Final Results

RNS Number : 4624V

Conister Financial Group plc

29 May 2008

 



FOR IMMEDIATE RELEASE                                                                           29 MAY 2008

Conister Financial Group PLC

Audited results announcement for the year ended 31 December 2007

Highlights

Conister Financial Group ('CFG') was formed as part of a 'Scheme of Arrangement' in January 2008 to establish a non-regulated parent company of Conister Trust PLC. The figures presented are therefore those of Conister Trust Limited (formerly Conister Trust PLC) for the year ended 31 December 2007.

CFG comprises two trading divisions; TransSend - the newly created prepaid card division formed in 2006 to take advantage of the worldwide explosion in the prepaid card market, and Conister Trust - the banking division that was formed in the Isle of Man in 1935 that specialises in providing finance for personal and business use. Conister Trust is actively developing additional business opportunities including premium finance and fiduciary deposits.

Financial Highlights

• Total operating income flat £3.88m (2006 - £3.91m)

  - Premium finance interest income up 123% to £0.64m (2006 - £0.29m)

  - Litigation funding interest income (in run-off) down 54% to £0.36m (2006 - £0.81m)

  - TransSend contributes income for the first time £0.19m (2006 - £nil)

• Investment in TransSend £2.47m (2006 - £0.33m)

• Conister Trust strongly capitalised - Tier 1 capital ratio of 25% (2006 - 22%)

          - Compared to the average of UK banks 5.5% and European banks 6.5%

• Additional capital raised £7.09m

• Conister Trust ongoing Asset and Personal Finance returns to profit, £0.52m (2006 - loss £0.05m)

• Pre-tax loss £3.97m (2006 - £0.97m), reflecting 

  - Significant investment in TransSend £2.47m (2006 - £0.33m)

  - Litigation funding (in run-off) loss £0.69m (2006 - profit £0.13m)

Operating Highlights

• Conister Financial Group

         - New Chief Executive to drive growth

• TransSend

  - Successful launch of first prepaid card programme with 28,000 cards now issued

  - First European company to be approved by Mastercard for payout cards in non-US gaming sector

  - Recognised as a significant industry player only 18 months after formation, creating significant value for shareholders 

  - Extensive pipeline of card programmes ready for launch in 2008/9

• Conister Trust

  - Asset and Personal Finance back into profit

  - Litigation Funding now discontinued

  - Premium Finance growing rapidly

  - Fiduciary Deposits introduced and growing

  - Well capitalised with strong liquidity (£21m).

Jim Mellon, Chairman of CFG commented:

'I am pleased with the Group's progress this year. During the year we have invested well in TransSend and it is pleasing to see that Conister Trust's ongoing Asset and Personal Finance business is back into profit. 

Decisions to introduce Premium Finance and Fiduciary Deposits and to cease the Litigation Funding business leave us well positioned in 2008 as we invest again in TransSend.

We are well capitalised, unlike many of the UK banks and European banks, and have strong liquidity. As a result we look forward with confidence.'

Contacts:

Conister Financial Group PLC

Arron Banks, CEO 

Tel: [phone]

Chris Johnstone, Interim Finance Director

Tel: [phone]

Britton Financial PR

Tim Blackstone

Tel :  [phone] /  07957 140416

Beaumont Cornish Limited

Roland D Cornish

Tel: [phone]

The 2007 Annual Report and Accounts will be posted to shareholders on 6 June 2008 and will be available from the company's website www.cfgplc.com

The financial information set out below comprises non-statutory accounts. The financial information for the year ended 31 December 2007 has been extracted from published accounts for the year ended 31 December 2007 on which the report of the auditors was unqualified.

Chairman's Statement  

TRANSFORMATIONAL YEAR

It is a pleasure to report to shareholders, as the first ever Chairman of Conister Financial Group PLC ('CFG').

2007 has been an exciting and transformational year for the company.  

The new holding company (CFG) was created as part of a 'Scheme of Arrangement' to establish a non-regulated parent company, free to acquire and expand other non-regulated businesses. This structure is common to most financial groups with regulated entities; Conister Trust Limited is a licensed bank and regulated by the Financial Supervision Commission in the Isle of Man. The new structure will reduce cost and administrative burden in the long run but its creation has been a costly (£481,000) and time-consuming process. 

