Report and Accounts for year to 31 December 2012

 

 

 

 

FOR IMMEDIATE RELEASE                                                                                           30th May 2013

           

 

Manx Financial Group PLC (the 'Company')

 

Report and accounts for the year ended 31 December 2012

 

 

Manx Financial Group PLC (LSE: MFX), the financial services group which includes Conister Bank Limited, Conister Card Services Limited and Edgewater Associates Limited presents its final results for the year ended 31 December 2012.

 

The 2012 Audited Annual Report and Accounts will be posted to shareholders shortly and will also shortly be available from the Company's website www.mfg.im 

 

Financial Highlights

 

Manx Financial Group PLC

·      Net interest income £5.5 million (2011: £4.6 million)

·      Net trading income £5.1 million (2011: £5.0 million)

·      Operating income £5.3 million (2011: £5.5 million)

·      Profit before specific items £0.4 million (2011: loss of £0.6 million)

·      Loss for the year £0.3 million (2011: loss of £0.8 million)

·      Headcount at 31 December 2012 was 54 people (2011: 68 people)

Conister Bank Limited

·      Profit before specific items for the year £0.5 million (2011: loss of £0.9 million)

·      Net loans and advances £58.5 million (2011: £49.6 million)

·      Deferred income £8.7 million (2011: £7.6 million)

·      New advances £38.2 million (2011: £32.0 million)

·      Deposits £63.7 million (2011: £55.9 million)

Edgewater Associates Limited

·      Profit before specific items for the year £0.024 million (2011: £0.010 million)

·      Assets under management £140 million (2011: £130 million)

Conister Card Services Limited

·      Profit before specific items for the year £0.02 million (2011: £0.20 million)

·      Operating costs reduced to £0.6 million (2011: £0.7 million)

 

 

Contacts

 

Manx Financial Group PLC   Denham Eke, Chief Executive Tel:  +44 (0) 1624 694694

Britton Financial PR   Tim Blackstone Tel:  +44 (0) 7957 140416

Beaumont Cornish Limited   Roland Cornish Tel:  +44 (0) 207 628 3396

 

The financial information set out below comprises non-statutory accounts.  The financial information for the year ended 31 December 2012 has been extracted from accounts for the year ended 31 December 2012 on which the report of the auditors was unqualified.

 

 

 

Chairman's Statement

 

Review of performance

 

Manx Financial Group PLC

 

Dear Shareholders,

 

Each year since I became Executive Chairman, I have ended my reports to you with a commitment that the Group will return to profitability. Although the 2012 results do not fully reflect this - as inevitably this statement is largely retrospective - I believe that we have at last turned the corner. The start to the current year continues the promising performance for the second half of 2012: our cost reductions taken in 2012 are now filtering through to the Income Statement and our new business generation is improving each month. I look forward to being able to provide a positive update on this progress at the half year.

 

Manx Financial Group PLC

 

As I stated in the 2012 Interim Report, I expected an improvement in the second half of the year. I am pleased to record that my confidence was not misplaced. By the end of June 2012, our Profit before specific items was £92,000. At the end of the full year this figure had increased to £390,000 (2011: loss of £641,000) - a turnaround of just over £1 million in twelve months. Adding in the specific items, the Total comprehensive loss at the Interim stood at a loss of £567,000 with the full year figure being a loss of £435,000 (2011: loss of £799,000) - a positive improvement of £132,000.

 

Whilst these figures might not in themselves seem noteworthy, they disguise the benefits following the extensive restructuring undertaken in 2012 to deal with the considerable legacy overhead issues. By the end of 2012, our Personnel expenses had reduced by nearly 15% to £2.8 million (2011: £3.3 million) and our Other expenses had reduced by nearly 8% to £2.1 million (2011: £2.3 million). Overall, the costs of continuing operations had fallen to £5.3 million (2011: £6.3 million) a 16% reduction.

