TIDMMFX
RNS Number : 6944N
Manx Financial Group PLC
26 September 2019
FOR IMMEDIATE RELEASE 26th September 2019
Manx Financial Group PLC (the "Group")
Unaudited Interim Results for the 6 months to 30th June 2019
Manx Financial Group PLC (LSE: MFX), the financial services
group which includes Conister Bank Limited, Edgewater Associates
Limited, Manx FX Limited, Conister Finance & Leasing Ltd, and
Blue Star Business Solutions Limited, presents the Interim results
for the six months ended 30(th) June 2019.
Jim Mellon, Executive Chairman, commented: "We have performed
within expectations for the first six months as we continue to
strengthen the Group and Bank balance sheets without compromising
our profitability. Our strategic initiatives in diversifying our
geographic lending reach have accelerated with additional
investment in our UK operations, centred at our Newbury
office."
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/
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
Chairman's Statement
Dear Shareholders,
I am pleased to present the half-year report for the period
ended 30 June 2019.
We have performed within expectations for the first six months
as we continue to strengthen the Group and Bank balance sheets
without compromising our profitability. Our strategic initiatives
in diversifying our geographic lending reach have accelerated with
additional investment in our UK operations, centred at our Newbury
office. We are moving away from sub-prime lending, diluting any
reliance on unsecured consumer finance, particularly in motor
finance. Our view of the latter recognises the fall in UK new car
registrations and negative outlook recently reported by the Society
of Motor Manufacturers & Traders.
This April, the Group completed the acquisition of Blue Star
Business Solutions Limited and I am pleased to report that the
integration of the company within our UK structure has been both
seamless and profitable. The consolidation our FX advisory and our
IFA businesses, both of which are now making significant
contributions to Group profitability, is proceeding to plan. In
short, I am confident that the Group's operations, including the
Bank's loan portfolio, both business and consumer, are well
positioned and resilient to deal with the uncertainties of the
current market conditions and that our new business pipeline shows
no signs of diminishing.
Financial Performance
Ten years ago, our consolidated retained earnings stood at
negative GBP16.0 million. For the first time, we have eliminated
this historic deficit. This is yet another milestone achieved as we
add value to the Group.
Our operating income showed a commendable increase of 26.8% to
GBP8.0 million (2018: GBP6.3 million), helped by a 19.5% growth in
our net interest income to GBP8.9 million (2018: GBP7.4 million),
together with a further reduction in commission expense, and a
growth in other operating income. Indeed, I am pleased to note that
we have been able to improve our net interest yield to 10.0% (2018:
9.1%), despite re-shaping our lending away from unsecured consumer
loans. Against this, our operating expenses have grown by 33.2% to
GBP6.6 million (2018: GBP4.9 million) which reflects both the
increase in personnel and operating costs of the Bank's expansion
at our recently established Newbury office, and also an increase in
the Bank's provisions to GBP1.5 million (2018: GBP0.4 million)
following a rigorous review of our loan book. Whilst the latter
figure may appear to be significant, in balance sheet terms, our
cumulative provisions against the gross loan book stand at only
2.6% (2018: 2.2%) - a testament to the excellence of the Bank's
credit underwriting. You will further note that this expense is the
result of the prudent requirement to adopt the IFRS 9 accounting
standard and this is an item which is under constant review. I must
point out that, even with the Newbury expansion, in considering
pure operating expenses against operating income, our
cost-to-income ratio has decreased to 59.9% (2018: 70.6%). As a
result, profit before tax for the six months was up 3.9% to
GBP1.420 million (2018: GBP1.367 million).
Turning to our balance sheet, our loan book has increased by
30.0% to GBP170.0 million (2018: GBP130.8 million), reflecting a
much more productive use of our cash and near cash, which has
fallen by 43.6% to GBP36.5 million (2018: GBP64.7 million), as the
interest yield on surplus liquidity remains low. I am particularly
pleased with our lending performance which I anticipate will
increase the loan book to a figure approaching the GBP200.0 million
mark by the end of the year - remembering that, as recently as the
2015 Interims, our loan book stood at only GBP92.5 million. Our
customer deposits have grown by 8.4% to GBP177.4 million (2018:
GBP163.7 million) - all of which leads to an 8.1% growth in our
total asset base to GBP219.1 million (2018: GBP202.7 million).
Shareholder equity has increased by 13.5% to GBP21.0 million (2018:
GBP18.5 million), providing net assets per share of 16.0 pence
(2018: 14.1 pence). Observant shareholders will note that for the
first time in many years, our retained earnings are now showing a
positive figure of GBP0.3 million (2018: negative GBP2.2
million).
Strategic Objectives for 2019
Our strategic priorities for 2019 remain unchanged. Your Board's
fundamental objective continues to be that of increasing
shareholder value, both in a prudent yet progressive manner. I set
out our 2019 key objectives in my last Chairman's Statement and now
review our progress at the six-month point: -
-- Providing the highest quality service throughout our
operations to all customers, ensuring that their treatment is both
fair and appropriate.
Treating Customers Fairly ("TCF") is the cornerstone of all our
operations and we strive to ensure that our customer service
offering is second to none. The majority of our operations are
regulated in both the Isle of Man and in the UK. As such, our TCF
Committee regularly reviews complaints and compliments to identify
trends which will improve our customer experience. Further, we
continue to train our teams by focusing on improving our TCF
culture, using the results of both internal and external surveys.
