011 915915915915 ((((475475475475)))) ((((352352352352)))) 2,02,02,02,099999999 2012012012016666 ££££000000000000 55550000 12121212 ((((5555)))) 55557777 2015 £000 1,754 1,255 (130) (868) 2,011 2015 £000 51 2 (3) 50 2,2,2,2,156156156156 2,061 Advances on preferential terms are available to all Directors, management and staff. As at 31 December 2016 £306,895 (2015: £208,017) 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 17.17.17.17. Loans and advances to customers (continued) Loans and advances to customers (continued) (continued) (continued) Loans and advances to customers Loans and advances to customers As detailed below, at the end of the current financial year three loan exposures, both in connection with block discounting lending, exceeded 10.0% of the capital base of the Bank (2015: four loan exposures): Exposure Exposure Exposure Exposure Block discounting facility Outstanding Outstanding Outstanding Outstanding Balance Balance Balance Balance 2012012012016666 ££££000000000000 9,302 9,302 9,302 9,302 Outstanding Balance 2015 £000 7,345 HPHPHPHP and finance lease receivables and finance lease receivables and finance lease receivables 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 2012012012016666 ££££000000000000 5,537 33335,537 5,537 5,537 60,60,60,60,542542542542 Facility Facility Facility Facility limit limit limit limit ££££000000000000 11111111,,,,000000000000 2015 £000 33,987 60,501 Gross investment in HP and finance lease receivables Gross investment in HP and finance lease receivables Gross investment in HP and finance lease receivables Gross investment in HP and finance lease receivables 6,079 99996,079 6,079 6,079 94,488 The investment in HP and finance lease receivables net of unearned income comprises: Less than one year Between one and five years Net investment in HP and finance lease receivables 18.18.18.18. Property, plant and equipment Property, plant and equipment Property, plant and equipment Property, plant and equipment GroupGroupGroupGroup CostCostCostCost As at 1 January 2016 Additions Disposals As at 31 December 2016666 As at 31 December 201 As at 31 December 201 As at 31 December 201 Accumulated depreciation Accumulated depreciation Accumulated depreciation Accumulated depreciation As at 1 January 2016 Charge for year Disposals As at 31 December 2016666 As at 31 December 201 As at 31 December 201 As at 31 December 201 Carrying value at 31 December 2016666 Carrying value at 31 December 201 Carrying value at 31 December 201 Carrying value at 31 December 201 Carrying value at 31 December 2015 2012012012016666 ££££000000000000 22226,562 6,562 6,562 6,562 50,168 50,168 50,168 50,168 2015 £000 24,425 48,629 6,730 77776,730 6,730 6,730 73,054 Leasehold Leasehold Leasehold Leasehold Improvements Improvements Improvements Improvements ££££000000000000 ITITITIT Equipment Equipment Equipment Equipment ££££000000000000 Furniture & Furniture & Furniture & Furniture & Equipment Equipment Equipment Equipment ££££000000000000 MotorMotorMotorMotor Vehicles Vehicles Vehicles Vehicles ££££000000000000 417417417417 ---- ---- 417417417417 70707070 59595959 ---- 129129129129 288288288288 347 1,468 1,468 1,468 1,468 87878787 ---- 1,555 1,555 1,555 1,555 1,025 1,025 1,025 1,025 164164164164 ---- 1,189 1,189 1,189 1,189 366366366366 443 623623623623 6666 ---- 629629629629 578578578578 10101010 ---- 588588588588 41414141 45 57575757 ---- ---- 57575757 20202020 13131313 ---- 33333333 24242424 37 Total Total Total Total ££££000000000000 2,565 2,565 2,565 2,565 93939393 ---- 2,652,652,652,658888 1,691,691,691,693333 246246246246 ---- 1,939 1,939 1,939 1,939 719719719719 872 Manx Financial Group PLC 18.18.18.18. Property, plant and equipment (continued) Property, plant and equipment (continued) Property, plant and equipment (continued) Property, plant and equipment (continued) Company Company Company Company CostCostCostCost As at 1 January 2016 Additions Disposals As at 31 December 2016666 As at 31 December 201 As at 31 December 201 As at 31 December 201 Accumulated depreciation Accumulated depreciation Accumulated depreciation Accumulated depreciation As at 1 January 2016 Charge for year Disposals As at 31 December 2016666 As at 31 December 201 As at 31 December 201 As at 31 December 201 Carrying value at 31 December 2016666 Carrying value at 31 December 201 Carrying value at 31 December 201 Carrying value at 31 December 201 Carrying value at 31 December 2015 19.19.19.19. Intangible assets