Unaudited Interim Results

RNS Number : 0408M

Manx Financial Group PLC

20 August 2013

 



FOR IMMEDIATE RELEASE

20 August 2013

Manx Financial Group PLC

Unaudited Interim Results for the 6 months ended 30 June 2013

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 2013.  Copies of the Interim Report will shortly be available on our website www.mfg.im.

Financial Highlights

Net Interest Income:	£3.68 million - up 44% (2012: £2.55 million)
Net Trading Income:	£3.05 million - up 16% (2012: £2.64 million)
Trading Profit:	£0.42 million  - up 367% (2012: £0.09 million)
Profit for 6 months:	£0.26 million - up 145% (2012: loss of £0.57 million)
Loans:	£64.88 million - up 23% (2012: £52.65 million)
Total Assets:	£81.73 million - up 18% (2012: £69.00 million)
Customer Deposits:	£67.85 million - up 18% (2012: £57.73 million)

Contacts: 

Manx Financial Group PLC

Denham Eke, Chief Executive

Tel: [phone]

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

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 2013.

Chairman's Statement

I am pleased to confirm that, as expected, we have now turned the corner into profitability. I can report that the Group's bottom line Total Comprehensive Income is £0.255 million for the period, an improvement of £0.822 million on last year's Interim results (2012: loss of £0.567 million). The Profit Before Tax increased by £1.022 million in the six months to £0.305 million (31 December 2012: loss of £0.717 million).

The encouraging news is that this improvement was not solely driven by the cost reduction exercise we undertook last year but also, more importantly, by a significant growth in sustainable income. Both Conister Bank Limited and our Isle of Man based Independent Financial Advisor (IFA) subsidiary, Edgewater Associates Limited, delivered a much improved financial performance.

We are proud of our Isle of Man heritage, being now the Island's only independent bank. Using the metrics supplied by the Department of Economic Development, we contribute just under £10 million to the Island's national income. But we encompass more than just banking. We have a diversified portfolio of financial services companies which complement each other and our Isle of Man based licence allows us to be part of a wider solution to the UK's Consumer and Small to Medium Enterprises' liquidity drought. This not only benefits our UK based customers but also generates profits for the company and further tax receipts for the Isle of Man government.

Unfortunately, none of this positive performance is reflected by our share price which remains hugely undervalued. Our market capitalisation is currently less than shareholder equity. The value of our banking licence and profit potential are not factors properly recognised by the market and we will be addressing this issue in the months to come.

Group Financial Review

Our Interest Income has grown by over 35% to £4.899 million (2012: £3.621 million) and our Operating Income by nearly 14% to £3.111 million (2012: £2.733 million). Profit Before Specific Items has grown by over 355% to £0.419 million (2012: £0.092 million). Profit Before Tax is now £0.305 million, a positive movement of £0.877 million (2012: loss of £0.572 million), and Total Comprehensive Income is £0.255 million, a positive movement of £0.822 million (2012: loss of £0.567 million). All this provides Earnings Per Share of 0.28 pence (2012: negative 0.64 pence).

Our Cash and near cash have together risen to £11.831 million (2012: £11.591 million) and our loan book has increased by over 23% to £64.878 million (2012: £52.654 million). Thus our Total Assets have increased by over 18% to £81.726 million (2012: £69.001 million). Our Customer Accounts have increased by nearly 18% to £67.845 million (2012: £57.728 million), making our Total Liabilities £73.756 million (2012: £61.918 million).

Conister Bank Limited

Our belief and focus on the Bank has not been misplaced. On a like for like basis, the Bank increased earnings by 6.3 times to £1.014 million (2012: £0.160 million). The majority of this growth came through lending and was not bolstered by one-off adjustments and will, I believe, be sustainable in this economic environment. Our deferred income - that is income already committed which will be released in future financial periods - increased by nearly 39% to £12.358 million (2012: £8.899 million).

Growing both sides of the balance sheet in tandem is key to minimising profit leakage and the key indicator in this regard, the deposit to loan ratio, has improved from 92% at the year end to 96%. Our deposit base remains loyal and with £17 billion of retail deposits available on the Island, securing additional deposits should not prove to be a barrier to future growth.

