Unaudited interim results

FOR IMMEDIATE RELEASE       `                                                                                                                                          26 August 2014

Manx Financial Group PLC

 

Unaudited Interim Results for the 6 months ended 30 June 2014

 

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 interim results for the six months ended 30 June 2014. Copies of the Interim Report will shortly be available on our website www.mfg.im.

 

 

Financial Highlights

 

 

Profit before tax:	£0.76 million - up 148% (2013: £0.31 million)
Net interest income:	£5.05 million - up 37% (2013: £3.68 million)
Operating income:	£3.80 million - up 22% (2013: £3.11 million)
Total assets:	£101.68 million - up 24% (2013: £81.73 million)
Loans:	£83.07 million - up 28% (2013: £64.88 million)
Customer accounts:	£84.51 million - up 25% (2013: £67.85 million)
Total equity:	£9.25 million - up 16% (2013: £7.97 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/Felicity Geidt

Tel: +44 (0)20 7628 3396 

 

The financial information set out below comprises non-statutory accounts. The financial information has been extracted from published accounts for the six months ended 30 June 2014.

 

Dear Shareholders,

 

I am pleased to report that our business has recorded a profit of £0.76 million before taxation at the six month stage (2013: £0.31 million). This represents a first half growth of 148% and is the third consecutive six month period of meaningful profitability. This performance was again underpinned both by an increase in bank lending and a further decrease in employment and other establishment costs. The business continues to be well placed to exploit unsatisfied lending opportunities in our key markets: the Isle of Man and the UK. Both regions are showing differing but consistent signs of economic growth.

 

The banking market is changing rapidly, particularly on the Isle of Man, where a number of established names are either withdrawing or, alternatively, downsizing their banking model to treat the Island as part of a UK branch network with lending decisions taken remotely. In the UK, both the Government and the Bank of England stress the importance of allowing smaller banks to lend more, particularly the importance of lending to Small & Medium Sized Enterprises (SMEs), coupled with the need to introduce more competition into the UK banking system. These changes provide a number of real and potentially lucrative opportunities for our company and demonstrate a significant improvement in the market conditions in which we operate.

 

Our earnings per share (EPS) have more than doubled, with basic EPS at 0.71 pence (2013: 0.28 pence). This, together with the EPS for the previous half, provides an earnings multiple of 8.71 for twelve months - a very low figure in relation to our peers. The diluted EPS is 0.47 pence (2013: 0.23 pence).

 

Although we remain an Isle of Man centric institution, we continue to diversify our risk exposure by developing additional lending lines into the UK. We support Island life through charitable donations and a wide variety of sponsorships. Our staff give their time freely to support these activities - a fine example of how we work together to the benefit of the Island.

 

Manx Financial Group PLC

 

Turning to the Income Statement, our net interest income increased by 37% to £5.05 million (2013: £3.68 million); net trading income increased by 22% to £3.71 million (2013: £3.05 million), leading to a 22% growth in operating income to £3.80 million (2013: £3.11 million), reflecting the increase in overall lending. Personnel and other establishment costs fell by 3% to £2.44 million (2013: £2.52 million).

 

As a result, profit before income tax improved by £0.45 million to £0.76 million (2013: £0.31 million). We have prudently more than doubled our provisions to £0.49 million (2013: £0.24 million). After deducting depreciation and tax, our net profit for the period showed a growth of 177% to £0.72 million (2013: £0.26 million).

The Statement of Financial Position shows that our total assets now exceed the £100 million milestone for the first time in our history, growing by 24% to £101.68 million (2013: £81.73 million). Our loans and advances to customers grew by 28% to £83.07 million (2013: £64.88 million), supported by a 25% increase in our customer accounts to £84.51 million (2013: £67.85 million). This key relationship demonstrates the efficiency of the business in turning deposits into loans: a ratio which improved by 2% to 98% (2013: 96%). During the period, our shareholder equity grew by 16% to £9.25 million (2013: £7.97 million). As a result, we remain well capitalised, with our Risk Asset Ratio in excess of 16%, a very much higher figure than the UK major banks.

 

We recently announced the formation of Manx Financial Limited, an Isle of Man registered company with full UK Consumer Credit licenses, in partnership with a consortium led by Andrew Flowers, Chairman of Enterprise Insurance Company Limited. This partnership will provide lending to UK professional services providers and will be funded through UK financial institutions. Whilst we expect this business to make a positive contribution in this year, its full benefit will not flow through the income statement until 2015.

