Final Results

RNS Number : 4385R

Manx Financial Group PLC

30 June 2020

 

FOR IMMEDIATE RELEASE  30 June 2020

Manx Financial Group PLC (the 'Company')

Report and accounts for the year ended 31 December 2019

Manx Financial Group PLC (LSE: MFX), the financial services group which includes Conister Bank Limited, Edgewater Associates Limited and Manx FX Limited presents its audited, final results for the year ended 31 December 2019.

Jim Mellon, Executive Chairman, commented: "I am pleased to announce that the outcome for 2019 showed a significant increase in profitability in comparison to 2018, finishing the year with an 11.54% uplift. We continued to strengthen our balance sheet with a significant increase in liquidity which has prepared us well for dealing with the issues surrounding COVID-19. The share buy-back and subsequent cancellation earlier this year has both eradicated market uncertainty and also increased the basic net asset value per share for the benefit of all shareholders. Whilst it is still too early to predict the full year outcome for 2020, we are as well placed as any to deal with changes in the economic outlook for both the Isle of Man and the UK."

The 2019 Audited Annual Report and Accounts is being posted to Shareholders and will be available from the Company's website  www.mfg.im  shortly.

Contacts:

Manx Financial Group PLC

Denham Eke, Chief Executive

Tel: [phone]

Beaumont Cornish Limited

Roland Cornish/James Biddle

Tel: [phone]

Britton Financial PR

Tim Blackstone

Tel: [phone]

Chairman's Statement

Dear Shareholders

Introduction

Normally, it would be pleasing to announce that 2019 produced record results, with pre-tax profit increasing by 11.5% to £3.0 million (2018: £2.7 million) and profit after tax increasing by 8.4% to £2.7 million (2018: £2.5 million). However, it would be remiss of me, in the publication of these encouraging figures, to not comment on the impact, both here and across the world, of COVID-19. Government actions to stop the spread of the virus have, in turn, led to a cessation of economic activity in many sectors which, despite unprecedented financial support, will clearly take some time to recover to their previous levels. As a consequence, I have delayed the publication of these accounts to enable me to provide as much clarity as possible on the potential effect of COVID-19 to the Group and its subsidiaries.

As a Group, we are as well prepared as possible for the financial impact of the virus on our operations and, thankfully over the years, we have been cautious in our provisioning and understood the need to maintain maximum liquidity. I will return to this topic later in my report.

Our 2019 results show operating income increasing by 28.1% to £16.9 million (2018: £13.2 million), which includes a 15.2% growth in our net interest income to £17.9 million (2018: £15.6 million) and a further reduction of 11.2% in commission expense to £5.4 million (2018: £6.1 million). These figures represent the effect of a record year for gross new business origination of £153.8 million (2018: £102.1 million), an increase of 50.6%.

Against this, our operating expenses ex-provisions have grown by 24.4% to £11.9 million (2018: £9.6 million), the majority of which reflects the continuing investment in our UK expansion. In line with our continuing policy of reviewing Conister Bank's loan book, we have increased provisions by a further £1.9 million (2018: £0.9 million). Thus, in balance sheet terms, our cumulative provisions of £4.8 million (2018: £3.4 million) against the net loan book stand at only 2.7% (2018: 2.3%) - further confirming the strength of Conister Bank's credit underwriting. Despite our strategic investment in UK expansion, our operating cost (less provisions) to operating income ratio has improved to 70.8% (2018: 72.9%).

Turning to our balance sheet, our loan book has grown by 21.0% to £179.4 million (2018: £148.3 million) which, whilst not quite the growth that I was anticipating, is still a notable achievement. I previously mentioned that we have taken steps to increase Conister Bank's liquidity, and our cash and near cash has increased by 52.4% to £61.4 million (2018: £40.3 million), taking advantage of lower interest rates and, as a consequence, our customer deposits have grown by 32.4% to £209.9 million (2018: £158.5 million). Our net interest yield on deposits at 10.0% remains much the same as the previous year (2018: 10.5%) despite our gain in liquidity. Thus, our total asset base has increased by 28.4% to £252.9 million (2018: £196.9 million).

Shareholder equity has increased by 13.2% to £22.3 million (2018: £19.7 million) and basic earnings per share have grown to 1.98 pence (2018: 1.88 pence).

Our key objectives for 2020

Turning to the current year, our fundamental focus is the protection of shareholder value. Thus, following a recent review, our strategic concentration is to:

n Provide the highest quality service throughout our operations to all customers, ensuring that their treatment is both fair and appropriate;

n Adopt a pro-active strategy of managing risk within a structured compliant regime;

n Concentrate on developing our core business by considered acquisitions, increasing prudential lending and augmenting the range of financial services we offer;

n Implement an enhanced and scalable IT infrastructure to better service the operational requirements of a growing Group without the requirement for a disproportionate increase in headcount and other associated operational costs;

n Focus on improving the return on the liabilities side of our balance sheet by developing the newly introduced Treasury management function and structure; and

n Manage our balance sheet to exceed, as far as possible, the regulatory requirements for capital adequacy.

Risk and Governance

Immediately following this Statement, I detail our approach to risk and governance, including an assessment of the business models and strategies of our operating subsidiaries. In particular, I set out our perceived risks and how these are managed, together with a review of our regulatory compliance and also how we meet the requirements of the QCA Code which we adopted last year. Rather than reiterate these methodologies at this point, I would ask that you take the opportunity to review these topics in conjunction with my report.

Operating subsidiaries

Conister Bank Limited (the "Bank")

For some time, we have believed our VAT recovery rate was neither fair nor reasonable. I am pleased to report that the decision by the European Union in favour of Volkswagen Financial Services (UK) Limited versus the UK's HMRC will allow progress to be made in recovering our outstanding debtor: this figure now stands at £0.91 million (2018: £1.05 million). I would expect good progress to be made this year to conclude this matter.

Our strategy to increase lending in our two geographical areas has continued to prove successful. Advances during the year more than doubled the level achieved just two years ago, with lending £51.7 million ahead of last year at £153.8 million (2018: £102.1 million). Of particular note were our Isle of Man advances, which grew by 15.8% to £31.6 million (2018: £27.3 million) and our new Newbury office which advanced £117.4 million (2018: £72.7 million). The Group's recently acquired broker Bluestar Solutions Limited, having integrated well into the Bank's operating structure, generated advances £2.7 million ahead of last year at £4.8 million (2018: £2.1 million). This growth has not been at the cost of asset quality with the performing loan book being a commendable 97.4% (2018: 97.8%). Our net loan book grew by 20.8% to £179.4 million (2018: £148.3 million). This led to interest income increasing by £3.2 million to £22.4 million (2018: £19.2 million).

Our Isle of Man deposit base remains very loyal and during the year we achieved record monthly retention rates which is a tribute to our customers, our people and our new systems. With deposits increasing by £51.4 million to £209.9 million (2018: £158.5 million) we continue to have ample deposits to fund our growth ambitions. Although in the short term this has negatively impacted our Loan to Deposit ratio, normally a key efficiency measure, 85.6% (2018: 93.9%). This prudent growth in deposits increased our interest expense by £0.8 million to £4.8 million (2018: £4.0 million).

I have discussed over the last few years the need to reduce our dependence on overly expensive introducers and I am pleased to report continued progress on this matter despite the 50.6% increase in advances. During the period our commissions paid reduced by 7.1% to £5.7 million (2018: £6.1 million).

As a result of the above our net trading income increased by 31.1%, £2.8 million, to £11.9 million (2018: £9.1 million) which led operating income also increasing by 30.7%, £2.9 million, to £12.4 million (2018: £9.5 million).

Overheads increased by £1.0 million to £7.2 million (2018: £6.2 million) reflecting the first full year of our Newbury office and the continued bolstering of our control functions. With our loan book increasing, provisioning increased in the year by £1.0 million to £1.9 million (2018: £0.9 million). Depreciation increased by £0.3 million (2018: £0.0 million) driven by accounting for leases in relation to a structured product counterparty. Other costs netted to zero year on year. Thus, in total the cost base increased by £2.5 million to £9.8 million (2018: £7.3 million).

For the year, profit before taxation increased by 18.0%, £0.4 million, to £2.6 million (2018: £2.2 million).

Total assets, driven by treasury and net loan book growth, increased by 28.7%, £55.0 million, to £245.7 million (2018: £190.7 million). During the year we continued to improve the capitalisation of the Bank by increasing the called-up share capital by a further £1.7 million to £10.8 million (2018: £9.1 million). Shareholder funds increased by 18.1%, £3.8 million, to £25.0 million (2018: £21.2 million). 

Edgewater Associates Limited ("EAL")

Our independent financial advisory business remains the largest on the Isle of Man and had a satisfactory year despite strategic headwinds from both a legislative and VAT perspective. Both of these issues were dealt with in the year and the business is now positioned for further growth knowing its competitors have still to navigate these matters. Such uncertainties will create opportunities for EAL which I would expect to be reflected in its performance in the coming year.

A key internal measure, which is driven by customer satisfaction, is renewal income as a percentage of operating income. This year I am pleased to report it has increased by 4.0% to 43.6% (2018: 39.6%) as our dedicated staff continued to deliver unparalleled service in this sector. Renewal income of £1.1 million (2018: £1.0 million) was supported by an improved performance by our general insurance team. This helped to offset a small dip in new business of £0.1 million to £1.2 million (2018: £1.3 million) as uncertainties to changes in pension legislation led to a temporary halt in new pension business. Operating income remained stable at £2.5 million (2018: £2.5 million). With costs decreasing by 5.8%, £0.1 million, to £2.1 million (2018: £2.2 million) EAL's underlying profit for the year increased by 26.5%, £0.1 million, £0.5 million (2018: £0.4 million). After a one-off VAT repayment, the profit for the year was £0.2 million (2018: £0.2 million).

Total assets decreased by 1.4% to £3.1 million (2018: £3.2 million).

Manx FX Limited ("MFX")

Our fledgling foreign exchange business continues to perform well with performance slightly ahead of last year. The business is prudently increasing its customer base and considering new products and territories to operate within. I still expect volatility in the results of MFX until it achieves its aim of broadening its client base.

Income increased by 4.6% to £0.8 million (2018: £0.8 million) and costs were in line with last year. Profit for the year increased by 2.4% to £0.5 million (2018: £0.5 million).

The business has a very liquid balance sheet and declared both an interim dividend, £0.4 million, and a final dividend of £0.7 million in the year.

An update on the provision of a dividend

In the last Chairman's Statement, I discussed the need for the Group to reward shareholders with a dividend. Unfortunately, the advent of COVID-19 has meant that our regulators are keen to ensure that we preserve as much of our capital within the Group and the Bank as possible. As a result, we are working on a scheme whereby shareholders will be eligible for a script-based payment, with the intention of rewarding long-term holders. I expect to announce the details of this scheme later this year.

Post Period Events

Beer Swaps Limited ("BSL")

The agreement entered into with BSL in 2018 included an option to acquire the remaining shares by April 2021. The Bank acquired further shares in BSL to increase its ordinary shareholding to 75% for a cash consideration of approximately £0.5 million. In addition, the Bank simplified the capital structure of BSL by repaying all director loans, being £0.1 million, and all issued preference shares, being £0.2 million. For the year ended 31 March 2019, BSL reported turnover of £0.4 million and a profit before tax of £0.1 million with net assets of £0.2 million. I am pleased to note that this is yet another successful purchase and integration which bodes well for our future acquisition strategy.

April 2020 EGM

At the Group's EGM on 9 April 2020, two resolutions were considered by shareholders: firstly, to allow the buyback and cancellation of 16,966,158 ordinary shares in return for entering into a £1.6 million loan; and then to consider a request to waive Rule 9 of the Takeover Code. Both of these resolutions were passed with significant majorities. As a result, the Group has been able to eliminate the selling overhang of the shareholdings associated with Southern Rock which had been depressing the Group's share price since the announcement of an intention of sale made in November 2018. The share cancellation has had a positive effect on the calculation of net asset value per share which is to the benefit of all shareholders.

Board Changes

Following the EGM, John Banks stepped down from the Board and I would like to take this opportunity to thank him for his invaluable contribution in the time that he was with us and wish him well for the future. In May 2020, we welcomed John Spellman who has joined the boards of both the Group and the Bank. John's commercial experience will be invaluable as we continue to grow the businesses, both in the Isle of Man and UK.

Outlook

The Group's response to COVID-19 was carefully considered and professionally executed with the wellbeing of our staff, their families, and our customers being our principal concern. We deployed our working from home strategy which has allowed the business to continue to function seamlessly for all of our customers for the last ten weeks. As I write, the Isle of Man has had no further cases for thirty seven consecutive days with life returning to much as normal, but with our borders shut. The Bank, in conjunction with the Island's principal clearing banks, has worked very successfully with the Isle of Man Treasury in the provision of disruption loans to those businesses facing financial challenges. These loans are at advantageous terms and are 80% Government backed.

Unfortunately, the situation in the UK, whilst clearly improving, is still somewhat concerning. Conister Finance & Leasing, a subsidiary of the Bank, is working with its clients to obtain the relevant UK Government's business support packages.

Trading for the initial three months of the year was strong in all areas, but as the year progressed, a number of our loan customers have found difficulty in meeting their initial terms. As a result, we are now in continual dialogue with these customers to help them through any unforeseen economic shock. However, the Bank's response has not been confined to forbearance and renegotiation, but has extended to respecting the commitments made to our customers and remaining open for new business. Whilst we have continued with our conservative approach to provisioning, I am pleased to note that recently our clients' circumstances appear to be improving, especially in the Isle of Man where new business acquisition continues apace.

Almost all commentators predict a forthcoming recession in the UK, with the impact of COVID-19 together with Brexit making any realistic assessment almost impossible. Our current view is that it will take some time before the economy becomes stable and, as a result, we anticipate that it will be well into the first half of 2021 before confidence returns.