 

Non-recurrent Acquisition and redundancy costs, together with the provision for the Edgewater Associates variable final acquisition payment, alone amounted to £864,000 (2011: £537,000). Despite these one-off costs, the Group returned a Total comprehensive profit of £132,000 in the second half of the year (2011: a loss of £446,000).

 

Turning to the Statement of Financial Position, our Total assets have increased to £78.0 million (2011: £67.2 million), a growth of 16%. Our Total liabilities have risen to £70.8 million (2011: £59.5 million), a growth of 19% and Total liabilities and equity has therefore grown by 16% to £78.0 million (2011: £67.2 million). The most significant figures within these totals are the growth in Loan and advances to £58.5 million (2011: £49.6 million) and the growth in Customer accounts to £63.7 million (2011: £55.9 million).

 

Strategically, we will continue our short-term focus on organic growth for the subsidiaries engaged in banking, prepaid cards and financial advisory services to consolidate our profitability and only consider acquisitions if the business rationale warrants. This focus will eliminate over £500,000 worth of aborted transaction fees incurred during 2012.

 

Conister Bank Limited

 

Our banking subsidiary continues to experience excellent growth with interest income up 17% to £7.8 million (2011: £6.7 million) driven by a 19% increase in new lending to £38.2 million (2011: £32.0 million). In turn, the Net loan book has grown by just over 18% to £58.5 million (2011: £49.6 million). The consistent application of our underwriting policies has allowed provision levels to reduce by £0.2 million to £4.3 million (2011: £4.5 million) whilst retaining prudent provision balances which represented 6% of our gross loan book (2011: 7%).

 

Good progress has also been achieved in matching deposits to loans and this key ratio improved by 3% to 92%. Also, the cost income ratio before specific items improved by 15% as the benefits of the rationalisation plan started to flow through the Income statement. The deposit base remains loyal and our brand awareness within the local deposit market is positive. Growth should not be restrained as our ability to attract deposits at competitive rates shows no sign of abating.

 

In line with best banking practice, I am pleased to report that our Tier 1 capital stood at nearly £10.0 million at the year-end which provided a Regulatory Risk Asset Ratio of nearly 17%. This figure is greatly in excess of the UK major banks and provides a solid foundation for our banking business. We believe that the provision of additional regulatory capital to fuel our expansion plans will not be a concern, and indeed our strategic plan for organic growth allows for the Bank to become self-sufficient in capital generation by the third quarter of 2013.

 

As I stated last year the Bank has for some time considered its VAT recovery rate as being neither fair nor reasonable and has raised this concern with the Isle of Man Government's Customs & Excise Division. Some progress has been made with a £0.1 million benefit agreed so far. The balance will follow the decision of the Volkswagen Financial Services Limited case against HM Revenue & Customs, with the next appeal scheduled to be heard in Autumn 2013.

 

The continued absence of the traditional 'High Street' banks from both the UK consumer and Small & Medium Enterprises markets has created a void which our banking subsidiary is in an advantageous position to help fill. With Conister Bank's easy access to the Isle of Man retail deposit market, it will not be liquidity constrained and its rate structure should deliver steady returns for the foreseeable future. This, in conjunction with our growing UK distribution network, should ensure our route to market is stronger and more comprehensive than has been the case historically. In short, I believe that we have created a strong platform for growth within profitable market sectors.

 

Edgewater Associates Limited

 

Our Isle of Man regulated IFA business remains profitable and is well placed to benefit from the introduction on 1 January 2014 of the Island's equivalent to the UK's Retail Distribution Review whereby only those appropriately qualified can provide financial advice. Although the current economic climate is proving challenging to write new business, Edgewater Associates had the foresight to move to a renewal income model in 2010 which now represents over half of its turnover.

 

The strategy for growth is two pronged. Firstly we will continue to grow renewal income to cover the cost of the business's main asset, its people. This is expected to be achieved in the first half of 2013. Secondly, we will accelerate our new business income by increasing the ratio of sales to support staff within the current establishment. The latter will generate income greater than overheads and will create a more consistent return on our investment. Whilst this will have a positive impact in 2013, the full benefit of the re-structuring will not flow through the financial statements until 2014. We also continue to seek suitable acquisitions to increase the business' scale.

