_________________________________
ANNUAL REPORT 2022
PLC
Welcome to Manx Financial Group PLC
Integrity through independence and service
An independent banking and financial services group founded in 1935,
domiciled in the Isle of Man
Conister Finance & Leasing Ltd (“CFL”)
is a subsidiary of the Bank. It is a credit
broker providing hire purchase (“HP”)
and leasing finance facilities in the UK.
CFL is regulated by the FCA in the UK
and
registered as a designated
business by the FSA in the Isle of Man.
Conister Bank Limited (“Bank”) is a
licensed independent bank, regulated by
the
Isle of Man Financial Services
Authority (“FSA”), the UK’s Financial
Conduct Authority (“FCA”) and is a full
member of 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.
Manx Financial Group PLC (“Company” or
“MFG”) is an AIM-listed company (LSE:
MFX.L) which has subsidiaries (together
referred to as “Group”) offering a suite of
financial services to retail and commercial
customers, both in the Isle of Man and the
UK. MFG's strategy is to combine organic
growth with strategic acquisition to further
augment the range of services it offers and
to gain greater market share
its
preferred markets.
in
The Group’s subsidiaries are:
Conister Bank Limited
Conister Finance & Leasing Ltd
MFX Limited
Payment Assist Limited
Blue Star Business Solutions Limited
Edgewater Associates Limited
Ninkasi Rentals & Finance Limited
The Business Lending Exchange Limited
MFX Limited (“MFX”) provides access to
foreign exchange and
competitive
international
processing
facilities.
payment
Payment Assist Limited (“PAL”) is the
UK's leading automotive repair point-of-
finance provider and offers
sale
insured
lending
diversified
products and retail.
including
Blue Star Business Solutions Limited
(“BBSL”) is a finance broker providing
asset finance and commercial loans in
the UK to the small and medium sized
enterprises market.
MFX’s target customers are corporates
and private clients who have a foreign
international payment
exchange and
foreign
requirement
exchange providers.
their UK
via
PAL was acquired as part of the Group’s
strategy
to
underserved UK credit markets.
its access
increase
to
BBSL was acquired as part of the
Group’s strategy
its
distribution in the UK broker credit
market.
increase
to
Edgewater Associates Limited (“EAL”) is
the largest firm of Independent Financial
Advisors (“IFA”) in the Isle of Man and is
regulated by the FSA.
Ninkasi Rentals & Finance Limited
(“NRFL”) was acquired as part of the
Group’s strategy to increase its access to
underserved UK credit markets.
The Business Lending Exchange
(“BLX”) was acquired as part of the
Group’s strategy to increase its access
to underserved UK credit markets.
EAL provides a bespoke and personal
service to Isle of Man residents and to the
Group’s
personal
customers and advises on assets in
excess of £319 million (2021: £368
million).
business
and
NRFL provides equipment finance and
rental products to UK based craft and
micro-breweries.
BLX is regulated by the FCA in the UK
and primarily
start-up
companies and small businesses
which require asset backed finance.
lends
to
Chairman’s Statement
Business Model and Strategy
Environmental, Social and Governance Report
Risk Management
Corporate Governance Report
Directors, Officers and Advisers
Audit, Risk and Compliance Committee
Directors’ Remuneration Report
Directors’ Report
Annual Financial Statements’ Contents
Statement of Directors’ Responsibilities
Independent Auditor’s Report
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Company Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Company Statement of Financial Position
Consolidated and Company Statements of Changes in Equity
Consolidated Statement of Cash Flows
Company Statement of Cash Flows
Notes to the Consolidated and Company Financial Statements
4
7
9
10
15
19
22
25
27
28
29
30
36
38
39
40
41
42
43
44
CHAIRMAN’S STATEMENT
Dear Shareholders
Introduction
In my report last year, I discussed the negative economic
environment and how it would result in higher interest rates
and higher inflation despite a tight employment market. With
the Isle of Man and UK economy now proving more resilient,
with inflation falling faster than expected, and the labour
market remaining robust, it appears likely that the Bank of
England will avoid declaring a further interest rate rise. Indeed,
it now looks as if the UK will avoid a recession altogether.
Notwithstanding, I also predicted that excellent acquisition
opportunities would arise in this environment, and I still believe
this to be the case, and that our strengthened balance sheet
positions us well to take advantage of them.
Our principal operating subsidiaries’ strategy of growth
through gaining market share in recession-proof markets, both
organically and through acquisition, has allowed us this year
to take advantage of opportunities in a prudent and compliant
manner. In our Interims, I was pleased to report our strongest
profit before tax payable in more than a decade and now I am
equally pleased to report a record full-year profit before tax
payable of £5.2 million (2021: £3.0 million) – an increase of
71.2%.
These record results have improved our balance sheet by
£70.5 million to £379.3 million (2021: 308.8 million) and our
shareholder equity by £4.8 million to £29.8 million (2021:
£25.0 million). This further underpins the Board’s commitment
to return 10.0% of the Group’s profit available to shareholders
each year in the form of cash and shares. This year, the total
dividend available for payment is £0.433 million (2021: £0.279
million). Thus, the amount recommended for shareholder
approval will be 0.3764 pence per share (2021: 0.2443 pence
per share), a 54.1% uplift, as we continue to reward our loyal
shareholders.
Financial Performance
This year’s financial performance is a record year despite the
continued economic uncertainty in the Isle of Man and the UK.
Profit before tax payable increased by £2.2 million to £5.2
million (2021: £3.0 million), a growth of over 70%. For the
second year running, Conister Bank Limited set a new lending
milestone of £231.4 million (2021: £212.6 million), an increase
of 8.8%. Whilst the cost of deposits increased in the second
half of the year as the Bank of England increased interest rates
to dampen inflationary pressures, the Group improved its Net
Interest Margin by £6.4 million to £24.4 million (2021: £18.0
million). With other subsidiaries making a positive contribution,
notably Conister Finance & Leasing Limited, MFX Limited and
Payment Assist Limited, this resulted in Operating Income of
£26.1 million (2021: £20.0 million), despite
last year
benefitting from a £0.7 million revaluation credit.
to
Operating Expenses, excluding provisions, increased by £4.3
million to £16.9 million (2021: £12.6 million), with £2.6 million
relating
incremental personnel expenses, driven by
acquisitions and further investment in our UK headcount, in
readiness of receiving our recently applied for UK Branch
deposit taking licence. The balance, £1.7 million, relates to
further
the
increased
pandemic; general overheads; and the impairment of a portion
of the goodwill carried in respect of our Isle of Man based IFA.
Impairments reduced by £0.4 million to £4.0 million (2021:
including operating
total overheads,
£4.4 million) and
travel costs post
investment;
IT
expenses and impairments, increased by £3.9 million to £20.9
million (2021: £17.0 million). Our Profit Before Tax ratio,
measured as profit before tax as a percentage of total income,
improved by 3.7% to 17.0% (2021: 13.3%). Another key
operational efficiency measure, our Loan to Deposit ratio, also
improved, this time by 5.4% to 95.8% (2021: 90.4%).
Turning to our balance sheet, our Total Assets increased by
£70.5 million to £379.3 million (2021: £308.8 million), a growth
of 22.8%. This was driven mostly by a £62.2 million increase
in our loan book. As part of our prudent approach to
maintaining our balance sheet, we continue to value any
government backed assets monthly on a mark-to-market basis
so that their carrying value always reflects their true current
market value. Our Isle of Man depositors continued to support
the business, with deposits increasing by £50.7 million to
£304.2 million (2021: £253.5 million). Total Liabilities stood at
£349.5 million (2021: £283.8 million), leading to an increase in
total equity of £4.8 million to £29.8 million (2021: £25.0
million). A measure of the Company’s financial wellbeing, our
Debt to Asset ratio, which we measure on a conservative basis
as being total debt as a percentage of total tangible assets
(discounting goodwill and intangibles) remains robust at
91.7% (2021: 92.4%), meaning our liabilities are covered by
assets 1.1 times (2021: 1.1 times).
Key Objectives
Whilst the drivers of economic uncertainty have shifted over
the last four years, our key objective of safely growing
shareholder value has remained unchanged. Thus, our
strategic focus has continued to be as previously reported,
namely to:
Provide the highest quality of service throughout our
operations to all customers, ensuring that their
treatment is both fair and appropriate;
Adopt a pro-active strategy to managing risk within a
structured and compliant manner;
Concentrate on developing our core business by
considered acquisitions,
increasing prudential
lending, and augmenting the range of financial
services we offer;
Prudently progress
implementation of an
enhanced and scalable IT infrastructure to better
service the operational requirements of a growing
Group without the requirement for a disproportionate
increase
in headcount and other associated
operational costs;
the
Continue to develop our Treasury management to
improve the return on the liability side of our balance
sheet; and
Manage our balance sheet to exceed the regulatory
requirements for capital adequacy.
Our Strategic Report is set out in greater detail on page 7 of
these accounts. Our approach to Risk Management is set out
on page 10 of these accounts.
Environmental, Social and Corporate Governance
Climate change presents financial and reputational risks for
the financial services industry. The Board consider climate
change a material risk as per the Board-approved risk appetite
framework, which provides a structured approach to risk-
taking within agreed boundaries. The assessment framework
is proportional at present, but it will develop over time as the
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CHAIRMAN’S STATEMENT
Group generates further resources, and industry consensus
emerges. Whilst it is difficult to assess how climate change will
unfold, the Group is continually assessing various risk
exposures. Both Isle of Man and the UK have committed to cut
their greenhouse gas emissions to “net-zero” by 2050. There
is growing consensus that an orderly transition to a low-carbon
economy will bring substantial adjustments to the global
economy, which will have financial implications while bringing
risks and opportunities. The risk assessment process has
been integrated into our existing risk frameworks and will be
governed through the various risk governance structures,
including review and recommendations by the Group’s Risk
Committee.
The Group is continuously developing a suitable strategic
approach to climate change and the unique challenges it
poses. In addition to the modelling of various scenarios and
various governance reviews, the Group will continue to
monitor requirements through its relationship with UK Finance
and the equivalent Isle of Man forums.
Our Corporate Governance Report and a review of our
compliance with the principles of the Quoted Companies
Alliance Code is set out in greater detail on page 15 of these
accounts. A more detailed review of our ESG compliance is
set out on page 9 of these accounts.
Conister Bank Limited and Conister Finance and Leasing
Limited
Both the Bank and CF&L continued to progress with prudent
lending strategies, with the loan book increasing by £57.7
million to £292.1 million (2021: £234.4 million). We recorded
growth in both of our markets, namely, our home market, the
Isle of Man, and the UK.
The Isle of Man market’s demand for loan finance has virtually
returned to its pre-pandemic levels, and the Bank has
improved its market share through flexible online offerings. On
Island, the Bank lent a record £50.5 million (2021: £42.9
million)
to consumers and Small and Medium Sized
Enterprises (“SMEs”), with over 65.0% (2021: 60.0%) of this
originating from our online portal.
In the UK, the Bank lent £150.0 million (2021: £114.1 million)
in its Structured Finance division, which has been identified as
a future key area of growth for the Bank. These products are
designed in such a manner as to provide the Bank with
additional collateral enhancements. This allows the Bank to
hold lower loss provisions, supporting its demonstrable history
of safe lending in this market.
With Government guarantee support schemes tapering off, it
is encouraging to see our UK SME Broker division return to
pre-Covid levels of lending of £30.9 million (2021: £11.1
million). These guarantee schemes were an important lending
stream for the Bank.
The Bank continues to seek acquisitions that provide access
to niche lending markets in the UK. By owning the customer,
the Bank continued its strategy to reduce its reliance on other
introducers and their expensive commissions. In the last year,
I am pleased to say that whilst interest income increased by
£3.3 million
(2021: £22.0 million),
commissions decreased by 6.6%, or £0.3 million, to £3.2
million (2021: £3.5 million).
to £25.3 million
The Bank’s Isle of Man depositor base remains very loyal, with
a retention rate in excess of 78.0% (2021: 70.0%). Whilst we
continue to introduce new products for this market, it remains
our intention to reduce our on-Island reliance. As such, we
have embarked on an application to the PRA to raise UK
deposits through a UK Branch licence.
During the year, the Bank continued to attract deposits to fund
lending, with deposits from customers increasing to £304.2
million (2021: £253.5 million), improving the Loan-to-Deposit
ratio efficiency to 96.0% (2021: 92.5%). This helped to offset
the rising interest rates, driven by the Bank of England base
rate increases in its attempt to curb inflation. The Bank’s
average cost of funds at the end of the year had increased to
2.4% (2021: 1.5%). The Bank continues to hold significant
cash reserves and debt securities totalling £57.9 million (2021:
£58.5 million).
Turning to overheads, personnel expenses increased by £1.0
million, reflecting the additional staff costs associated with our
UK growth strategy, but overall, overheads decreased to £8.0
million (2021: £8.3 million). Despite loan book growth of £57.7
million, provisioning decreased by £0.9 million to £3.4 million
(2021: £4.3 million), reflecting the emergence from Covid
related stresses
the credit book. Depreciation and
amortisation narrowly fell by £0.1 million to £0.5 million (2021:
£0.6 million). In total, the Bank’s cost base increased by £0.6
million to £13.8 million (2021: £13.2 million), but driven by the
increase in Net Interest Margin, the Bank’s profit before tax
margin increased by 3.4% to 8.2% (2021: 4.8%).
in
Total assets grew by £57.9 million to £354.7 million (2021:
£296.8 million), a growth of 19.5%. Shareholder funds
increased by £3.4 million to £34.6 million (2021: £31.2 million).
The CET1 ratio reduced by 2.8% to 12.4% (2021: 15.2%), in
line with loan book growth – a figure which is a prudent 3.9%
above the Bank’s regulatory minimum of 8.5%.
Edgewater Associates Limited
We have re-focused and resourced this business to meet the
demands of legislation relating to the provision of regulated
financial advice on the Isle of Man. In addition, through a
project to improve our technology, our customer segmentation
will allow an improved customer focused journey, which will
also deliver operational efficiencies. In light of these two
projects, revenue and profitability has remained
fairly
consistent year-on-year.
Manx FX Limited
Our foreign exchange advisory continued to perform positively
and recorded a record profit for the year of £1.4 million (2021:
£1.2 million), with a marginal reduction in its Cost-to-Income
ratio to 18.5% (2020: 18.8%). This is a highly cash-generative
business which contributed £1.8 million (2021: £1.0 million) to
the Group’s treasury.
Blue Star Business Solutions Limited
Despite the challenging economic environment, Blue Star
grew its brokered lending in the year by £0.7 million to £15.0
million (2021: £14.3 million). Of the total advanced, the Bank
wrote £7.6 million (2021: £8.8 million), with the balance being
passed to other funders – this business model will be
developed in 2023 as a safe haven for growth for the Group.
Page | 5
CHAIRMAN’S STATEMENT
The business was profitable in its own right and contributed
£0.7 million (2021: £0.5 million) to the Group’s operating
income this year.
Our Executive team will continue to protect our business and
to maximise opportunities as they arise, whether they be
through organic growth or accretive acquisitions.
Ninkasi Rentals & Finance Limited
The business continued to be the largest fermentation tank
lessor in the UK brewing market with a fleet size of 278 (2021:
261), providing 1.3 million litres of brewing capacity (2021: 1.2
million litres).
A key measure of performance is the deployment of its fleet,
which is currently 81.0% (2021: 88.0%). The business, in
addition to being profitable in its own right, generated £1.7
million (2021: £1.4 million) to the Group’s income this year.
The Business Lending Exchange Limited
This is the first year in consolidating the full-year results of the
Business Lending Exchange. Its loan book grew to £8.3 million
(2021: £5.0 million) and its Group contribution of profit before
tax increased to £0.5 million (2021: £0.1 million). When
eliminating the impact of intra-group funding, the business
contributed £1.1 million to Group profitability.
This business specialises in prudent lending through its
experienced management team to the profitable sub-prime
SME market, a sector to which the Bank lacked meaningful
access.
Payment Assist Limited
On 21 September 2022, the Group announced its acquisition
of 50.1% of Payment Assist’s shares. Payment Assist (“PAL”)
was incorporated in 2013 to capitalise on the opportunity in the
automotive sector to improve garage customer retention rates
by providing a user-friendly method of enabling customers to
spread their payments over a small period of time.
Since the acquisition, PAL has contributed £0.7 million of profit
before tax. The PAL acquisition shows every sign that this will
be a significantly profitable operation and an important
contributor to the Group’s profitability in the coming years.
Outlook
The set of results within this report demonstrates the value of
the Group’s diversified portfolio.
For our banking and lending subsidiaries, we will continue our
strategy of investing in resilient and profitable growth sectors,
which will allow us to protect our Net Interest Margin. By
broadening our access to liquidity through our UK branch
deposit-taking licence application, we will be able to arbitrage
deposit rates to maximise this margin for the future. On the
asset side of our balance sheet, demand for our products in
both the Isle of Man and UK remains strong, and as a result, I
would expect our 2023 Interim lending to be in excess of that
reported in 2022’s equivalent period. With the economic
outlook suggesting a shallower, shorter recession than
predicted in 2022, provisioning going forward should not be in
excess of our historical norm.
In summary, our various business streams are well-positioned
to support the growth in profitability for this year. Our Executive
team will continue to safeguard each of these and to maximise
suitable opportunities as they arise, whether they be through
organic growth or accretive acquisitions.
Board changes
Whilst there has been no changes to your Board of Directors
since the announcement of our Interim results, I would like
again to put on record my sincere thanks to David Gibson, who
retired after thirteen years serving this Board and five years
acting as Chairman of our banking subsidiary.
Conclusion
Finally, I would like to thank each of our staff for their hard work
and dedication in making this splendid result possible. I would
also
fellow shareholders and other
stakeholders for their enduring loyalty and support.
thank my
like
to
Jim Mellon
Executive Chairman
20 March 2023
Page | 6
STRATEGIC REPORT
BUSINESS MODEL AND STRATEGY
MFG has subsidiaries engaged in a suite of financial services
based in the Isle of Man and the UK. These companies offer
financial services to both retail and commercial customers.
MFG's strategy is to grow organically and through strategic
acquisition to further augment the range of services it offers
and gain market share in sectors in which it has proven
experience. A summary of the strategic objectives for each
principal subsidiary is set out below.
Conister Bank Limited (“Bank”) and Conister (“CFL”)
The Bank’s Board of Directors (“Bank’s Board”) has set
strategic objectives, aligned to its strategic plan. These
objectives provide the framework for setting risk appetite
statements and tolerances for all material risks. The strategic
objectives set are:
Maintain capital adequacy;
Deliver stable earnings growth;
Secure stable and efficient access to funding and
liquidity;
Treat customers fairly with the highest service
standard possible
Maintain stakeholder confidence; and
Progress its Environmental Social and Governance
(“ESG”) strategy.
These strategic objectives provide the link between the Bank’s
strategic planning and its risk management framework, using
risk appetite statements, measures and tolerances, to control
risk on a day-to-day basis and are reviewed at-least annually
and approved by the Bank’s Board. Key in considering the
Bank’s judgement of appetites is its assessment of its
regulatory environment both in the Isle of Man (“IOM”) and the
UK; the IOM deposit market; access to regulatory capital; the
IOM and UK credit markets; the suitability of its product range;
concentrations of advances and historic arrears. The aim is to
deliver controlled growth, by providing adequate returns with
strong credit profiles.
Having considered the above in light of the residual economic
impacts of COVID-19 pandemic, Brexit and the war in Europe,
drawing on both internal and external resources, the Bank
continues to believe the credit markets in which it operates will
deliver growth with liquidity sourced from both its Balance
Sheet and the IOM’s substantial deposit base. This growth will
be achieved through the organic expansion of existing
products, including participating in IOM and UK government
business support schemes, and through acquisition. This
strategy can be analysed by the geographical area the Bank
operates within, namely the IOM and the UK.
The Bank is proud of its heritage and remains heavily IOM
centric but recognises that, as its UK loan book grows, it will
need to create a more substantial UK presence to manage and
grow this aspect of its business.
Sourcing reliable funding underpins the Bank’s growth
objectives. The Bank’s strategy in this area is to secure a
diversified, low-cost suite of liquidity alternatives to draw upon
in order to support its lending strategy. The IOM deposit
market remains a key source of liquidity which the Bank
accesses through its fixed-term deposit and notice account
products. The Bank has applied to be a UK deposit taker
through a Prudential Regulation Authority (“PRA”) and
Financial Conduct Authority (“FCA”) Branch licence.
The Bank recognises that it has an opportunity to increase its
in competition
market share because of the reduction
experienced in this market and / or by increasing interest rates.
As such, the Bank believes that it has sufficient reliable
alternatives to be confident that it can raise the necessary
deposits when required.
The Bank’s acquisition strategy is to increase market share in
sectors within which it already operates or to gain access to a
desirable market through an existing reputable, profitable
operator.
Regarding the former, the Bank continues to enjoy a positive
lending experience within the structured finance and UK credit
broker market and currently has circa £220 million of net loans
outstanding.
The Bank’s decision in 2022 to include Environmental, Social,
and Corporate Governance (“ESG”) within its strategic
objectives has seen great progress being made in the year.
The Bank published its first Sustainability Report setting out
its material ESG issues and objectives, work completed and
ESG performance. This report can be found on the Bank’s
website, www.conisterbank.co.im.
The Bank’s programme of ESG integration and its ESG
stewardship in its external relationships has seen the Bank:
Adopt and champion five United Nations Sustainable
Development Goals:
o Good Health & Well Being;
o Affordable & Clean Energy;
o Decent Work and Economic Growth;
o Sustainable Cities & Communities; and
o Climate Action.
Adopt a green finance strategy in the provision of its
services;
Recognise
the UN principles
for Responsible
Banking;
Become a supporter of the Task Force on Climate
Related Financial Disclosures;
Undertake and continue with annual carbon footprint
and greenhouse gas emissions assessments; and
Implement an ESG integration plan and programme
regular
the Bank
of work across
engagement with staff, customers, and other
stakeholders on ESG.
including
MFX Limited (“MFX”)
The strategic objectives of MFX are:
To be the first choice for international payments and
foreign exchange of corporations in the IOM;
To maintain, develop and strengthen existing
relationships;
To increase the number of referrals to their foreign
exchange business partners with a view of
onboarding new accounts.
MFX target customers are corporates and private clients who
have a
international payment
requirement via its UK foreign exchange providers.
foreign exchange and
Page | 7
STRATEGIC REPORT
BUSINESS MODEL AND STRATEGY
The IOM offers a diversified range of industries and sectors.
For the next 12 months MFX will concentrate its efforts in
developing new business opportunities both on IOM and in
other jurisdictions.
Established clients - wealth management, retirement
planning; and
General insurance clients - home, travel, commercial
and specialist.
MFX can negotiate upfront agreed foreign exchange margins
and ensure price transparency, underpinning the professional
relationship it provides. The international payment fees offer
competitive value compared with local high street banks.
Payment Assist Limited (“PAL”)
PAL provides the option for customers to spread the cost of
ad-hoc expenses over monthly instalments through a range of
fee free, interest free or interest-bearing products. The Group
acquired an initial 50.1% of PAL in May 2022.
The strategy is to build and develop the business by
continuing to be the largest finance provider in the UK
automotive aftermarket whilst diversifying into alternative
markets offering both short term and longer-term finance. This
expansion will be executed on a selective basis with business
partners who share our values for the highest level of
customer service.
Blue Star Business Solutions Limited (“BBSL”)
The strategic objectives of BBSL are to continue to grow its
direct model to niche suppliers through the distribution of
government guaranteed schemes whilst growing its traditional
pipeline to allow it to migrate to its ordinary course of business
as these schemes conclude.
BBSL will expand its panel of alternative funders, apart from
the Bank, to place loans to further maximise its sources of
revenue.
EAL has an active client base of approximately 7,000 with
associated assets under advice of £319 million (2021: £368
million).
Whilst EAL will continue to grow and develop its standard
business model, it is always open to new opportunities. It
remains nimble and ready to move in line with economic and
regulatory changes as they arise. Its team remains current
with industry standards and trends. It retains an appetite for
growth, either through additional acquisition opportunities that
may arise, or via organic growth from existing clients and
business partners with whom it has built strong relationships.
Diversification opportunities are encouraged and pursued,
including the successful programme to develop bespoke
Employee Benefit Group Schemes. These incorporate staff
pensions (including pension freedom), protection, private
medical, and death in service cover.
trains
talented people
EAL
into rounded,
professionally qualified advisers who can fit within succession
planning opportunities. To supplement this, it also recruits
quality experienced advisers and para-planners who can
further enhance its team.
to progress
Ninkasi Rentals & Finance Limited (“Ninkasi”)
This business remains well positioned to gain additional
market share through its unique equipment leasing options for
the brewing industry.
Finally, BBSL will continue to develop its sales force to allow
greater market penetration.
Edgewater Associates Limited (“EAL”)
EAL is regulated by the Isle of Man Financial Services
Authority (“FSA”). Its strategic objectives are to:
In addition, Ninkasi is considering expanding its coverage to
include Europe, either by a direct distribution strategy, or in
partnership with a complementary business.
Further, Ninkasi will manage its utilisation demand through the
acquisition of additional fermentation tanks.
Provide superior service to its client base;
Increase assets under advice; and
Grow and develop its staff skill set.
EAL is a full-service IFA practice with a diverse mix of clients
requiring a broad range of products and solutions covering:
First time buyers - mortgages;
Newly qualified professionals - protection, savings,
school fees;
The Business Lending Exchange Limited (“BLX”)
BLX will continue to grow their loan book prudently in existing
markets through the UK credit broker network, utilising
existing market to offer attractive asset-backed products in a
customer focused way to ensure the best possible customer
outcome.
Page | 8
STRATEGIC REPORT
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”) REPORT
The Group
The Group, through its subsidiary the Bank, has published its first ESG and Sustainability Report, demonstrating its commitment to
ensuring its business activities have a positive impact not just for clients and shareholders, but also for employees, society, and the
environment. Two of its key business objectives, stable growth and service, rely on a recognition of its own responsibility to make a
positive societal impact. The world is in the middle of a profound transition when it comes to sustainability, and the Group recognises
the role it must play in that transition. This means operating with a strong emphasis on its environmental and social impact, and on
its governance procedures. The Group has a solid system of corporate governance in place, endorsing the principles of openness,
integrity and accountability which underlie best practice. The Group operates to high standards of corporate accountability with an
effective Board and Board committees. Taking a long-term view, the Group recognises that, as a business, its carbon footprint must
move towards net-zero over time. This reduction is not just an environmental imperative, but a business one as well. It is committed
to having net zero carbon emissions by 2030.
The Group started its ESG project in 2019 through its principal subsidiary, the Bank, both by measuring its carbon footprint and
approving its ESG strategy. The former provides a base year to measure performance against as 2020 was not considered to provide
a representative comparison year due to the impact of the pandemic on office working and travel. The latter, having consulted with
advisors, provides an agreed pathway based upon internationally accepted principles to achieving the Bank’s ambition of being net
zero by 2030.
With the Bank having proven the concept, the Group will widen the ESG policy to include all wholly owned operational subsidiaries
by the end of 2023.
