Unaudited interim results

RNS Number : 3895N

Manx Financial Group PLC

28 September 2012

 



FOR IMMEDIATE RELEASE 28^th September 2012

Manx Financial Group PLC

Unaudited Interim Results for the 6 months ended 30 June 2012

Manx Financial Group PLC (LSE: MFX), the financial services Group which includes Conister Bank Limited, Conister Card Services Limited, Edgewater Associates Limited and ECF Asset Finance PLC presents its interim results for the six months ended 30 June 2012.  Copies of the Interim Report can be obtained from our website www.mfg.im.

Contacts: 

Manx Financial Group PLC

Denham Eke, Chief Executive

Tel: [phone]

Britton Financial PR Tim Blackstone Tel: [phone] Beaumont Cornish Limited Roland Cornish/James Biddle 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 2012.

Chairman's Statement

Review of performance

Manx Financial Group PLC

The Group has continued to both maintain existing and attract new deposits in the first six months which have been utilised to fund increased lending. The lack of liquidity in the UK market has allowed us to lend to high quality counterparties at good rates. Interest income has increased to £3.6 million (2011: £3.2 million) and this growth indicates that this income is on course to surpass last year's total for the full year. The same is also true for fee and commission income. Personnel expenses are significantly down due to the recent restructuring exercise within the Group, principally as a result of rationalising recent acquisitions. The full effect of these cost savings will only be evident in the second half.

In the circumstances, it is encouraging that we have made a small profit of £92,000 (2011: loss of £120,000) before specific items (which includes non-recurring and non-cash items). Specific items, however, turn this profit into a loss for the period of £572,000 (2011: loss of £357,000). It is expected that there will be a significant reduction in non-recurring specific items in the remainder of this year and I expect the second half will again show an improved performance as we continue to grow the loan book and reap the benefits of our reduced cost base.

Conister Bank Limited

Interest income has increased by 14.4% to £3.6 million having incurred a similar level of interest expense of £1.1 million (2011: £1.0 million). This generated a net interest income of £2.5 million (2011: £2.2 million).

Good loan book growth of 6% has been achieved since last year end, mainly driven by our new distribution channels which also incur an increase in commission expense. Provisioning levels have continued to remain at a low level due to the quality of our loan book following our strong underwriting criteria. Provisions made for the period were £0.1 million (2011: £0.1 million) and the indications are that they will continue to remain low for the rest of this year.

The one-off VAT recovery booked at the 2011 year end is still being vigorously pursued by the Board. We recently submitted, after discussion with Customs & Excise, a retrospective VAT Claim for £171,000 which will reduce the VAT debtor to £513,000. The balance will follow the decision of the Volkswagen Financial Services Limited case against HM Revenue & Customs which is now scheduled to be heard at the Court of Appeal on 26 October 2012.

Edgewater Associates Limited

Our IFA business continues to operate in difficult trading conditions, particularly with regard to writing new business. Notwithstanding, the business continues to be profitable with a £0.1 million profit for the period (2011: £0.1 million). Edgewater remains insulated against the difficult economic environment within which it operates having had the foresight to move away from a fee based income model to a renewal income basis, a requirement under draft Manx legislation.

Conister Card Services Limited

The extension to our major contract in August 2011 will come to an end in November 2012. The UK prepaid card market has struggled to gain any traction and will be replaced in the near future by mobile connectivity. For this half year, the business recorded a very small loss and with the completion of this contract the business will be wound down. However, we will continue to retain the MasterCard^® licence to utilise when opportunities are presented to the Group.

Our People

We recently welcomed Juan Kelly both to the Board and as Managing Director of Conister Bank Limited and its subsidiaries. Juan has already made a significant contribution to operations, particularly with regard to restructuring the sales, customer service and underwriting functions. The full benefit of these changes will be felt in the coming months.

Additionally, the Group undertook a restructuring exercise within the half year in light of recent acquisitions. Overall, headcount has been reduced by 45% to 53. I would like to thank the Board and particularly our staff for their understanding throughout this process and their continued loyalty and contribution.

Outlook

The outlook of the Group looks increasingly positive with net interest income being on target to exceed 2011's full year result. Our cost base is also falling with personnel expenses seeing a significant reduction. The most significant non-recurring costs have already been borne.

The Board is still determined to pursue growth through increased lending. Organic growth will come through our new distribution channels where we will continue to utilise our excess liquidity. To support organic growth, we will introduce further incremental regulatory capital, of which £1.2 million was received by 31 July 2012. We will also continue to review potential loan book purchases and businesses that operate in profitable niche sectors for acquisition.