We are required to keep detailed records of customer complaints and
their resolution and I am pleased to report that we have again
received a minimal number of complaints this year, of which only 11
were upheld following investigation - this against a combined
customer base of over 10,000 people. As part of any TCF
investigation, we consider the findings and regularly amend and
enhance any relevant policy, procedure or training module.
-- Adopting a pro-active strategy of managing risk, especially
following the implementation of 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
criteria.
Our credit risk management process is constantly developing in
line with the specific requirements of each of our business
sectors. This allows us to more clearly identify potential credit
issues and improve the Bank's ability to achieve a better outcome.
Developing our credit risk strategy and its reporting plays an
important part in optimising our loan book's performance. In line
with this approach, we have increased our impairment allowance by
GBP1.1 million (2018: GBP0.7 million) to represent 2.6% (2018:
2.2%) of the gross loan book and we will maintain our policy of
strengthening our balance sheet to minimise the risk of any
unforeseen event adversely affecting our profitability.
-- Concentrating on developing our core businesses by considered
acquisitions, increased prudential lending and augmenting the range
of financial services we offer.
During the first six months of this year, we have further
augmented our capabilities at our Newbury office by the employment
of additional staff, including increasing our underwriting and
collection teams. This will facilitate the safe on-boarding of our
considerable pipeline of new business opportunities as well as
optimising the performance of our existing UK loan book. Our
intention is to have our UK operation self-sufficient by year-end.
We regularly review both our Isle of Man and UK product proposition
and develop innovative customer-centric products that both
complement our existing offerings and leverage our internal
competencies. These new products are marketed initially to our
current customers before being offered more broadly. The
acquisition of Blue Star Business Solutions Limited has performed
well and I expect to announce further purchases which will increase
our market share in those areas we wish to develop.
-- Implementing 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.
Our core systems have been overhauled to simplify the customer
experience. Our lending system now offers straight-through
processing via an Isle of Man customer portal which we have further
enhanced this year. By the end of June, this on-line distribution
channel transacted 44% (2018: 0%) of our new business and I expect
this to increase to more than 50% by the year-end. We are also
developing similar portals for other aspects of our UK business. To
gain greater efficiency, we have integrated document imaging into
our workflows and we are currently supplementing this with voice,
text, email and rich media technology to support our collections
activity. All of this is designed to optimise our loan book
management and to allow growth to occur without a similar increase
in headcount.
-- Focusing on the liabilities side of our balance sheet by
introducing a new treasury management function and structure.
As we continue to utilise surplus liquidity in increased
lending, our treasury management ensures that we adopt the best
practice in utilising our funds. We are also in the process of
developing attractive new deposit products for customers within a
competitive interest rate risk strategy.
-- Managing our balance sheet to exceed, as far as possible, the
regulatory requirements for capital adequacy.
We are well capitalised with our Risk Asset Ratio standing at
17.03% (Year-end 2018: 18.08%), but as our loan book grows our need
for incremental regulatory capital will also grow. For the time
being, we will maintain our strategy of converting our retained
earnings into Tier 1 capital to support our lending. However, this
strategy will have to be modified as, following my announcement in
the 2018 Finals, your Board is considering the optimum method of
providing shareholder return in the form of a dividend. This is a
subject to which I will return at the year-end.
Current trading and outlook
I am pleased with the quality of new business we are generating
across all our subsidiaries, and we continue to do this within our
prudent risk criteria. I have every confidence that we will
maintain this momentum during the second half, particularly given
the performance to date, without compromising our careful and
responsible lending practices. I am also confident that we will be
in a position to announce certain acquisitions before the year-end
which will further enhance our new business generation and hence,
income.
We recognise that the economic and political indicators are
challenging. But we must also remember that opportunities abound in
such markets. As soon as the exit or not from the European Union is
concluded, the economic outlook is likely to improve and the Group
is well placed to take advantage in both our existing and new
marketplaces.
It remains for me, as always, to thank on behalf of the Board,
our staff for their efforts in developing the Group in such a
successful manner and our shareholders for their loyalty.