 

Conister Card Services Limited

 

We continue to act as a BIN sponsor whilst reviewing other ways to monetise our MasterCard® Principal Membership. Technology advances within the mobile and tablet arena are providing new, more convenient connectivity opportunities for both businesses and customers to send and receive payments. Choosing the correct partners within this market will be critical to the economic success of our entry into this opportunity. We are currently engaged in discussions with a mobile phone operator and a supermarket chain about operating a test to prove the technology and to review the market opportunity.

 

 

Outlook

 

In conclusion, I am pleased to say that all our businesses are on stream to achieve sustainable profitability. The Group's growth will be mainly driven by Conister Bank as I expect little change in the current economic environment for some considerable time. The benefit to us will be that during this period the 'High Street' banks will continue on their present course of balance sheet reconstruction which, inevitably, limits lending. This will, in turn, provide a time of opportunity for smaller banks such as our own to improve the quality of their counterparties and become the longer term funder of choice. We will continue to improve our system technology to ensure that our customers benefit from the competitive efficiency that an internet interface provides. 

 

Thus this year's objective is to build upon a solid platform of sustainable profitability. With this achieved, we will be well positioned to move the Group to the next stage of its development which I anticipate will involve the consideration of strategic acquisitions to both broaden and strengthen our customer offering.

 

Finally, it remains for me to thank the executive and all our staff for their hard work and loyalty during this transformational year and to also thank you, our shareholders, for your continued support.

 

 

 

 

Jim Mellon

Executive Chairman

28 May 2013

 

 

 

Consolidated Statement of Comprehensive Income

 

For the year ended 31 December	Notes		2012 £000		2012 £000		2011 £000		2011 £000
Interest income			7,800				6,650
Interest expense			(2,259)				(2,065)
Net interest income			1,226 (612) (1,032)		5,541		1,191 (322) (417)		4,585
Fee and commission income Fee and commission expense Profit share on joint lending schemes	7
Net fee and commission (expense)/income					(418)				452
Net trading income					5,123				5,037
Other operating income					212				418
Operating Income					5,335				5,455
Personnel expenses			(2,831)				(3,314)
Other expenses			(2,144)				(2,319)
Provision for impairment of loan assets			(7)				(463)
Depositors' Compensation Scheme			37				-
					(4,945)				(6,096)
Profit/(loss) before specific items					390				(641)
Acquisition and restructuring costs	9		(864)				(537)
VAT recoverable			71				684
Realised gains on available-for-sale investments			28				41
Unrealised (loss)/gain on financial assets carried at fair value			(128)				15
Depreciation			(214)				(234)
Impairment of goodwill			-				(111)
					(1,107)				(142)
Loss before income tax recovery					(717)				(783)
Income tax recovery	12				380				-
Loss for the year					(337)				(783)
Other comprehensive income
Available-for-sale gains taken to equity					-				3
Actuarial loss on defined benefit pension scheme					(98)				(19)
Total comprehensive loss for the period attributable to owners					(435)				(799)
Basic and diluted loss per share (pence)	13				(0.38)				(0.88)

 

Consolidated and Company Statement of Financial Position

 

		Group				Company
As at 31 December	Notes	2012 £000		2011 £000		2012 £000		2011 £000
Assets
Cash and cash equivalents		1,918		2,335		-		-
Financial assets at a fair value through profit or loss		51		189		-		-
Available-for-sale financial instruments		12,484		10,495		-		-
Loans and advances to customers	18	58,495		49,525		-		-
Commissions receivable		312		234		-		-
Property, plant and equipment		742		814		-		-
Investment in Group undertakings	20	-		-		12,072		12,067
Trade and other receivables	21	1,252		1,260		98		31
Deferred tax asset	12	380		-		-		-
Goodwill	20	2,344		2,344		-		-
Total assets		77,978		67,196		12,170		12,098
Liabilities
Customer accounts		63,731		55,910		-		-
Creditors and accrued charges		2,162		855		339		93
Amounts owed to Group undertakings		-		-		1,512		2,962
Loan notes	24	4,510		2,210		4,510		2,210
Deferred consideration		160		492		160		492
Pension liability		200		79		-		-
Total liabilities		70,763		59,546		6,521		5,757
Equity
Called up share capital		18,433		18,433		18,433		18,433
Profit and loss account		(11,218)		(10,783)		(12,784)		(12,092)
Total equity		7,215		7,650		5,649		6,341
Total liabilities and equity		77,978		67,196		12,170		12,098

