REG - Manx Financial Group - Report and Accounts for the year ended 31 Dec 2021
10/03/2022 07:01
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220310:nRSJ2541Ea&default-theme=true
RNS Number : 2541E Manx Financial Group PLC 10 March 2022
FOR IMMEDIATE
RELEASE
10th March 2022
Manx Financial Group PLC (the 'Company')
Report and accounts for the year ended 31 December 2021
Manx Financial Group PLC (LSE: MFX), the financial services group which
includes Conister Bank Limited, Conister Finance & Leasing Ltd, Blue Star
Business Solutions Limited, Edgewater Associates Limited and Manx FX Limited
presents its audited final results for the year ended 31 December 2021.
Jim Mellon, Executive Chairman, commented: "The year's financial performance
is pleasing with profit before tax payable increasing by £1 million to £3
million despite two further lockdowns and continued economic uncertainty. As a
result, the dividend recommended for shareholder approval will be 0.2443 pence
per share - a 42% uplift from last year."
The 2021 Audited Annual Report and Accounts will be posted to Shareholders and
will be available from the Company's website www.mfg.im (http://www.mfg.im/)
shortly.
This announcement contains inside information for the purposes of Article 7 of
EU Regulation No. 596/2014 on market abuse. Upon the publication of this
announcement via a Regulatory Information Service, this inside information is
now considered to be in the public domain.
For further information, please contact:
Manx Financial Group PLC Beaumont Cornish Limited Greentarget Limited
Denham Eke, Roland Cornish/James Biddle Dafina Grapci-Penney
Executive Vice Chairman Tel +44 (0) 20 7628 3396 Tel +44 (0) 203 963 1887
Tel +44 (0)1624 694694
Dear Shareholders
Introduction
The current uncertainties in global markets, fuelled firstly by the effects of
the COVID pandemic, and now the Ukraine crisis, look to dominate the economic
environment for the foreseeable future as our previous world order is
challenged. It seems clear that inflationary pressures will continue for some
considerable time. Interest rates will increase as central banks attempt to
address these issues in their efforts to stabilise money supply and maintain
the availability of credit. The United Kingdom, however, is better placed than
some as it does not suffer from certain of the structural weaknesses of its
competitors. Notwithstanding, there is no doubt that the operating expense of
doing business, especially wage inflation, will increase, driven by the
mounting cost of living, coupled with a very tight labour market.
With uncertainty comes opportunity and, whilst the pandemic has undoubtedly
had a negative impact on our income statement, we have managed to strengthen
our balance sheet during the last two years. In this time, our lending has
increased by £50 million from £179 million to £229 million; our total
assets by £56 million from £253 million to £309 million; and funds
available to shareholders by £3 million from £22 million to £25 million.
All this positions us well for the future.
Our enhanced balance sheet has allowed the Group to start paying dividends
again after a 16-year hiatus. The Board's commitment is to return 10% of the
Group's profit available to shareholders each year in the form of cash or
shares. This year, the total dividend recommended for shareholder approval
will be 0.2443 pence per share (2020: 0.1724 pence per share) - a 42% uplift,
as we continue to reward our loyal shareholders in a manner that will not
impede the development of the Group.
Financial Performance
The year's financial performance is pleasing despite two further lockdowns and
continued economic uncertainty. Profit before tax payable increased by £1.0
million to £3.0 million (2020: £2.0 million), a growth of 50%. Of particular
note is Conister Bank's record lending of £212.6 million (2020: £167.2
million). This, along with our strategy of reducing onerous commission
payments, has led to net trading income growing by £3.6 million to £19.0
million (2020: £15.4 million) and operating income by £3.6 million to £20.0
million (2020: £16.4 million).
Operating expenses, excluding provisions and recovered VAT, increased by £1.2
million to £11.7 million (2020: £10.5 million) with £0.3 million of this
relating to headcount as we bolster our UK establishment, both organically and
through our acquisitions. The balance, £0.8 million, relates to higher IT,
operational, and legal costs as we continued to improve our technology and
grow our loan book. Total costs, excluding the one-off VAT credits, increased
by £1.8 million to £17.1 million (2020: £15.3 million), with additional
provisions of £0.4 million to £4.4 million (2020: £4.0 million), together
with depreciation and amortisation of intangibles increasing by £0.2 million
to £1.1 million (2020: £0.9 million). Our operating income ratio, measured
as operating income less impairment provisions on loans and advances to
customers as a percentage of interest income, improved by 7.8% to 68.0% (2020:
60.2%), reflecting the development of a more efficient operating environment.
