Final Results

RNS Number : 1650T

Conister Financial Group plc

02 June 2009

 



FOR IMMEDIATE RELEASE                                                                                                                                 2 JUNE 2009

Conister Financial Group PLC

Audited results announcement for the year ended 31 December 2008 and

Notice of AGM

Conister Financial Group PLC ('CFG'), following a 'Scheme of Arrangement' in January 2008, became the non-regulated parent company of Conister Trust Limited (formerly Conister Trust PLC) and CFG's shares replaced those of Conister Trust Limited on AIM. 

Financial Highlights 

Conister Trust Limited, the Bank  

• is strongly capitalised with a Risk Asset Ratio of 18.0% and a Tier 1 capital ratio of 15.6%. This compares very favourably to the average of the top 20 international banks which stands at 7.9%.

• has reduced its loss before discontinued operations to £1.3 million including £0.1 million re-structure costs.

• interest income rose 4% driven by increased premium finance lending. In this area receivables increased 36% from £12.9 million to £17.5 million.

• has robust cash balances which remained strong at £20.6 million (2007: £22.9 million).

• customer deposits rose 7% to £66 million (2007: £62 million).

• fiduciary deposits rose 46% to £51 million (2007: £35 million).

• due to the worsened economic environment, has taken a prudential impairment charge of £0.5 million applied to the Asset and Personal Finance loan book.  This resulted in a loss of £0.5 million for the year.

• has net litigation funding receivables which have reduced by 40% from £2.5 million to £1.5 million. An impairment allowance against this loan book (now in run-off) increased by £0.4 million.

TransSend:

• invested a further £3.7 million in the pre-paid card business (2007: £2.5 million).

• incurred £0.7 million of restructuring costs in moving towards profitability. 

CFG the Holding Company

• incurred a £9.6 million non-cash impairment loss recognised on the Equity Special Situations Limited (ESS) holding as ESS entered liquidation in December 2008. CFG's holding in ESS resulted from share-for-share exchanges during the year. This holding was acquired to allow both groups to jointly exploit commercial opportunities and formed part of the TransSend disposal strategy.  ESS's failure was related to the failure of the Icelandic Banks and had a negligible cash impact on the Group. 

• incurred further one off charges comprising of £0.6 million loss on investments, £0.4 million cost of pursuing a potential acquisition, £0.8 million cost of reorganising the Isle of Man operations and legal costs of £0.1 million in relation to the ESS swap.

Conister Financial Group

• Pre-tax loss for 2008 £18.3 million (2007: loss of £4.1 million).

Operating Highlights 

• The Bank has proved highly resilient to the economic downturn and remains more than adequately capitalised.

• Deposits have increased over the year and cash balances remain strong. 

• The Bank is entirely retail deposit funded with a loan book that matches the duration of the depositors' terms.

• No wholesale funding.

• No exposure to the sub-prime sector or to mortgages.

• The pre-paid card operation has been restructured and repositioned to a lower risk market position.

Contacts:

Conister Financial Group PLC

Denham Eke, Chief Executive

Tel: [phone]

Britton Financial PR Tim Blackstone Tel: [phone] Beaumont Cornish Limited Roland Cornish Tel: [phone]

The 2008 Annual Report and Accounts, along with the Notice of the Company's Annual General Meeting, will be posted to shareholders on 5 June 2009 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 2008 has been extracted from published accounts for the year ended 31 December 2008 on which the report of the auditors was unqualified.

  Chairman's Statement

An unprecedented year for financial services industries

The economic turmoil that has engulfed the world has left banks restricting lending, chasing deposits and incurring unprecedented losses. The second half of 2008 witnessed global financial institutions being rescued by governments and unprecedented regulator intervention. It is currently unchartered territory for financial services companies.  

Whilst the Group is well insulated against the extremities of the economic slowdown by not having any exposure to wholesale money markets or sub-prime loans and not being involved in mortgage lending, the competitive action of lowered interest rates, less secure banks and the damage inflicted on customers' disposable income levels has impacted our results.