During the year the Group raised significant new capital of £7.09m (totalling £12.49m over the last eighteen months) which has been used to strengthen the banking operation and £2.47m has been invested in our exciting prepaid card business, TransSend, with a similar investment planned in 2008. 

We are delighted to welcome Helvetica as a major new shareholder in the Group. Helvetica is an established fund manager that in 2006 was appointed as an investment manager for the Treasury Reserves of the Isle of Man Government. Helvetica also has strong links with the State of Qatar and they invested in CFG via a placing of 8.3m shares at a price of 85 pence per share. In making this significant investment, Helvetica recognised the substantial growth and profit potential of TransSend. Helvetica's support, network and expertise will be invaluable in the Group's future.

TransSend

TransSend is well positioned to take advantage of the worldwide explosion in the global prepaid market and the opportunities arising from it. This investment has been signalled to shareholders as a necessary step to take CFG into a new era, one which it is planned will eventually yield much higher levels of profitability, capital strength and stability than previously experienced by the Group.

TransSend launched its first major global prepaid card programme in September 2007 in three currencies, GBP, USD and Euros. To date it has issued in excess of 28,000 cards with a very impressive 72% activation rate, representing over 20,000 active card users. Card activity and usage has been high with a total programme cash load of over £34m and in excess of 240,000 transactions.

TransSend and Conister Trust are the first companies in Europe to have received MasterCard approval to deliver prepaid payout cards to the non-US online gaming sector. This is a key target market and is expected to continue to be one of the fastest growing segments of the overall gaming market, reaching $14.6bn by 2010 (source: Global Betting and Gaming Consultants) with an estimated growth rate in excess of 16% per annum.

With a growing demand for new prepaid payment solutions, a strong pipeline and exciting products in development, we are confident in the outlook for TransSend and our ability to create value for our shareholders.

We are happy with the progress made to date, given the relatively small investment made compared to other highly rated operators in the market. This reflects the skills and expertise of our staff and our focus on the more desirable B2B approach - rather than the cash intensive B2C model adopted by early entrants to the market. Our preferred approach has firmly positioned TransSend as a 'Premier League' player in the rapidly growing prepaid card sector. 

Those wishing to review the progress made at TransSend can go to www.transsend.eu which explains the prepaid card business in detail.

Conister Trust

Conister Trust (the 'banking division') made good progress in 2007, despite difficult trading conditions. The banking division improved the performance of its ongoing Asset and Personal Finance business from a loss of £49,000 in 2006 to a £516,000 profit in 2007 before increased provisions against litigation funding loans - a line of business that we have been withdrawing from for some time. 

The detailed analysis of TransSend and Conister Trust are contained within the Chief Executive's Review.

New Executive Team

We recently announced the strengthening of the executive team with the appointment of Arron Banks as Chief Executive, and Chris Johnstone as interim Finance Director, of CFG.

Arron was a non-executive director of CFG and a significant shareholder, with a beneficial interest of nearly 15% of the issued share capital. 

He has had a successful and dynamic career in the financial services industry creating significant shareholder value. He founded Group Direct, a top 30 UK insurance broker and Southern Rock Insurance Company, one of the fastest growing direct internet insurers in the UK.

Chris had a long and successful track record at Provident Financial plc. As Managing Director of its Insurance Division he expanded the motor insurance business from 100,000 customers to over 850,000 customers in a little over 5 years. The business was generating £40m profits when it was sold in 2007 to GMAC Insurance Holdings Inc. 

In 2001 Chris was appointed to the Provident Financial plc Board with responsibility for its UK consumer credit operations.

Outlook

With the introduction of a new executive team with an enviable track record in shareholder value creation within the financial services industry, CFG is well placed to exploit opportunities occurring due to the credit crunch and general financial environment and through its further investment in TransSend. 

The opportunities in the prepaid sector are clear, and we have made excellent progress in developing TransSend from a start up business to a live trading business with active cards already in circulation.

With a strong balance sheet and a talented board of directors, we expect to be able to report further progress in the continuing development of CFG.

The company has no debt on its balance sheet, has raised £12.45m of new capital over the last 18 months and almost uniquely among banks it has absolutely no exposure to the sub-prime market or housing sector.

Despite our significant investment programme, we have ended the year with much more capital than at the outset of 2007, and we have taken a sleepy organization and galvanized it into action. The profit potential of CFG is now in a different league to the company of just eighteen months ago.

My thanks go to all the staff, who have worked incredibly hard this year to make such progress.