Intangible assets Intangible assets Intangible assets GroupGroupGroupGroup CostCostCostCost As at 1 January 2016 Additions Acqusitions Disposals As at 31 December 2016666 As at 31 December 201 As at 31 December 201 As at 31 December 201 Accumulated amortisation Accumulated amortisation amortisation amortisation Accumulated Accumulated As at 1 January 2016 Charge for year Impairment (see note 20) Disposals As at 31 December 2016666 As at 31 December 201 As at 31 December 201 As at 31 December 201 Carrying value at 31 December 2016666 Carrying value at 31 December 201 Carrying value at 31 December 201 Carrying value at 31 December 201 Carrying value at 31 December 2015 Acquisition of MBL Acquisition of MBL Acquisition of MBL Acquisition of MBL Leasehold Leasehold Leasehold Leasehold Improvements Improvements Improvements Improvements ££££000000000000 ITITITIT Equipment Equipment Equipment Equipment ££££000000000000 Furniture & Furniture & Furniture & Furniture & Equipment Equipment Equipment Equipment ££££000000000000 234234234234 ---- ---- 234234234234 15151515 38383838 ---- 53535353 181181181181 219 13131313 ---- ---- 13131313 ---- 1111 ---- 1111 11112222 13 15151515 ---- ---- 15151515 ---- 1111 ---- 1111 11114444 15 Customer Customer Customer Customer Contracts & Lists & Lists Contracts & Lists & Lists Contracts Contracts ££££000000000000 Intellectual Intellectual Intellectual Intellectual Property Rights Property Rights Property Rights Property Rights ££££000000000000 Website Website Website Website Development Development Development Development ££££000000000000 76767676 ---- 948948948948 ---- 1,024 1,024 1,024 1,024 44444444 32323232 ---- ---- 76767676 948948948948 32 345345345345 ---- ---- ---- 343434345555 ---- ---- 48484848 ---- 48484848 297297297297 345 21212121 50505050 ---- ---- 77771111 ---- ---- ---- ---- ---- 77771111 21 39 Total Total Total Total ££££000000000000 262262262262 ---- ---- 262262262262 15151515 40404040 ---- 55555555 222200007777 247 Total Total Total Total ££££000000000000 442442442442 50505050 948948948948 ---- 1,440 1,440 1,440 1,440 44444444 32323232 48484848 ---- 121212124444 1,316 1,316 1,316 1,316 398 On 23 December 2016, EWA acquired the majority of the Isle of Man’s IFA business held by Knox Financial Services Limited ("KFSL") carrying a trading name of MBL. The initial acquisition includes approximately 4,000 clients together with 6 members of staff. The basis of consideration is in part contingent, as it is determined by 4 times renewal income received in the first 12 months of ownership, reduced down by any clawbacks in the same period. The final value cannot fall below £800,000. EWA entered into a loan agreement with Conister Bank Limited (see note 30 for terms) and paid the non-refundable minimum of £800,000 and a further £200,000 into an escrow account until the final valuation has been determined. When the value has been finalised, any surplus or shortfall will be settled. Manx Financial Group PLC Notes to the Consolidated Financial Statements 40 19.19.19.19. Intangible assets (continued) Intangible assets (continued) (continued) (continued) Intangible assets Intangible assets (continued) Acquisition of MBL (continued) Acquisition of MBL (continued) (continued) Acquisition of MBL Acquisition of MBL By reference to the renewal income received by KFSL in the 12 months prior to disposal, an estimate of £236,906 has been assumed for the next 12 months, which would generate a consideration sum of £947,624. Therefore, EWA has accounted for this transaction by recognising an intangible asset of £947,624 and a receivable of £52,376 (see note 21) of the monies held in escrow. The fair value of the assets acquired is considered to be of the same amount as the sum estimated to be paid and principally relates to customer contracts. The period by which these contracts are amortised over is estimated to be 18.75 years given the average duration of EWA’s existing portfolio for renewal income. In tandem, both parties entered into an option agreement, exercisable within three months from the transaction date, for EWA to acquire the remainder of the vendor's IFA business which includes approximately 150 clients. This option was exercised on 18 January 2017. The fair value of this option agreement was estimated to be nil. 20.20.20.20. Investment in Group undertakings Investment in Group undertakings Investment in Group undertakings Investment in Group undertakings The Company has the