Turning to the balance sheet, our total assets showed a £40.8 million
improvement to £308.8 million (2020: £268.0 million), driven mainly by a
loan book increase of £36.1 million. Our loyal Isle of Man depositor base
continued to support our growth with deposits increasing by £35.2 million to
£253.5 million (2020: £218.3 million). Over the year, our loan to deposit
ratio improved by 1.9% to 90.4% (2020: 88.5%) - a key measure of operational
efficiency. Total liabilities increased by £38.5 million to £284.0 million
(2020: £245.5 million), leading to an increase in total equity of £2.6
million to £25.0 million (2020: £22.4 million).
Key Objectives
In this uncertain economic environment, our fundamental focus continued to be
the protection of shareholder value. Thus, our strategic concentration
remained as previously reported, namely to:
§ Provide the highest quality of service throughout our operations to all
customers, ensuring that their treatment is both fair and appropriate;
§ Adopt a pro-active strategy to managing risk within a structured and
compliant regime;
§ Concentrate on developing our core business by considered acquisitions,
increasing prudential lending, and augmenting the range of financial services
we offer;
§ Maintain the implementation of 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;
§ Continue to develop our Treasury management to improve the return on
the liabilities side of our balance sheet; and
§ Manage our balance sheet to exceed the regulatory requirements for
capital adequacy.
Environmental, Social and Corporate Governance
We recognise the value and contribution that businesses such as the Group can
make to society, in protecting the environment, being responsible and ensuring
good practice through the services and support it provides. We have witnessed
a rapid growth in the international focus on sustainability, tackling
dangerous climate change and, in particular, the part that the finance sector
is being asked to play in meeting these challenges.
We now integrate ESG across our business, in our decision making and in what
we do. Through our stewardship and engagement with those whom we work, we
encourage and finance others to be more sustainable. We do this by
understanding and responding to the ESG issues that are material to both us
and to our stakeholders. We have incorporated this philosophy in our strategy,
risk management and governance as described in greater detail later in this
Report.
Conister Bank Limited
The Bank continued to progress a prudent lending strategy with the loan book
increasing by £41.0 million to £234.4 million (2020: £193.4 million). We
recorded growth in both of our markets, namely, our home market, the Isle of
Man, and in the UK.
The Isle of Man market demand for loan finance has virtually returned to its
pre-pandemic levels and the Bank has improved its market share through
flexible online offerings and being accredited to the Isle of Man Government's
Business Support Schemes. On Island, the Bank lent a record £42.9 million
(2020: £34.9 million) to consumers and Small and Medium Sized Enterprises
("SMEs") with over 60% of this originating from our online portal.
In the UK, the Bank lent £40.9 million in conjunction with the British
Business Bank to support SMEs through its accreditation to the UK Government
Loan Schemes. These schemes indemnified the Bank for between 80% to 100% of
any loss. Since the year-end, the Bank has been accredited to provide a
further £20.0 million of liquidity through the new Recovery Loan Scheme
("RLS") which came into effect on 1 January 2022. With the tapering of
Government guarantee support, the RLS will provide the Bank with a guaranteed
70% of any loss incurred. These guarantee schemes are important to the Bank as
the government support, whether from the Isle of Man or the UK, provide a
considerable level of insulation against loss. These are a safer form of
lending during these difficult times and allow the Bank the opportunity to
re-build its pipeline as businesses adapt to the new economic environment.
The Bank continues to seek acquisitions that provide access to niche lending
markets in the UK. By owning the customer, the Bank continued its strategy to
reduce its reliance on other introducers and their expensive commissions. In
the last five years, I am pleased to say, commissions have decreased by 58%,
or £4.9 million, from £8.4 million in 2017 to a more normalised commission
level of £3.5 million in 2021 (2020: £3.6 million). Over the same five-year
period, interest income has increased by £1.3 million to £22.0 million
(2020: £20.7 million).
