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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Manx Financial Group Plc | LSE:MFX | London | Ordinary Share | IM00B28ZPX83 | ORD NPV |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 19.00 | 18.00 | 20.00 | 19.00 | 18.50 | 18.50 | 13,921 | 10:06:17 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Personal Credit Institutions | 53.34M | 6.14M | 0.0527 | 3.61 | 22.14M |
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.
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