following investments in subsidiaries incorporated in the Isle of Man: Carrying value of investments Carrying value of investments Carrying value of investments Carrying value of investments Nature of Business 31 December 31 December 31 December 31 December 2012012012016666 % Holding % Holding % Holding % Holding Date of Incorporation Conister Bank Limited Edgewater Associates Limited TransSend Holdings Limited Bradburn Limited Asset and Personal Finance Wealth Management Holding Company for Prepaid Card Division Holding Company 100100100100 100100100100 100100100100 100100100100 05/12/1935 24/12/1996 05/11/2007 15/05/2009 Total Total Total Total 2012012012016666 ££££000000000000 10,067 10,067 10,067 10,067 2,005 2,005 2,005 2,005 ---- ---- 12,072 12,072 12,072 12,072 Total 2015 £000 10,067 2,005 - - 12,072 Amounts owed to and from Group undertakings are unsecured, interest-free and repayable on demand. Subordinated loans Subordinated loans Subordinated loans Subordinated loans MFG has issued several subordinated loans as part of its equity funding into the Bank and EWA. Interest charged is at the discretion of the lender. Creation Maturity Interest rate Conister Bank Limited Conister Bank Limited Conister Bank Limited Conister Bank Limited 11 February 2014 27 May 2014 9 July 2014 17 September 2014 22 July 2013 25 October 2013 23 September 2016 11 February 2024 27 May 2024 9 July 2024 17 September 2026 22 July 2033 22 October 2033 23 September 2036 Edgewater Associates Limited Edgewater Associates Limited Edgewater Associates Limited Edgewater Associates Limited 14 May 2012 28 February 2013 14 May 2017 28 February 2018 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% Company Company Company Company 2012012012016666 ££££000000000000 Company 2015 £000 500500500500 500500500500 500500500500 400400400400 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,100 1,100 1,100 1,100 128128128128 50505050 5555,,,,111178787878 500 500 500 400 1,000 1,000 - 128 50 4,078 20.20.20.20. Investment in Group undertakings (continued) Investment in Group undertakings (continued) (continued) (continued) Investment in Group undertakings Investment in Group undertakings Goodwill Goodwill Goodwill Goodwill Edgewater Associates Limited (“EWA”) ECF Asset Finance PLC (“ECF”) Three Spires Insurance Services Limited (“Three Spires”) Manx Financial Group PLC 41 Group 2015 £000 1,849 454 41 2,344 GroupGroupGroupGroup 2012012012016666 ££££000000000000 1,849 1,849 1,849 1,849 454454454454 41414141 2,344 2,344 2,344 2,344 Goodwill impairment Goodwill impairment Goodwill impairment Goodwill impairment The goodwill is considered to have an indefinite life and is reviewed on an annual basis by comparing its estimated recoverable amount with its carrying value. The estimated recoverable amount in relation to the goodwill generated on the purchase of EWA is based on the forecasted 3 year cash flow projections, extrapolated to 10 years using a 2.0% annual increment, and then discounted using a 12.0% discount factor. The sensitivity of the analysis was tested using additional discount factors of 15.0% and 20.0% 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 5.0% margin, extrapolated to 10 years using a 2.0% annual increment, and then discounted using a 12.0% discount factor. The sensitivity of the analysis was tested using additional discount factors of 15.0% and 20.0% on varying sales volumes. There has been no change in the detailed method of measurement for EWA and ECF when compared to 2015. 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. and acquisition of subsidiary Investment in joint venture and acquisition of subsidiary Investment in joint venture and acquisition of subsidiary and acquisition of subsidiary Investment in joint venture Investment in joint venture On 7 August 2014, a joint venture agreement was entered into between Manx Financial Limited (“MFL”), 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. In December 2015, Andrew Flowers disposed of his shares to the parent of MFL, Bradburn Limited, for £500,000 when the net assets of MFL at the time were £1,053,000. This generated a gain on acquisition of the joint venture of £28,000 and MFL became a subsidiary of the Group. Acquisition of Incahoot Acquisition of Incahoot Acquisition of Incahoot Acquisition of Incahoot On 6 March 2015, the business of Incahoot Limited was acquired by Manx Incahoot Limited, a subsidiary of the Group. Incahoot Limited was in