The Bank's Isle of Man depositor base remains very loyal with a retention rate
in excess of 70%. Whilst we continue to consider new products for this market,
it remains our intention to reduce our on-Island reliance. I expect to
announce more on this topic in the coming months.
During the year, the Bank continued to attract deposits at historically low
rates to fund lending with cash and cash equivalents and debt securities
totalling £58.5 million (2020: £57.4 million). We continued to apply our
liquidity in our preferred markets: the Isle of Man; the UK Government backed
schemes; the UK Structured Finance markets; and the UK credit broker market.
We have been building our Structured Finance team over the last three years,
and this year the Bank lent £114.1 million (2020: £96.9 million) through
this distribution channel. Structured Finance is an area we expect to grow our
presence in further in the coming years.
Turning to the overheads, personnel expenses increased by £0.3 million
reflecting the additional staff cost associated with our UK growth strategy
with overheads overall increasing to £8.3 million (2020: £7.4 million). We
continued to focus on favourable customer outcomes and with the pandemic this
has necessitated a level of forbearance which runs in tandem with lending
through the Government support schemes. The Bank's forbearance agreements
reduced by 43% during the year. This, along with loan book growth of £41.0
million, allowed our provisioning to only increase by £0.3 million to £4.3
million (2020: £4.0 million), reflecting the continued prudent approach we
have taken during the pandemic. Depreciation and amortisation remained
constant at £0.6 million. In total, the Bank's cost base increased by £1.1
million to £13.2 million (2020: £12.1 million) but, driven by the increase
in turnover, the Bank's profit before tax margin increased by 1.8% to 5.0%
(2020: 3.2%).
Total assets increased by £36.6 million to £296.8 million (2020: £260.2
million), a growth of 14%. Shareholder funds increased by £1.1 million to
£31.2 million (2020: £30.1 million). The balance sheet has strengthened over
the two years of the pandemic by 24% or £6.2 million, to £31.2 million from
£25.0 million in 2020.
Edgewater Associates Limited
We have re-focused and resourced this business to meet the demands of
legislation relating to the provision of regulated financial advice on the
Isle of Man. In addition, through a project to improve our technology, our
customer segmentation will allow an improved customer focused journey which
will also deliver operational efficiencies. Despite progressing the above
projects and the negative impact of two extensive Isle of Man lockdowns
preventing client meetings, the business achieved income growth of 9.5% to
£2.3 million (2020: £2.1 million), with recurring income increasing by 9.1%
to £1.2 million (2020: £1.1 million). Encouragingly, with the markets
improving, the assets under advice grew by £7 million to £368 million (2020:
£361 million). Operations incurred one-off costs mainly relating to the above
projects and professional fees, which after adjustment, generated an implied
underlying profit of £0.2 million (2020 adjusted: nil). We expect, assuming
no further Covid related lockdowns, a further improved financial performance
in 2022.
Manx FX Limited
Our foreign exchange advisory continued to perform positively and recorded a
record profit for the year of £1.2 million (2020: £1.1 million), with a
marginal increase in the cost to income ratio to 19.0% (2020: 17.3%) as we
build resilience. This is a highly cash generative business which contributed
£1.0 million (2020: £0.6 million) to the Group's treasury.
We were successful in seeking ways to increase market share, and showed a
growth of 26% in 2021, further reducing any reliance on certain market
sectors. The expansion strategy will require the business to be re-branded as
MFX Limited in the coming months.
Blue Star Business Solutions Limited
With two UK lockdowns in the year, the business's traditional markets were
badly impacted. However, through the Bank's accreditation to the UK Government
guaranteed loan schemes, the business was able to grow its brokered lending to
£14.3 million (2020: £7.5 million). Of the total advanced, the Bank wrote
£8.8 million (2020: £3.7 million) with the balance being passed to other
funders - providing the business with a second income stream.
The business was profitable in its own right and contributed £0.5 million
(2020: £0.4 million) to the Group's income this year.
We acquired this business in April 2019 and we will incur our final
contractual deferred consideration payment in April 2022. So far this has been
a very successful acquisition.