 

Conister Bank Limited

 

Net interest income increased by 37% to £5.3 million (2013: £3.8 million), driven by a 28% growth in loans and advances. This, in turn, benefitted from both first half advances of £26.5 million (2013: £26.0 million) and a lower cost of funds. Deferred income - being the income from existing loans not yet released to the income statement - increased by 65% to £20.3 million (2013: £12.4 million). This is the equivalent of 3.2 times the period's interest income and will provide  a partial counter to any rise in interest rates. The Bank's capital indemnified business, where our partner guarantees the performance of loans under a variety of mechanisms, continues to expand with no significant arrears. This has helped to reduce the relative proportion of provisions as a percentage of loans by 0.8% to 2.6% (2013: 3.4%), even though the absolute level has increased. The period also witnessed the successful collection of the final debtor relating to litigation funding, a lending stream we stopped in 2007.

 

The Bank's lending remains wholly funded by retail deposits which are not subject to the vagaries of the UK interbank lending rate. The Bank's prudent deposit management strategy - to almost exactly match deposit maturity with loan maturity - means that the current lower interest rates on long term deposits provide an element of insulation against any future interest rate rises.

 

We continue with our prudent approach to lending by increasing our network of partners who guarantee the loan book performance, thus lessening reliance on our more traditional direct and broker-introduced lending streams. This has the added benefit of providing greater granularity and an improved risk profile to our loan book.

 

Edgewater Associates Limited

 

In my last statement, I set out our twofold strategy for growth for this business. Firstly, developing our core renewal income, and secondly, increasing our market share both organically and through acquisition. Whilst we achieved a 12% increase in renewal income, we experienced a slower start to the year due to the introduction of the Retail Distribution Review (RDR). New business conversion rates were lower than expected and our financial performance was breakeven (2013: £0.1 million). However, the introduction of RDR has provided acquisition opportunities and your executive team have been reviewing suitable potential candidates. I hope to announce some positive news on this front in the near future.

 

Conister Card Services Limited

 

The executive team will be bolstered later this year by an experienced Island-based banker whose remit will include executing this subsidiary's strategy through the issuance of prepaid cards both in the Isle of Man and the UK.

 

Outlook

 

We are committed to our strategy of taking advantage of unsatisfied low risk lending demand in order to grow our balance sheet both steadily and prudently. Our focus on matching deposit maturity with term loans provides considerable protection to earnings compared to our competitors should interest rates increase as we expect. The addition of our new Manx Financial Limited partnership will provide access to new lending opportunities hitherto unavailable to the Bank. In addition, we hope to be shortly able to announce new initiatives in foreign exchange services and also loan broking, both of which have significant profit potential.

 

Against this background, we are well placed to continue increasing overall profitably and I anticipate that our full year results will be no exception to this continuing trend.

 

Finally, I would like to welcome John Banks as a non-executive director and thank our executives, our staff, our customers and our shareholders for their sustained support as we proceed with our plans to revitalise the Group.

 

 

 

 

 

Jim Mellon

Executive Chairman

21 August 2014

 

Condensed Consolidated Income Statement

 

	Notes		For the 6 months ended 30 June 2014 £000 (unaudited)			For the 6 months ended 30 June 2013 £000 (unaudited)			For the year ended 31 Dec 2013 £000 (audited)
Interest income	2		6,416			4,899			10,750
Interest expense			(1,370)			(1,223)			(2,493)
Net interest income			5,046			3,676			8,257
Fee and commission income			576			713			1,399
Fee and commission expense			(1,915)			(1,340)			(3,239)
Net trading income			3,707			3,049			6,417
Other operating income			90			62			163
Operating income			3,797			3,111			6,580
Personnel expenses			(1,427)			(1,585)			(2,863)
Other expenses			(1,016)			(937)			(1,657)
Provision for impairment on loan assets			(493)			(236)			(850)
Depositors' Compensation Scheme recovery			-			66			100
Depreciation			(130)			(129)			(252)
Realised gains on available-for-sale financial assets			-			19			18
Unrealised gain / (loss) on financial assets carried at fair value			24			(4)			(3)
Profit before income tax (expense) / recovery			755			305			1,073
Income tax (expense) / recovery			(35)			(50)			14
Profit for the period / year			720			255			1,087
Basic earnings per share (pence)	4		0.71			0.28			1.12
Diluted earnings per share (pence)	4		0.47			0.23			0.78

 

Condensed Consolidated Statement of Other Comprehensive Income

 

