_________________________________
ANNUAL REPORT 2017
Welcome to Manx Financial Group PLC
Integrity through independence and service
An independent banking group founded in 1935, domiciled in the
Isle of Man
Manx Financial Group PLC (“MFG”) is
an AIM-listed company (LSE: MFX.L)
which has subsidiaries engaged in a
suite of financial services based in the
the UK. These
Isle of Man and
companies offer financial services to
both retail and commercial customers.
MFG's strategy is to grow organically
and through strategic acquisition to
further augment the range of services
it offers.
Principal wholly owned subsidiaries: -
Conister Bank Limited
Edgewater Associates Limited
Conister Card Services Limited
Manx Incahoot Limited
Manx FX Limited.
Conister Bank Limited (“the Bank”) is a
licensed independent bank, regulated by
the Financial Services Authority in the
Isle of Man,
the Financial Conduct
Authority in the UK and is a full member
of the MasterCard® network and the Isle
of Man’s Association of Licensed Banks.
The Bank provides a variety of financial
products and services, including savings
accounts, asset
financing, personal
loans, loans to small and medium sized
enterprises, block discounting and other
specialist secured credit facilities to the
Isle of Man and the UK consumer and
business sectors.
Edgewater Associates Limited
(“EWA”) is the largest independent
financial adviser 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 advises on assets in excess of
£273 million.
EWA specialises in the areas of
wealth management, mortgages,
general insurance, and retirement
planning.
pre-paid
business
Conister Card Services Limited is the
division
Group’s
providing
clients with
payment solutions that are both cost
effective and create new revenue
opportunities.
card
Limited
Incahoot
Manx
provides
Employee Benefit solutions to the UK
and Isle of Man employment market.
This product was launched in 2016.
® MasterCard is a registered trademark of MasterCard International Incorporated
Manx FX Limited was formed in
specialist
2014 and provides
solutions
to
competitive foreign exchange and
international payment processing
facilities.
access
and
Manx Financial Group PLC
Contents
Chairman’s Statement
Directors, Officers and Advisers
Directors’ Report
Corporate Governance Report
Audit, Risk & Compliance Report
Directors’ Remuneration Report
Statement of Directors’ Responsibilities
Report of the Independent Auditor
Consolidated Income Statement
Consolidated Statement of Other Comprehensive Income
Consolidated and Company Statement of Financial Position
Consolidated Statement of Cash Flows
Consolidated and Company Statement of Changes in Equity
Notes to the Consolidated Financial Statements
02
05
07
08
11
13
15
16
19
20
21
22
23
24
Manx Financial Group PLC
Chairman’s Statement
02
Dear Shareholders,
When I wrote to you in the Interim Results for 2017, I was
confident that the full year would continue the return to previous
profitability. I am pleased to report that the Report & Accounts for
2017 show marked improvement, not only on 2016, but also on
2015 – our previous high watermark – and my earlier confidence
was not misplaced.
Thus, our profit before tax has grown by 78% to £2.7 million
(2016: £1.5 million), leading to a total comprehensive profit of
£2.4 million (2016: £1.0 million), an increase of 150%. This is a
very satisfactory outcome and reflects well on the performance
of our newly
restructured management and operations
throughout the Group. I would also like to note that not only was
the 2017 first half pre-tax profit of £0.9 million an Interim record
(2016: £0.7 million), but also the second half 2017 pre-tax profit
of £1.8 million (2016: £0.8 million)
is again a record,
demonstrating a sustained growth. The historic dependence on
our banking subsidiary, Conister Bank Limited (the “Bank”), is
(“EWA”), our
reducing as Edgewater Associates Limited
Independent Financial Advisory
(“IFA”) operation, has
successfully integrated its recent acquisitions and is now making
a significant contribution
financial
performance. Our aim of becoming a diversified financial
services group is coming to fruition and we are well placed to
take advantage of opportunities as they arise.
the Group’s overall
to
Manx Financial Group PLC
As stated, profit before income tax for the year was £2.7 million
(2016: £1.5 million) on a net interest income of £16.6 million
(2016: £16.0 million). The positive impact of the enlarged EWA is
evident at the net trading income level as it grew by £2.7 million
to £11.3 million (2016: £8.6 million), a growth of 33%, and the
increases in both personnel and administration expenses, in total
£7.9 million (2016: £6.6 million), are mainly attributable to these
acquisitions.
Turning to the Balance Sheet, our total assets increased by 13%
to £173.2 million (2016: £152.7 million) and our total liabilities
increased by 12% to £155.8 million (2016: £139.5 million). Within
these figures, the Bank’s loan book grew by £6.7 million to
£122.7 million (2016: £116.1 million),
the depositor base
increased by £16.3 million to £142.3 million (2016: £126.0
million) – a growth of 6% and 13% respectively. Cash and
equivalents stand at £44.0 million (2016: £30.1 million). As a
result, the Group’s equity increased by 32% to £17.4 million
(2016: £13.2 million).
Our key metrics remain positive: the basic earnings per share
have grown by 130% to 2.21 pence (2016: 0.96 pence) and our
return on equity is now 16% (2016: 12%).
During the course of 2017, we extinguished all outstanding
warrants over the Group and, as part of this exercise, Dr Gregory
Bailey acquired 17.8 million shares, representing 13.6% of the
current issued capital. I am pleased to welcome Dr Bailey to the
board where his capital markets experience will be invaluable.
The warrant exercise provided a further £1.8 million in aggregate
Jim Mellon
Chairman
to support the regulatory capital base of the Bank and was
achieved without incurring onerous marketing costs. Dr Bailey is
considered a concert party with me, and together we hold 29.9%
of equity; Arron Banks and his associates hold 29.1%; leaving
41.0% of the issued capital in free float.
As I have previously explained, almost all of the Group’s equity is
utilised to underpin the Bank’s regulatory capital. Maintaining
and increasing our equity is fundamental in ensuring future
growth to provide additional profitability. During the course of the
year, I and my interests agreed to extend certain loans, at terms
negotiated on an “arms-length” basis, that became due for
repayment. As a result, both the coupon and conversion price for
these loans have been changed in line with the market to 5%
and 7.5 pence respectively (previously 7% and 4 pence). The
Group will, however, require further regulatory capital to support
the Bank’s planned expansion and the executive is currently
considering a number of ways in which we can expand this
capital, but with the proviso that this will be only on a non-dilutive
basis.
Conister Bank Limited
Our new loan advances totalled £73.7 million in 2017 which
compares favourably with the previous year (2016: £72.5
million), with direct lending into the Isle of Man and the UK
achieving notable success. Whilst the loan book appears only to
have increased by 7% to £123.4 million (2016: £115.2 million),
this figure disguises our successful elimination of £11.1 million in
loan exposure to a single UK introducer where we suffered a
disproportionate commission-sharing cost in relation to our
perception of risk. Our underlying loan book growth was
therefore £19.3 million, an improvement of 17%. Our net interest
income increased by £0.8 million to £16.6 million (2016: £15.8
million), against a decrease in commission expense of £0.7
million to £8.4 million (2016: £9.1 million), leading to a £1.6
million growth in our operating income to £8.5 million (2016: £6.9
million) – an increase of 22%. Our new executive management
has done well to stem the burden of commissions paid to
introducers. Ensuring that we do not fall into the trap of “buying”
business is a principal facet of our revised strategy.
Establishment costs grew by 9% to £5.7 million (2016: £5.2
million), largely as a result of implementing our new IT systems,
including the replacement of the entire depositor software and
the development of a fully-automated lending platform which has
been introduced firstly in the Isle of Man in preparation for a UK
launch. As a prudent measure, we have made further impairment
provisions of £0.5 million (2016: £0.4 million), and have reduced
intangible assets by £0.1 million (2016: nil). As a consequence,
our profit after tax for the year increased by 223% to £2.0 million
(2016: £0.6 million).
Turning to the Balance Sheet, the Bank’s total asset base grew
by 15% to £168.9 million (2016: £147.5 million) and total equity
increased by 31% to £17.0 million (2016: £13.0 million). The loan
book continues to perform well, with a total allowance for
impairment of £2.5 million (2016: £2.2 million), representing 2%
Manx Financial Group PLC
03
of the book (2016: 2%). The continuing excellent performance of
the loans provides the confidence that our future income will
continue throughout 2018 and beyond. The Bank has £29.1
million excess liquidity (2016: £17.0 million): the increase largely
as a result of a number of Isle of Man banks having left the
market, allowing us to accumulate deposits at historically low
rates to fund future lending. Managing this sum becomes
increasingly important and we will enhance our Treasury function
in the coming year to ensure that we generate the maximum
return on any excess balance remaining from our lending
activities. As we do not access Inter-Bank funding, we are reliant
on an Isle of Man consumer deposit base. Our belief is that we
have secured approximately 20% of the available market. During
2018, we will review the opportunity of extending our coverage to
include institutional funds, to be accessed as and when required.
Our operational costs to net income ratio stands at 69% (2016:
77%). Even though this is a marked year-on-year improvement,
we believe that there is still considerable room to better this ratio
and this will be a focus throughout 2018. Although much of these
costs are of a fixed nature, they are scalable and thus our
development of a specialised broker network coupled with the
automated web-based loan processing platform will help achieve
a favourable outcome.
The Bank acquired a 40% holding in the Business Lending
Exchange Limited, based in the UK, together with an option to
acquire the remaining shareholding, exercisable by 2021, based
on 60% of four times EBITA. I anticipate announcing further
acquisitions in due course.
Surrounding the Bank’s entire operation is our strict adherence
to a robust credit and risk management framework. This enables
us to ensure we maintain our growth in a controlled and safe
manner in both the prime and near-prime markets. To this end, I
am pleased to state that we augmented the Bank’s executive
management of Douglas Grant, Managing Director, and James
Smeed, Finance Director with the appointment of Steven Quayle
as Head of Risk and Compliance, Haseeb Qureshi as Chief
Operating Officer and Andrew Bass as Isle of Man Sales
Director: all three with the status of Associate Director and,
pleasingly, the latter two being internal promotions. We have
strengthened our Internal Audit function to further ensure that the
Bank’s culture continues to meet the highest professional
standards possible.
Edgewater Associates Limited
Following the successful integration of the recent acquisition of
the majority of the Isle of Man’s IFA business held by Knox
Financial Services Limited, followed by the acquisition of Balla
Brokers (Insurance Services) Limited, I am pleased to report that
EWA, under Managing Director Sandra Cardwell, increased its
gross profit by 79% to £2.6 million (2016: £1.5 million), leading to
a post-tax profit of £0.7 million (2016: £0.4 million) – a growth of
102%. Administrative expenses grew commensurately to £1.8
million (2016: £1.1 million). This excellent performance means
that EWA’s net assets now stand at £2.0 million (2016: £1.3
million) and, as a result, equity has grown by 58%. EWA’s return
on equity, based on its 2010 acquisition price of £2 million, was a
very impressive 35%.
These consolidations have made EWA the largest IFA in the Isle
of Man, with over 10,000 clients and advising on assets in
excess of £273 million. Although principally dealing with private
individuals, considerable inroads have been made into the local
corporate market place and a team of experienced IFAs has
been assembled to grow this business line.
EWA also includes a general insurance division which increased
gross written premium in 2017 by 40% to £0.8 million (2016: £0.5
million) and has the organisational structure to support further
acquisitions – an area
I hope to make further
in which
announcements in due course.
Manx FX Limited
Our foreign exchange advisory service, Manx FX Limited, under
Managing Director Garry Vernon, generated a post-tax profit in
2017 of £0.3 million (2016: £0.0 million) and has more than
recovered the initial investment expenditure.
Manx FX Limited continues to tender for new accounts and to
seek out new market sector opportunities by attending specialist
conferences, working with the Isle of Man government and
through customer referrals.
Manx Incahoot Limited
Not all of our incubator companies will immediately generate
profits and whilst Manx
incurred
development losses there is no doubt the employee benefit
market remains a growing sector. Unfortunately, the gestation
period between contract negotiation and completion is lengthy.
There are challenges ahead for this business and 2018 will be a
defining year for this subsidiary.
Incahoot Limited has
Corporate Governance
One of the Group Board’s primary responsibilities is to ensure
the provision of effective corporate governance. To this end, the
Board undertook a full review of every aspect of governance in
the light of the Quoted Companies Alliance Code, 2013. I am
pleased to report that the Group is now fully compliant, well in
advance of the AIM requirement to adopt a recognised code of
conduct by September 2018.
Outlook
We have made a number of important changes during the year,
the results of which are extremely encouraging in almost all
areas and provide a strong platform to drive future profitability.
Our Balance Sheet is stronger than it has ever been. Not only
are we constantly seeking new lending opportunities, coupled
with a pipeline of potential incremental acquisitions, but we are
also considering prudential ways to maximise yield from our cash
balances. Wherever possible, we are implementing IT solutions
and systems development to free up our staff to take on more
productive roles.
The Bank, being our largest operation, continues to benefit from
an excellent loan book and the new lending opportunities
available in both the Isle of Man and the UK – our only constraint
being access to non-dilutive regulatory capital. For this, we have
a number of potential solutions which the Board is currently
evaluating.
Manx Financial Group PLC
04
EWA continues to increase its customer base and product
offering, also seeking further acquisition opportunities to expand.
focus
In doing all this, our underlying
is always on an
appreciation of risk and credit management and this focus is now
embedded within the Group at all levels. We recognise that we
have operated within a fairly beneficial financial environment
over the last few years. I believe that this will continue within the
short term, but we recognise that there is a possibility of a future
economic downturn and we must be prepared for this. But we
should always
its own
opportunities.
that change provides
remember
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 finally our customers, be they
depositors or borrowers, for your continued loyalty.