Ninkasi Rentals & Finance Limited
The business changed its name from Beer Swaps Limited to Ninkasi Rentals &
Finance Limited on 16 November 2021 to more accurately reflect its core
business.
The business continued to be the largest tank lessor in the UK brewing market
with a fleet size 261 (2020: 185) providing 1.2 million litres of brewing
capacity (2020: 0.7 million litres).
A key measure of performance is the deployment of its fleet which, despite the
41% increase in fleet size and the resulting 72% increase in brewing capacity,
is currently 89% (2020: 88%). The business, in addition to being profitable in
its own right, generated £1.4 million (2020: £0.6 million) to the Group's
income this year.
The Business Lending Exchange Limited
On 11 October 2021, we announced the purchase of the remaining shareholding in
this business by exercising the option we negotiated in October 2016. The
enterprise value of the business at acquisition was £2.2 million for which we
paid £1.3 million including a significant deferred element.
This business specialises in prudent lending through their experienced
management team to the profitable sub-prime SME market, a sector in which the
Bank lacked meaningful access. In addition to being profitable in its own
right, the business generated £0.4 million (2020: £nil) to the Group's
income.
Outlook
Against a backdrop of inflation, increasing interest rates and the tapering of
government support schemes, 2022 will be a challenging year but it will also
bring opportunity.
On the Isle of Man, the lending market is buoyant and the Bank has new
products in development which will allow it to increase market share,
particularly for those markets currently untapped.
In the UK, the Bank does not operate in the mainstream clearing bank markets
but in niche, resilient sectors and, as such, we expect the competitive
environment to remain similar to this year. Further, it already has a healthy
pipeline for its Structured Finance products which, along with its
accreditation to government support schemes, will form the backbone to our
loan book growth next year.
Uncertainty, whilst historically challenging for our Isle of Man IFA business,
should not impact Edgewater Associates Limited to the same extent as the
constraints forced upon the operation during the pandemic. Conversely, our FX
business has thrived on currency swings, and the current global concerns
should allow this business to maintain its profitability.
Our existing investments in Blue Star Business Solutions Limited (financing
technology); Ninkasi Leasing & Rental Limited (leasing fermentation tanks)
and The Business Lending Exchange Limited (lending to sub-prime SMEs) are all
performing well and we seek to replicate this success with similar
acquisitions.
In summary, our diversity will continue to be a strength during this period of
uncertainty.
Board changes
In November, I announced changes to the Board composition. Denham Eke, our
previous CEO, has moved to the newly created position of Executive
Vice-Chairman. I would like to put on record my thanks to Denham for his
capable leadership during his tenure. Douglas Grant, previously our CFO, has
accepted the position of CEO in Denham's stead. James Smeed, previously our
Group Financial Controller, has, in turn, accepted the position of CFO and
joined the Board together with Greg Jones as an Independent Non-Executive
Director.
Greg also joins the Board of the Bank as a Non-Executive Director and as a
member of the Audit, Risk and Compliance Committee. Greg will be an invaluable
addition to the Group, particularly in providing assistance in matters both
legal and tax, and also by broadening the already significant skill range of
our Independent Directors.
I believe these appointments further strengthen our Board and I look forward
to working with my colleagues to meet the challenges and opportunities our
industry will provide in the coming years.
Changes to our Memorandum and Articles of Association
As we continue with our expansion, it has become apparent to the Board that we
will have to modify our Memorandum and Articles of Association if we are to
meet the regulatory licence application requirements for additional
jurisdictions. Thus, at the forthcoming General Meeting, shareholders will be
presented with a number of amendments to adopt. Whilst initially these changes
may appear complex, their sole intention is to provide an enhanced layer of
protection for our current banking licence and any additional licences we may
seek to secure in the future. This requirement will be explained more
thoroughly in a Circular which will accompany the Notice for the General
Meeting.
Thank you
The last two years have proved difficult for our staff, both personally and
professionally, but they have been a great credit to the Group. I would like
to take this opportunity to thank them all for their dedication to both our
customers and to our business during these difficult times. But it is not only
our staff I need to thank, but also all our other stakeholders for the support
provided to the Group over the year.