 

Consolidated Statement of Cash Flows

 

For the year ended 31 December	Notes		2012 £000		2011 £000
RECONCILIATION OF LOSS BEFORE TAXATION TO OPERATING CASH FLOWS
Loss before tax on continuing activities			(717)		(783)
Unrealised loss/(gain) on financial assets carried at fair value			128		(15)
(Gain)/loss on disposal of property, plant and equipment			(7)		6
Depreciation charge			214		234
Realised gains on available-for-sale investments			(28)		(41)
Available-for-sale gains taken to equity			-		3
Actuarial loss on defined benefit pension scheme taken to equity			(98)		(19)
Pension liability			121		19
Share-based payment credit			-		4
Decrease/(increase) in trade and other receivables			18		(820)
Increase/(decrease) in trade and other payables			1,307		(123)
(Increase)/decrease in commission debtors			(78)		3
Impairment of goodwill			-		111
Net cash inflow/(outflow) from trading activities			860		(1,421)
Increase in loans and advances to customers			(8,970)		(1,058)
Increase in deposit accounts			7,821		3,165
Cash (outflow)/inflow from operating activities			(289)		686
CASH FLOW STATEMENT
Cash flows from operating activities
Cash (outflow)/inflow from operating activities			(289) -		686 -
Taxation paid
Net cash (outflow)/inflow from operating activities			(289)		686
Cash (outflow)/inflow from investing activities
Purchase of property, plant and equipment			(186)		(323)
Purchase of available-for-sale financial instruments			(1,961)		(3,162)
Sale of property, plant and equipment			51		29
Acquisition of subsidiaries net of cash acquired	20		-		(32)
Payment of deferred consideration			(332)		(158)
Net cash outflow from investing activities			(2,428)		(3,646)
Cash flows from financing activities
Issue of loan notes			2,300		500
. Net cash inflow from financing activities			2,300		500
Decrease in cash and cash equivalents			(417)		(2,460)
Included in cash flows are:
Interest received - cash amounts			8,003		6,749
Interest paid - cash amounts			(2,396)		(2,306)

 

 

Statement of Changes in Equity

 

For the year ended	Share Capital		Retained earnings		2012		2011
Group	£000		£000		£000		£000
Balance as at 1 January	18,433		(10,783)		7,650		8,620
Loss for the year	-		(337)		(337)		(783)
Other comprehensive expense	-		(98)		(98)		(16)
Transactions with owners:
Shares to be issued (see note 23)	-		-		-		(175)
Share-based payment expense	-		-		-		4
Balance as at 31 December	18,433		(11,218)		7,215		7,650

 

For the year ended	Share Capital		Retained earnings		2012		2011
Company	£000		£000		£000		£000
Balance as at 1 January	18,433		(12,092)		6,341		7,444
Loss for the year	-		(692)		(692)		(932)
Transactions with owners:
Shares to be issued (see note 23)	-		-		-		(175)
Share-based payment expense	-		-		-		4
Balance as at 31 December	18,433		(12,784)		5,649		6,341

 

 

Notes

 

Segmental analysis (Note 5)

 

Segmental information is presented in respect of the Group's business segments. The Directors consider that the Group currently operates in one geographic segment, the Isle of Man and UK. The primary format, business segments, is based on the Group's management and internal reporting structure. The Directors consider that the Group operates in four product orientated segments in addition to its investing activities: Asset and Personal Finance (including provision of HP contracts, finance leases, personal loans, commercial loans and block discounting); Litigation Finance; a Prepaid Card division, Conister Card Services; and a Wealth Management division, Edgewater Associates Limited. The Group ceased to provide new Litigation Finance in June 2007.