Jim Mellon
Executive Chairman
15 March 2018
Manx Financial Group PLC
Directors, Officers and Advisers
05
Executive Directors
in
Jim Mellon (61)‡
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 16% 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
Appointed to the Board on 2 November 2007 and
appointed as Executive Chairman on 12 February
2009.
Non-executive Directors
is
Denham Eke (66) ‡
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 Life Science Developments Limited,
chief
finance officer of Port Erin Biopharma
Investments Limited, and co-chairman of Billing
Services Group Limited - all quoted on the London
AIM market.
Appointment
Appointed to the Board on 2 November 2007 and
appointed as Chief Executive on 12 February
2009.
in
finance,
Douglas Grant (53) ‡
Group Finance Director
Douglas Grant has over 30 years’ experience
working
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
markets experience.
Appointment
Appointed to the Board on 14 January 2010.
He is Managing Director of Conister Bank
Limited.
Alan Clarke (67)‡†* ≠
Non-executive Director
David Gibson (70) ‡†* ≠
Non-executive Director
John Banks (49) ‡
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 a past
President of ICAEW Manchester. He is also a
registered auditor, being the senior partner of
Downham Mayer Clarke.
Appointment
Appointed to the Board on 2 November 2007.
Chairman of the Audit, Risk and Compliance
Committee and Chairman of the Remuneration
Committee.
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
Appointed to the Board on 12 February 2009. He
is Chairman of Conister Bank Limited.
John Banks is a solicitor qualified in both
England and Wales and Hong Kong. He has
worked in private practice with Lovells, in both
England and Hong Kong and as an in house
counsel for Standard Chartered Bank in Hong
Kong. He joined Group Direct Limited, later
part of Brightside Group PLC as group legal
counsel in 2006, where he worked on the
group’s admission to trading on AIM. He joined
Southern Rock Insurance Company Limited
and Eldon Insurance Services Limited in 2013
and is a director of both companies.
Gibson qualified as a certified accoun
Appointment
Appointed to the Board on 5 August 2014.
Non-executive Directors
Company Secretary
Manx Financial Group PLC
06
* Member of the Audit, Risk and
Compliance Committee
† Member of the Remuneration
Committee
‡ Member of the Nominations
Committee
≠ Independent Non-executive Director
Greg Bailey (62) ‡
Non-executive Director
Lesley Crossley (50)
Company Secretary
Greg Bailey, founded Palantir Group Inc which made
successful investments in bio-tech company start-ups
and financings, and is currently chairman of Portage
Biotech Inc, a CSE-traded drug development company,
and non-executive director of AIM-traded SalvaRx
Group Plc. Along with comprehensive experience in
finance and healthcare, he has served on many public
company boards and brings to the Group an extensive
involvement in corporate governance.
Appointment
Appointed to the Board on 7 February 2018.
Lesley Crossley is a Fellow of the Chartered Institute
of Secretaries and Administrators and has over 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
Appointed as Company Secretary on 29 September
2008.
Advisers
Registered Office
Clarendon House
Victoria Street
Douglas
Isle of Man IM1 2LN
Registered Agent
CW Corporate Services Limited
Bank Chambers
15-19 Athol Street
Douglas
Isle of Man IM1 1LB
Legal Advisers
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 Auditor
KPMG Audit LLC
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
Principal Bankers
Royal Bank of Scotland
135 Bishopsgate
London EC2M 3UR
Consulting Actuaries
Boal & Co Ltd
Marquis House
Isle of Man Business Park
Douglas
Isle of Man IM2 2QZ
Pension Fund
Investment Manager
Thomas Miller Investment
(Isle of Man) Limited
Level 2
Samuel Harris House
5-11 St George’s Street
Douglas
Isle of Man IM1 1AJ
Nominated Advisor
and Broker
Beaumont Cornish
Limited
2nd Floor
Bowman House
29 Wilson Street
London EC2M 2SJ
Registrar
Computershare Investor
Services (Jersey) Limited
Queensway House
Hilgrove Street
St Helier
Jersey JE1 1ES
Presentation of Annual
Report and Accounts
Presented here are
the
Annual Report and Accounts
of Manx Financial Group
PLC.
Company Information
The Annual and
Interim
Reports, along with other
information
supplementary
of interest to Shareholders,
are included on our website.
The address of the website
which
is
investor relations
includes
information
contact
details.
www.mfg.im
and
Manx Financial Group PLC
Directors’ Report
07
The Directors present their annual report and the audited financial
statements for the year ended 31 December 2017.
The number of shares held by the current Directors is as follows: -
Principal regulated activities
The principal activities of Manx Financial Group PLC (the
“Company”) and its subsidiaries (together referred to as the
“Group”) are the provision of asset and personal finance, investing
activities, prepaid cards and wealth management.
The Bank, 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 in the Banking Business (Compensation of Depositors)
Regulations 1991.
EWA 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
The proposed transfers to and from reserves are as set out in the
Statement of Changes in Equity on page 23. The Directors do not
recommend the payment of a dividend (2016: nil).
Share capital
Particulars of the authorised and issued share capital of the
Company are set out in note 28 to the financial statements.
Jim Mellon1
Greg Bailey
John Banks2
David Gibson3
Douglas Grant
Alan Clarke
Number
09/02/18
21,492,232
17,835,750
1,433,833
1,721,433
505,821
52,149
Number
31/12/17
21,492,232
17,835,750
1,433,833
1,721,433
505,821
52,149
Number
31/12/16
17,635,332
-
2,336,833
1,721,433
505,821
52,149
1 Burnbrae Limited holds 19,164,250 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 1,433,833 Ordinary Shares held by Rene Nominees
(IOM) Limited in trust for Marquise Holdings Limited of which John
Banks’ underage children, and Arron Banks’ underage children are
beneficiaries under trust.
3 Comprises 1,721,433 Ordinary Shares held by Interactive Investor
Services Limited for the benefit of David Gibson.
The number of share options held by the current Directors is as
follows: -
Number
09/02/18
1,042,466
Number
31/12/17
1,042,466
Number
31/12/16
1,042,466
Significant shareholdings
The number of shares held and the percentage of the issued
shares which that number represented as at 9 February 2018 are:-
Douglas Grant
Rene Nominees (IOM) Limited1
Jim Mellon
Greg Bailey
Lynchwood Nominees Limited
Island Farms Limited
Number
38,153,158
21,492,232
17,835,750
10,338,045
4,222,319
% of
issued capital
29.10
16.39
13.60
7.92
3.22
Directors’ liability insurance
The Group maintains insurance cover for Directors’ potential
liability.
Fixed and intangible assets
The movement in fixed and intangible assets during the year are
set out in notes 19 and 20 respectively to the financial statements.
1 Together with other holdings, Arron Banks, a former Director of
the Group, is beneficially interested in 38,153,158 ordinary
shares (29.10%) of which 8,333,333 ordinary shares are held by
Rene Nominees (IOM) Limited in trust for ICS Risk Solutions
Limited, of which John Banks is a Director, and 1,443,833
ordinary shares held in trust for Marquise Holdings Limited of
which John Banks’ underage children, and Arron Banks’
underage children are beneficiaries under trust.
The Directors are not aware of any other individual holding of
greater than 3% as at 9 February 2018.
Directors and Directors’ share interests
Details of current Directors are set out on page 5. Juan Kelly
resigned on 28 March 2017 and Neil Duggan retired on 30 June
2017.
Staff
At 31 December 2017, there were 91 members of staff (2016: 73),
of whom 13 were part-time (2016: 6).
Investment in subsidiaries
Investments in the Company’s subsidiaries are disclosed in note
21 to the financial statements.
Auditor
KPMG Audit LLC, being eligible, have expressed their willingness
to continue in office.
Manx Financial Group PLC
Corporate Governance Report
08
Corporate Governance Report
The Manx Financial Group Board (the “Board”) is committed to
best practice in corporate governance and Manx Financial Group
PLC (the “Group”). Directors have agreed to comply with the
provisions of the Quoted Companies Alliance (“QCA”) Corporate
Governance Code for Small and Mid-Size Quoted Companies to
the extent which is appropriate to its nature and scale of
operations.
The Board ensures that the necessary financial and human
resources are in place for the Group to meet its objectives and
that business and management performances are reviewed.
Furthermore, the Board ensures that the Group operates within
its constitution, relevant legislation and regulation and that
proper accounting records and effective systems of business
control are established, maintained, documented and audited.
This report illustrates how the Group complies with those
principles.
Remuneration Committee
The Remuneration Committee meet 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
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,
representatives
Group Audit, Risk and Compliance Committee
The Group Audit, Risk and Compliance Committee (the “ARCC”)
meet at least six times each year and comprises two Non-
executive Directors, currently Alan Clarke (Chairman) and David
from
Gibson, Executive Directors and
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
the external auditor. The ARCC reviews and monitors the
external auditor’s objectivity, competence, effectiveness and
independence, ensuring that if it or its associates are invited to
undertake non-audit work
it will not compromise auditor
objectivity and independence.
Further information can be found within the Group Audit, Risk
and Compliance Report contained within this Annual Report.
The Role of the Board
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.
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 are published on the Group’s website.
Division of Responsibilities
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
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 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. In doing
fosters a positive corporate governance culture
so,
throughout the Group.
this
The Chief Executive Officer
The Chief Executive Officer is responsible for managing the
Group’s business and operations within the parameters set by
the Board.
Non-executive Directors
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
Manx Financial Group PLC
09
The Composition of the Board
At the year end, the Board is made up of six directors,
comprising three Non-executive Directors and three Executive
Directors. At least two Non-executive Directors are considered
by the Board to be independent in character and judgement and
to have an appropriate balance of skills and experience. They
relationship or
are also considered
circumstances which could materially interfere with the exercise
of
the provision of constructive
challenge to management and provide assistance with the
development of strategy.
free of any
judgement,
impede
to be
their
Appointments to the Board
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. 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.
the Board against
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.
Prior to appointment, Non-executive Directors are required to
demonstrate that they are able to allocate sufficient time to
undertake their duties.
Information and Support
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
Company Secretary who is responsible for ensuring compliance
with all Board procedures and advising the Board on governance
matters.
Evaluation
An internal process exists to evaluate, on an annual basis, the
performance and effectiveness of individual Directors and of the
Board and its Committees.
Re-election
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 to refresh the Board, irrespective of
performance.
Board and committee attendance
The number of formal scheduled Board and committee meetings
held and attended by Directors during the year was as follows: -
Jim Mellon
John Banks
Denham Eke
Alan Clarke
David Gibson
Douglas Grant
Neil Duggan1
Board
3/4
4/4
4/4
3/4
4/4
4/4
1/2
Audit Remuneration Nomination
0/3
1/3
2/3
2/3
3/3
3/3
0/1
-
-
-
7/7
7/7
-
2/2
-
-
-
8/8
8/8
-
-
1
Neil Duggan retired on 30 June 2017.
Financial and Business Reporting
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 15. The Chairman’s Statement on
pages 2 to 4 provides a detailed review of the Group’s business
activities and future prospects.
Risk Management and Internal Control
The Board is responsible for determining a framework for risk
management and control, including the Group’s risk appetite and
tolerance. Senior management are responsible for designing,
operating and monitoring risk management and internal control
processes in line with the risk appetite and tolerance while the
ARCC, on behalf of the Board, is responsible for reviewing the
adequacy and effective operation of these processes. The role of
the ARCC 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. It also ensures 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
Remuneration
The Report on Directors’ Remuneration, prepared by the
Chairman of the Group’s Remuneration Committee, is to be
found on pages 13 and 14 and explains how the Group complies
with the Code Principles relating to remuneration. Details of
Directors’ Emoluments during 2017 can be found on page 14.
Dialogue with Shareholders
institutional
The Group
informed of
shareholders are
shareholders. All
developments and feedback is encouraged both at the AGM and
through communication via the Group’s website.
is owned by both
individual and
kept
Manx Financial Group PLC
10
Constructive use of the AGM
Each year the Group sends details of the AGM, including appointment of proxy and voting forms, to members who are eligible to vote.
Approval
This report was approved by the Board of Directors on 15 March 2018 and signed on its behalf by: -
Jim Mellon
Executive Chairman
15 March 2018
Manx Financial Group PLC
Audit, Risk and Compliance Committee Report
11
Audit, Risk and Compliance Committee Report
The Directors have agreed to comply with the provisions of the
Quoted Companies Alliance (“QCA”) Corporate Governance
Code for Small and Mid-Size Quoted Companies to the extent
which is appropriate to its nature and scale of operations.
This report illustrates how the Group complies with those
principles in relation to its Group Audit, Risk and Compliance
Committee (the “Committee”): -
Membership
The Committee comprises of two Non-executive Directors and
the members are Alan Clarke (Chairman) and David Gibson.
The composition of the Committee has been reviewed during the
year and the Board is satisfied that the Committee members
have recent relevant financial experience and the expertise to
resource and fulfil its responsibilities effectively, including those
relating to risk and controls.
Meetings
The Committee meets six times a year of which two of these
meetings are to review the interim and full year results.