Jim Mellon
Executive Chairman
9 March 2022
CONSOLIDATED STATEMENT OF PROFIT OF LOSS AND OTHER COMPREHENSIVE INCOME
For the year ended 31 December Notes 2021 2020
£000 £000
Interest income 22,947 20,692
Interest expense (4,967) (5,222)
Net interest income 9 17,980 15,470
Fee and commission income 10 4,621 3,865
Fee and commission expense 10 (3,339) (3,481)
Depreciation on leasing assets 22 (269) (406)
Net trading income 18,993 15,448
Other operating income 365 200
Gain on financial instruments 19 30 259
Realised (loss) / gain on debt securities 18 (1) 261
Revaluation on acquisition of subsidiary 31(F) 660 237
Operating income 20,047 16,405
Personnel expenses 11 (7,156) (6,823)
Other expenses 12 (4,500) (3,707)
Impairment on loans and advances to customers 13 (4,360) (3,950)
Depreciation 22 (675) (490)
Amortisation and impairment of intangibles 23 (458) (374)
Share of profit of equity accounted investees, net of tax 29 32 54
VAT recovery 21 113 906
Profit before tax payable 14 3,043 2,021
Income tax expense 15 (234) (53)
Profit for the year 2,809 1,968
For the year ended 31 December Notes 2021 2020
£000 £000
Profit for the year 2,809 1,968
Other comprehensive income:
Items that will be reclassified to profit or loss
Unrealised loss on debt securities 18 (18) (51)
Revaluation gain on property, plant and equipment 22 15 -
Recognition of deferred tax credit on defined benefit pension 67 -
Items that will never be reclassified to profit or loss
Actuarial gain / (loss) on defined benefit pension scheme taken to equity 27 172 (241)
Total comprehensive income for the period attributable to owners 3,045 1,676
Profit attributable to:
Owners of the Company 2,793 1,935
Non-controlling interests 16 33
2,809 1,968
Total comprehensive income attributable to:
Owners of the Company 3,029 1,643
Non-controlling interests 16 33
3,045 1,676
Earnings per share - Profit for the year
Basic earnings per share (pence) 16 2.46 1.65
Diluted earnings per share (pence) 16 1.97 1.37
Earnings per share - Total comprehensive income for the year
Basic earnings per share (pence) 16 2.66 1.41
Diluted earnings per share (pence) 16 2.13 1.19
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 2021 2020
£000 £000
Dividend income 1,259 572
Interest income 518 522
Other income 78 -
Operating income 1,855 1,094
Personnel expenses (129) (74)
Administration expenses (59) (122)
Depreciation expense (91) (101)
Amortisation expense (2) -
Impairment of intercompany receivable (545) -
Profit before tax payable 14 1,029 797
Tax payable - -
Profit for the year 1,029 797
Total comprehensive income for the year 1,029 797
The Directors believe that all results derive from continuing activities.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
2021 2020
As at 31 December Notes £000 £000
Assets
Cash and cash equivalents 17 20,279 34,053
Debt securities 18 40,987 25,532
Financial asset 33 68 4
Loans and advances to customers 20 229,251 193,143
Trade and other receivables 21 1,947 2,170
Property, plant and equipment 22 7,257 6,045
Intangible assets 23 2,508 2,286
Investment in associates 29 136 316
Goodwill 34 6,320 4,412
Total assets 308,753 267,961
Liabilities
Deposits from customers 24 253,459 218,285
Creditors and accrued charges 25 4,745 3,206
Contingent consideration 6(ii), 31 1,023 672
Loan notes 26 23,672 22,222
Pension liability 27 687 944
Deferred tax liability 15 182 197
Total liabilities 283,768 245,526
Equity
Called up share capital 28 19,133 19,121
Profit and loss account 5,781 3,230
Revaluation reserve 22 15 -
Non-controlling interest 56 84
Total equity 24,985 22,435
Total liabilities and equity 308,753 267,961
COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 December 2021 2020
Notes £000 £000
Assets
Cash and cash equivalents 17 430 1,378
Trade and other receivables 21 472 309
Amounts due from Group undertakings 35 6,104 1,935
Property, plant and equipment 22 263 354
Intangible assets 20 7
Investment in subsidiaries 30 22,597 22,597
Subordinated loans 35 7,728 7,728
Total assets 37,614 34,308
Liabilities
Creditors and accrued charges 25 501 501
Amounts due to Group undertakings 35 3,309 2,297
Loan notes 26 23,672 22,222