The Bank
The Bank’s employees and culture set it apart from others in our industry. As a small bank, employees are at the centre of its
consideration. Along with a range of structured internal wellbeing programmes, it has also introduced flexible working where
appropriate, recognising that there are substantial benefits from balancing office working with working from home. The Flexible
Working Policy was introduced to enable the business and its employees to benefit from a practical combination of office and remote
working. The Bank has revised the dress code to reflect both the changing nature of the workplace and its broad and diverse client
base. It engaged a third party to undertake an annual gender review which is presented to the Bank’s board and it undertakes an
annual employee engagement survey to instruct its employee policies and benefits which helps it to attract the best talent.
The Bank’s Credit Policy sets out its limited appetite for financial and reputational risk emanating from climate change, which includes
physical risk, such as extreme weather, flooding, and transitional risk, such as changes to law, policy, regulation, and culture. The
Bank adopts a favourable stance towards a low carbon economy and lending propositions that have a neutral or positive impact on
the environment / climate. The Bank will also consider the impact on public perception and potential impact on ongoing demand for
clients’ products and services, as well as any impact on its underlying security.
The Bank supports philanthropy. It gives back to its local communities and to causes it believes in both as a Group and locally it has
supported young entrepreneurs, sports people, charities and it promotes fundraising throughout the Group.
Since the commencement of its ESG strategy, for scopes 1 and 2 of the GHG Protocol, the Bank’s carbon footprint has decreased
by 73% to 37.3 tonnes of CO2 compared to its 2019 baseline. The Group works with ESG external consultants to assist the Group in
monitoring its progress independently.
This saving is the equivalent of the annual energy consumption of 13 UK homes. Whilst this is encouraging, there are still areas where
the Bank can improve.
The Bank’s approach has been measured using Scientific Based Targets (“SBT”). Whilst the SBT approach provides three broad
climate change scenarios, the Bank’s strategy is aligned to its most stringent, that of, global warming of no more than 1.5 degrees.
To achieve this goal, the Bank will need to focus on three key areas:
A reduction in its energy consumption and engage with energy suppliers to reduce their reliance on fossil fuels;
Using proven technology, the Bank can reduce its business travel emissions and its electricity consumption in relation to its
IT hardware; and
The Bank will fund forestry planting on Island for the provision of future carbon credits for both itself and other local
businesses.
The Bank’s ESG and Sustainability report is available online at conisterbank.co.im.
Page | 9
RISK AND GOVERNANCE
RISK MANAGEMENT
Risk management overview
Effective risk management is crucial to MFG’s sustainability.
The MFG Board of Directors
is ultimately
accountable for the effective governance of risk management.
The Board maintains its oversight and responsibilities in terms
of the three lines of defence risk governance model as set out
below.
(“Board”)
Determining the Group’s risk tolerance and appetite through
enterprise risk management is a key element of MFG’s
corporate governance framework. It is primarily designed to
assist the Group in enhancing its corporate governance and
intended to reinforce the key elements of Quoted Companies
Alliance (“QCA Code”) corporate governance principles,
adopted by the Group.
A fundamental principle contained in the Code, is for effective
risk management: MFG has in place a Risk Management
Framework (“RMF”) to support the implementation of some of
the principles of the MFG Governance Framework at the
subsidiary level. The RMF supports the Board and senior
management in fulfilling their respective duties in relation to
the sustainable operation of the business. This includes the
integration of ESG in the business. The risk management
system is supported by policies, processes and activities
relating to the taking, management and reporting of risk.
Management and accountability
The Audit, Risk and Compliance Committee (“ARCC”) is
operated at a Group and Bank level and currently comprises
of three experienced Independent Non-executive Directors,
two of which are qualified accountants. Only members of the
ARCC have the right to attend ARCC meetings to allow for
independence. However, other
representing
Executive Management, Risk, Compliance and Internal and
External Audit are invited by the Chairman of the ARCC to
attend all or part of any meeting as and when appropriate.
individuals
The main objectives of the ARCC are to review operations and
ensure that they are conducted to the highest possible
standards. This is accomplished by providing an independent
objective assurance function specifically for, but not limited to:
Internal Controls and Risk Management Systems;
Whistleblowing and Fraud; Risk and Compliance; Internal
Audit and External Audit.
It provides oversight of compliance with all legislation,
regulation, and applicable codes of practice in the jurisdictions
that MFG conducts business; and
reviews policies,
procedures and processes to effectively identify, quantify and
manage all material risks and to advise on best practice.
RMF
The following overview of the key governance components
that make up the MFG system of governance illustrates the
crucial role of the RMF:
RMF - Culture
The risk culture, which forms part of MFG’s overall culture,
encompasses the tone at the top of the organisation and a set
of shared attitudes, values, behaviours, and practices that
characterise how individuals at MFG consider risk in their day-
to-day business activities. Analysis of previous incidents and
ongoing assessment ensure continuous improvement in the
management of risk.
All individuals are trained to understand the importance of
effective risk management and ensure that risks associated
with their role are appropriately understood, managed and
reported. Individuals at all levels communicate risk related
insights in a timely, transparent, and honest manner.
through how
This culture is driven from the top by the Board and Executive
Management
they communicate, make
decisions, and motivate the business. Managers and leaders
ensure that in all their actions and behaviours they continually
reinforce the culture that the effective management of risk is
critical to MFG’s success and that every individual plays a role
in the management of risk.
RMF - Appetite
Risk appetites are currently only set at subsidiary level and
determine the maximum amount of risk that it is prepared to
accept in the pursuit of delivering business objectives. The risk
appetite considers all the risks detailed under “Principal risks”-
on page 12 and is reviewed annually, and, as the operating
environment changes, it is constantly measured against stated
appetite to take appropriate action.
RMF - Risk identification, measurement, and control
Having a robust understanding of the risks to which the
business is exposed is crucial to ensure that all material risks
are appropriately monitored, managed, and reported on. An
understanding of risk is developed through the identification,
assessment and, where appropriate, measurement of risks to
which the business is exposed.
These processes are performed as part of strategy setting,
strategy execution and day-to-day operations and are referred
to as risk and control assessments. The Risk team provides
tools to aid managers and individuals in developing an
their respective business
understanding of risk within
responsibilities.
The risk and control assessment process of understanding
risk and reviewing the adequacy and effectiveness of related
controls and risk mitigation approaches is performed on a
regular basis, as a minimum annually, and is reported to and
governed by:
A high-level assessment to identify the principal risks
enabling work to progress in a focused manner in
completing risk and control assessments, to build a
key control monitoring programme;
Management Committees, including a review of roles
and responsibilities, ensure that all material risks are
captured and
to
presentation to the ARCC and the Board;
formally considered prior
Procedures within the framework ensure that the
relevant Management Committee is accountable for
the policies that support their risk, and to reduce the
workload for the ARCC and the Board, enabling them
to focus on overseeing and challenging the RMF; and
Board approved risk appetite statements, and the
design of an underlying risk appetite measures
framework, to be owned and monitored by the
relevant Management Committee.
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RISK AND GOVERNANCE
RISK MANAGEMENT
RMF - Three lines of defence and key assurance functions
As part of its overall RMF, MFG has adopted best practice
monitoring and control mechanisms by implementing the three
lines of defence governance and combined assurance model.
Thus the responsibility for governance and oversight is
allocated throughout the organisation according to the three
lines of defence principles.
This governance model is regarded as international best
practice for ensuring good governance (including governance
within risk and capital management) across an organisation.
The emphasis
is placed on ownership, responsibility,
independence, assurance, communication, oversight, and
transparency across MFG’s governance.
The term ‘key assurance function’ refers to a properly
authorised function, whether in the form of a person, unit, or
department, serving as a control or ‘checks and balances’
function from a governance perspective, and which carries out
such activities. These functions typically are second and third
line of defence functions.
First line of defence
The first line of defence e.g., business management is
primarily accountable for the day-to-day risk origination and
management in accordance with risk policy and strategy. This
includes
implementing
responses.
identifying, assessing risks, and
Second line of defence
The second line of defence is responsible for the development
and maintenance of the frameworks and policies. The second
line provides oversight of, and challenge to, the first line of
defence and drives the implementation of the frameworks and
policies.
Third line of defence
The third line of defence is the independent assurance
function providing overall assurance
the Board on
governance, risk management, and internal controls. The third
line of defence comprises of internal audit, external audit, and
other independent assurance providers. The third line of
defence is completely independent from the management of
the day-to-day business activities.
to
RMF - MFG assurance functions
MFG has effective systems of risk management and internal
control. The tasks, processes and obligations of the key
assurance functions are transparent and clearly defined, with
regular exchange of information between the functions. Each
of the functions is structured to ensure that it has the
necessary authority, independence, resources, expertise and
access to the Board and all relevant employees and
information to exercise its authority. The minimum assurance
departments within MFG include:
Risk management function;
Compliance function; and
Internal Audit function.
The departmental head of each of these key functions
possesses the necessary skills, experience and knowledge
required for the specific positions they exercise and meet all
suitability and ‘fit and proper’ requirements. Written guidelines
for these functions are in place, and compliance with them is
assured on a regular basis. All of the key independent
functions within MFG have a direct reporting line to the ARCC
and the Board.
RMF - Internal Capital Adequacy Assessment Process
(“ICAAP”)
Overview
ICAAP is a key strategic and risk management tool for the
Bank. It is a key component of the Bank’s planning process
during the short and medium-term. The Bank’s lead regulator,
the FSA, requires the Bank to establish and maintain an
ongoing internal adequacy assessment process which is
appropriate to the nature and scale of its business and reviews
that process annually and evidences that review.
Methodology
The Bank’s ICAAP process is as follows:
Formulation of the Bank’s strategy and budget
Strategic plans are prepared annually for the forthcoming
year, which consider the Bank’s risk appetite, key market
sectors to target, products to leverage / introduce, headcount,
operational and capital investment required.
Risk assessment
The Executive Team will liaise with the Risk and Compliance
department to determine the material risks in the Bank based
on incidents and breaches, Internal Audit reports, Risk and
Compliance report findings and issues raised at the Board and
Committee meetings.
Stress testing and reverse stress testing
The Finance department uses Bank of England market
assumptions for stress testing and stress the five-year
forecasts to identify any capital deficiencies. Reverse stress
testing is also used based on the assumption that the Bank
ceases to trade, coupled with a run-off scenario to determine
the capital distribution.
Reverse stress testing is used to explore the vulnerabilities to
extreme adverse events in the Bank’s strategy and plans that
might cause the business to fail, in order to facilitate
contingency planning.
Calculation of capital requirement and buffers
Following the setting of strategy, risk assessment and stress
tests, the Bank will then calculate its capital requirements by
considering the following areas:
Pillar I – The calculation is based on the minimum
regulatory requirement under Pillar I of 10.0% of risk
weighted assets for material risks;
Pillar II – Assessment of any additional business risks
not covered by the minimum Pillar I requirement, plus
an assessment of Pillar II risks based upon the
current material risk assessment and stress tests, to
determine whether any additional capital buffers are
deemed appropriate;
Pillar III – Pillar III establishes measures to make
better use of market discipline. Pillar III applies only
at the top consolidated level of a banking group and
is therefore generally not considered to be applicable
Page | 11
RISK AND GOVERNANCE
RISK MANAGEMENT
to IOM incorporated banks as per FSA ICAAP
guidance; and
Buffers – The Bank assesses its position against
industry standards
regulatory buffers and
for
calculates its position based on its overall exposures
to different jurisdictions.
Review, challenge and adoption of the ICAAP
The ICAAP is prepared by the Finance department in
conjunction with the Risk and Compliance department, and
reviewed by the Bank’s Executive Team, Risk Management
Committee, ARCC, Internal Audit and the External Auditor. It
is used to measure and benchmark the Bank’s risk appetite
and to forecast capital usage under both stressed and normal
conditions. The ICAAP is challenged at all stages of the review
process and presented to the Bank’s Board by ARCC for
approval prior to being submitted to the FSA. The ICAAP is
regularly reviewed and updated throughout the year by
management and referred to the ARCC and the Bank’s Board.
ICAAP Results
The Bank has completed its ICAAP testing for 2022 in
compliance with regulatory requirements. Despite the severity
of the risk scenarios modelled, the Bank satisfied the capital
and leverage requirements for the purpose of the stress test.
Principal risks
As a result of the RMF, identified on pages 10 to 11, the Group
has exposure to the following key risks:
Strategic;
Credit risk including counterparty credit;
Operational risk including regulatory;
Conduct;
Liquidity;
Interest rate;
Regulatory; and
Reputation.
The Group has considered the above key risks that it faces
and the mitigating controls against those risks:
Strategic risk
Strategic risk is the risk to the Group’s revenue and
operational costs as set within the budget and the medium-
term plans arising through sub-optimal implementation of the
strategic plan due to either internal or external factors faced
by its subsidiaries.
Controls and mitigation
The Group controls and mitigates this risk via a number of
measures:
Subsidiaries generally commence
formal
planning process in September for the forthcoming
year, to inform the budget submitted to the boards
throughout the Group for approval. In reality, the
planning process is continuous and responsive to
change in the internal and external environment;
their
Barriers to delivering the strategic plan, and changes
to planned activity are captured in the various
subsidiary ‘Managing Directors’ Reports’ which are
submitted to their respective boards and then
ultimately reported to the Group Board at each Board
meeting. The reports take account of input from the
Group Executive Directors and current financial
performance versus budget and seek to highlight
strategic responses for the relevant subsidiary;
Key strategic projects are managed under formal
project governance with progress of key projects
tracked, and communicated and discussed at regular
project meetings; and
regulator
restriction on
The impact of limited capital, liquidity, operational
the
capacity, and
achievement of strategy is captured by the planning
process, with exceptional items dealt with under the
relevant risk category, where the impact on risk
appetite and mitigating actions will be formally
recorded.
Credit risk including counterparty credit risk
Credit risk is defined as the risk that counterparties fail to fulfil
their contractual obligations. A material decline in credit
quality, or the failure of a counterparty, could result in higher
levels of arrears and ultimately in increased provisions and
write-offs, which impacts upon profitability, potentially eroding
the capital position for the Group’s subsidiaries.
Controls and mitigations applied
Delegated authorities: The Group operates to a
schedule of delegated lending authorisation limits
linked to an individual underwriter’s knowledge and
experience. This is bolstered by validations of all
significant credit exposures over set limits and
ongoing monitoring of credit positions of key
suppliers and intermediary networks;
Distribution strategy: The Group actively monitors
and controls the credit risk of all business undertaken
to ensure that it is treating customers fairly and as a
safeguard against the failure of any business
relationship. Mitigation of counterparty credit risk is
supported
the maintenance, where
appropriate, of cash reserves and loss pools to fund
any buy-back
indemnity. Comprehensive due
diligence processes are also performed;
through
Monitoring of credit quality exposure: The Group
monitors its credit risk exposures via an internal
credit risk grading methodology that assigns each
individual exposure with one of three credit grades
based upon the probability of default at product and
distribution channel level. This allows for better
monitoring of credit quality and impairment of its
current book as well as forecasting and stress testing
on a more accurate basis;
Concentration
of
materially
the
exposures where
risk: To protect against
build-up
could
unintentional
deterioration
the Group’s sustainability and profitability. The Group
seeks to maintain a diverse portfolio of products
across a variety of geographical regions, customers,
sectors, and asset classes. This diversity protects the
Group against any deterioration in a particular
geographical region, the economic environment,
commercial sector etc;
impact
Page | 12
RISK AND GOVERNANCE
RISK MANAGEMENT
Operational risk including regulatory risks
Operational risk is the risk of loss resulting from human error,
inadequate or failed internal processes or controls, system
failure, improper conduct, fraud, or external events.
The principal operational risks for the Group arise from the
following areas:
Resilience of the IT environment: The IT environment
is under constant
review ensure operational
continuity. The Group’s IT Steering Committee
(“ITSCO”) identifies and implements efficiencies to
enable enhanced customer service through the
provision of additional facilities and products, and to
automate manual
to
minimise the potential for human error. ITSCO also
reviews and monitors current service standards,
highlighting
and mitigates
accordingly. There are a number of exception reports
and scheduled tasks on a daily basis to ensure that
any controls within the IT systems are being reported
on adequately; and
tasks wherever possible
any deficiencies
Third Party administration services: The key
operational controls ensure that partners are fulfilling
their legal and regulatory obligations in accordance
with their service-level agreement with the Group.
The Group has an outsourcing policy to ensure
obligations are monitored and met. Internal reviews
and audits are conducted on counterparties to
ensure terms agreed are being adhered to.
Controls and mitigation
Adherence to internal limits and approval processes
through:
o Delegated authorities: The Group operates
to a schedule of delegated credit
authorisation limits and payment approval
limits, linked to an individual’s knowledge
and experience;
o Segregation of duties: There is appropriate
those authorising
segregation between
transactions and those executing them, with
four eyes principles
in place where
required;
o Exception
reporting
reporting: Daily
ensures that any regulatory and internal
limits are
the
reviewed
appropriate Management team; and
regularly by
o New Business approval policy: All material
new business is approved in line with a
formally approved policy, with ultimate
decision making resting with the applicable
Executive Committee.
Change control: The Group ensures that both,
changes to existing products and services and new
products and services, are delivered in a controlled
manner with the appropriate checks and controls in
place;
Due diligence checks: The operational risk from the
Group’s third-party administrators is mitigated by a
comprehensive due diligence process which
includes a comprehensive take-on appraisal and a
full review of the partner’s policies, procedures and
financial stability;
Key Operational Controls: Key controls are
monitored through a combination of management
oversight, Risk and Compliance monitoring and
Internal Audit reviews;
New Business Policy and Process: New business
and material business change is outlined in a formal
policy, which
that a sequence of
assessment and approval is followed. This ensures
that all relevant input is included, and material risks
considered; and
requires
Exception reports: Exception reporting allows the
Group to identify weaknesses in processes and
controls which in turn allows for adequate training
and the bolstering of systems and processes.
Conduct risk
The Group is exposed to conduct risk through its operations
and interactions with consumers, either directly or through
third parties (brokers, or other counterparties).
Controls and mitigation
The Group has policies to ensure adherence to conduct
related regulatory standards and to promote continual focus
on good customer outcomes. Appropriate policies also govern
where good conduct is contracted to third parties, either
directly or through distribution chains. In all cases, compliance
with standards
the
relevant data, partner
collection and assessment of
attestation, and onsite audits where appropriate.
is appropriately monitored
through
General conduct principles and Treating Customers Fairly
(TCF) principles are well embedded across the Group’s
the new
activities, and progress
Consumer Duty is on target.
towards embedding
Liquidity risk
Financial institutions are subject to liquidity risk as an inherent
part of their business. Liquidity risk is the risk that the Group
may not hold sufficient liquid funds meaning it would be unable
to meet its contractual liabilities as they fall due.
Liquidity risk arises where the Group, through its subsidiaries,
has contractual credit obligations that can be placed under
stress during times of illiquidity. Should this ever occur, the
Group would access the capital markets. In addition, it has
built a core portfolio of liquid assets or buffers as additional
sources of liquidity that can be utilised during such times.
Controls and mitigation
Overall, the Group’s liquidity profile is resistant to stress as the
Group:
Onboarding: A comprehensive on-boarding process
is in place for new outsourced partners in the IOM
and UK;
Has a positively matched funding profile and does
not engage in maturity transformation. This means
that on a cumulative mismatch position, the Group is
Page | 13
RISK AND GOVERNANCE
RISK MANAGEMENT
forecast to be able to meet all liabilities as they fall
due;
to regulated credit activities, and other specified regulated
products and services in the UK.
Maintains an adequate liquidity buffer; and
Has no exposure to the interbank lending market.
The Group’s liquidity position is monitored daily against
internal and external agreed limits. The Group also has a
Liquidity Contingency Policy and Liquidity Contingency
Committee should a liquidity crisis or potential liquidity
disruption event ever occur.
Interest rate risk
Interest rate risk refers to the current or prospective risk to the
Bank's capital and earnings arising from adverse movements
in interest rates that affect the Bank's banking book positions.
The principal potential interest rate risk that the Group is
exposed to is the risk that the Bank’s fixed interest rate and
term profile of its deposit base differs materially from the fixed
interest rate and term profile of its asset base.
Controls and mitigation
Funding profile: Interest rate risk for the Group is not
deemed to be material currently due to the Bank’s
positively matched funding profile. In a rising interest
rate environment, due to the nature of the Group’s
products and its matched funded profile, it should
theoretically be able to change the Bank’s lending
rate to match any corresponding change in its cost of
funds;
The Bank matches its deposit taking to its funding
requirements to the greatest extent possible;
The maturity profile of the Bank’s loan book through
staged repayments means interest risk is difficult to
hedge effectively so the Bank does not currently
hedge against this risk, and is not exposed to any
additional market interest rate risk in this respect; and
Funding cost: The Group would be exposed to
potential risk if the Bank’s cost of funds, which is
linked to the cost of retail deposits, and ultimately the
UK banks’ base rate, was to increase and it was
unable, due to a competitive lending environment, to
raise its lending rate correspondingly. The Group’s
three-year plan allows for an increase in its cost of
funds, but the Group accepts that these assumptions
may not reflect the timing of any interest rate rise or
the quantum of any increase.
Regulatory risk
Regulatory risk is the risk of material breach of regulation.
The risk of regulatory breach arises through a failure to
identify, assess, and apply applicable regulation; or a failure
to adhere to the applicable regulation as applied.
The Group holds, via the Bank, a Class 1 (1) Banking Licence
in the IOM and is accordingly regulated by the Financial
Services Authority (“FSA”). The Bank also holds permissions
with the UK’s Financial Conduct Authority (“FCA”) pertaining
The Bank is in the process of applying for a UK deposit taking
licence with the Prudential Regulatory Authority.
The Group also holds, via EWA, an IOM Class 2 licence to
conduct investment business and is licenced as a general
insurance intermediary, both regulated by the FSA.
Other regulated entities in the Group are PAL, BLX and MCL
principally for Consumer Credit and Debt Collection.
The risk of regulatory breach arises through a failure to
identify, assess, and apply applicable regulation; or a failure
to adhere to the applicable regulation as applied.
Monitoring and complying with the requirements of existing
regulation across numerous regulatory bodies, along with the
rapid pace and volume of regulatory change is a key risk. The
risk is compounded due to the size of the Group.
Controls and mitigation
The Group remains well placed to meet the regulatory
challenges that bring change to the macro environment.
Regulatory risks continue to be mitigated by themed and ad-
hoc compliance monitoring reviews which are driven using a
risk-based approach to ensure resource is directed to areas of
potential material risk. The monitoring plan is approved
annually by the ARCC. Monitoring reviews are supplemented
by ongoing staff training and guidance.
Wherever possible, legislative, and regulatory requirements
are built into relevant administration systems, with appropriate
monitoring and exception reporting processes in place to
monitor compliance.
The Group maintains a watching brief on the regulatory
environment and, as active members of a number of IOM and
UK trade bodies, it receives additional regulatory updates and
guidance on proposed legislative and regulatory issues.
Upstream regulatory changes are tracked and assessed for
impact by the Compliance Department and material items
reported to the ARCC.
Reputation risk
Reputation risk is the risk of loss resulting from damages to
the Group’s reputation, in lost revenue or increased costs, or
destruction of Shareholder value.
Controls and mitigation
The Group mitigates this risk by ensuring that its key risks are
identified and managed, with an impact assessment of any
potential or actual issues considering the impact to the
Group’s reputation. The Group actively seeks to minimise the
occurrence of events or issues which could give rise to loss or
negative feedback, and actively manages the impact should
issues occur.
Page | 14
RISK AND GOVERNANCE
CORPORATE GOVERNANCE REPORT
Corporate governance report
The Board is committed to best practice in corporate
governance. Directors have agreed to comply with the
provisions of the Quoted Companies Alliance Corporate
Governance Code for Small and Mid-Size Quoted Companies
(“QCA Code”) to the extent which is appropriate to its nature
and scale of operations. This report illustrates how the Group
complies with those principles.
QCA Principle 1: Establish a strategy and business model
which promote long-term value for Shareholders
The immediate strategy and business operations of the Group
are set out in the Strategic Report.
The Group’s strategy and business model and amendments
thereto, are developed by the Chief Executive Officer (“CEO”)
with his senior management team and approved by the Board.
The management team, led by the CEO, is responsible for
implementing the strategy and managing the business at an
operational level.
The Group’s overall strategic objective is to grow organically
and through strategic acquisitions to further augment the
range of services it offers and gain market share in markets in
which it has proven experience.
The Group has a balanced portfolio of regulated and
unregulated operations, all of which are managed on a risk-
based and prudential approach. The principal activities
include: deposit taking; lending to consumer and commercial
markets in the IOM and the UK; the provision of dedicated
financial advice, especially in the areas of pensions and
general
foreign currency and payment
services.
insurance; and
The Group has adopted a portfolio approach to its strategic
assets and is not dependent on one particular platform
technology. The Directors believe that this approach helps to
mitigate any concentration risk.
The Group operates in some heavily regulated sectors, and
this is reflected in the emphasis on compliance and the
provision of excellent customer service.
In executing the Group’s strategy and operational plans,
management will typically confront a range of day-to-day
challenges associated with risks and uncertainties and will
seek to deploy the identified mitigation steps to manage these
risks as they manifest themselves.
QCA Principle 2: Seek to understand and meet Shareholder
needs and expectations
The Group, via the CEO, seeks to maintain a regular dialogue
with both existing and potential new Shareholders
to
communicate the Group’s strategy and to understand the
needs and expectations of Shareholders.
Beyond the Annual General Meeting, the CEO and, where
appropriate, other members of the senior management team
will meet with investors and analysts to provide them with
updates on the Group’s business and to obtain feedback
regarding the market’s expectations of the Group.
The Group’s investor relations activities encompass dialogue
with both institutional and private investors. From time to time,
MFG attends private investor events, providing an opportunity
for those investors to meet with representatives from the
Group in a more informal setting.
QCA Principle 3: Take into account wider stakeholder and
social responsibilities and their implications for long-term
success
The Group is aware of its corporate social responsibilities and
the need to maintain effective working relationships across a
range of stakeholder groups. These include not only the
Group’s
regulatory
partners,
authorities, but also customers, be they depositors, borrowers
or those seeking financial advice. The Group’s operations and
working methodologies take account of the requirement to
balance the needs of all stakeholder groups while maintaining
focus on the Board’s primary responsibility to promote the
success of the Group for the benefit of its members as a whole.
employees,
suppliers,
Customers – are at the heart of the business, and the
Group operates with a shared vision and set of values.
These values instil a sense of how all staff form a part of
the customer journey. Feedback is encouraged at all
points of contact; it is proactively enacted upon as it aids
the identification of process and system enhancements;
Shareholders – where appropriate Shareholder feedback
is discussed at the Board, with any actions agreed being
tracked to completion by the Company Secretary.