Executive Directors and representatives from the compliance
and risk, the internal and external auditors attend by invitation.
in accordance with
overall risk management system. Ensuring that the internal
audit function has adequate resources and appropriate
access to information to enable it to perform its function
effectively and
the relevant with
professional standards. It also reviews the annual internal
audit plan, receives reports from internal audit and monitors
the management’s responsiveness to the findings and
recommendations of the Internal Audit Manager. The
activities of
function are
undertaken in-house and are overseen by the Executives
and have direct access to the Committee Chairman.
internal audit
the Group’s
KPMG Audit LLC was appointed as auditor following the
incorporation of the Group and the Committee overseas the
relationship with them including regular meetings to discuss
their remit and review the findings and any issues with the
annual audit. It also reviews their terms of appointment,
meets them once a year independent of management and
considers and makes recommendations to the Board, to be
put to the Company for approval at the Annual General
Meeting, in relation to the appointment, re-appointment and
removal of the Company’s external auditor. There are no
contractual restrictions in place in respect of the auditor
choice.
Duties
The Committee carries out the duties below for the Company
and the Group as a whole, as appropriate: -
The Committee is governed by a Terms of Reference and a
copy of this is available on, www.mfg.im, the Company’s
website.
Monitors the integrity of the financial statements of the
Company, including annual and half-yearly reports, interim
management
formal
announcement relating to financial performance, reviewing
significant financial reporting issues and judgements which
they contain.
statements,
other
and
any
Reviews and challenges the consistency the information
presented within the financial statements, compliance with
stock exchange or other legal requirements, accounting
policies and the methods used to account for significant or
unusual transactions.
Keeps under review the effectiveness of the Group’s
internal controls and risk management systems.
Reviews the Group’s arrangements for its employees to
raise, in confidence, possible wrongdoing in financial
reporting or other matters, the procedures for detecting
fraud, prevention of bribery and adequacy and
laundering
effectiveness of
systems and control.
the Group’s anti-money
Monitor and reviews the effectiveness of the Group’s
internal audit function and in the context of the Group’s
2017 Annual Report
During the year the Committee held seven meetings and can
confirm that it has received sufficient, reliable and timely
information from management and the external auditors to
enable it to fulfil its responsibilities. The Head of Risk and
Compliance and the Head of Internal Audit have attended four of
these meetings this year in order to present their reports and to
enable challenge and review by the Committee. Other members
of the Executive Team have attended the meetings upon
invitation.
The Committee has satisfied itself that there are no relationships
between the auditor and the Group which could adversely affect
the auditor’s independence and objectivity and regular meetings
have been held with them at both the planning stage prior to the
audit and after the audit at the reporting stage.
All internal control and risk issues that have been brought to the
attention of the Committee by the internal and external auditors
have been considered and the committee confirms that it is
satisfied that management has addressed the issues or has
plans to do so.
Manx Financial Group PLC
12
The Group has a number of policies and procedures in place as
part of its internal controls and these are subject to continuous
review and as a minimum are reviewed by the Committee on an
annual basis.
The Committee has reviewed and discussed together with
management and the external auditor the Company’s financial
statements for the year ended 31 December 2017 and reports
from the external auditor on the planning for and outcome of their
reviews and audit. The key accounting issues and judgements
considered relating to the Group’s financial statements and
disclosures were as follows: -
the provisioning methodology and
Impairment of loans and advances – during the year the
Committee received presentations from management
explaining
the
potential impact of IFRS 9 Financial Instruments. The
Committee satisfied
impairment
itself
provisions, including management’s judgements, were
appropriate. Disclosures
impairment
provisions are included in notes 4 (a)(i), 9 and 18;
relating
that
the
to
Recoverability of goodwill and intangible assets – the
Committee considered and challenged
the annual
assessment of the carrying value of goodwill and
intangible assets. The Committee agreed with
management’s conclusion that the carrying value of
goodwill and intangible assets is reasonably stated.
Disclosures relating to goodwill and intangible assets
are included in notes 20 and 21; and
Value added tax receivable - the Committee received
updates from management on the progress of the
Volkswagen Financial Services (UK) Limited v HM
Revenue & Customs case and discussions with the Isle
of Man Government Customs and Excise Division, and
satisfied itself that the value added tax receivable is
considered recoverable. Disclosures relating to the
receivable are included in note 22.
Alan Clarke
Chairman
15 March 2018
Manx Financial Group PLC
Directors’ Remuneration Report
13
Directors’ Remuneration Report
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.
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 Directors have agreed to comply with the provisions of the
Quoted Companies Alliance (“QCA”) Corporate Governance
Code for Small and Mid-Size Quoted Companies to the extent
which is appropriate to its nature and scale of operations.
This report illustrates how the Group complies with those
principles in relation to directors’ remuneration.
The Level and Components of Executive Director Remuneration
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;
it reflects our culture and values; and
there is full transparency of the Group’s Remuneration
Policy.
Performance assessments are conducted annually to determine
the performance rating of each employee’s achievements
against a mix of 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.
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
the Group
Where
guaranteed
performance related pay, the contractual conditions must be
considered by the Remuneration Committee.
contractually
operates
Executive Directors’ Contractual Terms
In keeping with current recommended practice, the standard
terms for Executive Director appointments, which have a
contractual notice period, is 6 months.
Non-executive Directors’ Remuneration
Non-executive Directors do not receive any benefits other than
their fees and travelling expenses for which they are reimbursed.
The level of fees payable to Non-executive Directors is assessed
using benchmarks
financial
organisations.
from a group of comparable
remuneration
Executive Directors’ Emoluments
The
their
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 operates a non-contractual discretionary annual
the
performance
trading
related pay scheme based on
performance of
individual employee’s
performance assessed for the period under review in a manner
which promotes sound risk management and does not promote
excessive risk taking.
the Group and
the
Manx Financial Group PLC
14
The Procedure for Determining Remuneration
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 Group Chairman. The Chairman of the Committee reports
at the Board meeting following a Committee meeting.
Directors’ emoluments
the Group
It is the view of the Committee that Directors’ remuneration
awarded across
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: -
the year has been
for
Executives
Denham Eke
Douglas Grant
Juan Kelly1
Jim Mellon
Non-executives
John Banks
Alan Clarke
Neil Duggan2
David Gibson
Remuneration/
Fees
£
Performance
Related Pay
£
25,000
169,999
43,826
25,000
25,000
43,000
20,000
47,500
-
36,000
-
-
-
-
-
-
Pension
£
-
16,987
3,892
-
-
-
-
-
2017
Total
£
25,000
222,986
47,718
25,000
25,000
43,000
20,000
47,500
2016
Total
£
25,000
199,020
195,594
25,000
25,000
40,000
40,000
40,000
Aggregate emoluments
399,325
36,000
20,879
456,204
589,614
1
2
Juan Kelly resigned on 28 March 2017.
Neil Duggan retired on 30 June 2017.
Approval
This report was approved by the Board of Directors on 15 March 2018 and signed on its behalf by: -
Alan Clarke
Chairman of the Remuneration Committee
15 March 2018
Manx Financial Group PLC
Statement of Directors’ Responsibilities
in respect of the Directors’ Report and the financial statements
15
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Parent
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Parent Company and
enable them to ensure that its financial statements comply with
the Isle of Man Companies Act 2006. They are responsible for
such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and 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. Legislation in the Isle of Man governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
The Directors are responsible for preparing the Annual Report
and the Group and Parent Company financial statements in
accordance with applicable law and regulations.
The Directors are required to prepare Group and Parent
Company financial statements for each financial year. As
required by the AIM Rules of the London Stock Exchange they
are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards as
adopted by the EU (IFRSs as adopted by the EU), as applicable
to an Isle of Man Company and applicable law and have elected
to prepare the Parent Company financial statements on the
same basis.
The Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of
affairs of the Group and Parent Company and of their profit or
loss for that period. In preparing each of the Group and Parent
Company financial statements, the Directors are required to: -
select suitable accounting policies and then apply them
consistently;
make
judgements and estimates that are reasonable,
relevant and reliable;
state whether they have been prepared in accordance with
IFRSs as adopted by the EU;
assess the Group and Parent Company’s ability to continue
as a going concern, disclosing, as applicable, matters
related to going concern; and
use the going concern basis of accounting unless they either
intend to liquidate the Group or the Parent Company or to
cease operations, or have no realistic alternative but to do
so.
Manx Financial Group PLC
Report of the Independent Auditor
16
Independent Auditor’s Report, to the members of Manx Financial Group PLC
the Consolidated
1 Our opinion is unmodified
We have audited the financial statements of Manx Financial Group
PLC (“the Company”) for the year ended 31 December 2017 which
comprise
Income Statement, Consolidated
Statement of Other Comprehensive Income, the Consolidated and
the Consolidated
Company Statements of Financial Position,
Statement of Cash Flows and the Consolidated and Company
Statements of Changes in Equity, and the related notes, including
the accounting policies in note 3.
In our opinion the financial statements:
give a true and fair view of the state of the Group’s and of
the Parent Company’s affairs as at 31 December 2017 and
of the Group’s profit for the year then ended;
have been properly prepared
in accordance with
International Financial Reporting Standards as adopted by
the European Union (IFRSs as adopted by the EU), as
applicable to an Isle of Man Company; and
have been prepared in accordance with the requirements
of the Isle of Man Companies Act 2006.
Emphasis of Matter - Reclaim of Value Added Tax (VAT)
We draw attention to note 22 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
£930,000, comprising a debtor balance of £817,000 in respect of
retrospective VAT and an amount of £113,000 reclaimed under the
revised method. As detailed in note 22, 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 & Customs (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. Our
opinion is not modified in respect of this matter.
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing
Our
(UK) (“ISAs (UK)”) and applicable
responsibilities are described below. We have fulfilled our ethical
responsibilities under, and are
in
accordance with, UK ethical requirements including the FRC Ethical
Standard. We believe that the audit evidence we have obtained is a
sufficient and appropriate basis for our opinion.
independent of
the Group
law.
2 Key audit matters: our assessment of risks of material
misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by us,
including those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing the
efforts of the engagement team. These matters were addressed in
the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate
opinion on these matters. In arriving at our audit opinion above, the
key audit matters, in decreasing order of audit significance, were as
follows:
Key audit matter
Loan impairment
The risk
Subjective estimate
Our response
Our procedures included:
Statement
Consolidated
Financial Position:
Provision £2,513,000
£2,156,000).
of
Impairment
(2016:
Consolidated Income Statement:
Provision for Impairment of Loan
Assets
(2016:
£535,000
£447,000).
Refer to note 3(e) (Accounting
Policy for Impairment of financial
assets, note 3(p) (Key Sources
of Estimation Uncertainty), note
4(a)(i) (Credit Risk) and note 18
(Loans
to
Customers).
and Advances
Loan
impairment provisions reflect
estimates of the amount and timing of
future recoveries which require an
assessment of matters such as future
economic conditions and the value of
collateral. Estimates, by their nature,
give rise to a higher risk of material
misstatement due to error or fraud.
- Control design and operating effectiveness: Understanding
and testing the controls in respect of the Group’s loan
impairment process such as
timely recognition of
impairment provisions, the completeness and accuracy of
impairment process and
reports used
management review processes over the calculation of
collective and specific provisions.
loan
the
the
in
- Test of details: We tested a sample of specific provisions
including
against
challenging collateral values and discount rates assumed in
the provisions.
individually significant
impaired
loans
- Historical comparison: We tested the inputs used in
collective impairment models and considered whether those
inputs reflected default and recovery experience across each
of the loan finance categories.
- Assessing transparency: Assessing the adequacy of the
the degree of estimation
Group’s disclosures about
uncertainty involved at arriving at the provisions.
Manx Financial Group PLC
Report of the Independent Auditor (continued)
17
Independent Auditor’s Report, to the members of Manx Financial Group PLC (continued)
2 Key audit matters: our assessment of risks of material misstatement (continued)
The risk
Forecast-based valuation
Our response
Our procedures included:
the
and
Goodwill and intangible assets are
significant
estimated
recoverable amount of these balances
is subjective due
inherent
uncertainty involved in forecasting and
discounting future cash flows.
the
to
Key audit matter
Recoverability of goodwill and
intangible assets
Statement
Consolidated
of
Financial Position: Goodwill
£2,344,000 (2016: £2,344,000)
and
Assets
Intangibles
£1,719,000 (2016: £1,316,000).
Consolidated Income Statement:
Amortisation and Impairment of
Intangible Assets
£286,000
(2016: £80,000).
note
Refer to note 3(b) (Accounting
Business
Policy
for
Combinations),
3(c)
(Accounting Policy for Property,
Plant
and
Intangible Assets), note 3(p)
(Key Sources of Estimation
Uncertainty), note 20 (Intangible
Assets) and note 21 (Investment
in Group Undertakings).
Equipment
&
- Control design and operating effectiveness: Understanding
and testing the controls in respect of the Group’s goodwill
and intangibles assets impairment review process such as
the timely recognition of impairment provisions and the
completeness and accuracy of
the
impairment review process.
reports used
in
- Test of details: Where external valuation experts were
engaged by the Group, we assessed the credentials of the
experts, compared the information supplied to the experts to
source data, assessed the assumptions used and considered
whether,
the experts’ opinions were
in our opinion,
reasonable in circumstances.
- Test of details: Where external valuation experts were not
engaged, we compared the forecasts and assumptions
included in the calculations of net present value used by the
client for impairment testing to historical data and assessed
whether they were reasonable.
- Assessing transparency: Assessing the adequacy of the
the degree of estimation
Group’s disclosures about
uncertainty
impairment
the
assessments.
Our procedures included:
in performing
involved
VAT receivable
Uncertainty over recoverability
Statement
of
Consolidated
Financial
VAT
receivable exposure £930,000
(2016: £865,000).