To minimise the impact of the economic climate, the Board has undertaken a comprehensive review of all business activities. This has left the Group leaner and allowed a more focused approach to its core capabilities and market. As part of this review £500,000 of capital was raised in the form of a long term subordinated debt.

This strategic review is covered in greater detail within the Chief Executive's report.  

Conister Trust

The Bank remains very strongly capitalised with a Risk Asset Ratio of 18.0% and a Tier 1 capital ratio of 15.6% which compares very favourably to the average of 7.9% for the top 20 banks1. Deposits continued to grow during the year and cash balances remained strong. As one would expect general provisioning was increased to reflect the deteriorating economic environment. Regarding litigation funding, which is a discontinued business stream and has been in run off since 2007, agreement was reached on 20 May 2009 with the firm of solicitors that the Bank has been in litigation with.

The Bank will concentrate on delivering customer focused products to supplement its Asset Finance revenues. This strategy will be aided by the Bank's £750,000 investment in a new banking system which will be operational in Q3 2009.

1 Reference : Reuters 'S&P launches new bank capital ratio to weigh risk' 21 April 2009.

TransSend

The development of the prepaid market has stalled as other financial services companies digest the impact of the global economic crises on prepaid.  This, alongside the company withdrawing its e-money licence application, led to a strategic review of the Group's prepaid business which concluded the prepaid market was still in a state of flux.  Thus to take advantage of the short to medium term market opportunities, TransSend will be repositioned from the saturated programme manager market sector, to becoming a local BIN sponsor by concentrating on issuing cards on behalf of programme managers by using the existing MasterCard membership. 

Analysis of the Conister Trust and TransSend results are contained within the Chief Executive's report.

Conister Financial Group - the holding company

As already reported to our Shareholders on 13 November 2008, the company entered into two share-for-share exchanges with Equity Special Solutions (ESS). The rationale for entering into these agreements was to allow both groups to jointly exploit commercial opportunities. The share swaps were also entered into as part of the TransSend partial disposal strategy which would allow TransSend to become a standalone business and to progress its e-money licence. Following the failure of Landsbanki and Kaupthing Singer & Friedlander in the United Kingdom, ESS then entered into administration. The Board have considered the value of the ESS shareholding and have prudently written off its full value, £9.6 million, although we understand that there may be an opportunity for some recovery at a future date. The loss, although regrettable, involved a minimal cash outlay and had no effect on the financial strength of the Bank's balance sheet.

100% of TransSend share capital is now again owned by Conister Financial Group plc.

The loss for the year relates mainly to the ESS transaction and non-reoccurring costs, but despite both of these issues cash has remained stable.

Our people

Throughout this difficult period our people have proved dedicated and motivated and I thank them for all their effort during the last year.  

There have been recent changes to the Board with Phil Stamp leaving last December and Simon Hull and David Gibson, who were and remain Conister Trust directors, joining the Board in February 2009.

The composition of the Executive body at the Group has also changed with Arron Banks stepping down as Chief Executive but remaining on the Board.  Arron was replaced by Denham Eke on 12th February 2009, an existing Board member, and as part of this reshuffle I accepted the role of Executive Chairman. 

AGM Resolutions

As always the Board would recommend the shareholders consider and support the resolutions laid before them at the AGM.  

Of the resolutions that the shareholders are being asked to consider there are two which I would like to expand upon within this report, namely

• This year the Board proposes to cancel the share premium account which arose from the ESS transactions. This will significantly offset the ESS loss currently recognised within retained earnings, at a minimal cost, and

• The Board have considered and thought desirable to change the Group's name from Conister Financial Group PLC to Manx Financial Group PLC.  With the planned expansion of the Group's range of services the Board wish to segregate further the Bank from the other activities of the Group.

Outlook

Market conditions for financial services entities will remain challenging but the refocused group is well positioned to generate improved returns.