	Notes		For the 6 months ended 30 June 2014 £000 (unaudited)		For the 6 months ended 30 June 2013 £000 (unaudited)		For the year ended 31 Dec 2013 £000 (audited)
Other comprehensive income:
Items that will be reclassified to profit or loss
Available for sale gains taken to equity			-		-		10
Items that will never be reclassified to profit or loss
Actuarial losses on defined benefit pension scheme taken to equity			-		-		(53)
Total comprehensive income for the period / year attributable to Shareholders			720		255		1,044
Basic earnings per share (pence)	4		0.71		0.28		1.08
Diluted earnings per share (pence)	4		0.47		0.23		0.76

 

Condensed Consolidated Statement of Financial Position

 

	Notes		30 June 2014 £000 (unaudited)			30 June 2013 £000 (unaudited)		31 Dec 2013 £000 (audited)
Assets
Cash and cash equivalents			2,982			2,331		4,183
Financial assets at a fair value through profit or loss	5		72			47		48
Available for sale financial instruments	6		10,974			9,500		9,000
Loans and advances to customers	7		83,071			64,878		75,819
Commissions receivable			288			371		289
Property, plant and equipment			644			684		629
Trade and other receivables	8		944			1,241		1,014
Deferred tax asset			359			330		394
Goodwill	11		2,344			2,344		2,344
Total assets			101,678			81,726		93,720
Liabilities
Customer accounts			84,509			67,845		78,115
Creditors and accrued charges	9		1,297			801		754
Loan notes	10		6,415			4,760		6,065
Deferred consideration			-			160		-
Pension liability			203			190		252
Total liabilities			92,424			73,756		85,186
Equity
Called up share capital	12		18,933			18,933		18,933
Profit and loss account			(9,679)			(10,963)		(10,399)
Total equity			9,254			7,970		8,534
Total liabilities and equity			101,678			81,726		93,720

 

Condensed Consolidated Statement of Cash Flows

 

			For the 6 months ended 30 June 2014 £000 (unaudited)		For the 6 months ended 30 June 2013 £000 (unaudited)		For the year ended 31 Dec 2013 £000 (audited)
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
Profit before tax on continuing activities			755		305		1,073
Unrealised (gain) / loss on financial assets carried at fair value			(24)		4		3
(Gain) / loss on disposal of property, plant and equipment			(6)		21		17
Depreciation charge			130		129		252
Realised gains on available for sale investments			-		(19)		(18)
Actuarial loss on defined benefit pension scheme taken to equity			-		-		(53)
Movement in pension liability			(49)		(10)		52
Share-based payment credit			-		-		(50)
Decrease in trade and other receivables			70		2		238
Increase / (decrease) in trade and other payables			543		(1,352)		(1,408)
Decrease / (increase) in commission debtors			1		(59)		23
Net cash inflow / (outflow) from trading activities			1,420		(979)		129
Increase in loans and advances to customers			(7,252)		(6,383)		(17,324)
Increase in deposit accounts			6,394		4,114		14,384
Cash inflow / (outflow) from operating activities			562		(3,248)		(2,811)

 

Condensed Consolidated Statement of Cash Flows (continued)

 

For the 6 months ended 30 June 2014 £000 (unaudited)

For the 6 months ended 30 June 2013 £000 (unaudited)

For the year ended 31 Dec 2013 £000 (audited)

 

CASH FLOW STATEMENT
Cash flows from operating activities
Cash inflow / (outflow) from operating activities			562		(3,248)		(2,811)
Taxation paid			-		-		-
Net cash inflow / (outflow) from operating activities			562		(3,248)		(2,811)
Cash flows from investing activities
Purchase of property, plant and equipment			(147)		(92)		(156)
(Purchase) / sale of available for sale financial instruments			(1,974)		3,003		3,512
Sale of property, plant and equipment			8		-		-
Payment of deferred consideration			-		-		(335)
Net cash (outflow) / inflow from investing activities			(2,113)		2,911		3,021
Cash flows from financing activities
Issue of loan notes			350		750		2,055
Net cash inflow from financing activities			350		750		2,055
(Decrease) / increase in cash and cash equivalents			(1,201)		413		2,265
Significant non-cash flows in the period / year
Conversion of loan notes to share capital			-		500		500

 

 

Condensed Consolidated Statement of Changes in Equity

 

	Share capital £000		Retained earnings and other reserves £000		Total 30 June 2014 £000 (unaudited)		Total 30 June 2013 £000 (unaudited)		Total 31 Dec 2013 £000 (audited)
Balance carried forward	18,933		(10,399)		8,534		7,215		7,215
Profit for the period / year	-		720		720		255		1,087
Other comprehensive income	-		-		-		-		(43)
Transactions with Shareholders:
Shares issued	-		-		-		500		500
Shares to be issued	-		-		-		-		(175)
Share-based payment expense	-		-		-		-		(50)
Balance carried forward	18,933		(9,679)		9,254		7,970		8,534

 

Notes to the Consolidated Financial Statements

 

1.  Preparation of the interim statements

 

The financial information included in this interim financial report for the six months ended 30 June 2014 is unaudited.