Jim Mellon
Executive Chairman
24 September 2019
Condensed Consolidated Statement of Profit or Loss and Other
Comprehensive Income
For the For the
six months six months For the
ended ended year ended
30 June 30 June 31 December
2019 2018 2018
GBP000 GBP000 GBP000
Notes (unaudited) (unaudited) (audited)
------------------------------------- ------ ------------- ------------- --------------
Interest income 7 10,813 9,071 19,115
Interest expense (1,936) (1,644) (3,547)
Net interest income 8,877 7,427 15,568
Fee and commission income 1,816 1,781 3,371
Fee and commission expense (2,934) (3,031) (6,109)
Net trading income 7,759 6,177 12,830
Other operating income 139 56 131
(Loss) / gain on trading assets (3) 24 (4)
Realised gain / (loss) on debt
securities 80 (1) 135
Terminal funding 9 27 54 74
Operating income 8,002 6,310 13,166
Personnel expenses (3,102) (2,749) (5,703)
Other expenses (1,692) (1,707) (3,465)
Impairment on loans and advances
to customers (1,469) (365) (857)
Depreciation (281) (72) (184)
Amortisation and impairment of
intangibles (136) (114) (396)
Share of profit of equity accounted
investees, net of tax 46 45 30
VAT recovery 14 52 19 119
Profit before tax payable 1,420 1,367 2,710
Income tax expense (184) (145) (243)
Profit for the period / year 1,236 1,222 2,467
------------- ------------- --------------
For the For the
six months six months For the
ended ended year ended
30 June 30 June 31 December
2019 2018 2018
GBP000 GBP000 GBP000
Notes (unaudited) (unaudited) (audited)
------------------------------------------ ------ --------------- --------------- --------------------
Profit for the period / year 1,236 1,222 2,467
Other comprehensive income ("OCI"):
Items that will be reclassified
to profit or loss
Unrealised gain on debt securities 27 10 44
Items that will never be reclassified
to profit or loss
Actuarial loss on defined benefit
pension scheme taken to equity - - (50)
Total comprehensive income for
the period / year 1,263 1,232 2,461
--------------- --------------- --------------------
Earnings per share - Profit for
the period / year
Basic earnings per share (pence) 10 0.94 0.93 1.88
Diluted earnings per share (pence) 10 0.77 0.76 1.54
Earnings per share - Total comprehensive
income
for the period / year
Basic earnings per share (pence) 10 0.96 0.94 1.88
Diluted earnings per share (pence) 10 0.79 0.77 1.54
Condensed Consolidated Statement of Financial Position
30 June 30 June 31 December
2018
2019 2018 GBP000
GBP000 GBP000 (audited)
As at Notes (unaudited) (unaudited)
--------------------------------- ------- -------------- -------------- -------------
Assets
Cash and cash equivalents 8,916 13,148 9,753
Debt securities 11 27,583 51,560 30,534
Trading assets 12 17 24 20
Loans and advances to customers 6,13 170,035 130,834 148,278
Trade and other receivables 14 2,555 2,125 2,491
Property, plant and equipment 2,752 515 1,384
Right of use assets 5 654 - -
Intangible assets 1,864 2,083 1,952
Goodwill 15 4,532 2,344 2,344
Investment in associate 204 56 158
Total assets 219,112 202,689 196,914
Liabilities
Deposits from customers 177,414 163,715 158,500
Creditors and accrued charges 16 2,415 3,452 2,010
Lease liability 5 787 - -
Contingent consideration 20 954 - -
Block creditors 17 - 415 138
Loan notes 18 15,871 15,971 15,871
Pension liability 543 560 584
Deferred tax liability 142 82 88
Total liabilities 198,126 184,195 177,191
Equity
Called up share capital 19 20,732 20,732 20,732
Retained earnings 254 (2,238) (1,009)
Total equity 20,986 18,494 19,723
Total liabilities and equity 219,112 202,689 196,914
Condensed Consolidated Statement of Changes in Equity
Retained Total
Notes Share earnings equity
For the six months ended 30 June capital GBP000 GBP000
2019 GBP000
------------------------------------- --------- ---------- ----------- ---------
Balance at 31 December 2018, as
previously reported 20,732 (1,009) 19,723
Adjustment on initial application 5 - - -
of IFRS 16
---------- ----------- ---------
Adjusted balance at 1 January 2019* 20,732 (1,009) 19,723
Total comprehensive income for the
period:
Profit for the period - 1,236 1,236
Other comprehensive income - 27 27
---------- ----------- ---------
Total comprehensive income for the
period - 1,263 1,263
Transactions with owners:
Share-based payment expense - - -
Shares issued - - -
Total transactions with owners of - - -
the Company
Balance at 30 June 2019 20,732 254 20,986
* The Group has initially applied IFRS 16 at 1 January 2019,
using the modified retrospective approach. Under this approach,
comparative information is not restated and the cumulative effect
of initially applying IFRS 16 is recognised in retained earnings at
the date of initial application. See Note 5.