I remain confident, in judging current performance, that the Group will return much improved results for the second half of the year, with Conister Bank increasing its profitability. On this basis, the Group is scheduled to become self-sufficient in its capital requirements during 2013.

I would like to thank you for your support as shareholders as we continue to improve the performance of the Group.

Jim Mellon

Executive Chairman

Condensed Consolidated Statement of Comprehensive Income

	Notes		For the period ended  30 June 2012                 £000     (unaudited)		For the period ended.30 June    2011 £000  (unaudited)		For the year ended  31 Dec 2011  £000  (audited)
Interest income	2		3,621		3,164		6,650
Interest expense			(1,076)		(970)		(2,065)
Net interest income	3		2,545		2,194		4,585
Fee and commission income Fee and commission expense			658                 (563)		646               (351)		1,191 (739)
Net trading income			2,640		2,489		5,037
Other operating income			347		510		903
Programme costs			(249)		(227)		(485)
Foreign exchange loss			(5)		(4)		(10)
Operating income	3		2,733		2,768		5,445
Personnel expenses			(1,456)		(1,631)		(3,314)
Other expenses			(1,032)		(1,083)		(2,309)
Provision for impairment on loan assets			(153)		(100)		(463)
Depositors' Compensation Scheme expense			-		(74)		-
Profit/(loss) before specific items			92		(120)		(641)
Acquisition and restructuring costs	4		(412)		(308)		(537)
VAT recoverable			-		-		684
Litigation funding provision release	6		-		343		-
Realised gains on available-for-sale financial assets			14		14		41
Unrealised (loss)/gain on financial assets carried at fair value			(146)		(60)		15
Depreciation			(120)		(115)		(234)
Impairment of goodwill			-		(111)		(111)
Loss before income tax expense			(572)		(357)		(783)
Income tax expense			-		-		-
Loss for the period/year			(572)		(357)		(783)
Other comprehensive income:
Available-for-sale gains taken to equity			5		4		3
Actuarial loss on pension scheme			-		-		(19)
Total comprehensive loss for the period/year attributable to owners			(567)		(353)		(799)
Basic and diluted loss per share (pence)	5		(0.64)		(0.40)		(0.88)

Condensed Consolidated Statement of Financial Position

	Notes		30 June 2012   £000   (unaudited)		30 June 2011                £000   (unaudited)		31 Dec 2011 £000  (audited)
Assets
Cash and cash equivalents			2,598		4,357		2,335
Financial assets at a fair value through profit or loss	7		43		115		189
Available for sale financial instruments	8		8,993		10,289		10,495
Loans and advances to customers	9		52,654		49,934		49,525
Commissions receivable			286		348		234
Property, plant and equipment			820		696		814
Trade and other receivables	10		1,151		410		1,260
Goodwill	13		2,344		2,344		2,344
Total assets			68,889		68,493		67,196
Liabilities
Customer accounts			57,728		56,601		55,910
Creditors and accrued charges	11		607		1,015		855
Pension liability			69		60		79
Loan notes	12		2,910		2,210		2,210
Deferred consideration			492		337		492
Total liabilities			61,806		60,223		59,546
Equity
Called up share capital	14		18,433		18,433		18,433
Profit and loss account and other reserves			(11,350)		(10,163)		(10,783)
Total equity			7,083		8,270		7,650
Total liabilities and equity			68,889		68,493		67,196

Condensed Consolidated Statement of Cash Flows

	Notes		For the period ended 30 June 2012   £000  (unaudited)		For the period ended  30 June 2011  £000   (unaudited)		For the year ended 31 Dec 2011 £000  (audited)
Reconciliation of loss before taxation to operating cash flows
Loss before income tax expense			(572)		(357)		(783)
Unrealised loss/(gain) on financial assets carried at fair value through profit or loss			146		60		(15)
Realised gains on available-for-sale investments			(14)		(14)		(41)
Available-for-sale gains taken to equity			5		4		3
Impairment of goodwill			-		111		111
Loss on disposal of property, plant and equipment			-		-		6
Depreciation charge			120		115		234
Share-based payment expense			-		3		4
Actuarial gain on defined benefit pension scheme taken to equity			-		-		(19)
(Decrease)/increase in pension liability			(10)		-		19
Decrease/(increase) in trade debtors			109		39		(820)
(Decrease)/increase in trade creditors			(248)		28		(123)
(Increase)/decrease in commission debtors			(52)		(111)		3
Net cash outflow from trading activities			(516)		(122)		(1,421)
Increase in loans and advances to customers			(3,129)		(1,467)		(1,058)
Increase in deposit accounts			1,818		3,855		3,165
Cash (outflow)/inflow from operating activities			(1,827)		2,266		686
CASH FLOW STATEMENT
Cash flows from operating activities
Cash (outflow)/inflow from operating activities			(1,827)		2,266		686
Taxation paid			-		-		-
Net cash (outflow)/inflow from operating activities			(1,827)		2,266		686
Cash flows from investing activities
Purchase of tangible fixed assets			(122)		(70)		(323)
Sale of fixed assets			9		20		29
Sale/(purchase) of available-for-sale financial instruments	8		1,503		(2,983)		(3,162)
Payment of deferred consideration on acquisition of subsidiaries			-		(158)		(158)
Acquisition of subsidiaries net of cash required			-		(12)		(32)
Net cash inflow/(outflow) from investing activities			1,390		(3,203)		(3,646)
Cash flows from financing activities
Issue of loan notes			700		500		500
Net cash inflow from financing activities			700		500		500
increase/(decrease) in cash and cash equivalents			263		(437)		(2,460)