 

 

For the year ended 31 December 2012	Asset and Personal Finance		Litigation Finance		Conister Card Services		Wealth Management		Investing Activities		Total
	£000		£000		£000		£000		£000		£000
Net interest income	5,782		-		-		-		(241)		5,541
Operating income	4,255		-		112		1,205		(237)		5,335
Profit before specific items	610		141		16		24		(401)		390
Capital expenditure	184		-		-		2		-		186
Total assets	76,367		899		134		578		-		77,978

 

For the year ended 31 December 2011	Asset and Personal Finance		Litigation Finance		Conister Card Services		Wealth Management		Investing Activities		Total
	£000		£000		£000		£000		£000		£000
Net interest income	4,242		343		-		-		-		4,585
Operating income	3,575		343		369		1,168		-		5,455
Loss before specific items	(1,174)		343		180		10		-		(641)
Capital expenditure	307		-		-		16		-		323
Total assets	63,526		1,137		144		2,389		-		67,196

 

Profit share on joint lending schemes (Note 7)

 

		2012		2011
		£000		£000
Scheme one		1,032		417
		1,032		417

 

On 3 February 2010, a joint lending scheme was entered into by the Bank. The development of this relationship has led to interest income on loan advances funded by the Bank, being divided up between the parties in a profit sharing ratio. As at 31 December 2012 advances had grown by £8.7million to £18.9million. The amount by which the other party has received in profits shared is analysed above.

 

Acquisition and restructuring costs (Note 9)

 

Restructuring costs in the current and prior year relate to a reorganisation and rationalisation across the Group.

 

 

	Notes	2012		2011
		£000		£000
Acquisition costs
Legal, professional and other acquisition costs		493		-
Re-organisation of UK and IOM operations
Salary and redundancy costs		371		537
		864		537

 

 

Income tax expense (Note 12)

 

The main rate of income tax in the Isle of Man is 0% (2011:0%), however the profits of the Group's Manx banking activities are taxed at 10% (2011: 10%). The profits of the Group's subsidiaries that are subject to UK corporation tax are taxed at a rate of 26.5% (2011: 26.5%).

 

The Group had sufficient tax losses brought forward to offset any profits in income streams that are taxable at a rate above 0% and therefore no provision is required. The value of tax losses carried forward is £380,000 (2011: £nil) which has been recognised as a deferred tax asset in the current year.

 

Loss per share (Note 13)

 

	2012		2011
	£000		£000
Loss for the year	(337)		(783)
	Number		Number
Weighted average number of ordinary shares in issue	89,570,252		89,213,979
Basic and diluted loss per share	(0.38)p		(0.88)p

 

The basic loss per share calculation is based upon loss for the year after taxation and the weighted average of the number of shares in issue throughout the year.

 

Diluted earnings per share is the same as basic loss per share, as for the year ended 31 December 2011 there is no dilution from potential ordinary shares.

 

Loans and advances to customers (Note 18)

 

Group	Gross Amount		2012 Impairment Allowance		Carrying Value		Gross Amount		2011 Impairment Allowance		Carrying Value
	£000		£000		£000		£000		£000		£000
HP balances	37,955		(883)		37,072		33,810		(624)		33,186
Finance lease balances	6,543		(696)		5,847		5,640		(628)		5,012
Litigation funding	2,526		(1,627)		899		2,972		(1,835)		1,137
Unsecured personal loans	3,913		(362)		3,551		3,399		(434)		2,965
Vehicle stocking plans	1,404		-		1,404		1,397		-		1,397
Block discounting	4,601		-		4,601		3,724		(9)		3,715
Secured commercial loans	5,866		(745)		5,121		3,113		(1,000)		2,113
	62,808		(4,313)		58,495		54,055		(4,530)		49,525

 

Collateral is held, in the form of underlying assets, for HP, finance leases, vehicle stocking plans, block discounting and secured commercial loans. An estimate of the fair value of collateral on past due or impaired loans and advances is not disclosed as it would be impractical to do so.