Conister Trust will position itself as the only truly Manx independent bank and will leverage its unique position through the new banking system to start primary relationships with its customers and to add additional consumer focused propositions to strengthen and lengthen the customer relationship. 

The prepaid card division will seek strategic alliances with quality programme managers to provide a sales distribution that it could not achieve on its own whilst at the same time positioning itself to take advantage of any strategic opportunities as the market grows.

The balance sheet remains strong with minimal debt and no exposure to the sub-prime or housing market sectors. This, together with the commitment of the Board and Executives, will drive forward the progress made in recent months to grow the Group despite this turbulent market and to be in an enhanced position for when more normal trading conditions return.

My thanks again go to all the staff for all their effort and also to our customers and shareholders for their support throughout this difficult year.

James Mellon

Executive Chairman

1 June 2009

  Chief Executive's Business and Financial Review

Introduction

I am delighted to have been appointed as the Group's Chief Executive and look forward to the challenges and opportunities that the current economic climate creates. The goal is to build upon the strong foundations that have been laid to date and make a steady return to profitability. We are fortunate in having a bank which has no serious legacy issues and also fortunate that by being entirely Isle of Man based, we have no parent company requirement to remit funds to another jurisdiction, outside our complete control. Capitalising on this independence will be one of the cornerstones of our future strategy.

It is important in this changeable environment to create a steady platform, both in terms of systems and in staffing, for the business units to grow profitably. With this in mind we undertook a strategic review of both the two trading divisions within the Group and the parent company itself.

The review resulted in the Bank taking the following positive actions:

• Reducing fixed costs by closing the Peterborough and Wigan offices

• Retaining only a Sales and Collections presence in England with underwriting strengthened and consolidated to the Isle of Man, using common systems and procedures

• Reducing headcount where possible

• Installing a new banking system to create a primary customer interface and thereby allowing secondary sales. Currently other banks reap this benefit from our customers as historically we have not been able to offer this extension of our product range

• Creating fee based income streams to complement the existing customer base such as guaranteed auto protection insurance, general insurance products and advised sales

• Improving treasury management

• Implementing an improved management structure to improve efficiencies and remove duplications

• Strengthening a culture of compliance, internal controls and regulatory observance 

At TransSend, we concluded that prepaid cards was a market sector the Group should continue to be in but that market expansion had stalled due to events beyond the company's control. The review concluded that at this point shareholders' interests would be better served by repositioning the company as a BIN sponsor focusing both on opportunities within the Isle of Man and also 'cherry picking' premium opportunities off Island as long as they comply with our regulatory environment. 

As part of the holding company review, I have undertaken a Group wide cost analysis to ensure the revised cost base was at its optimum. This exercise was successfully completed in April 2009. 

The financial benefits of both the restructuring and the cost analysis exercise have commenced and have already enhanced the 2009 trading numbers.

The following is a detailed review of the trading divisions' 2008 performance.

Conister Trust - Banking division

Against the severe economic back drop it is pleasing to report the Bank's losses reduced in 2008 to £1.28 million (2007: £2.38 million) which compares favourably to the unprecedented losses and write downs so many other banks are reporting.

The Bank has a strong and loyal customer deposit base. The bank also has no exposure to the wholesale money market. Deposits grew during the year to £66.1 million, an increase of 7% (2007: £62.0 million). Cash balances are healthy and stand at £20.6 million (2007: £22.9 million). The Bank remains strongly capitalised with a Tier 1 capital ratio of 15.6% which is well in excess of the average for the top 20 banks of 7.9%.  

Despite the negative macro environment and rate pressure, it is pleasing to report the Bank's net interest income of £3.5 million was just 3% lower than last year (2007: £3.6 million). Premium Finance receivables increased by 35% to £17.6 million (2007: £12.9 million) and the Asset Finance loan book decreased by 11% to £36.8 million (2007: £41.3 million) reflecting both a tightening in underwriting criteria and a downturn in customer demand. Credit quality has been maintained as the Bank has no exposure to either the housing or the sub-prime markets. The Board prudently increased the Asset Finance general provision to reflect the worsening economic outlook.