Condensed Consolidated Statement of Changes in Equity

			Share Capital		Retained earnings and other reserves		Total 30 June 2012		Total 30 June 2011		Total 31 Dec 2011
			£000		£000		£000 (unaudited)		£000 (unaudited)		£000 (audited)
Balance brought forward			18,433		(10,783)		7,650		8,620		8,620
Loss for the period/year			-		(572)		(572)		(357)		(783)
Other comprehensive income			-		5		5		4		(16)
Transactions with owners:
Shares to be issued			-		-		-		-		(175)
Share-based payment expense			-		-		-		3		4
Balance carried forward			18,433		(11,350)		7,083		8,270		7,650

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 2012 is unaudited.

The interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting". The accounting policies (unless stated otherwise) have been applied consistently with those presented in the Annual Report for the twelve months to 31 December 2011 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 2012£000   (unaudited)		For the period ended  30 June 2011£000   (unaudited)		For the year ended 31 Dec 2011 £000 (audited)
Interest income - asset financing			3,425		3,160		6,643
Interest income - deposits			1		4		7
Total			3,426		3,164		6,650

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 hire purchase contracts, finance leases, personal loans, commercial loans, block discounting and other specialised secured credit facilities); Litigation Finance; a Prepaid Card division, Conister Card Services Limited; and a Wealth Management division, Edgewater Associates Limited. The Group ceased to provide new Litigation Finance lending in June 2007.

For the six months to 30 June 2012	Asset and Personal Finance		Litigation Finance		Prepaid Card Division		Wealth Management Division		Investing Activities		Total 30 June 2012
	£000		£000		£000		£000		£000		£000 (unaudited)
Net interest income	2,633		-		-		-		(88)		2,545
Operating income	2,174		-		49		598		(88)		2,733
Provision for impairment	(143)		(10)		-		-		-		(153)
Profit/(loss) before unallocated items	702		(10)		(23)		15		(88)		596
Group central costs									(504)		(504)
Profit/(loss) before specific items	702		(10)		(23)		15		(592)		92
Capital expenditure	118		-		-		4		-		122
Total assets	67,152		1,106		157		474		-		68,889
Total liabilities and equity	67,104		1,106		-		610		69		68,889

4. Acquisition and restructuring costs

			For the period ended 30 June 2012 £000 (unaudited)		For the period ended 30 June 2011 £000 (unaudited)		For the period ended 31 Dec 2011 £000 (audited)
Acquisition costs Legal and professional fees			117		-		-
Restructuring costs Redundancy costs			295		308		537
			412		308		537

Acquisition and restructuring costs in the current period relate to restructuring in the Group and professional fees incurred for prospective acquisitions that were not proceeded with. In the prior periods restructuring costs related to the purchase of Edgewater Associates Limited and ECF Asset Finance PLC and to the restructuring of the UK operation.

5. Loss per share

			For the period ended  30 June 2012 £000   (unaudited)		For the period ended  30 June 2011£000   (unaudited)		For the year ended 31 Dec 2011  £000  (audited)
Loss for the period/year			(572)		(357)		(783)
			Number		Number		Number
Weighted average number of ordinary shares in issue			89,570,252		88,824,754		89,213,979
Basic and diluted loss per share			(0.64)p		(0.40)p		(0.88)p

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

There is no difference between basic and diluted loss per share.

6. Litigation funding provision release

For the period ended 30 June 2011, due to a change in estimates with respect to the litigation funding provisions, £343,000 of interest was released.

In keeping with analysing specific items in the statement of comprehensive income within the period, the £343,000 has been re-classified from interest income to a separate line item of litigation funding provision release.

