TIDMMFX
RNS Number : 6406Z
Manx Financial Group PLC
04 September 2018
FOR IMMEDIATE RELEASE 4 September 2018
Manx Financial Group PLC (the "Group")
Unaudited Interim Results for the 6 months to 30(th) June
2018
Jim Mellon, Executive Chairman, commented: "I am pleased to
report that the half year continues our progressive growth in
profitability and puts us well on the road to the realisation of
our strategic objectives. For the first six months of 2018, our
profit before tax stands at GBP1.4 million (2017: GBP0.9 million),
representing a growth of just over 43% against the same period last
year (2017: 30%). Furthermore, our post tax profit increased by 52%
to GBP1.2 million (2017: GBP0.8 million). This outcome represents
yet another milestone in the history of the Group."
Copies of the Interim Report will shortly be available on our
website www.mfg.im
For further information: -
Manx Financial Group - http://www.mfg.im/
Blue Star Business Solutions Limited -
http://www.bluestarleasing.com/
Contacts:
Manx Financial Group PLC
Denham Eke, Chief Executive
Tel: +44 (0) 1624 694694
Beaumont Cornish Limited
Roland Cornish/James Biddle
Tel: +44 (0) 20 7628 3396
Britton Financial PR
Tim Blackstone
Tel +44 (0) 7957 140416
Dear Shareholders
Manx Financial Group PLC 2018 Interim Results
Group Overview
I am pleased to report that the half year continues our
progressive growth in profitability and puts us well on the road to
the realisation of our strategic objectives. For the first six
months of 2018, our profit before tax stands at GBP1.4 million
(2017: GBP0.9 million), representing a growth of just over 43%
against the same period last year (2017: 30%). Furthermore, our
post tax profit increased by 52% to GBP1.2 million (2017: GBP0.8
million). This outcome represents yet another milestone in the
history of the Group.
This result is a combination of our excellent new business
generation throughout our principal operations, supported by a
loyal client base who provide and maintain deposits, borrow and
utilise our financial advisory services.
But before commenting further on our performance, it is
important for shareholders to understand the emphasis both I and
the Board place upon corporate governance. In May 2018, we adopted
the Quoted Companies Alliance corporate governance code ("QCA")
with which we expect to be fully compliant in our reporting for the
year-end statutory accounts. In essence, the code has ten
principles to aid investors in their understanding of our Group and
to help build and develop long term trust and maximise our
relationship with shareholders. As Chairman, it is my
responsibility to make a clear statement on corporate governance
and the value we place upon this. Our full year accounts will
provide a detailed explanation of how we observe the QCA, but
meanwhile, I am keen for investors to understand our strategic
objectives both in the near and longer term.
Our key objectives for 2018
Your Board's fundamental objective remains that of increasing
shareholder value, both in a prudent yet progressive manner. Thus,
our strategic concentration is to: -
-- Provide the highest quality service throughout our operations
to all customers, ensuring that their treatment is both fair and
appropriate;
-- Adopt a pro-active strategy of managing risk, especially
following the implementation of the International Financial
Reporting Standard 9 ("IFRS 9") in full. In doing so, we are
committed to regularly review our loan book to allow for any credit
impairment resulting from observing strict Expected Credit Loss
("ECL") criteria;
-- Concentrate on developing our core businesses by considered
acquisitions, increased prudential lending and augmenting the range
of financial services we offer;
-- Implement 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;
-- Focus on the liabilities side of our balance sheet by
introducing a new treasury management function and structure;
and
-- Manage our balance sheet to exceed, as far as possible, the
regulatory requirements for capital adequacy, leading to a 20%
year-on-year growth in total assets by 31 December 2018 and
thereafter.
We implemented the General Data Protection Regulation ("GDPR")
on 25 May 2018. This required changes in policy, procedures and
technology across the Group to manage how we process and secure
data and protect the rights of individuals. Both our Internal Audit
and Compliance teams have reviewed the process and will continue to
be involved in making sure that the post implementation
requirements continue to be met.
We have also instituted an important new position, that of Head
of Risk and Compliance, to enhance and monitor our control
functions, ensuring that these meet the highest banking standards
and are commensurate with the growth in our operations.
Financial Performance
Our operating income increased by 17.8% to GBP6.3 million (2017:
GBP5.4 million), despite our net interest income declining by 13.4%
to GBP7.4 million (2017: GBP8.6 million), as we re-balanced our
loan book to reduce our reliance on business with a
disproportionate commission element. Our operating expenses have
increased by 10.0% to GBP4.5 million (2017: GBP4.0 million)
following the implementation of enhanced risk management and
compliance services, coupled with the introduction of a new deposit
system and an on-line capability to service loan applications in a
more efficient manner.
As I previously mentioned, from this half onwards, we have
adopted IFRS 9 in full. The standard covers classification and
measurement for financial instruments and also introduces a new ECL
model for a regular review of our financial assets and any
requirement for impairment. The purpose of the standard is to show
the significance of financial instruments in relation to our
financial position and performance, explain the nature and extent
of risks arising from those financial instruments, both during the
period and at the reporting date and, finally, how we manage those
risks. We were confident that we would not suffer a meaningful
impairment charge to our Income Statement in adopting the standard.
In the event, and after evaluating each loan, the total impairment
came to GBP0.4 million (2017: GBP0.2 million) which further
demonstrates the robustness of our underwriting criteria. The
adoption of IFRS 9 has meant that we are required to restate the
2017 Interim and Final figures and I am pleased to report that the
re-statement has resulted in a minimal adjustment and we do not
expect this to materially change for the full year.