Position:
Refer to note 3(p) (Key Sources
of Estimation Uncertainty) and
note 22
(Trade and Other
Receivables).
receivable exposure
is
The VAT
significant and its recoverability rests
on the outcome of discussions with
the Isle of Man Government Customs
and Excise Division, which in turn will
take into account the final resolution of
the dispute between Volkswagen
Financial Services (UK) Limited v
HM Revenue & Customs.
- Test of details: Assessed the latest discussions between
the Group and C&E and the latest position regarding the
VWFS case.
- Test of details: Tested the calculations prepared by the
Group based on the revised Partial Exemption Special
Method.
- Assessing transparency: Assessing the adequacy of the
Group’s disclosures about
the degree of estimation
uncertainty involved in assessing the recoverability of this
balance.
3 Our application of materiality and an overview of the scope of
our audit
financial
Materiality
statements as a whole was set at £140,000, determined with
reference to a benchmark of Group profit before tax, of which it
represents 5%.
the Group and Parent Company
for
In the prior year, materiality was set at £520,000, determined
with reference to a benchmark of net assets, of which it
represented 4%. The benchmark used for materiality was
changed as a result of a reassessment of the benchmark which
was most relevant to users of the accounts.
We agreed to report to the Audit Committee any corrected or
uncorrected identified misstatements exceeding £7,000 for both
the Group and Parent Company financial statements, in addition
to other identified misstatements that warranted reporting on
qualitative grounds.
The Group’s subsidiaries were subjected to full scope statutory
audit by the Group audit team and subject to a lower level of
materiality based on their individual financial statements.
4 We have nothing to report on going concern
We are required to report to you if we have concluded that the
use of the going concern basis of accounting is inappropriate or
there is an undisclosed material uncertainty that may cast
significant doubt over the use of that basis for a period of at least
twelve months from the date of approval of the financial
statements. We have nothing to report in these respects.
Manx Financial Group PLC
Report of the Independent Auditor (continued)
18
Independent Auditor’s Report, to the members of Manx Financial Group PLC (continued)
5 We have nothing to report on the other information in the
Annual Report
The Directors are responsible for the other information, which
comprises the Chairman’s Statement, the Directors’ Report, the
Corporate Governance Report and the Directors’ Remuneration
Report. Our opinion on the financial statements does not cover
the other information and, accordingly, we do not express an
audit opinion or, except as explicitly stated below, any form of
assurance conclusion thereon.
Our responsibility is to read the other information and, in doing
so, consider whether, based on our financial statements audit
work,
is materially misstated or
inconsistent with the financial statements or our audit knowledge.
information
therein
the
Based solely on that work:
we have not identified material misstatements in the
other information; and
in our opinion the information given in the Directors’
Report for the financial year is consistent with the
financial statements.
6 Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 15, the
Directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; assessing
the Group and Parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern; and using the going concern basis of accounting unless
they either intend to liquidate the Group or the Parent Company
or to cease operations, or have no realistic alternative but to do
so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue our opinion in an auditor’s report. Reasonable assurance
is a high level of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
7 The purpose of our audit work and to whom we owe our
responsibilities
This report is made solely to the Company’s members, as a
body, in accordance with Section 80(c) of the Isle of Man
Companies Act 2006. Our audit work has been undertaken so
that we might state to the Company’s members those matters we
are required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the
Company and the Company’s members, as a body, for our audit
work, for this report, or for the opinions we have formed.
KPMG Audit LLC
Chartered Accountants
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
Manx Financial Group PLC
Consolidated Income Statement
19
For the year ended 31 December
Interest income
Interest expense
Net interest income
Fee and commission income
Fee and commission expense
Net trading income
Other operating income
Terminal funding
Operating income
Personnel expenses
Other expenses
Provision for impairment on loan assets
Loss on financial assets carried at fair value
Realised gains on available for sale financial assets
Depreciation
Amortisation and impairment of intangibles
Change in share of net assets of associate
VAT recovery
Profit before tax payable
Tax payable
Profit for the year after taxation
Basic earnings per share (pence)
Diluted earnings per share (pence)
The notes on pages 24 to 54 form part of these financial statements.
The Directors believe that all results derive from continuing activities.
Notes
6
10
3(u)
7
8
9
15
16
19
20
21
22
10
11
12
12
2017
£000
2016
£000
19,893
(3,256)
19,369
(3,368)
16,637
16,001
3,115
(8,413)
11,339
91
90
11,520
(4,783)
(3,152)
(535)
(21)
36
(134)
(286)
38
65
2,748
(240)
2,508
2.26
1.77
1,660
(9,106)
8,555
198
(154)
8,599
(3,935)
(2,706)
(447)
(6)
71
(246)
(80)
-
295
1,545
(244)
1,301
1.27
0.87
Manx Financial Group PLC
Consolidated Statement of Other Comprehensive Income
For the year ended 31 December
Profit for the year
Other comprehensive income: -
Items that will be reclassified to profit or loss
Unrealised losses on available for sale financial instruments taken to equity
Items that will never be reclassified to profit or loss
Actuarial gains / (losses) on defined benefit pension scheme taken to equity
Total comprehensive income for the period attributable to owners
Basic earnings per share (pence)
Diluted earnings per share (pence)
The notes on pages 24 to 54 form part of these financial statements.
20
Notes
2017
£000
2016
£000
2,508
1,301
16
27
12
12
(93)
(8)
30
2,445
2.21
1.73
(316)
977
0.96
0.68
Manx Financial Group PLC
Consolidated and Company Statement of Financial Position
21
As at 31 December
Notes
Assets
Cash and cash equivalents
Financial assets at a fair value through profit or loss
Available for sale financial instruments
Held to maturity financial instruments
Loans and advances to customers
Commissions receivable
Property, plant and equipment
Intangible assets
Investment in Group undertakings
Investment in associate
Amounts due from Group undertakings
Trade and other receivables
Subordinated loans
Goodwill
Total assets
Liabilities
Customer accounts
Creditors and accrued charges
Block creditors
Amounts owed to Group undertakings
Loan notes
Pension liability
Deferred tax liability
Total liabilities
Equity
Called up share capital
Profit and loss account
Total equity
Total liabilities and equity
14
15
16
17
18
19
20
21
21
21
22
21
21
23
24
25
21
26
27
11
28
Group
2017
£000
2016
£000
9,745
24
28,740
5,532
122,720
465
450
1,719
-
38
-
1,443
-
2,344
6,129
70
23,991
-
116,053
332
719
1,316
-
-
-
1,732
-
2,344
173,220
152,686
142,272
3,164
751
-
8,995
560
42
125,952
2,975
1,390
-
8,545
614
40
2017
£000
200
-
-
-
-
-
166
-
13,772
-
16
22
5,778
-
19,954
-
139
-
2,517
8,995
-
-
Company
2016
£000
-
-
-
-
-
-
207
-
12,072
-
296
29
5,178
-
17,782
-
82
-
2,499
8,545
-
-
155,784
139,516
11,651
11,126
20,732
(3,296)
17,436
18,933
(5,763)
13,170
173,220
152,686
20,732
(12,429)
8,303
19,954
18,933
(12,277)
6,656
17,782
The financial statements were approved by the Board of Directors on 15 March 2018 and signed on its behalf by: -
Jim Mellon
Executive Chairman
Denham Eke
Chief Executive Officer Group Finance Director
Douglas Grant
The notes on pages 24 to 54 form part of these financial statements.
Manx Financial Group PLC
Consolidated Statement of Cash Flows
For the year ended 31 December
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
Profit before tax on continuing activities
Loss on financial assets carried at fair value
Change in share in net assets of associate
Depreciation
Amortisation and impairment of intangibles
Actuarial gain / (loss) on defined benefit pension scheme taken to equity
(Decrease) / increase in pension liability
Share-based payment expense
Decrease / (increase) in trade and other receivables
(Decrease) / increase in trade and other payables
(Increase) / decrease in commission debtors
Notes
15
21
19
20
27
27
10, 28
Net cash inflow from trading activities
Increase in loans and advances to customers
Increase in deposit accounts
Cash inflow from operating activities
CASH FLOW STATEMENT
Cash flows from operating activities
Cash inflow from operating activities
Taxation paid
Net cash inflow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Sale of tangible fixed assets
Acquisition of Manx Financial Limited
Acquisition of MBL business
Purchase of available for sale financial instruments
Purchase of held to maturity financial instruments
Sale of financial assets at fair value through profit or loss
Net cash outflow from investing activities
Cash flows from financing activities
Receipt of loan notes
Increase in share capital
(Decrease) / increase in borrowings from block creditors
Net cash inflow from financing activities
Increase / (decrease) in cash and cash equivalents
Included in cash flows are: -
Interest received – cash amounts
Interest paid – cash amounts
The notes on pages 24 to 54 form part of these financial statements.
19
20
19
21
20
16
17
15
26
28
25
22
2016
£000
1,545
6
-
246
80
(316)
280
46
(355)
47
29
1,608
(14,697)
19,624
2017
£000
2,748
21
(38)
134
286
30
(54)
22
290
(49)
(133)
3,257
(6,667)
16,320
12,910
6,535
12,910
-
6,535
(36)
12,910
6,499
(122)
(213)
20
-
(239)
(4,842)
(5,532)
24
(93)
(50)
-
(500)
(948)
(8,017)
-
-
(10,904)
(9,608)
450
1,799
(639)
1,610
3,616
19,109
(3,152)
1,280
-
802
2,082
(1,027)
18,628
(3,260)
Manx Financial Group PLC
Consolidated and Company Statement of Changes in Equity
23
For the year ended 31 December
Group
Balance as at 1 January
Profit for the year
Other comprehensive income
Transactions with owners: -
Share-based payment expense (see notes 10 and 28)
Shares issued (see note 28)
Balance as at 31 December
For the year ended 31 December
Company
Balance as at 1 January
Loss for the year
Transactions with owners: -
Share-based payment expense (see notes 10 and 28)
Shares issued (see note 28)
Balance as at 31 December
The notes on pages 24 to 54 form part of these financial statements.
Share
Capital
£000
18,933
-
-
-
1,799
20,732
Share
Capital
£000
18,933
-
-
1,799
20,732
Retained
Earnings
£000
(5,763)
2,508
(63)
22
-
(3,296)
Retained
Earnings
£000
(12,277)
(174)
22
-
(12,429)
2017
£000
13,170
2,508
(63)
22
1,799
17,436
2017
£000
6,656
(174)
22
1,799
8,303
2016
£000
12,147
1,301
(324)
46
-
13,170
2016
£000
6,729
(119)
46
-
6,656
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
24
1. Reporting entity
Manx Financial Group PLC is a company incorporated in the Isle of Man. The consolidated financial statements of Manx Financial
Group PLC (the “Company”) for the year ended 31 December 2017 comprise the Company and its subsidiaries (the “Group”).
A summary of the principal accounting policies, which have been applied consistently, are set out below.
2. Basis of preparation
(a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“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 2016 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 2017: -
Disclosure initiative (Amendments to IAS 7);
Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12); and
Annual Improvements to IFRSs 2014-2016 Cycle (Amendments to IFRS 12 Disclosures of Interests in Other Entities).
There are no significant changes following the implementation of these standards and amendments.
(b) Basis of measurement
The financial statements are prepared on a historical cost basis except: -
financial instruments at fair value through profit or loss and available for sale financial instruments are measured at fair
value; and
equity settled share-based payment arrangements are measured at fair value.
(c) Functional and presentation currency
These financial statements are presented in pounds sterling, which is the Group’s functional currency. Except as indicated, financial
information presented in pounds sterling has been rounded to the nearest thousand. All subsidiaries of the Group have pounds
sterling as their functional currency.
(d) Use of estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from
these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised and in any future periods affected.
In particular, information about significant areas of estimation, uncertainty and critical judgements in applying accounting policies that
have the most significant effect on the amounts recognised in the financial statements are described in note 3(p).
3. Significant accounting policies
(a) Basis of consolidation of subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group has 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
25
3. Significant accounting policies (continued)
(b) Accounting for business combinations
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: -
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) Property, plant and equipment and intangible assets
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.
Depreciation and amortisation
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
Software
to expiration of the lease
4-5 years
4 years
10 years
to expiration of the agreement
4 years - indefinite
indefinite
5 years
Manx Financial Group PLC
26
3. Significant accounting policies (continued)
(d) Financial assets
Management have determined the classification of the Group’s financial assets into one of the following categories: -
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They arise when the Group provides money directly to a customer with no intention of trading the receivable. This
classification includes advances made to customers under hire purchase (“HP”) and finance lease agreements, finance loans,
personal loans, block discounting, secured commercial loans, stocking plans and wholesale funding agreements.
Loans are recognised when cash is advanced to the borrowers. Loans and receivables are carried at amortised cost using the
effective interest rate method with all movements being recognised in the income statement after taking into account provision for
impairment losses (see note 3(e)).
Financial assets at fair value through profit or loss
A financial asset is classified in this category if it is acquired principally for the purpose of selling in the short term or if so designated
by management. The fair value of the financial asset at fair value through profit or loss is based on the quoted bid price at the
reporting date.
Available for sale financial instruments
Available for sale investments are non-derivative investments that are designated as available for sale or are not classified as another
category of financial assets. Available for sale investments are carried at fair value.
Dividend income is recognised in the income statement when the Group becomes entitled to the dividend. Other fair value changes
are recognised in other comprehensive income until the investment is sold or impaired, whereupon the cumulative gains and losses
previously recognised in other comprehensive income are recognised in the income statement.