administration at the time and sold its intellectual property rights, a customer contract and property, plant and equipment. Two employees were also transferred under the Transfer of Undertakings (Protection of Employment) Regulations 2006 which carried over £26,000 of unpaid wages. In exchange for the net assets acquired, Manx Incahoot Limited paid £101,000 in cash and pledged a further 10.0% share of future revenue streams on pipeline listed at the time of acquisition generated within 2 years of purchase, up to a cap of £100,000. No revenue has yet been generated from this pipeline and the Directors believe that it is unlikely that any will. Therefore the contingent consideration has been valued at nil. Manx Financial Group PLC Notes to the Consolidated Financial Statements 42 20.20.20.20. Investment in Group undertakings (continued) Investment in Group undertakings (continued) Investment in Group undertakings (continued) Investment in Group undertakings (continued) Acquisition of Incahoot (continued) Acquisition of Incahoot (continued) Acquisition of Incahoot (continued) Acquisition of Incahoot (continued) Fair value of consideration Fair value of consideration Fair value of consideration Fair value of consideration Cash Contingent consideration Fair value of assets acquired Fair value of assets acquired Fair value of assets acquired Fair value of assets acquired Intellectual property rights (including website) Fair value increase on intellectual property rights Customer contract Property, plant and equipment liabilities acquired Fair value of liabilities acquired Fair value of liabilities acquired liabilities acquired Fair value of Fair value of Unpaid employee wages Bargain purchase Bargain purchase Bargain purchase Bargain purchase 2015 2015 20152015 ££££000000000000 101101101101 ---- 35353535 310310310310 76767676 1111 ((((422422422422)))) 26262626 2015 2015 20152015 ££££000000000000 101101101101 (396) (396) (396) (396) (295) (295) (295) (295) On 12 November 2015, a valuation was conducted by an independent firm of professional advisers on the intellectual property rights acquired for the purpose of including within these financial statements as determined by IFRS 3: Business Combinations. The independent firm addressed the three levels of the IFRS fair value hierarchy and concluded that level 3 was most appropriate as the intellectual property rights acquired had no active markets (Level 1), or comparable assets against which to index prices (Level 2). Therefore, the report valued the intellectual property rights acquired based on internally generated data (Level 3) being: costs incurred to date and cash flow projections. The replacement cost approach was determined as £310,500 after tax and the income approach valued the business at £233,701 using a discount factor of 42.5%. The report averaged the two approaches to arrive at a final valuation of £276,000. In addition, the domain name was separately valued as an intangible asset, citing comparable domains sold recently with a range of £6,000 to £35,000. It is the view of the Directors that only one approach should be used when valuing the assets acquired and that the replacement cost approach is the better of the two due to the uncertainty of the cash flows given its recent acquisition. Thus the replacement cost has been adopted as the basis for the valuation in order to arrive at a reliable estimate. In addition, the Directors believe that the value of the domain name should be valued at the upper end of the range cited given market conditions for this product. Therefore, the value attributed in these financial statements on the assets acquired is £345,500, being £310,500 for the intellectual property and £35,000 for the domain name. The Directors believe that the assets acquired will have an enduring benefit to the company and therefore have adopted an indefinite life as the appropriate basis for determining its useful life for amortisation purposes. This valuation gave rise to the fair value of assets and liabilities acquired being £295,000 greater than what was paid and consequently in accordance with IFRS 3: Business Combinations has been recognised as a gain on bargain purchase in the consolidated income statement as a separate line item. On 9 December 2016, this valuation was conducted again which led to a reduced valuation of £262,474 for the intellectual property. This created an impairment of £48,026. There were no adverse trends arising from comparable market disposals of domain names to warrant any impairment to this intangible. 