Jim Mellon - Chairman

29 May 2008

  Chief Executive's Business and Financial Review

Introduction

I am delighted to have been appointed as the new chief executive of CFG and look forward to leading the company with a strong management team, as we create a flagship financial group for the Isle of Man.  

CFG is the ultimate holding company for TransSend (the prepaid card division) and Conister Trust (the banking division), the two trading divisions of the Group.

Overall in 2007 the Group made a pre-tax of loss of £3.97m (2006 - £0.97m loss) reflecting the investment in TransSend of £2.47m (2006 - £0.33m), costs arising at Conister Trust in the Litigation Funding business (now in run-off) of £0.69m, the Scheme of Arrangement costs of £0.48m and Shareholder litigation (as referred to in 30 June 2007 Interim Statement) settlement costs of £0.38m. 

The banking divisions ongoing Asset and Personal Finance business reported a profit of £0.52m (2006 - £0.05m loss).  

TransSend - Prepaid Card Division

TransSend launched its first major global prepaid card programme ('Globewallet') using the Conister MasterCard licence in September 2007. The programme was launched in three currencies, GBP, USD and Euros and has grown rapidly with more than 28,000 cards already issued. The key to a successful prepaid card programme is the level of activation and the extent to which active cards are utilised. We have been thrilled with the progress of Globewallet which has experienced an excellent 72% activation rate with over £34m being deposited onto 20,000 active cards and nearly a quarter of a million transactions so far.

The business earns money in a number of ways: revenue from card transactions, foreign exchange charges, interest on the deposit float, and set-up fees on new cards. 

The dynamics of the card business is that revenue is slow to build but as the number of cards in issue grows, so the monthly revenue increases against a relatively fixed cost base. 

We are delighted with the performance of our first major programme; we have demonstrated the ability to work closely with our programme owner, MasterCard and our processor to design, implement and deliver a successful prepaid card to the market in a relatively short time-frame.

We have continued to invest in the expansion of the business and have created a team with significant card industry expertise and believe that such an organisation with a strong focus on scheme compliance and regulatory control is an essential requirement as well as a key success factor.

The team is based in Windsor in the UK, and led by its CEO, Richard Jones, whose previous roles include Regional Business Director at Pfizer PLC and Commercial Director of the Brightside Group. Richard has done a great job of building a talented team not only with the right card experience but also the creativity to leverage quickly the opportunities we have identified:

•     TransSend has built up a healthy pipeline of new prepaid card programmes waiting to be implemented in 2008 and beyond. The gaining of an e-money licence, the application process for which is close to completion, will strengthen the operational capabilities of the business, enabling rapid growth in the pipeline.

• TransSend and Conister Trust are the first companies in Europe to be approved by MasterCard to issue prepaid payout cards to the huge and rapidly expanding non-US gaming sector.

In partnership with Intercash, an experienced payments provider to the gaming industry, we will be launching the first European prepaid programme for payout in gaming. The product we have developed integrates easily into existing online gaming payment platforms and provides a superior solution to existing cheque payouts and bank transfers - this is due to be launched by the summer of 2008. We are planning to have launched programmes for three other gaming companies by the end of 2008. 

• TransSend has been working over the last year with a number of other partners in our target sectors to design sector specific prepaid cards. We have developed MasterCard products for the substantial corporate payout and online transaction sectors, where we have already have a number of interested parties committed. These sectors represent an addressable market of €19bn within Europe alone (source: PSE Consulting).

• TransSend is also actively targeting a number of other sectors within the prepaid market and is working with its partners to develop a range of exciting and innovative solutions to address the online payments and under-banked sectors.

• Although our core business focus is providing prepaid solutions, we have also provided the expertise to deliver credit card BIN (Bank Identification Number) sponsorship for CompuCredit Corporation with Conister Trust as the issuing bank. The programme is in the final stages of implementation with a live date into the UK market in the middle of 2008.The processing of this programme will be undertaken by TSYS a market leading provider of electronic payment services around the world.

• Furthermore, TransSend will be launching its own generic prepaid card for use in the corporate payroll and expenses sector, hopefully in the 3rd quarter, 2008. Early signs are encouraging as we have already received a number of substantive enquiries.

TransSend continues to work very closely with its key strategic partner MasterCard and the regulatory authorities to ensure that it has the right foundations in place to produce and maintain successful card programmes. 