Shareholders have an opportunity to raise questions to
the Board, in person, at the Annual General Meeting. In
addition,
the CEO meets with and addresses
Shareholder concerns where appropriate;
Employees – the Group collates employee feedback on
an annual basis, engages employees via workshops,
with all outputs analysed and visibly addressed by the
Executives of the operational subsidiaries that form the
Group; with the aim being to build an engaged,
committed and enthusiastic workforce;
Partners and suppliers – the Executive and Management
regularly meet with our partners and suppliers to ensure
the needs of all parties are understood to achieve
continued excellent working relations; and
Environment - The Group recognises the QCA Code
integration of ESG and
the
recommendations on
alignment with a
framework across
reporting
organisations. This is a fast-moving agenda with the
consolidation of voluntary frameworks and growth of
international statutory reporting frameworks, and the
Group continues to monitor this evolution and what it
means with interest. Notwithstanding, integration of ESG
across the Group is on-going as material ESG issues are
identified. The Bank is now into its fourth year of
responding to ESG integration and provides the model
that other Group subsidiaries are following.
Page | 15
RISK AND GOVERNANCE
CORPORATE GOVERNANCE REPORT
QCA Principle 4: Embed effective
risk management,
considering both opportunities and threats, throughout the
organisation
The Board is responsible for the systems of risk management
and internal control and for reviewing their effectiveness by a
series of committees, overseen by the ARCC, and reviewed
by Internal Audit. The internal controls are designed to
manage rather than eliminate risk and provide reasonable but
not absolute assurance against material misstatement or loss.
Through the activities of the ARCC, which meets at least six
times per year, the effectiveness of these internal controls is
formally reviewed four times per year.
A comprehensive budgeting process is completed once a year
and is reviewed and approved by the Board. The Group’s
results, and comparison to budget, are reported to the Board
monthly.
The Group maintains appropriate insurance cover in respect
of actions taken against the Directors because of their roles,
as well as against material loss or claims against the Group.
The insured values and type of cover are comprehensively
reviewed on at least an annual basis.
The senior executives meet weekly to consider new risks and
opportunities
the Group, making
recommendations to ARCC and / or the Board as appropriate.
for presentation
to
The Directors consider they are provided with all necessary
information to assess the Company’s position, performance,
business model and strategy.
QCA Principle 5: Maintain the board as a well-functioning,
balanced team led by the chair
The Board currently comprises four Non-executive Directors
and four Executive Directors.
Each of the Directors are subject to election by Shareholders
at the first Annual General Meeting after their appointment to
the Board and will continue to seek re-election at least once
every three years.
Directors’ biographies are set out on pages 19 and 20.
The Board is responsible to the Shareholders for the proper
management of the Group and meets at least four times a year
to set the overall direction and strategy of the Group, to review
operational and financial performance, and to advise on
management appointments. All key operational and
investment decisions are subject to Board approval.
The Board considers itself to be sufficiently independent. The
QCA Code suggests that a board should have at least two
independent non-executive directors. The Board considers
three Non-executive Directors, namely Alan Clarke (Chairman
of the ARCC), Gregory Jones and John Spellman, are
independent under the QCA Code’s guidance for determining
such independence.
Non-executive Directors receive their fees in the form of a
basic cash emolument. The CEO and Finance Director are the
only Directors who hold Restricted Stock Units (“RSUs”) or
options over the Group’s shares. The number and terms are
found on page 27.
The RSUs or option grant concerned are not deemed to be
significant, either for the individual Executive Director or in
aggregate. The current remuneration structure for the Board’s
Non-executive Directors is deemed to be proportionate.
QCA Principle 6: Ensure that between them the directors have
the necessary up-to-date experience, skills and capabilities
The Board considers that all the Non-executive Directors are
of sufficient competence and calibre to add strength and
objectivity to its activities, and bring considerable experience
in regulatory, financial and operational development within the
financial service sector in both the IOM and the UK.
The Directors’ biographies are set out on pages 19 and 20.
The Board regularly reviews the composition of the Board to
ensure that it has the necessary breadth and depth of skills to
support the ongoing development of the Group.
The Chairman, in conjunction with the Company Secretary,
ensures that the Directors’ knowledge is kept up to date on key
its
issues and developments pertaining
operational environment and to the Directors’ responsibilities
as members of the Board. During the year, Directors receive
updates from the Company Secretary and various external
advisers on a number of corporate governance matters.
to the Group,
Directors’ service contracts or appointment letters make
provision for a Director to seek personal advice in furtherance
of his or her duties and responsibilities, normally via the
Company Secretary.
QCA Principle 7: Evaluate board performance based on clear
and relevant objectives, seeking continuous improvement
The Board has an internal process for evaluation of its own
performance, that of its committees and individual Directors,
including the Chairman. This process is conducted annually
and last took place in November 2022, with no substantive
issues arising.
The Board may utilise the results of the evaluation process
when considering the adequacy of the composition of the
Board and for succession planning.
QCA Principle 8: Promote a corporate culture that is based on
ethical values and behaviours
The Board seeks to maintain the highest standards of integrity
and probity in the conduct of the Group’s operations. These
values are enshrined in the written policies and working
practices adopted by all employees in the Group. An open
the Group, with regular
culture
communications to staff regarding progress and staff feedback
sought. The senior management team seeks to address any
concerns that may arise, escalating these to Board level as
necessary.
is encouraged within
The Group is committed to providing a safe environment for its
staff and all other parties for which the Group has a legal or
moral responsibility in this area. This is enshrined in the
Group’s health and safety policy.
Page | 16
RISK AND GOVERNANCE
CORPORATE GOVERNANCE REPORT
QCA Principle 9: Maintain governance structures and
processes that are fit for purpose and support good decision-
making by the board
The Board has established an ARCC, a Remuneration
Committee and a Nomination Committee with formally
delegated duties and responsibilities.
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.
The Governance Framework is reviewed to ensure it remains
fit for purpose on an annual basis and is approved by the
Board.
The Board ensures that the necessary financial and human
resources are in place for the Group to meet its objectives and
that business and management performances are reviewed.
Furthermore, the Board ensures that the Group operates within
its constitution, relevant legislation and regulation and that
proper accounting records and effective systems of business
control are established, maintained, documented, and audited.
There are at least four formal Board meetings each year. All
Board members have the benefit, at the Group’s expense, of
liability insurance in respect of their responsibilities as
Directors and have access to independent legal or other
professional advice if required. The Board has a formal
schedule of matters which are reserved for its consideration,
and it has established three committees to consider specific
issues in greater detail, being the ARCC, the Remuneration
Committee and the Nomination Committee. The Terms of
Reference for each of these Committees are published on the
Group’s website www.mfg.im.
There is a clear separation of the roles of CEO and Executive
Chairman.
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 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. This fosters a positive corporate
governance culture throughout the Group.
CEO
The CEO is responsible for managing the Group’s business
and operations within the parameters set by the Board.
Non-executive Directors
The Non-executive Directors are responsible for bringing
independent judgement to the discussions held by the Board,
using their breadth of experience, and understanding of the
business. Their key responsibilities are to constructively
challenge and contribute to strategic proposals, and to monitor
performance,
resources, and standards of conduct,
compliance, and control, whilst providing support to executive
management in developing the Group.
Prior to appointment, Non-executive Directors are required to
demonstrate that they are able to allocate sufficient time to
undertake their duties.
Group Audit, Risk and Compliance Committee (“ARCC”)
The ARCC meets at least six times each year and comprises
of three Independent Non-executive Directors, currently Alan
Clarke (Chairman), Gregory Jones and John Spellman.
Representatives from Compliance and Risk, the Internal and
External Auditor and executive management 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.
Group Remuneration Committee (“REMCO”)
The REMCO meets at least twice a year and currently
comprises of two Independent Non-executive Directors,
currently Alan Clarke (Chairman), and Gregory Jones, with the
Executive Directors, Head of Human Resources and external
advisers attending by invitation where appropriate. It is
responsible, amongst other matters, for determining the
remuneration of the Executive Directors, the Company
Secretary, and other members of management. Committee
members do not take part in discussions concerning their own
remuneration. The Chairman and CEO determine Non-
executive Director fees.
Group Nomination Committee (“NOMCO”)
The NOMCO 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 the Board, including Executive and Non-
executive Director succession planning, the appointment of
new Directors and re-election of existing Directors.
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 Board and subsidiary
boards against the requirements of the business, with a view
to determining whether any shortages exist. Having completed
the assessment, the Committee makes recommendations to
the Board accordingly. Appointments to the Board are made
on merit, with due regard to the benefits of diversity. Within this
context, the paramount objective is the selection of the best
candidate, irrespective of background, and it is the view of the
Board that establishing quotas or targets for the diversity of the
Board is not appropriate.
All Group Director appointments must be approved by the
Company’s Nominated Adviser, as required under the AIM
Rules, before they are appointed to the Group Board.
Page | 17
RISK AND GOVERNANCE
CORPORATE GOVERNANCE REPORT
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.
The Corporate Governance Manual also contains a schedule
of matters specifically reserved for Board decision or approval
and sets out the Company’s share dealing code and its public
interest disclosure (“whistle-blowing”) policy and procedures.
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 *
Denham Eke
Douglas Grant
James Smeed
Gregory Bailey*
Alan Clarke
David Gibson ^
Gregory Jones
John Spellman
Board ARCC REMCO NOMCO
3/4
4/4
4/4
4/4
4/4
4/4
1/1
4/4
4/4
-
-
-
-
-
18/18
5/5
13/13
-
5/8
8/8
8/8
7/8
3/8
5/8
2/2
6/8
8/8
-
-
-
-
-
8/8
2/2
7/8
8/8
^ David Gibson retired on 25 May 2022
* Jim Mellon and Gregory Bailey recused themselves from two
Board meetings held where they held a conflict of interest
QCA Principle 10: Communicate how the company is
governed and is performing by maintaining a dialogue with
Shareholders and other relevant stakeholders
The Group places a high priority on regular communications
with its various stakeholder groups and aims to ensure that all
communications concerning the Group’s activities are clear,
fair, and accurate. The Group’s website is regularly updated,
and users can register to be alerted when announcements or
details of presentations and events are posted onto the
website.
Notices of General Meetings of the Company can be found on:
https://www.mfg.im/investor-centre/regulatory-news.
The results of voting on all resolutions in future general
meetings will be posted to the Group’s website, including any
actions to be taken because of resolutions for which votes
against have been received from at least 20 per cent of
independent Shareholders.
Approval
This report was approved by the Board on March 2023 and
signed on its behalf by:
Jim Mellon
Executive Chairman
20 March 2023
Page | 18
RISK AND GOVERNANCE
DIRECTORS, OFFICERS AND ADVISERS
Executive Directors
Denham Eke (71) ‡
Executive Vice Chairman
Denham Eke is the Managing Director of Burnbrae
international asset
Group Limited, a private
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
financial
private companies
services, property, mining, and manufacturing
sectors.
involved
the
in
Appointment
Appointed to the Board on 2 November 2007 and
Executive Vice Chairman on 3 November 2021.
Jim Mellon (66)‡
Executive Chairman
Jim Mellon
is a well-known and successful
entrepreneur, author and economic commentator,
starting his career in fund management and now
includes biopharma, property, mining and
information
technology amongst his many
investments. He holds directorships in a number of
companies, both quoted and unquoted, including
the chairmanship of Juvenescence Limited and
being an executive director of Agronomics Limited.
He, together with Burnbrae Group Limited, of which
he
the beneficial owner, hold a 18.83%
shareholding of Manx Financial Group PLC. He is
the founder, principal shareholder and chairman of
the Endurance RP Limited, quoted on the Hong
Kong Stock Exchange.
is
Appointment
Appointed to the Board on 2 November 2007 and
Executive Chairman on 12 February 2009.
James Smeed (38) ‡
Group Finance Director
James Smeed has over 15 years’ financial services
experience, having started his career with KPMG in
audit and assisting in transaction services. He
joined the Group in August 2012 as Group Head of
Finance and was appointed to the Bank’s Board as
Finance Director in 2017. He is both a Chartered
Accountant and a Chartered Tax Adviser and
Treasurer of the Isle of Man Bankers Association.
Appointment
Appointed to the Board as Group Finance Director
on 3 November 2021.
Douglas Grant (58) ‡
Chief Executive Officer
Douglas Grant has over 40 years’ experience
working in finance, initially with Scottish Power,
before moving to the industrial sector to work
with ICI and then Allenwest. Prior to joining
Manx Financial Group PLC, he was finance
director of various UK and Isle of Man private
sector companies and has extensive capital
markets experience. He is a professionally
qualified banker with an executive MBA.
Appointment
Appointed to the Board on 14 January 2010 and
Chief Executive Officer on 3 November 2021.
Page | 19
RISK AND GOVERNANCE
DIRECTORS, OFFICERS AND ADVISERS
Non-executive Directors
Alan Clarke (72)‡†*
Independent 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.
Appointment
Appointed to the Board on 2 November 2007. He is
Chairman of the Audit, Risk and Compliance
Committee and Chairman of the Remuneration
Committee.
Gregory Bailey (67) ‡
Non-executive Director
Gregory Bailey, founded Palantir Group Inc which
made successful investments in bio-tech company
start-ups and financings, and is currently CEO of
Juvenescence Ltd, chairman of Portage Biotech
Inc, a CSE-traded drug development company and
non-executive director of NYSE traded Biohaven
Pharmaceuticals Holding Company. He is also
founder and chairman of Chelsea Avondale, a
property and causualty insurance and reinsurance
group. 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.
John Spellman (56) ‡*
Independent Non-executive Director
John Spellman is both a qualified accountant
and banker. He spent his early years in
banking, fund management and accountancy,
specialising in the various parts of the offshore
industry before being appointed managing
director of Clerical Medical Offshore. He
transferred to the UK as chief operating officer
within Clerical Medical Financial Services
before being appointed managing director of
HBoS Financial Services. He has worked with
and created a number of successful businesses
and has wide experience
liaising with
government regulators. He has held approved
status with the Isle of Man FSA in various roles
and has acted as strategic advisor to the Isle of
Man government, specialising in finance and
foreign direct investment for over 11 years.
Appointment
Appointed to the Board on 4 May 2020. He is
Chairman of Conister Bank Limited.
Gregory Jones (64) ‡†*
Independent Non-executive Director
Gregory Jones was called to the UK Bar in 1982 and
subsequently joined KPMG Isle of Man where he
spent 29 years before retiring in October 2019 as
Head of Tax. He currently provides tax advice for a
leading Isle of Man based firm of advocates and is
a director of a local Corporate Service Provider. He
is a member of the Chartered Institute of Taxation.
Appointment
Appointed to the Board 3 November 2021.
Legend
* Member of the Audit, Risk and Compliance
Committee
† Member of the Remuneration Committee
‡ Member of the Nominations Committee
Page | 20
RISK AND GOVERNANCE
DIRECTORS, OFFICERS AND ADVISERS
Company Secretary
Lesley Crossley (55)
Company Secretary
Lesley Crossley is a Fellow of The Chartered
Institute of Secretaries and Administrators and an
Associate of the Chartered Insurance Institute.
Lesley has over 30 years of wide-ranging
experience in the financial services industry both in
the UK and the Isle of Man and has held the position
of Company Secretary with a number of Isle of Man
and international companies.
Appointment
Re-appointed as the Company Secretary on 2
September 2019 after re-joining the Group. She
also held the position from September 2009 to June
2018.
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 & Co Limited
Eyreton
Quarterbridge Road
Douglas
IM2 3RF
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 IM1 1LA
Principal Banker
National Westminster Bank plc
250 Bishopsgate
London EC2M 4AA
Consulting Actuaries
Boal & Co Ltd
Marquis House
Isle of Man Business Park
Douglas
Isle of Man IM2 2QZ
Nominated Advisor
and Broker
Beaumont Cornish
Building 3
Chiswick Park
566 Chiswick High Road
London W4 5YA
Registrar
Computershare Investor
Services (Jersey) Limited
13 Castle 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 supplementary information of interest
to Shareholders, are
its
website. The address of the website is
investor
www.mfg.im which
relations information and contact details.
included on
includes
Page | 21
RISK AND GOVERNANCE
AUDIT, RISK AND COMPLIANCE COMMITTEE
Dear Shareholders
I am pleased to set out below an account of the ARCC’s role
and activities during 2022 and up to the date of publication of
this Annual Report.
Due to its adoption of the QCA Corporate Governance
standard, the Committee reassessed the adequacy of its
terms of reference and its function bearing in mind the
requirements of this standard.
the Nomination Committee,
Membership
Members of the ARCC are appointed by the Board, on the
recommendation of
in
consultation with the Chairman of the Committee. The
Committee shall be made up of at least 2 members. All
members of the Committee shall be Non-executive Directors
and at least one of whom shall have recent and relevant
financial experience with a professional qualification from one
of the professional accountancy bodies. The Chairman of the
Board shall not be a member of the Committee.
Appointments to the Committee shall be for a period of up to
3-years, which may be extended by the Board for a further
3-year period (or, in exceptional circumstances, two further
3-year periods), provided the Director remains independent.
The Board may approve annual extensions to any Director
who has served 3 consecutive terms.
The Board shall appoint the Chairman of the Committee who
shall be a Non-executive Director. In the absence of the
Chairman of the Committee and / or an appointed deputy, the
remaining members present shall elect one of themselves to
chair the meeting.
The Committee shall meet at least six times a year. Of these,
two will be held to review the annual and interim financial
statements. Outside of the formal meeting programme, the
Chairman of the Committee will maintain a dialogue with key
individuals involved in the Company’s governance.
Members
Appointed
Alan Clarke (Chairman) 2 February 2007
David Gibson*
Gregory Jones
John Spellman
13 February 2009
3 November 2021
4 May 2020
*David Gibson retired on 25 May 2022
Number of
meetings
attended
8/8
2/2
7/8
8/8
Only members of the Committee have the right to attend
Committee meetings. However other individuals may be
invited by the Chairman of the Committee to attend all or part
of any meeting as and when appropriate.
The ARCC holds separate meetings with Internal Audit, Risk
and Compliance and our External Auditor, KPMG Audit LLC.
The Chairman of the Board, the Executive Directors and
management may be invited to meetings of the ARCC but are
excluded from the separate meetings held between the ARCC
and the External Auditor.
Execution of functions
The ARCC has executed its duties and responsibilities during
the year in accordance with its terms of reference as it relates
to auditor independence, assisting the Board in its evaluation
of its control environment and internal controls including
information systems and accounting practices.
During the year under review, the Committee considered
among other matters, the following:
Financial reporting and annual financial statements:
Considered the annual financial statements with the
External Auditor, Executive Directors
and
management and reviewed the appropriateness of
significant judgements, estimates and accounting
policies;
Reviewed and recommended to the Board for
adoption:
o Unaudited condensed interim results for the
period-ended 30 June 2022;
o The Bank’s ICAAP for 2022;
o Audited MFG PLC Group and subsidiary
annual financial statements for the year-
ended 31 December 2022; and
Discussed any significant and unusual accounting
matters including key audit matters identified by the
External Auditor.
External audit:
Monitored and assessed the independence of the
External Auditor based on reports received and
inquiries made into work performed;
Determined the nature and extent of non-audit
services performed by the External Auditor;
Reviewed and assessed the significance of non-
audit fees compared to audit fees;
Reviewed and agreed the external audit plan in
advance for the year-end audit which set out the
scope of audit, significant risks, areas of audit focus
and audit timetable;
Tendering process as part of the external audit
process;
Received a presentation from the External Auditor on
the findings from their execution of the audit plan;
and
Satisfied
the experience and
itself as
to
independence of the engagement partner.
Internal audit:
Reviewed and approved the Internal Audit plan;
Reviewed Internal Audit’s findings including the
design and operating effectiveness of the internal
control environment and control activities; and
Reviewed Internal Audit’s findings on the adequacy
and reliability of management information.
Risk and compliance:
Assessed the effectiveness of the Group Risk and
Compliance function;
Reviewed
the Group Risk and Compliance
department findings on the effectiveness of the
Group’s regulatory controls;
Recommended a
revision of
the Risk and
Compliance policies for Board approval; and
Recommended a revision of the Internal Capital
Adequacy Assessment Process for Board approval.
Page | 22
RISK AND GOVERNANCE
AUDIT, RISK AND COMPLIANCE COMMITTEE
External Auditor’s independence
KPMG Audit LLC has been the Group’s external auditor since
2007.
Consideration was given to the non-audit work performed by
the External Auditor. The ratio of non-audit fees to audit fees
for the year was 0.04 to 1 (2021: 0.01 to 1). Non-audit services
related to tax advisory services. Services were performed by
a separate team to the audit team to safeguard against the
self-review threat to independence.
The ARCC obtained assurance from the External Auditor that
internal governance processes within KPMG Audit LLC
support and demonstrate its claim of independence. This
Key accounting matter
Loan impairment – wholesale funding and individual finance
agreements
The entity is required by the financial reporting framework to
calculate impairment using the expected credit loss model.
Impairment is measured on an instrument-by-instrument basis
except where instruments are grouped, for impairment to be
measured on a collective basis under the expected credit loss
model.
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.
The effect of these matters is that, as part of the External
Auditor’s risk assessment, they determined that the impairment
provision has a high degree of estimation uncertainty, with a
potential range of reasonable outcomes greater than their
materiality for the financial statements as a whole, and possibly
many times that amount.
Impairment of goodwill and intangible assets
Goodwill and intangible assets are significant and the estimated
recoverable amount of these balances is subjective due to the
inherent uncertainty involved in forecasting and discounting
future cash flows for the goodwill impairment test and in
performing a review for indicators of impairment for intangible
assets.
The effect of these matters is that, as part of the External
Auditor’s risk assessment, they have determined that the value
in use of goodwill has a high degree of estimation uncertainty,
with a potential range of reasonable outcomes greater than their
materiality for the financial statements as a whole.
assurance was provided through the receipt of an ISA (UK)
260 letter.
The ARCC is satisfied with the independence of KPMG Audit
LLC and
is recommending that KPMG Audit LLC be
reappointed as the Group’s auditor at the 2023 Annual
General Meeting.
Key accounting matters
The ARCC considered key accounting matters in relation to
the Group’s financial statements and disclosures. The primary
areas in relation to 2022 and how they were addressed are
detailed below:
ARCC response
The ARCC satisfied itself that the internal control environment
and control activities are appropriately designed and
implemented. This was supported by review of Internal and
External Audit reports and findings.
the
The ARCC reviewed reports
continued implementation of IFRS 9 and key changes to internal
processes and controls. The ARCC reviewed
the key
assumptions used by management such as Loss Given Default,
Loss Rates, Probability of Default on a quarterly basis.
from management on
The ARCC satisfied itself that the internal control environment
and control activities are appropriately designed and
implemented. This was supported by review of Internal and
External Audit reports and findings.
The ARCC reviewed management’s assessment of Goodwill
and Intangible Asset impairment and concluded that the
recoverable amount is appropriate after the impairment of EAL
Goodwill (See note 34).
Page | 23
RISK AND GOVERNANCE
AUDIT, RISK AND COMPLIANCE COMMITTEE
ARCC response
The ARCC is satisfied that the going concern assessment over
the Group provides sufficient assurance over the recoverability
of the Company’s subordinated loans and investment in
subsidiaries.
Key accounting matter
Carrying value of Company’s subordinated
investment in subsidiaries
The carrying value of the Company’s subordinated loans to and
investment in subsidiaries represents 94% (2021: 97%) of the
Parent Company’s total assets.
loans and
The assessment of carrying value is not at a high risk of
significant misstatement or subject to significant judgement as
the carrying value is supported by the audited net asset value
of the subsidiaries.
However, due to its materiality in the context of the MFG
financial statements, the External Auditor considered this to be
the area that had the greatest effect on their audit of the
Company.
The ARCC has complied with and discharged its responsibilities as set out in its Terms of Reference.
Alan Clarke
Chairman
20 March 2023
Page | 24
RISK AND GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
Dear Shareholders
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the year ended 31 December 2022.
Membership
Members of the Remuneration Committee (“REMCO”) are
appointed by the Board, on the recommendation of the
Nomination Committee in consultation with the Chairman of
the Committee. The Committee shall be made up of at least 2
members. All members of the Committee shall be Non-
executive Directors. The Chairman of the Board shall not be a
member of the Committee.
Appointments to the Committee shall be for a period of up to
3-years, which may be extended by the Board for a further
3-year period (or, in exceptional circumstances, two further
3-year periods), provided the Director remains independent.
The Board may approve annual extensions to any Director
who has served 3 consecutive terms.
The Board shall appoint the Chairman of the Committee who
shall be a Non-executive Director. In the absence of the
Chairman of the Committee and / or an appointed deputy, the
remaining members present shall elect one of themselves to
chair the meeting.
The Committee shall meet at least twice a year and at such
other times as the Chairman of the Committee shall require.
the Group is able to attract, develop and retain high-
performing and motivated employees in the competitive
local IOM 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 the Group’s culture and values; and
there is full transparency of the Group’s Remuneration
Policy.
In line with the Board’s approach, which reflects that adopted
within other comparable organisations,
the Group’s
Remuneration Policy provides for the reward of Executive
Directors through salaries and other benefits.
Executive Directors’ Emoluments
The remuneration for Executive Directors reflects their
responsibilities.
It comprises basic salary, performance
related bonus when this is considered appropriate, and
various benefits detailed below.
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.
Number of
meetings
attended
18/18
5/5
13/13
The Group operates a non-contractual discretionary annual
performance related pay scheme based on the trading
performance of the Group and the individual employee’s
performance assessed for the period under review in a
manner which promotes sound risk management and does not
promote excessive risk taking.
Membership
Appointed
Alan Clarke (Chairman) 13 February 2009
David Gibson*
Greg Jones
12 December 2010
25 May 2022
*David Gibson retired on 25 May 2022
Only members of the Committee have the right to attend
Committee meetings. However, other individuals may be
invited by the Chairman of the Committee to attend all or part
of any meeting as and when appropriate.
Areas of focus for 2022
During the year, the Committee considered the following:
Reviewed the overall pay of Executive Directors;
Reviewed
the non-contractual discretionary annual
performance related pay scheme for Group staff;
Reviewed and approved the provision of RSUs to Group
staff;
Reviewed and approved all new Group staff appointments
where gross basic salary exceeded £75,000 (increased
from £50,000 in May 2022); and
Reviewed and approved all changes to terms and
conditions of staff where gross basic salary exceeded
£75,000 (increased from £50,000 in May 2022).
Remuneration policy
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 non-contractual discretionary annual performance related
pay scheme may be paid in one year but that does not confer
any entitlement in future years.
Performance assessments are conducted annually
to
the performance rating of each employee’s
determine
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 RSUs and / or
options. An element of deferment to align the interests of the
employee to the longer term performance of the Group may
also be included.
EAL’s Financial Advisors are salaried and commission is
calculated on a pre-agreed percentage over target which is
typically set at between 2 to 3 times annual gross salary
depending on the size of the Financial 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
indemnified
commission is paid and the underlying client policy lapses and
the commission is clawed back then this is reviewed by an
requirements. Where
Page | 25
RISK AND GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
Executive Director in order to monitor trends and is then
clawed back from the relevant Financial Advisor.
Where
the Group operates contractually guaranteed
performance related pay, the contractual conditions must be
approved by the REMCO.