Held to maturity financial instruments
Held to maturity investments are non-derivative investments that are initially measured at fair value plus any directly attributable
transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method.
Investments in subsidiary undertakings
Investments in subsidiary undertakings in the parent company statement of financial position are measured at cost less any provision
for impairment.
Fair value
The fair value hierarchy is applied to all financial assets. Refer to note 4(c) for further information.
Impairment of financial assets
(e)
The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is
impaired. This arises if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the
initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the
financial asset, or group of financial assets, that can be reliably estimated. Impairment losses are recognised in the income statement
for the year.
Objective evidence that financial assets are impaired can include default or delinquency by a borrower, restructuring of a loan or
advance by the Group on terms that the Group would not otherwise consider indications that a borrower or issuer will enter
bankruptcy or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers.
Loans and other receivables are reviewed for impairment where there are repayment arrears and doubt exists regarding
recoverability. The impairment allowance is based on the level of arrears together with an assessment of the expected future cash
flows, and the value of any underlying collateral after taking into account any irrecoverable interest due. Amounts are written off when
it is considered that there is no further prospect of recovery.
Where past experience has indicated that, over time, a particular category of financial asset has suffered a trend of impairment
losses, a collective impairment allowance is made for expected losses to reflect the continuing historical trend.
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
27
3. Significant accounting policies (continued)
(f) Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash equivalents comprise cash and deposit balances with an original
maturity date of three months or less.
(g) Financial liabilities
Financial liabilities consist of customer deposit accounts, other creditors, loan notes, 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) Long term employee benefits
Pension obligations
The Group has pension obligations arising from both defined benefit and defined contribution pension plans.
A defined contribution pension plan is one under which the Group pays fixed contributions into a separate fund and has no legal or
constructive obligations to pay further contributions. 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.
Share-based compensation
The Group maintains a share option programme which allows certain Group employees to acquire shares of the Group. The change
in the fair value of options granted is recognised as an employee expense with a corresponding change in equity. The fair value of the
options is measured at grant date and spread over the period during which the employees become unconditionally entitled to the
options.
At each reporting 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 the Bank became shareholders of the Company. The
share option programme is now operated by the Company. 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.
(i) Leases
A Group company is the lessor
Finance leases and HP contracts
When assets are subject to a finance lease or HP contract, the present fair value of the lease payments is recognised as a receivable.
The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. HP
and lease income is recognised over the term of the contract or lease reflecting a constant periodic rate of return on the net
investment in the contract or lease. Initial direct costs, which may include commissions and legal fees directly attributable to
negotiating and arranging the contract or lease, are included in the measurement of the net investment of the contract or lease at
inception.
Manx Financial Group PLC
28
3. Significant accounting policies (continued)
(i) Leases (continued)
A Group company is the lessee
Operating leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement
on a straight-line basis over the period of the lease.
(j) Current and deferred taxation
Current taxation relates to the estimated corporation tax payable in the current financial year. Deferred taxation is provided in full,
using the liability method, on timing differences arising between the tax bases of assets and liabilities and their carrying amounts in
the consolidated financial statements. Deferred taxation is determined using tax rates (and laws) that have been enacted or
substantially enacted by the reporting date and are expected to apply when the related deferred tax is realised. Deferred taxation
assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary
differences can be utilised.
(k) Interest income and expense
Interest income and expense are recognised in the income statement using the effective interest rate method.
Effective interest rate
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts of the financial instrument to
the net carrying amount of the financial asset or financial liability. The discount period is the expected life or, where appropriate, a
shorter period. The calculation includes all amounts receivable or payable by the Group that are an integral part of the overall return,
including origination fees, loan incentives, broker fees payable, estimated early repayment charges, balloon payments and all other
premiums and discounts. It also includes direct incremental transaction costs related to the acquisition or issue of the financial
instrument. The calculation does not consider future credit losses.
Once a financial asset or a group of similar financial assets has been written down as a result of impairment, subsequent interest
income continues to be recognised using the original effective interest rate applied to the reduced carrying value of the financial
instrument.
(l) Fees and commission income
Fees and commission income other than that directly related to the loans is recognised over the period for which service has been
provided or on completion of an act to which the fees relate.
(m) Programme costs
Programme costs are direct expenditure incurred in relation to prepaid card programmes. The costs are recognised over the period in
which income is derived from operating the programmes.
(n) Segmental reporting
A segment is 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
29
3. Significant accounting policies (continued)
(o) New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not effective for the year and have not been applied in
preparing these consolidated financial statements.
New/revised International Accounting Standards/International Financial Reporting Standards (IAS/IFRS)
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
IFRS 17 Insurance Contracts
Effective date
(accounting periods
commencing on or after)
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2019
1 January 2021
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 (IAS
39). 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 finalising its assessment of the potential impact on its consolidated financial statements resulting from the application of
IFRS 9. Based on assessments performed to date, it is anticipated that impairment allowances could increase by 10 to 20%. Given
the nature of the Group’s operations, including its establishment of loss pools for much of its lending, this standard is not expected to
have a pervasive impact on the Group’s financial statements. However, calculation of impairment of financial instruments on an
expected credit loss basis is expected to result in the recognition of losses earlier and, as noted above, an overall increase in the level
of impairment allowances.
The impairment requirements apply to financial assets measured at amortised cost and fair value through other comprehensive
income, loan receivables, certain loan commitments and financial guarantee contracts. At initial recognition, an allowance (or
provision in the case of commitments and guarantees) is required for expected credit losses (“ECL”) resulting from default events that
are possible within the next 12 months (“12-month ECL”). In the event of a significant increase in the credit risk, allowance (or
provision) is required for ECL resulting from all possible default events over the expected life of the financial instrument (“lifetime
ECL”). Financial assets where 12-month ECL is recognised are considered to be Stage 1; financial assets, which are considered to
have experienced a significant increase in credit risk are in Stage 2; and financial assets, for which there is objective evidence of
impairment, so are considered to be in default or otherwise credit impaired, are in Stage 3.
The assessment of whether credit risk has increased significantly since initial recognition is performed for each reporting period by
considering the change in the risk of default occurring over the remaining life of the financial instrument, rather than by considering
the increase in ECL.
The assessment of credit risk and estimated ECL are required to be unbiased and probability-weighted, and should incorporate all
available information which is relevant to the assessment including information about past events, current conditions and reasonable
and supportable forecasts of economic conditions at the reporting date. In addition, the estimation of ECL should take into account the
time value of money. As a result, the recognition and measurement of the impairment is intended to be more forward-looking than
under IAS 39 and the resulting impairment charge will tend to be more volatile. It will also tend to result in an increase in the total level
of impairment allowances, since all financial assets will be assessed for at least 12-month ECL and the population for financial assets
to which lifetime ECL applies is likely to be larger than the population for which there is objective evidence of impairment in
accordance with IAS 39.
Manx Financial Group PLC
30
3. Significant accounting policies (continued)
(p) Key sources of estimation uncertainty
Management believe that a key area of estimation and uncertainty is in respect of the impairment allowances on loans and advances
to customers, goodwill, intangible assets and the recoverability of the value added tax (“VAT”) receivable. 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 and intangible assets at different discount rates to
allow for any uncertainty. The assessment of the recoverability of the VAT receivable balance is based on current discussions with the
Isle of Man Government Customs and Excise Division and the status of the Volkswagen Financial Services (UK) Limited v HM
Revenue & Customs (TC01401) case (see note 22).
(q) Fiduciary deposits
Deposits received on behalf of clients by way of a fiduciary agreement are placed with external parties and are not recognised in the
statement of financial position. Income in respect of fiduciary deposit taking is included within interest income and recognised on an
accruals basis.
(r) Prepaid card funds
The Group 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.
(s) Foreign exchange
Foreign currency assets and liabilities (applicable to the Conister Card Services division only) are translated at the rates of exchange
ruling at the reporting date. Transactions during the year are recorded at rates of exchange in effect when the transaction occurs. The
exchange movements are dealt with in the income statement.
Interests in equity accounted investees
(t)
The Group’s interests in equity accounted investees may comprise interests in associates and joint ventures.
Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and
operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net
assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Interests in associates and joint ventures are accounted for using the equity method. They are initially recognised at cost, which
includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group’s share of the
profit or loss and OCI of equity accounted investees, until the date on which significant influence or joint control ceases.
(u) Terminal funding
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 in the prior year to cease funding and wind up the book upon the final repayment date of August 2019.
Interest income
Fee and commission expense
Provision for impairment on loan assets
2017
£000
377
(92)
(195)
90
2016
£000
601
(166)
(589)
(154)
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
31
4. Risk and capital management
(a) Risk management
Introduction and overview
The Group has exposure to the following risks from its use of financial instruments: -
credit risk;
liquidity risk;
operational risk; and
market risk.
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes
for managing risk and capital within the Bank. The Bank is the main operating entity exposed to these risks.
Risk management framework
The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework within the
Group. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate
risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to
reflect changes in market conditions. The Group has a disciplined and constructive control environment, in which all employees
understand their roles and obligations.
The Board of Directors of the Bank (the “Board of the Bank”) delegate responsibility for risk management to the Executive Risk
Committee (“ERC”) which reports to the Audit, Risk and Compliance Committee (“ARCC”). It is responsible for the effective risk
management of the 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
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,
stocking plan loans and wholesale funding agreements. It is also exposed to credit risk with regard to cash balances and trade and
other receivables.
Management of credit risk
The Board of the Bank delegates responsibility for the management of credit risk to the Credit Committee (“CC”) for loans and ALCO
for other assets. The following measures are taken in order to manage the exposure to credit risk: -
explicit credit policies, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal
procedures, and compliance with regulatory and statutory requirements;
a rigorous authorisation structure for the approval and renewal of credit facilities. Each opportunity is researched for viability,
legal/regulatory restriction and risk. If recommended, the proposal is submitted to Board of the Bank or the CC. The CC reviews
lending assessments in excess of individual credit control or executive discretionary limits;
reviewing and assessing existing credit risk and collateral. The CC assesses all credit exposures in excess of designated limits, as
set out in the underwriting manual for asset and personal finance;
limiting concentrations of exposure to counterparties, geographies and industries defining sector limits, lending caps and exposure
to minimise interest rate risk;
ensuring that appropriate records of all sanctioned facilities are maintained;
ensuring regular account reviews are carried out for all accounts agreed by the CC; and
ensuring Board of the Bank approval is obtained on all decisions of the CC above the limits set out in the Bank’s credit risk policy.
4. Risk and capital management (continued)
(a) Risk management (continued)
i)
Management of credit risk (continued)
Credit risk (continued)
An analysis of the credit risk on loans and advances to customers is as follows: -
Carrying amount
Individually impaired1
Grade A
Grade B
Grade C
Gross value
Allowance for impairment
Carrying value
Collective allowance for impairment
Past due but not impaired
Less than 1 month
1 month but less than 2 months
2 months but less than 3 months
3 months and over
Carrying value
Manx Financial Group PLC
32
2017
£000
122,720
2016
£000
116,053
-
-
3,184
3,184
(2,440)
744
(73)
2,922
1,941
1,012
1,296
7,171
-
-
3,010
3,010
(2,099)
911
(57)
2,558
1,314
575
1,146
5,593
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.
109,606
114,878
Impaired loans
Impaired loans are loans where the Group determines that it is probable that it will be unable to collect all principal and interest due
according to the contractual terms of the loan agreements.
Past due but not impaired loans
Past due but not impaired loans are loans where the contractual interest or principal payments are past due but the Group believes
that impairment is not appropriate on the basis of the level of security, collateral available and/or the stage of collection of amounts
owed to the Group.
Allowances for impairment
The Group establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The
main components of this allowance are a specific loss allowance that relates to individually significant exposures, and a collective
loan loss allowance, which is established for the Group’s assets in respect of losses that have been incurred but have not been
identified on loans subject to individual assessment for impairment. The collective loan loss allowance is based on historical
experience, the current economic environment and an assessment of its impact on loan collectability. Guidelines regarding specific
impairment allowances are laid out in the Bank’s Debt Recovery Process Manual which is reviewed annually.
Write-off policy
The Group writes off a loan balance (and any related allowances for impairment losses) when management determines that the loans
are uncollectable. This determination is reached after considering information such as the occurrence of significant changes in the
borrower’s financial position such that the borrower can no longer pay the obligation, or that proceeds from collateral will not be
sufficient to pay back the entire exposure.
Collateral
The Group holds collateral in the form of the underlying assets (typically private and commercial vehicles, plant and machinery) as
security for HP, finances leases, vehicle stocking plans, block discounting and secured commercial loan balances, which are sub-
categories of loans and advances to customers. In addition, the commission share schemes have an element of capital indemnified.
During 2017, 41.7% of loans and advances fell into this category (2016: 54.4%).
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
33
4. Risk and capital management (continued)
(a) Risk management (continued)
i)
Management of credit risk (continued)
Collateral (continued)
Credit risk (continued)
Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except
when a loan is individually assessed as impaired. At the time of granting credit within the sub-categories listed above, the loan
balances due are secured over the underlying assets held as collateral (see note 18 for further details).
Concentration of credit risk
Geographical
Lending is restricted to individuals and entities with Isle of Man, UK or Channel Islands addresses.
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, vehicle stocking plan loans and wholesale funding agreements. 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 2017 (2016: one introducer).
(ii) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting financial liability obligations as they fall due.
Management of liquidity risk
The Group’s approach to managing liquidity is to ensure, as far as possible, 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.