With regard to Litigation Financing (a business segment discontinued in 2007 and now in run-off) the company reached agreement on 20 May 2009 after a time consuming legal action with a firm of solicitors involved in litigation finance. With this agreement it is now expected that run-off can progress to completion. 

The installation of the new banking system is due to be completed in the third quarter of 2009. This system is an industry standard consumer focused deposit and loan system that will allow the Bank to offer its customers a greater range of tailored products, including fee based offerings, to meet their needs. We plan to develop an internet banking offering in due course.

TransSend - Prepaid Card Division

The company made a loss of £3.7 million before unallocated items in 2008 (2007: £2.5 million) as its e-money application could not be pursued to completion following ESS entering liquidation. This resulted in the Board considering the viability of the prepaid market as a programme manager and thus we have repositioned and reorganised the company. 

I am confident that this more precise focus will create a profitable business in the future and I am pleased to report that the Net+card, launched in conjunction with Isle of Man based Neovia Financial, has been nominated for 'Best New Prepaid Card Product Launch' at the prestigious 'Cards & Payments', Europe's leading cards and payments conference and expo, which will be held in Prague on 18th June 2009.

Conister Financial Group - the holding company

ESS entering liquidation was not only a significant negative issue for TransSend's trading forecasts, but also the two share-for-share swaps completed in 2008, caused a substantial investment write-off through the Income Statement. There does, however, remain an opportunity that some value may be returned at some point in the future. 

As a result of these issues, the Group made a pre-tax loss for 2008 £18.3 million (2007: loss of £4.1 million). Over half was as a result of the ESS impairment and thus not a cash item and has had no affect on the Bank's balance sheet. The remaining loss includes approximately £6 million of costs which are either one-off, or which will not be repeated in forthcoming years. 

The way forward

The Bank, after the re-structuring and under the leadership of Simon Hull, is beginning to deliver on its potential by focusing on core business to evolve complimentary business lines, particularly those that will appeal to our existing customers. In addition, there is an even greater emphasis on managing risk and compliance. 

TransSend's cost base has been tailored to its new requirements; two strategic relationships have recently been agreed having reviewed the quality of their business pipelines and the company is now well positioned to leverage its capabilities to BIN sponsor prepaid programmes.  

In conclusion, I wish to sincerely echo the Chairman's comments as to the loyalty and dedication of our employees in what has been a difficult year but I firmly believe that the Group is now positioned to grow despite the current challenges of the economic environment.

Denham Eke
Chief Executive

 1 June 2009

Consolidated Income Statement

for the year ended 31 December 2008	Notes		2008 £000		2007 £000
Interest income			7,140		6,851
Interest expense			(3,552)		(2,631)
Net interest income			3,588 (709)		4,220 (898)
Fee and commission expense
Net trading income			2,879		3,322
Other operating income			805 (505) 31		362 (102) -
Programme costs
Foreign exchange gain
Operating income	1		3,210		3,582 (3,167)
Personnel expenses			(4,421)
Depreciation			(77)		(60)
Other expenses			(3,366)		(3,251)
Provision for impairment on loan assets			(1,363) (454) 6 (162)		(464) - 340 (148)
Realised loss on sale of available-for-sale financial instruments	5
Dividend income from financial assets carried at fair value
Unrealised loss on financial assets carried at fair value
Loss before specific items	1		(6,627)		(3,168)
Net impairment loss on available-for-sale financial instruments	5		(9,638)		-
Re-structure costs	3		(1,425)		-
Project costs	2		(494)		-
Legal costs related to net impairment of available-for-sale financial instruments			(76)		-
Shareholder litigation costs			-		(318)
Scheme of arrangement costs			(45)		(481)
Loss before income tax expense			(18,305)		(3,967)
Income tax expense			-		(174)
Loss for the year	4		(18,305)		(4,141)
Basic and diluted loss per share (pence)	4		(32.8)		(9.5)