Conister Trust - the Banking Division

Conister Trust, CFG's Isle of Man banking division is performing well, amid the current crisis in the financial and banking markets, which is creating a flow of attractive lending opportunities. 

Credit quality has been maintained with no discernible increase in the level of impairment (bad debts) for the local business. The profile of the bank has ensured that we have no exposure to 'sub prime problems' or the housing sector, which are currently inflicting such damage on other banks.

Conister Trust has a strong capital base and liquidity position following the injection of £7.09m of new share capital during the year. The Tier 1 capital ratio of the bank (a measure of its financial strength) improved from 22% at the end of 2006 to 25% at the end of 2007. This compares very favourably with the average for UK and European Banks of 5.5% and 6.5% respectively. At the end of 2007 the bank had £21m of cash readily available in the balance sheet.

The deposit book stands at a record £62m (up from £52m last year) also reflecting our strength. We have long standing customer deposits with no reliance whatsoever on the wholesale banking market and we are proud of the fact that we are the only independent Isle of Man ('IOM') bank.

Asset and Personal Finance (the continuing business)

The banking division made good progress in 2007 improving the underlying performance of its Asset and Personal Finance business from a loss of £49,000 in 2006 to a profit of £516,000 in 2007. Asset and Personal Finance currently comprises Asset Finance, Premium Finance and Fiduciary Deposits.

Asset Finance

The IOM banking business and military funding, for armed forces personnel stationed overseas to purchase new motor vehicles is stable and profitable. While we have maintained a prudent approach to lending, the onset of the credit crunch has increased our flow of lending opportunities. 

We expect to win a larger market share of the IOM lending and deposit business, with the constraints placed on our high street competitors meaning we can write high quality business at attractive rates. The result of the credit crunch has meant a reduced appetite for lending from the other banks with operating branches on the IOM.

Premium Finance

Premium Finance (loans to customers to pay for insurance premiums) experienced significant growth in 2007 with over £17m of new loans made during the year compared to £5m in 2006. We expect to lend over £25m in 2008. 

Since we started Premium Finance lending in May 2006, we have experienced no bad debt on the book and the interest rate charged is 10.5% APR, against the average of circa 10% APR we receive on asset finance agreements but with minimal risk. We have identified new opportunities to expand this low risk lending business which we will continue to develop in 2008.

Fiduciary Deposits 

Fiduciary Deposits were introduced during the year for high net worth and corporate clients who want to mitigate the risk of placing all of their funds with one financial institution. Conister Trust places the funds on behalf of the client, in various currencies, across a range of top quality banks for which a fee is earned.

This service was identified last year as an area of expansion and we are pleased to report that we have made good progress. At the end of 2007 deposits of £34m were held, this is expected to grow significantly in 2008 providing a risk free income stream. The value of Fiduciary Deposits has already more than quadrupled so far this year. 

We intend to focus in the future on Fiduciary Deposits, as a core component of the banking division.

Litigation Funding (in run-off)

Following a steady withdrawal from Litigation Funding in 2006 and the early part of 2007, new loans were ceased altogether in June 2007. While the bank has stopped lending in this sector, the recovery of certain outstanding loans is proving to be problematic. 

A small number of solicitors that arranged these loans for their clients have stopped making repayments. In response, Conister Trust has commenced proceedings against one of these solicitors to establish and then enforce its position pending the outcome of litigation to establish the enforceability of their agreements with Conister.

At the time of writing we have been successful at the Court hearing of the 'Preliminary Issue' but the case is now the subject of an Appeal. Whilst we are confident of the strength of our position we have provided for all legal costs to date and those anticipated in running the Appeal to its conclusion. As a consequence this discontinued line of business made a loss of £688,000 in 2007 (2006 - £13,000 profit).

The good news is that balances outstanding on these loans (before allowance for impairment) have been steadily reduced from £6.06m in 2006, to £3.75m in 2007.

The Way Forward

The route forward for TransSend is clear and the plans to capture a significant share of a rapidly growing attractive market are well established. We have created a talented team and have launched our first prepaid card programme successfully in 2007 within a small investment budget. The investment in TransSend will continue in 2008 at similar levels to 2007. More importantly however, we have secured a significant number of programmes in the pipeline for launch in 2008 and beyond, and it is planned that these will drive the business into profitability.