The earlier slowdown in new advances will, in turn, lead to a reduction in our income interest. The acceptance of forbearance requests will also impact the income statement. As a result, we anticipate that our net loan book will reduce. Factoring this into our planning, we have built up our liquidity to the highest level that we are able, ensuring that we are well placed to take advantage of all lending opportunities. Additionally, any reduction in our net loan book will further improve our regulatory capital ratios.

In short, the financial impact of the virus on the full year's figures is still too uncertain to provide any reliable guidance but our strong cash reserves and diverse income streams will prove valuable assets in the forthcoming months.

I would like to thank my fellow Board members, the Group's executive team and staff for their continued contribution to our ongoing business. I would also like to thank our shareholders and customers for their continued support.

Jim Mellon

Executive Chairman

26 June 2020

         CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
          COMPREHENSIVE INCOME

For the year ended 31 December	Notes			2019 £000				2018 £000
Interest income				22,320				19,115
Interest expense				(4,391)				(3,547)
Net interest income	10			17,929				15,568
Fee and commission income	11			3,796				3,371
Fee and commission expense	11			(5,426)				(6,109)
Net trading income				16,299				12,830
Other operating income				308				131
Loss on trading asset	21			(1)				(4)
Realised gains on debt securities	20			179				135
Terminal funding	12			80				74
Operating income				16,865				13,166
Personnel expenses	13			(6,762)				(5,703)
Other expenses	14			(4,135)				(3,465)
Impairment on loans and advances to customers	15			(1,900)				(857)
Depreciation	24			(638)				(184)
Amortisation and impairment of intangibles	25			(430)				(396)
Share of profit of equity accounted investees, net of tax	32			124				30
VAT recovery	23			(101)				119
Profit before tax payable	16			3,023				2,710
Income tax expense	17			(350)				(243)
Profit for the year				2,673				2,467
Other comprehensive income:
Items that will be reclassified to profit or loss
Unrealised gains on debt securities	20			51				44
Items that will never be reclassified to profit or loss
Actuarial loss on defined benefit pension scheme taken to equity	30			(128)				(50)
Total comprehensive income for the period attributable to owners				2,596				2,461
Earnings per share - Profit for the year
Basic earnings per share (pence)	18			2.04				1.88
Diluted earnings per share (pence)	18			1.66				1.54
Earnings per share - Total comprehensive income for the year
Basic earnings per share (pence)	18			1.98				1.88
Diluted earnings per share (pence)	18			1.62				1.54
The Directors believe that all results derive from continuing activities.

         COMPANY STATEMENT OF PROFIT OR LOSS AND OTHER
         COMPREHENSIVE INCOME

For the year ended 31 December	Notes			2019 £000				2018 £000
Dividend income				1,466				-
Interest income				564				466
Operating income				2,030				466
Personnel expenses				(146)				(177)
Administration expenses				(100)				(132)
Depreciation expense				(101)				(41)
Profit before tax payable	16			1,683				116
Tax payable				-				-
Profit for the year				1,683				116
Total comprehensive income for the year				1,683				116
The Directors believe that all results derive from continuing activities.

          CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY

As at 31 December	Notes				2019 £000		2018 £000
Assets
Cash and cash equivalents	19				14,620		9,753
Debt securities	20				46,792		30,534
Trading asset	21				19		20
Loans and advances to customers	22				179,370		148,278
Trade and other receivables	23				2,478		2,491
Property, plant and equipment	24				3,299		1,384
Intangible assets	25				2,293		1,952
Goodwill	32				3,734		2,344
Investment in associates	32				282		158
Total assets					252,887		196,914
Liabilities
Deposits from customers	26				209,933		158,500
Creditors and accrued charges	27				2,972		2,010
Contingent consideration	32				863		-
Block creditors	28				-		138
Loan notes	29				15,971		15,871
Pension liability	30				688		584
Deferred tax liability	17				141		88
Total liabilities					230,568		177,191
Equity
Called up share capital	31				20,732		20,732
Profit and loss account					1,587		(1,009)
Total equity					22,319		19,723
Total liabilities and equity					252,887		196,914

The financial statements were approved by the Board of Directors on 29 June 2020 and signed on its behalf by:

Jim Mellon                          Denham Eke                        Douglas Grant

Executive Chairman  Chief Executive Officer  Group Finance Director

CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY  

As at 31 December	Notes						2019 £000		2018 £000
Assets
Cash and cash equivalents	19						119		1,646
Trade and other receivables	23						231		32
Amounts due from Group undertakings	32						1,016		-
Property, plant and equipment	24						450		126
Intangible assets							7		-
Investment in Group undertakings	32						17,822		16,172
Subordinated loans	32						7,778		7,778
Total assets							27,423		25,754
Liabilities
Creditors and accrued charges	27						575		94
Amounts due to Group undertakings	32						775		1,370
Loan notes	29						15,971		15,871
Total liabilities							17,321		17,335
Equity
Called up share capital	31						20,732		20,732
Profit and loss account							(10,630)		(12,313)
Total equity							10,102		8,419
Total liabilities and equity							27,423		25,754

Group			Share capital £000		Profit and loss account £000		Total equity £000
Balance as at 1 January 2018			20,732		(3,470)		17,262
Profit for the year			-		2,467		2,467
Other comprehensive income			-		(6)		(6)
Transactions with owners			-		-		-
Balance as at 31 December 2018			20,732		(1,009)		19,723
Profit for the year			-		2,673		2,673
Other comprehensive income			-		(77)		(77)
Transactions with owners			-		-		-
Balance as at 31 December 2019			20,732		1,587		22,319

* The Group has initially applied IFRS 16 at 1 January 2019, using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative effect of initially applying IFRS 16 is recognised in retained earnings at the date of initial application. See Note 5 for further details.

Company			Share Capital £000		Profit and loss account £000		Total equity £000
Balance as at 1 January 2018			20,732		(12,429)		8,303
Profit for the year			-		116		116
Transactions with owners			-		-		-
Balance as at 31 December 2018			20,732		(12,313)		8,419
Profit for the year			-		1,683		1,683
Transactions with owners			-		-		-
Balance as at 31 December 2019			20,732		(10,630)		10,102

For the year ended 31 December	Notes		2019 £000		2018 £000
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
Profit before tax			3,023		2,710
Adjustments for:
Depreciation	24		638		184
Amortisation and impairment of intangibles	25		430		396
Realised gains on debt securities	20		(179)		(135)
Share of profit of equity accounted investees	32		(124)		(30)
Contingent consideration interest expense	32		88		-
Pension charge included in personnel costs	30		17		15
			3,893		3,140
Changes in:
Trading asset	21		1		4
Trade and other receivables			118		(583)
Creditors and accrued charges			144		(1,169)
Net cash flow from trading activities			4,156		1,392
Changes in:
Loans and advances to customers			(31,092)		(25,732)
Deposits from customers			51,433		16,228
Pension contribution	30		(41)		(41)
Cash inflow / (outflow) from operating activities			24,456		(8,153)

CASH FLOW STATEMENT
Cash from operating activities
Cash inflow / (outflow) from operating activities			24,456		(8,153)
Income taxes paid			(379)		(182)
Net cash inflow / (outflow) from operating activities			24,077		(8,335)
Cash flows from investing activities
Purchase of property, plant and equipment	24		(1,634)		(1,118)
Purchase of intangible assets	25		(132)		(629)
Sale of tangible fixed assets	24		107		-
Acquisition of subsidiary or associate, net of cash acquired	32		(1,337)		(90)
(Sale) / purchase of debt securities	20		(16,028)		3,917
Net cash (outflow) / inflow from investing activities			(19,024)		2,080
Cash flows from financing activities
Receipt of loan notes	29		100		6,876
Payment of lease liabilities (capital)	5		(148)		-
Decrease in borrowings from block creditors	28		(138)		(613)
Net cash (outflow) / inflow from financing activities			(186)		6,263
Net increase in cash and cash equivalents			4,867		8
Cash and cash equivalents at 1 January			9,753		9,745
Cash and cash equivalents at 31 December			14,620		9,753
Included in cash flows are:
Interest received - cash amounts			21,441		18,362
Interest paid - cash amounts			(4,251)		(3,434)
For the year ended 31 December	Notes		2019 £000		2018 £000
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
Profit before tax			1,683		116
Adjustments for:
Depreciation	24		101		41
Dividend declared			(1,466)		-
			318		157
Changes in:
Amounts due from group undertakings			-		16
Trade and other receivables			(199)		(10)
Creditors and accrued charges			98		(45)
Amounts due to group undertakings			(595)		(1,147)
Cash outflow from operating activities			(378)		(1,029)
CASH FLOW STATEMENT
Cash from operating activities
Cash outflow from operating activities			(378)		(1,029)
Income taxes paid			-		-
Net cash outflow from operating activities			(378)		(1,029)
Cash flows from investing activities
Dividend received			450		-
Increase in investment in group undertakings	32		(1,650)		(2,400)
Issue of subordinated loans	32		-		(2,000)
Purchase of intangible assets			(7)		-
Net cash outflow from investing activities			(1,207)		(4,400)
Cash flows from financing activities
Receipt of loan notes	29		100		6,875
Payment of finance lease liability			(42)		-
Net cash inflow from financing activities			58		6,875
Net (decrease) / increase in cash and cash equivalents			(1,527)		1,446
Cash and cash equivalents at 1 January			1,646		200
Cash and cash equivalents at 31 December			119		1,646
Notes to the accounts

1.  Reporting entity

Manx Financial Group PLC is a company incorporated in the Isle of Man. The consolidated financial statements of Manx Financial Group PLC (the "Company") for the year ended 31 December 2019 comprise the Company and its subsidiaries (the "Group").

2.  Basis of accounting

The consolidated and the separate financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations applicable to companies reporting under IFRS, including International Accounting Standards ("IAS").

This is the first set of the Group's annual financial statements in which IFRS 16 Leases has been applied. Changes to significant accounting policies are described in Note 5.

3.  Functional and presentation currency

These financial statements are presented in pounds sterling, which is the Group's functional currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated. All subsidiaries of the Group have pounds sterling as their functional currency.

4.  Use of judgements and estimates

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties at year-end that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities in the next financial year is included in the following notes:-

n Note 23 - measurement of VAT receivable: key assumptions underlying carrying amount;

n Note 30 - measurement of defined benefit obligations: key actuarial assumptions;

n Note 25 and 32 - impairment test of intangible assets and goodwill: key assumptions underlying recoverable amounts; and

n Note 38(G)(vii) - measurement of Expected Credit Loss ("ECL") allowance for loans and advances to customers and assessment of specific impairment allowances where loans are in default or arrears: key assumptions in determining the weighted-average loss rate;

n Note 32 - Measurement of contingent consideration.

5.  Changes in accounting policies

Except for the changes below, the Group has consistently applied the accounting policies as set out in Note 38 to all periods presented in these financial statements.

IFRS 16 Leases

The Group has initially adopted IFRS 16 Leases from 1 January 2019. A number of other new standards are effective from 1 January 2019 but they do not have a material effect on the Group's financial statements.

IFRS 16 introduced a single, on-balance sheet accounting model for lessees. As a result, the Group, as a lessee, has recognised right-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligation to make lease payments. Lessor accounting remains similar to previous accounting policies.

The Group has applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings as at 1 January 2019. Accordingly, the comparative information presented for 2018 has not been restated. Therefore, it is presented as previously reported under IAS 17 and related interpretations. The details of the changes in accounting policies are disclosed below.

A. Definition of a lease

Previously, the Group determined at contract inception whether an arrangement was or contained a lease under IFRIC 4 Determining Whether an Arrangement contains a Lease. The Group now assesses whether a contract is, or contains, a lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.

On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts entered into or changed on or after 1 January 2019.

B. As a lessee

The Group leases many assets, including properties and IT equipment.

As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under IFRS 16, the Group recognises right-of-use assets and lease liabilities for most leases, that is these leases are presented on the Statement of Financial Position.

However, the Group has elected not to recognise right-of-use assets and lease liabilities for some leases of low-value assets. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. The Group presents right-of-use assets and lease liability separately on the Statement of Financial Position.

i. Significant accounting policies

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, and subsequently at cost less accumulated depreciation and impairment loss and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

The lease liability is subsequently increased by the interest cost of the lease liability and decreased by the lease payment made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised, or a termination option is reasonably certain not to be exercised.

The Group has applied judgment to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognised.

ii. Impacts on transition

Previously, the Group classified property leases as operating leases under IAS 17. The leases typically run for a period of 10 years. The operating lease commitment relating to these leases at 31 December 2018 as disclosed in the Group's consolidated financial statements was £1,166,000 (see note 34).

At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group's incremental borrowing rate as at 1 January 2019. The weighted average rate applied is 5.5% per annum.

Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of net prepaid and accrued lease payments of £118,234.

The impact on transition is summarised below.

As at 1 January 2019			£000
Right-of-use assets			737
Net accrued operating lease payments			118
Lease liabilities			(855)
Retained earnings			-

iii. Impacts for the year

Right-of-use assets

The carrying amount of right-of-use assets at the end of the year is as follows:

			Property £000		Right-of-use assets £000
Balance at 1 January 2019			737		737
Depreciation expense			(165)		(165)
Balance at 31 December 2019			572		572

Lease liability

The carrying amount of lease liability at the end of the year is as follows:

			Property £000		Right-of-use assets £000
Balance at 1 January 2019			855		855
Interest expense			47		47
Rent payment			(195)		(195)
Balance at 31 December 2019			707		707

The Group has classified cash payments for the principal portion of lease payments as financing activities.

iv. Exemptions taken

The Group used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17:

n Applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term; and

n Exclude initial direct costs from measuring the right-of-use asset at the date of initial application.

C. As a lessor

The accounting policies applicable to the Group as a lessor are not different from those under IAS 17.

The Group is not required to make any adjustments on transition to IFRS 16 for leases in which it acts as a lessor.