Executive Directors’ contractual terms
In keeping with current recommended practice, the standard
term 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 from a group of
comparable financial organisations.
Directors’ emoluments
Remuneration
/ Fees
£
Performance
Related Pay
£
Executives
Jim Mellon
Denham Eke
Douglas Grant
James Smeed
Non-executives
Gregory Bailey
Alan Clarke
David Gibson ^
Gregory Jones
John Spellman
Aggregate
emoluments
50,000
60,000
252,175
154,375
516,550
25,000
45,000
35,417
25,000
76,675
207,092
-
-
50,000
18,000
68,000
-
-
-
-
-
-
The procedure for determining Director remuneration
The REMCO, comprising two Non-executive Directors, is
responsible for setting the remuneration of the Executive
Directors. Committee members do not take part in discussions
concerning their own remuneration. The basic Non-executive
Director fee is set by the Group Chairman and CEO. The
Chairman of the Committee reports at the Board meeting
following a committee meeting.
Implementation report
It is the view of the Committee that Directors’ remuneration
awarded across the Group for the year has been in
accordance with the Group’s stated Remuneration Policy and,
on behalf of the Committee I recommend that you endorse this
Group report. An analysis of Directors’ emoluments is as
follows:
Pension
£
-
-
25,218
15,438
40,656
-
-
-
-
-
-
2022
Total
£
50,000
60,000
327,393
187,813
625,206
25,000
45,000
35,417
25,000
76,675
207,092
2021
Total
£
50,000
50,000
281,378
143,992
525,370
-
45,000
85,000
5,949
40,000
175,949
723,642
68,000
40,656
832,298
701,319
^ David Gibson retired from the Board on 25 May 2022.
Approval
This report was approved by the Board of Directors on 20 March 2023 and signed on its behalf by:
Alan Clarke
Chairman of the Remuneration Committee
20 March 2023
Page | 26
RISK AND GOVERNANCE
DIRECTORS’ REPORT
The Directors present their annual report and the audited
financial statements for the year ended 31 December 2022.
Principal regulated activities
The principal activities of the Group are the provision of asset
and personal finance, investing activities, foreign exchange
brokerage services and wealth management.
Investors Services
Interactive
Nominees Limited
Rock (Nominees) Limited
Chase Nominees Limited
Number
4,216,456
4,198,716
3,483,526
% of
issued capital
3.66
3.65
3.03
The Bank, a wholly owned subsidiary of the Company, holds a
Class 1(1) deposit taking licence issued under Part 2 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.
The Bank and CFL are authorised by the FCA to conduct
brokerage services.
EAL is authorised by the FSA 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 Group profit before tax for the year was £5,211,000 (2021:
£3,043,000).
On 25 May 2022, MFG declared a dividend of £279,200 (2021:
£196,800) which could either be taken up in cash or new
ordinary shares. 781,349 new shares (2021: 161,562 new
shares) were admitted to the Alternative Investment Market
(“AIM”) at 8.0205 pence per share (2021: 7.0575 pence per
share), at a total cost of £62,000 (2021: £12,000).
The proposed transfers to and from reserves are as set out in
the Statement of Changes in Equity on page 41.
Going Concern
The Group has recognised a profit for the year after taxation of
£4,674,000 (2021: £2,809,000). As at the year ended 31
December 2022, the Bank had a total capital ratio of 15.3%
(2021: 19.1%) which exceeded the regulatory minimum
requirement of 14.0% (2021: 14.0%). Based on these factors,
management has a reasonable expectation that the Group has
and will continue to have adequate resources to continue in
operational existence for the foreseeable future.
Accordingly, the Directors continue to adopt the going concern
basis in preparing the financial statements.
Share capital
The authorised and issued share capital of the Company are set
out in note 29 to the financial statements.
Significant shareholdings
The number of shares held and the percentage of the issued
shares which that number represented as of 17 March 2023 are:
Directors and Directors’ share interests
The number of shares held by the current Directors is as follows:
Jim Mellon2
Gregory Bailey
Douglas Grant
Alan Clarke
Number
17/03/23
21,669,314
17,957,290
533,951
55,048
Number
31/12/22
21,669,314
17,957,290
533,951
55,048
Number
31/12/21
21,522,650
17,835,750
518,177
53,422
1 Lynchwood Nominees Limited holds 17,039,623 Ordinary
Shares in trust for Aeternitas Imperium Privatstiftung.
2 Burnbrae Limited holds 19,341,332 Ordinary Shares. Burnbrae
Limited is 100% beneficially owned by Jim Mellon. Denham
Eke, Executive Vice-Chairman of MFG is also a director of
Burnbrae Limited. Vidacos Nominees Limited also holds
2,327,982 Ordinary Shares in trust for Jim Mellon.
3 Vidacos Nominees Limited holds 4,966,000 Ordinary Shares in
trust for Zeno Capital Limited.
4 Vidacos Nominees Limited holds 17,957,290 Ordinary Shares
in trust for Gregory Bailey.
The number of share options / RSUs held by the current
Directors is as follows:
Douglas Grant
James Smeed
Number
17/03/22
1,775,000
175,000
Number
31/12/22
1,775,000
175,000
Number
31/12/21
700,000
-
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 22 and 23 respectively to the financial
statements.
Staff
At 31 December 2022, there were 168 members of staff (2021:
132), of whom 13 were part-time (2021: 12).
Investment in subsidiaries
Investments in the Company’s subsidiaries are disclosed in
note 31 to the financial statements.
Number
% of
issued capital
Auditor
KPMG Audit LLC, being eligible, has expressed its willingness
to continue in office.
Lynchwood Nominees Limited1
Jim Mellon2
Gregory Bailey4
Vidacos Nominees Limited3
Island Farms Limited
23,374,816
21,669,314
17,957,290
6,507,771
4,350,856
20.31
18.83
15.61
5.66
3.78
On behalf of the Board
J Mellon
Executive Chairman
20 March 2023
Page | 27
ANNUAL FINANCIAL STATEMENTS
CONTENTS
Page
Page
Notes to the consolidated and company financial statements
Assurance
Statement of Directors’ Responsibilities
Independent Auditor’s Report
Consolidated and company financial statements
Consolidated Statement of Profit or Loss and Other
Comprehensive Income
Company Statement of Profit or Loss and Other
Comprehensive Income
Consolidated Statement of Financial Position
Company Statement of Financial Position
Consolidated and Company Statement of Changes
in Equity
Consolidated Statement of Cash Flows
Company Statement of Cash Flows
29
30
36
38
39
40
41
42
43
Basis of preparation
1.
2.
3.
4.
Reporting entity
Basis of accounting
Functional and presentation currency
Use of judgements and estimates
Financial risk review and fair value
5. Financial instruments – Classification
6.
7.
Financial instruments – Fair values
Financial risk review
Operating segments
Net interest income
Net fee and commission income
Personnel expenses
Performance for the year
8.
9.
10.
11.
12. Other expenses
Impairment on
13.
customers
loans and advances
to
14. Profit before tax payable
15.
Income tax expense
16. Earnings per share
Assets
17. Cash and cash equivalents
18. Debt securities
19. Financial assets
20.
21. Trade and other receivables
22. Property, plant and equipment and right-of-
Loans and advances to customers
use assets
Intangible assets
23.
Liabilities and equity
24. Deposits from customers
25. Creditors and accrued charges
26. Deferred consideration
Loan notes
27.
28. Pension liability
29. Called up share capital
Group composition
List of associates
30.
31. List of subsidiaries
32. Subsidiaries and non-controlling interests
33. Acquisition of financial instrument
34. Goodwill
35.
Investment in Group undertakings
Other information
Leases
36. Related parties transactions
37.
38. Regulators
39. Contingent liabilities
40. Non-IFRS measures
41. Subsequent events
42. Financial risk management
Accounting policies
43. Basis of measurement
44. Significant accounting policies
44
44
44
44
44
46
48
54
55
55
55
56
56
56
56
57
58
58
58
58
60
60
61
61
61
61
62
62
65
67
67
67
70
70
71
71
72
73
73
73
73
74
76
77
Page | 28
ANNUAL FINANCIAL STATEMENTS
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
responsible
The Directors are
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
in
accordance with UK-adopted
international accounting
standards (“UK-adopted IFRS” or “IFRSs”) 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.
international accounting standards
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
the
Directors are required to:
financial statements,
select suitable accounting policies and then apply them
consistently;
make judgements and estimates that are reasonable,
relevant and relevant;
state whether they have been prepared in accordance
with IFRSs;
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.
Page | 29
ANNUAL FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT, TO THE MEMBERS OF MANX FINANCIAL
GROUP PLC
Our opinion is unmodified
We have audited the Consolidated Financial Statements of Manx Financial Group PLC (the “Company”) and its subsidiaries (together,
the "Group"), which comprise the Consolidated and Parent Company Statements of Financial Position as at 31 December 2022, the
Consolidated and Parent Company Statements of Profit or Loss and Other Comprehensive Income, Changes in Equity and Cash Flows
for the year then ended, and notes, comprising significant accounting policies and other explanatory information.
In our opinion, the accompanying consolidated and parent company financial statements:
give a true and fair view of the financial position of the Company and Group as at 31 December 2022, and of the Company and
Group’s financial performance and cash flows for the year then ended;
have been properly prepared in accordance with International Financial Reporting Standards; and
have been properly prepared in accordance with the requirements of the Isle of Man Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Company and Group
in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed entities. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis for our opinion.
Key audit matters: our assessment of the risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the consolidated and
parent company 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 consolidated and
parent company 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 were as follows (unchanged from 2021).
and
advances
Key audit matter
Loans
customers – wholesale funding
Loans
to
customers £79,116,000 (2021:
£33,587,000)
advances
and
to
Impairment Provision £nil (2021:
£nil)
Expense for the year £nil (2021:
£365,000)
Refer to page 23 the Audit, Risk
and Compliance Committee
(“ARCC”) Report, note 4 (Use of
Judgements and Estimates -
Assumptions and Estimation
Uncertainties), note 7(A) (Credit
Risk), note 13 (Impairment on
to
Loans
Customers), note 20 (Loans and
Advances to Customers), note
42
Risk
Management – Credit risk) and
(Accounting
note
Policy
of
for
Financial Instruments).
and Advances
Impairment
(Financial
44(G)(vii)
(B)
to calculate
The risk
Basis:
The entity is required by the financial reporting
framework
the
expected credit loss model. Impairment is measured
on an instrument by instrument basis except where
instruments are grouped, for impairment to be
measured on a collective basis under the expected
credit loss model.
impairment using
Wholesale Funding comprises Block Finance,
Wholesale Funding Agreements and Stocking Plans.
These books comprise individually significant loan
balances and are in the nature of a secured business
loan. The security is principally an underlying pool of
loans.
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.
Risk:
Estimates, by their nature, give rise to a higher risk
of material misstatement due to error or fraud.
The effect of these matters is that, as part of our risk
assessment, we determined that the impairment
provision has a high degree of estimation
uncertainty, including increased uncertainty from the
residual economic impacts of COVID19 as well as
the financially volatile environment caused by rising
inflation and interest rate pressure with a potential
range of reasonable outcomes greater than our
materiality for the financial statements as a whole,
and possibly many times that amount.
Our response
Our audit procedures included:
Internal Controls:
Understanding the design and implementation of
controls in respect of the origination of wholesale
funding loans, including borrower due diligence.
Understanding the design and implementation of
controls in respect of the Group’s loan impairment
process such as the timely recognition of impairment
provisions,
the completeness and accuracy of
reports used in the loan impairment process and
management review processes over the calculation
of collective and specific provisions.
Test of details:
We agreed the specific provisions included in the
financial statements
to Group’s provisioning
schedule and vouched that this schedule was
correctly extracted from the loans and advances
system, including the arrears information.
We tested all specific provisions. This included
challenging Group’s assessment of the specific
provision, taking account of such factors as: amount
of arrears; compliance with covenant requirements,
financial standing of the business – by inspecting
latest available accounts and status of underlying
security – by
inspecting a sample of security
documentation.
Use of KPMG Specialists:
We involved KPMG specialists to examine the
methodology of the Group’s expected credit loss
model and its compliance with requirements of
accounting standards.
Historical comparison:
We challenged
in collective
the
impairment models by comparison to default and
inputs used
Page | 30
ANNUAL FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT, TO THE MEMBERS OF MANX FINANCIAL
GROUP PLC
Key audit matter
The risk
and
advances
to
Loans
customers – individual finance
agreements
Loans
and
customers £212,359,000
(2021: £195,664,000)
advances
to
Impairment provision
£14,223,000
(2021: £8,719,000)
Expense for the year £3,992,000
(2021: £4,360,000)
Refer to page 23 of the ARCC
Report, note 4
(Use of
Judgements and Estimates -
Assumptions and Estimation
Uncertainties), note 7(A) (Credit
Risk), note 13 (Impairment on
Loans
to
Customers), note 20 (Loans and
Advances to Customers), note
42
Risk
Management – Credit risk) and
(Accounting
note
of
for
Policy
Financial Instruments).
and Advances
Impairment
(Financial
44(G)(vii)
(B)
to calculate
Basis:
The entity is required by the financial reporting
framework
the
expected credit loss model. Impairment is measured
on an instrument by instrument basis except where
instruments are grouped, for impairment to be
measured on a collective basis under the expected
credit loss model.
impairment using
Individual finance agreements include hire purchase
finance leases and unsecured loans to individuals
and companies. Any security is typically the specific
assets financed.
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.
Risk:
Estimates, by their nature, give rise to a higher risk
of material misstatement due to error or fraud.
The effect of these matters is that, as part of our risk
assessment, we determined that the impairment
provision has a high degree of estimation
uncertainty, including increased uncertainty from the
residual economic impacts of COVID19 as well as
the financially volatile environment financially volatile
environment caused by rising inflation and interest
rate pressure with a potential range of reasonable
the
outcomes greater
financial statements as a whole, and possibly many
times that amount.
than our materiality for
Impairment of goodwill and
intangible assets
Goodwill
£10,576,000 (2021: £6,320,000)
and Intangibles Assets
£2,703,000 (2021: £2,508,000).
Basis
Goodwill and intangible assets are significant and
the estimated recoverable amount of these balances
is subjective due to the inherent uncertainty involved
in forecasting and discounting future cash flows for
the goodwill impairment test and in performing a
Our response
recovery experience across each of the loan finance
categories.
Assessing disclosures:
Assessing the adequacy of the Group’s disclosures
about the degree of estimation uncertainty involved
at arriving at the provisions in accordance with the
relevant financial reporting framework and specific
circumstances of the Group.
Our audit procedures included:
Internal Controls:
Understanding the design and implementation of
controls in respect of the origination of individual
finance loans, including borrower due diligence.
Understanding the design and implementation of
controls in respect of the Group’s loan impairment
process such as the timely recognition of impairment
the completeness and accuracy of
provisions,
reports used in the loan impairment process and
management review processes over the calculation
of collective and specific provisions.
Use of KPMG Specialists:
We involved KPMG specialists to examine the
methodology of the Group’s expected credit loss
model and its compliance with the requirements of
accounting standards.
Challenging management assumptions and inputs:
We agreed the specific provisions included in the
financial statements to management’s provisioning
schedule and vouched that this schedule was
correctly extracted from the loans and advances
system, including the arrears information.
those against
loans. This
We tested a sample of specific provisions, weighted
individually significant
towards
impaired
challenging
included
management’s assessment of the specific provision,
taking into account such factors as: the number of
repayments in arrears; the known whereabouts of
the hirer / lessee and of the assets under finance;
and the amounts received under agreed repayment
plans, where scheduled repayments under the
original agreement are no longer being met.
Historical comparison:
We challenged
in collective
the
impairment models by comparison to default and
recovery experience across each of the loan finance
categories.
inputs used
Assessing disclosures:
Assessing the adequacy of the Group’s disclosures
about the degree of estimation uncertainty involved
at arriving at the provisions in accordance with the
relevant financial reporting framework and specific
circumstances of the Group.
Our audit procedures included:
Internal Controls:
Understanding the controls in respect of the Group’s
goodwill and intangibles assets impairment review
process such as the timely recognition of impairment
Page | 31
ANNUAL FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT, TO THE MEMBERS OF MANX FINANCIAL
GROUP PLC
Key audit matter
Impairment
£200,000 (2021: £nil)
loss on Goodwill
The risk
review for indicators of impairment for intangible
assets.
Our response
provisions and the completeness and accuracy of
reports used in the impairment review process.
note
Refer to page 23 of the ARCC
Report, note 4
(Use of
Judgements and Estimates -
Assumptions and Estimation
Uncertainties),
23
(Intangible Assets), note 35
(Investment
Group
Undertakings), 44(A) (Basis for
Consolidation of Subsidiaries
Financial
and
the Parent
Statements of
Company),
44(K)
(Intangible Assets and Goodwill)
and note 44(L) (Impairment of
Non-Financial Assets).
Separate
note
in
of
Recoverability
Parent
Company’s subordinated loans
to
in
subsidiaries
investment
and
Investment in subsidiaries
£23,597,000
(2021: £22,597,000)
Loans and amounts due from
Group undertakings
£17,635,000
(2021: £13,832,000).
Refer to page 24 of the ARCC
report, note 35 (Investment in
Group Undertakings) and note
44(A)(vi)
(Separate Financial
Statements of the Company).
Goodwill and intangible assets have arisen on the
Group’s acquisition of businesses including lenders,
independent financial advisers and finance brokers,
each of which is identified by the Group as a Cash
Generating Unit.
Risk:
The effect of these matters is that, as part of our risk
assessment, we determined that the value in use of
the Cash Generating Units containing goodwill and /
or intangible assets has a high degree of estimation
uncertainty, including increased uncertainty from the
residual economic impacts of COVID19 as well as
the financially volatile environment caused by rising
inflation and interest rate pressure with a potential
range of reasonable outcomes greater than our
materiality for the financial statements as a whole.
The financial statements (note 34) disclose the
sensitivity estimated by the Group.
Basis:
The carrying value of
the Parent Company’s
investment in subsidiaries and loans and amounts
due from Group undertakings represents 94% (2021:
97%) of the Parent Company’s total assets.
Risk:
The assessment of carrying value is not at a high risk
of significant misstatement or subject to significant
judgement as the carrying value is supported by the
audited net asset value of the subsidiaries. However,
due to its materiality in the context of the Parent
Company financial statements, this is considered to
be the area that had the greatest effect on our overall
Parent Company audit.
Evaluating experts engaged by management:
We have evaluated the competence, capabilities and
objectivity of the management’s expert; obtained an
understanding of the work of that expert and
evaluated the appropriateness of that expert’s work
as audit evidence for the recognition of goodwill and
intangible assets acquired.
Use of KPMG Specialists:
We involved our own valuation specialists who have
tested reasonableness of
in
particular those relating to each cash generating
unit’s
forecast revenue growth, profit margins,
discount rate and the valuation method used.
the assumptions
Benchmarking assumptions:
Comparing the Group’s assumptions to externally
derived data in relation to key inputs such as
projected economic growth, competition and cost
inflation.
Indicators of impairment for intangible assets:
Analysing latest financial data for the business
related to the relevant goodwill and intangible asset
to assess whether there are any indicators of
impairment, such as losses being made or a
downturn in sales.
Sensitivity analysis:
Performing headroom analysis on the assumptions
noted above.
Assessing disclosures:
Assessing the adequacy of the Group’s disclosures
about
the
the sensitivity of
impairment assessment
in key
assumptions reflected in the risks inherent in the
valuation of goodwill and intangible assets.
Our audit procedures included:
the outcome of
to changes
the
relevant
Tests of detail:
Comparing the carrying amount of 100% of the
Parent Company’s investments in subsidiaries and
loans and amounts due from Group undertakings
with
subsidiaries’ and Group
undertaking’s audited statement of financial position
to identify whether their financial position supported
the carrying amount of the Parent Company’s
investments in those subsidiaries and loans and
amounts due from Group undertakings, assessing
whether those subsidiaries and Group undertakings
have historically been profit-making and evaluating
budgeted forecasts in line with our knowledge of the
respective subsidiaries and the current economic
conditions in which those subsidiaries operate.
Our application of materiality and an overview of the scope of our audit
Materiality for the consolidated financial statements as a whole was set at £206,000 (2021: £120,000), determined with reference to a
benchmark of Group profit before tax (forecasted) of £4,120,000 (2021: £2,400,000), of which it represents approximately 5.0% (2021:
5.0%).
Page | 32
ANNUAL FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT, TO THE MEMBERS OF MANX FINANCIAL
GROUP PLC
Our application of materiality and an overview of the scope of our audit (continued)
Materiality for the Parent Company financial statements as a whole was set at £123,000 (2021: £120,000), determined with reference
to a benchmark of Parent Company total assets, but reduced to align with materiality for the Group financial statements.
In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold,
performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account
balances add up to a material amount across the consolidated financial statements as a whole. Performance materiality for the Group
was set at 75% (2021: 75%) of materiality for the financial statements as a whole, which equates to £154,000 (2021: £90,000) for the
Group and £92,000 (2021: £54,000) for the Company. We applied this percentage in our determination of performance materiality
because we did not identify any factors indicating an elevated level of risk.
We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding £10,000 (2021: £6,000) for the
Group and £6,150 (2021: 6,000) for the Company, in addition to other identified misstatements that warranted reporting on qualitative
grounds.. Our audit of the Group was undertaken to the materiality level specified above, which has informed our identification of
significant risks of material misstatement and the associated audit procedures performed in those areas as detailed above.
The Group audit team audits all components of the group except Ninkasi Rentals & Finance Limited (“NRFL”) which represents 2.0%
(2021: 2.0%) of the Group’s total assets. Group reporting is received for NRFL, subject to a materiality level set by the Group audit team.
Detailed audit instructions were sent to the auditor of NRFL. These instructions covered the significant audit areas that should be covered
by this audit (which included the relevant risks of material misstatement detailed above) and set out the information required to be
reported to the group audit team.
Going concern
The Directors have prepared the consolidated and company financial statements on the going concern basis as they do not intend to
liquidate the Group or the Company or to cease their operations, and as they have concluded that the Group and the Company's financial
position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant
doubt over their ability to continue as a going concern for at least a year from the date of approval of the consolidated financial statements
(the “going concern period").
In our evaluation of the Directors' conclusions, we considered the inherent risks to the Group and the Company's business model and
analysed how those risks might affect the Group and the Company's financial resources or ability to continue operations over the going
concern period. The risks that we considered most likely to affect the Group and the Company's financial resources or ability to continue
operations over this period were the recoverability of financial assets subject to credit risk as a result of economic downturn due to the
residual impacts of COVID19 and the financially volatile environment caused by increased inflation and interest rates pressure.
We considered whether this risk could plausibly affect the liquidity in the going concern period by comparing severe, but plausible
downside scenarios that could arise from this risk against the level of available financial resources indicated by the Group’s financial
forecasts.
We considered whether the going concern disclosure in the Directors’ Report gives a full and accurate description of the Directors'
assessment of going concern.
Our conclusions based on this work:
we consider that the Directors' use of the going concern basis of accounting in the preparation of the consolidated and company
financial statements is appropriate;
we have not identified, and concur with the Directors' assessment that there is not, a material uncertainty related to events or
conditions that, individually or collectively, may cast significant doubt on the Group and the Company's ability to continue as a
going concern for the going concern period; and
we found the going concern disclosure in the notes to the consolidated financial statements to be acceptable.
However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent
with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group and the
Company will continue in operation.
Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive
or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included:
enquiring of management as to the Group’s policies and procedures to prevent and detect fraud as well as enquiring whether
management have knowledge of any actual, suspected or alleged fraud;
reading minutes of meetings of those charged with governance; and
using analytical procedures to identify any unusual or unexpected relationships.
Page | 33
ANNUAL FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT, TO THE MEMBERS OF MANX FINANCIAL
GROUP PLC
Fraud and breaches of laws and regulations – ability to detect (continued)
As required by auditing standards, we perform procedures to address the risk of management override of controls, in particular the risk
that management may be in a position to make inappropriate accounting entries. On this audit we do not believe there is a fraud risk
related to revenue recognition because the Group’s revenue streams are simple in nature with respect to accounting policy choice, and
are easily verifiable to external data sources or agreements with little or no requirement for estimation from management. We did not
identify any additional fraud risks.
We performed procedures including:
identifying journal entries and other adjustments to test based on risk criteria and comparing any identified entries to supporting
documentation; and
incorporating an element of unpredictability in our audit procedures.
Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the consolidated financial
statements from our sector experience and through discussion with management (as required by auditing standards), and from
inspection of the Group’s regulatory and legal correspondence, if any, and discussed with management the policies and procedures
regarding compliance with laws and regulations. As the Group is regulated, our assessment of risks involved gaining an understanding
of the control environment including the entity’s procedures for complying with regulatory requirements.
The Group is subject to laws and regulations that directly affect the consolidated financial statements including financial reporting
legislation and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures
on the related financial statement items.
The Group is subject to other laws and regulations where the consequences of non-compliance could have a material effect on amounts
or disclosures in the consolidated financial statements, for instance through the imposition of fines or litigation or impacts on the Group
and the Company’s ability to operate. We identified financial services regulation as being the area most likely to have such an effect,
recognising the regulated nature of the Group’s activities and its legal form. Auditing standards limit the required audit procedures to
identify non-compliance with these laws and regulations to enquiry of management and inspection of regulatory and legal
correspondence, if any. Therefore, if a breach of operational regulations is not disclosed to us or evident from relevant correspondence,
an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements
in the consolidated financial statements, even though we have properly planned and performed our audit in accordance with auditing
standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in
the consolidated financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.
In addition, as with any audit, there remains a higher risk of non-detection of fraud, as this may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement.
We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and
regulations.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the annual report
but does not include the consolidated financial statements and our auditor's report thereon. Our opinion on the consolidated financial
statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained
in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
We have nothing to report on other matters on which we are required to report by exception.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out on page 29, the Directors are responsible for: the preparation of the consolidated
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 consolidated financial statements that are free from material misstatement, whether due to fraud or error;
assessing the Group and 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 Company or to cease operations,
or have no realistic alternative but to do so.