 

	2012		2011
Specific allowance for impairment	£000		£000
Balance as at 1 January	4,305		4,173
Specific allowance for impairment made	69		781
Write-offs	(224)		(649)
Balance at 31 December	4,150		4,305

 

	2012		2011
Collective allowance for impairment	£000		£000
Balance as at 1 January	225		490
Collective allowance for impairment made	-		129
Release of allowances previously made	(62)		(394)
Balance at 31 December	163		225
Total allowances for impairment	4,313		4,530

 

Advances on preferential terms are available to all Directors, management and staff. As at 31 December 2012 £133,740 (2011: £166,710) was lent on this basis. In the Group's ordinary course of business, advances may be made to Shareholders but all such advances are made on normal commercial terms.

 

As detailed below, at the end of the current financial year one loan exposure exceeded 10% of the capital base of the Group (2011: three loan exposures).

 

	Outstanding balance 2012		Outstanding balance  2011		Facility limit  (if applicable)
Exposure	£000		£000		£000
Finance lease	-		1,037		N/a
Specific commercial loan	4,176		1,849		5,000
Block discounting facility	-		767		1,000

 

HP and finance lease receivables

Loans and advances to customers include the following HP and finance lease receivables:

 

	2012		2011
Gross investment in HP and finance lease receivables	£000		£000
Less than one year	21,841		19,295
Between one and five years	30,520		26,962
	52,361		46,257

 

	2012		2011
The investment in HP and finance lease receivables net of unearned income comprises	£000		£000
Less than one year	18,454		16,049
Between one and five years	26,044		23,401
Net investment in HP and finance lease receivables	44,498		39,450

 

Investment in Group undertakings (Note 20)

 

The company has the following investments in subsidiaries incorporated in the Isle of Man:

 

	Nature of business	31 December 2012 % Holding	Date of incorporation	Total 2012 £		Total 2011 £
Carrying value of investments
Conister Bank Limited	Asset and personal finance	100	5.12.1935	10,067,000		10,067,000
TransSend Holdings Limited	Holding Company for prepaid card division	100	5.11.2007	-		-
Bradburn Limited	Holding Company	100	15.05.2009	1		1
Edgewater Associates Limited	Wealth Management	100	24.12.1996	2,005,000		2,000,000
				12,072,001		12,067,001

 

Goodwill

 

Goodwill	Group 2012 £000		Group 2011 £000
Edgewater Associates Limited (EWA)	1,849		1,849
ECF Asset Finance PLC (ECF)	454		454
Three Spires Insurance Services Limited (Three Spires)	41		41
	2,344		2,344

 

Goodwill impairment

 

The goodwill is considered to have an indefinite life and is reviewed on an annual basis by comparing its estimated recoverable amount with its carrying value. The estimated recoverable amount in relation to the goodwill generated on the purchase of EWA is based on the forecasted 3 year cash flow projections, extrapolated to 10 years using a 5% annual increment, and then discounted using a 12% discount factor (2011: discount factor 10%). The sensitivity of the analysis was tested using additional discount factors of 15% and 20% on stable profit levels.

 

The estimated recoverable amount in relation to the goodwill generated on the purchase of ECF is based on forecasted 3 year sales interest income (calculated at 5% margin), extrapolated to 10 years using a 5% annual increment, and then discounted using a 12% discount factor (2011: discount factor 10%). The sensitivity of the analysis was tested using additional discount factors of 15% and 20% on varying sales volumes.

 

On the basis of the above reviews no impairment to goodwill has been made in the current year.

 

The goodwill generated on the purchase of Three Spires has been reviewed at the current year end and is considered adequate given its income streams referred to EWA.