6. Classification of financial assets and financial liabilities

For description of how the Group classifies financial assets and liabilities, see Note 38(G)(ii).

The following table provides reconciliation between line items in the statement of financial position and categories of financial instruments.

		Mandatorily at FVTPL	Designated as at FVTPL	FVOCI - debt instruments	FVOCI - equity instruments	Amortised cost	Total carrying amount
31 December 2019		£000	£000	£000	£000	£000	£000
Cash and cash equivalents		-	-	-	-	14,620	14,620
Debt securities		-	-	46,792	-	-	46,792
Trading assets		19	-	-	-	-	19
Loans and advances to customers		-	-	-	-	179,370	179,370
Trade and other receivables		-	-	-	-	2,478	2,478
Total financial assets		19	-	46,792	-	196,468	243,279
Deposits from customers		-	-	-	-	209,933	209,933
Creditor and accrued charges		-	-	-	-	2,972	2,972
Block creditors		-	-	-	-	-	-
Loan notes		-	-	-	-	15,971	15,971
Total financial liabilities		-	-	-	-	228,876	228,876

		Mandatorily at FVTPL	Designated as at FVTPL	FVOCI - debt instruments	FVOCI - equity instruments	Amortised cost	Total carrying amount
31 December 2018		£000	£000	£000	£000	£000	£000
Cash and cash equivalents		-	-	-	-	9,753	9,753
Debt securities		-	-	30,534	-	-	30,534
Trading assets		20	-	-	-	-	20
Loans and advances to customers		-	-	-	-	148,278	148,278
Trade and other receivables		-	-	-	-	2,491	2,491
Total financial assets		20	-	30,534	-	160,522	191,076
Deposits from customers		-	-	-	-	158,500	158,500
Creditor and accrued charges		-	-	-	-	2,010	2,010
Block creditors		-	-	-	-	138	138
Loan notes		-	-	-	-	15,871	15,871
Total financial liabilities		-	-	-	-	176,519	176,519

7. Fair value of financial instruments

For description of the Group's fair value measurement accounting policy, see Note 38(G)(vi).

The following table analyses financial instruments measured at fair value at the reporting date, by the level in the fair value hierarchy into which the fair value measurement is categorised. The amounts are based on the values recognised in the statement of financial position.

31 December 2019	Level 1 £000		Level 2 £000		Level 3 £000		Total £000
Debt securities	46,792		-		-		46,792
Trading assets	19		-		-		19
	46,811		-		-		46,811

31 December 2018	Level 1 £000		Level 2 £000		Level 3 £000		Total £000
Debt securities	30,534		-		-		30,534
Trading assets	20		-		-		20
	30,554		-		-		30,554

Financial instruments not measured at fair value

The following table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hierarchy into which each fair value measurement is categorised:

31 December 2019	Level 1 £000		Level 2 £000		Level 3 £000		Total fair values £000		Total carrying amount £000
Assets
Cash and cash equivalents	-		14,620		-		14,620		14,620
Loans and advances to customers	-		-		179,370		179,370		179,370
Trade and other receivables	-		-		2,478		2,478		2,478
Investment in associate	-		-		282		282		282
	-		14,620		182,130		196,750		196,750
Liabilities
Deposits from customers	-		209,933		-		209,933		209,933
Creditors and accrued charges	-		-		2,972		2,972		2,972
Block creditors	-		-		-		-		-
Loan notes	-		-		15,971		15,971		15,971
	-		209,933		18,943		228,876		228,876

31 December 2018	Level 1 £000		Level 2 £000		Level 3 £000		Total fair values £000		Total carrying amount £000
Assets
Cash and cash equivalents	-		9,753		-		9,753		9,753
Loans and advances to customers	-		-		148,278		148,278		148,278
Trade and other receivables	-		-		2,491		2,491		2,491
Investment in associate	-		-		158		158		158
	-		9,753		150,927		160,680		160,680
Liabilities
Deposits from customers	-		158,500		-		158,500		158,500
Creditors and accrued charges	-		-		2,010		2,010		2,010
Block creditors	-		-		138		138		138
Loan notes	-		-		15,871		15,871		15,871
	-		158,500		18,019		176,519		176,519

The fair value of loans and advances is estimated using valuation models, such as discounted cash flow techniques. Input into the valuation techniques includes expected lifetime credit losses, interest rates, prepayment rates. For collateral-dependent impaired loans, the fair value is measured based on the value of the underlying collateral. Input into the models may include data from third party brokers based on over-the-counter trading activity, and information obtained from other market participants, which includes observed primary and secondary transactions.

8. Financial risk review

Risk management

This note presents information about the Group's exposure to financial risks and the Group's management of capital. For information on the Group's financial risk management framework, see Note 36.

A. Credit risk

For definition of credit risk and information on how credit risk is mitigated by the Group, see Note 36.

i. Credit quality analysis

Loans and advances to customers

Explanation of the terms 'Stage 1', 'Stage 2' and 'Stage 3' is included in Note 38 (G)(vii).

An analysis of the credit risk on loans and advances to customers is as follow s:

	Stage 1 £000	Stage 2 £000	Stage 3 £000	2019 £000	2018 £000
Grade A	168,796	-	-	168,796	139,695
Grade B	1,143	1,675	-	2,818	6,153
Grade C	-	1,985	10,544	12,529	5,824
Gross value	169,939	3,660	10,544	184,143	151,672
Allowance for impairment	(116)	(467)	(4,190)	(4,773)	(3,394)
Carrying value	169,823	3,193	6,354	179,370	148,278

Loans are graded A to C depending on the level of risk. Grade C relates to agreements with the highest of risk, Grade B with medium risk and Grade A relates to agreements with the lowest risk.

The following table sets out information about the overdue status of loans and advances to customers in Stage 1, 2 and 3:

31 December	Stage 1 £000	Stage 2 £000	Stage 3 £000	2019 £000	2018 £000
Current	145,373	-	-	145,373	137,196
Overdue < 30 days	24,259	-	-	24,259	2,499
Overdue > 30 days	307	3,660	10,544	14,511	11,977
	169,939	3,660	10,544	184,143	151,672

For Stage 3 loans and advances that are overdue for more than 30 days, the Bank considers to hold collateral with a value of £8,706,600 (2018: £6,946,660) representing security cover of 60 % (2018: 58%)

Debt securities, cash and cash equivalents

The following table sets out the credit quality of liquid assets:

		2019	2018
		£000	£000
Government bonds and treasury bills
Rated A to A+		44,690	30,534
Floating rate notes
Rated A to A+		2,102	-
Cash and cash equivalents
Rated A to A+		14,620	9,753
		61,412	40,287

The analysis has been based on Standard & Poor's ratings.

ii. Collateral and other credit enhancements

The Group holds collateral in the form of the underlying assets (typically private and commercial vehicles, plant and machinery) to loan arrangements as security for HP, finances leases, vehicle stocking plans, block discounting, wholesale funding arrangements, integrated wholesale funding arrangements and secured commercial loan balances, which are sub-categories of loans and advances to customers. In addition, the commission share schemes have an element of capital indemnified.  During 2019, 25.5% of loans and advances fell into this category (2018: 37.9%). 

Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually assessed as impaired. At the time of granting credit within the sub-categories listed above, the loan balances due are secured over the underlying assets held as collateral.

iii. Amounts arising from ECL

See accounting policy in Note 38(G)(vii).

IFRS 9 significantly overhauled the requirements and methodology used to assess credit impairments by transitioning to a forward-looking approach based on an expected credit loss model.  The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments.  Under IFRS 9, credit losses are recognised earlier than under IAS 39 - Financial Instruments: Recognition and Measurement.

After a detailed review, the Group devised and implemented an impairment methodology in light of the IFRS 9 requirements outlined above noting the following:

§ A Significant Increase in Credit Risk ("SICR") is always deemed to occur when the borrower is 30 days past due on its contractual payments.  If the Group becomes aware ahead of this time of non-compliance or financial difficulties of the borrower, such as loss of employment, avoiding contact with the Group then a SICR has also deemed to occur.

§ A receivable is always deemed to be in default and credit-impaired when the borrower is 90 days past due on its contractual payments or earlier if the Group becomes aware of severe financial difficulties such as bankruptcy, individual voluntary arrangements, abscond or disappearance, fraudulent activity or other similar events.

§ The ECL was derived by reviewing the Group's loss rate and loss-given-default over the past 8 years by product and geographical segment.

§ The Group has assumed that the future economic conditions will broadly mirror the current environment and therefore the forecasted loss levels in the next 3 years will match the Group's experience in recent years.

§ For portfolios where the Group has never had a default in its history or has robust credit enhancements such as credit insurance or default indemnities for the entire portfolio, then no IFRS 9 provision is made. 

§ If the Group holds objective evidence through specifically assessing a credit-impaired receivable and believes it will go on to completely recover the debt due to the collateral held and cooperation with the borrower, then no IFRS 9 provision is made.

There have been no significant changes to ECL assumptions from prior year.

iv. Concentration of credit risk

Geographical

Lending is restricted to individuals and entities with Isle of Man, UK or Channel Islands addresses.

Segmental

The Bank is exposed to credit risk with regard to customer loan accounts, comprising HP and finance lease balances, unsecured personal loans, secured commercial loans, block discounting, vehicle stocking plan loans and wholesale funding agreements.  In addition, the Bank lends via significant introducers into the UK.  There was no introducer that accounted for more than 20% of the Bank's total lending portfolio at the end of 31 December 2019 (2018: one introducer).

B. Liquidity risk

For the definition of liquidity risk and information on how liquidity risk is manged by the Group, see Note 36.

i. Exposure to liquidity risk

The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers and short-term funding. For this purpose, net liquid assets include cash and cash equivalents and investment-grade debt securities for which there is an active and liquid market.

Details of the reported Group ratio of net liquid assets to deposits from customers at the reporting date and during the reporting year were as follows:

	2019	2018
At 31 December	29%	25%
Average for the year	23%	32%
Maximum for the year	29%	40%
Minimum for the year	19%	25%

ii. Maturity analysis for financial liabilities and financial assets

The table below shows the Group's financial liabilities classified by their earliest possible contractual maturity, on an undiscounted basis including interest due at the end of the deposit term. Based on historical data, the Group's expected actual cash flow from these items vary from this analysis due to the expected re-investment of maturing customer deposits.

Residual contractual maturities of financial liabilities as at the reporting date (undiscounted)

31 December 2019	Sight- 8 days £000		>8 days - 1 month £000		>1 month - 3 months £000		>3 months - 6 months £000		>6 months - 1 year £000		>1 year - 3 years £000		>3 years - 5 years £000		>5 years £000			Total £000
Deposits from customers	2,900		5,127		19,670		40,315		43,792		77,746		22,397		-			211,947
Other liabilities	5,212		-		4,765		16		7,281		1,274		1,444		2,180			22,172
Total liabilities	8,112		5,127		24,435		40,331		51,073		79,020		23,841		2,180			234,119

31 December 2018	Sight- 8 days £000		>8 days - 1 month £000		>1 month - 3 months £000		>3 months - 6 months £000		>6 months - 1 year £000		>1 year - 3 years £000		>3 years - 5 years £000		>5 years £000			Total £000
Deposits from customers	1,754		5,012		14,397		34,028		35,032		56,643		11,634		-			158,500
Other liabilities	2,061		200		230		216		928		8,705		8,063		584			20,987
Total liabilities	3,815		5,212		14,627		34,244		35,960		65,348		19,697		584			179,487

Maturity of assets and liabilities at the reporting date:

31 December 2019	Sight- 8 days £000		>8 days - 1 month £000		>1 month - 3 months £000		>3 months - 6 months £000		>6 months - 1 year £000		>1 year - 3 years £000		>3 years - 5 years £000			>5 years £000			Total £000
Assets
Cash & cash equivalents	14,620		-		-		-		-		-		-			-			14,620
Debt securities	-		5,795		15,748		17,751		-		7,498		-			-			46,792
Loans and advances to customers	12,564		2,017		12,652		14,977		32,615		77,077		27,461			7			179,370
Other assets	19		-		-		-		-		-		-			12,086			12,105
Total assets	27,203		7,812		28,400		32,728		32,615		84,575		27,461			12,093			252,887
Liabilities
Deposits from customers	2,889		5,060		19,411		39,867		43,574		76,953		22,179			-			209,933
Other liabilities	5,250		-		4,710		-		7,245		900		350			2,180			20,635
Total liabilities	8,139		5,060		24,121		39,867		50,819		77,853		22,529			2,180			230,568

31 December 2018	Sight- 8 days £000		>8 days - 1 month £000		>1 month - 3 months £000		>3 months - 6 months £000		>6 months - 1 year £000		>1 year - 3 years £000		>3 years - 5 years £000			>5 years £000			Total £000
Assets
Cash & cash equivalents	9,753		-		-		-		-		-		-			-			9,753
Debt securities	-		17,995		5,989		-		-		-		6,550			-			30,534
Loans and advances to customers	5,273		1,047		9,724		15,977		35,246		64,099		16,910			2			148,278
Other assets	20		225		145		-		-		-		-			7,959			8,349
Total assets	15,046		19,267		15,858		15,977		35,246		64,099		23,460			7,961			196,914
Liabilities
Deposits from customers	1,754		5,012		14,397		34,028		35,032		56,643		11,634			-			158,500
Other liabilities	2,098		146		92		-		500		7,690		7,581			584			18,691
Total liabilities	3,852		5,158		14,489		34,028		35,532		64,333		19,215			584			177,191

iii. Liquidity reserves

The following table sets out the components of the Group's liquidity reserves:

	2019 Carrying amount	2019 Fair value	2018 Carrying amount	2018 Fair value
	£000	£000	£000	£000
Balances with other banks	14,620	14,620	9,753	9,753
Unencumbered debt securities	46,792	46,792	30,534	30,534
Total liquidity reserves	61,412	61,412	40,287	40,287

C. Market risk

For the definition of market risk and information on how the Group manages the market risks of trading and non-trading portfolios, see Note 36.