Consolidated Balance Sheet 

as at 31 December 2008	Notes	2008 £000		2007 £000
Assets
Cash and cash equivalents		20,589		22,905
Financial assets at a fair value through profit or loss		136		298
Loans and advances to customers		55,916		56,737
Property, plant and equipment		192		277
Trade and other receivables		1,383		1,072
Total assets		78,216		81,289
Liabilities
Customer accounts		66,058		61,973
Creditor and accrued charges		3,094		1,538
Pension liability		314		305
Total liabilities		69,466		63,816
Equity
Called up share capital		15,849		12,680
Share premium account	6	6,141		8,337
Profit and loss account		(13,240)		(3,544)
Total equity		8,750		17,473
Total liabilities and equity		78,216		81,289

Consolidated Cash Flow Statement

For the year ended 31 December 2008	Notes		2008 £000		2007 £000
RECONCILIATION OF LOSS BEFORE TAXATION TO OPERATING CASH FLOWS
Loss before tax on continuing activities			(18,305)		(3,967)
Realised loss on financial assets held at fair value through profit or loss	5		454		-
Movement in financial assets held at fair value through profit or loss			162		148
Net impairment loss on financial assets	5		9,638
Dividend income from financial assets carried at fair value			(6)		(340)
Loss on disposal of property, plant and equipment			104		25
Depreciation charge			77		60
Share based payment expense			315		123
Pension liability			(34)		(61)
Increase in trade debtors			(651)		(232)
Increase in trade creditors			1,057		858
Net cash outflow from trading activities			(7,189)		(3,386)
Decrease / (increase) in loans and advances to customers			821		(2,946)
Increase in deposit accounts			4,085		9,575
Cash (outflow) / inflow from operating activities			(2,283)		3,243
CASH FLOW STATEMENT
Cash flows from operating activities
Cash (outflow) / inflow from operating activities			(2,283) (1)		3,243 (5)
Taxation paid
Net cash (outflow) / inflow from operating activities			(2,284)		3,238
Cash flows from investing activities
Purchase of tangible fixed assets			(96)		(244)
Purchase of available for sale financial instruments	5		(909)
Sale of financial assets at fair value through profit or loss	5		127 346		-
Dividend income from financial assets carried at fair value
Net cash outflow from investing activities			(532)		(244)
Cash flows from financing activities
Issue of ordinary share capital			-		7,227
Issue of subordinated liabilities			500		-
Net cash inflow from financing activities			500		7,227
(Decrease) / increase in cash and cash equivalents			(2,316)		10,221

Major non-cash items comprised the issue of share capital in exchange for the acquisition of available-for-sale-financial instruments, disclosed in note 5.

Statement of Recognised Income and Expense

For the year ended 31 December 2008	2008 £000		2007 £000
(Loss) / gain on pension scheme	(43)		48
Deferred tax associated with gain on pension scheme	-		(11)
Other	-		2
(Loss) / income recognised directly in equity	(43)		39
Loss for the financial year	(18,305)		(4,141)
Total recognised expense for the year	(18,348)		(4,102)

Statement of Changes in Equity

For the year ended 31 December 2008	Share Capital		Share Premium		Merger Reserve		Retained earnings		2008		2007
	£000		£000		£000		£000		£000		£000
Balance as at 1 January	12,680		8,337		-		(3,544)		17,473		14,225
Loss for the year	-		-		-		(18,305)		(18,305)		(4,141)
Merger reserve (note 6)	-		(8,337)		8,337		-		-		-
Transfer to retained earnings (note 6)	-		-		(8,337)		8,337		-		-
Arising on shares issued in the year (note 5)	3,169		6,141		-		-		9,310		7,227
Share based payment expense	- -		- -		-		315 (43)		315 (43)		123 39
Other recognised (loss) / income attributable to equity holders					-
Balance as at 31 December 2008	15,849		6,141		-		(13,240)		8,750		17,473

Notes 

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 in addition to its investing activities: Asset and Personal Finance (including provision of HP contracts, finance leases, personal loans and premium finance); Litigation Finance; and a Prepaid Card division, TransSend. The Group ceased to provide new Litigation Finance in June 2007. 