At the half year, our total assets now stand at GBP202.7 million
(2017: GBP174.3 million). The growth of over 17% over the same
period last year continues to demonstrate the success of our risk
management policies in approving loans. Cash and near-cash
currently stand at GBP64.7 million (2017: GBP44.3 million),
enabling us support the new business growth for further lending
opportunities as we expand the regulatory capital base. As a
result, shareholder equity has increased by just over 32% to
GBP18.5 million (2017: GBP14.0 million) as we progressively reduce
the legacy of our retained earnings deficit, now standing at
negative GBP2.2 million (2017: negative GBP5.0 million).
Basic earnings per share are up 18% to 0.93 pence (2017: 0.79
pence) and fully diluted earnings per share are up 46% to 0.76
pence (2017: 0.52 pence). On an annualised basis, our return on
equity is now 14%, up from 12% against the corresponding
period.
Turning to our principal operating subsidiaries: -
Conister Bank Limited (the "Bank")
The Bank's profit before tax stood at GBP1.6 million (2017:
GBP0.9 million), an increase of 78%. Total assets have grown by 16%
to GBP194.8 million (2017: GBP168.9 million). This is an extremely
impressive achievement and reflects well on the executive
management. New business generation for the first half was up 48%
to GBP13.7 million (2017: GBP9.3 million) and the pipeline for the
rest of the year remains strong. Of particular note is our success
within the Isle of Man market, especially loans to local Small and
Medium-sized Enterprises. Following the opening of our office in
Manchester, the Bank's UK loan book continues to expand, both
organically and through the application of Indemnified Wholesale
Funding Agreements, providing the Bank with additional security
against pre-determined lending limits, and Wholesale Funding
Agreements to carefully selected counterparties, again against
agreed limits. We continue to limit our exposure to the UK
unsecured consumer credit market, recognising the uncertainty
inherent in this form of lending.
The Bank's loan book stands at GBP131.4 million (2017: GBP123.4
million), a growth of 6% reflecting our move away from lending with
excessive commissions payable. The deposit book has increased by
12% to GBP163.7 million (2017: GBP146.2 million). Cash available
for lending is approximately GBP48.3 million, against GBP29.6
million in the first half of last year. Successfully managing this
cash is an increasingly important function within the Bank and, to
this end, we have inaugurated a new treasury management function to
ensure that we take full advantage of interest efficiencies and
have protection against any adverse change in interest rates.
Following the Group's subscription of an additional GBP2.0 million
in May 2018 to bring the issued share capital to GBP8.7 million
(2017: GBP6.7 million), the Bank's total equity has increased by
18% to GBP20.0 million (2017: GBP17.0 million).
I am pleased to report that the transition to the new deposit
system is proceeding smoothly and we have upgraded our lending
system to allow for on-line loan applications on a 24/7 basis. Both
these initiatives are designed to introduce a level of automation
in our operations to allow us to successfully compete with our
peers in providing enhanced customer service whilst minimising the
need for additional staff.
Importantly, we have invested further in our risk management and
compliance functions to maintain the levels of monitoring and
control required as our operations expand. The Bank, in line with
the rest of the Group, has adopted the QCA code for corporate
governance and our compliance with this is regularly reviewed by
both our Internal Audit function and by the Audit, Risk and
Compliance Committee.
Edgewater Associates Limited ("EWA")
EWA's operating income remains constant at GBP1.3 million (2017:
GBP1.3 million). Following the final settlement of the acquisition
costs of MBL and Lazenby Knox, profit before tax stands at GBP0.2
million (2017: GBP0.4 million). The reduction in profit is
explained by an additional payment following the higher than
expected results of the entities acquired which occasioned a cash
top-up to the purchase price under the terms of the purchase
agreement. Operating expenses of GBP1.0 million (2017: GBP1.0
million) are in line with expectations.
Turning to EWA's Balance Sheet, total assets - including cash of
GBP0.7 million - have grown by 26% to GBP3.4 million (2017: GBP2.7
million) and total equity has increased by 35% to GBP2.3 million
(2017: GBP1.7 million) - reflecting the success of the merger of
the acquisitions.
EWA continues to be the largest IFA on the Isle of Man, with
managed assets in excess of GBP300 million and over 13,000 clients
supported by 32 members of staff. The executive is to be
congratulated in integrating the acquisitions so successfully with
minimal client attrition.
Manx FX Limited ("MFX")
MFX has out-performed expectations for the first half, recording
a profit before tax of GBP0.3 million (2017: GBP0.1 million), an
increase of 200% on a fee income of GBP0.5 million (2017: GBP0.1
million). Total assets, including cash of GBP0.3 million, now stand
at GBP0.5 million (2017: GBP0.2 million) and total equity is now
GBP0.4 million (2017: GBP0.1 million).
Following this encouraging start to the year, MFX has increased
head-count to bolster resilience and allow further business
generation and this investment is already producing significant new
business.
Outlook
The current uncertainties surrounding the effects of Brexit and
potential changes in interest rates will have an impact on credit
markets both in the Isle of Man and the UK. Notwithstanding, I
believe that the Bank's strategy of asset-backed lending to
selected markets will allow us to continue to grow. We are
developing new loan products to those entities with significant
balance sheets able to both demonstrate affordability and credit
resilience.