Conister Trust has not delivered on its huge potential for some time and we have plans to build upon the foundations laid in 2007 to provide an exciting future for staff and shareholders and take full advantage of its regulatory licences and off-shore location.

Following the re-organisation of the Group and the appointment of myself and Chris Johnstone as CFG executives, Jerry Linehan will be focusing on the expansion and performance of Conister Trust exclusively as its Chief Executive. The current financial environment throws up lots of interesting opportunities and we are looking at a number of attractive new business ideas and acquisitions to transform the Group.

CFG is well capitalised and in good shape for the future - I look forward with confidence to report on further progress this year.

Arron Banks

29 May 2008

Consolidated Income Statement

for the year ended 31 December 2007	2007	2006
	£000	£000
Interest income	6,851	6,989
Interest expense	(2,631)	(2,403)
Net interest income	4,220	4,586
Fee and commission expense	(898)	(754)
Net trading income	3,322	3,832
Net loss from financial assets carried at fair value	(148)	(25)
Dividend income from financial assets carried at fair value	340	-
Other operating income	362	100
Operating income	3,876	3,907
Personnel expenses	(3,167)	(2,370)
Depreciation	(60)	(83)
Other expenses	(3,353)	(1,663)
Provision for impairment	(464)	(557)
Profit on sale of property	-	356
Cost of discontinued potential acquisitions	-	(262)
Shareholder litigation costs	(318)	-
Scheme of arrangement costs	(481)	(300)
Loss before income tax	(3,967)	(972)
Income tax (expense)/income	(174)	143
Loss for the year	(4,141)	(829)
Basic and diluted loss per share (GBP)	(9.48)	(2.31)

 Consolidated Balance Sheet

as at 31 December 2007                                       

	2007	2006
	£000	£000
Assets
Cash and cash equivalents	22,905	12,768
Financial assets at fair value through profit or loss	298	446
Loans and advances to customers	56,737	53,791
Property, plant and equipment	277	118
Deferred tax	-	184
Trade and other receivables	1,072	500
TOTAL ASSETS	81,289	67,807
Liabilities
Customer accounts	61,973	52,398
Creditors and accrued charges	1,538	768
Pension liability	305	416
Total liabilities	63,816	53,582
Equity
Called up share capital	12,680	10,486
Share premium account	8,337	3,304
Share option reserve	238	115
Profit and loss account	(3,782)	320
Total equity	17,473	14,225
TOTAL LIABILITIES AND EQUITY	81,289	67,807

Consolidated Cash Flow Statement

for the year ended 31 December 2007

Reconciliation of loss before taxation  to operating cash flow	2007    £000	2006    £000
Loss before taxation	(3,967)	(972)
Movement in financial assets held at fair value through profit and loss	148	25
Dividend income from financial assets carried at fair value	(340)	-
Loss (profit) on disposal of property, plant and equipment	25	(356)
Depreciation charge	60	83
Shares to be issued	123	40
Pension scheme	(61)	(27)
Increase in trade debtors	(232)	(361)
Increase in trade creditors        858    264	858	264
Net cash outflow from trading activities	(3,386)	(1,304)
(Increase)/decrease in loans and advances to customers	(2,946)	1,301
Increase/(decrease) in deposit accounts	9,575	(486)
Cash inflow/(outflow) from operating activities	3,243	(489)

Cash flows from operating activities
Cash inflow/(outflow) from operating activities	3,243	(489)
Taxation paid	(5)	(1)
Net cash inflow/(outflow) from operating activities	3,238	(490)

Cash flows from investing activities
Purchase of tangible fixed assets	(244)	(13)
Sale of tangible fixed assets	-	1,034
Purchase of investment	-	(471)
Net cash (outflow)/inflow from investing activities	(244)	550

Cash flows from financing activities
Issue of ordinary share capital	7,227	5,910
Net cash inflow from financing activities	7,227	5,910
Increase in cash and cash equivalents	10,221	5,970

Consolidated Statement of Recognised Income and Expense

for the year ended 31 December 2007

	2007    £000	2006    £000
Gain on pension scheme	48	95
Deferred tax associated with gain on pension scheme	(11)	(12)
Other	2	-
Income recognised directly in equity	39	83
Loss for the financial year	(4,141)	(829)
Total recognised expense for the year	(4,102)	(746)