The following table sets out the allocation of assets and liabilities subject to market risk between trading and non-trading portfolios:

		Market risk measure
	Carrying amount	Trading portfolios	Non-trading portfolios
31 December 2019	£000	£000	£000
Assets subject to market risk
Trading assets	19	19	-
Debt securities	46,792	-	46,792
Total	46,811	19	46,792

		Market risk measure
	Carrying amount	Trading portfolios	Non-trading portfolios
31 December 2018	£000	£000	£000
Assets subject to market risk
Trading assets	20	20	-
Debt securities	30,534	-	30,534
Total	30,554	20	30,534

i. Exposure to interest rate risk

The following tables present the interest rate mismatch position between assets and liabilities over the respective maturity dates. The maturity dates are presented on a worst-case basis, with assets being recorded at their latest maturity and deposits from customers at their earliest.

31 December 2019	Sight-   1 month   £000		>1month - 3months £000		>3months - 6months   £000		>6months- 1 year   £000		>1 year - 3 years     £000		>3 years - 5 years   £000		>5 years     £000		Non-Int.   Bearing   £000		Total £000
Assets
Cash & cash equivalents	14,620		-		-		-		-		-		-		-		14,620
Debt securities	5,795		15,748		17,751		-		7,498		-		-		-		46,792
Loans and advances to customers	14,581		12,652		14,977		32,615		77,077		27,461		7		-		179,370
Other assets	-		-		-		-		-		-		-		12,105		12,105
Total assets	34,996		28,400		32,728		32,615		84,575		27,461		7		12,105		252,887
Liabilities and equity
Deposits from customers	7,949		19,411		39,867		43,574		76,953		22,179		-		-		209,933
Other liabilities	586		4,710		1,188		1,200		1,268		7,882		-		3,801		20,635
Total equity	-		-		-		-		-		-		-		22,319		22,319
Total liabilities and equity	8,535		24,121		41,055		44,774		78,221		30,061		-		26,120		252,887
Interest rate sensitivity gap	26,461		4,279		(8,327)		(12,159)		6,354		(2,600)		7		(14,015)		-
Cumulative	26,461		30,740		22,413		10,254		16,608		14,008		14,015		-		-

31 December 2018	Sight- 1 month   £000		>1month - 3months £000		>3months - 6months   £000		>6months- 1 year   £000		>1 year - 3 years   £000		>3 years - 5 years   £000		>5 years   £000		Non-Int.   Bearing   £000		Total £000
Assets
Cash & cash equivalents	9,753		-		-		-		-		-		-		-		9,753
Debt securities	17,995		5,989		-		-		-		6,550		-		-		30,534
Loans and advances to customers	6,319		9,724		15,977		35,247		64,099		16,910		2		-		148,278
Other assets	245		145		-		-		-		-		-		7,959		8,349
Total assets	34,312		15,858		15,977		35,247		64,099		23,460		2		7,959		196,914
Liabilities and equity
Deposits from customers	6,766		14,397		34,028		35,032		56,643		11,634		-		-		158,500
Other liabilities	2,244		92		-		500		7,690		7,581		584		-		18,691
Total equity	-		-		-		-		-		-		-		19,723		19,723
Total liabilities and equity	9,010		14,489		34,028		35,532		64,333		19,215		584		19,723		196,914
Interest rate sensitivity gap	25,302		1,369		(18,051)		(285)		(234)		4,245		(582)		(11,764)		-
Cumulative	25,302		26,671		8,620		8,335		8,101		12,346		11,764		-		-

The Bank monitors the impact of changes in interest rates on interest rate mismatch positions using a method consistent with the FSA required reporting standard. The methodology applies weightings to the net interest rate sensitivity gap in order to quantify the impact of an adverse change in interest rates of 2.0% per annum (2018: 2.0%). The following tables set out the estimated total impact of such a change based on the mismatch at the reporting date:

31 December 2019	Sight-   1 month		>1month -3months		>3months - 6months		>6months   - 1 year		>1 year - 3 years		>3 years - 5 years					>5 years					Non-Int.   Bearing					Total
Interest rate sensitivity gap £000	26,461		4,279		(8,327)		(12,159)		6,354		(2,600)					7					(14,015)					-
Weighting	0.000		0.003		0.007		0.014		0.027		0.054					0.115					0.000					-
£000	-		13		(58)		(170)		172		(140)					1					-					(182)

31 December 2018	Sight- 1 month		>1month -3months		>3months - 6months		>6months   - 1 year		>1 year - 3 years		>3 years - 5 years					>5 years					Non-Int.   Bearing					Total
Interest rate sensitivity gap £000	25,302		1,369		(18,051)		(285)		(234)		4,245					(582)					(11,764)					-
Weighting	0.000		0.003		0.007		0.014		0.027		0.054					0.115					0.000					-
£000	-		4		(126)		(4)		(6)		229					(67)					-					30

D. Capital Management

i. Regulatory capital

The lead regulator of the Group's wholly owned subsidiary, Conister Bank Limited ("Bank"), is the Isle of Man Financial Services Authority ("FSA"). The FSA sets and monitors capital requirements for the Bank.

The Bank's regulatory capital consists of the following elements.

n Common Equity Tier 1 ("CET1") capital, which includes ordinary share capital, retained earnings and reserves after adjustment for deductions for goodwill, intangible assets and intercompany receivable.

n Tier 2 capital, which includes qualifying subordinated liabilities and any excess of impairment over expected losses.

The FSA's approach to the measurement of capital adequacy is primarily based on monitoring the relationship of the capital resources requirement to available capital resources. The FSA sets individual capital guidance ("ICG") for the Bank in excess of the minimum capital resources requirement. A key input to the ICG setting process is the Bank's internal capital adequacy assessment process ("ICAAP").

The Bank is also regulated by the Financial Conduct Authority in the United Kingdom for credit and brokerage related activities.

ii. Capital allocation

Management uses regulatory capital ratios to monitor its capital base. The allocation of capital between specific operations and activities is, to a large extent, driven by optimisation of the return achieved on the capital allocated. The amount of capital allocated to each operation or activity is based primarily on regulatory capital requirements.

9. Operating segments

Segmental information is presented in respect of the Group's business segments. The Directors consider that the Group currently operates in one geographic segment comprising of the Isle of Man, UK and Channel Islands. 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 (2018: 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, vehicle stocking plans and wholesale funding agreements); Manx Incahoot; Edgewater Associates; and Manx FX.

For the year ended 31 December 2019	Asset and Personal Finance £000		Manx Incahoot £000		Edgewater Associates £000		Manx FX £000		Investing Activities £000		Total £000
Net interest income	17,929		-		-		-		-		17,929
Fee and commission income / (loss)	439		(9)		2,529		837		-		3,796
Operating income / (loss)	13,518		(10)		2,529		828		-		16,865
Profit / (loss) before tax payable	2,944		(295)		219		502		(347)		3,023
Capital expenditure	1,744		-		14		-		8		1,766
Total assets	249,449		14		2,292		321		811		252,887

For the year ended 31 December 2018	Asset and Personal Finance £000		Manx Incahoot £000		Edgewater Associates £000		Manx FX £000		Investing Activities £000		Total £000
Net interest income	15,568		-		-		-		-		15,568
Fee and commission income	-		12		2,562		797		-		3,371
Operating income	9,795		12		2,562		797		-		13,166
Profit / (loss) before tax payable	2,267		(189)		245		490		(103)		2,710
Capital expenditure	1,589		1		150		6		1		1,747
Total assets	190,923		78		3,153		608		2,152		196,914

10. Net interest income

	2019	2018
	£000	£000
Interest income
Loans and advances to customers	21,824	19,037
Total interest income calculated using the effective interest method	21,824	19,037
Other interest income	496	78
Total interest income	22,320	19,115
Interest expense
Deposits from customers	(3,383)	(2,744)
Loan note interest	(873)	(773)
Lease liability	(47)	-
Contingent consideration	(88)	-
Block funders	-	(30)
Total interest expense	(4,391)	(3,547)
Net interest income	17,929	15,568

11. Net fee and commission income

A. Disaggregation of fee and commission income

In the following table, fee and commission income from contracts with customers in the scope of IFRS 15 - Revenue from Contracts with Customers is disaggregated by major type of services. The table includes a reconciliation of the disaggregated fee and commission income with the Group's reportable segments.

	2019	2018
	£000	£000
Major service lines
Independent financial advice income	2,529	2,547
Foreign exchange trading income	837	824
Brokerage services income	439	-
Fee and commission income	3,796	3,371
Fee and commission expense	(5,426)	(6,109)
Net fee and commission expense	(1,630)	(2,738)

12. Terminal funding

In September 2014, the Bank discontinued funding handheld payment devices (referred to as Terminal Funding) due to the volume of write-offs.  Ever since, the book is being run-off whilst the Bank vigorously pursues historical write-offs.  A decision was made by the Board during 2016 to cease funding and run-off the book upon the final repayment date of August 2019. Terminal funding continues to generate secondary term rental income following the last repayment date.

	2019 £000		2018 £000
Interest income	78		181
Fee and commission expense	-		(5)
Provision for impairment on loan assets	2		(102)
	80		74

13. Personnel expenses

	2019 £000		2018 £000
Gross salaries	(5,142)		(4,233)
Executive Directors' remuneration	(259)		(241)
Non-executive Directors' fees	(152)		(145)
Executive Directors' pensions	(21)		(19)
Executive Directors' performance related pay	(50)		(50)
Pension costs	(302)		(259)
National insurance and payroll taxes	(628)		(527)
Training and recruitment costs	(208)		(229)
	(6,762)		(5,703)

14. Other expenses

	2019 £000		2018 £000
Professional and legal fees	(1,559)		(1,067)
Marketing costs	(261)		(237)
IT costs	(633)		(567)
Establishment costs	(286)		(434)
Communication costs	(155)		(146)
Travel costs	(219)		(174)
Bank charges	(137)		(119)
Insurance	(199)		(141)
Irrecoverable VAT	(340)		(303)
Other costs	(346)		(277)
	(4,135)		(3,465)

15. Impairment on loans and advances to customers

The charge in respect of specific allowances for impairment comprises:

	2019 £000		2018 £000
Specific impairment allowances made	(2,091)		(1,246)
Reversal of allowances previously made	64		410
Total charge for specific provision for impairment	(2,027)		(836)

The credit / (charge) in respect of collective allowances for impairment comprises:

	2019 £000		2018 £000
Collective impairment allowances made	(138)		(49)
Release of allowances previously made	265		28
Total credit / (charge) for collective allowances for impairment	127		(21)
Total charge for allowances for impairment	(1,900)		(857)

16. Profit before tax payable

The profit before tax payable for the year is stated after charging:

				Group				Company
				2019 £000		2018 £000		2019 £000			2018 £000
Auditor's remuneration: -   as Auditor current year				(110)		(108)		-			-
non-audit services				(96)		(7)		-			-
Pension cost defined benefit scheme				(17)		(15)		-			-
Operating lease rentals for property				(117)		(251)		-			-

17. Income tax expense

	2019		2018
	£000		£000
Current tax expense
Current year	(297)		(197)
Changes to estimates for prior years	-		-
	(297)		(197)
Deferred tax expense
Origination and reversal of temporary differences	(53)		(46)
Utilisation of previously recognised tax losses	-		-
Changes to estimates for prior years	-		-
	(53)		(46)
Tax expense	(350)		(243)

			2019				2018
			£000				£000
Reconciliation of effective tax rate
Profit before tax			3,023				2,710
Tax using the Bank's domestic tax rate	(10.0)%		(302)		(10.0)%		(271)
Effect of tax rates in foreign jurisdictions	(0.8)%		(23)		0.0 %		-
Non-deductible expenses	(2.6)%		(78)		(1.2)%		(33)
Tax exempt income	0.0 %		-		0.3 %		8
Timing difference in current year	0.0 %		-		0.3 %		7
Origination and reversal of temporary differences in deferred tax	1.8 %		53		1.7 %		46
Tax expense	(11.6)%		(350)		(9.0)%		(243)

The main rate of corporation tax in the Isle of Man is 0.0% (2018: 0.0%).  However, the profits of the Group's Isle of Man banking activities are taxed at 10.0% (2018: 10.0%). The profits of the Group's subsidiaries that are subject to UK corporation tax are taxed at a rate of 19.0% (2018: 19.0%).

The value of tax losses carried forward reduced to nil and there is now a timing difference related to accelerated capital allowances resulting in a £141,000 liability (2018: £88,000 liability). This resulted in an expense of £53,000 (2018: £50,000) to the Consolidated Income Statement.

18. Earnings per share

				2019		2018
Profit for the year				£2,673,000		£2,467,000
Weighted average number of ordinary shares in issue (basic)				131,096,235		131,096,235
Basic earnings per share (pence)				2.04		1.88
Diluted earnings per share (pence)				1.66		1.54
Total comprehensive income for the year				£2,596,000		£2,461,000
Weighted average number of ordinary shares in issue (basic)				131,096,235		131,096,235
Basic earnings per share (pence)				1.98		1.88
Diluted earnings per share (pence)				1.62		1.54

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

As at:				2019		2018
Reconciliation of weighted average number of ordinary shares in issue between basic and diluted
Weighted average number of ordinary shares (basic)				131,096,235		131,096,235
Number of shares issued if all convertible loan notes were exchanged for equity				41,666,667		41,666,667
Dilutive element of share options if exercised				-		10,366
Weighted average number of ordinary shares (diluted)				172,762,902		172,773,268
Reconciliation of profit for the year between basic and diluted
Profit for the year (basic)				£2,673,000		£2,467,000
Interest expense saved if all convertible loan notes were exchanged for equity				£196,150		£196,000
Profit for the year (diluted)				2,869,150		£2,663,000

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

As at:				2019		2018
Reconciliation of total comprehensive income for the year between basic and diluted
Total comprehensive income for the year (basic)				2,596,000		2,461,000
Interest expense saved if all convertible loan notes were exchanged for equity				196,150		196,000
Total comprehensive income for the year (diluted)				2,792,150		2,657,000

19. Cash and cash equivalents

		Group								Company
		2019 £000				2018 £000				2019 £000		2018 £000
Cash at bank and in hand		14,620				9,753				119		1,646
		14,620				9,753				119		1,646

Cash at bank includes an amount of £1,060,000 (2018: £561,000) representing receipts which are in the course of transmission.