Total liabilities 27,482 25,020
Equity
Called up share capital 28 19,133 19,121
Profit and loss account (9,001) (9,833)
Total equity 10,132 9,288
Total liabilities and equity 37,614 34,308
CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY
Attributable to owners of the Company
Profit and loss account Non-controlling interests
Share capital £000 Revaluation reserve £000 Total
£000 £000 Total equity
Group £000 £000
Balance as at 1 January 2020 20,732 1,587 - 22,319 - 22,319
Profit for the year - 1,935 - 1,935 33 1,968
Other comprehensive income - (292) - (292) - (292)
Transactions with owners
Changes in ownership interests (1,611) - - (1,611) - (1,611)
Acquisition of subsidiary with non-controlling interest
- - - - 51 51
Balance as at 31 December 2020 19,121 3,230 - 22,351 84 22,435
Profit for the year - 2,793 - 2,793 16 2,809
Other comprehensive income - 221 15 236 - 236
Transactions with owners
Dividend declared (see note 28) 12 (197) - (185) - (185)
Acquisition of subsidiary with non-controlling interest - (266) - (266) (44) (310)
Balance as at 31 December 2021 19,133 5,781 15 24,929 56 24,985
Profit and loss account
Share capital £000 Total
£000 equity
Company £000
Balance as at 1 January 2020 20,732 (10,630) 10,102
Profit for the year - 797 797
Transactions with owners
Changes in ownership interests (1,611) - (1,611)
Balance as at 31 December 2020 19,121 (9,833) 9,288
Profit for the year - 1,029 1,029
Transactions with owners
Dividend declared (see note 28) 12 (197) (185)
Balance as at 31 December 2021 19,133 (9,001) 10,132
CONSOLIDATED STATEMENT OF CASH FLOWS
2021 2020
For the year ended 31 December Notes £000 £000
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
Profit before tax 3,043 2,021
Adjustments for:
Depreciation 22 944 896
Amortisation and impairment of intangibles 23 458 374
Share of profit of equity accounted investees 29 (32) (54)
Contingent consideration interest expense 6(ii) 114 122
Pension charge included in personnel expenses 27 13 15
Gain on financial instruments 19 (30) (253)
Revaluation on acquisition of subsidiary 31 (660) (237)
3,850 2,884
Changes in:
Financial asset 4 15
Trade and other receivables 223 415
Creditors and accrued charges (109) 315
Net cash flow from trading activities 3,968 3,629
Changes in:
Loans and advances to customers (36,128) (16,023)
Deposits from customers 35,174 8,352
Pension contribution 27 (98) -
Cash inflow / (outflow) from operating activities 2,916 (4,042)
CASH FLOW STATEMENT
Cash from operating activities
Cash inflow / (outflow) from operating activities 2,916 (4,042)
Income taxes paid (10) (172)
Net cash inflow / (outflow) from operating activities 2,906 (4,214)
Cash flows from investing activities
Purchase of property, plant and equipment 22 (2,109) (1,187)
Purchase of intangible assets 23 (481) (231)
Sale of tangible fixed assets 22 961 127
Acquisition of subsidiary or associate, net of cash acquired 31,32 (555) (648)
(Purchase) / sale of debt securities 18 (15,473) 21,209
Contingent consideration 6(ii),31 (120) (59)
Net cash (outflow) / inflow from investing activities (17,777) 19,211
Cash flows from financing activities
Receipt of loan notes 26 1,450 4,640
Payment of lease liabilities (capital) 37 (201) (204)
Dividend paid 28 (152) -
Net cash inflow from financing activities 1,097 4,436
Net (decrease) / increase in cash and cash equivalents (13,774) 19,433
Cash and cash equivalents at 1 January 34,053 14,620
Cash and cash equivalents at 31 December 20,279 34,053
Included in cash flows are:
Interest received - cash amounts 22,624 20,274
Interest paid - cash amounts 4,936 (5,053)
COMPANY STATEMENT OF CASH FLOWS
2021 2020
For the year ended 31 December Notes £000 £000
RECONCILIATION OF PROFIT BEFORE TAXATION TO OPERATING CASH FLOWS
Profit before tax 1,029 797
Adjustments for:
Depreciation 22 91 101
Amortisation 2 -
Dividend income (1,259) (572)
(137) 326
Changes in:
Amounts due from group undertakings (2,910) (347)
Trade and other receivables (163) (78)
Creditors and accrued charges 66 17
Amounts due from Group undertakings 1,012 1,522
Cash (outflow) / inflow from operating activities (2,132) 1,440
CASH FLOW STATEMENT