In conjunction with this, the Bank continues to seek out
suitable acquisitions for our strategy of consolidation,
particularly in the UK. So far this year, we have acquired 20% of
the issued share capital of Beer Swaps Limited, trading as Ninkasi
Brewkit Rentals, a relatively new company financing brewery
equipment, together with an option to acquire the remaining shares
by April 2021. We have also acquired 30% of the issued share
capital of PayItMonthly Limited which provides web-based finance
solutions to retailers without the need for them to maintain an
onerous compliance resource, allowing their customers the option of
spreading repayments over one year, together with an option to
acquire the remaining shares after August 2021. Over time, we will
continue to build our own introducer network, augmented with
specialist staff capable of developing this important aspect of our
portfolio.
Now that the businesses have fully integrated, EWA has the
potential to grow financial advisory services, not only on the Isle
of Man but also within the UK. We continue to review suitable
acquisitions capable of increasing profitability. EWA not only has
a strong new business pipeline, but approximately half of its
income derives from renewals. Our only limitation to this growth is
the recruitment of qualified advisors. To counter this, we are
concentrating on an internal program of staff development which is
proving to be a great success.
MFX also has the potential for further growth and, conversely,
has the capability of benefitting from any uncertainties in the
financial environment as its clients seek the optimum solutions to
meet foreign currency exposures.
Thus, I believe that we are well situated to achieve continued
expansion which, in turn, will allow us to meet our 2018 strategic
priorities. Whilst our organic growth continues to be excellent,
any significant growth in our businesses will require further
acquisitions, strategic partnerships and the development of
specialist products to meet ever-changing market needs. There are,
without doubt, numerous opportunities available to us. Each need
assessing in terms of risk profile and subsequent reward. Clearly,
those opportunities that utilise technology to the full and fit
well within our current operations are of the greatest interest.
Meanwhile, we remain well-positioned to reporting further success
at the year-end.
Finally, and as always, I would like to thank our shareholders
for your continued support, our customers and clients for their
loyalty, and also our excellent staff for their outstanding efforts
in developing the Group.
Jim Mellon
Executive Chairman
4 September 2018
Manx Financial Group PLC
Condensed Consolidated Income Statement
For the Restated
6 Restated for the
months ended for the 6 year ended
30 June months ended 31 Dec
2018 30 June 2017 2017
GBP000 GBP000 GBP000
Notes (unaudited) (unaudited) (audited)
----------------------------- ------ -------------- -------------- ------------
Interest income 2 9,071 10,218 19,893
Interest expense (1,644) (1,643) (3,256)
Net interest income 7,427 8,575 16,637
Fee and commission income 1,781 1,434 3,115
Fee and commission expense (3,031) (4,675) (8,413)
Net trading income 6,177 5,334 11,339
Other operating income 56 32 91
Realised gains on debt
securities 24 11 36
Loss on trading assets (1) (21) (21)
Terminal funding 4 54 1 90
Operating income 6,310 5,357 11,535
Personnel expenses (2,749) (2,289) (4,783)
Other expenses (1,707) (1,756) (3,152)
Provision for impairment
on loan assets (365) (237) (585)
Depreciation (72) (127) (134)
Amortisation and impairment
of intangibles (114) (26) (286)
VAT recovery 9 45 - 65
Change in share of net
assets of associate 19 - 38
Profit before income
tax 1,367 922 2,698
Income tax expense (145) (118) (240)
Profit for the period
/ year 1,222 804 2,458
Basic earnings per share
(pence) 5 0.93 0.79 2.22
Diluted earnings per
share (pence) 5 0.76 0.52 1.74
Condensed Consolidated Statement of Other Comprehensive
Income
For the Restated
6 Restated for the
months ended for the 6 year ended
30 June months ended 31 Dec
2018 30 June 2017 2017
GBP000 GBP000 GBP000
Notes (unaudited) (unaudited) (audited)
--------------------------------- ------ -------------- -------------- ------------
Profit for the period
/ year 1,222 804 2,458
Other comprehensive income:
Items that will be reclassified
to profit or loss
Debt securities gains
/ (losses) taken to equity 10 (19) (93)
Items that will never
be reclassified to profit
or loss
Actuarial gain on defined
benefit pension scheme
taken to equity - - 30
-------------- -------------- ------------
Total comprehensive income
for the period / year
attributable to Shareholders 1,232 785 2,395
-------------- -------------- ------------
Basic earnings per share
(pence) 5 0.94 0.77 2.16
Diluted earnings per
share (pence) 5 0.77 0.51 1.70
Condensed Consolidated Statement of Financial Position
Restated Restated
30 June 30 June 31 Dec
2018 2017 2017
GBP000 GBP000 GBP000
As at Notes (unaudited) (unaudited) (audited)
------------------------------- ------- --- ------------- --- ------------- --- -----------
Assets
Cash and cash equivalents 13,148 6,316 9,745
Debt securities 6 51,560 37,936 34,272
Trading assets 7 24 49 24
Loans and advances to
customers 8 130,834 123,408 122,546
Trade and other receivables 9 2,125 2,055 1,908
Property, plant and equipment 515 661 450
Intangible assets 2,083 1,364 1,719
Investment in associate 56 - 38
Goodwill 10 2,344 2,344 2,344
Total assets 202,689 174,133 173,046
Liabilities
Customer accounts 163,715 146,245 142,272