Retained Total
Share earnings equity
For the six months ended 30 June capital GBP000 GBP000
2018 GBP000
------------------------------------------- ----- ------------ ----------- -----------
Balance at 1 January 2018, as previously
reported 20,732 (3,470) 17,262
Total comprehensive income for the
period:
Profit for the period - 1,222 1,222
Other comprehensive income - 10 10
------------ ----------- -----------
Total comprehensive income for the
period - 1,232 1,232
Transactions with owners:
Share-based payment expense - - -
Shares issued - - -
Total transactions with owners of - - -
the Company
Balance at 30 June 2018 20,732 (2,238) 18,494
Condensed Consolidated Statement of Cash Flows
For the For the For the
six months six months year ended
ended ended 31 December
30 June 30 June 2018
2019 2018 GBP000
Notes GBP000 GBP000 (audited)
(unaudited) (unaudited)
----------------------------------------- -------- ------------- ------------- -------------
RECONCILIATION OF PROFIT BEFORE
TAXATION TO OPERATING CASH FLOWS
Profit before tax 1,420 1,367 2,710
Adjustments for:
Depreciation 281 72 184
Amortisation and impairment of
intangibles 136 114 396
Realised gain on debt securities (80) 1 (135)
Share of profit of equity accounted
investees (46) (19) (30)
Contingent consideration interest 8 - -
expense
1,719 1,535 3,125
Changes in:
Trading asset 3 - 4
Trade and other receivables 14 43 (217) (583)
Creditors and accrued charges 16 230 281 (1,169)
Net cash flow from trading activities 1,995 1,599 1,377
Changes in:
Loans and advances to customers 6,13 (21,757) (8,288) (25,732)
Deposits from customers 18,914 21,443 16,228
Pension contribution (41) - (26)
Cash (outflow) / inflow from operating
activities (899) 14,754 (8,153)
CASH FLOW STATEMENT
Cash from operating activities
Cash (outflow) / inflow from operating
activities (889) 14,754 (8,153)
Income taxes paid (149) (98) (182)
Net cash (outflow) / inflow from
operating activities (1,038) 14,656 (8,335)
Cash flows from investing activities
Purchase of property, plant and
equipment (1,279) (137) (1,118)
Purchase of intangible assets (48) (477) (629)
Acquisition of subsidiary or associate,
net of cash acquired 20 (1,324) - (90)
(Purchase) / sale of debt securities
at fair value through OCI 11 (6,001) - 3,917
Sale / (purchase) of debt securities
at amortised cost 11 9,059 (17,279) -
Net cash inflow / (outflow) from
investing activities 407 (17,893) 2,080
Cash flows from financing activities
Receipt of loan notes 18 - 6,976 6,876
Lease payments 5 (68) - -
Decrease in borrowings from block
creditors 17 (138) (336) (613)
Net cash (outflow) / inflow from
financing activities (206) 6,640 6,263
Net (decrease) / increase in cash
and cash equivalents (837) 3,403 8
Cash and cash equivalents - opening 9,753 9,745 9,745
Cash and cash equivalents - closing 8,916 13,148 9,753
Included in cash flows are:
Interest received - cash amounts 10,489 9,171 18,362
Interest paid - cash amounts (1,917) (1,635) (3,434)
----------------------------------------- --- -------- --------- --------
Notes
For the six months to the end of June
1. Reporting entity
Manx Financial Group PLC ("the Company" or "MFG") is a company
incorporated in the Isle of Man. These condensed consolidated
interim financial statements ('interim financial statements') as at
and for the six months ended 30 June 2019 comprise the Company and
its subsidiaries (the "Group").
2. Basis of accounting
These interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting and should be
read in conjunction with the last annual consolidated financial
statements as at and for the year ended 31 December 2018 ('last
annual financial statements'). They do not include all of the
information required for a complete set of IFRS financial
statements. However, selected explanatory notes are included to
explain events and transactions that are significant to an
understanding of the changes in the Group's financial position and
performance since the last annual financial statements.
This is the first set of the Group's interim financial
statements in which IFRS 16 has been applied. Changes to
significant accounting policies are described in Note 5.
3. Functional and presentation currency
These financial statements are presented in pounds sterling,
which is the Group'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
In preparing these interim financial statements, management 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.
The significant judgements made by management in applying the
Group's accounting policies and key sources of estimation
uncertainty were the same as those described in the last annual
financial statements, except for the new significant judgements
related to lessee accounting under IFRS 16, which are described in
Note 5.
5. Changes in accounting policies
Except as described below, the accounting policies applied in
these interim financial statements are the same as those applied in
the last annual financial statements.
The changes in accounting policies are also expected to be
reflected in the Group's consolidated financial statements as at
and for the year ending 31 December 2019.
The Group has initially adopted IFRS 16 Leases from 1 January
2019. A number of other new standards are effective from 1 January
2019 but they do not have a material effect on the Group's
financial statements.
IFRS 16 introduced a single, on-balance sheet accounting model
for lessees. As a result, the Group, as a lessee, has recognised
right of use assets representing its rights to use the underlying
assets and lease liabilities representing its obligation to make
lease payments. Lessor accounting remains similar to previous
accounting policies.
The Group has applied IFRS 16 using the modified retrospective
approach, under which the cumulative effect of initial application
is recognised in retained earnings as at 1 January 2019.
Accordingly, the comparative information presented for 2018 has not
been restated - i.e. it is presented, as previously reported, under
IAS 17 and related interpretations. The details of the changes in
accounting policies are disclosed below.
A. Definition of a lease
Previously, the Group determined at contract inception whether
an arrangement was or contained a lease under IFRIC 4 Determining
Whether an Arrangement contains a Lease. The Group now assesses
whether a contract is or contains a lease based on the new
definition of a lease. Under IFRS 16, a contract is, or contains, a
lease if the contract conveys a right to control the use of an
identified asset for a period of time in exchange for
consideration.
On transition to IFRS 16, the Group elected to apply the
practical expedient to grandfather the assessment of which
transactions are leases. It applied IFRS 16 only to contracts that
were previously identified as leases. Contracts that were not
identified as leases under IAS 17 and IFRIC 4 were not reassessed.
Therefore, the definition of a lease under IFRS 16 has been applied
only to contracts entered into or changed on or after 1 January
2019.
B. As a lessee
The Group leases many assets, including properties and IT
equipment.
As a lessee, the Group previously classified leases as operating
or finance leases based on its assessment of whether the lease
transferred substantially all of the risks and rewards of
ownership. Under IFRS 16, the Group recognises right of use assets
and lease liabilities for most leases, that is these leases are
presented on the Statement of Financial Position.
However, the Group has elected not to recognise right of use
assets and lease liabilities for some leases of low-value assets.