Page | 34
ANNUAL FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT, TO THE MEMBERS OF MANX FINANCIAL
GROUP PLC
Respective responsibilities (continued)
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the consolidated 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 consolidated financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
The purpose of this report and restrictions on its use by persons other than the Company's members, as a body
This report is made solely to the Company’s members, as a body, in accordance with section 80(C) of the 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
IM1 1LA
20 March 2023
Page | 35
ANNUAL FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
For the year ended 31 December
Notes
Interest revenue calculated using the effective interest rate method
Other interest income
Interest expense
Net interest income
Fee and commission income
Fee and commission expense
Depreciation on leasing assets
Net trading income
Other operating income
(Loss) / gain on financial instruments
Realised gain / (loss) on debt securities
Revaluation on acquisition of subsidiary
Operating income
Personnel expenses
Other expenses
Provision for impairment on loans and advances to customers
Depreciation
Amortisation and impairment of intangibles
Share of profit of equity accounted investees, net of tax
VAT recovery
Profit before tax payable
Income tax expense
Profit for the year
9
10
10
22
19
18
32
11
12
13
22
23
30
21
14
15
2022
£000
28,978
1,765
(6,391)
2021
£000
21,010
1,937
(4,967)
24,352
17,980
4,719
(3,569)
(16)
4,621
(3,339)
(269)
25,486
18,993
314
(19)
292
-
365
30
(1)
660
26,073
20,047
(9,764)
(5,806)
(3,990)
(738)
(582)
18
-
5,211
(537)
4,674
(7,156)
(4,500)
(4,360)
(675)
(458)
32
113
3,043
(234)
2,809
Page | 36
ANNUAL FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME (CONTINUED)
For the year ended 31 December
Notes
Profit for the year
Other comprehensive income:
Items that will be reclassified to profit or loss
Unrealised gain / (loss) on debt securities
Items that will never be reclassified to profit or loss
Revaluation gain on property, plant and equipment
Actuarial gain on defined benefit pension scheme taken to equity
Recognition of deferred tax credit on defined benefit pension
Total comprehensive income for the period attributable to owners
Profit attributable to:
Owners of the Company
Non-controlling interests
Total comprehensive income attributable to:
Owners of the Company
Non-controlling interests
Earnings per share – Profit for the year
Basic earnings per share (pence)
Diluted earnings per share (pence)
Earnings per share – Total comprehensive income for the year
Basic earnings per share (pence)
Diluted earnings per share (pence)
The notes on pages 44 to 88 form part of these financial statements.
The Directors believe that all results derive from continuing activities.
18
22
28
32
32
16
16
16
16
2022
£000
4,674
131
-
407
-
2021
£000
2,809
(18)
15
172
67
5,212
3,045
4,331
343
4,674
4,869
343
5,212
4.07
3.15
4.54
3.50
2,793
16
2,809
3,029
16
3,045
2.46
1.97
2.66
2.13
Page | 37
ANNUAL FINANCIAL STATEMENTS
COMPANY STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
For the year ended 31 December
Notes
Dividend income
Interest income
Other income
Operating income
Personnel expenses
Administration expenses
Depreciation expense
Amortisation expense
Impairment of intercompany receivable
Profit before tax payable
Tax payable
Profit for the year
Total comprehensive income for the year
The notes on pages 44 to 88 form part of these financial statements.
The Directors believe that all results derive from continuing activities.
11
22
2022
£000
1,575
522
69
2,166
(127)
-
(65)
(2)
-
1,972
-
1,972
1,972
2021
£000
1,259
518
78
1,855
(129)
(59)
(91)
(2)
(545)
1,029
-
1,029
1,029
Page | 38
ANNUAL FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December
Assets
Cash and cash equivalents
Debt securities
Equity held at Fair Value Through Profit or Loss
Loans and advances to customers
Trade and other receivables
Property, plant and equipment
Intangible assets
Investment in associates
Goodwill
Total assets
Liabilities
Deposits from customers
Creditors and accrued charges
Deferred consideration
Loan notes
Pension liability
Deferred tax liability
Total liabilities
Equity
Called up share capital
Profit and loss account
Revaluation reserve
Non-controlling interest
Total equity
Total liabilities and equity
Notes
2022
£000
2021
£000
17
18
33
20
21
22
23
30
34
22,630
40,675
122
291,475
4,211
6,714
2,703
155
10,576
20,279
40,987
68
229,251
1,947
7,257
2,508
136
6,320
24
25
26, 6(ii), 32
27
28
15
29
22
32
379,261
308,753
304,199
13,108
262
31,332
237
353
253,459
4,745
1,023
23,672
687
182
349,491
283,768
19,195
10,371
15
189
29,770
19,133
5,781
15
56
24,985
379,261
308,753
The financial statements were approved by the Board of Directors on 20 March 2023 and signed on its behalf by:
Jim Mellon
Executive Chairman
Denham Eke
Executive Vice-Chairman Chief Executive Officer
Douglas Grant
The notes on pages 44 to 88 form part of these financial statements.
Page | 39
ANNUAL FINANCIAL STATEMENTS
COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 December
Assets
Cash and cash equivalents
Trade and other receivables
Amounts due from Group undertakings
Property, plant and equipment
Intangible assets
Investment in subsidiaries
Subordinated loans
Total assets
Liabilities
Creditors and accrued charges
Amounts due to Group undertakings
Loan notes
Total liabilities
Equity
Called up share capital
Profit and loss account
Total equity
Total liabilities and equity
The notes on pages 44 to 88 form part of these financial statements.
Notes
17
21
35
22
31
35
25
35
27
29
2022
£000
1,761
562
9,907
201
25
23,597
7,728
43,781
440
122
31,332
31,894
19,195
(7,308)
11,887
43,781
2021
£000
430
472
6,104
263
20
22,597
7,728
37,614
501
3,309
23,672
27,482
19,133
(9,001)
10,132
37,614
Page | 40
ANNUAL FINANCIAL STATEMENTS
CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY
Attributable to owners of the Company
Group
Balance as at 1 January 2021
Profit for the year
Other comprehensive income
Transactions with owners
Dividends declared
Acquisition of subsidiary with non-
controlling interest
Share
capital
£000
19,121
-
-
12
-
Balance as at 31 December 2021
19,133
Profit for the year
Other comprehensive income
Transactions with owners
Dividend declared (see note 29)
Acquisition of subsidiary with non-
controlling interest
-
-
62
-
Profit
and loss
account
£000
3,230
2,793
221
(197)
(266)
5,781
4,331
538
(279)
-
Revaluation
reserve
£000
-
-
15
-
-
Total
£000
22,351
2,793
236
(185)
(266)
15
24,929
-
-
-
-
4,331
538
(217)
-
Non-
controlling
interests
£000
84
16
-
-
(44)
56
343
-
-
(210)
Total
equity
£000
22,435
2,809
236
(185)
(310)
24,985
4,674
538
(217)
(210)
Balance as at 31 December 2022
19,195
10,371
15
29,581
189
29,770
Company
Balance as at 1 January 2021
Profit for the year
Dividends declared (see note 29)
Balance as at 31 December 2021
Profit for the year
Transactions with owners
Dividend declared (see note 29)
Balance as at 31 December 2022
The notes on pages 44 to 88 form part of these financial statements.
Share
capital
£000
19,121
-
12
19,133
-
62
Profit and
loss
account
£000
(9,833)
1,029
(197)
(9,001)
1,972
(279)
Total
equity
£000
9,288
1,029
(185)
10,132
1,972
(217)
19,195
(7,308)
11,887
Page | 41
ANNUAL FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
Profit before tax
Adjustments for:
Depreciation
Amortisation of intangibles
Share of profit of equity accounted investees
Contingent consideration interest expense
Pension charge included in personnel expenses
Gain / (loss) on financial instruments
Revaluation on acquisition of subsidiary
Changes in:
Equity at FVTPL
Trade and other receivables
Creditors and accrued charges
Net cash flow from trading activities
Changes in:
Loans and advances to customers
Deposits from customers
Pension contribution
Cash (outflow) / inflow from operating activities
CASH FLOW STATEMENT
Cash from operating activities
Cash (outflow) / inflow from operating activities
Interest received
Interest paid
Income taxes paid
Net cash (used in) / from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment, excluding right-of-use assets
Purchase of intangible assets
Sale of property, plant and equipment
Acquisition of subsidiary or associate, net of cash acquired
Sale / (purchase) of debt securities
Deferred consideration on acquisition of subsidiary
Net cash used in investing activities
Cash flows from financing activities
Receipt of loan notes
Payment of lease liabilities (capital)
Dividend paid
Net cash from financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
The notes on pages 44 to 88 form part of these financial statements.
Notes
2022
£000
2021
£000
5,211
3,043
22
23
30
6(ii)
28
19
32
28
22
23
22
32
6(ii),26
27
37
29
754
582
(18)
102
14
19
-
6,664
-
(2,228)
1,436
5,872
(83,066)
50,740
(57)
(26,511)
(26,511)
30,136
(6,184)
(157)
(2,716)
(1,473)
(504)
2,083
(1,785)
442
(937)
(2,174)
7,660
(202)
(217)
7,241
2,351
20,279
22,630
944
458
(32)
114
13
(30)
(660)
3,850
4
223
(109)
3,968
(53,816)
35,174
(98)
(14,772)
(14,772)
22,624
(4,936)
(10)
2,906
(2,109)
(481)
961
(555)
(15,473)
(120)
(17,777)
1,450
(201)
(152)
1,097
(13,774)
34,053
20,279
Page | 42
ANNUAL FINANCIAL STATEMENTS
COMPANY STATEMENT OF CASH FLOWS
For the year ended 31 December
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
Notes
2022
£000
2021
£000
Profit before tax
Adjustments for:
Depreciation
Amortisation
Dividend income
Changes in:
Amounts due from group undertakings
Trade and other receivables
Creditors and accrued charges
Amounts due to Group undertakings
Cash outflow from operating activities
CASH FLOW STATEMENT
Cash from operating activities
Cash outflow from operating activities
Net cash used in operating activities
Cash flows from investing activities
Purchase of intangible assets
Net cash used in investing activities
Cash flows from financing activities
Receipt of loan notes
Payment of finance lease liability
Dividend paid
Net cash from financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
The notes on pages 44 to 88 form part of these financial statements.
22
27
1,972
1,029
63
2
(1,575)
462
(2,228)
(90)
100
(4,187)
(5,943)
91
2
(1,259)
(137)
(2,910)
(163)
66
1,012
(2,132)
(5,943)
(5,943)
(2,132)
(2,132)
(8)
(8)
7,660
(99)
(279)
7,282
1,331
430
1,761
(15)
(15)
1,450
(99)
(152)
1,199
(948)
1,378
430
Page | 43
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
1. Reporting entity
Manx Financial Group PLC (“Company”) is a company incorporated in the Isle of Man. The Company’s registered office is at
Clarendon House, Victoria Street, Douglas, Isle of Man, IM1 2LN. The consolidated financial statements of the Company for the year
ended 31 December 2022 comprise the Company and its subsidiaries (“Group”) including Conister Bank Limited (the “Bank”). The
Group is primarily involved in the provision of financial services.
2. Basis of accounting
The consolidated and the separate financial statements of the Company have been prepared in accordance with international
accounting standards in accordance with UK-adopted international accounting standards (“UK-adopted IFRS” or “IFRSs”), on a going
concern basis as disclosed in the Directors’ Report.
3. Functional and presentation currency
These financial statements are presented in pounds sterling, which is the Company’s functional currency. All amounts have been
rounded to the nearest thousand, unless otherwise indicated. All subsidiaries of the Group have pounds sterling as their functional
currency.
4. Use of judgements and estimates
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.
Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties at year-end that have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities in the next financial year is included in the following notes:
Note 23 and 34 – impairment test of intangible assets and goodwill: key assumptions underlying recoverable amounts;
Note 44(G)(vii) – measurement of Expected Credit Loss (“ECL”) allowance for loans and advances to customers and
assessment of impairment allowances where loans are in default or arrears: key assumptions in determining the weighted-
average loss rate; and
5. Financial instruments – Classification
For description of how the Group classifies financial assets and liabilities, see note 44(G)(ii).
The following table provides reconciliation between line items in the statement of financial position and categories of financial
instruments.
Group
31 December 2022
Cash and cash equivalents
Debt securities
Equity held at Fair Value Through
Profit or Loss
Loans and advances to customers
Trade and other receivables
Total financial assets
Deposits from customers
Creditor and accrued charges
Deferred consideration
Loan notes
Total financial liabilities
Mandatorily
at FVTPL
£000
Designated
as at FVTPL
£000
FVOCI –
debt
instruments
£000
FVOCI –
equity
instruments
£000
Amortised
cost
£000
-
-
-
-
-
-
-
-
-
-
-
-
-
122
-
-
122
-
-
262
-
262
-
40,675
-
-
-
40,675
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22,630
-
-
291,475
4,211
318,316
304,199
13,108
-
31,332
348,639
Total
carrying
amount
£000
22,630
40,675
122
291,475
4,211
359,113
304,199
13,108
262
31,332
348,901
Page | 44
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
5. Financial instruments – Classification (continued)
Group
31 December 2021
Cash and cash equivalents
Debt securities
Equity held at Fair Value Through
Profit or Loss
Loans and advances to customers
Trade and other receivables
Total financial assets
Deposits from customers
Creditor and accrued charges
Deferred consideration
Loan notes
Total financial liabilities
Company
31 December 2022
Cash and cash equivalents
Trade and other receivables
Amounts
from
undertakings
Subordinated loans
Total financial assets
due
Group
Creditor and accrued charges
Amounts due to Group undertakings
Loan notes
Total financial liabilities
Company
31 December 2021
Cash and cash equivalents
Trade and other receivables
from
Amounts
undertakings
Subordinated loans
Total financial assets
due
Group
Creditor and accrued charges
Amounts due to Group undertakings
Loan notes
Total financial liabilities
Mandatorily
at FVTPL
£000
Designated
as at FVTPL
£000
FVOCI –
debt
instruments
£000
FVOCI –
equity
instruments
£000
Amortised
cost
£000
-
-
-
-
-
-
-
-
-
-
-
-
-
68
-
-
68
-
-
-
-
-
-
-
-
-
-
-
-
-
1,023
-
1,023
-
40,987
-
-
-
40,987
-
-
-
-
-
20,279
-
-
229,251
1,947
251,477
253,459
4,745
-
23,672
Total carrying
amount
£000
20,279
40,987
68
229,251
1,947
292,532
253,459
4,745
1,023
23,672
281,876
282,899
Mandatorily
at FVTPL
£000
Designated
as at FVTPL
£000
FVOCI –
debt
instruments
£000
FVOCI –
equity
instruments
£000
Amortised
cost
£000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,761
562
9,907
7,728
19,958
440
122
31,332
31,894
Mandatorily
at FVTPL
£000
Designated
as at FVTPL
£000
FVOCI –
debt
instruments
£000
FVOCI –
equity
instruments
£000
Amortised
cost
£000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
430
472
6,104
7,728
14,734
501
3,309
23,672
27,482
Total
carrying
amount
£000
1,761
562
9,907
7,728
19,958
440
122
31,332
31,894
Total
carrying
amount
£000
430
472
6,104
7,728
14,734
501
3,309
23,672
27,482
Page | 45
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
6. Financial instruments – Fair values
For description of the Group’s fair value measurement accounting policy, see note 44(G)(vi).
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the
fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if
the carrying amount is a reasonable approximation of fair value.
31 December 2022
Financial assets measured at fair value
Debt securities
Equity held at Fair Value Through Profit or Loss
Financial assets not measured at fair value
Cash and cash equivalents
Loans and advances to customers
Trade and other receivables
Financial liabilities measured at fair value
Deferred consideration
Financial liabilities not measured at fair value
Deposits from customers
Creditors and accrued charges
Loan notes
31 December 2021
Financial assets measured at fair value
Debt securities
Equity held at Fair Value Through Profit or Loss
Financial assets not measured at fair value
Cash and cash equivalents
Loans and advances to customers
Trade and other receivables
Financial liabilities measured at fair value
Deferred consideration
Financial liabilities not measured at fair value
Deposits from customers
Creditors and accrued charges
Loan notes
Carrying
amount
Total
£000
40,675
122
40,797
22,630
291,475
4,211
318,316
262
262
304,199
13,108
31,332
348,639
Carrying
amount
Total
£000
40,987
68
41,055
20,279
229,251
1,947
251,477
1,023
1,023
253,459
4,745
23,672
281,876
Fair value
Level 1
£000
Level 2
£000
Level 3
£000
Total
£000
-
-
-
-
-
-
-
-
-
-
-
-
-
40,675
-
40,675
-
122
122
40,675
122
40,797
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
262
262
262
262
-
-
-
-
-
-
-
-
Fair value
Level 1
£000
Level 2
£000
Level 3
£000
Total
£000
-
-
-
-
-
-
-
-
-
-
-
-
-
40,987
-
40,987
-
-
-
-
-
-
-
-
-
-
-
68
68
-
-
-
-
40,987
68
41,055
-
-
-
-
1,023
1,023
1,023
1,023
-
-
-
-
-
-
-
-
Page | 46
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
Significant
inputs
unobservable
Not applicable.
Inter-relationship
between
significant unobservable inputs
and fair value measurement
Not applicable.
6. Financial instruments – Fair values (continued)
Measurement of fair values
i. Valuation techniques and significant unobservable inputs
Type
Valuation technique
Debt securities
Equities at Fair Value Through
Profit or Loss
Deferred consideration
comparison
Market
/
discounted cash flow: The fair
value is estimated considering
a net present value calculated
using discount rates derived
from quoted yields of securities
with similar maturity and credit
rating that are traded in active
markets.
Net asset value
Expected net
cash
derived from the entity
flows
Discounted cash flows: The
valuation model considers the
present value of the expected
future payments, discounted
using a risk-adjusted discount
rate.
Expected cash flows £291,340
(2021: £1,133,820).
Risk-adjusted discount
14% (2021: 14%).
rate
The estimated fair value would
if
increase
the
(decrease)
expected cash
flows were
higher (lower).
The estimated fair value would
increase (decrease) if:
-the expected cash flows were
higher (lower); or
-the risk-adjusted discount rate
was lower (higher).
ii. Level 3 recurring fair values
Reconciliation of Level 3 fair values
The following table shows a reconciliation from the opening balances to the closing balances for Level 3 fair values.
Balance at 1 January
Assumed in a business combination (Note 32)
Finance costs
Net change in fair value (unrealised)
Payment (note 26)
Balance at 31 December
2022
£000
1,023
-
102
74
176
(937)
262
2021
£000
672
387
114
(30)
84
(120)
1,023
Sensitivity analysis
For the fair value of contingent consideration, reasonably possible changes at the reporting date to one of the significant unobservable
inputs, holding other inputs constant would have the following effects.
31 December 2022
Expected cash flows (10% movement)
Risk-adjusted discount rate (1% movement)
31 December 2021
Expected cash flows (10% movement)
Risk-adjusted discount rate (1% movement)
Profit or loss
Increase
£000
Decrease
£000
29
5
(29)
(3)
Profit or loss
Increase
£000
Decrease
£000
113
12
66
(8)
Page | 47
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
7. Financial risk review
Risk management
This note presents information about the Group’s exposure to financial risks and the Group’s management of capital. For information
on the Group’s financial risk management framework, see note 42.
A. Group Credit risk
For definition of credit risk and information on how credit risk is mitigated by the Group, see note 42.
The key assumptions used in determining the weighted-average loss rate are loss given default rate and probability of default. These
metrics are calculated at individual product level (for example Hire Purchase, Lease). In determining probability of default, the Group
considers market consensus estimates of the UK’s forecast GDP, inflation and interest rate over the applicable loan term of the
product. Over the next 3 years, the Group has forecast average GDP growth of -0.6%, inflation of 4.1% and BOE base rate of 2.6%.
i. Credit quality analysis
Loans and advances to customers
Explanation of the terms ‘Stage 1’, ‘Stage 2’ and ‘Stage 3’ is included in note 44(G)(vii).
An analysis of the credit risk on loans and advances to customers is as follows:
Group
2022
2021
Stage 1
£000
Stage 2
£000
Stage 3
£000
Total
£000
Stage 1
£000
Stage 2
£000
Stage 3
£000
Total
£000
Grade A
Grade B
Grade C
Gross value
273,332
-
391
273,723
-
5,006
-
5,006
-
9,347
17,622
26,969
273,332
14,353
18,013
305,698
213,102
-
342
213,444
-
5,735
541
6,276
-
5,594
12,656
18,250
213,102
11,329
13,539
237,970
Allowance for impairment
Carrying value
(303)
273,420
(3)
5,003
(13,917)
(14,223)
13,052 291,475
(503)
212,941
(124)
6,152
(8,092)
10,158
(8,719)
229,251
Loans are graded A to C depending on the level of risk. Grade A relates to agreements with the lowest risk, Grade B with medium
risk and Grade C relates to agreements with the highest of risk.
The following table sets out information about the overdue status of loans and advances to customers in Stage 1, 2 and 3:
Group
2022
Stage 1
£000
Stage 2
£000
Stage 3
£000
Total
£000
Stage 1
£000
Stage 2
£000
2021
Stage 3
£000
Total
£000
269,130
4,593
-
273,723
-
604
4,402
5,006
-
-
26,969
26,969
269,130
5,197
31,371
305,698
210,491
2,953
-
213,444
-
-
6,276
6,276
-
-
18,250
18,250
210,491
2,953
24,526
237,970
For Stage 3 loans and advances, the Bank holds collateral with a value of £12,927,000 (2021: £11,625,250) representing security
cover of 48% (2021: 64%).
Debt securities, cash and cash equivalents
The following table sets out the credit quality of liquid assets:
Group
Government bonds and treasury bills
Rated A to A+
Cash and cash equivalents
Rated A to A+
Trade and other receivables
Unrated
The analysis has been based on Standard & Poor’s ratings.
2022
£000
2021
£000
40,675
40,987
22,630
20,279
4,211
1,947
67,516
63,213
Page | 48
31 December
Current
Overdue < 30 days
Overdue > 30 days
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
7. Financial risk review (continued)
Risk management (continued)
A. Credit risk (continued)
ii. Collateral and other credit enhancements
The Group holds collateral in the form of the underlying assets (typically private and commercial vehicles, plant and machinery) to
loan arrangements as security for HP, finances leases, vehicle stocking plans, block discounting, wholesale funding arrangements,
integrated wholesale funding arrangements and secured commercial loan balances, which are sub-categories of loans and advances
to customers. In addition, the Group will take debentures, mortgages, personal and corporate guarantees, fixed and floating charges
on specific assets such as cash and shares. The terms of enforcing such security can only occur on default, and when realised can
only be used to settle the amount of debt and related collection fees. On occasion the Bank may realise a surplus if the defaulting
party loses title to the underlying security as part of enforcement. In addition, the commission share schemes have an element of
capital indemnified. During 2022, 61.0% of loans and advances had an element of capital indemnification (2021: 76.0%).
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.
iii. Amounts arising from ECL
See accounting policy in note 44(G)(vii).
IFRS 9 significantly overhauled the requirements and methodology used to assess credit impairments by transitioning to a forward-
looking approach based on an expected credit loss model. The new impairment model applies to financial assets measured at
amortised cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments.
After a detailed review, the Group devised and implemented an impairment methodology in light of the IFRS 9 requirements outlined
above noting the following:
A Significant Increase in Credit Risk (“SICR”) is always deemed to occur when the borrower is 30 days past due on its
contractual payments. If the Group becomes aware ahead of this time of non-compliance or financial difficulties of the
borrower, such as loss of employment, avoiding contact with the Group then a SICR has also deemed to occur.
A receivable is always deemed to be in default and credit-impaired when the borrower is 90 days past due on its contractual
payments or earlier if the Group becomes aware of severe financial difficulties such as bankruptcy, individual voluntary
arrangements, abscond or disappearance, fraudulent activity or other similar events.
The ECL was derived by reviewing the Group’s loss rate and loss-given-default over the past 5 years by product and
geographical segment.
The Group has assumed that the future economic conditions will broadly mirror the current environment and therefore the
forecasted loss levels in the next 3 years will match the Group’s experience in recent years.
For portfolios where the Group has never had a default in its history or has robust credit enhancements such as credit
insurance or default indemnities for the entire portfolio, then no IFRS 9 provision is made.
If the Group holds objective evidence through specifically assessing a credit-impaired receivable and believes it will go on
to completely recover the debt due to the collateral held and cooperation with the borrower, then no IFRS 9 provision is
made.
There have been no significant changes to ECL assumptions from the prior year.
iv. 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 no introducer that accounted for more than 20% of the
Bank’s total lending portfolio at the end of 31 December 2022 (2021: none).
Page | 49
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
7. Financial risk review (continued)
Risk management (continued)
B. Group Liquidity risk
For the definition of liquidity risk and information on how liquidity risk is manged by the Group, see note 41.
i. Exposure to liquidity risk
The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers and short-
term funding. For this purpose, net liquid assets includes cash and cash equivalents and investment-grade debt securities for which
there is an active and liquid market.
Details of the reported Group ratio of net liquid assets to deposits from customers at the reporting date and during the reporting year
were as follows:
At 31 December
Average for the year
Maximum for the year
Minimum for the year
2022
20%
22%
25%
19%
2021
24%
25%
28%
20%
ii. Maturity analysis for financial liabilities and financial assets
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 2022
£000
Sight-
8 days
>8 days
- 1 month
£000
>1 month
- 3 months
£000
>3 months
- 6 months
£000
>6 months
- 1 year
£000
Deposits
Other liabilities
Total liabilities
31 December 2021
Deposits
Other liabilities
Total liabilities
10,878
691
11,569
Sight-
8 days
£000
6,864
291
7,155
6,838
116
6,954
27,346
1,796
29,142
65,153
3,717
68,870
104,662
13,196
117,858
104,024
>8 days
- 1 month
£000
>1 month
- 3 months
£000
>3 months
- 6 months
£000
>6 months
- 1 year
£000
4,743
83
4,826
18,359
1,210
19,569
63,733
1,253
64,986
61,891
10,995
72,886
>1 year
- 3 years
£000
88,036
9,091
97,127
>1 year
- 3 years
£000
81,670
22,354
>3 years
- 5 years
£000
14,557
6,697
21,254
>3 years
- 5 years
£000
16,738
9,053
25,791
>5
years
£000
-
590
590
>5
years
£000
-
869
869
Total
£000
311,104
49,157
360,261
Total
£000
260,364
32,845
293,209
Maturity of assets and liabilities at the reporting date:
31 December 2022
Assets
Cash
Debt securities
Loans and advances
Other assets
Total assets
Liabilities
Deposits
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
22,630
3,986
8,038
122
34,776
10,878
650
11,528
-
7,987
10,952
-
18,939
6,380
-
6,380
-
20,785
27,913
-
48,698
26,552
1,500
28,052
-
7,917
40,730
-
48,647
64,251
3,286
67,537
-
-
47,813
5,786
53,599
-
-
106,755
-
-
-
46,176
5,140
-
-
3,098
13,433
22,630
40,675
291,475
24,481
106,755
51,316
16,531
379,261
103,561
12,399
115,960
78,984
20,627
99,611
13,593
6,240
19,833
-
590
590
304,199
45,292
349,491
Page | 50
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
7. Financial risk review (continued)
Risk management (continued)
B. Liquidity risk (continued)
ii. Maturity analysis for financial liabilities and financial assets (continued)
Maturity of assets and liabilities at the reporting date (continued):
31 December 2021
Assets
Cash
Debt securities
Loans and advances
Other assets
Total assets
Liabilities
Deposits
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
20,279
-
9,271
68
29,618
6,864
238
7,102
-
5,001
8,372
-
13,373
4,285
-
4,285
-
20,994
12,378
-
33,372
17,565
1,000
18,565
-
14,992
25,458
-
40,450
62,831
946
63,777
-
-
30,835
3,186
34,021
60,790
10,512
71,302
-
-
94,395
-
94,395
85,350
7,967
93,317
-
-
44,081
6,018
50,099
15,774
8,777
24,551
>5
years
£000
-
-
4,462
8,964
Total
£000
20,279
40,987
229,252
18,236
13,426
308,754
-
869
869
253,459
30,309
283,768
iii. Liquidity reserves
The following table sets out the components of the Group’s liquidity reserves:
Balances with other banks
Unencumbered debt securities
Total liquidity reserves
2022
Carrying
amount
£000
20,954
40,675
61,629
2022
Fair
value
£000
20,954
40,675
61,629
2021
Carrying
amount
£000
20,279
40,987
61,266
2021
Fair
value
£000
20,279
40,987
61,266
C. Group Market risk
For the definition of market risk and information on how the Group manages the market risks of trading and non-trading portfolios,
see note 42.