Cash from operating activities
Cash (outflow) / inflow from operating activities (2,132) 1,440
Income taxes paid - -
Net cash (outflow) / inflow from operating activities (2,132) 1,440
Cash flows from investing activities
Investment in subsidiaries 30 - (4,775)
Purchase of property, plant and equipment - (5)
Purchase of intangible assets (15) -
Net cash outflow from investing activities (15) (4,780)
Cash flows from financing activities
Receipt of loan notes 26 1,450 4,640
Receipt of subordinated loan - 50
Payment of finance lease liability (99) (91)
Dividend paid (152) -
Net cash inflow from financing activities 1,199 4,599
Net (decrease) / increase in cash and cash equivalents (948) 1,259
Cash and cash equivalents at 1 January 1,378 119
Cash and cash equivalents at 31 December 430 1,378
The notes form part of these financial statements.
1. Reporting entity
Manx Financial Group PLC ("Company") is a company incorporated in the Isle of
Man. The consolidated financial statements of the Company for the year ended
31 December 2021 comprise the Company and its subsidiaries ("Group") including
Conister Bank Limited (the "Bank"). The Group is primarily involved in the
provision of financial services.
2. Basis of accounting
The consolidated and the separate financial statements of the Company have
been prepared in accordance with international accounting standards in
accordance with UK-adopted international accounting standards ("UK-adopted
IFRS" or "IFRSs"), on a going concern basis as disclosed in the Directors'
Report.
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.
The extent to which COVID-19 impacts the Group's business will depend on the
effectiveness of government containment actions and the effectiveness of
government and central bank stimulus measures. As the economic environment
remains uncertain, actual results may differ from the estimates below.
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 27 - measurement of defined benefit obligations: key actuarial
assumptions;
n Note 23 and 34 - impairment test of intangible assets and goodwill: key
assumptions underlying recoverable amounts;
n Note 43(G)(vii) - measurement of Expected Credit Loss ("ECL") allowance for
loans and advances to customers and assessment of impairment allowances where
loans are in default or arrears: key assumptions in determining the
weighted-average loss rate; and
n Note 6 - measurement of contingent consideration.
5. Financial instruments - Classification
For description of how the Group classifies financial assets and liabilities,
see note 43(G)(ii).
The following table provides reconciliation between line items in the
statement of financial position and categories of financial instruments.
FVOCI - debt instruments FVOCI - equity instruments Total carrying amount
Mandatorily at FVTPL Designated as at FVTPL Amortised cost
31 December 2021 £000 £000 £000 £000 £000 £000
Cash and cash equivalents - - - - 20,279 20,279
Debt securities - - 40,987 - - 40,987
Financial asset - 68 - - - 68
Loans and advances to customers - - - - 229,251 229,251
Trade and other receivables - - - - 1,947 1,947
Total financial assets - 68 40,987 - 251,477 292,532
Deposits from customers - - - - 253,459 253,459
Creditor and accrued charges - - - - 4,745 4,745
Contingent consideration - 1,023 - - - 1,023
Loan notes - - - - 23,672 23,672
Total financial liabilities - 1,023 - - 281,876 282,899
FVOCI - FVOCI - equity instruments Total carrying amount
Mandatorily at FVTPL Designated as at FVTPL debt instruments Amortised cost
31 December 2020 £000 £000 £000 £000 £000 £000
Cash and cash equivalents - - - - 34,053 34,053
Debt securities - - 25,532 - - 25,532
Trading assets 4 - - - - 4
Loans and advances to customers - - - - 193,143 193,143
Trade and other receivables - - - - 2,170 2,170
Total financial assets 4 - 25,532 - 229,366 254,902
Deposits from customers - - - - 218,285 218,285
Creditor and accrued charges - - - - 3,206 3,206
Loan notes - - - - 22,222 22,222
Total financial liabilities - - - - 243,713 243,713
6. Financial instruments - Fair values
For description of the Group's fair value measurement accounting policy, see
note 43(G)(vi).