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, short dated UK Government Treasury Bills and Certificates of Deposit.
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
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.
Residual contractual maturities of financial liabilities as at the reporting date (undiscounted)
31 December 2017
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
Total liabilities
2,579
3,094
5,673
3,136
89
3,225
12,710
318
13,028
24,241
1,540
25,781
30,207
1,754
31,961
60,820
3,326
12,567
3,322
64,146
15,889
-
560
560
146,260
14,003
160,263
Manx Financial Group PLC
34
4. Risk and capital management (continued)
(a) Risk management (continued)
ii) Liquidity risk (continued)
Measurement of liquidity risk (continued)
Residual contractual maturities of financial liabilities as at the reporting date (undiscounted) (continued)
31 December 2016
Customer accounts
Other liabilities
Total liabilities
Sight-
8 days
£000
>8 days
- 1 month
£000
>1 month
- 3 months
£000
>3 months
- 6 months
£000
>6 months
- 1 year
£000
>1 year
- 3 years
£000
>3 years
- 5 years
£000
>5 years
£000
Total
£000
2,831
3,026
5,857
4,601
90
4,691
8,257
198
8,455
8,079
301
8,380
35,517
2,509
38,026
53,280
3,787
57,067
18,024
3,691
21,715
-
614
614
130,589
14,216
144,805
Maturity of assets and liabilities at the reporting date
Sight-
8 days
£000
>8 days
- 1 month
£000
31 December 2017
>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
Assets
Cash & cash
equivalents
Available for sale
financial instruments
Held to maturity
financial instruments
Customer accounts
receivable
Commission debtors
Other assets
Total assets
Liabilities
Customer accounts
Other liabilities
Total liabilities
31 December 2016
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
9,745
-
-
-
-
3,713
79
24
13,561
2,570
3,086
5,656
1,998
16,983
-
3,654
194
-
5,846
3,105
55
3,160
-
7,956
192
-
25,131
12,654
234
12,888
-
2,992
5,532
10,823
-
-
19,347
24,112
169
24,281
-
-
-
25,886
-
-
25,886
29,716
3,333
33,049
-
-
-
54,950
-
-
54,950
57,711
2,945
60,656
-
6,767
-
15,717
-
-
22,484
12,404
3,130
15,534
-
-
-
21
-
5,994
6,015
-
560
560
9,745
28,740
5,532
122,720
465
6,018
173,220
142,272
13,512
155,784
Sight-
8 days
£000
>8 days
- 1 month
£000
>1 month
- 3 months
£000
>3 months-
6 months
£000
>6 months
- 1 year
£000
>1 year
- 3 years
£000
>3 years
- 5 years
£000
>5 years
£000
Total
£000
6,129
-
4,198
29
70
10,426
2,840
3,028
5,868
-
6,499
3,067
110
-
9,676
4,597
39
4,636
-
-
6,499
10,993
7,650
193
-
14,342
8,235
104
8,339
10,037
-
-
21,030
8,028
159
8,187
-
-
18,675
-
-
18,675
34,988
2,276
37,264
-
-
-
-
54,074
-
-
17,704
-
-
54,074
17,704
-
-
648
-
6,111
6,759
6,129
23,991
116,053
332
6,181
152,686
50,931
3,754
16,333
3,590
54,685
19,923
-
614
614
125,952
13,564
139,516
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
35
4. Risk and capital management (continued)
(a) Risk management (continued)
(iii) Operational risk
Operational risk arises from the potential for inadequate systems, including systems’ breakdown, errors, poor management, breaches
in internal controls, fraud and external events, to result in financial loss or reputational damage. Operational risk also occurs when
lending through an outsourced partner. The Group manages the risk through appropriate risk controls and loss mitigation actions.
These actions include a balance of policies, procedures, internal controls and business continuity arrangements. Operational risk
across the Group is analysed and discussed at all Board meetings, with ongoing monitoring of actions arising to address the risks
identified.
(iv) Market risk
Market risk is the risk that changes in the level of interest rates, changes in the rate of exchange between currencies or changes in
the price of securities and other financial contracts including derivatives will have an adverse financial impact. The primary market risk
within the Group is interest rate risk exposure in the Bank. As at 31 December 2017 and 2016, 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 £24,000 at 31
December 2017 (2016: £70,000) the potential impact on the results of the Group is relatively small and no sensitivity analysis has
been provided for the market price risk.
Interest rate risk
Interest rate risk exposure in the Bank arises from the difference between the maturity of capital and interest payable on customer
deposit accounts, and the maturity of capital and interest receivable on loans and financing. The differing maturities on these products
create interest rate risk exposures due to the imperfect matching of different financial assets and liabilities. The risk is managed on a
continuous basis by management and reviewed by the Board of the Bank. The Bank monitors interest rate risk on a monthly basis via
the ALCO. The matching of the maturity interest rates of assets and liabilities is fundamental to the management of the Bank. The
maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest bearing liabilities as they mature are
important factors in assessing the liquidity of the Bank and its exposure to changes in interest rates.
Interest rate re-pricing table
The following tables present the interest rate mismatch position between assets and liabilities over the respective maturity dates. The
maturity dates are presented on a worst case basis, with assets being recorded at their latest maturity and customer accounts at their
earliest.
Sight-
1 month
£000
>1month
- 3months
£000
>3months
- 6months
£000
>6months
- 1 year
£000
>1 year
- 3 years
£000
>3 years
- 5 years
£000
>5 years
£000
Non-Int.
Bearing
£000
Total
£000
31 December 2017
Assets
Cash & cash equivalents
Available for sale financial
instruments
Held to maturity financial
instruments
Customer accounts receivable
Commission debtors
Other assets
9,745
-
-
1,998
16,983
2,992
-
-
-
-
-
6,767
-
7,367
273
24
-
7,956
192
-
5,532
10,823
-
-
-
25,886
-
-
-
54,950
-
-
-
15,717
-
-
-
-
-
21
-
-
21
-
-
-
-
-
5,994
9,745
28,740
5,532
122,720
465
6,018
5,994
173,220
Total assets
19,407
25,131
19,347
25,886
54,950
22,484
Liabilities
Customer accounts
Other liabilities
Total capital and reserves
Total liabilities and equity
Interest rate sensitivity gap
5,675
3,141
-
8,816
10,591
12,654
234
-
12,888
12,243
24,112
169
-
29,716
3,333
-
57,711
2,945
-
12,404
3,130
-
24,281
(4,934)
33,049
(7,163)
60,656
(5,706)
15,534
6,950
-
560
-
560
(539)
-
-
17,436
17,436
(11,442)
142,272
13,512
17,436
173,220
-
Cumulative
10,591
22,834
17,900
10,737
5,031
11,981
11,442
-
-
Manx Financial Group PLC
36
4. Risk and capital management (continued)
(a) Risk management (continued)
(iv) Market risk (continued)
Interest risk re-pricing table (continued)
31 December 2016
Sight-
1 month
£000
>1month
-3months
£000
>3months
- 6months
£000
>6months
- 1 year
£000
>1 year
- 3 years
£000
>3 years
- 5 years
£000
>5 years
£000
Non-Int.
Bearing
£000
Total
£000
Assets
Cash & cash equivalents
Available for sale financial
instruments
Customer accounts receivable
Commission debtors
Other assets
6,129
6,499
7,265
139
70
-
-
-
-
-
6,499
7,650
193
-
10,993
10,037
-
-
-
18,675
-
-
-
54,074
-
-
-
17,704
-
-
Total assets
20,102
14,342
21,030
18,675
54,074
17,704
Liabilities
Customer accounts
Other liabilities
Total capital and reserves
Total liabilities and equity
Interest rate sensitivity gap
7,437
3,067
-
10,504
9,598
8,235
104
-
8,339
6,003
8,028
159
-
34,988
2,276
-
50,931
3,754
-
16,333
3,590
-
8,187
12,843
37,264
(18,589)
54,685
(611)
19,923
(2,219)
-
-
648
-
-
648
-
614
-
614
34
-
6,129
-
-
-
6,111
6,111
-
-
13,170
13,170
(7,059)
23,991
116,053
332
6,181
152,686
125,952
13,564
13,170
152,686
-
Cumulative
9,598
15,601
28,444
9,855
9,244
7,025
7,059
-
-
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 (2016: 2.0%). The following tables set out the estimated total impact of
such a change based on the mismatch at the reporting date: -
31 December 2017
Sight-
1 month
£000
>1month
-3months
£000
>3months
- 6months
£000
>6months
- 1 year
£000
>1 year
- 3 years
£000
>3 years
- 5 years
£000
>5 years
£000
Non-Int.
Bearing
£000
Interest rate sensitivity gap
10,591
Weighting
£000
0.000
-
12,243
0.003
37
(4,934)
(7,163)
(5,706)
0.007
(35)
0.014
(100)
0.027
(154)
6,950
0.054
375
(539)
(11,442)
0.115
(62)
0.000
-
31 December 2016
Interest rate sensitivity gap
Weighting
£000
Sight-
1 month
£000
>1month
-3months
£000
>3months
-6months
£000
>6months
- 1 year
£000
>1 year
- 3 years
£000
>3 years
- 5 years
£000
>5 years
£000
Non-Int.
Bearing
£000
9,598
0.000
-
6,003
0.003
18
12,843
(18,589)
0.007
90
0.014
(260)
(611)
0.027
(17)
(2,219)
34
0.054
0.115
(7,059)
0.000
(120)
4
-
(285)
Total
£000
-
-
61
Total
£000
-
-
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
37
4. Risk and capital management (continued)
(b) Capital Management
Regulatory capital
The Group considers capital to comprise share capital, share premium, reserves and subordinated loans. Capital is deployed by the
Board to meet the commercial objectives of the Group, whilst meeting regulatory requirements in the Bank. The Group’s policy is to
maintain a strong capital base so as to maintain investor, creditor, depositor and market confidence and to sustain future development
of the business.
In implementing current capital requirements, the capital position in the Bank is also subject to prescribed minimum requirements by
the FSA in respect of the ratio of Common Equity Tier 1, Tier 1 and Total Capital to total risk-weighted assets. The requirement
applies to the Bank (a wholly owned subsidiary of the Company) as a component of the Group and has been adhered to throughout
the year.
(c) Fair value of financial instruments
The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or
dealer price quotations. For all other financial instruments, the Group determines fair values using other valuation techniques.
For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying
degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks
affecting the specific instrument.
Valuation models
The Group measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making
the measurements: -
Level 1: inputs that are quoted market prices (unadjusted) in active markets for identical instruments;
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
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 2017
Investment securities
Government bonds
Equities
31 December 2016
Investment securities
Government bonds
Equities
Level 1
£000
Level 2
£000
Level 3
£000
Total
£000
28,740
24
28,764
Level 1
£000
23,991
70
24,061
-
-
-
-
-
-
Level 2
£000
Level 3
£000
-
-
-
-
-
-
28,740
24
28,764
Total
£000
23,991
70
24,061
Manx Financial Group PLC
38
4. Risk and capital management (continued)
(c) Fair value of financial instruments (continued)
Valuation models (continued)
Financial instruments not measured at fair value
The following table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the
fair value hierarchy into which each fair value measurement is categorised: -
31 December 2017
Assets
Cash and cash equivalents
Held to maturity financial assets
Loans and advances to customers
Commissions receivable
Investment in associate
Trade and other receivables
Liabilities
Customer accounts
Creditors and accrued charges
Block creditors
Loan notes
31 December 2016
Assets
Cash and cash equivalents
Loans and advances to customers
Commissions receivable
Trade and other receivables
Liabilities
Customer accounts
Creditors and accrued charges
Block creditors
Loan notes
Level 1
£000
Level 2
£000
Level 3
£000
-
-
-
-
-
-
-
-
-
-
-
-
9,745
5,532
122,720
465
38
1,443
139,943
142,272
3,164
751
8,995
155,182
-
-
-
-
-
-
-
-
-
-
-
-
Level 1
£000
Level 2
£000
Level 3
£000
-
-
-
-
-
-
-
-
-
-
6,129
116,053
332
1,732
124,246
125,952
2,975
1,390
8,545
138,862
-
-
-
-
-
-
-
-
-
-
Total fair
values
£000
9,745
5,532
122,720
465
38
1,443
139,943
142,272
3,164
751
8,995
155,182
Total fair
values
£000
6,129
116,053
332
1,732
124,246
125,952
2,975
1,390
8,545
138,862
Total
carrying
amount
£000
9,745
5,532
122,720
465
38
1,443
139,943
142,272
3,164
751
8,995
155,182
Total
carrying
amount
£000
6,129
116,053
332
1,732
124,246
125,952
2,975
1,390
8,545
138,862
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.
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
39
5. Segmental analysis
Segmental information is presented in respect of the Group’s business segments. The Directors consider that the Group currently
operates in one geographic segment comprising of 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 five (2016:
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, block discounting, vehicle stocking plans and wholesale funding
agreements); Manx Incahoot; Conister Card Services; Edgewater Associates; and Manx FX.
Asset and
Personal
Finance
£000
16,637
8,508
2,100
254
168,226
Asset and
Personal
Finance
£000
16,001
7,047
1,787
69
148,523
For the year ended 31
December 2017
Net interest income
Operating income /(loss)
Profit / (loss) before tax
payable
Capital expenditure
Total assets
For the year ended 31
December 2016
Net interest income
Operating income /(loss)
Profit / (loss) before tax
payable
Capital expenditure
Total assets
6.