Creditors and accrued
charges 11 3,452 3,450 3,164
Loan notes 12 15,971 8,895 8,995
Block creditors 13 415 1,075 751
Deferred tax liability 82 42 42
Pension liability 560 573 560
Total liabilities 184,195 160,280 155,784
Equity
Called up share capital 14 20,732 18,933 20,732
Profit and loss account (2,238) (5,080) (3,470)
Total equity 18,494 13,853 17,262
Total liabilities and
equity 202,689 174,133 173,046
Condensed Consolidated Statement of Cash Flows
For the Restated
6 months Restated for the
ended for the 6 year ended
30 June months ended 31 Dec
2018 30 June 2017 2017
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
--------------------------------- ---------------- -------------- ------------
RECONCILIATION OF PROFIT
BEFORE
TAXATION TO OPERATING
CASH FLOWS
Profit before income
tax 1,367 922 2,698
Loss on trading assets 1 21 21
Change in share in net
assets of associate (19) - (38)
Gain on disposal of property, - (3) -
plant and equipment
Depreciation 72 127 134
Amortisation and impairment
of intangibles 114 26 286
Decrease in pension liability - (41) (24)
Share-based payment expense - 22 22
(Increase) / decrease
in trade and other receivables (217) 9 157
Increase / (decrease)
in trade and other payables 280 359 (49)
Net cash inflow from
trading activities 1,598 1,442 3,207
Increase in loans and
advances to customers (8,288) (7,479) (6,617)
Increase in deposit accounts 21,443 20,293 16,320
Cash inflow from operating
activities 14,753 14,256 12,910
Condensed Consolidated Statement of Cash Flows (continued)
For the Restated
6 months Restated for the
ended for the 6 year ended
30 June months ended 31 Dec
2018 30 June 2017 2017
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
------------- -------------- ------------
CASH FLOW STATEMENT
Cash flows from operating
activities
Cash inflow from operating
activities 14,753 14,256 12,910
Taxation paid (98) - -
Net cash inflow from
operating activities 14,655 14,256 12,910
Cash flows from investing
activities
Purchase of property,
plant and equipment (137) (83) (122)
Purchase of intangible
assets (320) - (213)
Purchase of debt securities (17,278) (13,964) (10,374)
Acquisition of MBL and
Lasenby Knox business (157) (74) (239)
Sale of property, plant
and equipment - 17 20
Sale of trading assets - - 24
Net cash outflow from
investing activities (17,892) (14,104) (10,904)
Cash flows from financing
activities
Issue of loan notes 7,226 450 450
Repayment of loan notes (250) (100) -
Increase in share capital - - 1,799
Repayment of block funding (336) (315) (639)
Net cash inflow from
financing activities 6,640 35 1,610
Increase in cash and
cash equivalents 3,403 187 3,616
--------- --------- ---------
Included in cash flows
are:
Interest received - cash
amounts 9,171 10,383 19,109
Interest paid - cash
amounts (1,635) (1,590) (3,152)
Condensed Consolidated Statement of Changes in Equity
Retained
earnings
and other
Share capital reserves Total
GBP000 GBP000 GBP000
--------------------------------- -------------- ----------- ---------
Balance at 1 January
2017 18,933 (5,763) 13,170
Retrospective impact
on initial application
of IFRS 9 (see note 1) - (124) (124)
-------------- ----------- ---------
Restated balance at 1
January 2017 18,933 (5,887) 13,046
Profit for the period - 809 809
Retrospective impact
of applying IFRS 9 to
the period (see note
1) - (5) (5)
Other comprehensive income - (19) (19)
Transactions with Shareholders:
Share-based payment expense - 22 22
Restated balance at 30
June 2017 18,933 (5,080) 13,853
-------------- ----------- ---------
Restated balance at 1
July 2017 18,933 (5,080) 13,853
Profit for the period - 1,699 1,699
Retrospective impact
of applying IFRS 9 to
the period (see note
1) - (45) (45)
Other comprehensive income - (44) (44)
Transactions with Shareholders:
Issue of shares 1,799 - 1,799
Restated balance at 31
December 2017 20,732 (3,470) 17,262
-------------- ----------- ---------
Restated balance at 1
January 2018 20,732 (3,470) 17,262
Profit for the period - 1,222 1,222
Other comprehensive income - 10 10
Balance at 30 June 2018 20,732 (2,238) 18,494
Notes to the Consolidated Financial Statements
1. Preparation of the interim statements
The financial information included in this interim financial
report for the six months ended 30 June 2018 is unaudited. The
interim financial statements have been prepared in accordance with
IAS 34 'Interim Financial Reporting'. The accounting policies have
been applied consistently with those presented in the Annual Report
for the year ended 31 December 2017 and comply with IFRSs and IFRIC
interpretations applicable to companies reporting under IFRS as
adopted by the EU.
The Group has adopted IFRS 9 'Financial Instruments' as issued
by the IASB in July 2014 with a date of transition of 1 January
2018 which resulted in changes in accounting policies and
adjustments to the amounts previously recognised in the financial
statements. The Group did not early adopt any of IFRS 9 in previous
periods. A number of other new standards are effective from 1
January 2018 but they do not have a material effect on the Group's
financial assets.
The changes to accounting policies affected the recognition,
classification and measurement of financial assets and financial
liabilities and impairment of financial assets. IFRS 9 also
significantly amends other standards dealing with financial
instruments such as 'IFRS 7: Financial Instruments:
Disclosures'.
The changes in accounting policies are also expected to be
reflected in the Group's consolidated financial statements as at
and for the year ended 31 December 2018.