21.21.21.21. Trade and other receivables Trade and other receivables Trade and other receivables Trade and other receivables Prepayments and other debtors VAT recoverable Depositors Compensation Scheme Receivable Monies held in escrow from MBL acquisition (see note 19) 2012012012016666 ££££000000000000 878787874444 752752752752 54545454 52525252 Group 2015 £000 857 466 54 - 1,1,1,1,732732732732 1,377 Company 2012012012016666 ££££000000000000 2015 £000 29292929 ---- ---- ---- 29292929 98 - - - 98 Manx Financial Group PLC 43 21.21.21.21. Trade and other receivables (continued) Trade and other receivables (continued) Trade and other receivables (continued) Trade and other receivables (continued) Included in trade and other receivables is an amount of £752,000 (2015: £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 50.0% of costs in respect of HP transactions to a taxable supply and 50.0% 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. A secondary claim was also made to cover periods Q4 2012 to Q4 2016 for the value of £295,000. 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 and the case was heard by the Court of Appeal on 17 April 2015 who overturned the Upper Tribunal’s decision ruling in favour of VWFS. HMRC have appealed this decision to the Supreme Court, which has referred the issue to the European Court of Justice. The Bank’s total exposure in relation to this matter is £865,000, comprising the debtor balance referred to above plus an additional £113,000 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 case, the Directors are confident that the VAT claimed referred to above will be secured. 22.22.22.22. Customer accounts Customer accounts Customer accounts Customer accounts Retail customers: term deposits Corporate customers: term deposits 23.23.23.23. Creditors and accrued charges Creditors and accrued charges Creditors and accrued charges Creditors and accrued charges Commission creditors Other creditors and accruals Taxation creditors Consideration for acquisition of MFL (see note 20) 24.24.24.24. Block creditors Block creditors Block creditors Block creditors Drawdown 1 – repayable 25/12/2016, interest payable at 5.6%, secured on assets of MFL Drawdown 2 – repayable 25/07/2018, interest payable at 5.6%, secured on assets of MFL Drawdown 3 – repayable 08/03/2019, interest payable at 6.5%, secured on assets of MFL 2012012012016666 ££££000000000000 124,398 124,398 124,398 124,398 1,554 1,554 1,554 1,554 25,952 111125,952 25,952 25,952 2015 £000 103,041 3,287 106,328 Group Company 2012012012016666 ££££000000000000 2,2,2,2,504504504504 333363636363 111100008888 ---- 2,2,2,2,975975975975 2015 £000 2,313 332 198 500 3,343 2012012012016666 ££££000000000000 ---- 88882222 ---- ---- 88882222 2012012012016666 ££££000000000000 ---- 248248248248 1,142 1,142 1,142 1,142 1,390 1,390 1,390 1,390 2015 £000 - 12 - - 12 2015 £000 194 394 - 588 Manx Financial Group PLC Notes to the Consolidated Financial Statements 44 25.25.25.25. Loan notes Loan notes Loan notes Loan notes Related parties Related parties Related parties Related parties J Mellon Burnbrae Limited Southern Rock Insurance Company Limited Life Science Developments Limited Unrelated parties Unrelated parties Unrelated parties Unrelated parties Group Company NotesNotesNotesNotes JMJMJMJM BLBLBLBL SRSRSRSR LSLSLSLS UPUPUPUP 2012012012016666 ££££000000000000 1,750 1,750 1,750 1,750 1,200 1,200 1,200 1,200 460460460460 350350350350 3,3,3,3,767676760000 4,785 4,785 4,785 4,785 8,548,548,548,545555 2015 £000 1,750 1,200 460 500 3,910 3,355 7,265 2012012012016666 ££££000000000000 1,750 1,750 1,750 1,750 1,200 1,200 1,200 1,200 460460460460 350350350350 3,3,3,3,767676760000 4,785 4,785 4,785 4,785 8,548,548,548,545555 2015 £000 1,750 1,200 460 500 3,910 3,355 7,265 JMJMJMJM – Two loans, one of £500,000 maturing on 31 July 2017 with interest payable of 7.0% per annum, and one of £1,250,000 maturing on 26 February 2020, paying interest of 6.5% 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. BLBLBLBL – One loan consisting of £1,200,000 maturing on 31 July 2017 with interest payable of 7.0% 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. SRSRSRSR – One loan consisting of £460,000 maturing on 26 February 2020 with interest payable of 6.5% per annum. The loan is convertible at a rate of 9 pence. SR is also entitled to 8.3 million warrants on a previously converted loan note at an exercise price of 6 pence which lapse on 24 October 2017. Arron Banks is a non-executive director and is a major shareholder of SR. John Banks, a Non-executive Director is also a director of SR. LS LS LS LS – One loan of £350,000 maturing on 5 September 2017 with interest payable of 5.0% per annum. Denham Eke is a director of LS. UPUPUPUP – Twenty one loans consisting of an average £227,857, with an average interest payable of 5.3% per annum. The earliest maturity date is 1 October 2017 and the latest maturity is 3 November 2021. 