Consolidated Statement of Changes in Equity

for the year ended 31 December 2007

	Share capital £000	Share premium £000	Share option reserve £000	Retained earnings £000	2007 £000	2006 £000
Balance at 1 January	10,486	3,304	115	320	14,225	9,021
Loss for the year	-	-	-	(4,141)	(4,141)	(829)
Arising on shares issued in the year	2,194	5,033	-	-	7,227	5,910
Movement on share option reserve	-	-	123	-	123	40
Other recognised income attributable to equity holders	-	-	-	39	39	83
Balance at 31 December	12,680	8,337	238	(3,782)	17,473	14,225

Notes to the Consolidated Financial Statements

for the year ended 31 December 2007

1. 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: Asset and Personal Finance (including provision of HP contracts, leases, personal loans and premium finance); Litigation Finance; and a prepaid card division, TransSend. The Group ceased to provide new Litigation Finance lending in June 2007. 

	Asset and  Personal Finance	Litigation Finance	TransSend Division	Total 2007
	£000	£000	£000	£000
Net Interest Income	4,080	140	-	4,220
Operating Income	3,542	140	194	3,876
Provision for impairment	(478)	14	-	(464)
Profit/(loss) before unallocated items	517	(688)	(2,469)	(2,640)
Group central costs				(528)
Shareholder litigation costs				(318)
Scheme of Arrangement costs				(481)
Loss before income tax				(3,967)
Capital expenditure	111	-	133	244
Total assets	78,976	2,116	197	81,289
Total liabilities	61,700	2,116	-	63,816

	Asset and  Personal Finance	Litigation Finance	TransSend Division	Total 2006
	£000	£000	£000	£000
Net Interest Income	4,082	504	-	4,586
Operating Income	3,403	504	-	3,907
Provision for impairment	(435)	(122)	-	(557)
Profit/(loss) before unallocated items	(49)	13	(331)	(367)
Group central costs				(399)
Discontinued potential acquisition				(262)
Scheme of arrangement				(300)
Profit on sale of property				356
Loss before income tax				(972)
Capital expenditure	13	-	-	13
Total assets	63,011	4,796	-	67,807
Total liabilities	49,117	4,796	(331)	53,582

  Segment capital expenditure is the total cost incurred during the year to acquire equipment and fund leasehold improvements.

  Notes to the Consolidated Financial Statements

for the year ended 31 December 2007

2. Loss Per Share

	2007	2006
	£000	£000
Loss for the year	(4,141)	(829)
	Number	Number
Weighted average number of ordinary shares in issue	43,689,141	35,946,198
Basic and diluted loss per share	(9.48)p	(2.31)p

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

The diluted loss per share calculation is based upon the loss for the period after taxation and the weighted average of the number of shares in issue after adjustment to assume conversion of all dilutive potential shares. Other than the employee share option scheme, there are no other potentially dilutive instruments.

3. Explanation of Transition To IFRS

These financial statements are the first that have been prepared using accounting policies that are consistent with IFRS. The date of transition from UK GAAP to IFRS for the Group and Company was 1 January 2006.

In order to show the effect of the transition from UK GAAP to IFRS on the Group's reported financial position and financial performance, IFRS 1 requires the following reconciliations to be presented and explained:

(i) A reconciliation of equity (i.e. net assets) at 1 January 2006 and 31 December 2006; and 

(ii) A reconciliation of profit/loss for the year ended 31 December 2006

In addition, in order to show the effect of the transition from UK GAAP to IFRS on the Group's cash flows, a note explaining the impact on cash flows has also been given. The IFRS adjustments included in the reconciliation of equity are explained as follows:

(a) IAS 17 Leases and IAS 39 Financial instruments: Recognition and Measurement

Customer accounts receivable as presented in the UKGAAP Consolidated Balance Sheet, includes amounts due for both customer borrowings and finance leases. IFRS requires these to be classified as 'Loans and advances to customers' and for these balances to be held at the net present value of the minimum lease payments and recognised in the income statement using the effective interest rate method (note 3(l)). 

The effective interest rate method differs to that which had been adopted by the Group under UK GAAP. Previously interest was allocated over the duration of each agreement on the 'rule of 78 basis'.

Notes to the Consolidated Financial Statements

for the year ended 31 December 2007

Explanation Of Transition To IFRS (continued)

Under UK GAAP the net investment in the finance lease was calculated as the present value of the minimum lease payments including initial costs and estimated costs of collection. 