For the year ended 31	Asset and Personal Finance		Litigation Finance		TransSend		Investing Activities		Total 2008
December 2008	£000		£000		£000		£000		£000
Net interest income	3,337		163		88		-		3,588
Operating income	2,842		187		181		-		3,210
Provision for impairment	(948) (460)		(415) (737)		- (3,721)		- (610)		(1,363) (5,528) (1,099)
Loss before   unallocated items
Group central costs
Loss before specific    items									(6,627)
Capital expenditure	96		-		-		-		96
Total assets	76,419		1,503		158		136		78,216
Total liabilities and    equity	76,713		1,503		-		-		78,216

For the year ended 31	Asset and Personal Finance		Litigation Finance		TransSend		Investing Activities		Total 2007
December 2007	£000		£000		£000		£000		£000
Net interest income	4,080		140		-		-		4,220
Operating income	3,350		140		92		-		3,582
Provision for impairment	(478)		14		-		-		(464)
Loss before unallocated    items	325		(688)		(2,469)		192		(2,640) (528)
Group central costs
Loss before specific    items									(3,168)
Capital expenditure	111		-		133		-		244
Total assets	78,678		2,116		197		298		81,289
Total liabilities and     equity	79,173		2,116		-		-		81,289

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

2. Project costs

	2008		2007
	£000		£000
Costs of TransSend sale	133		-
Costs of potential acquisition	361		-
	494		-

On 29 September 2008, the Company agreed to dispose of 51% of TransSend Holdings Limited (subject to certain operational milestones) by way of sale of 10% to Altair Financial Services International PLC (Altair) and 41% to Equity Special Situations Limited (ESS). The suspension of the listing of the ESS shares from AIM and subsequent announcement of its liquidation lead to it not being possible to progress the sale. The appointment of liquidators lead to the ESS shareholding in TransSend being transferred to Altair and the Company at par value, in proportion to their holding in TransSend. Subsequent to this the Company purchased Altair's shareholding in TransSend for £35,000. £98,000 of legal costs were incurred in respect of this matter; the total cost being therefore £133,000.

A potential acquisition was investigated during the year at a cost of £361,000.

3. Re-structure costs

Re-structure costs comprise: the cost of closure of the UK TransSend operation, the costs of closure of two branch offices in the UK, and the reorganisation of Isle of Man operations process.  

	2008		2007
	£000		£000
Closure of UK TransSend operation
Administration expenses	320		-
Onerous programme costs	127		-
Redundancy costs	117		-
	564		-
Closure of UK branch offices     Redundancy costs	61		-
Reorganisation of Isle of Man operations process     Redundancy costs	429		-
Director's ex-gratia cost	264 107		-
Director's share option cost
	800		-
	1,425		-

The Director's ex-gratia and share option cost relates to Mr J F Linehan.  

4. Loss per share

					2008		2007
					£000		£000
Loss for the year					(18,305)		(4,141)
					Number		Number
Weighted average number of ordinary shares in    issue   Basic and diluted loss per share					55,866,457 (32.8)p		43,689,141 (9.5)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 issues throughout the year.

The diluted loss per share calculation is based upon loss for the year 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. 

5. Available-for-sale financial instruments

During the year the Group acquired shares in Equity Special Situations Limited (ESS), an AIM listed strategic investment company incorporated in Guernsey. The transaction was done in two stages by way of a share-for-share exchange with a cash top up as detailed below:

			%		Number
Investment in ESS			Holding		of Shares		£000
Additions during the year:    23 June 2008			9.9%		2,042,705		4,453
9 September 2008			8.7% 18.6%		2,206,090		5,185
Total shareholding    Impairment loss on available-for-sale       financial instruments    Carrying value of available-for-sale financial      instruments					4,248,795		9,638 (9,638)
							-