The Group recognises the lease payments associated with these
leases as an expense on a straight-line basis over the lease term.
The Group presents right of use assets and lease liability
separately on the Statement of Financial Position.
i. Significant accounting policies
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, and subsequently at cost less accumulated
depreciation and impairment loss 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 lease liability is subsequently increased by the interest
cost of the lease liability and decreased by the lease payment
made. It is remeasured when there is a change in future lease
payments arising from a change in an index or rate, a change in the
estimate of the amount expected to be payable under a residual
value guarantee, or as appropriate, changes in the assessment of
whether a purchase or extension option is reasonably certain to be
exercised, or a termination option is reasonably certain not to be
exercised.
The Group has applied judgment to determine the lease term for
some lease contracts in which it is a lessee that include renewal
options. The assessment of whether the Group is reasonably certain
to exercise such options impacts the lease term, which
significantly affects the amount of lease liabilities and right of
use assets recognised.
ii. Impacts on transition
Previously, the Group classified property leases as operating
leases under IAS 17. The leases typically run for a period of 10
years. The operating lease commitment relating to these leases at
31 December 2018 as disclosed in the Group's consolidated financial
statements was GBP1,166,000.
At transition, for leases classified as operating leases under
IAS 17, lease liabilities were measured at the present value of the
remaining lease payments, discounted at the Group's incremental
borrowing rate as at 1 January 2019. The weighted average rate
applied is 5.5% per annum.
Right of use assets are measured at an amount equal to the lease
liability, adjusted by the amount of net prepaid and accrued lease
payments of GBP118,234.
The impact on transition is summarised below.
As at 1 January 2019 GBP000
-------------------------------------- -------
Right of use assets 737
Net accrued operating lease payments 118
Lease liabilities (855)
Retained earnings -
-------------------------------------- -------
iii. Impacts for the period
Right of use assets
The carrying amount of right of use assets at the end of the
period is as follows:
Right of
Property use assets
GBP000 GBP000
--------------------------- ----------- ------------
Balance at 1 January 2019 737 737
Depreciation expense (83) (83)
----------- ------------
Balance at 30 June 2019 654 654
--------------------------- ----------- ------------
Lease liability
The carrying amount of lease liability at the end of the period
is as follows:
Property Lease liability
GBP000 GBP000
--------------------------- --------- ----------------
Balance at 1 January 2019 855 855
Interest expense 24 24
Rent payment (92) (92)
--------- ----------------
Balance at 30 June 2019 787 787
--------------------------- --------- ----------------
The Group has classified cash payments for the principal portion
of lease payments as financing activities.
iv. Exemptions taken
The Group used the following practical expedients when applying
IFRS 16 to leases previously classified as operating leases under
IAS 17:
-- Applied the exemption not to recognise right of use assets
and liabilities for leases with less than 12 months of lease term;
and
-- Exclude initial direct costs from measuring the right of use
asset at the date of initial application.
C. As a lessor
The accounting policies applicable to the Group as a lessor are
not different from those under IAS 17.
The Group is not required to make any adjustments on transition
to IFRS 16 for leases in which it acts as a lessor.
6. Credit risk
A summary of our current policies and practices for the
management of credit risk is set out in 'Note 8 - Financial risk
review', 'Note 36 - Financial risk management' on page 40 and 63
respectively of the Annual Financial Statements 2018.
An explanation of the terms 'Stage 1', 'Stage 2' and 'Stage 3'
is included in "Note 38 (I)(vii)" on page 73 of the last annual
financial statements.
Summary of credit risk on loans and advances to customers
Total
Stage 1 Stage 2 Stage 3 GBP000
As at 30 June 2019 GBP000 GBP000 GBP000 (unaudited)
Grade A(1) 161,124 - - 161,124
Grade B 1,439 3,077 98 4,614
Grade C - 1,627 7,206 8,833
Gross value 162,563 4,704 7,304 174,571
Allowance for expected credit
loss (170) (862) (3,504) (4,536)
--------- --------- --------- -------------
Carrying value 162,393 3,842 3,800 170,035
------------------------------------ --------- --------- --------- -------------
Total
Stage 1 Stage 2 Stage 3 GBP000
As at 30 June 2018 GBP000 GBP000 GBP000 (unaudited)
Grade A(1) 126,129 - - 126,129
Grade B 588 1,406 106 2,100
Grade C - 1,271 4,298 5,569
Gross value 126,717 2,677 4,404 133,798
Allowance for expected credit
loss (110) (450) (2,404) (2,964)
--------- --------- --------- -------------
Carrying value 126,607 2,227 2,000 130,834
------------------------------------ --------- --------- --------- -------------
Total
Stage 1 Stage 2 Stage 3 GBP000
As at 31 December 2018 GBP000 GBP000 GBP000 (audited)
Grade A(1) 139,695 - - 139,695
Grade B 760 5,308 85 6,153
Grade C - 1,746 4,078 5,824
Gross value 140,455 7,054 4,163 151,672
Allowance for expected credit
loss (125) (143) (3,126) (3,394)
Carrying value 140,330 6,911 1,037 148,278
------------------------------------ --------- --------- --------- -----------
(1) Loans are graded A to C depending on the level of risk.
Grade C relates to agreements with the highest of risk, Grade B
with medium risk and Grade A relates to agreements with the lowest
risk.