Although the adoption of BASEL III is still some years away, it is now common for banks to report their Tier 1 capital within the Chairman's statement. Our Tier 1 capital was £9.582 million (2012: £9.331 million) which provided a Regulatory Risk Asset Ratio of 16%. This figure remains greatly in excess of the UK major banks and continues to provide a solid foundation for both our lending and our deposit taking. Indeed, in comparing the recently published 2.8% leverage ratio for Barclays plc (against the European Banking Authority's recommended 3%), on the same basis, we would currently have a ratio of over 14%. Thus the Bank is well placed to capitalise on the window of opportunity to lend created by the mainstream banks' weaker balance sheets which in turn cause them to be reluctant to lend.

The Bank continues to believe its VAT recovery rate is neither fair nor reasonable and continues to carry a VAT debtor on its balance sheet. The resolution of this debtor will follow the Volkswagen Financial Services Limited case against HM Revenue & Customs which is next due to heard in court in autumn of this year.

Edgewater Associates Limited

Edgewater experienced a greatly improved financial performance with earnings increasing by 7.6 times to £0.114 million (2012: £0.015 million). We have nearly completed a cost reduction programme - however the full effect of this initiative will not become apparent until 2014.

With the introduction of the Retail Distribution Review (RDR) on 1 January 2014 now drawing closer, it is evident that many of the Island's IFA firms will not be able to execute business following RDR's introduction. For a RDR compliant IFA firm like our own, there will be opportunities to gain market share and we are also considering potential acquisitions to strengthen our offering.

We acquired a small general insurer last year and, having now assimilated it into our business, we are positioned to grow both by cross-selling into our existing customer base and by extending our reach into the commercial general insurance market. Whilst the business is currently small, the opportunity is large.

Conister Card Services Limited

We continue to actively seek ways to monetise our MasterCard® licence but we will not be rushed into entering partnerships until we are sure the relationships will be profitable. Whilst the dynamics of the contactless payment market are encouraging, we must ensure that the technology platforms are proven and accepted by the consumer before committing ourselves. We will progress our on-Island tests and we will continue to provide solutions to Island based businesses and government departments.

Outlook

The outlook is extremely promising for the company. Conister Bank is accelerating wholesale funding agreements with credit-strapped but profitable enterprises. An easy access to the Isle of Man deposit market will ensure liquidity is not a restriction to growth. With Edgewater Associates now re-organised, we are well placed to capitalise on the introduction of RDR on the Island with new business coming from both existing customers and the gaining of market share.

Thus we have created a sustainable group of companies capable of generating capital upon which further growth can be founded. The opportunities available to us are both numerous and likely to prove profitable. I continue to expect a positive conclusion to the 2013 year-end. This will provide a solid platform for further growth in 2014 and thereafter.

In conclusion, I would like to thank both staff and shareholders for the loyalty that they continue to demonstrate to the company.

Jim Mellon

Executive Chairman

16 August 2013

Condensed Consolidated Statement of Comprehensive Income

	Notes		For the period ended 30June 2013   £000   (unaudited)		For the period ended  30 June 2012£000   (unaudited)		For the year ended  31 Dec 2012  £000  (audited)
Interest income	2		4,899		3,621		7,800
Interest expense			(1,223)		(1,076)		(2,259)
Net interest income	3		3,676		2,545		5,541
Fee and commission income Fee and commission expense Profit share on joint lending schemes	6		713                 (529) (811)		658               (281) (282)		1,226 (612) (1,032)
Net trading income			3,049		2,640		5,123
Other operating income			62		93		212
Operating income	3		3,111		2,733		5,335
Personnel expenses			(1,585)		(1,456)		(2,831)
Other expenses			(937)		(1,032)		(2,144)
Provision for impairment on loan assets			(236)		(153)		(7)
Depositors' Compensation Scheme recovery			66		-		37
Profit before specific items			419		92		390
Acquisition and restructuring costs	4		-		(412)		(864)
VAT recoverable			-		-		71
Realised gains on available-for-sale financial assets			19		14		28
Unrealised loss on financial assets carried at fair value			(4)		(146)		(128)
Depreciation			(129)		(120)		(214)
Profit/(loss) before income tax (expense)/recovery			305		(572)		(717)
Income tax (expense)/recovery			(50)		-		380
Profit/(loss) for the period/year			255		(572)		(337)
Other comprehensive income:
Available-for-sale gains taken to equity			-		5		-
Actuarial loss on pension scheme			-		-		(98)
Total comprehensive income/(loss) for the period/year attributable to owners			255		(567)		(435)
Basic profit/(loss) per share (pence) Diluted profit/(loss) per share (pence)	5 5		0.28 0.23		(0.64) (0.64)		(0.38) (0.38)