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 2012 £000  (unaudited)		30 June2011 £000   (unaudited)		31 Dec2011 £000(audited)
UK Government Treasury Bills			8,993		10,289		10,495
			8,993		10,289		10,495

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 2012   £000   (unaudited)		30 June 2011 £000   (unaudited)		31 Dec 2011 £000 (audited)
Hire purchase balances			35,020		28,563		33,186
Finance lease balances			3,964		7,011		5,012
Litigation funding			1,106		1,543		1,137
Unsecured personal loans			4,401		4,243		2,965
Vehicle stocking plans			1,461		1,503		1,397
Block discounting			3,890		3,184		3,715
Secured commercial loans			2,812		3,887		2,113
			52,654		49,934		49,525

10. Trade and other receivables

			30 June 2012 £000   (unaudited)		30 June 2011 000(unaudited)		31 Dec 2011 £000 (audited)
Trade debtors			121		185		114
Prepayments and other debtors			346		225		462
VAT recoverable			684		-		684
			1,151		410		1,260

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

Conister Bank Limited (the Bank), as the Group VAT registered entity, has for some time considered the VAT recovery rate being obtained by the business was neither fair nor reasonable, specifically regarding the attribution of part of the residual input tax relating to the hire purchase 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 Bank'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. HM Revenue & Customs have appealed the decision. The proposal put forward by the Bank is that the revised method would allocate 50% of costs in respect of hire purchase 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.

Discussions regarding the retrospective claim are ongoing. However, there has been an acknowledgment that the old Partial Exemption Special Method was neither fair nor reasonable, and the revised Partial Exemption Special Method has been agreed to be not unreasonable but is unlikely to be agreed prior to the appeal being heard. C&E have also confirmed that they are happy for this method to have been applied in Quarter 4 2011, and to apply to future returns pending approval. Should the Bank's revised method not be accepted by C&E once the reclaim has been concluded on, then the additional VAT reclaimed under this method will be repayable.

On the basis of the discussions and correspondence with C&E in addition to the VWFS Decision, the Directors believe that the VAT claimed retrospectively will be secured.

11. Creditors and accrued charges

	Notes		30 June 2012 £000   (unaudited)		30 June 2011£000   (unaudited)		31 Dec 2011 £000 (audited)
Creditors and accruals			650		741		698
Short-term employee benefits			69		90		76
VAT (recoverable)/payable	10		(112)		184		81
			607		1,015		855

12. Loan Notes

On 2 May 2012 and 27 June 2012, £300,000 and £400,000 was advanced by Burnbrae Limited respectively. £500,000 of loans previously had been advanced on 21 December 2011, bringing the total advanced by Burnbrae to £1.2m. The terms of these advances are 7%p.a. interest payable in arrears every quarter, to be repaid in 5 years after the drawdown date and no later than 31 July 2017. The loans can also be converted to equity at the rate of 4 pence from the first day after the settlement date until the sixth day prior to the maturity date.

On 3 March 2010 MFG entered into a convertible loan agreement with J Mellon for £1.25 million. The loan is convertible into shares from the first anniversary of the loan drawdown at 9 pence per share and bears interest until conversion at a rate of 9% p.a. MFG also entered into an identical agreement with Rock Holdings Limited for £0.46 million on 26 March 2010. Both loans are to be repaid on 26 February 2015. No amounts have been exercised as at the date of these Interim Financial Statements.

13. Goodwill

			30 June 2012 £000   (unaudited)		30June 2011 £000(unaudited)		31 Dec 2011 £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 2011					150,000,000
At 30 June 2012					150,000,000
Issued and fully paid:  Ordinary shares of no par value					Number		£000
At 30 June 2012					89,570,252		18,433

15. Regulatory

The Company's wholly owned subsidiary Conister Bank Limited is licensed to undertake banking activity by the Isle of Man Government Financial Supervision Commission. The Financial Supervision Commission reviews the appointment of all Directors of Conister Bank Limited.

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 other solicitor firms and further litigation may be required in this regard. Counter claims have been received and there is the possibility of litigation being necessary. 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

On 31 July 2012, Burnbrae Limited advanced an additional £0.5m of loan notes to the Group under the same terms as disclosed in note 12. This increased Burnbrae Limited's loan advance total to £1.7m.

19. Approval of interim statements

The interim statements were approved by the Board on 26 September 2012. The interim report will be available from that date at the Group's Registered Office: Clarendon House, Victoria Street, Douglas, Isle of Man, IM1 2LN and at the Group's website - www.mfg.im.

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.

 

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