20. Debt securities

	Group				Company
	2019 £000		2018 £000		2019 £000		2018 £000
Financial assets at FVOCI:
UK Government Treasury Bills	44,690		30,534		-		-
Floating Rate Notes	2,102		-		-		-
	46,792		30,534		-		-

UK Government Treasury Bills are stated at fair value and unrealised changes in the fair value are reflected in other comprehensive income. There were £179,000 (2018: £135,000) realised gains and £51,000 (2018: £44,000) unrealised gains during the year.

21. Trading asset

The investment represents shares in a UK quoted company, elected to be classified as a financial asset at fair value through profit or loss. The investment is stated at market value and is classified as a level 1 investment in the IFRS 13 fair value hierarchy. The cost of the shares was £471,000. The unrealised difference between cost and market value has been taken to the Consolidated Income Statement. Dividend income of £360,500 (2018: £355,000) and £24,000 (2018: £24,000) of sale proceeds have been received from this investment since it was made. The investment made a net loss of £1,000 (2018: £4,000) during the year.

22. Loans and advances to customers

Group	Gross Amount £000		2019 Impairment Allowance £000		Carrying Value £000		Gross Amount £000		2018 Impairment Allowance £000		Carrying Value £000
HP balances	65,846		(1,537)		64,309		59,038		(1,416)		57,622
Finance lease balances	40,359		(2,125)		38,234		27,238		(1,551)		25,687
Unsecured personal loans	21,110		(199)		20,911		14,806		(382)		14,424
Vehicle stocking plans	1,494		(36)		1,458		1,486		-		1,486
Wholesale funding arrangements	23,840		(300)		23,540		22,944		-		22,944
Block discounting	15,693		(200)		15,493		17,316		-		17,316
Secured commercial loans	11,652		(376)		11,276		1,967		(45)		1,922
Secured personal loans	4,149		-		4,149		6,877		-		6,877
	184,143		(4,773)		179,370		151,672		(3,394)		148,278

Collateral is held in the form of underlying assets for HP, finance leases, vehicles stocking plans, block discounting, secured commercial and personal loans and wholesale funding arrangements.

Specific allowance for impairment			2019 £000		2018 £000
Balance at 1 January			3,126		2,440
Specific allowance for impairment made			2,091		1,291
Release of allowances previously made			(64)		(410)
Write-offs			(521)		(195)
Balance at 31 December			4,632		3,126

Collective allowance for impairment			2019 £000		2018 £000
Balance at 1 January			268		247
Collective allowance for impairment made			138		49
Release of allowances previously made			(265)		(28)
Balance at 31 December			141		268
Total allowances for impairment			4,773		3,394

Advances on preferential terms are available to all Directors, management and staff. As at 31 December 2019 £490,641 (2018: £389,005) had been lent on this basis. In the Group's ordinary course of business, advances may be made to Shareholders, but all such advances are made on normal commercial terms.

At the end of the current financial year 5 loan exposures (2018: 9) exceeded 10.0% of the capital base of the Bank:

Exposure	Outstanding Balance 2019 £000		Outstanding Balance 2018 £000		Facility limit £000
Block discounting facility	15,693		14,211		28,235
Wholesale funding agreement	23,840		21,423		28,119

HP and finance lease receivables

Loans and advances to customers include the following HP and finance lease receivables:

			2019 £000		2018 £000
Less than one year			51,865		42,532
Between one and five years			71,124		60,184
Gross investment in HP and finance lease receivables			122,989		102,716

The investment in HP and finance lease receivables net of unearned income comprises:

			2019 £000		2018 £000
Less than one year			44,787		37,508
Between one and five years			61,418		48,768
Net investment in HP and finance lease receivables			106,205		86,276

23. Trade and other receivables

	Group				Company
	2019 £000		2018 £000		2019 £000		2018 £000
Prepayments	385		382		44		32
VAT recoverable	835		936		187		-
Other debtors	1,258		1,173		-		-
	2,478		2,491		231		32

Included in trade and other receivables is an amount of £835,000 (2018: £936,000) relating to a reclaim of VAT.  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 Group's position rests on the outcome of discussions with C&E which in turn will take into account the final assessment by UK Her Majesty's Revenue and Customs ("HMRC") of the impact of the European Union's ruling in favour of Volkswagen Financial Services (UK) Limited ("VWFS") vs HMRC. On the basis of the discussions and correspondence which have taken place between the Bank, its professional advisors and C&E, in addition to the VWFS ruling, the VAT recovery has moved in the year. The Directors are confident that the VAT claim will be secured.

The Bank's total exposure in relation to this matter reduced to £906,000 (2018: £1,049,000), comprising the debtor balance referred to above plus an additional £71,000 VAT reclaimed under the partial Exemption Special Method, in the period from Q4 2011 to Q3 2012 (from Q4 2012 the Bank reverted back to the previous method).

24. Property, plant and equipment and right-of-use assets

Group	Leasehold Improvements £000		IT Equipment £000		Furniture & Equipment £000		Motor Vehicles 1 £000			Right-of-use assets 2 £000	Total £000
Cost
As at 1 January 2019		509		335		664		1,003		-		2,511
Acquisition of subsidiary		160		-		22		107		-		289
Additions		5		58		-		1,571		737		2,371
Disposals		-		-		-		(107)		-		(107)
As at 31 December 2019		674		393		686		2,574		737		5,064
Accumulated depreciation
As at 1 January 2019		249		213		612		53		-		1,127
Charge for year		66		59		10		338		165		638
Disposals		-		-		-		-		-		-
As at 31 December 2019		315		272		622		391		165		1,765
Carrying value at 31 December 2019		359		121		64		2,183		572		3,299
Carrying value at 31 December 2018		260		122		52		950		-		1,384

¹ Motor vehicles relate to operating leases with the Group as lessor.

² See Note 5 for implementation of IFRS 16 - Leases and recognition of right-of-use asset.

Company	Leasehold Improvements £000		IT Equipment £000		Furniture & Equipment £000			Right-of use-asset £000		Total £000
Cost
As at 1 January 2019		234		13		16		-		263
Additions		-		-		1		424		425
Disposals		-		-		-		-		-
As at 31 December 2019		234		13		17		424		688
Accumulated depreciation
As at 1 January 2019		131		3		3		-		137
Charge for year		38		1		2		60		101
Disposals		-		-		-		-		-
As at 31 December 2019		169		4		5		60		238
Carrying value at 31 December 2019		65		9		12		364		450
Carrying value at 31 December 2018		103		10		13		-		126

25. Intangible assets

Group		Customer Contracts & Lists £000		Intellectual Property Rights £000		IT Software and Website Development £000		Total £000
Cost
As at 1 January 2019			1,417		388		2,046		3,851
Acquisition of subsidiary (note 32)			496		143		-		639
Additions			7		8		117		132
Disposals			-		-		-		-
As at 31 December 2019			1,920		539		2,163		4,622
Accumulated amortisation
As at 1 January 2019			195		312		1,392		1,899
Charge for year / impairment			107		131		192		430
Disposals			-		-		-		-
As at 31 December 2019			302		443		1,584		2,329
Carrying value at 31 December 2019			1,618		96		579		2,293
Carrying value at 31 December 2018			1,222		76		654		1,952

26. Deposits from customers

			2019 £000		2018 £000
Retail customers: term deposits			203,241		153,735
Corporate customers: term deposits			6,692		4,765
			209,933		158,500

27. Creditors and accrued charges

	Group				Company
	2019 £000		2018 £000		2019 £000		2018 £000
Commission creditors	1,044		758		-		-
Other creditors and accruals	893		897		66		94
Lease liability (see note 5)	707		-		509		-
Taxation creditors	328		355		-		-
	2,972		2,010		575		94

28. Block creditors

			2019 £000		2018 £000
Drawdown 3 - repayable 08/03/2019, interest payable at 6.5%, secured on assets of MFL			-		138
			-		138

29. Loan notes

		Group				Company
	Notes	2019 £000		2018 £000		2019 £000			2018 £000
Related parties
J Mellon	JM	1,750		1,750		1,750			1,750
Burnbrae Limited	BL	1,200		1,200		1,200			1,200
Southern Rock Insurance Company Limited	SR	460		460		460			460
		3,410		3,410		3,410			3,410
Unrelated parties	UP	12,561		12,461		12,561			12,461
		15,971		15,871		15,971			15,871

JM   - Two loans, one of £1,250,000 maturing on 26 February 2020, paying interest of 6.5% per annum, and one of £500,000 maturing on 31 July 2022 with interest payable of 5.0% per annum. Both loans are convertible at the rate of 7.5 pence and 9 pence respectively. See note 35 for the terms of the renewal of the £1,250,000 loan.

BL   - One loan consisting of £1,200,000 maturing on 31 July 2022 with interest payable of 5.0% per annum.  Jim Mellon is the beneficial owner of BL and Denham Eke is also a director.  The loan is convertible at a rate of 7.5 pence. 

SR   - One loan consisting of £460,000 maturing on 26 February 2020 with interest payable of 6.5% per annum.  The loan is convertible at a rate of 9 pence.  John Banks, a previous Non-executive Director, is also a director of SR.

UP   - Thirty-three loans consisting of an average £380,636 with a average interest payable of 5.5% (2018: 5.4%) per annum.  The earliest maturity date is 20 January 2019 and the latest maturity is 10 October 2023.

With respect to the convertible loans, the interest rate applied was deemed by the Directors to be equivalent to the market rate at the time with no conversion option.

30. Pension liability

The Conister Trust Pension and Life Assurance Scheme ("Scheme") operated by the Bank is a funded defined benefit arrangement which provides retirement benefits based on final pensionable salary. The Scheme is closed to new entrants and the last active member of the Scheme left pensionable service in 2011.

The Scheme is approved in the Isle of Man by the Assessor of Income Tax under the Income Tax (Retirement Benefit Schemes) Act 1978 and must comply with the relevant legislation. In addition, it is registered as an authorised scheme with the FSA in the Isle of Man under the Retirement Benefits Scheme Act 2000. The Scheme is subject to regulation by the FSA but there is no minimum funding regime in the Isle of Man.

The Scheme is governed by two corporate trustees, Conister Bank Limited and Boal & Co (Pensions) Limited. The trustees are responsible for the Scheme's investment policy and for the exercise of discretionary powers in respect of the Scheme's benefits.

The rules of the Scheme state: - "Each Employer shall pay such sums in each Scheme Year as are estimated to be required to provide the benefits of the Scheme in respect of the Members in its employ".

Exposure to risk

The Company is exposed to the risk that additional contributions will be required in order to fund the Scheme as a result of poor experience. Some of the key factors that could lead to shortfalls are:

n  investment performance - the return achieved on the Scheme's assets may be lower than expected; and

n  mortality - members could live longer than foreseen. This would mean that benefits are paid for longer than expected, increasing the value of the related liabilities.

In order to assess the sensitivity of the Scheme's pension liability to these risks, sensitivity analyses have been carried out. Each sensitivity analysis is based on changing one of the assumptions used in the calculations, with no change in the other assumptions. The same method has been applied as was used to calculate the original pension liability and the results are presented in comparison to that liability. It should be noted that in practice it is unlikely that one assumption will change without a movement in the other assumptions; there may also be some correlation between some of these assumptions. It should also be noted that the value placed on the liabilities does not change on a straight line basis when one of the assumptions is changed. For example, a 2.0% change in an assumption will not necessarily produce twice the effect on the liabilities of a 1.0% change.

No changes have been made to the method or to the assumptions stress-tested for these sensitivity analyses compared to the previous period. The investment strategy of the Scheme has been set with regard to the liability profile of the Scheme. However, there are no explicit asset-liability matching strategies in place.

Restriction of assets

No adjustments have been made to the statement of financial position items as a result of the requirements of IFRIC 14 - IAS 19: The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, issued by IASB's International Financial Reporting Interpretations Committee.

Scheme amendments

There have not been any past service costs or settlements in the financial year ending 31 December 2019 (2018: none).

Funding policy

The funding method employed to calculate the value of previously accrued benefits is the Projected Unit Method. Following the cessation of accrual of benefits when the last active member left service in 2011, regular future service contributions to the Scheme are no longer required. However, additional contributions will still be required to cover any shortfalls that might arise following each funding valuation.

The most recent triennial full actuarial valuation was carried out at 1 April 2016, which showed that the market value of the Scheme's assets was £1,379,000 representing 80.7% of the benefits that had accrued to members, after allowing for expected future increases in earnings. As required by IAS 19: Employee Benefits, this valuation has been updated by the actuary as at 31 December 2019.