 

Trade and other receivables (Note 21)

 

	Group			Company
	2012 £000		2011 £000		2012 £000		2011 £000
Trade debtors	53		114		-		-
Prepayments and other debtors	733		462		30		20
VAT recoverable	466		684		68		11
	1,252		1,260		98		31

 

Included in trade and other receivables is an amount of £466,000 (2011: £684,000) relating to a reclaim of value added tax (VAT).

 

Conister Bank Limited (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 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% of costs in respect of HP transactions to a taxable supply and 50% to an exempt supply. In addition at this time a Voluntary Disclosure was made as a retrospective claim for input VAT under-claimed in the last 4 years.

 

In November 2012, it was announced that the HMRC Upper Tribunal had overturned the First-Tier Tribunal in relation to the VWFS Decision. VWFS has subsequently been given leave to appeal and this is scheduled to be heard in October 2013.

 

The Bank's total exposure in relation to this matter is £589,000, comprising the debtor balance referred to above plus an additional £123,000 VAT reclaimed under the Partial Exemption Special Method, in the period from Q4 2011 to Q3 2012.

 

On the basis of the discussions and correspondence which have taken place between the Bank and C&E, in addition to the VWFS appeal, the Directors are confident that the VAT claimed referred to above will be secured.

 

Loan Notes (Note 24)

			Group				Company
			2012		2011		2012		2011
	Notes		£000		£000		£000		£000
Related parties
J Mellon	JM		1,750		1,750		1,750		1,750
Burnbrae Limited	BL		1,200		-		1,200		-
Southern Rock Insurance Company	SR		500		-		500		-
Copper Development Corporation	CDC		500		-		500		-
Rock Holdings Limited	RH		460		460		460		460
			4,410		2,210		4,410		2,210
Unrelated parties	UP		100		-		100		-
			4,510		2,210		4,510		2,210

 

JM - Two loans consisting of £500,000, maturing on 31 July 2017 with interest payable of 7% p.a. and £1,250,000 maturing on 26 February 2015 paying interest of 9% p.a. Both loans are convertible at the rate of 4 pence and 9 pence respectively. The £500,000 loan is also entitled to 8.3 million warrants at an exercise price of 6 pence.

 

BL - One loan consisting of £1,200,000 maturing on 31 July 2017 with interest payable of 7% p.a. Jim Mellon is the beneficial owner of BL and Denham Eke is also a director. The loan is convertible at a rate of 4 pence and is entitled to 20 million warrants at an exercise price of 6 pence.

 

SR - One loan consisting of £500,000, maturing on 9 October 2017, paying interest of 7% p.a. Arron Banks, a significant shareholder and previous Non-Executive Director holds a 100% stake in SR. The loan is convertible at the rate of 4 pence, with an entitlement to 8.3million warrants at an exercise price of 6 pence.  See note 32 for details of converting this loan post year end.

 

CDC - Two loans consisting of £350,000, maturing on 7 September 2017 with interest payable of 5% p.a. and £150,000 maturing on 4 October 2017 paying interest of 5%p.a. Denham Eke is a director of CDC.

 

RH - One loan consisting of £460,000, maturing on 26 February 2015 with interest payable of 9% p.a. The loan is convertible at the rate of 9 pence. RH is linked to Arron Banks. See note 32 for details on assigning this loan to SR post year end.

 

UP - One loan consisting of £100,000, maturing on 16 November 2017 with interest payable of 5% p.a.

 

With respect to the convertible loans, the interest rate applied was deemed by the Directors to be equivalent to the market rate with no conversion option hence no equity component has been recognised with respect to any of these loans.

 

Post balance sheet events (Note 32)

 

On 24 April 2013, Rock Holdings Limited assigned £460,000 loan note to Southern Rock Insurance Company Limited.  Southern Rock Insurance Company has also sent a conversion notice in respect of the £500,000 loan note and these will be converted into equity at the rate of 4 pence per share on 31^st May 2013.