Summary of overdue status of loans and advances to customers
Total
Stage 1 Stage 2 Stage 3 GBP000
As at 30 June 2019 GBP000 GBP000 GBP000 (unaudited)
Current 161,469 - - 161,469
Overdue < 30 days 4,562 - - 4,562
Overdue >= 30 days 64 2,975 5,501 8,540
166,095 2,975 5,501 174,571
--------------------- --------- --------- --------- -------------
Total
Stage 1 Stage 2 Stage 3 GBP000
As at 30 June 2018 GBP000 GBP000 GBP000 (unaudited)
Current 123,994 - - 123,994
Overdue < 30 days 2,623 - - 2,623
Overdue >= 30 days 100 2,677 4,404 7,181
126,716 2,677 4,404 133,798
--------------------- --------- --------- --------- -------------
Total
Stage 1 Stage 2 Stage 3 GBP000
As at 31 December 2018 GBP000 GBP000 GBP000 (audited)
Current 137,196 - - 137,196
Overdue < 30 days 2,499 - - 2,499
Overdue >= 30 days 760 7,054 4,163 11,977
140,455 7,054 4,163 151,672
------------------------- --------- --------- --------- -----------
7. 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.
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 (2018:
five) 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 and Manx FX.
Asset Conister Total
and
Personal Edgewater Card Manx Investing 30 June
Associates Incahoot 2019
For the 6 months Finance GBP000 Manx Services GBP000 Activities GBP000
ended FX
30 June 2019 GBP000 GBP000 GBP000 GBP000 (unaudited)
Net interest
income /
(expense) 9,332 - - - - (455) 8,877
Operating income
/ (expense) 6,591 1,276 290 - (10) (145) 8,002
Profit / (loss)
before tax
payable 1,863 278 79 - (98) (702) 1,420
Capital
expenditure 1,327 - - - - - 1,327
Total assets 211,106 3,388 239 - 118 4,261 219,112
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 FX
30 June 2018 GBP000 GBP000 GBP000 GBP000 (unaudited)
Net interest
income /
(expense) 7,764 - - - - (337) 7,427
Operating income
/ (expense) 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
Asset Conister Total
and
Personal Edgewater Card Manx Investing 31 Dec
Associates Incahoot 2018
For the year Finance GBP000 Manx Services GBP000 Activities GBP000
ended 31 December FX
2018
GBP000 GBP000 GBP000 GBP000 (audited)
Net interest
income / (expense) 15,568 - - - - - 15,568
Operating income
/ (expense) 9,306 2,562 493 - 12 - 13,166
Profit / (loss)
before tax payable 2,267 245 490 (3) (189) (100) 2,710
Capital expenditure 1,589 150 6 - 1 1 1,747
Total assets 190,923 3,153 608 - 78 2,152 196,914
9. 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.
For the
6 For the
For the
6 months months
ended ended year ended
30 June 30 June 31 Dec
2019 2018 2018
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Interest income 27 73 181
Fee and commission expense - (4) (5)
Provision for impairment on loan assets - (15) (102)
27 54 74
10. Earnings per share
For the
For the For the
6 months 6 months
ended ended year ended
30 June 30 June 31 Dec
2019 2018 2018
(unaudited) (unaudited) (audited)
Profit for the period / year GBP1,236,000 GBP1,222,000 GBP2,467,000
------------------------------------- --- -------------- -------------- -------------
Weighted average number of ordinary
shares in issue (basic) 131,096,235 131,096,235 131,096,235
Basic earnings per share (pence) 0.94 0.93 1.88
Diluted earnings per share (pence) 0.77 0.76 1.54
Total comprehensive income for the GBP1,263,000 GBP1,232,000 GBP2,461,000
period / year
------------------------------------- --- -------------- -------------- -------------
Weighted average number of ordinary
shares in issue (basic) 131,096,235 131,096,235 131,096,235
Basic earnings per share (pence) 0.96 0.94 1.88
Diluted earnings per share (pence) 0.79 0.77 1.54
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.
30 June 30 June 31 Dec
2019 2018 2018
As at: (unaudited) (unaudited) (audited)
Reconciliation of weighted average number
of ordinary shares in issue between
basic and diluted
Weighted average number of ordinary
shares (basic) 131,096,235 131,096,235 131,096,235
Number of shares issued if all convertible
loan notes were exchanged for equity 41,666,667 41,666,667 41,666,667
Dilutive element of share options if
exercised 10,366 30,502 10,366
Weighted average number of ordinary
shares (diluted) 172,773,268 172,793,404 172,773,268
Reconciliation of profit for the period
/ year between basic and diluted
Profit for the period / year (basic) 1,236,000 1,222,000 2,467,000
Interest expense saved if all convertible
loan notes were exchanged for equity 98,000 98,000 196,000
Profit for the period / year (diluted) 1,334,000 1,320,000 2,663,000
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.