	Share- Premium		Share Capital		Total
Consideration comprised:	£000		£000		£000
Share capital issued to ESS    23 June 2008: Issue of 5,575,150 ordinary CFG shares at 74p	2,732		1,394		4,126
9 September 2008: Issue of 7,101,798 ordinary CFG shares    at  73p	3,409		1,775		5,184
	6,141		3,169		9,310
23 June 2008: Cash paid    Total consideration					328
					9,638

On 25 November 2008 the directors of ESS announced the cancellation of the admission of the ordinary shares in ESS to trading on AIM. ESS had been granted an interim injunction against Landsbanki and its agents, under which Landsbanki was prohibited from attempting to sell certain shares owned by ESS which were held at Landsbanki as security for a long term loan facility with ESS. ESS subsequently filed a legal claim against Landsbanki on 24 October 2008 and has been in discussions with certain creditors and other debt providers. The value of the Company's holding in ESS is uncertain, the Board believes it appropriate to fully impair the carrying value of the Company's holding in ESS and carry it at a £Nil value. It is however possible that some recovery of value may be made in the future. Legal fees of £76,000 in relation to this matter were incurred during the year in relation to this matter (2007: £nil).

During the year the Group also acquired two other investments at a cost of £581,000, which were subsequently sold for £127,000, giving rise to a realised loss of £454,000.

6. Merger reserve

For the purpose of the consolidated financial statements the Scheme of Arrangement on 31 January 2008, whereby Shareholders in Conister Trust Limited received replacement shares in CFG, has been treated as a Group reconstruction. Merger accounting principles have been used for the Group reconstruction, such that the consolidated results of CFG have been prepared on the basis that the current Group always existed. 

The investment in Conister Trust Limited was recorded in the balance sheet of CFG at a cost of £12,680,000, being the nominal value of the ordinary 25p shares acquired in exchange for an equal number of CFG ordinary 25p shares. This also became the issued share capital of CFG. At the date of the Scheme of arrangement, a merger reserve of £8,337,000 arose representing the share premium balance in the balance sheet of Conister Trust Limited.

Following approval by the High Court of Justice in the Isle of Man on 10 November 2008, the share capital account in Conister Trust Limited was reduced to £5,000,000. Further, the share premium account was cancelled and the balance of £8,337,000 was credited to distributable reserves. This capital reorganisation necessitated the balance on the merger reserve, to be transferred to retained earnings.

7. Related party transactions 

NewLaw

A loan of £500,000 was advanced by the Bank on 21 December 2005 to NewLaw, a UK firm of solicitors. In November 2007 the terms of the loan were renegotiated to a new term of 36 months with interest charged at 7.3% per annum. As at 31 December 2008 the balance on the loan was £305,986 (2007: £472,886); this amount is disclosed as an unsecured personal loan in note 19.  NewLaw is a party related to Mr A F A Banks (non executive director and significant Shareholder). The Bank has a personal guarantee from Mr A F A Banks in respect of the loan. 

NewLaw also provided legal services to the Bank. Fees charged for these services in 2008 totalled £337,000 (2007: £218,000). 

Premium Finance

The Bank has an agreement with Group Direct Limited, a UK insurance broker, to provide premium financing of insurance policies brokered by Group Direct of at least £5 million annually. The majority of these policies are issued by Southern Rock Insurance Company Limited. In 2008 the Bank provided financing of £30.8 million (2007: £17.4 million) earning interest income of £1,280,000 (2007: £655,000). Group Direct Limited and Southern Rock Insurance Company Limited are parties related to A F A Banks. 

Cash deposits

During the year the Bank held cash on deposit on behalf of the following related individuals:

J Mellon and a company related to him (Non-Executive Chairman)

A F A Banks (Conister Trust Limited (Non-Executive Director)

A company related to D Eke (Chief Executive)

J Hemuss (Conister Trust Limited, Executive Director)

Normal commercial interest rates are paid on these deposits. 