The amounts recognised in the Consolidated Statement of Financial Position are as follows:

Total underfunding in funded plans recognised as a liability			2019 £000		2018 £000
Fair value of plan assets			1,471		1,361
Present value of funded obligations			(2,159)		(1,945)
			(688)		(584)

Movement in the liability for defined benefit obligations			2019 £000		2018 £000
Opening defined benefit obligations at 1 January			1,945		2,029
Benefits paid by the plan			(69)		(65)
Interest on obligations			55		52
Actuarial loss / (gain)			228		(71)
Liability for defined benefit obligations at 31 December			2,159		1,945

Movement in plan assets			2019 £000		2018 £000
Opening fair value of plan assets at 1 January			1,361		1,469
Expected return on assets			38		37
Contribution by employer			41		41
Actuarial gain / (loss)			100		(121)
Benefits paid			(69)		(65)
Closing fair value of plan assets at 31 December			1,471		1,361

Expense recognised in income statement			2019 £000		2018 £000
Interest on obligation			55		52
Expected return on plan assets			(38)		(37)
Total included in personnel costs			17		15
Actual return on plan assets			142		(53)

Actuarial loss recognised in other comprehensive income			2019 £000		2018 £000
Actuarial gain / (loss) on plan assets			100		(121)
Actuarial (loss) / gain on defined benefit obligations			(228)		71
			(128)		(50)

	2019		2018
Plan assets consist of the following	%		%
Equity securities	50		45
Corporate bonds	18		19
Government bonds	30		28
Cash	2		4
Other	-		4
	100		100

The actuarial assumptions used to calculate Scheme liabilities under IAS19 are as follows:	2019 %	2018 %	2017 %
Rate of increase in pension in payment:
-  Service up to 5 April 1997	-	-	-
-  Service from 6 April 1997 to 13 September 2005	3.0	3.0	3.0
-  Service from 14 September 2005	2.1	2.1	2.1
Rate of increase in deferred pensions	5.0	5.0	5.0
Discount rate applied to scheme liabilities	2.9	2.6	2.6
Inflation	3.1	3.1	3.1

The assumptions used by the actuary are best estimates chosen from a range of possible assumptions, which due to the timescale covered, may not necessarily be borne out in practice.

31. Called up share capital

Ordinary shares of no par value available for issue		Number
At 31 December 2019		200,200,000
At 31 December 2018		200,200,000

Issued and fully paid: - Ordinary shares of no par value	Number	£000
At 31 December 2019	131,096,235	20,732
At 31 December 2018	131,096,235	20,732

There are four convertible loans of £3,410,000 (2018: £3,410,000).

On 23 June 2014, 1,750,000 share options were issued to Executive Directors and senior management within the Group at an exercise price of 14 pence. The options vest over three years with a charge based on the fair value of 8 pence per option at the date of grant. The period of grant is for 10 years less 1 day ending 22 June 2024. Of the 1,750,000 share options issued, 1,050,000 (2018:1,050,000) remain outstanding; the balance lapsed during 2017.

Performance and service conditions attached to share options that have not fully vested are as follows:

(a)  The options granted on 25 June 2010 (1,056,000 options) will vest if the mid-market share price of £0.30 is achieved during the period of grant (10 years ending 25 June 2020); and

(b)  The options granted on 25 June 2010 and 23 June 2014 require a minimum of three years' continuous employment service in order to exercise upon the vesting date.

The fair value of services received in return for share options granted is based on the fair value of share options granted, measured using a binomial probability model with the following inputs for each award:

					23 June 2014	25 June 2010
Fair value at date of grant					£0.08	£0.03
Share price					£0.14	£0.11
Exercise price					£0.14	£0.11
Expected volatility					55.0%	47.0%
Option life					3	3
Risk-free interest rate (based on government bonds)					0.5%	2.2%
Forfeiture rate					33.3%	0.0%

The charge for the year for share options granted was £nil (2018: £nil).

Analysis of changes in financing during the year

Analysis of changes in financing during the year		2019 £000			2018 £000
Balance at 1 January		36,603			29,727
Issue of loan notes		100			6,876
		36,703			36,603

The 2019 closing balance is represented by £20,732,000 share capital (2018: £20,732,000) and £15,971,000 of loan notes (2018: £15,871,000).

32. Investment in Group undertakings

Subsidiaries

The Company has the following investments in subsidiaries incorporated in the Isle of Man:

Carrying value of investments	Nature of Business			31 December 2019 % Holding		Date of Incorporation			Total 2019 £000		Total 2018 £000
Conister Bank Limited	Asset and Personal Finance				100		05/12/1935		15,817		14,167
Edgewater Associates Limited	Wealth Management				100		24/12/1996		2,005		2,005
TransSend Holdings Limited	Holding Company for Prepaid Card Division				100		05/11/2007		-		-
Bradburn Limited	Holding Company				100		15/05/2009		-		-
									17,822		16,172

Blue Star Business Solutions Limited

On 16 April 2019, the Group (through Bradburn Limited) acquired 100% of the shares and voting interest in Blue Star Business Solutions Limited ("BBSL"), obtaining control of BBSL. This acquisition is part of the Group's strategy to increase its distribution in the UK broker market. BBSL was formed in 2004 and is based in Hampshire.  The business is a niche brokerage which focuses on delivering excellent customer service to small and medium sized businesses in the UK that require funding for IT equipment amongst other assets. The Group invested in BBSL to allow it to grow profitably by gaining market share and through its banking subsidiary, Conister Bank Limited, writing the majority of its funding requests.

For the 9 months ended 31 December 2019, BBSL contributed revenue of £719,115 and a consolidated profit of £346,241 including its lending contribution to the Group. If the acquisition had occurred on 1 January 2019, management estimates that the consolidated revenue would have been £922,345 and consolidated profit for the year would have been £361,348. Individual results for the 9 months ended 31 December 2019 recorded a loss of £24,378.

A. Consideration transferred

The following table summarises the acquisition-date fair value of each major class of consideration transferred:

		£000
Cash		1,500
Contingent consideration		775
		2,275

i. Contingent consideration transferred

The Group has agreed to pay the selling shareholders:

n 50% of net profits in BBSL for 3 years post completion; and

n 50% of the incremental net profit that the Group benefits from as a result of taking up BBSL loan proposals post completion up until the third anniversary.

This is to be paid on each anniversary with a final payment in year 4 for the unrealised lending profit. The total consideration is to have a cap of £4,000,000 in total. The contingent consideration is calculated by forecasting 3 years of net profits discounted using an interest rate of 16.0% per annum.  Unwinding the discount up to 31 December 2019 has created an £88,000 of interest expense in the Consolidated Income Statement, bringing the balance to £863,000. The range of contingent consideration payable is £nil - £2,500,000.

B. Acquisition-related costs

In the current year, the Group incurred acquisition-related costs of £20,000 relating to external legal fees and due diligence costs. These costs have been included in 'administrative expenses' in the Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income.

C. Identifiable assets acquired and liabilities assumed

The following table summarises the recognised amounts of assets acquired, and liabilities assumed at the date of acquisition:

		£000
Property, plant and equipment		289
Intangible assets		639
Trade and other receivables		114
Cash and cash equivalents		163
Trade and other payables		(203)
Loans and borrowings		(117)
Total identifiable net assets acquired		885

The trade receivables comprise gross contractual amounts due of £114,000.

D. Goodwill

The goodwill arising from the acquisition has been recognised as follows:

		£000
Total consideration transferred		2,275
Fair value of identifiable net assets		(885)
Goodwill		1,390

Amounts owed to Group undertakings

Amounts owed to Group undertakings are unsecured, interest-free and repayable on demand.

Subordinated loans

MFG has issued several subordinated loans as part of its equity funding into the Bank and EAL.

Creation	Maturity	Interest rate	2019 £000		2018 £000
Conister Bank Limited
11 February 2014	11 February 2024	7.0%	500		500
27 May 2014	27 May 2024	7.0%	500		500
9 July 2014	9 July 2024	7.0%	500		500
17 September 2014	17 September 2026	7.0%	400		400
22 July 2013	22 July 2033	7.0%	1,000		1,000
25 October 2013	22 October 2033	7.0%	1,000		1,000
23 September 2016	23 September 2036	7.0%	1,100		1,100
14 June 2017	14 June 2037	7.0%	450		450
12 June 2018	12 June 2038	7.0%	2,000		2,000
Edgewater Associates Limited
14 May 2012	14 May 2017	7.0%	-		-
28 February 2013	28 February 2018	7.0%	50		50
21 February 2017	21 February 2027	7.0%	150		150
14 May 2017	14 May 2027	7.0%	128		128
			7,778		7,778

EAL's subordinated loan that matured on 28 February 2018 continues in existence and has not been called for payment by MFG.

Goodwill					Group 2019 £000			Group 2018 £000
EAL					1,849			1,849
BBSL					1,390			-
ECF Asset Finance PLC ("ECF")					454			454
Three Spires Insurance Services Limited ("Three Spires")					41			41
					3,734			2,344

Goodwill impairment

The goodwill is considered to have an indefinite life and is reviewed on an annual basis by comparing its estimated recoverable amount with its carrying value.

The estimated recoverable amount in relation to the goodwill generated on the purchase of EAL is based on the forecasted 3 year cash flow projections, extrapolated to 10 years using a 2.0% annual increment, and then discounted using a 11.0% discount factor. The sensitivity of the analysis was tested using additional discount factors of 15.0% and 20.0% on stable profit levels.

The estimated recoverable amount in relation to the goodwill generated on the purchase of BBSL is based on forecasted 3 year interest income calculated at an average yield of 8%, with a terminal value calculated using a 3.0% growth rate of net income and then discounted using a 16.0% discount factor. The sensitivity of the analysis was tested using additional discount factors of up to 20.0% on varying interest income growth rates.

The estimated recoverable amount in relation to the goodwill generated on the purchase of ECF is based on forecasted 3 year sales interest income calculated at 5.0% margin, extrapolated to 10 years using a 2.0% annual increment, and then discounted using a 11.0% discount factor. The sensitivity of the analysis was tested using additional discount factors of 15.0% and 20.0% on varying sales volumes.

There has been no change in the detailed method of measurement for EAL and ECF when compared to 2018.  The goodwill generated on the purchase of Three Spires has been reviewed at the current year end and is considered adequate given its income streams referred to EAL.  Based on the above reviews no impairment to goodwill has been made in the current year.

Acquisition of Incahoot Limited

On 6 March 2015, the business of Incahoot Limited was acquired by Manx Incahoot Limited, a subsidiary of the Group.

On 9 December 2016, a valuation was conducted by an independent firm of professional advisers on the intellectual property rights acquired for the purpose of including within these financial statements. The independent firm addressed the three levels of the IFRS fair value hierarchy and concluded that level 3 was most appropriate as the intellectual property rights acquired had no active markets (Level 1), or comparable assets against which to index prices (Level 2).  Therefore, the report valued the intellectual property rights acquired based on internally generated data (Level 3) being: costs incurred to date and cash flow projections. The report averaged two valuation approaches, the replacement cost approach and the income approach using a discount factor of 42.5%, to arrive at a final valuation of £262,474. This created an impairment of £48,026. On 2 February 2018, the valuation was again updated which lead to a reduced valuation of £154,427. This created an additional impairment of £108,047.

The Directors performed an internal impairment assessment and consider the recoverable amount of the intellectual property rights to be £nil (2018: £76,000) at 31 December 2019. This created an impairment charge of £76,000 for intellectual property rights and £32,047 for the website during the current year.

Investment in associates

			Group 2019 £000		Group 2018 £000
The Business Lending Exchange ("BLX")			166		56
Beer Swaps Limited ("BSL")			20		10
Payitmonthly Ltd ("PIML")			96		92
			282		158

On December 2017, 40.0% of the share capital of BLX was acquired for nil consideration. The Group's share of the associate's total comprehensive income during the year was £110,000 (2018: £18,000).

On April 2018, 20% of the share capital of BSL was acquired for nil consideration. The Group's share of the associate's total comprehensive income during the year was £10,000 (2018: £10,000).

On August 2018, 30% of the share capital of PIML was acquired for £90,000 consideration. The Group's resulting share of the associates total comprehensive income during the year was £4,000 (2018: £2,000).

33. Related party transactions

Cash deposits

During the year, the Bank held cash on deposit on behalf of Jim Mellon (Executive Chairman of MFG) and companies related to Jim Mellon and Denham Eke (Chief Executive Officer of MFG).  Total deposits amounted to £446,366 (2018: £173,157), at normal commercial interest rates in accordance with the standard rates offered by the Bank.  

Staff and commercial loans

Details of staff loans are given in note 22.

Commercial loans have been made to various companies connected to Jim Mellon and Denham Eke on normal commercial terms. As at 31 December 2019, £62,746 of capital and interest was outstanding (2018: £113,328).

Intercompany recharges

Various intercompany recharges are made during the course of the year as a result of the Bank settling debts in other Group companies. EAL provides services to the Group in arranging its insurance and defined contribution pension arrangements.

Loan advance to EAL

On 14 December 2016, a loan advance was made to EAL by the Bank in order to provide the finance required to acquire MBL.  The advance was for £700,000 at an interest rate of 8% per annum repayable over 6 years.  A negative pledge was given by EAL to not encumber any property or assets or enter into an arrangement to borrow any further monies. The balance as at 31 December 2019 was £395,172 (2018: £508,000).

Loan advance to BLX

On 11 October 2017, a £4,000,000 loan facility was made available to BLX by the Bank in order to provide the finance required to expand its operations. The facility is for 12 months, followed by a 3 year amortisation period. Interest is charged at commercial rates. At 31 December 2019, £4,000,000 (2018: £2,520,000) had been advanced to BLX.

Loan advance to BSL

On 27 April 2018, a £1,000,000 loan facility was made available to BSL by the Bank in order to provide the finance required to expand its leasing portfolio. On 10 October 2018, this facility was increased to £1,500,000. The facility is for 12 months. Interest is charged at commercial rates. During the year, the facility was increased to £2,250,000. At 31 December 2019, £2,250,000 (2018: £1,099,000) had been advanced to BSL.

Loan advance to PIML

On 24 May 2018, a £500,000 loan facility was made available to PIML by the Bank in order to provide the finance required to expand its operations. The facility is for 12 months. Interest is charged at commercial rates. During the year, the facility was increased to £1,500,000. At 31 December 2019, £1,424,000 (2018: £322,000) had been advanced to PIML.

Investments

The Bank holds less than 1% equity in the share capital of an investment of which Jim Mellon is a Shareholder (note 21).  Denham Eke acts as co-chairman.

Subordinated loans

The Company has advanced £7,450,000 (2018: £7,450,000) of subordinated loans to the Bank and £328,000 (2018: £328,000) to EAL at 31 December 2019. See note 32 for more details.