Condensed Consolidated Statement of Financial Position

	Notes		30 June  2013   £000   (unaudited)		30 June 2012  £000   (unaudited)		31 Dec 2012   £000  (audited)
Assets
Cash and cash equivalents			2,331		2,598		1,918
Financial assets at a fair value through profit or loss	7		47		43		51
Available for sale financial instruments	8		9,500		8,993		12,484
Loans and advances to customers	9		64,878		52,654		58,495
Commissions receivable			371		286		312
Property, plant and equipment			684		820		742
Trade and other receivables	10		1,241		1,263		1,243
Deferred tax asset			330		-		380
Goodwill	13		2,344		2,344		2,344
Total assets			81,726		69,001		77,969
Liabilities
Customer accounts			67,845		57,728		63,731
Creditors and accrued charges	11		801		719		2,153
Pension liability			190		69		200
Loan notes	12		4,760		2,910		4,510
Deferred consideration			160		492		160
Total liabilities			73,756		61,918		70,754
Equity
Called up share capital	14		18,933		18,433		18,433
Profit and loss account and other reserves			(10,963)		(11,350)		(11,218)
Total equity			7,970		7,083		7,215
Total liabilities and equity			81,726		69,001		77,969

Condensed Consolidated Statement of Cash Flows

	Notes		For the period ended  30 June 2013£000   (unaudited)		For the period ended  30 June 2012£000   (unaudited)		For the year ended 31 Dec 2012  £000  (audited)
Reconciliation of profit/(loss) before taxation to operating cash flows
Profit/(loss) before income tax expense			305		(572)		(717)
Unrealised loss on financial assets carried at fair value through profit or loss			4		146		128
Realised gains on available-for-sale investments			(19)		(14)		(28)
Available-for-sale gains taken to equity			-		5		-
Loss/(gain) on disposal of property, plant and equipment			21		-		(7)
Depreciation charge			129		120		214
Actuarial gain on defined benefit pension scheme taken to equity			-		-		(98)
(Decrease)/increase in pension liability			(10)		(10)		121
Decrease in trade debtors			2		109		18
(Decrease)/increase in trade creditors			(1,352)		(248)		1,307
Increase in commission debtors			(59)		(52)		(78)
Net cash (outflow)/inflow from trading activities			(979)		(516)		860
Increase in loans and advances to customers			(6,383)		(3,129)		(8,970)
Increase in deposit accounts			4,114		1,818		7,821
Cash outflow from operating activities			(3,248)		(1,827)		(289)
CASH FLOW STATEMENT
Cash flows from operating activities
Cash outflow from operating activities			(3,248)		(1,827)		(289)
Taxation paid			-		-		-
Net cash outflow from operating activities			(3,248)		(1,827)		(289)
Cash flows from investing activities
Purchase of tangible fixed assets			(92)		(122)		(186)
Sale of fixed assets			-		9		51
Sale/(purchase) of available-for-sale financial instruments	8		3,003		1,503		(1,961)
Payment of deferred consideration			-		-		(332)
Net cash inflow/(outflow) from investing activities			2,911		1,390		(2,428)
Cash flows from financing activities
Issue of loan notes			750		700		2,300
Net cash inflow from financing activities			750		700		2,300
Increase/(decrease) in cash and cash equivalents			413		263		(417)
Significant non-cash flows in the period/year Conversion of loan notes to share capital	12		500		-		-

Condensed Consolidated Statement of Changes in Equity

			Share Capital		Retained earnings and other reserves		Total 30 June 2013		Total 30 June 2012		Total 31 Dec 2012
			£000		£000		£000 (unaudited)		£000 (unaudited)		£000 (audited)
Balance brought forward			18,433		(11,218)		7,215		7,650		7,650
Profit/(loss) for the period/year			-		255		255		(572)		(337)
Other comprehensive income			-		-		-		5		(98)
Transactions with shareholders:
Shares issued			500		-		500		-		-
Balance carried forward			18,933		(10,963)		7,970		7,083		7,215

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 2013 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 2012 and comply with IFRSs and IFRIC interpretations applicable to companies reporting under IFRS.