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. 26.26.26.26. Pension liability Pension liability Pension liability 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 FSA in the Isle of Man under the Retirement Benefits Scheme Act 2000. The Scheme is subject to regulation by the FSA 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 Exposure to risk Exposure to risk 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. Manx Financial Group PLC 45 26.26.26.26. Pension liability (continued) Pension liability (continued) (continued) (continued) Pension liability Pension liability 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 2.0% change in an assumption will not necessarily produce twice the effect on the liabilities of a 1.0% 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 Restriction of assets Restriction of assets 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 Scheme amendments Scheme amendments Scheme amendments There have not been any past service costs or settlements in the financial year ending 31 December 2016 (2015: none). Funding policy Funding policy Funding policy Funding policy The funding method employed to calculate the value of previously accrued benefits is the Projected Unit Method. Following the cessation of accrual of benefits when the last active member left service in 2011, regular future service contributions to the Scheme are no longer required. However, additional contributions will still be required to cover any shortfalls that might arise following each funding valuation. The most recent full actuarial valuation was carried out at 1 April 2016, which showed that the market value of the Scheme’s assets was £1,379,000 representing 80.7% 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 2016. The amounts recognised in the Consolidated Statement of Financial Position are as follows: Total underfunding in funded plans recognised as a liability Total underfunding in funded plans recognised as a liability Total underfunding in funded plans recognised as a liability 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 Movement in the liability for defined benefit obligations Movement in the liability for defined benefit 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 / (gain) Liability for defined benefit obligations at 31 December Liability for defined benefit obligations at 31 December Liability for defined benefit obligations at 31 December Liability for defined benefit obligations at 31 December Movement in plan assets Movement in plan assets Movement in plan assets Movement in plan assets Opening fair value of plan assets at 1 January Expected return on assets Contribution by employer Actuarial gain / (loss) Benefits paid Closing fair value of plan assets at 31 December Closing fair value of plan assets at 31 December Closing fair value of plan assets at 31 December Closing fair value of plan assets at 31 December 2012012012016666 ££££000000000000 1,1,1,1,420420420420 2,034)))) ((((2,034 2,034 2,034 ((((616161614)4)4)4) 2012012012016666 ££££000000000000 1,1,1,1,666666666666 ((((68686868)))) 64646464 372372372372 2,034 2,034 2,034 2,034 2012012012016666 ££££000000000000 1,31,31,31,332323232 55551111 49494949 56565656 ((((68686868)))) 1,1,1,1,420420420420 2015 £000 1,332 (1,666) (334) 2015 £000 1,733 (82) 64 (49) 1,666 2015 £000 1,345 50 49 (30) (82) 1,332 Manx Financial Group PLC Notes to Consolidated Financial Statements 46 26.26.26.26. Pension liability (continued) Pension liability (continued) Pension liability (continued) Pension liability (continued) Expense recognised in income statement Expense recognised in income statement Expense recognised in income statement Expense recognised in income statement Interest on obligation Expected return on plan assets costs Total included in personnel costs Total included in personnel costs costs Total included in personnel Total included