30 June 30 June 31 Dec
2019 2018 2018
As at: (unaudited) (unaudited) (audited)
Reconciliation of total comprehensive
income for the period / year between
basic and diluted
Total comprehensive income for the period
/ year (basic) 1,263,000 1,232,000 2,461,000
Interest expense saved if all convertible
loan notes were exchanged for equity 98,000 98,000 196,000
Total comprehensive income for the period
/ year (diluted) 1,361,000 1,330,000 2,657,000
11. Debt securities
30 June 30 June 31 Dec
2019 2018 2018
GBP000 GBP000 GBP000
As at: (unaudited) (unaudited) (audited)
Financial assets at fair value through
other comprehensive income:
UK Government treasury bills 21,581 51,560 30,534
Financial assets at amortised cost:
UK Certificates of Deposit 6,002 - -
27,583 51,560 30,534
UK Government Treasury Bills are stated at fair value and
unrealised changes in the fair value are reflected in equity.
12. Trading assets
The investment represents shares in a UK quoted company, elected
to be classified as a financial asset at fair value through profit
or loss. The investment is stated at market value and is classified
as a level 1 investment in the IFRS 13 fair value hierarchy. The
cost of the shares was GBP471,000. The unrealised difference
between cost and market value has been taken to the income
statement. Dividend income of GBP360,500 (30 June 2018: GBP350,000
and 31 December 2018: GBP355,000) and GBP24,000 (30 June 2018:
GBP24,000 and 31 December 2018: GBP24,000) of sale proceeds have
been received from this investment since it was made. The
investment made a net unrealised loss of GBP3,000 (30 June 2018:
Gain of GBP24,000 and 31 December 2018: Loss of GBP4,000) during
the period.
13. Loans and advances to customers
30 June 30 June 31 Dec
2019 2018 2018
Gross Specific ECL Allowance Carrying Carrying Carrying
Provision
Amount GBP000 GBP000 Value Value Value
GBP000 GBP000 GBP000 GBP000
As at: (unaudited) (unaudited) (audited)
HP balances 63,026 (1,483) (109) 61,434 56,177 57,622
Finance lease
balances 32,326 (1,563) (143) 30,620 21,108 25,687
Wholesale
funding
arrangements 29,147 (618) (108) 28,421 9,747 22,944
Block
discounting 20,437 - - 20,437 17,946 17,316
Unsecured
personal
loans 11,679 (212) (19) 11,448 13,906 14,424
Secured
commercial
loans 10,672 (272) (9) 10,391 403 1,922
Secured
personal
loans 5,725 - - 5,725 10,047 6,877
Vehicle
stocking
plans 1,559 - - 1,559 1,500 1,486
-----------
174,571 (4,148) (388) 170,035 130,834 148,278
14. Trade and other receivables
30 June 30 June 31 Dec
2019 2018 2018
GBP000 GBP000 GBP000
As at: (unaudited) (unaudited) (audited)
VAT claim 988 862 936
Prepayments 217 273 382
Other debtors 1,350 990 1,173
2,555 2,125 2,491
Included in trade and other receivables is an amount of
GBP988,000 (30 June 2018: GBP862,000 and 31 December 2018:
GBP936,000) relating to a reclaim of VAT. The Bank, as the Group
VAT registered entity, has for some time considered the VAT
recovery rate being obtained by the business was neither fair nor
reasonable, specifically regarding the attribution of part of the
residual input tax relating to the HP business not being considered
as a taxable supply. Queries have been raised with the Isle of Man
Government Customs & Excise Division ("C&E"), and several
reviews of the mechanics of the recovery process were undertaken by
the Company's professional advisors.
The decision of the First-Tier Tax Tribunal released 18 August
2011 in respect of Volkswagen Financial Services (UK) Limited
("VWFS") v HM Revenue & Customs (TC01401) ("VWFS Decision")
added significant weight to the case put by the Bank and a request
for a revised Partial Exemption Special Method was submitted in
December 2011.
The proposal put forward by the Bank was that the revised method
would allocate 50.0% of costs in respect of HP transactions to a
taxable supply and 50.0% to an exempt supply. In addition, a
Voluntary Disclosure was made as a retrospective claim for input
VAT under-claimed in the last 4 years. A secondary claim was also
made to cover periods Q4 2012 to Q1 2016 for the value of
GBP230,000 and an amount of GBP249,000 has been accrued to cover
periods Q2 2016 to Q4 2018. An additional claim of GBP52,000 has
been accrued for the 6 month period ended 30 June 2019.
In November 2012, it was announced that the HMRC Upper Tribunal
had overturned the First-Tier Tax Tribunal in relation to the VWFS
Decision. VWFS was 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 appealed this decision to the Supreme Court, which
referred the issue to the Court of Justice of the European Union
("CJEU").
The CJEU has published its determination concerning the VWFS vs
HMRC case. The judgement addressed all specific questions referred
and agreed with VWFS on all material points. Specifically, the
judgment clarifies that a partial exemption method must reflect the
taxable sale of the goods, even where general costs are
commercially passed on as part of the exempt supplies of credit. We
have approached C&E with a view of commencing conversations to
finalise our historic claims, rolling up the claim to date and
agreeing a new partial exempt method going forward.
The Bank's total exposure in relation to this matter increased
to GBP1,101,000 (30 June 2018: GBP975,000 and 31 December 2018:
GBP1,049,000), comprising the debtor balance referred to above plus
an additional GBP113,000 (30 June 2018: GBP113,000 and 31 December
2018: 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). On the basis of the
discussions and correspondence which have taken place between the
Bank and C&E, in addition to the VWFS case, the Directors are
confident that the VAT claim referred to above will be secured.