The following table sets out the allocation of assets and liabilities subject to market risk between trading and non-trading portfolios:
31 December 2022
Assets subject to market risk
Debt securities
Equity held at Fair Value Through Profit or Loss
Total
31 December 2021
Assets subject to market risk
Debt securities
Equity held at Fair Value Through Profit or Loss
Total
Carrying
amount
£000
40,675
122
40,797
Market risk measure
Trading
portfolios
£000
Non-trading
portfolios
£000
-
-
-
40,675
122
40,797
Market risk measure
Carrying
amount
£000
Trading
portfolios
£000
40,987
68
41,055
-
-
-
Non-
trading
portfolios
£000
40,987
68
41,055
Page | 51
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
7. Financial risk review (continued)
Risk management (continued)
C. Group Market risk (continued)
i. Exposure to interest rate risk
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 deposits from customers
at their earliest.
31 December 2022
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-
Interest
Bearing
£000
Total
£000
Assets
22,630
Cash & cash equivalents
Debt securities
11,973
Loans and advances to customers 18,990
-
Other assets
-
20,785
27,913
-
-
7,917
40,730
-
-
-
47,813
-
-
-
106,755
-
-
-
46,176
-
-
-
3,098
-
-
-
-
24,481
22,630
40,675
291,475
24,481
Total assets
53,593
48,698
48,647
47,813
106,755
46,176
3,098
24,481
379,261
Liabilities and equity
Deposits from customers
Other liabilities
Total equity
17,258
650
-
26,552
1,500
-
64,251
3,286
-
103,561
905
-
78,984
20,627
-
13,593
6,240
-
Total liabilities and equity
17,908
28,052
67,537
104,466
99,611
19,833
-
237
-
237
-
11,847
29,770
41,617
304,199
45,292
29,770
379,261
Interest rate sensitivity gap
35,685
20,646
(18,890)
(56,653)
7,144
26,343
2,861
(17,136)
Cumulative
35,685
56,331
37,441
(19,212)
(12,068)
14,275
17,136
-
31 December 2021
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-
Interest
Bearing
£000
-
-
Total
£000
Assets
Cash & cash equivalents
20,279
5,001
Debt securities
Loans and advances to customers 17,642
-
Other assets
-
20,994
12,378
-
-
14,992
25,458
-
-
-
30,835
-
-
-
94,395
-
-
-
44,081
-
-
-
4,462
-
-
-
-
18,236
20,279
40,987
229,251
18,236
Total assets
42,922
33,372
40,450
30,835
94,395
44,081
4,462
18,236
308,753
Liabilities and equity
Deposits from customers
Other liabilities
Total equity
11,149
238
-
17,565
1,000
-
62,831
946
-
60,790
7,050
-
85,350
7,967
-
15,774
8,777
-
Total liabilities and equity
11,387
18,565
63,777
67,840
93,317
24,551
-
687
-
687
-
3,644
24,985
28,629
253,459
30,309
24,985
308,753
Interest rate sensitivity gap
31,535
14,807
(23,327)
(37,005)
1,078
19,530
3,775
(10,393)
Cumulative
31,535
46,342
23,015
(13,990)
(12,912)
6,618
10,393
-
-
-
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 (2021: 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 2022
Sight-
1 month
>1month
-3months
>3months
- 6months
>6months
- 1 year
>1 year
- 3 years
>3 years
- 5 years
>5 years
Interest rate sensitivity gap £000 35,685
20,646
(18,890)
(56,653)
Weighting
£000
0.000
0.003
-
62
0.007
(132)
0.014
(793)
7,144
0.027
193
26,343
0.054
1,423
2,861
0.115
329
Non-
Interest
Bearing
(17,136)
-
-
Total
-
-
1,082
Page | 52
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
7. Financial risk review (continued)
Risk management (continued)
C. Group Market risk (continued)
i. Exposure to interest rate risk (continued)
31 December 2021
Sight-
1 month
>1month
-3months
>3months
- 6months
>6months
- 1 year
>1 year
- 3 years
>3 years
- 5 years
>5 years
Non-
Interest
Bearing
Interest rate sensitivity gap £000
31,535
14,807
(23,327)
(37,005)
1,078
19,530
3,775
(10,393)
Weighting
£000
0
-
0.003
44
0.007
(163)
0.014
(518)
0.027
0.054
0.115
29
1,055
434
-
-
Total
-
-
881
D. Group Capital Management
i. Regulatory capital
MFG and its subsidiaries maintain sufficient capital stock to cover risks inherent in their principal operating activities. The lead
regulator of the Group’s wholly owned subsidiary, the Bank, is the FSA. The FSA sets and monitors capital requirements for the Bank.
The Bank maintains a capital base to meet the capital adequacy requirements of the FSA. There have been no changes to its
approach to capital management from the prior year.
The Bank’s regulatory capital consists of the following elements.
Common Equity Tier 1 (“CET1”) capital, which includes ordinary share capital, retained earnings and reserves after
adjustment for deductions for goodwill, intangible assets and intercompany receivable.
Tier 2 capital, which includes qualifying subordinated liabilities and any excess of impairment over expected losses.
The Bank’s Tier 1 and Total Capital regulatory ratios stood at 12.4% (2021: 15.2%) and 15.2% (2021: 19.1%) respectively as at 31
December 2022. The Bank complied with all capital requirements externally imposed on it in the year with minimum Tier 1 and Overall
Capital ratio of 8.5% and 14% respectively.
The FSA’s approach to the measurement of capital adequacy is primarily based on monitoring the relationship of the capital resources
requirement to available capital resources. The FSA sets individual capital guidance (“ICG”) for the Bank in excess of the minimum
capital resources requirement. A key input to the ICG setting process is the Bank’s internal capital adequacy assessment process
(“ICAAP”).
The Bank is also regulated by the FCA in the UK for credit and brokerage related activities.
Further details of the Bank’s management of capital are described in the Risk Management Report on page 10.
ii. Capital allocation
Management uses regulatory capital ratios to monitor its capital base. The allocation of capital between specific operations and
activities is, to a large extent, driven by optimisation of the return achieved on the capital allocated. The amount of capital allocated
to each operation or activity is based primarily on regulatory capital requirements.
E. Company Financial Risk Review
i. Credit risk
The Company is exposed to credit risk primarily from deposits with banks and from its financing activities of Group entities. These
balances include Trade and other receivables, Amounts due from Group undertakings, Investment in subsidiaries and Subordinated
loans. Cash balances are held with institutions with a credit rating of A to A+. The Group’s primary credit exposure is to the Bank. The
Investment in subsidiary and subordinated loan balance counterparties are disclosed in Note 31 and 35 respectively. Amounts due
from Group undertakings relate to balances advanced to the Group’s subsidiary (MVL) for the acquisition of other subsidiaries
including PAL, BBSL, BLX and NRF. The Group manages its credit risk by ensuring that sufficient resources are allocated to credit
management and capital allocation and using reputable financial institutions to hold its cash balances.
ii. Liquidity risk
The value and term of short term assets are monitored against those of the Company’s liabilities. The Company maintains sufficient
liquid assets to meet liabilities as they fall due either by retaining Interest income from the Subordinated loan, Dividend income from
subsidiary companies or raising funds through the issue of Loan notes. Amounts due to / from Group undertakings are unsecured,
interest-free and repayable on demand.
iii. Market risk
The Company does not have exposure to foreign exchange risk as transactions are made in and balances held in Sterling. The
Company has both interest-bearing assets and liabilities. In order to manage interest rate risk, the Companies Subordinated loans
and Loan notes are charged exclusively at fixed rates.
Page | 53
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
8. Operating segments
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 three (2021:
three) 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); Edgewater Associates Limited (provision of financial advice); and MFX Limited (provision of foreign currency transaction
services).
For the year ended 31 December 2022
Interest revenue calculated using the effective interest rate
method
Other interest income
Interest expense
Net interest income
Components of Net Trading Income
Net trading income
Components of Operating Income
Operating Income
Depreciation
Amortisation and impairment of intangibles
Share of profit of equity accounted investees, net of tax
All other expenses
Profit / (loss) before tax payable
Capital expenditure
Total assets
Total liabilities
Asset and
Personal
Finance
£000
28,978
1,765
(6,391)
24,352
(2,696)
21,656
587
22,243
(640)
(494)
-
(17,226)
3,883
1,794
332,689
316,921
Edgewater
Associates
£000
MFX
Limited
£000
Investing
Activities
£000
-
-
-
-
2,096
2,096
-
2,096
(31)
(81)
-
(1,943)
41
55
2,248
513
-
-
-
-
1,734
1,734
-
1,734
(2)
(5)
-
(314)
1,413
3
543
163
-
-
-
-
-
-
-
(65)
(2)
18
(77)
(126)
1
43,781
31,894
Total
£000
28,978
1,765
(6,391)
24,352
1,134
25,486
587
26,073
(738)
(582)
18
(19,560)
5,211
1,853
379,261
349,491
For the year ended 31 December 2021
Interest revenue calculated using the effective interest
rate method
Other interest income
Interest expense
Net interest income
Components of Net Trading Income
Net Trading Income
Components of Operating Income
Operating income
Depreciation
Amortisation and impairment of intangibles
Share of profit of equity accounted investees, net of tax
Intercompany write-off
All other expenses
Profit / (loss) before tax payable
Capital expenditure
Total assets
Total liabilities
Asset and
Personal
Finance
£000
21,010
1,937
(4,967)
17,980
(2,783)
15,197
1,054
16,251
(560)
(373)
58
-
(12,848)
2,528
3,083
292,721
265,751
Edgewater
Associates
£000
MFX
Limited
£000
Investing
Activities
£000
Total
£000
-
-
-
-
2,282
2,282
-
2,282
(22)
(80)
-
-
(2,066)
114
13
2,330
638
-
-
-
-
1,514
1,514
-
1,514
(2)
(3)
-
-
(282)
1,227
1
802
61
-
21,010
-
-
-
-
-
-
-
(91)
(2)
(26)
(545)
(162)
(826)
5
1,937
(4,967)
17,980
1,013
18,993
1,054
20,047
(675)
(458)
32
(545)
(15,358)
3,043
3,102
12,900
17,318
308,753
283,768
Page | 54
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
9. Net interest income
Interest income
Loans and advances to customers
Total interest income calculated using the effective interest method
Operating lease income
Total interest income
Interest expense
Deposits from customers
Loan note interest
Lease liability
Contingent consideration: interest expense
Total interest expense
2022
£000
28,978
28,978
1,765
30,743
(4,601)
(1,610)
(78)
(102)
(6,391)
2021
£000
21,010
21,010
1,937
22,947
(3,512)
(1,299)
(42)
(114)
(4,967)
Net interest income
24,352
17,980
10. Net fee and commission income
In the following table, fee and commission income from contracts with customers in the scope of IFRS 15 – Revenue from Contracts
with Customers is disaggregated by major type of services. The table includes a reconciliation of the disaggregated fee and
commission income with the Group’s reportable segments. See note 44D regarding revenue recognition.
Major service lines
Independent financial advice income
Foreign exchange trading income
Asset and personal finance: Brokerage services income
Debt collection
Fee and commission income
Fee and commission expense
Net fee and commission income
2022
£000
2,096
1,743
590
290
4,719
2021
£000
2,282
1,528
510
301
4,621
(3,569)
(3,339)
1,150
1,282
Fee and commission expense relates to commission paid to Brokerages which introduce new business to the Bank.
11. Personnel expenses
Staff gross salaries
Executive Directors’ remuneration
Non-executive Directors’ fees
Executive Directors’ pensions
Executive Directors’ performance related pay
Staff pension costs
National insurance and payroll taxes
Staff training and recruitment costs
Equity Settled Restricted Stock Units (Note 29)
Group
Company
2022
£000
(7,403)
(507)
(207)
(41)
(68)
(397)
(818)
(305)
(18)
(9,764)
2021
£000
(5,416)
(440)
(176)
(34)
(51)
(330)
(623)
(86)
-
(7,156)
2022
£000
-
-
(127)
-
-
-
-
-
-
(127)
2021
£000
-
-
(129)
-
-
-
-
-
-
(129)
The Company’s personnel expenses consist exclusively of Directors remuneration and fees for services rendered to the Company.
Page | 55
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
12. Other expenses
Professional and legal fees
Marketing costs
IT costs
Establishment costs
Communication costs
Travel costs
Bank charges
Insurance
Irrecoverable VAT
Other costs
Impairment loss on goodwill (See Note 34)
2022
£000
(1,427)
(363)
(1,210)
(366)
(152)
(297)
(314)
(333)
(362)
(782)
(200)
(5,806)
2021
£000
(1,367)
(264)
(1,001)
(317)
(129)
(104)
(124)
(344)
(268)
(582)
-
(4,500)
13. Impairment on loans and advances to customers
The charge in respect of allowances for impairment comprises, excluding loss allowances on financial assets managed on a collective
basis.
Impairment allowances made
Reversal of allowances previously made
Total charge for provision for impairment
2022
£000
(7,642)
3,612
(4,030)
The credit in respect of allowances for impairment on financial assets managed on a collective basis comprises:
Collective impairment allowances made
Release of allowances previously made
Total credit for allowances for impairment on financial assets managed on a collective basis
2022
£000
(244)
284
40
2021
£000
(5,457)
1,055
(4,402)
2021
£000
(77)
119
42
Total charge for allowances for impairment
(3,990)
(4,360)
14. Profit before tax payable
The profit before tax payable for the year is stated after charging:
Auditor’s remuneration:
as Auditor current year
non-audit services
Pension cost defined benefit scheme
Expenses relating to short-term leases and low value assets
15. Income tax expense
Group
Current tax expense
Current year
Changes to estimates for prior years
Deferred tax expense
Origination and reversal of temporary differences
Tax expense
Group
Company
2022
£000
(255)
(11)
(14)
(92)
2021
£000
(232)
(2)
(13)
(64)
2022
£000
-
-
-
-
2022
£000
(366)
-
(366)
(171)
(537)
2021
£000
-
-
-
-
2021
£000
(132)
(50)
(182)
(52)
(234)
Page | 56
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
15. Income tax expense (continued)
Group
Reconciliation of effective tax rate
Profit before tax
Tax using the Bank’s domestic tax rate
Effect of tax rates in foreign jurisdictions
Tax exempt income
Changes to estimates for prior years
R&D claim
Tax expense
%
(10.0)
3.6
(2.4)
(0.8)
-
(10.3)
2022
£000
5,211
(521)
186
(127)
(43)
-
(537)
%
(10.0)
5.0
(1.2)
(4.7)
(1.4)
(7.7)
2021
£000
3,043
(304)
152
(36)
(144)
(42)
(234)
The main rate of corporation tax in the Isle of Man is 0.0% (2021: 0.0%). However, the profits of the Group’s Isle of Man banking
activities are taxed at 10.0% (2021: 10.0%). The profits of the Group’s subsidiaries that are subject to UK corporation tax are taxed
at a rate of 19.0% (2021: 19.0%). The Company is subject to 0.0% tax.
The value of tax losses carried forward reduced to nil and there is now a temporary difference related to accelerated capital allowances
resulting in a £353,000 liability (2021: £182,000 liability). This resulted in an expense of £171,000 (2021: £52,000) to the Consolidated
Income Statement offset by a deferred tax credit on the defined benefit pension through the OCI of £nil (2021: £67,000).
16. Earnings per share
Profit for the year
Weighted average number of Ordinary Shares in issue (basic)
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)
Basic earnings per share (pence)
Diluted earnings per share (pence)
2022
2021
£4,674,000
£2,809,000
114,763,883
4.07
3.15
114,291,639
2.46
1.97
£5,212,000
£3,045,000
114,763,883
4.54
3.50
114,291,639
2.66
2.13
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.
As at:
2022
2021
Reconciliation of weighted average number of Ordinary Shares in issue between
basic and diluted
Weighted average number of Ordinary Shares (basic)
Number of shares issued if all convertible loan notes were exchanged for equity
Dilutive element of share options if exercised
114,763,883
38,225,772
830,035
114,291,639
36,555,556
-
Weighted average number of Ordinary Shares (diluted)
153,819,660
150,847,195
Reconciliation of profit for the year between basic and diluted
Profit for the year (basic)
Interest expense saved if all convertible loan notes were exchanged for equity
Profit for the year (diluted)
£4,674,000
£171,415
£2,809,000
£166,250
£4,845,415
£2,975,250
The diluted earnings per share calculation assumes that all convertible loan notes and share options have been converted / exercised
at the beginning of the year where they are dilutive.
Page | 57
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
2021
£000
430
-
430
2021
£000
-
-
16. Earnings per share (continued)
As at:
Reconciliation of total comprehensive income for the year between basic and diluted
Total comprehensive income for the year (basic)
Interest expense saved if all convertible loan notes were exchanged for equity
Total comprehensive income for the year (diluted)
17. Cash and cash equivalents
Cash at bank and in hand
Fixed deposit (less than 90 days)
2022
2021
£5,212,000
£171,415
£3,045,000
£166,250
£5,383,415
£3,211,250
Group
Company
2022
£000
20,651
1,979
22,630
2021
£000
18,278
2,001
20,279
2022
£000
1,761
-
1,761
Cash at bank includes an amount of £24,000 (2021: £56,000) representing receipts which are in the course of transmission.
18. Debt securities
Financial assets at fair value through other comprehensive income:
UK Government treasury bills
Group
Company
2022
£000
40,675
40,675
2021
£000
40,987
40,987
2022
£000
-
-
UK Government Treasury Bills are stated at fair value and unrealised changes in the fair value are reflected in other comprehensive
income. There were realised gains of £292,000 (2021: realised losses of £1,000) and unrealised gains of £131,000 (2021: unrealised
losses of £18,000) during the year.
19. Financial assets
Group
Company
Financial assets at FVOCI:
(Loss) / gain on Deferred consideration (see note 6(ii))
Gain on equity instrument
2022
£000
(74)
55
(19)
The Bank acquired a new equity instrument in the previous financial year (See note 33).
20. 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
Government backed loans
Gross
Amount
£000
87,142
21,513
47,735
1,918
30,904
46,294
12,753
1,867
55,572
305,698
2022
Impairment
Allowance
£000
(4,093)
(3,782)
(5,282)
-
-
-
(595)
(90)
(381)
(14,223)
Carrying
Value
£000
83,049
17,731
42,453
1,918
30,904
46,294
12,158
1,777
55,191
291,475
2021
£000
30
-
30
Gross
Amount
£000
71,789
28,131
31,267
1,675
15,447
16,465
11,099
1,739
60,358
237,970
2022
£000
-
-
-
2021
£000
-
-
-
2021
Impairment
Allowance
£000
(4,107)
(3,317)
(537)
-
-
-
(519)
-
(239)
(8,719)
Carrying
Value
£000
67,682
24,814
30,730
1,675
15,447
16,465
10,580
1,739
60,119
229,251
Page | 58
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
20. Loans and advances to customers (continued)
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.
Allowance for impairment
Balance at 1 January
Acquisition
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
2022
£000
8,464
4,620
7,642
(3,612)
(3,106)
14,008
2022
£000
255
244
(284)
215
14,223
2021
£000
6,824
-
5,457
(1,055)
(2,762)
8,464
2021
£000
297
77
(119)
255
8,719
Advances on preferential terms are available to all Directors, management and staff. As at 31 December 2022 £1,228,334 (2021:
£945,625) 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 (see note 36).
At the end of the current financial year 13 loan exposures (2021: 5) exceeded 10.0% of the capital base of the Bank:
Exposure
Block discounting facility
Wholesale funding agreement
Outstanding
Balance
2022
£000
68,209
34,975
Outstanding
Balance
2021
£000
16,465
25,645
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
2022
£000
51,368
57,287
108,655
2022
£000
47,646
53,134
100,780
Facility
Limit
£000
40,536
28,819
2021
£000
34,833
58,949
93,782
2021
£000
32,495
54,994
87,489
Page | 59
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
21. Trade and other receivables
Other debtors
Prepayments
VAT claim
Group
Company
2022
£000
2,334
1,877
-
4,211
2021
£000
1,449
498
-
1,947
2022
£000
494
68
-
562
2021
£000
1
100
371
472
After consultation with its professional advisors, the Bank made a notice of error correction (“NEC”) to the Isle of Man Government
Customs & Exercise Division in respect of a repayment for overpaid VAT to the amount of £534,000 exclusive of statutory interest.
The NEC relates to bad debt relief that was not claimed during the period from 1 April 1989 to 18 March 1997. The Bank recognised
a receivable and income of £534,000 during 2020. The VAT claim was settled in full and the Bank received £699,000 during 2021. An
additional recovery of £113,000 over and above the carrying amount was recognised in the previous year’s statement of profit or loss.
22. Property, plant and equipment and right-of-use assets
Group
Cost
As at 1 January 2022
Acquisition of subsidiary
Additions
Disposals
As at 31 December 2022
Accumulated depreciation
As at 1 January 2022
Acquisition of subsidiary
Charge for year
Disposals
As at 31 December 2022
Carrying value at 31 December 2022
Carrying value at 31 December 2021
Buildings and
Leasehold
Improvements
£000
IT
Equipment
£000
Furniture and
Equipment
£000
Motor
Vehicles1
£000
Right-of-
use assets
£000
681
-
64
-
745
427
-
15
-
442
303
254
522
-
81
-
603
387
-
69
-
456
147
124
5,814
14
1,280
(1,369)
5,739
765
14
452
(70)
1,161
4,578
5,120
818
196
48
(866)
196
238
65
38
(256)
85
111
520
1,444
136
380
-
1,960
205
-
180
-
385
1,575
1,239
Total
£000
9,279
346
1,853
(2,235)
9,243
2,022
79
754
(326)
2,529
6,714
7,257
1Included in motor vehicles are operating leases with the Group as lessor. Depreciation on leasing assets was £16,000 (2021: £269,000).
Buildings with an original cost of £160,000 were revalued by independent valuers Vospers Limited to £175,000 on the basis of market value
as at 15 September 2021. The valuation conforms to International Valuation Standards and was based on recent market transactions on
arm's length terms for similar properties. The Directors consider the valuation of the buildings as at 31 December 2022 remains £175,000.
The carrying amount that would have been recognised had the building been carried under the cost model would be £160,000.
Company
Cost
As at 1 January 2022
Additions
As at 31 December 2022
Accumulated depreciation
As at 1 January 2022
Charge for year
As at 31 December 2022
Carrying value at 31 December 2022
Carrying value at 31 December 2021
Leasehold
Improvements
£000
IT
Equipment
£000
Furniture and
Equipment
£000
Right-of
use-assets
£000
234
-
234
234
-
234
-
-
18
2
20
6
-
6
14
12
17
1
18
9
2
11
7
8
424
-
424
181
63
244
180
243
Total
£000
693
3
696
430
65
495
201
263
Page | 60
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
23. Intangible assets
Group
Cost
As at 1 January 2022
Acquisition of subsidiary (see note 32)
Additions
As at 31 December 2022
Accumulated amortisation
As at 1 January 2022
Charge for year
As at 31 December 2022
Carrying value at 31 December 2022
Carrying value at 31 December 2021
24. Deposits from customers
Retail customers: term deposits
Corporate customers: term deposits
25. Creditors and accrued charges
Other creditors and accruals
Commission creditors
Lease liability
Taxation creditors
Customer
Contracts
£000
Intellectual
Property Rights
£000
IT Software and
Website
Development
£000
2,657
273
-
2,930
865
296
1,161
1,769
1,792
749
-
496
1,245
523
-
523
722
226
2,541
-
8
2,549
2,051
286
2,337
212
490
2022
£000
291,238
12,961
304,199
Total
£000
5,947
273
504
6,724
3,439
582
4,021
2,703
2,508
2021
£000
242,788
10,671
253,459
Group
Company
2022
£000
10,096
1,398
1,614
-
13,108
2021
£000
1,380
1,520
1,295
550
4,745
2022
£000
232
-
208
-
440
2021
£000
182
-
319
-
501
26. Deferred consideration
Deferred consideration relates to contingent payments due to the sellers on the acquisition of BBSL and BLX respectively.
On acquisition of BBSL on 16 April 2019, the Group agreed to pay the selling shareholders:
50% of net profits in BBSL for 3 years post completion; and
50% of the incremental net profit that the Group benefits from as a result of taking up BBSL loan proposals post
completion up until the third anniversary.
This was to be paid on each anniversary with a final payment in year 4 for the unrealised lending profit. The Group made final
instalment and settlement of this contingent consideration when it made the final payment of £781,095 during the period.
On the acquisition of BLX on 11 October 2021, the Group agreed that a further conditional consideration of up to £483,663 is payable
to the sellers in addition to the cash consideration paid. The total amount payable is contingent on the recovery of certain loans and
advances found to be in default at acquisition. The fair value on acquisition date was determined to be £387,000. The Group made a
payment of £156,093 to the sellers during the period.
BBSL
BLX
2022
£000
-
262
262
2021
£000
636
387
1,023
Page | 61
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
27. Loan notes
Related parties
J Mellon
Burnbrae Limited
Culminant Reinsurance Ltd
Unrelated parties
Group
Company
Notes
JM
BL
CR
UP
2022
£000
1,750
3,200
1,000
5,950
25,382
31,332
2021
£000
1,750
3,200
1,000
5,950
17,722
23,672
2022
£000
1,750
3,200
1,000
5,950
25,382
31,332
2021
£000
1,750
3,200
1,000
5,950
17,722
23,672
JM - Two loans, one of £1,250,000 maturing on 26 February 2025 with interest payable of 5.4% per annum, and one of £500,000
maturing on 31 July 2027, paying interest of 7.5% per annum. Both loans are convertible to ordinary shares of the Company at the
rate of 7.5 pence.
On 22 July 2022, JM and BL agreed to extend outstanding unsecured convertible loans of £1,750,000, expiring on 31 July 2022, for
a further five years to 31 July 2027. A loan of £1,250,000 million is from BL and the remaining loan of £0.5 million is from JM himself.
The new annual interest rate will be 7.5% (previously 5.0%) and the new conversion price will be 8.0 pence per share (previously 7.5
pence). All other terms are unchanged, including the ability for the Company to repay the loans at any time during the period.
BL – Three loans, one of £1,200,000 maturing on 31 July 2027, paying interest of 7.5% per annum, one of £1,000,000 maturing 25
February 2025, paying interest of 5.4% per annum, and one of £1,000,000 maturing 28 February 2025 paying interest of 6% per
annum. Jim Mellon is the beneficial owner of BL and Denham Eke is also a director. The £1,200,000 loan is convertible at a rate of
7.5 pence.