Set out below are disclosures relating to the impact of the
adoption of IFRS 9 on the Group.
(a) Classification and measurement of financial instruments
IFRS 9 largely retains the existing requirements of IAS 39 for
the classification and measurement of financial liabilities.
However, it eliminates the previous IAS 39 categories for financial
assets of held to maturity, loans and receivables and available for
sale.
The adoption of IFRS 9 has not had a significant effect on the
Group's accounting policies related to financial liabilities. The
impact of IFRS 9 on the classification and measurement of financial
assets is set out below:
IFRS 9 IAS 39
Carrying IAS 39 Carrying
Amount Carrying amount
IFRS 9 30 June amount 31 Dec
Measurement 2018 IAS 39 30 June 2017
category GBP000 Measurement 2017 GBP000
(unaudited) (unaudited) category GBP000 (audited)
(audited) (unaudited)
Financial
assets
Amortised
Cash and Amortised cost (Loans
cash equivalents cost 13,148 and receivables) 6,316 9,745
FVOCI FVOCI
- debt (Available
Debt securities instrument 51,560 for sale) 32,428 28,740
Amortised
Amortised cost (Held
cost - to Maturity) 5,508 5,532
Trading assets FVPL (Mandatory) 24 FVPL (Designated) 49 24
Loans and Amortised
advances Amortised cost (Loans
to customers cost 130,834 and receivables) 123,408 122,546
Amortised
Trade and Amortised cost (Loans
other receivables cost 2,125 and receivables) 2,055 1,908
Under IFRS 9, on initial recognition, a financial asset is
classified as measured at amortised cost; fair value through other
comprehensive income ("FVOCI") - debt investment; FVOCI - equity
investment; or fair value through profit or loss ("FVPL"). The
classification of financial assets under IFRS 9 is generally based
on the business model in which a financial asset is managed and its
contractual cash flow characteristics.
Due to IFRS 9 consolidating measurement categories in IAS 39,
the Bank has amended its presentation of the condensed statement of
financial position to group financial instruments by type and then
identify the nature of the instrument within the notes. In previous
annual reports, the nature of the financial instruments was
identified on the face of the statement of financial position.
In applying IFRS 9 both in the current period and
retrospectively in previous periods, there were no
reclassifications in the measurement category. As a result, there
has been no financial adjustment in transitioning to IFRS 9 with
respect to adopting the revised measurement categories.
(b) Credit impairments
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. Under IFRS 9, credit
losses are recognised earlier than under IAS 39.
IFRS 9 outlines a 'three stage' model for impairments based on
changes in credit quality since initial recognition as summarised
below:
-- 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. Stage 1 assets have their
expected credit loss ("ECL") measured at an amount equal to the
portion of lifetime expected credit losses that result from default
events possible within the next 12 months.
-- If a significant increase in credit risk ("SICR") since
initial recognition is identified, the financial instrument is
moved to 'Stage 2' but is not yet deemed to be credit-impaired.
Financial instruments in Stage 2 have their ECL measured based on
expected credit losses on a discounted lifetime basis.
-- 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.
After a detailed review, the Group devised and implemented an
impairment methodology in light of the IFRS 9 requirements outlined
above. More detailed and prescriptive disclosures will be made in
the Group's 2018 annual report, but the key assumptions used in the
model are as follows:
-- A 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, IVA, abscond or
disappearance, fraudulent activity and other similar events.
-- The ECL was derived by reviewing the Group's loss rate and
loss given default over the past 8 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. As at 30 June 2018, 36.1% had such credit
enhancements (30 June 2017: 42.1% and 31 December 2017: 38.5%).
-- 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.
Impact of the new impairment model
GBP000
(unaudited)
---------------------------------- ---- ---- ---- ---- ---- ---- -------------
Loss allowance at 31 December
2017 under IAS 39 73
Additional impairment recognised
at 1 January 2018 on Loans
and Advances to Customers 174
Loss allowance at 1 January
2018 under IFRS 9 247
(c) Group Auditor's review of the restatement
For the year ended 31 December 2017, the Group's Auditor has
audited all figures with the exception of the restatement which has
been reviewed prior to issue of these interim statements and will
be subject to an audit at 31 December 2018. For the periods ended
30 June 2018 and 2017, the Group's Auditor has reviewed both the
figures and the restatement in 30 June 2017.
(d) Reconciliation of the primary statements from IAS 39 to IFRS 9
As a result of the change to the Group's accounting policy in
regards to credit-impairments, it has restated the previous periods
in accordance with IFRS 9. A reconciliation of the primary
statements is as follows:
Condensed Consolidated Income Statement
For the 6 For the
months ended year ended
31 Dec
30 June 2017 2017
GBP000 GBP000
(unaudited) (audited)
------------------------------- ---- ---- ---- ---- -------------- --- ------------
Profit for the period /
year 809 2,508
Increase to provision for
impairment on loan assets (5) (50)
Restated profit for the
period / year 804 2,458
Reduction in basic earnings
per share (pence) - (0.04)
Reduction in diluted earnings
per share (pence) (0.01) (0.03)
Condensed Consolidated Statement of Other Comprehensive
Income
For the 6 For the
months ended year ended
31 Dec
30 June 2017 2017
GBP000 GBP000
(unaudited) (audited)
------------------------------- ---- ---- ---- ---- -------------- --- ------------
Total comprehensive income for
the period attributable to owners 790 2,445
Increase to provision for
impairment on loan assets (5) (50)
Restated profit for the
period / year 785 2,395
Reduction in basic earnings
per share (pence) - (0.04)
Reduction in diluted earnings
per share (pence) (0.01) (0.03)
Condensed Consolidated Statement of Financial Position
For the 6 For the
months ended year ended
31 Dec
30 June 2017 2017
GBP000 GBP000
(unaudited) (audited)
----------------------------- ---- ---- ---- ---- -------------- --- ------------
Assets
Loans and advances to customers 123,537 122,720
Increase to provision for
impairment on loan assets (129) (174)
Restated loans and advances
to customers 123,408 122,546
Equity
Profit and loss account (4,951) (3,296)
Increase to provision for
impairment on loan assets (129) (174)
Restated profit and loss
account (5,080) (3,470)
Condensed Consolidated Statement of Cash Flows
Total cash flows from operating, investing and financing
activities remains unchanged due to the increase in impairments on
loan assets being a non-cash item.