in personnel Actual return on plan assets Actual return on plan assets Actual return on plan assets Actual return on plan assets recognised in other comprehensive income Actuarial (loss) / / / / gaingaingaingain recognised in other comprehensive income Actuarial (loss) recognised in other comprehensive income recognised in other comprehensive income Actuarial (loss) Actuarial (loss) Actuarial gain / (loss) on plan assets Actuarial (loss) / gain on defined benefit obligations Plan assets consist of the following Plan assets consist of the following Plan assets consist of the following Plan assets consist of the following Equity securities Corporate bonds Government bonds Cash Other The actuarial assumptions used to calculate Scheme liabilities under The actuarial assumptions used to calculate Scheme liabilities under The actuarial assumptions used to calculate Scheme liabilities under The actuarial assumptions used to calculate Scheme liabilities under IAS19 are as follows: IAS19 are as follows: IAS19 are as follows: 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 2012012012016666 ££££000000000000 64646464 (5(5(5(51111)))) 11113333 111100007777 2012012012016666 ££££000000000000 56565656 (372) (372) (372) (372) ((((316316316316)))) 2016 2016 20162016 %%%% 47474747 16161616 25252525 7777 5555 100100100100 2015 £000 64 (50) 14 20 2015 £000 (30) 49 19 2015 % 27 23 41 3 6 100 2012012012016666 %%%% 2015 % 2014 % ---- 3.13.13.13.1 2.12.12.12.1 5.05.05.05.0 2.72.72.72.7 3.23.23.23.2 - 2.7 2.0 5.0 3.9 2.8 - 2.7 2.0 5.0 3.8 2.8 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. 27.27.27.27. Called up share capital Called up share capital Called up share capital Called up share capital Authorised: Ordinary shares of no par value Authorised: Ordinary shares of no par value Authorised: Ordinary shares of no par value Authorised: Ordinary shares of no par value & 2016666 At 31 December 2015555 & 201 At 31 December 201 & 201 & 201 At 31 December 201 At 31 December 201 Issued and fully paid: Ordinary shares of no par value Issued and fully paid: Ordinary shares of no par value Issued and fully paid: Ordinary shares of no par value Issued and fully paid: Ordinary shares of no par value & 2016666 At 31 December 2015555 & 201 At 31 December 201 & 201 & 201 At 31 December 201 At 31 December 201 Number Number Number Number 150,000,000 150,000,000 150,000,000 150,000,000 Number Number Number Number 102,070,252 102,070,252 102,070,252 102,070,252 ££££000000000000 18,933 18,933 18,933 18,933 There are a number of convertible loans at 31 December 2016 of £3.41 million (2015: £3.41 million) involving warrants of 28.3 million (31 December 2015: 28.3 million) (see note 25 for further details). The total number of warrants in issue at 31 December 2016 is 36.6 million (2015: 36.6 million) (see note 25 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. Manx Financial Group PLC 47 27.27.27.27. Called up share capital (continued) Called up share capital (continued) Called up share capital (continued) Called up share capital (continued) 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. 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 28.28.28.28. Analysis of changes in financing during the year Analysis of changes in financing during the year Analysis of changes in financing during the year Analysis of changes in financing during the year Analysis of changes in financing during the year Analysis of changes in financing during the year Analysis of changes in financing during the year Analysis of changes in financing during the year Balance at 1 January Issue of loan notes 23 June 2014 £0.08 £0.14 £0.14 55.0% 3 0.5% 33.3% 2015 2015 20152015 ££££000000000000 26,26,26,26,111198989898 1111,28,28,28,280000 22227777,,,,474747478888 25 June 2010 £0.03 £0.11 £0.11 47.0% 3 2.2% 0.0% 2015 £000 26,098 100 26,198 The 2016 closing balance is represented by £18.933 million share capital (2015: £18.933 million) and £8.545 million of loan notes (2015: £7.265 million). 29.29.29.29. Regulator Regulator Regulator Regulator The Group is regulated by the Isle of Man FSA and is 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. 