Interest income
Manx
Incahoot
£000
Conister
Card
Services
£000
Edgewater
Associates
£000
Manx FX
£000
Investing
Activities
£000
-
44
(293)
1
307
-
(104)
(104)
-
18
-
2,625
742
319
2,252
-
447
249
-
181
Total
£000
16,637
11,520
-
-
(186)
2,508
-
574
2,236
173,220
Manx
Incahoot
£000
Conister
Card
Services
£000
Edgewater
Associates
£000
-
81
(205)
52
418
-
(106)
(223)
-
2
-
1,465
371
970
1,546
Manx FX
£000
-
111
Investing
Activities
£000
-
1
Total
£000
16,001
8,599
(26))
(159)
1,545
-
102
-
1,091
2,095
152,686
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 and held to maturity financial instruments.
7. Personnel expenses
Salaries and Directors’ remuneration / fees
Pension costs
National insurance and payroll taxes
Training and recruitment costs
2017
£000
3,914
247
432
190
4,783
2016
£000
3,248
199
353
135
3,935
8. Other expenses
Professional and legal fees
Marketing costs
IT costs
Establishment costs
Communication costs
Travel costs
Bank charges
Insurance
Irrecoverable VAT
Other costs
9. Allowance for impairment
The charge in respect of specific allowances for impairment comprises: -
Specific impairment allowances made
Reversal of allowances previously made
Total charge for specific provision for impairment
The charge in respect of collective allowances for impairment comprises: -
Collective impairment allowances made
Release of allowances previously made
Total charge for collective allowances for impairment
Total charge for allowances for impairment
10. Profit before tax payable
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
Share options expense
Directors’ remuneration
Directors’ fees
Directors’ pensions
Directors’ performance related pay
Auditor’s remuneration: - as Auditor current year
non-audit services
Pension cost defined benefit scheme
Operating lease rentals for property
Manx Financial Group PLC
40
2016
£000
858
167
425
362
61
79
136
112
238
268
2017
£000
848
211
528
376
137
149
142
133
180
448
3,152
2,706
2017
£000
1,295
(776)
519
2017
£000
28
(12)
16
535
2017
£000
2,690
495
71
22
214
185
21
36
90
37
17
220
2016
£000
915
(475)
440
2016
£000
12
(5)
7
447
2016
£000
2,795
475
98
46
304
195
30
60
78
38
13
231
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
41
11. Tax expense
Current tax expense
Current year
Changes to estimates for prior years
Deferred tax expense
Origination and reversal of temporary differences
Utilisation of previously recognised tax losses
Changes to estimates for prior years
Total tax expense
Reconciliation of effective tax rate
Profit before tax on continuing operations
Tax using the Bank’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
Total tax expense
2017
£000
2,748
275
44
23
(67)
(49)
2
12
240
10.0%
1.6%
0.8%
(2.4)%
(1.8)%
0.1%
0.4%
8.7%
2017
£000
226
12
238
2
-
-
2
240
10.0%
1.5%
1.8%
(0.4)%
(0.6)%
1.6%
1.8%
15.8%
2016
£000
114
7
121
24
78
21
123
244
2016
£000
1,545
155
24
28
(6)
(9)
24
28
244
The main rate of corporation tax in the Isle of Man is 0.0% (2016: 0.0%). However the profits of the Group’s Isle of Man banking
activities are taxed at 10.0% (2016: 10.0%). The profits of the Group’s subsidiaries that are subject to UK corporation tax are taxed at
a rate of 19.0% (2016: 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 £42,000 liability (2016: £40,000 liability). This resulted in an expense of £2,000 (2016: £123,000) to the consolidated
income statement.
12. Earnings per share
Profit for the year after taxation
Weighted average number of ordinary shares in issue
Basic earnings per share (pence)
Diluted earnings per share (pence)
Total comprehensive income for the year
Weighted average number of ordinary shares in issue
Basic earnings per share (pence)
Diluted earnings per share (pence)
2017
2016
£2,508,000
£1,301,000
110,880,711
2.26
1.77
102,070,252
1.27
0.87
£2,445,000
£977,000
110,880,711
2.21
1.73
102,070,252
0.96
0.68
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.
Manx Financial Group PLC
42
12. Earnings per share (continued)
Reconciliation of weighted average number of ordinary shares in issue between basic and
diluted earnings per share
As per basic earnings per share
Number of shares issued if all convertible loan notes were exchanged for equity (note 26)
Dilutive element of warrants if taken up (note 26)
Dilutive element of share options if exercised (note 28)
As per dilutive earnings per share
Reconciliation of earnings between basic and diluted earnings per share
As per basic earnings per share – profit for the year after taxation
Interest expense saved if all convertible loan notes were exchanged for equity (note 26)
As per dilutive earnings per share
Reconciliation of earnings between basic and diluted earnings per share
As per basic earnings per share – total comprehensive income
Interest expense saved if all convertible loan notes were exchanged for equity (note 26)
As per dilutive earnings per share
2017
2016
110,880,711
41,666,667
-
-
102,070,252
61,500,000
12,733,968
-
152,547,378
176,304,220
£2,508,000
£196,150
£2,704,150
£2,445,000
£196,150
£2,641,150
£1,301,000
£230,150
£1,531,150
£977,000
£230,150
£1,207,150
The diluted earnings per share calculations assume that all convertible loan notes, warrants and share options have been
converted/exercised at the beginning of the year where they are dilutive.
13. Company loss
The loss on ordinary activities after taxation of the Company is £174,000 (2016: £119,000).
14. Cash and cash equivalents
Cash at bank and in hand
Group
Company
2017
£000
9,745
9,745
2016
£000
6,129
6,129
2017
£000
200
200
2016
£000
-
-
Cash at bank includes an amount of £nil (2016: £63,000) representing receipts which are in the course of transmission.
15. 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 and £24,000 of sale proceeds have been received from this investment since it was made.
16. Available for sale financial instruments
UK Government Treasury Bills
Group
Company
2017
£000
28,740
28,740
2016
£000
23,991
23,991
2017
£000
-
-
2016
£000
-
-
UK Government Treasury Bills are stated at fair value and unrealised changes in the fair value are reflected in equity. There were
£93,000 of unrealised losses in the year ended 31 December 2017 (2016: £8,000).
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
43
17. Held to maturity financial instruments
UK Certificates of Deposit
Group
Company
2017
£000
5,532
5,532
2016
£000
-
-
2017
£000
-
-
2016
£000
-
-
Held to maturity financial instruments represent certificates of deposit held with a UK banking institution with a Fitch credit rating of A
(stable).
18. Loans and advances to customers
Group
HP balances
Finance lease balances
Unsecured personal loans
Vehicle stocking plans
Wholesale funding arrangements
Block discounting
Secured commercial loans
Secured personal loans
Gross
Amount
£000
59,909
20,088
10,521
1,613
5,830
13,523
659
13,090
125,233
2017
Impairment
Allowance
£000
(1,252)
(1,046)
(211)
-
-
-
(4)
-
(2,513)
Carrying
Value
£000
58,657
19,042
10,310
1,613
5,830
13,523
655
13,090
122,720
Gross
Amount
£000
61,952
14,779
6,638
1,366
-
13,213
2,257
18,004
118,209
2016
Impairment
Allowance
£000
(1,309)
(673)
(162)
-
-
-
(12)
-
(2,156)
Carrying
Value
£000
60,643
14,106
6,476
1,366
-
13,213
2,245
18,004
116,053
Collateral is held in the form of underlying assets for HP, finance leases, vehicles stocking plans, block discounting, secured
commercial and personal loans and wholesale funding arrangements. An estimate of the fair value of collateral on past due or
impaired loans and advances is not disclosed as it would be impractical to do so.
Specific allowance for impairment
Balance at 1 January
Specific allowance for impairment made
Release of allowances previously made
Write-offs
Balance at 31 December
Collective allowance for impairment
Balance at 1 January
Collective allowance for impairment made
Release of allowances previously made
Balance at 31 December
Total allowances for impairment
2017
£000
2,099
1,295
(776)
(178)
2,440
2017
£000
57
28
(12)
73
2016
£000
2,011
915
(475)
(352)
2,099
2016
£000
50
12
(5)
57
2,513
2,156
Advances on preferential terms are available to all Directors, management and staff. As at 31 December 2017 £347,328 (2016:
£306,895) 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
44
18. Loans and advances to customers (continued)
As detailed below, at the end of the current financial year three loan exposures (2016: three), all in connection with block discounting
lending, exceeded 10.0% of the capital base of the Bank: -
Exposure
Block discounting facility
Outstanding
Balance
2017
£000
Outstanding
Balance
2016
£000
9,487
9,302
HP and finance lease receivables
Loans and advances to customers include the following HP and finance lease receivables: -
Less than one year
Between one and five years
Gross investment in HP and finance lease receivables
The investment in HP and finance lease receivables net of unearned income comprises: -
Less than one year
Between one and five years
Net investment in HP and finance lease receivables
19. Property, plant and equipment
Group
Cost
As at 1 January 2017
Reclassification1
Additions
Disposals
As at 31 December 2017
Accumulated depreciation
As at 1 January 2017
Reclassification1
Charge for year
Disposals
As at 31 December 2017
Carrying value at 31 December 2017
Carrying value at 31 December 2016
Leasehold
Improvements
£000
IT
Equipment
£000
Furniture &
Equipment
£000
Motor
Vehicles
£000
417
-
26
-
443
129
-
60
-
189
254
288
1,555
(1,330)
69
-
294
1,189
(1,093)
56
-
152
142
366
629
-
17
-
646
588
-
11
-
599
47
41
57
-
10
(57)
10
33
-
7
(37)
3
7
24
1During the year IT software has been reclassified from property, plant and equipment to intangible assets (see note 20) as it is being
reported similarly for regulatory purposes in the Bank.
Facility
limit
£000
11,000
2016
£000
35,537
60,542
96,079
2016
£000
26,562
50,169
76,731
Total
£000
2,658
(1,330)
122
(57)
1,393
1,939
(1,093)
134
(37)
943
450
719
2017
£000
36,227
60,576
96,803
2017
£000
29,317
50,680
79,997
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
45
19. Property, plant and equipment (continued)
Company
Cost
As at 1 January 2017
Additions
Disposals
As at 31 December 2017
Accumulated depreciation
As at 1 January 2017
Charge for year
Disposals
As at 31 December 2017
Carrying value at 31 December 2017
Carrying value at 31 December 2016
20. Intangible assets
Group
Cost
As at 1 January 2017
Reclassification1
Additions
Acquisition of MBL
Disposals
As at 31 December 2017
Accumulated amortisation
As at 1 January 2017
Reclassification1
Charge for year / impairment (note 21)
Disposals
As at 31 December 2017
Carrying value at 31 December 2017
Carrying value at 31 December 2016
Leasehold
Improvements
£000
IT
Equipment
£000
Furniture &
Equipment
£000
234
-
-
234
53
39
-
92
142
181
13
-
-
13
1
1
-
2
11
12
15
-
-
15
1
1
-
2
13
14
Customer
Contracts & Lists
£000
Intellectual
Property Rights
£000
IT Software and
Website
Development
£000
1,024
-
21
239
-
1,284
76
-
54
-
130
1,154
948
345
-
43
-
-
388
48
-
114
-
162
226
297
71
1,330
149
-
-
1,550
-
1,093
118
-
1,211
339
71
Total
£000
262
-
-
262
55
41
-
96
166
207
Total
£000
1,440
1,330
213
239
-
3,222
124
1,093
286
-
1,503
1,719
1,316
1During the year IT software has been reclassified from property, plant and equipment (see note 19) to intangible assets as it is being
reported similarly for regulatory purposes in the Bank.
Acquisition of MBL
On 23 December 2016, EWA acquired the majority of the Isle of Man IFA business held by Knox Financial Services Limited ("KFSL")
carrying a trading name of MBL. The initial acquisition included 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 the Bank (see note 31 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
46
20. Intangible assets (continued)
Acquisition of MBL (continued)
At acquisition, by reference to the renewal income received by KFSL in the 12 months prior to disposal, an estimate of £236,906 was
assumed for income over the preceding 12 months, which would have generated a consideration sum of £947,624. Therefore, EWA
accounted for this transaction by recognising an intangible asset of £947,624 and a receivable of £52,376 (see note 22) of the monies
held in escrow. Subsequent to acquisition this estimate has been updated to an estimated purchase price of £989,400 as at 31
December 2017. Consequently, the receivable from escrow has reduced to £10,600. 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.
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 included approximately 150 clients. This option was exercised on 18
January 2017. The price of the acquisition is calculated by four times the renewal income received over the 12 month period
subsequent to completion. The purchase price is estimated to be £198,300, of which £75,000 was paid on exercise of the option.
The period over which these contracts are to be amortised is estimated to be 18.75 years given the average duration of the existing
EWA portfolio for renewal income.
21. Investment in Group undertakings
The Company has the following investments in subsidiaries incorporated in the Isle of Man: -
Carrying value of investments
Nature of
Business
31 December
2017
% 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
100
100
100
100
05/12/1935
24/12/1996
05/11/2007
15/05/2009
Total
2017
£000
11,767
2,005
-
-
13,772
Total
2016
£000
10,067
2,005
-
-
12,072
Amounts owed to and from Group undertakings are unsecured, interest-free and repayable on demand.
Subordinated loans
MFG has issued several subordinated loans as part of its equity funding into the Bank and EWA. Interest charged is at the discretion
of the lender.