2. Interest income

Interest income comprises			For the period ended  30 June 2013£000   (unaudited)		For the period ended  30 June 2012 £000(unaudited)		For the year ended 31 Dec 2012 £000 (audited)
Interest income - asset financing			4,898		3,620		7,799
Interest income - deposits			1		1		1
Total			4,899		3,621		7,800

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 four product orientated segments in addition to its investing activities: Asset and Personal Finance (including provision of HP contracts, finance leases, personal loans, commercial loans, 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 six months to 30 June 2013	Asset and Personal Finance			Prepaid Card Division				Wealth Management Division				Investing Activities				Total 30 June 2013
	£000			£000				£000				£000				£000 (unaudited)
Net interest income	3,843			-				-				(167)				3,676
Operating income	2,546			32				700				(167)				3,111
Profit/(loss) before specific items	520			(40)				114				(175)				419
Capital expenditure	92			-				-				-				92
Total assets	79,153			104				529				1,940				81,726

4. Acquisition and restructuring costs

			For the period ended 30 June 2013 £000 (unaudited)		For the period ended 30 June 2012 £000 (unaudited)		For the period ended 31 Dec 2012 £000 (audited)
Acquisition costs Legal, professional and other acquisition costs			-		117		493
Re-organisation of UK and IOM operations Salary and redundancy costs			-		295		371
			-		412		864

Acquisition and restructuring costs in the prior period relate to a re-organisation and rationalisation across the Group.

5. Profit/(loss) per share

			For the period ended  30 June 2013£000   (unaudited)		For the period ended  30 June 2012£000   (unaudited)		For the year ended 31 Dec 2012 £000 (audited)
Profit/(loss) for the period/year Diluted profit/(loss) for the period/year			255 314		(572) (572)		(337) (337)
			Number		Number		Number
Weighted average number of ordinary shares in issue			91,642,072		89,570,252		89,570,252
Diluted weighted average number of ordinary shares in issue Basic profit/(loss) per share Diluted profit/(loss) per share			134,142,072 0.28p 0.23p		89,570,252 (0.64)p (0.64)p		89,570,252 (0.38)p (0.38)p

The basic profit/(loss) per share calculation is based upon profit/(loss) for the period/year after taxation and the weighted average of the number of shares in issue throughout the period/year.  The diluted profit/(loss) per share calculation assumes that all convertible loan notes, warrants and share options have been converted/exercised at the beginning of the period/year where they are dilutive.

6. Profit share on joint lending scheme

On 3 February 2010, a joint lending scheme was entered into by the Bank, being divided up between the parties in a profit sharing ratio. During 2013, two additional joint lending schemes were established. The amount which the other party has received in profits shared is analysed below.

			For the period ended  30 June 2013£000   (unaudited)		For the period ended  30 June 2012£000  (unaudited)		For the year ended 31 Dec 2012£000 (audited)
Scheme One			744		282		1,032
Scheme Two			41		-		-
Scheme Three			26		-		-
			811		282		1,032

7. Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss represents shares in a UK quoted company, designated at fair value through profit or loss on initial recognition. The investment is stated at market value with the difference between cost and market value included within the Condensed Consolidated Statement of Comprehensive Income.

8. Available-for-sale financial assets

			30 June 2013 £000 unaudited)		30 June 2012 £000 (unaudited)		31 Dec 2012 £000(audited)
UK Government Treasury Bills			9,500		8,993		12,484
			9,500		8,993		12,484

UK Government Treasury Bills are stated at fair value and unrealised changes in fair value are reflected in equity.

9. Loans and advances to customers

			30 June 2013 £000(unaudited)		30 June 2012  £000 (unaudited)		31 Dec 2012 £000(audited)
Hire purchases			39,826		35,020		37,072
Finance leases			7,212		3,964		5,847
Litigation funding			883		1,106		899
Unsecured personal loans			4,085		4,401		3,551
Vehicle stocking plans			1,282		1,461		1,404
Block discounting			5,419		3,890		4,601
Secured commercial loans			6,171		2,812		5,121
			64,878		52,654		58,495

10. Trade and other receivables

			30 June  2013 £000(unaudited)		30 June  2012 £000 (unaudited)		31 Dec  2012 £000 (audited)
Trade debtors			110		121		53
Prepayments and other debtors			211		346		733
VAT claim			466		684		466
VAT recoverable/(payable)			454		112		(9)
			1,241		1,263		1,243

Included in trade and other receivables is an amount of £466,000 (2011: £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 was neither fair nor reasonable, specifically regarding the attribution of part of the residual input tax relating to the HP business not being considered as a taxable supply. Queries have been raised with the Isle of Man Government Customs & Excise Division (C&E), and several reviews of the mechanics of the recovery process were undertaken by the Company's professional advisors.