 

The interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting". The accounting policies have been applied consistently with those presented in the Annual Report for the twelve months to 31 December 2013 and comply with IFRSs and IFRIC interpretations applicable to companies reporting under IFRS.

 

2.  Interest income

Interest income represents charges and interest on finance and leasing agreements attributable to the year after adjusting for early settlements and interest on bank balances.

 

3.  Segmental analysis

 

Segment information is presented in respect of the Group's business segments. The Directors consider that the Group currently operates in one geographic segment, 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 three product orientated segments in addition to its investing activities: Asset and Personal Finance (including provision of HP contracts, finance leases, personal loans, commercial loans, block discounting and other specialised secured credit facilities); a Prepaid Card division, Conister Card Services Limited; and a Wealth Management division, Edgewater Associates Limited.

 

For the 6 months ended 30 June 2014	Asset and Personal Finance £000		Prepaid Card Division £000	Wealth Management Division £000			Investing Activities £000		Total 30 June 2014 £000 (unaudited)
Net interest income / (expense)	5,258		-		-		(212)		5,046
Operating income / (loss)	3,482		(53)		576		(208)		3,797
Profit/(loss) before income tax recovery / (expense)	1,562		(76)		(38)		(693)		755
Capital expenditure	132		-		15		-		147
Total assets	100,596		106		902		12		101,616

 

4.   Earnings per share

 

			For the 6 months ended 30 June 2014 £000 (unaudited)		For the 6 months ended 30 June 2013 £000 (unaudited)	For the year ended 31 Dec 2013 £000 (audited)
Profit for the period / year			£720,000		£255,000	£1,087,000
Weighted average number of ordinary shares in issue			102,070,252		91,642,072	96,899,019
Basic earnings per share			0.71p		0.28p	1.12p
Diluted earnings per share			0.47p		0.23p	0.78p
Total comprehensive income for the period / year			£720,000		£255,000	£1,044,000
Weighted average number of ordinary shares in issue			102,070,252		91,642,072	96,899,019
Basic earnings per share			0.71p		0.28p	1.08p
Diluted earnings per share			0.47p		0.23p	0.76p

 

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.

 

The diluted earnings per share calculation assumes that all convertible loan notes, warrants and share options have been converted/exercised at the beginning of the period where they are dilutive.

 

5.   Financial assets at fair value through profit or loss

 

The investment represents shares in a UK quoted company which was 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 £471,000. The unrealised difference between cost and market value has been taken to the income statement. Dividend income of £350,000 has been received from this investment since it was made.

 

6.      Available for sale financial instruments

 

Available for sale financial instruments comprise UK Government Treasury Bills which are stated at fair value and unrealised changes in the fair value are reflected in equity.

 

7.      Loans and advances to customers

 

Group		30 June 2014 £000 (unaudited)		30 June 2013 £000 (unaudited)		31 Dec 2013 £000 (audited)
HP		48,306		39,826		45,409
Finance leases		8,825		7,212		8,175
Litigation funding		-		883		677
Unsecured personal loans		2,557		4,085		3,509
Vehicle stocking plans		1,465		1,282		1,476
Block discounting		6,604		5,419		5,192
Secured commercial loans		8,922		6,171		6,556
Secured personal loans		6,392		-		4,825
		83,071		64,878		75,819

 

 

8.      Trade and other receivables

 

		30 June 2014 £000 (unaudited)		30 June 2013 £000 (unaudited)		31 Dec 2013 £000 (audited)
Trade debtors		232		110		116
Prepayments and other debtors		246		665		432
VAT claim		466		466		466
		944		1,241		1,014

 

Included in trade and other receivables is an amount of £466,000 (30 June and 31 December 2013: £466,000) 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 as neither fair nor reasonable, specifically regarding the attribution of part of the residual input tax relating to the HP business not being considered as a taxable supply. Queries have been raised with the Isle of Man Government Customs & Excise Division (C&E), and several reviews of the mechanics of the recovery process were undertaken by the 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 was scheduled to be heard in October 2013. However, this was delayed by HMRC pending reference to a relevant European Court of judgement in the case of Banco Mais (C183/13). The judgement in this case was released on 10 July 2014 and ruled against the taxpayer; however the impact of the judgement on the VWFS case is unclear and the VWFS is still proceeding with the appeal to the Court of Appeal.