Company
Creation
Conister Bank Limited
11 February 2014
27 May 2014
9 July 2014
17 September 2014
22 July 2013
25 October 2013
23 September 2016
14 June 2017
Edgewater Associates Limited
14 May 2012
28 February 2013
21 February 2017
14 May 2017
Maturity
Interest rate
11 February 2024
27 May 2024
9 July 2024
17 September 2026
22 July 2033
22 October 2033
23 September 2036
14 June 2037
14 May 2017
28 February 2018
21 February 2027
14 May 2027
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
7.0%
2017
£000
500
500
500
400
1,000
1,000
1,100
450
-
50
150
128
5,778
2016
£000
500
500
500
400
1,000
1,000
1,100
-
128
50
-
-
5,178
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
47
21. Investment in Group undertakings (continued)
Goodwill
Edgewater Associates Limited (“EWA”)
ECF Asset Finance PLC (“ECF”)
Three Spires Insurance Services Limited (“Three Spires”)
Group
2017
£000
1,849
454
41
2,344
Group
2016
£000
1,849
454
41
2,344
Goodwill impairment
The goodwill is considered to have an indefinite life and is reviewed on an annual basis by comparing its estimated recoverable
amount with its carrying value.
The estimated recoverable amount in relation to the goodwill generated on the purchase of EWA is based on the forecasted 3 year
cash flow projections, extrapolated to 10 years using a 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 2016. 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.
Acquisition of subsidiary
In December 2015, Bradburn Limited acquired 49.9% of the remaining shares of Manx Financial Limited (“MFL”) that it did not already
hold, for £500,000. At that point MFL became a subsidiary of the Group.
Investment in associate
On 13 December 2017, 40.0% of the share capital of The Business Lending Exchange Limited (“BLX”) was acquired for nil
consideration. As at the date of acquisition the net assets of BLX were £94,000. The Group’s resulting share of net assets is equal to
£38,000 at that date.
Acquisition of Incahoot Limited
On 6 March 2015, the business of Incahoot Limited was acquired by Manx Incahoot Limited, a subsidiary of the Group.
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 was generated from this pipeline in the 2 year period.
On 9 December 2016, 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. 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 report averaged
two valuation approaches, the replacement cost approach and the income approach using a discount factor of 42.5%, to arrive at a
final valuation of £262,474. This created an impairment of £48,026. On 2 February 2018, the valuation was again updated which lead
to a reduced valuation of £154,427. This created an additional impairment of £108,047.
Manx Financial Group PLC
48
21. Investment in Group undertakings (continued)
Acquisition of Incahoot Limited (continued)
There were no adverse trends arising from comparable market disposals of domain names to warrant any impairment to this
intangible.
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.
22. Trade and other receivables
Prepayments and other debtors
VAT recoverable
Depositors Compensation Scheme Receivable
Monies held in escrow from MBL acquisition (see note 20)
Group
Company
2017
£000
562
817
54
10
1,443
2016
£000
874
752
54
52
1,732
2017
£000
22
-
-
-
22
2016
£000
29
-
-
-
29
Included in trade and other receivables is an amount of £817,000 (2016: £752,000) relating to a reclaim of VAT. The Bank, as the
Group VAT registered entity, has for some time considered the VAT recovery rate being obtained by the business was neither fair nor
reasonable, specifically regarding the attribution of part of the residual input tax relating to the HP business not being considered as a
taxable supply. Queries have been raised with the Isle of Man Government Customs & Excise Division (“C&E”), and several reviews
of the mechanics of the recovery process were undertaken by the Company’s professional advisors.
The decision of the First-Tier Tax Tribunal released 18 August 2011 in respect of Volkswagen Financial Services (UK) Limited
(“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, 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 Q1 2016 for the value of £230,000 and an amount of £130,000 has been
accrued to cover periods Q2 2016 to Q4 2017.
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 £930,000, 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 claim referred to above will be secured.
23. Customer accounts
Retail customers: term deposits
Corporate customers: term deposits
2017
£000
137,399
4,873
142,272
2016
£000
124,398
1,554
125,952
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
49
24. Creditors and accrued charges
Commission creditors
Other creditors and accruals
Taxation creditors
25. Block creditors
Group
Company
2017
£000
2,042
774
348
3,164
2016
£000
2,504
363
108
2,975
2017
£000
-
139
-
139
2017
£000
95
656
751
2016
£000
-
82
-
82
2016
£000
248
1,142
1,390
2016
£000
1,750
1,200
460
350
3,760
4,785
8,545
Drawdown 2 – repayable 25/07/2018, interest payable at 5.8%, secured on assets of MFL
Drawdown 3 – repayable 08/03/2019, interest payable at 6.5%, secured on assets of MFL
26. Loan notes
Related parties
J Mellon
Burnbrae Limited
Southern Rock Insurance Company Limited
Life Science Developments Limited
Unrelated parties
Group
Company
Notes
JM
BL
SR
LS
UP
2017
£000
1,750
1,200
460
250
3,660
5,335
8,995
2016
£000
1,750
1,200
460
350
3,760
4,785
8,545
2017
£000
1,750
1,200
460
250
3,660
5,335
8,995
JM – Two loans, one of £500,000 maturing on 31 July 2022 with interest payable of 5.0% 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 7.5 pence and 9 pence
respectively.
BL – One loan consisting of £1,200,000 maturing on 31 July 2022 with interest payable of 5.0% 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 7.5 pence.
SR – 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. John Banks, a Non-executive Director, is also a director of SR and Arron Banks is a major
shareholder of SR.
LS – One loan of £250,000 maturing on 3 January 2018 with interest payable of 5.0% per annum. Denham Eke is a director of LS.
The loan was repaid after maturing.
UP – Twenty four loans consisting of an average £222,292 with an average interest payable of 5.4% per annum. The earliest maturity
date is 16 May 2018 and the latest maturity is 16 November 2022.
With respect to the convertible loans, the interest rate applied was deemed by the Directors to be equivalent to the market rate at the
time with no conversion option.
Manx Financial Group PLC
50
27. 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
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
mortality – members could live longer than foreseen. This would mean that benefits are paid for longer than expected, increasing
the value of the related liabilities.
In order to assess the sensitivity of the Scheme’s pension liability to these risks, sensitivity analyses have been carried out. Each
sensitivity analysis is based on changing one of the assumptions used in the calculations, with no change in the other assumptions.
The same method has been applied as was used to calculate the original pension liability and the results are presented in comparison
to that liability. It should be noted that in practice it is unlikely that one assumption will change without a movement in the other
assumptions; there may also be some correlation between some of these assumptions. It should also be noted that the value placed
on the liabilities does not change on a straight line basis when one of the assumptions is changed. For example, a 2.0% 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
No adjustments have been made to the statement of financial position items as a result of the requirements of IFRIC 14 issued by
IASB’s International Financial Reporting Interpretations Committee.
Scheme amendments
There have not been any past service costs or settlements in the financial year ending 31 December 2017 (2016: none).
Funding policy
The funding method employed to calculate the value of previously accrued benefits is the Projected Unit Method. Following the
cessation of accrual of benefits when the last active member left service in 2011, regular future service contributions to the Scheme
are no longer required. However, additional contributions will still be required to cover any shortfalls that might arise following each
funding valuation.
The most recent full actuarial valuation was carried out at 1 April 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 2017.
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
51
27. Pension liability (continued)
The amounts recognised in the Consolidated Statement of Financial Position are as follows: -
Total underfunding in funded plans recognised as a liability
Fair value of plan assets
Present value of funded obligations
Movement in the liability for defined benefit obligations
Opening defined benefit obligations at 1 January
Benefits paid by the plan
Interest on obligations
Actuarial loss
Liability for defined benefit obligations at 31 December
Movement in plan assets
Opening fair value of plan assets at 1 January
Expected return on assets
Contribution by employer
Actuarial gain
Benefits paid
Closing fair value of plan assets at 31 December
Expense recognised in income statement
Interest on obligation
Expected return on plan assets
Total included in personnel costs
Actual return on plan assets
Actuarial gain / (loss) recognised in other comprehensive income
Actuarial gain on plan assets
Actuarial loss on defined benefit obligations
Plan assets consist of the following
Equity securities
Corporate bonds
Government bonds
Cash
Other
2017
£000
1,469
(2,029)
(560)
2017
£000
2,034
(68)
54
9
2,029
2017
£000
1,420
37
41
39
(68)
1,469
2017
£000
54
(37)
17
76
2017
£000
39
(9)
30
2017
%
48
18
25
5
4
100
2016
£000
1,420
(2,034)
(614)
2016
£000
1,666
(68)
64
372
2,034
2016
£000
1,332
51
49
56
(68)
1,420
2016
£000
64
(51)
13
107
2016
£000
56
(372)
(316)
2016
%
47
16
25
7
5
100
27. Pension liability (continued)
The actuarial assumptions used to calculate Scheme liabilities under
IAS19 are as follows: -
Rate of increase in pension in payment: -
Service up to 5 April 1997
Service from 6 April 1997 to 13 September 2005
Service from 14 September 2005
Rate of increase in deferred pensions
Discount rate applied to scheme liabilities
Inflation
Manx Financial Group PLC
52
2017
%
2016
%
2015
%
-
3.0
2.1
5.0
2.6
3.1
-
3.1
2.1
5.0
2.7
3.2
-
2.7
2.0
5.0
3.9
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.
28. Called up share capital
Ordinary shares of no par value available for issue
At 31 December 2017
At 31 December 2016
Issued and fully paid: - Ordinary shares of no par value
At 31 December 2017
At 31 December 2016
Number
200,200,000
150,000,000
Number
131,096,235
102,070,252
£000
20,732
18,933
There are a number of convertible loans at 31 December 2017 of £3,410,000 (2016: £3,410,000). All attached warrants were
exercised during the year (31 December 2016: 28,333,333 warrants outstanding) (see note 26 for further details). The total number of
warrants in issue at 31 December 2017 is nil (2016: 36,666,666), 29,025,983 were exercised during the year, and the remainder
lapsed.
On 23 June 2014, 1,750,000 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. The period of grant is for 10 years less 1 day ending 22 June 2024. Of the 1,750,000 share options issued, 1,050,000
(2016:1,750,000) remain outstanding; the balance lapsed during the year.
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); and
(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
The charge for the year for share options granted was £22,000 (2016: £46,000).
23 June
2014
£0.08
£0.14
£0.14
55.0%
3
0.5%
33.3%
25 June
2010
£0.03
£0.11
£0.11
47.0%
3
2.2%
0.0%
Manx Financial Group PLC
Notes to the Consolidated Financial Statements
53
29. Analysis of changes in financing during the year
Analysis of changes in financing during the year
Balance at 1 January
Issue of loan notes
Issue of shares
2017
£000
27,478
450
1,799
29,727
2016
£000
26,198
1,280
-
27,478
The 2017 closing balance is represented by £20,732,000 share capital (2016: £18,933,000) and £8,995,000 of loan notes (2016:
£8,545,000).
30. 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.
31. Related party transactions
Cash deposits
During the year, the Bank held cash on deposit on behalf of Jim Mellon (Executive Chairman of MFG) and companies related to Jim
Mellon and Denham Eke (Chief Executive Officer of MFG). Total deposits amounted to £40,000 (2016: £76,000), at normal
commercial interest rates in accordance with the standard rates offered by the Bank.
Funds held in a fiduciary capacity
Fiduciary deposits
The Bank acts as agent bank to a number of customers, for balances totalling £8,000 (2016: £3,374,000). 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. The remaining fiduciary deposits were closed out during January 2018.
All funds held and accounts maintained in connection with the fiduciary services that the Bank offers in 2017 are to companies
connected with Jim Mellon and Denham Eke.
Staff and commercial loans
Details of staff loans are given in note 18.
Normal commercial loans have been made to various companies connected to Jim Mellon and Denham Eke. As at 31 December
2017, £299,000 of capital and interest was outstanding (2016: £401,000).
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 EWA
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 20). 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. The balance as at 31 December
2017 was £604,000 (2016: £700,000).
Loan advance to BLX
On 11 October 2017, a £4,000,000 loan facility was made available to BLX by the Bank in order to provide the finance required to
expand its operations. The facility is for 12 months, followed by a 3 year amortisation period. Interest is charged at commercial rates.
At 31 December 2017, £550,000 had been advanced to BLX.
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 co-chairman.
Manx Financial Group PLC
54
31. Related party transactions (continued)
Subordinated loans
The Company has advanced £450,000 of subordinated loans in 2017 to the Bank (2016: £1,100,000) and £278,000 to EWA (2016
£nil) (see note 21).
Loan notes
See note 26 for a list of related party loan notes as at 31 December 2017 and 2016.
Key management personnel’s remuneration including Executive Directors
Short-term employee benefits
32. Operating leases
Non-cancellable lease rentals are payable in respect of property and motor vehicles as follows: -
2017
£000
300
2016
£000
414
Less than one year
Between one and five years
Over five years
33. Subsequent events
2017
2016
Leasehold
Property
£000
178
738
276
1,192
Other
£000
-
-
-
-
Leasehold
Property
£000
187
801
390
1,378
Other
£000
-
-
-
-
A loan note for £250,000 from Life Science Developments Limited matured on 3 January 2018 and was repaid (note 26).
The remaining fiduciary deposits held were closed out during January 2018 and the Bank no longer has any customers utilising this
product offering (note 31).
Manx Financial Group PLC
Shareholders’ Notes
55
Clarendon House
Victoria Street
Douglas
Isle of Man
IM1 2LN
Tel: (01624) 694694
Fax: (01624) 624278
www.mfg.im