30.30.30.30. Related party transactions Related party transactions Related party transactions Related party transactions Cash deposits Cash deposits Cash deposits 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 £0.076 million (2015: £0.031 million), at normal commercial interest rates in accordance with the standard rates offered by the Bank. Funds held in a fiduciary capacity Funds held in a fiduciary capacity Funds held in a fiduciary capacity Funds held in a fiduciary capacity Fiduciary deposits Fiduciary deposits Fiduciary deposits Fiduciary deposits The Bank acts as agent bank to a number of customers, for balances totalling £3.4 million (2015: £4.0 million). The Bank invests these customer assets with third party banks on their behalf and in return for this service receives a fee. These balances are not included within the statement of financial position. All funds held and accounts maintained in connection with the fiduciary services that the Bank offers in 2016 are to companies connected with Jim Mellon and Denham Eke. Staff and ommercial loans Staff and ccccommercial loans ommercial loans ommercial loans Staff and Staff and Details of staff loans are given in note 17 to the financial statements. Manx Financial Group PLC Notes to Consolidated Financial Statements 48 30.30.30.30. Related party transactions (continued) Related party transactions (continued) Related party transactions (continued) Related party transactions (continued) Staff and (continued) ommercial loans (continued) Staff and ccccommercial loans (continued) (continued) ommercial loans ommercial loans Staff and Staff and Normal commercial loans are made to various companies connected to Jim Mellon and Denham Eke. As at 31 December 2016, £0.401 million of capital and interest was outstanding (2015: £0.132 million). Intercompany recharges Intercompany recharges Intercompany recharges 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. EWA provides services to the Group in arranging its insurance and defined contribution pension arrangements. Loan advance to Loan advance to EWAEWAEWAEWA Loan advance to Loan advance to On 14 December 2016, a loan advance was made to EWA by the Bank in order to provide the finance required to acquire MBL (see note 19). The advance was for £700,000 at an interest rate of 8% repayable over 6 years. A negative pledge was given by EWA to not encumber any property or assets or enter into an arrangement to borrow any further monies. Investments Investments Investments Investments The Bank holds less than 1% equity in the share capital of an investment of which Jim Mellon is a shareholder (note 15). Denham Eke acts as a non-executive director. Subordinated loans Subordinated loans Subordinated loans Subordinated loans Manx Financial Group PLC has advanced £1.1m of subordinated loans in 2016 to the Bank (2015: none) (see note 20). Loan notes Loan notes Loan notes Loan notes See note 25 for a list of related party loan notes as at 31 December 2016 and 2015. including Executive Directors remuneration including Executive Directors Key management personnel’snel’snel’snel’s remuneration Key management person including Executive Directors including Executive Directors remuneration remuneration Key management person Key management person Short-term employee benefits 31.31.31.31. Operating leases Operating leases Operating leases Operating leases Non-cancellable lease rentals are payable in respect of property and motor vehicles as follows: 2012012012016666 ££££000000000000 444414141414 2015 £000 402 Less than one year Between one and five years Over five years 32.32.32.32. Subsequent events Subsequent events Subsequent events Subsequent events 2012012012016666 2015 Leasehold Leasehold Leasehold Leasehold Property Property Property Property ££££000000000000 111187878787 801801801801 390390390390 1,378 1,378 1,378 1,378 OtherOtherOtherOther ££££000000000000 ---- ---- ---- ---- Leasehold Property £000 193 782 594 1,569 Other £000 - - - - On 18 January 2017, an option was exercised to acquire an IFA business which includes 150 clients. The price of the acquisition will be calculated by four times the renewal income received over the 12 month period subsequent to completion. The price is estimated to be £75,000. 33.33.33.33. Comparative figures Comparative figures Comparative figures Comparative figures The Consolidated Income Statement for the previous year has been restated in order to present Terminal funding, as analysed by note 3(v), in a consistent manner to the current year. Manx Financial Group PLC Shareholders’ Notes 49 Clarendon House Victoria Street Douglas Isle of Man IM1 2LN Tel: (01624) 694694 Fax: (01624) 624278 www.mfg.im www.mfg.im www.mfg.im www.mfg.im
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