Condensed Consolidated Statement of Changes in Equity
For an analysis of the retrospective impact of IFRS 9, see page
8 which analyses in each half year the effect of adopting IFRS 9
for that period.
1. Interest income
Interest income represents charges and interest on finance and
leasing agreements attributable to the period or year after
adjusting for early settlements and interest on bank balances,
excluding the Terminal Funding portfolio.
2. Segmental analysis
Segment information is presented in respect of the Group's
business segments. The Directors consider that the Group currently
operates in one geographic segment comprising the Isle of Man, UK
and Channel Islands. The primary format of business segments is
based on the Group's management and internal reporting structure.
The Directors consider that the Group operates in five product
defined 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; Manx FX; Conister Card Services and Manx Incahoot.
Asset Conister Total
and
Personal Edgewater Card Manx Investing 30 June
Associates Incahoot 2018
For the 6 months Finance GBP000 Manx Services GBP000 Activities GBP000
ended 30 June FX
2018
GBP000 GBP000 GBP000 GBP000 (unaudited)
Net interest
income /
(expense) 7,764 - - - - (337) 7,427
Operating income
/ (loss) 4,925 1,300 472 (60) 10 (337) 6,310
Profit / (loss)
before tax
payable 1,606 241 332 (61) (88) (663) 1,367
Capital
expenditure 441 169 3 - 1 - 614
Total assets 194,826 2,460 449 49 276 4,629 202,689
Restated
Asset Conister Total
and
Restated Personal Edgewater Card Manx Investing 30 June
Incahoot 2017
For the 6 months Finance Associates Manx Services GBP000 Activities GBP000
ended 30 June FX
2017
GBP000 GBP000 GBP000 GBP000 GBP000 (unaudited)
Net interest
income / (expense) 8,825 - - - - (250) 8,575
Operating income
/ (loss) 4,225 1,282 124 (53) 29 (250) 5,357
Profit / (loss)
before tax payable 961 401 47 (51) (98) (338) 922
Capital expenditure 68 14 - - 1 - 83
Total assets 169,480 2,024 163 - 404 2,062 174,133
Restated
Asset Conister Total
and
Restated Personal Edgewater Card Manx Investing 31 Dec
Incahoot 2017
For the year Finance Associates Manx Services GBP000 Activities GBP000
ended 31 December FX
2017
GBP000 GBP000 GBP000 GBP000 GBP000 (audited)
Net interest
income 16,637 - - - - - 16,637
Operating income
/ (loss) 8,523 2,625 447 (104) 44 - 11,535
Profit / (loss)
before tax payable 2,293 742 249 (104) (293) (189) 2,698
Capital expenditure 254 319 - - 1 - 574
Total assets 168,052 2,252 181 18 307 2,236 173,046
3. Terminal funding
In September 2014, the Bank discontinued funding handheld
payment devices (referred to as Terminal Funding) due to the volume
of write-offs. Ever since, the book is being run off whilst the
Bank vigorously pursues historical write-offs. The Board decided in
2016 to permanently cease funding and wind up the book upon the
final repayment date of August 2019.
For the
For the 6 months
ended For the 6 year ended
months ended
30 June 2018 30 June 2017 31 Dec 2017
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Interest income 73 200 377
Fee and commission expense (4) (53) (92)
Provision for impairment
on loan assets (15) (146) (195)
54 1 90
4. Earnings per share
Restated
for the
For the 6
months ended Restated year ended
for the 6
months ended
30 June 2018 30 June 2017 31 Dec 2017
(unaudited) (unaudited) (audited)
Profit for the period GBP1,222 GBP804 GBP2,458
/ year (GBP000)
---------------------------- ---- ---- -------------- --- --------------- -------------
Weighted average number
of ordinary shares in
issue 131,096,235 102,070,252 110,880,711
Basic earnings per share
(pence) 0.93 0.79 2.22
Diluted earnings per
share (pence) 0.76 0.52 1.74
Total comprehensive income GBP1,232 GBP785 GBP2,395
for the period / year
(GBP000)
---------------------------- ---- ---- -------------- --- --------------- -------------
Weighted average number
of ordinary shares in
issue 131,096,235 102,070,252 110,880,711
Basic earnings per share
(pence) 0.94 0.77 2.16
Diluted earnings per
share (pence) 0.77 0.51 1.70
The basic earnings per share calculation is based upon the
profit for the period / year after taxation and the weighted
average of the number of shares in issue throughout the period /
year.