Loan notes

See note 29 for a list of related party loan notes as at 31 December 2019 and 2018.

Key management remuneration including Executive Directors

	2019 £000		2018 £000
Short-term employee benefits	309		297

34. Operating leases

Non-cancellable lease rentals are payable in respect of property and motor vehicles as follows:

		2019			2018
		Leasehold Property £000			Leasehold Property £000
Less than one year		101			214
Between one and five years		-			790
Over five years		-			162
		101			1,166

35. Subsequent events

Acquisition of subsidiary

On 28 February 2020, the Group announced that it has entered into an agreement to acquire (through its subsidiary, the Bank) additional ordinary shares in BSL (see note 32) for a cash consideration of £506,824. The Bank's shareholding in BSL will increase to 75% (31 December 2019: 20%) on completion of the purchase. Further the Bank will simplify the capital structure of BSL by repaying all issued preference shares, being £200,000, as part of the transaction plus repayment of Director loans of £100,000.

Loan notes (see note 29)

The £1,250,000 loan note due to mature on 26 February 2020 and paying interest of 6.5% per annum has been renewed at an interest rate of 5.4% and for a term of 5 years.

The £460,000 loan note due to mature on 26 February 2020 and paying interest of 6.5% per annum was renewed for a further 2 months with no change to other terms.

COVID-19

In late February 2020, the UK recorded its first case of the coronavirus "COVID-19", which shortly spread to the IOM in the following month. In an attempt to contain the outbreak, both the UK and Manx Governments, in line with action taken by other Governments throughout the world, introduced a number of significant restrictions on businesses, human movement and social interactions, including shutting down a wide range of economic sectors in which the Group has a significant interest. 

Both the UK and Manx Governments launched various financial support measures to provide vital liquidity and relief to both individuals and businesses struggling to trade through this global economic crisis.

The Group is closely monitoring the coronavirus pandemic and its potential impacts on its business. The extent to which COVID-19 impacts the Group's business will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge on the severity of COVID-19 and the success of efforts to contain or treat COVID-19.

In line with the Financial Reporting Council's joint statement on 26 March 2020, the Group does not consider COVID-19 to be an adjusting event and as such any impacts are not reflected within this Annual Report.

The Group assessed the changes in the environment on its capital and liquidity positions and is comfortable that it can keep a solid financial standing.  Management will continue to monitor the developments and update its strategy and course of actions as necessary in the circumstances.

Other

There were no other significant subsequent events identified after 31 December 2019.

36. Financial risk management

A. Introduction and overview

The Group has exposure to the following risks from financial instruments:

n credit risk;

n liquidity risk;

n market risks; and

n operational risks.

i. Risk management framework

The Company's Board have overall responsibility for the establishment and oversight of the Group's risk management framework. The Board of Directors have established the Group Audit, Risk and Compliance Committee ('ARCC'), which is responsible for approving and monitoring Group risk management policies. ARCC is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the ARCC.

The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. The risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, though its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

B. Credit risk

'Credit risk' is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's loans and advances to customers and investment debt securities. Credit risk includes counterparty, concentration, underwriting and credit mitigation risks.

Management of credit risk

The Bank's Board of Directors created the Credit Committee which is responsible for managing credit risk, including the following:

n Formulating credit policies in consultation with business units, covering collateral requirements, credit assessments, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements.

n Establishing the authorisation structure for the approval and renewal of credit facilities. Authorisation limits are allocated to in line with credit policy.

n Reviewing and assessing credit risk: The Credit Committee assesses all credit exposures in excess of designated limits, before facilities are committed to customers. Renewals and reviews of facilities are subject to the same review process.

n Limiting concentrations of exposures to counterparties, geographies and industries, by issuer, credit rating band, market liquidity and country (for debt securities).

n Developing and maintaining risk grading's to categorise exposures according to the degree of risk of default. The current risk grading consists of 3 grades reflecting varying degrees of risk of default.

n Developing and maintaining the Group's process for measuring ECL: This includes processes for:

o  initial approval, regular validation and back-testing of the models used;

o  determining and monitoring significant increase in credit risk; and

o  incorporation of forward-looking information.

n Reviewing compliance with agreed exposure limits. Regular reports on the credit quality of portfolios are provided to the Credit Committee which may require corrective action to be taken.

C. Liquidity risk

'Liquidity risk' is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises from mismatches in the timing and amounts of cash flows, which is inherent to the Group's operations and investments.

Management of liquidity risk

The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have enough liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. The key elements of the Group's liquidity strategy are as follows:

n Funding base: offering six-months to five-year fixed term deposit structure with no early redemption option. This means the Bank is not subject to optionality risk where customers redeem fixed rate products where there may be a better rate available within the market;

n Funding profile: the Bank has a matched funding profile and does not engage in maturity transformation which means that on a cumulative mismatch position the Bank is forecast to be able to meet all liabilities as they fall due;

n Monitoring maturity mismatches, behavioural characteristics of the Group's financial assets and financial liabilities, and the extent to which the Group's assets are encumbered and so not available as potential collateral for obtaining funding.

n Liquidity buffer: the Bank maintains a liquidity buffer of 10.0% of its deposit liabilities, with strict short-term mismatch limits of 0.0% for sight to three months and -5.0% for sight to six months. This ensures that the Bank is able to withstand any short-term liquidity shock; and

n Interbank market: the Bank has no exposure to the interbank lending market. The Bank has no reliance on liquidity via the wholesale markets. In turn, if market conditions meant access to the wholesale funding was constrained as per the 2008 credit crisis, this would have no foreseeable effect on the Bank.

The Bank's liquidity position is monitored daily against internal and external limits agreed with the FSA and according to the Bank's Liquidity Policy. The Bank also has a Liquidity Contingency Policy and Liquidity Contingency Committee in the event of a liquidity crisis or potential liquidity disruption event occur.

The Treasury department receives information from other business units regarding the liquidity profile of their financial assets and financial liabilities and details of other projected cash flows arising from projected future business. Treasury then maintains a portfolio of short-term liquid assets, largely made up of short-term liquid investment securities, loans and advances to banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Group as a whole.

Regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. The scenarios are developed considering both Group-specific events and market-related events (e.g. prolonged market illiquidity).

D. Market risk

'Market risk' is the risk that changes in market prices - e.g. interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor's/issuer's credit standing) will affect the Group's income or value of its holdings of financial instruments. The objective of the Group's market risk management is to manage and control market risk exposures within acceptable parameters to ensure the Group's solvency while optimising the return on risk.

Management of market risks

Overall authority for market risk is vested in the Assets and Liabilities Committee ("ALCO") who sets up limits for each type of risk. Group finance is responsible for the development of risk management policies (subject to review and approval by the ALCO) and for the day-to-day review of their implementation.

Foreign exchange risk

The Bank is not subject to foreign exchange risks and its business is conducted in pounds sterling.

Equity risk

The Group has investment in associates of £282,000 (2018: £158,000) which are carried at cost adjusted for the Group's share of net asset value. The investment is audited annually and the Bank has access to these accounts. The Bank's exposure to market risk is not considered significant given the low carrying amount of the investment.

The Group's investment in listed equities is not considered significant.

Interest rate risk

The principal potential interest rate risk that the Bank is exposed to is the risk that the fixed interest rate and term profile of its deposit base differs materially from the fixed interest rate and term profile of its asset base, or basis and term structure risk.

Additional interest rate risk may arise for banks where (a) customers are able to react to market sensitivity and redeem fixed rate products and (b) where a bank has taken out interest rate derivate hedges especially against longer term interest rate risk, where the hedge moves against the bank.

Interest rate risk for the Bank is not deemed to be currently material due to the Bank's matched funding profile. Any interest rate risk assumed by the Bank will arise from a reduction in interest rates, in a rising environment due to the nature of the Bank's products and its matched funded profile. The Bank should be able to increase its lending rate to match any corresponding rise in its cost of funds, notwithstanding its inability to vary rates on its existing loan book. The Bank attempts to efficiently match its deposit taking to its funding requirements.

E. Operational risk

'Operational risk' is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group's processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks - e.g. those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group's operations.

Management of operational risk

The Group's objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group's reputation with overall cost effectiveness and innovation. In all cases, Group policy requires compliance with all applicable legal and regulatory requirements.

The Group has developed standards for the management of operational risk in the following areas:

n business continuity planning;

n requirements for appropriate segregation of duties, including the independent authorisation of transactions;

n requirements for the reconciliation and monitoring of transactions;

n compliance with regulatory and other legal requirements;

n documentation of controls and procedures;

n periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified;

n requirements for the reporting of operational losses and proposed remedial action;

n development of contingency plans;

n training and professional development;

n ethical and business standards;

n information technology and cyber risks; and

n risk mitigation, including insurance where this is cost-effective.

Compliance with Group standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with ARCC.

37. Basis of measurement

The financial statements are prepared on a historical cost basis, except for the following material items:

Items	Measurement basis
Financial instruments at fair value through profit and loss ("FVTPL")	Fair value
Financial assets at fair value through other comprehensive income ("FVOCI")	Fair value
Net defined benefit asset/liability	Fair value of plan assets less the present value of the defined benefit obligation

38. Significant accounting policies

Except for the changes explained in Note 5, the Group has consistently applied the following accounting policies to all periods presented in these financial statements.

Set out below is an index of the significant accounting policies, the details of which are available on the pages that follow:

Ref.	Note description	No.
A.	Basis of consolidation of subsidiaries and separate financial statements of the Company	71
B.	Interest in equity accounted investees	71
C.	Interest	71
D.	Fee and commission income	72
E.	Leases	72
F.	Income tax	72
G.	Financial assets and financial liabilities
	i. Recognition and initial measurement	72
	ii. Classification	73
	iii. Derecognition	73
	iv. Modifications of financial assets and financial liabilities	74
	v. Offsetting	74
	vi. Fair value measurement	74
	vii. Impairment	75
H.	Cash and cash equivalents	77
I.	Loans and advances	77
J.	Property, plant and equipment	77
K.	Intangibles assets and goodwill	77
L.	Impairment of non-financial assets	78
M.	Deposits, debt securities issued and subordinated liabilities	78
N.	Employee benefits	79
	i. Long-term employee benefits	79
	ii. Share-based compensation	79
O.	Share capital and reserves	79
P.	Earnings per share ("EPS")	79
Q.	Segmental reporting	79

A. Basis of consolidation of subsidiaries and separate financial statements of the Company

i. Business combinations

The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if they are related to issue of debt or equity securities.

ii. Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity if it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Group reassesses whether it has control if there are changes to one or more of the elements of control. This includes circumstances in which protective rights held (e.g. those resulting from a lending relationship) become substantive and lead to the Group having power over an investee. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

iii. Loss of control

When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related Non-Controlling Interest ("NCI") and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

iv. Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

v. Separate financial statements of the Company

In the separate financial statements of the Company, interests in subsidiaries, associates and joint ventures are accounted for at cost.

B. Interests in equity accounted investees

The Group's interests in equity accounted investees may comprise interests in associates and joint ventures.

Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

Interests in associates and joint ventures are accounted for using the equity method. They are initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Group's share of the profit or loss and OCI of equity accounted investees, until the date on which significant influence or joint control ceases.

C. Interest

Interest income and expense are recognised in profit or loss using the effective interest rate method.

Effective interest rate

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts of the financial instrument to the net carrying amount of the financial asset or financial liability. The discount period is the expected life or, where appropriate, a shorter period. The calculation includes all amounts receivable or payable by the Group that are an integral part of the overall return, including origination fees, loan incentives, broker fees payable, estimated early repayment charges, balloon payments and all other premiums and discounts. It also includes direct incremental transaction costs related to the acquisition or issue of the financial instrument. The calculation does not consider future credit losses.

Once a financial asset or a group of similar financial assets has been written down as a result of impairment, subsequent interest income continues to be recognised using the original effective interest rate applied to the reduced carrying value of the financial instrument.

D. Fee and commission income

The Group generates fee and commission income through provision of independent financial advice, insurance brokerage agency, introducer of foreign exchange services and commissions from brokering business finance for small and medium sized enterprises.

Independent financial advice and insurance brokerage agency

Income represents commission arising on services and premiums relating to policies and other investment products committed during the year, as well as renewal commissions having arisen on services and premiums relating to policies and other investment products committed during the year and previous years and effective at the balance sheet date. Income is recognised on the date that policies are submitted to product providers with an appropriate discount being applied for policies not completed. As a way to estimate what is due at the year end, a "not proceeded with" rate of 10.0% for pipeline life insurance products and 0.0% for non-life insurance pipeline is assumed. Renewal commissions are estimated by taking the historical amount written pro-rata to 3 months.

Other

Income other than that directly related to the loans is recognised over the period for which service has been provided or on completion of an act to which the fee relates.

E. Leases

Leases in which the Group is a lessor

Finance leases and HP contracts

When assets are subject to a finance lease or HP contract, the present fair value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. HP and lease income is recognised over the term of the contract or lease reflecting a constant periodic rate of return on the net investment in the contract or lease. Initial direct costs, which may include commissions and legal fees directly attributable to negotiating and arranging the contract or lease, are included in the measurement of the net investment of the contract or lease at inception.

Operating leases

Assets held for operating leases are presented on the Statement of Financial Position according to the nature of the asset. Lease income is recognised over the lease term on a straight-line basis.

Leases in which the Group is a lessee

Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

F. Income tax

Current and deferred taxation

Current taxation relates to the estimated corporation tax payable in the current financial year.  Deferred taxation is provided in full, using the liability method, on timing differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred taxation is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred tax is realised. Deferred taxation assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

G. Financial assets and financial liabilities

i. Recognition and initial measurement

The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date on which they are originated. All other financial instruments including regular-way purchases and sales of financial assets are recognised on the trade date, which is the date on which the Group becomes party to the contractual provisions of the instrument.