CR – One loan consisting of £1,000,000 maturing on 12 October 2025, paying interest of 6.0% per annum. Greg Bailey, a director, is
the beneficial owner of CR.
UP – Forty loans (2021: Forty-three), the earliest maturity date is 5 January 2023 and the latest maturity is 1 September 2027.
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.
28. Pension liability
The Conister Trust Pension and Life Assurance Scheme (“Scheme”) operated by the Bank 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.
Page | 62
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
28. Pension liability (continued)
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 analysis 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 – IAS 19: The
Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, 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 2022 (2021: 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 triennial full actuarial valuation was carried out at 31 March 2022, which showed that the market value of the
Scheme’s assets was £1,432,000 representing 65.2% of the benefits that had accrued to members, after allowing for expected future
increases in earnings. As required by IAS 19: Employee Benefits, this valuation has been updated by the actuary as at 31 December
2022.
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 gain
Liability for defined benefit obligations at 31 December
2022
£000
1,289
(1,526)
(237)
2022
£000
2,230
(75)
44
(673)
1,526
2021
£000
1,543
(2,230)
(687)
2021
£000
2,350
(74)
32
(78)
2,230
Page | 63
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
28. Pension liability (continued)
Funding policy (continued)
Movement in plan assets
Opening fair value of plan assets at 1 January
Expected return on assets
Contribution by employer
(Loss) / 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 (loss) / return on plan assets
Actuarial gain / (loss) recognised in other comprehensive income
(Loss) / gain on plan assets
Actuarial gain on defined benefit obligations
Plan assets consist of the following
Equity securities
Corporate bonds
Government bonds
Cash
Other
2022
£000
1,543
30
57
(266)
(75)
1,289
2022
£000
44
(30)
14
(236)
2022
£000
(266)
673
407
2022
%
61
13
21
2
3
100
2021
£000
1,406
19
98
94
(74)
1,543
2021
£000
32
(19)
13
113
2021
£000
94
78
172
2021
%
52
26
17
2
3
100
The actuarial assumptions used to calculate Scheme liabilities under IAS19 are as follows:
Rate of increase in pension in payment:
Service up to 5 April 1997
Service from 6 April 1997 to 13 September 2005
Service from 14 September 2005
Rate of increase in deferred pensions
Discount rate applied to scheme liabilities
Inflation
2022
%
2021
%
2019
%
-
3.1
2.1
5.0
5.0
3.2
-
3.4
2.2
5.0
1.7
3.5
-
2.9
2.1
5.0
1.8
3.0
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.
Page | 64
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
29. Called up share capital
Ordinary shares of no par value available for issue
At 31 December 2022
At 31 December 2021
Issued and fully paid: Ordinary shares of no par value
At 31 December 2022
At 31 December 2021
A. Analysis of changes in financing during the year
Balance at 1 January
Issue of loan notes
Issue of lease liability
Issue of shares via scrip dividend
Payment of lease liabilities
Balance at 31 December
Number
200,200,000
200,200,000
£000
19,195
19,133
2021
£000
41,846
1,450
993
12
(201)
44,100
Number
115,072,988
114,291,639
2022
£000
44,100
7,659
520
62
(201)
52,140
The 2022 closing balance is represented by £19,195,000 share capital (2021: £19,133,000), £31,332,000 of loan notes (2021:
£23,672,000) and £1,614,000 lease liability (2021: £1,295,000).
B. Dividends
On 25 May 2022, MFG declared a dividend of £279,200 (2021: £196,800) which could either be taken up in cash or new ordinary
shares. 781,349 new shares (2021: 161,562 new shares) were admitted to the Alternative Investment Market (“AIM”) at 8.0205 pence
per share (2021: 7.0575 pence per share), at a total cost of £62,000 (2021: £12,000).
C. Convertible loans
There are three convertible loans totalling £2,950,000 (2021: £2,950,000) (refer to note 27).
D. Share options and Restricted Stock Units
i. Issued during the financial year ended 31 December 2022
On 5 July 2022 and 27 October 2022, MFG granted Restricted Stock Units (“RSUs”) under its 2022 RSU Plan. The Group has issued,
in total, RSUs over 2,435,000 ordinary shares representing 2.1% of the issued share capital of the Group, including 1,250,000 to
certain directors and 1,185,000 to certain employees. The RSUs will have a 2-year term and are subject to certain vesting conditions
based upon an overall growth in profitability. Any RSUs granted will fall away should the recipient leave employment before the 2-
year term expires. Should the individual vesting conditions be satisfied at the end of the term, the stock will be exercised at nil cost.
The Group directors who received RSUs are as follows:
Douglas Grant, Group Chief Executive Officer, who currently owns 533,951 ordinary shares in the Company
representing a holding of 0.45% was issued 1,075,000 RSUs. Including 700,000 Share Options issued 24 June 2014,
he would hold a total of 2,308,951 ordinary shares, being 1.98% of the issued share capital of the Company on a fully
diluted basis; and
James Smeed, Group Finance Director, was issued 175,000 RSUs. On the same basis, he would hold 0.15% of the
new issued share capital of the Company.
Page | 65
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
29. Called up share capital (continued)
The terms and conditions of the grants are as follows: and will be settled by the physical delivery of shares.
Grant date / employees entitled
RSUs granted to key employees at 5 July 2022
RSUs granted to directors at 5 July 2022
RSUs granted to key employees at 27 October 2022
RSUs granted to directors at 27 October 2022
Total RSUs
Number of
Units
1,020,000
1,100,000
165,000
150,000
2,435,000
Contractual
life of
options
2 years
2 years
2 years
2 years
The fair value of employee services received in return for restricted stock units granted is based on the fair value of them measured
using the Black-Scholes formula. Service related and non-market performance conditions were not taken into account in measuring
fair value. The inputs used in measuring the fair values at the grant of the equity-settled restricted stock unit payment plans were as
follows.
Fair value of restricted stock units and assumptions
Share price at grant date
Exercise price
Expected volatility * ^
Expected life (weighted average)
Risk-free interest rate (based on government bonds) * ^
Forfeiture rate
Fair value at grant date
^ Based on past 3 years
* Annual rates
Grant at
5 July 2022
Grant at
27 October 2022
8.5 pence
nil
55.14%
2 years
1.65%
0.00%
8.5 pence
14.0 pence
nil
107.71%
2 years
3.15%
0.00%
14.0 pence
The expected volatility is based on both historical average share price volatility and implied volatility derived from traded options over
the group’s ordnary shares of maturity similar to those of the employee options.
The fair value of the liability is remeasured at each reporting date and at settlement date.
The charge for the year for share options granted was £18,000 (2021: £nil).
ii. Issued during the financial year ended 31 December 2014
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 per share.
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, with the condition of three-years continuous employment being met.
Of the 1,750,000 share options issued, 1,050,000 (31 December 2021:1,050,000) remain outstanding.
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:
Page | 66
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
29. Called up share capital (continued)
ii. Issued during the financial year ended 31 December 2014 (continued)
Fair value at date of grant
Share price at date of grant
Exercise price
Expected volatility
Option life
Risk-free interest rate (based on government bonds)
Forfeiture rate
30. List of associates
Set out below is a list of associates of the Group:
Payitmonthly Ltd (“PIML”)
23 June
2014
£0.08
£0.14
£0.14
55.0%
3
0.5%
33.3%
Group
2022
£000
155
155
Group
2021
£000
136
136
In December 2017, 40.0% of the share capital of BLX was acquired for nil consideration. During 2021 financial year, the Group
obtained control of the subsidiary. Prior to obtaining control, the share of the associate’s total comprehensive income during the year
was £nil (2021: £22,000).
In August 2018, 30% of the share capital of PIML was acquired for £90,000 consideration. The Group’s resulting share of the
associate’s total comprehensive income during the year was £18,000 (2021: £10,000).
31. List of subsidiaries
Set out below is a list of direct subsidiaries of the Group:
Carrying value of investments
Conister Bank Limited
Edgewater Associates Limited
TransSend Holdings Limited
Manx Ventures Limited
Nature of
Business
31 December
2022
% Holding
Date of
Incorporation
Asset and Personal
Finance
Wealth Management
Holding Company
Holding Company
100
100
100
100
05/12/1935
24/12/1996
05/11/2007
15/05/2009
All subsidiaries are incorporated in the Isle of Man.
32. Subsidiaries and non-controlling interests
A. Acquisition of subsidiary
Payment Assist Limited (“PAL”)
2022
£000
21,592
2,005
-
-
23,597
2021
£000
20,592
2,005
-
-
22,597
On 16 May 2022, the Group (through MVL) announced that it entered into an agreement to acquire 50.1% of the shares and voting
interests in UK focused, point of sale lender PAL for a total consideration of £4.244 million payable in cash. The acquisition was
completed in September 2022.
Payment Assist (“PAL”), the UK's leading automotive repair point-of-sale finance provider, works with premier national chains such
as National Tyres, Halfords and Formula One. PAL has diversified into insured products and retail.
The agreement with PAL continues MFG’s strategy of acquiring interests in high quality specialist lenders.
PAL has contributed revenue of £3,407,000 and profit of £701,000 to the Group’s results. If the acquisition had occurred on 1 January
2022, management estimates that the impact on consolidated interest income would have been £9,190,000 and the impact on
consolidated profit for the period would have been £1,473,000.
In addition to the acquisition, MVL has agreed an option to acquire the remaining 49.9% of Payment Assist for a variable cash
consideration of 2 times the average net profit per share at the point of exercise, subject to a maximum of £5 million (the “Option”).
The Option can be exercised by MVL at any time for the period until PAL has declared a dividend for the financial year ended 31
December 2026.
Page | 67
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
32. Subsidiaries and non-controlling interests (continued)
A. Acquisition of subsidiary (continued)
Payment Assist Limited (“PAL”) (continued)
i. PAL - Consideration transferred
The following table summarises as at the acquisition date the fair value of each major class of consideration transferred:
Cash
Settlement of pre-existing relationship
ii. PAL - Settlement of pre-existing relationship
£000
4,244
23,490
27,734
The Bank and PAL were parties to a Integrated Wholesale Facility loan agreement and a Coronavirus Business Interruption Loan
with the Bank as lender and PAL as borrower. This pre-existing relationship was £23,102,116 when the Group acquired PAL.
iii. PAL - Acquisition-related costs
The Group incurred acquisition-related costs of £101,229 relating to external legal fees and due diligence costs. These costs have
been included in ‘other costs’ in the consolidated statement of profit or loss and other comprehensive income.
iv. PAL - Identifiable assets acquired, and liabilities assumed
The following table summarises the recognised amounts of assets acquired, and liabilities assumed at the date of acquisition:
Intangible assets – customer related
Property and equipment
Trade and other receivables
Loans and advances to customers
Cash and cash equivalents
Creditors and accrued charges
Total identifiable net assets acquired
v. PAL – Measurement of fair values
£000
273
269
10
25,384
1,875
(4,744)
23,067
The valuation techniques used for measuring the fair value of material assets acquired were as follows:
Assets acquired
Intangible assets
vi. PAL - Goodwill
Valuation technique
Multi-period excess earnings method: The multi-period excess
earnings method considers the present value of net cash flows
expected to be generated by the customer relationships.
The goodwill arising from the acquisition has been recognised as follows:
Total consideration transferred
Non-controlling interest, based on their proportionate interest in the recognised amounts
Fair value of identifiable net assets
Goodwill
£’000
27,734
(211)
(23,067)
4,456
Page | 68
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
32. Subsidiaries and non-controlling interests (continued)
The Business Lending Exchange (“BLX”)
On 11 October 2021, the Group (through MVL) announced that it entered into an agreement to acquire 60% of the shares and voting
interests in BLX. As a result, the Group’s equity interest in BLX increased from 40% to 100%, thereby obtaining control of BLX.
Regulated by the FCA under Consumer Credit Authorisations, BLX primarily lends to start-up companies and small businesses which
require asset backed finance.
The acquisition strengthens the Group’s strategy of developing a network of niche loan brokers within the UK.
The consideration transferred was £6,524,000 and transaction costs of £25,000 were incurred. The net fair value of identifiable assets
acquired and liabilities assumed was £5,488,000. Goodwill of £1,098,000 was recognised.
In 2021 the remeasurement to fair value of the Bank’s existing 20% interest in BLX resulted in a gain of £660,000 (£872,000 less the
£212,000 carrying amount of the equity accounted investee at the date of acquisition). This amount was included separately in prior
year’s statement of profit or loss and other comprehensive income.
Blue Star Business Solutions Limited (“BBSL”)
On 16 April 2019, the Group (through MVL) acquired 100% of the shares and voting interest in BBSL, obtaining control of BBSL. The
Group agreed to pay the selling shareholders:
50% of net profits in BBSL for 3 years post completion; and
50% of the incremental net profit that the Group benefits from as a result of taking up BBSL loan proposals post completion
up until the third anniversary.
This is to be paid on each anniversary with a final payment in year 4 for the unrealised lending profit. The total consideration is to
have a cap of £4,000,000 in total. The contingent consideration is calculated by forecasting 3 years of net profits discounted using an
interest rate of 14.0% per annum. The range of contingent consideration payable is £nil to £2,500,000.
The remaining contingent consideration payable was remeasured during the period with an interest expense charge of £35,067 and
remeasurement loss of £109,916. A final payment of £781,095 was paid during the period. There is no further consideration or
amounts due to the sellers of BBSL.
B. NCI in subsidiaries
The following table summarises the information about the Group’s subsidiaries that have material NCI, before any intra-group
eliminations.
31 December 2022
£’000
NCI percentage
Cash and cash equivalents
Loans and advances to customers
Trade and other receivables
Property, plant and equipment
Intangible assets
Loans and borrowings
Creditors and accrued charges
Deferred tax
Net assets
Carrying amount of NCI
Revenue
Profit
OCI
Total comprehensive income
Profit allocated to NCI
OCI allocated to NCI
Operating activities cashflows
Investing activities cashflows
Financing activities cashflows
Net increase / (decrease) in cashflows
PAL
49.9%
2,584
9,818
1,116
15
251
(3,089)
(10,416)
-
279
140
3,407
701
-
724
350
-
585
124
-
709
NRF
10%
219
-
941
4,507
27
(4,355)
(628)
(217)
494
49
1,660
238
-
238
(7)
-
87
(158)
(12)
(83)
Total
189
343
-
Page | 69
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
33. Acquisition of financial instrument
On 9 June 2021 the Group acquired 10% of the issued share capital of RFG for nil consideration. The receipt of the issued share
capital is considered to be a commitment fee receivable by the Group in order to originate loan facilities in aggregate not exceeding
£6,250,000 to RFG. The commitment fee is an integral part of the effective interest rate of the associated loan facilities issued to
RFG.
The Group is not considered to have a significant influence over RFG as it holds less than a 20% shareholding and is not considered
to participate in the policy making decisions of the entity. The 10% shareholding has thus been classified as a financial instrument.
The Group continues to obtain information necessary to measure the fair value of the shares obtained. The fair value of the financial
instrument received has been determined as £122,000 (2021: £68,000) based on the proportionate share of the net asset value of
RFG. There has been no change to fair value at year-end.
As part of the transaction, the Group has been granted two warrants to acquire further shares. The first warrant is for 5% of the share
capital and the second warrant is for a further 5% of the share capital.
The two warrants are exercisable dependent upon the Group’s banking subsidiary, the Bank, contracting with RFG, for a larger facility.
The fair value of the two warrants has been determined to be nil due to the significant uncertainty that exists at acquisition date and
the period end in issuing a further debt facility.
34. Goodwill
Cash generating unit
PAL (see Note 32)
EAL
BLX
BBSL
NRFL
Manx Collections Limited (“MCL”)
Three Spires Insurance Services Limited (“Three Spires”)
Group
2022
£000
4,456
1,649
1,908
1,390
678
454
41
10,576
Group
2021
£000
-
1,849
1,908
1,390
678
454
41
6,320
As at 31 December 2022, no indications of impairment have been assessed on the PAL goodwill following its recognition on the
Group’s Statement of Financial Position (see Note 32).
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 key assumptions used in the estimation of the recoverable amount are set out in this note. The
recoverable amount of the CGUs discussed in this note were each based on value in use. The values assigned to key assumptions
represents management’s assessment of future trends in the relevant industries and have been based on historical data from both
external and internal sources.
The estimated recoverable amount in relation to the EAL CGU (including also goodwill generated on acquisition of EAL) 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
14.0% discount factor. The sensitivity of the analysis was tested using additional discount factors of 15.0% and 20.0% on stable profit
levels. An impairment loss on EAL goodwill of £200,000 has been recognised during the year.
The estimated recoverable amount in relation to the goodwill generated on the purchase of BLX is based on forecasted 3 year interest
income calculated at an average yield of 8%, with a terminal value calculated using a 3.0% growth rate of net income and then
discounted using a 14.0% discount factor. The sensitivity of the analysis was tested using additional discount factors of up to 20.0%
on varying interest income growth rates.
The estimated recoverable amount in relation to the goodwill generated on the purchase of BBSL is based on forecasted 3 year
interest income calculated at an average yield of 8%, with a terminal value calculated using a 3.0% growth rate of net income and
then discounted using a 14.0% discount factor. The sensitivity of the analysis was tested using additional discount factors of up to
20.0% on varying interest income growth rates.
The estimated recoverable amount in relation to the goodwill generated on the purchase of NRFL is based on a 4 year sales forecast,
extrapolated to 14 years using a 1.5% annual increment, and then discounted using a 12% discount factor. The sensitivity of the
analysis was tested using additional discount factors of up to 20.0% on varying sales volumes. On the basis of the above reviews no
impairment to goodwill has been made in the current year.
The estimated recoverable amount in relation to the goodwill generated on the purchase of MCL is based on forecasted 3-year sales
interest income calculated at 5.0% margin.
Page | 70
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
34. Goodwill (continued)
This is extrapolated to 10 years using a 2.0% annual increment, and then discounted using a 11.0% discount factor. The sensitivity
of the analysis was tested using additional discount factors of 15.0% and 20.0% on varying sales volumes.
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 EAL. Based on the above no impairment to goodwill has been made in the current year.
35. Investment in Group undertakings
Amounts owed to Group undertakings
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 EAL.
Creation
Maturity
Interest rate
% p.a.
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
12 June 2018
11 February 2024
27 May 2024
9 July 2024
17 September 2026
22 July 2033
22 October 2033
23 September 2036
14 June 2037
12 June 2038
Edgewater Associates Limited
21 February 2017
14 May 2017
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
2022
£000
500
500
500
400
1,000
1,000
1,100
450
2,000
150
128
7,728
2021
£000
500
500
500
400
1,000
1,000
1,100
450
2,000
150
128
7,728
36. Related party transactions
Cash deposits
During the year, the Bank held cash on deposit on behalf of Jim Mellon (Executive Chairman of MFG). At 31 December total deposits
amounted to £94,475 (2021: £507,908), at normal commercial interest rates in accordance with the standard rates offered by the
Bank.
Key management remuneration including Executive Directors
Remuneration
Performance Related Pay
Pension
2022
£000
516
68
41
625
2021
£000
440
51
34
525
Employment benefits include gross salaries, performance related pay, employer defined contributions and restricted stock units (Note
29D).
As at 31 December 2022, Douglas Grant had £376,163 (2021: £107,386) outstanding to repay in Loans and advances to Conister
Bank Limited, paying an average interest of 7.0% (2021: 2.54%); and James Smeed, £15,463 (2021: £29,756), paying an average
interest of 3.01% (2021: 2.65%). No impairment is held in respect of these amounts.
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.
Loan advance to EAL
On 14 December 2016, a loan advance was made to EAL by the Bank in order to provide the finance required to acquire MBL. The
advance was for £700,000 at an interest rate of 8% per annum repayable over 6 years. A negative pledge was given by EAL to not
encumber any property or assets or enter into an arrangement to borrow any further monies. The balance as at 31 December 2022
was £nil (2021: £140,950).
Page | 71
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
36. Related party transactions (continued)
Loan advance to PIML
On 24 May 2018, a £500,000 loan facility was made available to PIML by the Bank in order to provide the finance required to expand
its operations. The facility is for 12 months. Interest is charged at commercial rates. At 31 December 2022, £1,241,000 (2021:
£1,219,000) had been advanced to PIML. No impairment is held in respect of these amounts.
Subordinated loans
The Company has advanced £7,450,000 (2021: £7,450,000) of subordinated loans to the Bank and £278,000 (2021: £278,000) to
EAL as at 31 December 2022. See note 34 for more details.
37. Leases
A. Leases as lessee
The Group leases the head office building in the Isle of Man. The lease’s term is 10 years with an option to renew the lease after that
date. Lease payments are renegotiated every 10 years to reflect market rentals.
The Group leases an office unit in the United Kingdom and IT equipment with contract terms of 2 to 3 years. These leases are short-
term and / or leases of low-value items. The Group has elected not to recognise right-of-use assets and lease liabilities for these
leases.
Information about leases for which the Group is a lessee is presented below.
i. Right-of-use assets
Right-of-use assets related to leased properties that do not meet the definition of investment property are presented as property, plant
and equipment.
Group
Cost
As at 1 January 2022
Acquisition of subsidiary
Additions
As at 31 December 2022
Accumulated depreciation
As at 1 January 2022
Charge for the year
Eliminated on disposals
As at 31 December 2022
Carrying value at 31 December 2022
Carrying value at 31 December 2021
ii. Amounts recognised in profit or loss
Interest on lease liabilities
Depreciation expense
Expenses relating to short-term leases and low-value assets
iii. Amounts recognised in statement of cash flows
Total cash outflow for leases
Land and
Buildings
£000
1,444
136
380
1,960
205
180
-
385
1,575
1,239
2022
£000
78
180
92
2022
£000
280
Total
£000
1,444
136
380
1,960
205
180
-
385
1,575
1,239
2021
£000
42
162
64
2021
£000
243
Page | 72
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
37. Leases (continued)
iv. Non-cancellable operating lease rentals are payable in respect of property as follows:
Less than one year
Between one and five years
Over five years
Total operating lease rentals payable
2022
£000
92
184
-
276
2021
£000
64
128
-
192
38. Regulators
Certain Group subsidiaries are regulated by the FSA and the FCA as detailed below.
The Bank and EAL are regulated by the FSA under a Class 1(1) - Deposit Taking licence and Class 2 - Investment Business licence
respectively. The Bank and CFL are regulated by the FCA to provide regulated products and services.
39. Contingent liabilities
The Bank is required to be a member of the Isle of Man Government Depositors’ Compensation Scheme which was introduced by
the Isle of Man Government under the Banking Business (Compensation of Depositors) Regulations 1991 and creates a liability on
the Bank to participate in the compensation of depositors should it be activated.
40. Non-IFRS measures
Non-IFRS measures included in the financial statements include the following:
Measure
Net trading income
Operating income
Description
Net trading income represents net interest income and contributions from non-interest income activities.
Operating income represents net trading income other operating income and gains or losses on financial
instruments
41. Subsequent events
There were no subsequent events occurring after 31 December 2022.
Page | 73
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
42. Financial risk management
A. Introduction and overview
The Group has exposure to the following risks from financial instruments:
credit risk;
liquidity risk;
market risk; and
operational risk.
Risk management framework
The Board has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board has
established the ARCC, which is responsible for approving and monitoring Group risk management policies. The ARCC is assisted in
its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and
procedures, the results of which are reported to the ARCC.
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. The risk management policies and systems are reviewed regularly
to reflect changes in market conditions and the Group’s activities. The Group, though its training and management standards and
procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and
obligations.
B. Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s loans and advances to customers and investment debt securities. Credit risk
includes counterparty, concentration, underwriting and credit mitigation risks.
Management of credit risk
The Bank’s Board of Directors created the Credit Committee which is responsible for managing credit risk, including the following:
Formulating credit policies in consultation with business units, covering collateral requirements, credit assessments, risk
grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements;
Establishing the authorisation structure for the approval and renewal of credit facilities. Authorisation limits are allocated in
line with credit policy;
Reviewing and assessing credit risk: The Credit Committee assesses all credit exposures in excess of designated limits,
before facilities are committed to customers. Renewals and reviews of facilities are subject to the same review process.
Limiting concentrations of exposures to counterparties, geographies and industries, by issuer, credit rating band, market
liquidity and country (for debt securities);
Developing and maintaining risk gradings to categorise exposures according to the degree of risk of default. The current risk
grading consists of 3 grades reflecting varying degrees of risk of default;
Developing and maintaining the Group’s process for measuring ECL: This includes processes for:
o
o
o
initial approval, regular validation and back-testing of the models used;
determining and monitoring significant increase in credit risk; and
the incorporation of forward-looking information; and
Reviewing compliance with agreed exposure limits. Regular reports on the credit quality of portfolios are provided to the
Credit Committee which may require corrective action to be taken.
C. Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities that are
settled by delivering cash or another financial asset. Liquidity risk arises from mismatches in the timing and amounts of cash flows,
which is inherent to the Group’s operations and investments.
Management of liquidity risk
The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have enough liquidity to meet its
liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to
the Group’s reputation. The key elements of the Group’s liquidity strategy are as follows:
Funding base: offering six-months to five-year fixed term deposit structure with no early redemption option. This means the
Bank is not subject to optionality risk where customers redeem fixed rate products where there may be a better rate available
within the market;
Funding profile: the Bank has a matched funding profile and does not engage in maturity transformation which means that
on a cumulative mismatch position the Bank is forecast to be able to meet all liabilities as they fall due;
Page | 74
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
42. Financial risk management (continued)
C. Liquidity risk (continued)
Management of liquidity risk (continued)
Monitoring maturity mismatches, behavioural characteristics of the Group’s financial assets and financial liabilities, and the
extent to which the Group’s assets are encumbered and so not available as potential collateral for obtaining funding;
Liquidity buffer: the Bank maintains a liquidity buffer of 10.0% of its deposit liabilities, with strict short-term mismatch limits
of 0.0% for sight to three months and -5.0% for sight to six months. This ensures that the Bank is able to withstand any short-
term liquidity shock; and
Interbank market: the Bank has no exposure to the interbank lending market. The Bank has no reliance on liquidity via the
wholesale markets. In turn, if market conditions meant access to the wholesale funding was constrained as per the 2008
credit crisis, this would have no foreseeable effect on the Bank.
The Bank’s liquidity position is monitored daily against internal and external limits agreed with the FSA and according to the Bank’s
Liquidity Policy. The Bank also has a Liquidity Contingency Policy and Liquidity Contingency Committee in the event of a liquidity
crisis or potential liquidity disruption event occurring.
The Treasury department receives information from other business units regarding the liquidity profile of their financial assets and
financial liabilities and details of other projected cash flows arising from projected future business. Treasury then maintains a portfolio
of short-term liquid assets, largely made up of short-term liquid investment securities, loans and advances to banks and other inter-
bank facilities, to ensure that sufficient liquidity is maintained within the Group as a whole.
Regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions.
The scenarios are developed considering both Group-specific events and market-related events (e.g. prolonged market illiquidity).