The decision of the First-Tier Tax Tribunal released 18 August 2011 in respect of Volkswagen Financial Services Limited (UK) Limited v HM Revenue & Customs (TC01401) ("VWFS Decision") added significant weight to the case put by the Bank and a request for a revised Partial Exemption Special Method was submitted in December 2011. The proposal put forward by the Bank was that the revised method would allocate 50% of costs in respect of HP transactions to a taxable supply and 50% to an exempt supply. In addition at this time a Voluntary Disclosure was made as a retrospective claim for input VAT under-claimed in the last 4 years.

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

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

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

11. Creditors and accrued charges

	Notes		30 June   2013 £000 (unaudited)		30 June 2012 £000(unaudited)		31 Dec    2012 £000 (audited)
Creditors and accruals			801		650		2,153
Short-term employee benefits			-		69		-
			801		719		2,153

12. Loan Notes

			30 June  2013  £000   (unaudited)		30 June 2012 £000 (unaudited)		31 Dec  2012 £000 (audited)
Related parties
J Mellon	JM		1,750		1,250		1,750
Burnbrae Limited	BL		1,200		1,200		1,200
Southern Rock Insurance Company Limited	SR		460		-		500
Copper Development Corporation	CDC		500		-		500
Rock Holdings Limited	RH		-		460		460
			3,910		2,910		4,410
Unrelated parties	UP		850		-		100
			4,760		2,910		4,510

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

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

SR - One loan previously consisting of £500,000, maturing on 24 October 2017, paying interest of 7% p.a. Arron Banks, a significant shareholder, holds a 100% stake in SR. The loan was converted into equity on 31 May 2013 at the rate of 4 pence, and remains entitled to 8.3 million warrants at an exercise price of 6 pence. On 24 April 2013 RH assigned its loan to SR.

CDC - Two loans consisting of £350,000, maturing on 5 September 2017 with interest payable of 5% p.a. and £150,000 maturing on 3 October 2017 paying interest of 5% p.a. Denham Eke is a director of CDC.

RH - Previously one loan consisting of £460,000, maturing on 26 February 2015 with interest payable of 9% p.a. The loan is convertible at the rate of 9 pence. RH is linked to Arron Banks. This loan was assigned to SR on 24 April 2013.

UP - Three loans consisting of £100,000, £500,000 and £250,000 maturing on 16 November 2017, 30 May 2018 and 18 June 2018 respectively with interest payable of 5% p.a.

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

13. Goodwill

			30 June 2013 £000(unaudited)		30 June 2012 £000(unaudited)		31 Dec    2012 £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

14. Called up share capital and share premium

Authorised:  Ordinary shares of no par value					Number
At 31 December 2012					150,000,000
At 30 June 2013					150,000,000
Issued and fully paid:  Ordinary shares of no par value					Number		£000
At 31 December 2012 At 30 June 2013					89,570,252 102,070,252		18,433 18,933

15. Regulatory

The Company's wholly owned subsidiaries Conister Bank Limited and Edgewater Associates Limited are licensed by the Isle of Man Government Financial Supervision Commission to undertake banking activity and investment business respectively. The Financial Supervision Commission reviews the appointment of all Directors of both regulated companies.

16. Contingent liabilities

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

17. Litigation

The Bank is vigorously pursuing the repayment of litigation funding loans made to clients of solicitor firms and further litigation may be required in this regard. There is a risk of an adverse outcome in all litigation and the costs and timescale to resolve these matters are uncertain.

18. Post balance sheet disclosures

There are no significant post balance sheet events

19. Approval of interim statements

The interim statements were approved by the Board on 16 August 2013. The interim report will be available from that date at the Group's website - www.mfg.im and at the Registered Office: Clarendon House, Victoria Street, Douglas, Isle of Man, IM1 2LN.

The Group's nominated advisor and broker is Beaumont Cornish Limited, 2^nd Floor, Bowman House, 29 Wilson Street, London, EC2R 7DE.

The Interim and Annual reports along with other supplementary information of interest to Shareholders, are included on our website. The address of the website is www.mfg.im which includes investor relations information and contact details.

 

END

 

 

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