A financial asset or financial liability is measured initially at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue.

ii. Classification

Financial assets

On initial recognition, a financial asset is classified as measured at amortised cost, FVOCI or FVTPL.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

n the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and

n the contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI.

A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as FVTPL:

n the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

n the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest ("SPPI").

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in fair value in OCI. This election is made on an investment-by-investment basis.

All other financial assets are classified as measured at FVTPL.

In addition, on initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Business model assessment

The Group makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best reflects the way the business is managed and information provided to management.

Assessment of whether contractual cash flows are solely payments of principal and interest

For the purposes of this assessment, 'principal' is defined as the fair value of the financial asset on initial recognition. 'Interest' is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.

In assessing whether the contractual cash flows are SPPI, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition.

Reclassifications

Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business model for managing financial assets.

Financial liabilities

The Group classifies its financial liabilities, other than financial guarantees and loan commitments, as measured at amortised cost.

iii. Derecognition

Financial assets

The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in OCI is recognised in profit or loss.

Financial liabilities

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire.

iv. Modifications of financial assets and financial liabilities

Financial assets

If the terms of a financial asset are modified, then the Group evaluates whether the cash flows of the modified asset are substantially different.

If the cash flows are substantially different, the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognised and a new financial asset is recognised at fair value plus any eligible transaction costs.

If the cash flows are modified when the borrower is in financial difficulties, then the objective of the modification is usually to maximise recovery of the original contractual terms rather than to originate a new asset with substantially different terms. If the Group plans to modify a financial asset in a way that would result in forgiveness of cash flows, then it first considers whether a portion of the asset should be written off before the modification takes place. This approach impacts the result of the quantitative evaluation and means that the derecognition criteria are not usually met in such cases.

If the modification of a financial asset measured at amortised cost or FVOCI does not result in derecognition of the financial asset, then the Group first recalculates the gross carrying amount of the financial asset using the original effective interest rate of the asset and recognises the resulting adjustment as a modification gain or loss in profit or loss. Any costs or fees incurred and fees received as part of the modification adjust the gross carrying amount of the modified financial asset and are amortised over the remaining term of the modified financial asset. If such modification is carried out because of financial difficulties of the borrower, then the gain or loss is presented together with impairment losses. In other cases, it is presented as interest income calculated using the effective interest rate method.

Financial liabilities

The Group derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability derecognised and consideration paid is recognised in profit or loss. Consideration paid includes non-financial assets transferred, if any, and the assumption of liabilities, including the new modified financial liability.

If the modification of a financial liability is not accounted for as derecognition, then the amortised cost of the liability is recalculated by discounting the modified cash flows at the original effective interest rate and the resulting gain or losses recognised in profit or loss. Any costs and fee incurred are recognised as an adjustment of the carrying amount of the liability and amortised over the remaining term of the modified financial liability by re-computing the effective interest rate on the instrument.

v. Offsetting

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted under IFRS, or for gains and losses arising from a group of similar transactions such as in the Group's trading activity.

vi. Fair value measurement

'Fair value' is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at the date. The fair value of a liability reflects its non-performance risk.

The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred.

The Group measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurements:

n Level 1: inputs that are quoted market prices (unadjusted) in active markets for identical instruments;

n Level 2: inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data; and

n Level 3: inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Group determines fair values using other valuation techniques.

For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

vii. Impairment

A financial instrument that is not credit-impaired on initial recognition is classified in 'Stage 1' and has its credit risk continuously monitored by the Group. 

If a significant increase in credit risk ("SICR") since initial recognition is identified, the financial instrument is moved to 'Stage 2' but is not yet deemed to be credit-impaired.

n An SICR is always deemed to occur when the borrower is 30 days past due on its contractual payments.  If the Group becomes aware ahead of this time of non-compliance or financial difficulties of the borrower, such as loss of employment, avoiding contact with the Group then an SICR has also deemed to occur; and

n A receivable is always deemed to be in default and credit-impaired when the borrower is 90 days past due on its contractual payments or earlier if the Group becomes aware of severe financial difficulties such as bankruptcy, IVA, abscond or disappearance, fraudulent activity and other similar events.

If the financial instrument is credit-impaired, the financial instrument is then moved to 'Stage 3'. Financial instruments in Stage 3 have their Expected Credit Loss ("ECL") measured based on expected credit losses on an undiscounted lifetime basis.

The Group measures loss allowances at an amount equal to lifetime ECL, except for debt investment securities that are determined to have low credit risk at the reporting date for which they are measured as a 12-month ECL. Loss allowances for lease receivables are always measured at an amount equal to lifetime ECL.

12-month ECL are the portion of ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date. Financial instruments for which a 12-month ECL is recognised are referred to as 'Stage 1 financial instruments'.

Life-time ECL are the ECL that result from all possible default events over the expected life of a financial instrument. Financial instruments for which a lifetime ECL is recognised but which are not credit-impaired are referred to as 'Stage 2 financial instruments'.

Measurement of ECL

After a detailed review, the Group devised and implemented an impairment methodology in light of the IFRS 9 requirements outlined above noting the following:

n The ECL was derived by reviewing the Group's loss rate and loss given default over the past 8 years by product and geographical segment;

n The Group has assumed that the future economic conditions will broadly mirror the current environment and therefore the forecasted loss levels in the next 3 years will match the Group's experience in recent years;

n For portfolios where the Group has never had a default in its history or has robust credit enhancements such as credit insurance or default indemnities for the entire portfolio, then no IFRS 9 provision is made.  At 2019 year-end, 37.9% had such credit enhancements (2018: 41.7%); and

n If the Group holds objective evidence through specifically assessing a credit-impaired receivable and believes it will go on to completely recover the debt due to the collateral held and cooperation with the borrower, then no IFRS 9 provision is made.

ECL are probability-weighted estimates of credit losses. They are measured as follows:

n financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive);

n financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows; and

n undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to the Group if the commitment is drawn down and the cash flows that the Group expects to receive.

Credit-impaired financial assets

At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt financial assets carried at FVOCI, and finance lease receivables are credit-impaired (referred to as 'Stage 3 financial assets'). A financial asset is 'credit-impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable date:

n significant financial difficulty of the borrower or issuer;

n a breach of contract such as a default or past due event;

n the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise;

n it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or

n the disappearance of an active market for a security because of financial difficulties.

A loan that has been renegotiated due to a deterioration in the borrower's condition is usually considered to be credit-impaired unless there is evidence that the risk of not receiving contractual cash flows has reduced significantly and there are no other indicators of impairment. In addition, a retail loan that is overdue for 90 days or more is considered credit-impaired even when the regulatory definition of default is different.

In making an assessment of whether an investment in sovereign debt is credit impaired, the Group considers the following factors:

n the market's assessment of creditworthiness as reflected in the bond yields;

n the rating agencies' assessments of creditworthiness;

n the country's ability to access the capital markets for new debt issuance;

n the probability of debt being restructured, resulting in holders suffering losses through voluntary or mandatory debt forgiveness; and

n The international support mechanisms in place to provide the necessary support as 'lender of last resort' to that country, as well as the intention, reflected in public statements, of governments and agencies to use those mechanisms. This includes an assessment of the depth of those mechanisms and, irrespective of the political intent, whether there is the capacity to fulfil the required criteria.

Presentation of allowance for ECL in the statement of financial position

Loss allowances for ECL are presented in the statement of financial position as follows:

n financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets;

n loan commitments: generally, as a provision; and

n debt instruments measured at FVOCI: no loss allowance is recognised in the statement of financial position because the carrying amount of these assets is their fair value. However, the loss allowance is disclosed and is recognised in the fair value reserve.

Write-off

Loans and debt securities are written off (either partially or in full) when there is no reasonable expectation of recovering a financial asset in its entirety or a portion thereof. This is generally the case when the Group determines that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. This assessment is carried out at the individual asset level.

Recoveries of amounts previously written off are included in 'impairment losses on financial instruments' in the statement of profit or loss and OCI.

Financial assets that are written off could still be subject to enforcement activities in order to comply with the Group's procedures for recovery of amounts due.

H. Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents comprise cash and deposit balances with an original maturity date of three months or less.

I. Loans and advances

Loans and advances' captions in the statement of financial position include:

n loans and advances measured at amortised cost (see 38 (I)). They are initially measured at fair value plus incremental direct transaction costs, and subsequently at their amortised cost using the effective interest method; and

n finance lease receivables (see 38 (G)).

J. Property, plant and equipment

Items of property, plant and equipment are stated at historical cost less accumulated depreciation (see below). Historical cost includes expenditure that is directly attributable to the acquisition of the items.

The assets' residual values and useful economic lives are reviewed, and adjusted if appropriate, at each reporting date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

When parts of an item of property, plant and equipment have different useful lives, those components are accounted for as separate items of property, plant and equipment.

Depreciation and amortisation

Assets are depreciated or amortised on a straight-line basis, so as to write off the book value over their estimated useful lives.  The useful lives of property, plant and equipment and intangibles are as follows:

Property, plant and equipment

Leasehold improvements  to expiration of the lease

IT equipment  4-5 years

Motor vehicles  2.5 years

Furniture and equipment  4 -10 years

K. Intangible assets and goodwill

i. Goodwill

Goodwill that arises on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.

ii. Software

Software acquired by the Group is measured at cost less accumulated amortisation and any accumulated impairment losses.

Expenditure on internally developed software is recognised as an asset when the Group is able to demonstrate: that the product is technically feasible, its intention and ability to complete the development and use the software in a manner that will generate future economic benefits, and that it can reliably measure the costs to complete the development. The capitalised costs of internally developed software include all costs directly attributable to developing the software and capitalised borrowing costs, and are amortised over its useful life. Internally developed software is stated at capitalised cost less accumulated amortisation and any accumulated impairment losses.

Software is amortised on a straight-line basis in profit or loss over its estimated useful life, from the date on which it is available for use.  Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

iii. Other

Intangible assets that are acquired by an entity and having finite useful lives are measured at cost less accumulated amortisation and any accumulated impairment losses.

Intangible assets acquired as part of a business combination, with an indefinite useful live are measured at fair value. Intangible assets with indefinite useful lives are not amortised but instead are subject to impairment testing at least annually.

The useful lives of intangibles are as follows:

Customer contracts and lists  to expiration of the agreement

Business intellectual property rights  4 years - indefinite

Website development costs  indefinite

Software  5 years

L. Impairment of non-financial assets

At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. Goodwill is tested annually for impairment.

For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that is largely independent of the cash inflows of other assets or Cash Generating Units ("CGUs"). Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.

The 'recoverable amount' of an asset or CGU is the greater of its value in use and its fair value less cost to sell. 'Value in use' is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.

An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount.

The Group's corporate assets do not generate separate cash inflows and are used by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGUs to which the corporate assets are located.

Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

M. Deposits, debt securities issued and subordinated liabilities

Deposits, debt securities issued and subordinated liabilities are the Group's sources of debt funding.

The Group classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments.

Deposits, debt securities issued and subordinated liabilities are initially measured at fair value minus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method.

N. Employee benefits

i. Long term employee benefits

Pension obligations

The Group has pension obligations arising from both defined benefit and defined contribution pension plans.

A defined contribution pension plan is one under which the Group pays fixed contributions into a separate fund and has no legal or constructive obligations to pay further contributions. Defined benefit pension plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and remuneration.

Under the defined benefit pension plan, in accordance with IAS 19 Employee benefits, the full service cost for the period, adjusted for any changes to the plan, is charged to the income statement. A charge equal to the expected increase in the present value of the plan liabilities, as a result of the plan liabilities being one year closer to settlement, and a credit reflecting the long-term expected return on assets based on the market value of the scheme assets at the beginning of the period, is included in the income statement.

The statement of financial position records as an asset or liability as appropriate, the difference between the market value of the plan assets and the present value of the accrued plan liabilities. The difference between the expected return on assets and that achieved in the period, is recognised in the income statement in the year in which they arise. The defined benefit pension plan obligation is calculated by independent actuaries using the projected unit credit method and a discount rate based on the yield on high quality rated corporate bonds. 

The Group's defined contribution pension obligations arise from contributions paid to a Group personal pension plan, an ex gratia pension plan, employee personal pension plans and employee co-operative insurance plans. For these pension plans, the amounts charged to the income statement represent the contributions payable during the year.

ii. Share-based compensation

The Group maintains a share option programme which allows certain Group employees to acquire shares of the Group. The change in the fair value of options granted is recognised as an employee expense with a corresponding change in equity. The fair value of the options is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options.

At each reporting date, the Group revises its estimate of the number of options that are expected to vest and recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

The fair value is estimated using a proprietary binomial probability model. The proceeds received, net of any directly attributable transaction costs, are credited to share capital (nominal value) and share premium when the options are exercised.

O. Share capital and reserves

Share issue costs

Incremental costs that are directly attributable to the issue of an equity instrument are deducted from the initial measurement of the equity instruments.

P. Earnings per share ("EPS")

The Group presents basic and diluted EPS data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss that is attributable to ordinary shareholders of MFG by the weighted-average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting profit or loss that is attributable to ordinary shareholders and the weighted-average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted employees.

Q. Segmental reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Group's primary format for segmental reporting is based on business segments.

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses relating to transactions with any of the Group's other components, whose operating results are regularly reviewed by the Group's chief operating decision maker ("CODM") to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Segment results reported to the Group's CEO (being the CODM) include items that are directly attributable to a segment as well as those that can be allocated on a reasonable basis.

39. Standards issued but not yet effective

A number of new standards are effective for annual periods beginning after 1 January 2020 and earlier application is permitted; however, the Group has not early adopted the new or amended standards in preparing these consolidated financial statements.

Standards	Effective date (accounting periods commencing on or after)
Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform (issued on 26 September 2019)	1 January 2020
Amendments to IAS 1 and IAS 8: Definition of Material (issued on 31 October 2018)	1 January 2020
Amendments to References to the Conceptual Framework in IFRS Standards (issued on 29 March 2018)	1 January 2020

 

END

 

 

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