Restated Restated
30 June 30 June 31 Dec
2018 2017 2017
As at: (unaudited) (unaudited) (audited)
Reconciliation of weighted average
number of ordinary shares in issue
between basic and diluted earnings
per share
As per basic earnings per share 131,096,235 102,070,252 110,880,711
Number of shares issued if all convertible
loan notes were exchanged for equity
(note 12) 41,666,667 61,500,000 41,666,667
Dilutive element of warrants if taken - 12,155,768 -
up
Dilutive element of share options 30,502 - -
if exercised (note 14)
As per dilutive earnings per share 172,793,404 175,726,020 152,547,378
Reconciliation of earnings between
basic and diluted earnings per share
As per basic earnings per share GBP1,222,000 GBP804,000 GBP2,458,000
Interest expense saved if all convertible GBP98,075 GBP115,075 GBP196,150
loan notes were exchanged for equity
(note 12)
As per dilutive earnings per share GBP1,320,075 GBP919,075 GBP2,654,150
The diluted earnings per share calculation assumes that all
convertible loan notes, warrants (where applicable) and share
options have been converted / exercised at the beginning of the
period where they are dilutive.
5. Debt securities
Restated Restated
30 June 30 June 31 Dec
2018 2017 2017
GBP000 GBP000 GBP000
As at: (unaudited) (unaudited) (audited)
Financial assets at
FVOCI:
UK Government treasury
bills 51,560 32,428 28,740
Financial assets at
amortised cost:
Corporate bonds - 5,508 5,532
51,560 37,936 34,272
UK Government Treasury Bills are stated at fair value and
unrealised changes in the fair value are reflected in equity.
Corporate bonds were held in a UK banking institution with a Fitch
credit rating of "A (stable)" and are carried at amortised cost
using the effective interest method, less any impairment
losses.
6. Trading assets
Trading assets comprise an equity investment in a UK quoted
company which has a mandatory classification of a financial asset
at FVPL. The investment is stated at market value and is classified
as a level 1 investment in the IFRS 13 fair value hierarchy. The
cost of the shares was GBP471,000. The unrealised difference
between cost and market value has been taken to the condensed
consolidated income statement. Dividend income of GBP350,000 and
GBP24,000 of sale proceeds have been received from this investment
since it was made.
7. Loans and advances to customers
Restated Restated
30 June 30 June 31 Dec
2018 2017 2017
GBP000 GBP000 GBP000
As at: (unaudited) (unaudited) (audited)
Hire purchase 56,177 62,349 58,582
Finance leases 21,108 16,646 18,987
Unsecured personal loans 13,906 8,608 10,266
Vehicle stocking plans 1,500 1,455 1,613
Wholesale funding agreements 9,747 - 5,830
Block discounting 17,946 15,241 13,523
Secured commercial loans 403 1,299 655
Secured personal loans 10,047 17,810 13,090
130,834 123,408 122,546
8. Trade and other receivables
Restated Restated
30 June 30 June 31 Dec
2018 2017 2017
GBP000 GBP000 GBP000
As at: (unaudited) (unaudited) (audited)
VAT claim 862 752 817
Prepayments and other debtors 884 708 562
Commissions receivable 325 489 465
Depositors' Compensation
Scheme receivable 54 54 54
Monies held in escrow from
MBL acquisition - 52 10
2,125 2,055 1,908
9. Trade and other receivables
Included in Trade and other receivables is an amount of
GBP862,000 (30 June 2017: GBP752,000 and 31 December 2017:
GBP817,000) relating to a reclaim of value added tax ("VAT"). The
Bank, as the Group VAT registered entity, has for some time
considered the VAT recovery rate being obtained by the business as
neither fair nor reasonable, specifically regarding the attribution
of part of the residual input tax relating to the HP business not
being considered as a taxable supply. Queries have been raised with
the Isle of Man Government Customs & Excise Division
("C&E"), and several reviews of the mechanics of the recovery
process were undertaken by the Bank's professional advisors.
The decision of the First-Tier Tax Tribunal released 18 August
2011 in respect of Volkswagen Financial Services (UK) Limited
("VWFS") v HM Revenue & Customs (TC01401) ("VWFS Decision")
added significant weight to the case put by the Bank and a request
for a revised Partial Exemption Special Method was submitted in
December 2011. The proposal put forward by the Bank was that the
revised method would allocate 50.0% of costs in respect of HP
transactions to a taxable supply and 50.0% to an exempt supply. In
addition, at this time a Voluntary Disclosure was made as a
retrospective claim for input VAT under-claimed in the last 4
years. A secondary claim has been made to cover periods Q4 2012 to
Q1 2016 for the value of GBP230,000 and an amount of GBP175,000
accrued for periods Q2 2016 to Q2 2018.
In November 2012, it was announced that the HMRC Upper Tribunal
had overturned the First-Tier Tribunal in relation to the VWFS
Decision. VWFS has subsequently been given leave to appeal and this
was scheduled to be heard in October 2013. However, this was
delayed, and the case was heard by the Court of Appeal on 17 April
2015 who overturned the Upper Tribunal's decision, ruling in favour
of VWFS. HMRC have appealed this decision to the Supreme Court,
which has referred the issue to the European Court of Justice
("ECJ"). The Attorney General's opinion has been issued which
further supported the Bank's claim, but awaits the full ECJ
hearing.