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 (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 appeal, the Directors are confident that the VAT claimed referred to above will be secured.

 

9.      Creditors and accrued charges

 

		30 June 2014 £000 (unaudited)		30 June 2013 £000 (unaudited)		31 Dec 2013 £000 (audited)
Commission creditors		996		183		577
Other creditors and accruals		301		618		177
		1,297		801		754

 

 

 

10.    Loan notes

 

	Notes		30 June 2014 £000 (unaudited)		30 June 2013 £000 (unaudited)		31 Dec 2013 £000 (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
Copper Development Corporation	CDC		500		500		500
			3,910		3,910		3,910
Unrelated parties	UP		2,505		850		2,155
			6,415		4,760		6,065

 

 

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

 

BL - One loan consisting of £1,200,000 maturing on 31 July 2017 with interest payable of 7% 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 4 pence. BL is also entitled to 20 million warrants at an exercise price of 6 pence which lapse on 31 July 2017.

 

SR - One loan consisting of £460,000, maturing on 26 February 2015 with interest payable of 9% per annum. The loan is convertible at a rate of 9 pence. SR is also entitled to 8.3 million warrants at an exercise price of 6 pence which lapse on 24 October 2017. Arron Banks, a significant shareholder holds a major stake in SR.

 

CDC - One loan of £350,000 maturing on 5 September 2017 with interest payable of 5% per annum, and another loan of £150,000 maturing on 3 October 2017 paying interest of 5% per annum. Denham Eke is a director of CDC.

 

UP - Thirteen loans consisting of an average £192,692, with an average interest payable of 5.46% per annum. The earliest maturity date is 22 October 2014 and the latest maturity is 20 January 2019.

 

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

 

11.    Goodwill

 

		30 June 2014 £000 (unaudited)		30 June 2013 £000 (unaudited)		31 Dec 2013 £000 (audited)
Edgewater Associates Limited		1,849		1,849		1,849
ECF Asset finance PLC		454		454		454
Three Spires Insurance Services Limited		41		41		41
		2,344		2,344		2,344

 

 

12.    Called up share capital

 

Authorised: ordinary shares of no par value	Number
At 31 December 2013	150,000,000
As 30 June 2014	150,000,000

 

Issued and fully paid: ordinary shares of no par value	Number	£000
At 31 December 2013	102,070,252	18,933
At 30 June 2014	102,070,252	18,933

 

There are a number of convertible loans at 30 June 2014 of £3.41 million (30 June and 31 December 2013: £3.41 million) involving warrants of 28.3 million (30 June and 31 December 2013: 28.3 million) (see note 10 for further details). The total number of warrants in issue at 30 June 2014 is 36.6 million (30 June and 31 December 2013: 36.6 million) (see note 10 for further details).

 

On 23 June 2014, 1.75 million 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. No expense is included in the current period due to the options being granted at period end.

 

13.    Regulator

 

Conister Bank Limited is licensed to undertake banking activities and Edgewater Associates Limited is licensed to conduct investment business by the Isle of Man Financial Supervision Commission.

 

14.    Contingent Liabilities

 

Conister Bank Limited is required to be a member of the Isle of Man Government Depositors' Compensation Scheme (the Scheme) which was introduced by the Isle of Man Government under the Banking Business (Compensation of Depositors) Regulations 1991. The Scheme creates a liability on the Company to participate in the compensation of depositors should it be activated.

 

15.    Approval of Interim Statements

 

The Interim Statements were approved by the Board on 21 August 2014. The interim report will be available shortly from the Group's website - www.mfg.im and at the Registered Office: Clarendon House, Victoria Street, Douglas, Isle of Man, IM1 2LN. The Group's nominated adviser and broker is Beaumont Cornish Limited, 2nd Floor, Bowman House, 29 Wilson Street, London, EC2M 2SJ. The Interim and Annual reports along with other supplementary information of interest to Shareholders, are included on the Group's website. The address of the website is www.mfg.im which includes investor relations information and contact details.