D. Market risk
Market risk is the risk that of changes in market prices; e.g. interest rates, equity prices, foreign exchange rates and credit spreads
(not relating to changes in the obligor’s / issuer’s credit standing), will affect the Group’s income or value of its holdings of financial
instruments. The objective of the Group’s market risk management is to manage and control market risk exposures within acceptable
parameters to ensure the Group’s solvency while optimising the return on risk.
Management of market risks
Overall authority for market risk is vested in the Assets and Liabilities Committee (“ALCO”) which sets up limits for each type of risk.
Group finance is responsible for the development of risk management policies (subject to review and approval by the ALCO) and for
the day-to-day review of their implementation.
Foreign exchange risk
The Bank is not subject to foreign exchange risks and its business is conducted in pounds sterling.
Equity risk
The Group has investment in associates which are carried at cost adjusted for the Group’s share of net asset value. The Bank has
access to these accounts. The Bank’s exposure to market risk is not considered significant given the low carrying amount of the
investment.
The Group’s does not hold any investments in listed equities.
Interest rate risk
The principal potential interest rate risk that the Bank is exposed to is the risk that the fixed interest rate and term profile of its deposit
base differs materially from the fixed interest rate and term profile of its asset base, or basis and term structure risk.
Additional interest rate risk may arise for banks where (a) customers are able to react to market sensitivity and redeem fixed rate
products and (b) where a bank has taken out interest rate derivate hedges especially against longer-term interest rate risk, where the
hedge moves against the bank. However, neither of these risks apply to the Bank.
Interest rate risk for the Bank is not deemed to be currently material due to the Bank’s matched funding profile. Any interest rate risk
assumed by the Bank will arise from a reduction in interest rates, in a rising environment due to the nature of the Bank’s products and
its matched funded profile. The Bank should be able to increase its lending rate to match any corresponding rise in its cost of funds,
notwithstanding its inability to vary rates on its existing loan book. The Bank attempts to efficiently match its deposit taking to its
funding requirements.
Page | 75
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
42. Financial risk management (continued)
E. Operational risk
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s processes,
personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks – e.g. those arising
from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of
the Group’s operations.
Management of operational risk
The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group’s
reputation with overall cost effectiveness and innovation. In all cases, Group policy requires compliance with all applicable legal and
regulatory requirements.
The Group has developed standards for the management of operational risk in the following areas:
Business continuity planning;
Requirements for appropriate segregation of duties, including the independent authorisation of transactions;
Requirements for the reconciliation and monitoring of transactions;
Compliance with regulatory and other legal requirements;
Documentation of controls and procedures;
Periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified;
Requirements for the reporting of operational losses and proposed remedial action;
Development of contingency plans;
Ethical and business standards;
Risk mitigation, including insurance where this is cost-effective.
Information technology and cyber risks; and
Training and professional development;
Compliance with Group standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of
Internal Audit reviews are reported to the ARCC.
43. Basis of measurement
The financial statements are prepared on a historical cost basis, except for the following material items:
Items
Measurement basis
FVTPL – Trading asset
FVOCI – Debt securities
Land and buildings
Deferred consideration
Net defined benefit liability
Fair value
Fair value
Fair value
Fair value
Fair value of plan assets less the present value of the
defined benefit obligation
Page | 76
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
44. Significant accounting policies
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 2022:
Amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards—Subsidiary as a First-time Adopter
(issued on 12 April 2022);
Amendment to IFRS 9 Financial Instruments—Fees in the ‘10 per cent’ Test for Derecognition of Financial Liabilities (issued
on 12 April 2022);
Amendment to IAS 41 Agriculture — Taxation in Fair Value Measurements (issued on 12 April 2022);
Amendments to IAS 37: Onerous Contracts — Cost of Fulfilling a Contract (issued on 12 April 2022);
Amendments to IAS 16: Property and Equipment: Proceeds before Intended Use (issued on 12 April 2022); and
Amendments to References to the Conceptual Framework in IFRS Standards (issued on 12 April 2022).
No significant changes followed the implementation of these standards and amendments.
New standards and amendments to standards, adopted but not yet effective with an initial application of 1 January 2023:
Adoption of IFRS 17 Insurance Contracts (issued on 17 May 2022);
Adoption of Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) (issued on 2 December
2022);
Adoption of Definition of Accounting Estimates (Amendments to IAS 8) (issued on 2 December 2022); and
Adoption of Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12) (issued
on 2 December 2022)
No significant changes are anticipated followed the implementation of the standards and amendments effective on 1 January 2023.
The Group has consistently applied the following accounting policies to all periods presented in these financial statements.
Set out below is an index of the significant accounting policies, the details of which are available on the pages that follow:
Ref.
Note description
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
L.
M.
N.
O.
P.
Q.
Basis of consolidation of subsidiaries and separate financial statements of the Company
Interest in equity accounted investees
Interest
Fee and commission income
Leases
Income tax
Financial assets and financial liabilities
Cash and cash equivalents
Loans and advances
Property, plant and equipment
Intangibles assets and goodwill
Impairment of non-financial assets
Deposits, debt securities issued and subordinated liabilities
Employee benefits
Share capital and reserves
Earnings per share (“EPS”)
Segmental reporting
No.
78
78
78
79
79
80
81
85
85
85
85
86
87
87
87
87
88
Page | 77
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
44. Significant accounting policies (continued)
A. Basis of consolidation of subsidiaries and separate financial statements of the Company
i. Business combinations
The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The
consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally
recognised in profit or loss.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that
meets the definition of a financial instruments is classified as equity, then it is not measured, and settlement is accounted for within
equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the
fair value of the contingent consideration are recognised in profit or loss.
ii. Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity if it is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those returns through its control over the entity. The Group reassesses
whether it has control if there are changes to one or more of the elements of control. This includes circumstances in which protective
rights held (e.g. those resulting from a lending relationship) become substantive and lead to the Group having power over an investee.
The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control
commences until the date on which control ceases.
iii. Non-controlling interests (“NCI”)
NCI are measured initially at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition.
Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
iv. Loss of control
When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related NCI and
other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is
measured at fair value when control is lost.
v. Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated
in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to
the extent that there is no evidence of impairment.
vi. Separate financial statements of the Company
In the separate financial statements of the Company, interests in subsidiaries, associates and joint ventures are accounted for at cost.
B. Interests in equity accounted investees
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.
C. Interest
Interest income and expense are recognised in profit or loss using the effective interest rate method.
i. 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 gross carrying amount of the financial asset or amortised cost of the financial liability. When calculating the effective interest rate
for financial assets, the Group estimates future cash flows considering all contractual terms of the financial instruments, 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.
Page | 78
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
44. Significant accounting policies (continued)
C. Interest (continued)
ii. Amortised cost and gross carrying amount
The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured
on initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of
any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any expected credit loss
allowance.
The gross carrying amount of a financial asset is the amortised cost of a financial asset before adjusting for any expected credit loss
allowance.
iii. Calculation of interest income and expense
In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the
asset is not credit-impaired) or to the amortised cost of the liability.
However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by
applying the effective interest rate to the amortised cost of the financial asset. If the asset is no longer credit-impaired, then the
calculation of interest income reverts to the gross basis.
D. Fee and commission income
The Group generates fee and commission income through provision of independent financial advice, insurance brokerage agency,
introducer of foreign exchange services and commissions from brokering business finance for small and medium sized enterprises.
Independent financial advice and insurance brokerage agency
Income represents commission arising on services and premiums relating to policies and other investment products committed during
the year, as well as renewal commissions having arisen on services and premiums relating to policies and other investment products
committed during the year and previous years and effective at the balance sheet date. Income is recognised on the date that policies
are submitted to product providers with an appropriate discount being applied for policies not completed. As a way to estimate what
is due at the year-end, a “not proceeded with” rate of 10.0% for pipeline life insurance products and 0.0% for non-life insurance
pipeline is assumed. Renewal commissions are estimated by taking the historical amount written pro-rata to 3 months.
Other
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 fee relates.
E. Leases
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
i. As a lessee
At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the
contract to each lease component on the basis of its relative stand-alone prices. However, for the leases of property the Group has
elected not to separate non-lease components and as a result, accounts for the lease and non-lease components as a single lease
component.
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially
measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or
to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the
lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the
right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over
the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the
right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing
rate. Generally, the Group uses its incremental borrowing rate as the discount rate.
The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes
certain adjustments to reflect the terms of the lease and the type of the asset leased.
Page | 79
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
44. Significant accounting policies (continued)
E. Leases (continued)
i. As a lessee (continued)
Lease payments included in the measurement of the lease liability comprise the following:
Fixed payments, including in-substance fixed payments;
Variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the
commencement date;
Amounts expected to be payable under a residual value guarantee; and
The exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional
renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a
lease unless the Group is reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future
lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be
payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or
termination option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use
asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Group presents right-of-use assets that do not meet the definition of investment property in ‘property, plant and equipment’ and
lease liabilities in ‘loans and borrowings’ in the statement of financial position.
Short-term leases and leases of low-value assets
The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and short-term leases,
including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line
basis over the lease term.
ii. As a lessor
At inception or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to
each lease component on the basis of their relative stand-alone prices.
When the Group acts as a lessor, it determines at lease inception whether each lease is a finance or an operating lease.
To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and
rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an
operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of
the economic life of the asset.
Finance leases and HP contracts
When assets are subject to a finance lease or HP contract, the present value of the lease payments is recognised as a receivable.
The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. HP
and lease income is recognised over the term of the contract or lease reflecting a constant periodic rate of return on the net investment
in the contract or lease. Initial direct costs, which may include commissions and legal fees directly attributable to negotiating and
arranging the contract or lease, are included in the measurement of the net investment of the contract or lease at inception.
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 profit or loss and other
comprehensive income on a straight-line basis over the period of the lease.
F. Income tax
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 temporary differences arising between the tax bases of assets and liabilities and their carrying amounts
in the consolidated financial statements. Deferred tax is not recognised for taxable temporary differences arising on the initial
recognition of goodwill and temporary differences related to investments in subsidiaries and associates to the extent that the Group
is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable
future.
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.
Page | 80
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
44. Significant accounting policies (continued)
G. Financial assets and financial liabilities
i. Recognition and initial measurement
The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date on which
they are originated. All other financial instruments including regular-way purchases and sales of financial assets are recognised on
the trade date, which is the date on which the Group becomes party to the contractual provisions of the instrument.
A financial asset or financial liability is measured initially at fair value plus, for an item not at FVTPL, transaction costs that are directly
attributable to its acquisition or issue.
ii. Classification
Financial assets
On initial recognition, a financial asset is classified as measured at amortised cost, FVOCI or FVTPL.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
The asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal
and interest (“SPPI”).
A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as FVTPL:
The asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling
financial assets; and
The contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent
changes in fair value in OCI. This election is made on an investment-by-investment basis.
All other financial assets are classified as measured at FVTPL.
In addition, on initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be
measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that
would otherwise arise.
Business model assessment
The Group makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best
reflects the way the business is managed and information provided to management.
Assessment of whether contractual cash flows are solely payments of principal and interest
For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is
defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a
particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.
In assessing whether the contractual cash flows are SPPI, the Group considers the contractual terms of the instrument. This includes
assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows
such that it would not meet this condition.
Reclassifications
Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business
model for managing financial assets.
Financial liabilities
The Group classifies its financial liabilities, other than financial guarantees and loan commitments, as measured at amortised cost.
iii. Derecognition
Financial assets
The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it
transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership
of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of
ownership and it does not retain control of the financial asset.
Page | 81
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
44. Significant accounting policies (continued)
G. Financial assets and financial liabilities (continued)
iii. Derecognition (continued)
Financial assets (continued)
On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to
the portion of the asset derecognised) and the sum of (i) the consideration received (including any new asset obtained less any new
liability assumed) and (ii) any cumulative gain or loss that had been recognised in OCI is recognised in profit or loss.
Financial liabilities
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.
iv. Modifications of financial assets and financial liabilities
Financial assets
If the terms of a financial asset are modified, then the Group evaluates whether the cash flows of the modified asset are substantially
different.
If the cash flows are substantially different, the contractual rights to cash flows from the original financial asset are deemed to have
expired. In this case, the original financial asset is derecognised and a new financial asset is recognised at fair value plus any eligible
transaction costs.
If the cash flows are modified when the borrower is in financial difficulties, then the objective of the modification is usually to maximise
recovery of the original contractual terms rather than to originate a new asset with substantially different terms. If the Group plans to
modify a financial asset in a way that would result in forgiveness of cash flows, then it first considers whether a portion of the asset
should be written off before the modification takes place. This approach impacts the result of the quantitative evaluation and means
that the derecognition criteria are not usually met in such cases.
If the modification of a financial asset measured at amortised cost or FVOCI does not result in derecognition of the financial asset,
then the Group first recalculates the gross carrying amount of the financial asset using the original effective interest rate of the asset
and recognises the resulting adjustment as a modification gain or loss in profit or loss. Any costs or fees incurred and fees received
as part of the modification adjust the gross carrying amount of the modified financial asset and are amortised over the remaining term
of the modified financial asset. If such modification is carried out because of financial difficulties of the borrower, then the gain or loss
is presented together with impairment losses. In other cases, it is presented as interest income calculated using the effective interest
rate method.
Financial liabilities
The Group derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially
different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the
carrying amount of the financial liability derecognised and consideration paid is recognised in profit or loss. Consideration paid
includes non-financial assets transferred, if any, and the assumption of liabilities, including the new modified financial liability.
If the modification of a financial liability is not accounted for as derecognition, then the amortised cost of the liability is recalculated by
discounting the modified cash flows at the original effective interest rate and the resulting gain or losses recognised in profit or loss.
Any costs and fee incurred are recognised as an adjustment of the carrying amount of the liability and amortised over the remaining
term of the modified financial liability by re-computing the effective interest rate on the instrument.
v. Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only
when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or
to realise the asset and settle the liability simultaneously.
Income and expenses are presented on a net basis only when permitted under IFRS, or for gains and losses arising from a group of
similar transactions such as in the Group’s trading activity.
vi. Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access
at the date. The fair value of a liability reflects its non-performance risk.
The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the
change has occurred.
Page | 82
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
44. Significant accounting policies (continued)
G. Financial assets and financial liabilities (continued)
vi. Fair value measurement (continued)
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.
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.
vii. Impairment
A financial instrument that is not credit-impaired on initial recognition is classified in ‘Stage 1’ and has its credit risk continuously monitored by
the Group.
If a SICR since initial recognition is identified, the financial instrument is moved to ‘Stage 2’ but is not yet deemed to be credit impaired.
An SICR is always deemed to occur when the borrower is 30 days past due on its contractual payments. If the Group becomes
aware ahead of this time of non-compliance or financial difficulties of the borrower, such as loss of employment, avoiding contact
with the Group then an SICR has also deemed to occur; and
A receivable is always deemed to be in default and credit-impaired when the borrower is 90 days past due on its contractual
payments or earlier if the Group becomes aware of severe financial difficulties such as bankruptcy, individual voluntary arrangement,
abscond or disappearance, fraudulent activity and other similar events.
If the financial instrument is credit-impaired, the financial instrument is then moved to ‘Stage 3’. Financial instruments in Stage 3 have
their ECL measured based on expected credit losses on an undiscounted lifetime basis.
The Group measures loss allowances at an amount equal to lifetime ECL, except for debt investment securities that are determined
to have low credit risk at the reporting date for which they are measured as a 12-month ECL. Loss allowances for lease receivables
are always measured at an amount equal to lifetime ECL.
12-month ECL are the portion of ECL that result from default events on a financial instrument that are possible within the 12 months
after the reporting date. Financial instruments for which a 12-month ECL is recognised are referred to as ‘Stage 1 financial
instruments’.
Lifetime ECL are the ECL that result from all possible default events over the expected life of a financial instrument. Financial
instruments for which a lifetime ECL is recognised but which are not credit-impaired are referred to as ‘Stage 2 financial instruments’.
Page | 83
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
44. Significant accounting policies (continued)
G. Financial assets and financial liabilities (continued)
vii. Impairment (continued)
Measurement of ECL
After a detailed review, the Group devised and implemented an impairment methodology in light of the IFRS 9 requirements outlined
above noting the following:
The ECL was derived by reviewing the Group’s loss rate and loss given default over the past 9 years by product and
geographical segment;
The Group has assumed that the future economic conditions will broadly mirror the current environment and therefore the
forecasted loss levels in the next 3 years will match the Group’s experience in recent years;
For portfolios where the Group has never had a default in its history or has robust credit enhancements such as credit
insurance or default indemnities for the entire portfolio, then no IFRS 9 provision is made. At 2022 year-end, 28.8% had
such credit enhancements (2021: 36.6%); and
If the Group holds objective evidence through specifically assessing a credit-impaired receivable and believes it will go on
to completely recover the debt due to the collateral held and cooperation with the borrower, then no IFRS 9 provision is
made.
ECL are probability-weighted estimates of credit losses. They are measured as follows:
Financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the difference
between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive);
Financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present
value of estimated future cash flows; and
Undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to the Group if
the commitment is drawn down and the cash flows that the Group expects to receive.
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt financial assets carried at
FVOCI, and finance lease receivables are credit-impaired (referred to as ‘Stage 3 financial assets’). A financial asset is credit-impaired
when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable date:
Significant financial difficulty of the borrower or issuer;
A breach of contract such as a default or past due event;
The restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise;
It is becoming probable that the borrower will enter bankruptcy or another type of financial reorganisation; or
The disappearance of an active market for a security because of financial difficulties.
A loan that has been renegotiated due to a deterioration in the borrower’s condition is usually considered to be credit-impaired unless
there is evidence that the risk of not receiving contractual cash flows has reduced significantly and there are no other indicators of
impairment. In addition, a retail loan that is overdue for 90 days or more is considered credit-impaired even when the regulatory
definition of default is different.
In assessing of whether an investment in sovereign debt is credit impaired, the Group considers the following factors:
The market’s assessment of creditworthiness as reflected in the bond yields;
The rating agencies’ assessments of creditworthiness;
The country’s ability to access the capital markets for new debt issuance;
The probability of debt being restructured, resulting in holders suffering losses through voluntary or mandatory debt
forgiveness; and
The international support mechanisms in place to provide the necessary support as ‘lender of last resort’ to that country, as
well as the intention, reflected in public statements, of governments and agencies to use those mechanisms. This includes
an assessment of the depth of those mechanisms and, irrespective of the political intent, whether there is the capacity to
fulfil the required criteria.
Presentation of allowance for ECL in the statement of financial position
Loss allowances for ECL are presented in the statement of financial position as follows:
Financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets;
Loan commitments: generally, as a provision; and
Debt instruments measured at FVOCI: no loss allowance is recognised in the statement of financial position because the
carrying amount of these assets is their fair value. However, the loss allowance is disclosed and is recognised in the fair
value reserve.
Page | 84
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
44. Significant accounting policies (continued)
G. Financial assets and financial liabilities (continued)
vii. Impairment (continued)
Write-off
Loans and debt securities are written off (either partially or in full) when there is no reasonable expectation of recovering a financial
asset in its entirety or a portion thereof. This is generally the case when the Group determines that the borrower does not have assets
or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. This assessment is carried
out at the individual asset level.
Recoveries of amounts previously written off are included in ‘impairment losses on financial instruments’ in the statement of profit or
loss and OCI.
Financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for
recovery of amounts due.
H. 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.
I. Loans and advances
Loans and advances’ captions in the statement of financial position include:
Loans and advances measured at amortised cost (see note 44 (G)). They are initially measured at fair value plus incremental
direct transaction costs, and subsequently at their amortised cost using the effective interest method; and
Finance lease receivables (see note 44 (E)).
J. Property, plant and equipment
Items of property, plant and equipment are stated at historical cost less accumulated depreciation (see below). Historical cost includes
expenditure that is directly attributable to the acquisition of the items. Buildings are carried at a revalued amount, being fair value at
the date of revaluation less subsequent depreciation and impairment and are revalued annually.
If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be recognised in other comprehensive income
and accumulated in equity under the heading of revaluation surplus. However, the increase shall be recognised in profit or loss to the
extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss.
If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be recognised in profit or loss. However,
the decrease shall be recognised in other comprehensive income to the extent of any credit balance existing in the revaluation surplus
in respect of that asset. The decrease recognised in other comprehensive income reduces the amount accumulated in equity under
the heading of revaluation surplus.
The assets’ residual values and useful economic lives are reviewed, and adjusted if appropriate, at each reporting date. An asset’s
carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated
recoverable amount.
When parts of an item of property, plant and equipment have different useful lives, those components are accounted for as separate
items of property, plant and equipment.
Depreciation 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
estimated useful lives of property, plant and equipment and intangibles are as follows:
Property, plant and equipment
Leasehold improvements
IT equipment
Motor vehicles
Furniture and equipment
Plant and machinery
to expiration of the lease
4 - 5 years
2 - 5 years
4 -10 years
5 – 20 years
K. Intangible assets and goodwill
i. Goodwill
Goodwill that arises on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.
Page | 85
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
44. Significant accounting policies (continued)
K. Intangible assets and goodwill (continued)
ii. Software
Software acquired by the Group is measured at cost less accumulated amortisation and any accumulated impairment losses.
Expenditure on internally developed software is recognised as an asset when the Group is able to demonstrate: that the product is
technically feasible, its intention and ability to complete the development and use the software in a manner that will generate future
economic benefits, and that it can reliably measure the costs to complete the development. The capitalised costs of internally
developed software include all costs directly attributable to developing the software and capitalised borrowing costs, and are
amortised over its useful life. Internally developed software is stated at capitalised cost less accumulated amortisation and any
accumulated impairment losses.
Software is amortised on a straight-line basis in profit or loss over its estimated useful life, from the date on which it is available for
use. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
iii. Other
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.
The useful lives of intangibles are as follows:
Customer contracts and lists
Business intellectual property rights
Website development costs
Software
to expiration of the agreement
4 years - indefinite
indefinite
5 years
L. Impairment of non-financial assets
At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than deferred tax assets) to
determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
Goodwill is tested annually for impairment.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing
use that is largely independent of the cash inflows of other assets or Cash Generating Units (“CGUs”). Goodwill arising from a
business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less cost to sell. Value in use is based
on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset or CGU.
An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount.
The Group’s corporate assets do not generate separate cash inflows and are used by more than one CGU. Corporate assets are
allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGUs to which the
corporate assets are located.
Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to
the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the
asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation,
if no impairment loss had been recognised.
Page | 86
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
44. Significant accounting policies (continued)
M. Deposits, debt securities issued and subordinated liabilities
Deposits, debt securities issued and subordinated liabilities are the Group’s sources of debt funding.
The Group classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the
contractual terms of the instruments.
Deposits, debt securities issued and subordinated liabilities are initially measured at fair value minus incremental direct transaction
costs, and subsequently measured at their amortised cost using the effective interest method.
N. Employee benefits
i. 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 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.
ii. 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 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.
O. Share capital and reserves
Share issue costs
Incremental costs that are directly attributable to the issue of an equity instrument are deducted from the initial measurement of the
equity instruments.
P. Earnings per share (“EPS”)
The Group presents basic and diluted EPS data for its Ordinary Shares. Basic EPS is calculated by dividing the profit or loss that is
attributable to ordinary Shareholders of MFG by the weighted-average number of Ordinary Shares outstanding during the period.
Diluted EPS is determined by adjusting profit or loss that is attributable to Ordinary Shareholders and the weighted-average number
of Ordinary Shares outstanding for the effects of all dilutive potential Ordinary Shares, which comprise share options granted to
employees.
Page | 87
ANNUAL FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2022
44. Significant accounting policies (continued)
Q. 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.
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur
expenses, including revenues and expenses relating to transactions with any of the Group’s other components, whose operating
results are regularly reviewed by the CEO who is the chief operating decision maker (“CODM”) to make decisions about resources to
be allocated to the segment and assess its performance, and for which discrete financial information is available.
Segment results reported to the CEO include items that are directly attributable to a segment as well as those that can be allocated
on a reasonable basis.
Page | 88
ANNUAL FINANCIAL STATEMENTS
SHAREHOLDER NOTES
Page | 89
Appendix – Glossary of terms
ALCO
ARCC
BBSL
BL
BLX
Bank
Bank’s Board
BOE
BSL
CEO
CET1
CFL
CGU
CODM
Company
EAL
ECF
ECL
ESG
EPS
FCA
Fraud risks
FSA
FVOCI
FVTPL
Group
HP
IAS
ICAAP
ICG
IFA
IFRIC
IFRS
Interim financial statements
IOM
ISA
JM
LSE
MBL
MCL
MFG
MFX
MFX.L
MVL
NEC
NOMCO
NRFL
OCI
PAL
PIML
QCA
REMCO
RFG
RMF
SBA
Scheme
SICR
SPPI
SR
Subsidiaries
TCF
Three Spires
UK
UP
Assets and Liabilities Committee
Audit, Risk and Compliance Committee
Blue Star Business Solutions Limited
Burnbrae Limited
The Business Lending Exchange Limited
Conister Bank Limited
The Bank’s Board of Directors
Bank of England
Beer Swaps Limited
Chief Executive Officer
Common Equity Tier 1
Conister Finance & Leasing Ltd
Cash Generating Unit
Chief Operating Decision Maker
Manx Financial Group PLC
Edgewater Associates Limited
ECF Asset finance PLC
Expected Credit Loss
Environmental, Social and Governance
Earnings Per Share
UK Financial Conduct Authority
Risk of Material Misstatement Due to Fraud
Isle of Man Financial Services Authority
Fair Value Through Other Comprehensive Income
Fair Value Through Profit or Loss
Comprise the Company and its subsidiaries
Hire Purchase
International Accounting Standard
Internal Capital Adequacy Assessment Process
Individual Capital Guidance
Independent Financial Advisors
International Financial Reporting Interpretations Committee
International Financial Reporting Standards
Condensed consolidated interim financial statements
Isle of Man
International Standards of Auditing
Jim Mellon
London Stock Exchange
MBL Financial Limited
Manx Collections Limited
Manx Financial Group PLC
Manx FX Limited
Manx Financial Group PLC ticker symbol on the LSE
Manx Ventures Limited (previously Bradburn Limited)
Notice of Error Correction
Nomination Committee
Ninkasi Rentals & Finance Limited (previously Beer Swaps Limited)
Other Comprehensive Income
Payment Assist Limited
Payitmonthly Limited
Quoted Companies Alliance
Remuneration Committee
Rivers Finance Group Plc
Risk Management Framework
Share Buyback Agreement
The Conister Trust Pension and Life Assurance Scheme
Significant Increase in Credit Risk
Solely Payments of Principal and Interest
Southern Rock Insurance Company Limited
MFG’s subsidiaries being Bank, BBSL, BLX, CFL, ECF, EAL, MFX, MVL, NRFL
Treating Customers Fairly
Three Spires Insurance Services Limited
United Kingdom
Unrelated parties
Clarendon House
Victoria Street
Douglas
Isle of Man
IM1 2LN
Tel:
(01624) 694694
Fax: (01624) 624278
www.mfg.im