15. Goodwill
30 June 30 June 31 Dec
2019 2018 2018
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
Blue Star Business Solutions Limited (Note 2,188 - -
20)
4,532 2,344 2,344
16. Creditors and accrued charges
30 June 30 June 31 Dec
2019 2018 2018
GBP000 GBP000 GBP000
As at: (unaudited) (unaudited) (audited)
Commission creditors 1,031 1,714 758
Other creditors and accruals 997 1,383 897
Taxation creditors 387 355 355
2,415 3,452 2,010
17. Block creditors
30 June 30 June 31 Dec
2019 2018 2018
GBP000 GBP000 GBP000
As at: (unaudited) (unaudited) (audited)
Drawdown 2 - repayable 25/07/2018, interest - 15 -
payable at 5.8%
Drawdown 3 - repayable 08/03/2019, interest
payable at 6.5% - 400 138
- 415 138
18. Loan notes
30 June 30 June 31 Dec
2019 2018 2018
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
3,410 3,410 3,410
Unrelated parties UP 12,461 12,561 12,461
15,871 15,971 15,871
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.
Both 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
beneficial owner of BL and Denham Eke is also a director. The loan
is convertible at a rate of 7.5 pence.
SR - One loan consisting of 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. John Banks, a Non-executive
Director, is also a director of SR.
UP - Thirty-three loans consisting of an average GBP377,606 with
a weighted average interest payable of 5.4% per annum. The earliest
maturity date is 14 July 2019 and the latest maturity date is 20
January 2024.
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.
19. Called up share capital
Ordinary shares of no-par value available for Number
issue
----------------------------------------------- ------------
At 30 June 2019, 31 December 2018 and 30 June
2018 200,200,000
----------------------------------------------- ------------
Issued and fully paid ordinary shares of no Number GBP000
par value
--------------------------------------------- ------------ -------
At 30 June 2018 131,096,235 20,732
At 30 June 2019 and 31 December 2018 131,096,235 20,732
--------------------------------------------- ------------ -------
There are four convertible loans of GBP3,410,000 (2018:
GBP3,410,000).
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 and 31 December 2018:1,050,000) remain outstanding; the
balance lapsed during 2017.
20. Acquisition of subsidiary
On 16 April 2019, the Group acquired 100% of the shares and
voting interest in Blue Star Business Solutions Limited (BBSL),
obtaining control of BBSL.
This acquisition is part of the Group's strategy to increase its
distribution in the UK broker market. BBSL was formed in 2004 and
is based in Hampshire and regulated by the FCA and holds Credit
Broking Authorisations. The business is a niche brokerage which
focuses on delivering excellent customer service to small and
medium sized businesses in the UK that require funding for IT
equipment amongst other assets. The Group invested in BBSL to allow
it to grow profitably by gaining market share and through its
banking subsidiary, Conister Bank Limited, write the majority of
its funding requests.
A. Consideration transferred
The following table summarises the acquisition-date fair value
of each major class of consideration transferred.
GBP000
-------------------------- -------
Cash 1,500
Contingent consideration 946
-------
2,446
-------------------------- -------
i. Contingent consideration transferred
The Group has 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 tail of the portfolio. The total
consideration is to have a cap of GBP4,000,000 in total.
The contingent consideration is calculated by forecasting 3
years of net profits discounted using an interest rate of 5.0% per
annum.
B. Acquisition-related costs
The Group incurred acquisition-related costs of GBP20,000
relating to external legal fees and due diligence costs. These
costs have been included in 'administrative expenses' in the
Condensed Consolidated Statement of Profit or Loss and Other
Comprehensive Income.
C. Identifiable assets acquired, and liabilities assumed
The following table summarises the recognised amounts of assets
acquired, and liabilities assumed at the date of acquisition.
GBP000
---------------------------------------- -------
Property, plant and equipment 288
Trade and other receivables 114
Cash and cash equivalents 176
Trade and other payables (205)
Loans and borrowings (115)
-------
Total identifiable net assets acquired 258
----------------------------------------- -------
The fair value of these assets and liabilities have been
measured on a provisional basis.
D. Goodwill
The initial accounting for the business combination is
incomplete at the period end. The Group continues to obtain
information necessary to identify and measure the identifiable
assets acquired and the resulting goodwill or gain on a bargain
purchase.
The provisional goodwill arising from the acquisition has been
recognised as follows:
GBP000
--------------------------------------- -------
Total consideration transferred 2,446
Fair value of identifiable net assets (258)
-------
Provisional goodwill 2,188
---------------------------------------- -------
21. Regulators
Certain Group subsidiaries are regulated by the Isle of Man
Government Financial Services Authority ("FSA") and the Financial
Conduct Authority (FCA) in the United Kingdom as detailed
below.
The Bank and EWA 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. MFX is not regulated in both
jurisdictions.
22. 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.
23. Subsequent events
There were no significant subsequent events identified after 30
June 2019.
24. Approval of interim financial statements
The interim financial statements were approved by the Board on
24 September 2019. 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,10th Floor, 30 Crown Place, London, EC2A 4EB. The interim
and annual financial statements along with other supplementary
information of interest to shareholders, are included on the
Group's website. The website includes investor relations
information, including corporate governance observance, 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 BLGDCUDDBGCU
(END) Dow Jones Newswires
September 26, 2019 02:00 ET (06:00 GMT)
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