Under IFRS the net investment in the finance lease is calculated as the present value of the minimum lease payments including initial directly attributable costs, such as legal fees, only. 

(b) IAS 19 Employee benefits

The scope of employee benefits which have to be accounted for under IAS 19 is broader than under UK GAAP. Consequently, under IFRS the Group has recognised an additional expense accrual for holiday pay entitlement earned but not yet taken. As at 1 January 2007 this was £21,000.

Deferred tax attributable to the pension liability was under UK GAAP, offset against the pension liability. Under IFRSs, the pension liability and the deferred tax asset have been grossed up accordingly.

(c) Impact of IFRSs on the Cash Flow Statement

The impact of the adjustments described above has resulted in changes to the figures presented on the 'Reconciliation of loss before taxation to operating cash flow' from those previously presented under UK GAAP. The changes are in line with those presented in the 'Reconciliation of equity' and the 'Reconciliation of profit'. As a result '(Increase)/decrease in loans and receivables', 'Increase in trade creditors' and 'Loss before taxation' have been restated. There are no other material changes required to be made to the Cash Flow Statement as a result of the implementation of IFRSs.

Notes to the Consolidated Financial Statements

for the year ended 31 December 2007

Reconciliation Of Equity

		Effect of			Effect of
	Previous	transition		Previous	transition
	GAAP	to IFRS	IFRS	GAAP	to IFRS	IFRS
	1 Jan 2006	1 Jan    2006	1 Jan 2006	31 Dec 2006	31 Dec 2006	31 Dec 2006
	£000	£000	£000	£000	£000	£000
Assets
Property, plant and equipment	866	-	866	118	-	118
Deferred tax	26	53	79	142	42	184
Loans and receivables	55,739	(647)	55,092	54,442	(651)	53,791
Trade and other receivables	143	-	143	500	-	500
Financial assets at fair value through profit or loss	-	-	-	446	-	446
Cash and cash equivalents	6,827	-	6,827	12,768	-	12,768
Total assets	63,601	(594)	63,007	68,416	(609)	67,807
Liabilities
Customer accounts	52,884	-	52,884	52,398	-	52,398
Creditors and accrued charges	554	11	565	747	21	768
Pension liability	484	53	537	374	42	416
Total liabilities	53,922	64	53,986	53,519	63	53,582
Equity
Share capital	7,111	-	7,111	10,486	-	10,486
Share premium	769	-	769	3,304	-	3,304
Shares option reserve	75	-	75	115	-	115
Profit and loss account	1,724	(658)	1,066	992	(672)	320
Total equity	9,679	(658)	9,021	14,897	(672)	14,225
Total liabilities and Equity	63,601	(594)	63,007	68,416	(609)	67,807

Notes to the Consolidated Financial Statements

for the year ended 31 December 2007

Reconciliation Of Profit/Loss

		Effect of			Effect of
	Previous	transition		Previous	transition
	GAAP	to IFRS	IFRS	GAAP	to IFRS	IFRS
	31 Dec 2005	31 Dec 2005	31 Dec 2005	31 Dec 2006	31 Dec 2006	31 Dec 2006
	£000	£000	£000	£000	£000	£000
Interest receivable on loans and receivables	7,461	(19)	7,442	7,082	(93)	6,989
Interest payable on deposit accounts	(2,492)	-	(2,492)	(2,403)	-	(2,403)
Net interest income	4,969	(19)	4,950	4,679	(93)	4,586
Other operating income	56	-	56	100	-	100
Investment income	-	-	-	(25)	-	(25)
Total operating income	5,025	(19)	5,006	4,754	(93)	4,661
Commissions	(848)	38	(810)	(843)	89	(754)
Gross profit	4,177	19	4,196	3,911	(4)	3,907
Operating expenses	(1,262)	(11)	(1,273)	(1,653)	(10)	(1,663)
Personnel costs	(1,845)	-	(1,845)	(2,370)	-	(2,370)
Depreciation	(103)	-	(103)	(83)	-	(83)
Impairment recoveries/ (losses)	(873)	-	(873)	(557)	-	(557)
Costsof discontinued potential acquisitions	-	-	-	(262)	-	(262)
Scheme of  arrangement costs	-	-	-	(300)	-	(300)
Profit on sale of property	-	-	-	356	-	356
Profit/(Loss) before taxation	94	8	102	(958)	(14)	(972)

 

END

 

 

FR SEIFWASASEDI