The Bank's total exposure in relation to this matter has
increased to GBP975,000, comprising the debtor balance referred to
above plus an additional GBP113,000 VAT reclaimed under the partial
Exemption Special Method, in the period from Q4 2011 to Q3 2012
(from Q4 2012 the Bank reverted back to the previous method). Based
on the discussions and correspondence which have taken place
between the Bank and C&E, in addition to the VWFS case, the
Directors are confident that the VAT claimed referred to above will
be secured.
9. Goodwill
30 June 30 June 31 Dec
2018 2017 2017
GBP000 GBP000 GBP000
As at: (unaudited) (unaudited) (audited)
Edgewater Associates
Limited 1,849 1,849 1,849
ECF Asset finance PLC 454 454 454
Three Spires Insurance
Services Limited 41 41 41
2,344 2,344 2,344
10. Creditors and accrued charges
30 June 30 June 31 Dec
2018 2017 2017
GBP000 GBP000 GBP000
As at: (unaudited) (unaudited) (audited)
Commission creditors 1,714 2,268 2,042
Other creditors and accruals 1,383 957 774
Taxation creditors 355 225 348
3,452 3,450 3,164
11. Loan notes
30 June 30 June 31 Dec
2018 2017 2017
GBP000 GBP000 GBP000
As at: Notes (unaudited) (unaudited) (audited)
Related parties
J Mellon JM 1,750 1,750 1,750
Burnbrae Limited BL 1,200 1,200 1,200
Southern Rock Insurance
Company Limited SR 460 460 460
Life Science Developments
Limited LS - 250 250
3,410 3,660 3,660
Unrelated parties UP 12,561 5,235 5,335
15,971 8,895 8,995
JM - Two loans, one of GBP500,000 maturing on 31 July 2022 with
interest payable of 5.0% per annum, and one of GBP1,250,000
maturing on 26 February 2020, paying interest of 6.5% per annum.
The loans are convertible at the rate of 7.5 pence and 9 pence
respectively.
BL - One loan consisting of GBP1,200,000 maturing on 31 July
2022 with interest payable of 5.0% per annum. Jim Mellon is the
chairman and beneficial owner of BL and Denham Eke is a director.
The loan is convertible at a rate of 7.5 pence.
SR - One loan consisting of GBP460,000 maturing on 26 February
2020 with interest payable of 6.5% per annum. The loan is
convertible at a rate of 9 pence. Arron Banks is the beneficial
owner of SR. John Banks, a Non-executive Director, is a director of
SR.
LS - One loan of GBP250,000 matured on 3 January 2018 with
interest payable of 5.0% per annum. Denham Eke is a director of
LS.
UP - Thirty four loans consisting of an average GBP369,441, with
an average interest payable of 5.4% per annum. The earliest
maturity date is 2 July 2018 and the latest maturity is 30 May
2023.
With respect to the convertible loans, the interest rate applied
was deemed by the Directors to be equivalent to the market rate
with no conversion option.
13. Block creditors
30 June 30 June 31 Dec
2018 2017 2017
GBP000 GBP000 GBP000
As at: (unaudited) (unaudited) (audited)
Drawdown 2 - repayable 25/07/2018,
interest payable at 5.6% 15 172 95
Drawdown 3 - repayable 29/03/2019,
interest payable at 6.3% 400 903 656
415 1,075 751
14. Called up share capital
Ordinary shares of no par value Number
available for issue
----------------------------------- ------------
At 30 June 2018, 31 December 2017
and 30 June 2017 200,200,000
----------------------------------- ------------
Issued and fully paid: ordinary Number GBP000
shares of no par value
--------------------------------- ------------ -------
At 30 June 2017 102,070,252 18,933
At 30 June 2018 and 31 December
2017 131,096,235 20,732
--------------------------------- ------------ -------
There are four convertible loans totalling GBP3,410,000 as at 30
June 2018 (30 June 2017: GBP3,410,000 and 31 December 2017:
GBP3,410,000) with no remaining warrants to exercise (30 June 2017:
28,333,333 and 31 December 2017: nil). See note 12 for further
details. There are no outstanding warrants in issue at 30 June 2018
(30 June 2017: 36,666,666 and 31 December 2017: nil).
On 23 June 2014, 1,750,000 share options were issued to
Executive Directors and senior management within the Group at an
exercise price of 14 pence. The options vest over three years with
a charge based on the fair value of 8 pence per option at the date
of grant. The period of grant is for 10 years less 1 day ending 22
June 2024. Of the 1,750,000 share options issued, 1,050,000 (30
June 2017 and 31 December 2017: 1,050,000) remain outstanding with
the balance lapsed.
15. Regulators
The Group is regulated by the Isle of Man Government Financial
Services Authority licensed to undertake banking activities and
conduct investment business. In addition, the Group is regulated by
the Financial Conduct Authority in the United Kingdom for credit
and brokerage related activities.
16. 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.
17. Post balance sheet events
There were no significant post balance sheet events.
18. Approval of interim statements
The interim statements were approved by the Board on 24 August
2018. The interim report will be available from that date at the
Group's website - www.mfg.im and at the Registered Office:
Clarendon House, Victoria Street, Douglas, Isle of Man, IM1 2LN.
The Group's nominated adviser and broker is Beaumont Cornish
Limited, 2nd Floor, Bowman House, 29 Wilson Street, London, EC2M
2SJ. The interim and annual reports along with other supplementary
information of interest to shareholders, are included on the
Group's website. The website includes investor relations
information and contact details.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR BIGDCGGGBGIX
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