Subordinated Loan

On 22nd December 2008 the Bank entered into a subordinated loan agreement for £500,000 with J Mellon. The loan is unsecured, bears interest on commercial terms and no repayment of the loan is necessary in the first 5 years. This loan represents a Related Party Transaction in accordance with AIM Rule 13. Accordingly, the Independent Directors, having consulted with the Group's Nominated Advisor, consider the terms of the transaction to be fair and reasonable insofar as the shareholders of the Company are concerned

Staff loans

Details of staff loans are given in a note to the financial statements.

Key management personnel (including Executive Directors') compensation 

	2008		2007
	£000		£000
Short-term employee benefits	1,640		1,076
Share-based payments	211		79
Total	1,851		917

Short-term employee benefits include £655,000 (2007: nil) in respect of redundancy and settlement costs as a result of the reorganisation of Isle of Man operational processes.

The 2008 share-based payment charge includes £107,000 in respect of the modifications to the share options held by J F Linehan. 

Notice is hereby given that the Annual General Meeting of Conister Financial Group PLC ('the Company') will be held on Monday 29th June 2009, at The Claremont Hotel, 18-22 Loch Promenade, Douglas, Isle of Man at 11.00 a.m. for the following purposes:

Ordinary Business

To consider, and if thought fit, to pass the following resolutions which will be proposed as ordinary resolutions:

Resolution 1

To receive and adopt the Report of the Directors and the Financial Statements for the year ended 31 December 2008 together with the Report of the Independent Auditors on such statements.

Resolution 2

To reappoint KPMG Audit LLC as Auditors to hold office from the conclusion of the meeting to the conclusion of the next meeting at which Financial Statements are laid before the Company, at a remuneration to be determined by the Directors.

Resolution 3

To reappoint Mr A Banks, a Director retiring by rotation under the Company's Articles of Association.

Resolution 4

To reappoint Mr A Clarke, a Director retiring by rotation under the Company's Articles of Association.

Resolution 5

To reappoint Mr S Hull, a Director appointed since the Company's last Annual General Meeting.

Resolution 6

To reappoint Mr D Gibson, a Director appointed since the Company's last Annual General Meeting.

Special Business

To consider, and if thought fit, to pass the following resolutions which will be proposed as special resolutions:

Resolution 7

That the Company is hereby authorised to issue shares amounting to not more that 20 per cent of the then existing issued share capital, at not more than a discount of 10 per cent to the then market price. The authority hereby conferred shall (unless previously renewed or revoked) expire on the date which is eighteen months after the date on which this resolution is passed.

Resolution 8

That, subject to the confirmation of the High Court of Justice of the Isle of Man pursuant to Section 57 Companies Act 1931, the share premium account of the Company be cancelled and reduced to nil and that all sums standing to the credit of the share premium account as at the date of this resolution be transferred to distributable reserves.

Resolution 9

That the name of the Company be changed from Conister Financial Group PLC to Manx Financial Group PLC and the Memorandum and Articles of Association of the Company be amended to reflect the change of name.

For ordinary resolutions to be passed, more than half of the votes cast must be in favour of the resolution, whilst in the case of a special resolution at least three-quarters of the votes cast must be in favour. We expect the meeting to conclude by 12.30 p.m.

By order of the Board

Lesley Crossley ACII ACIS

Company Secretary

1 June 2009

Registered Office: 

Conister House
Isle of Man Business Park

Cooil Road

Braddan

Isle of Man 

IM2 2QZ

Notes:

1. A member of the Company entitled to attend and vote at the above-mentioned meeting is entitled to appoint another person as his proxy to vote and attend in his stead. A proxy need not be a member of the Company.

2. To be effective, forms of proxy must be lodged at the Company's registered office, Conister House, Isle of Man Business Park, Cooil Road, Braddan, Isle of Man IM2 2QZ not later than 11.00a.m. on 27th June 2009. Lodgement of a form of proxy will not prevent a member from attending and voting in person.  A voting proxy is enclosed with these Financial Statements: please return it in the stamped addressed envelope.

 

END

 

 

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