The following table shows the carrying amounts and fair values of financial
assets and financial liabilities, including their levels in the fair value
hierarchy. It does not include fair value information for financial assets and
financial liabilities not measured at fair value if the carrying amount is a
reasonable approximation of fair value.
Carrying amount Fair value
Total Level 1 Level 2 Level 3 Total
31 December 2021 £000 £000 £000 £000 £000
Financial assets measured at fair value
Debt securities 40,987 - 40,987 - 40,987
Financial asset 68 - - 68 68
41,055 - 40,987 68 41,055
Financial assets not measured at fair value
Cash and cash equivalents 20,279 - - - -
Loans and advances to customers 229,251 - - - -
Trade and other receivables 1,947 - - - -
251,477 - - - -
Financial liabilities measured at fair value
Contingent consideration 1,023 - - 1,023 1,023
1,023 - - 1,023 1,023
Financial liabilities not measured at fair value
Deposits from customers 253,459 - - - -
Creditors and accrued charges 4,745 - - - -
Loan notes 23,672 - - - -
281,876 - - - -
Carrying amount Fair value
Total Level 1 Level 2 Level 3 Total
31 December 2020 £000 £000 £000 £000 £000
Financial assets measured at fair value
Debt securities 25,532 25,532 - - 25,532
Trading assets 4 4 - - 4
25,536 25,536 - - 25,536
Financial assets not measured at fair value
Cash and cash equivalents 34,053 - - - -
Loans and advances to customers 193,143 - - - -
Trade and other receivables 2,170 - - - -
229,366 - - - -
Financial liabilities measured at fair value
Contingent consideration 672 - - 672 672
672 - - 672 672
Financial liabilities not measured at fair value
Deposits from customers 218,285 - - - -
Creditors and accrued charges 3,206 - - - -
Loan notes 22,222 - - - -
243,713 - - - -
Measurement of fair values
i. Valuation techniques and significant unobservable inputs
Type Valuation technique Significant unobservable inputs Inter-relationship between significant unobservable inputs and fair value
measurement
Debt securities Market comparison/discounted cash flow: The fair value is estimated Not applicable. Not applicable.
considering a net present value calculated using discount rates derived from
quoted yields of securities with similar maturity and credit rating that are
traded in active markets.
Contingent consideration Discounted cash flows: The valuation model considers the present value of the Expected cash flows £1,133,820 (2020: £790,869). The estimated fair value would increase (decrease) if:
expected future payments, discounted using a risk-adjusted discount rate.
-the expected cash flows were higher (lower); or
Risk-adjusted discount rate 14% (2020: 14%). -the risk-adjusted discount rate were lower (higher).
ii. Level 3 recurring fair values
Reconciliation of Level 3 fair values
The following table shows a reconciliation from the opening balances to the
closing balances for Level 3 fair values.
2021 2020
£000 £000
Balance at 1 January 672 863
Assumed in a business combination (Note 31) 387 -
Finance costs 114 122
Net change in fair value (unrealised) (30) (253)
84 (131)
Payment (120) (60)
Balance at 31 December 1,023 672
Sensitivity analysis
For the fair value of contingent consideration, reasonably possible changes at
the reporting date to one of the significant unobservable inputs, holding
other inputs constant would have the following effects.
Profit or loss
31 December 2021 Increase Decrease
Expected cash flows (10% movement) 113 66
Risk-adjusted discount rate (1% movement) (12) (8)
7. 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 37.
A. Credit risk
For definition of credit risk and information on how credit risk is mitigated
by the Group, see note 41.
i. Credit quality analysis
Loans and advances to customers
Explanation of the terms 'Stage 1', 'Stage 2' and 'Stage 3' is included in
note 43(G)(vii).
An analysis of the credit risk on loans and advances to customers is as
follows:
2021 2020
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
£000 £000 £000 £000 £000 £000 £000 £000
Grade A 213,103 - - 213,103 173,673 - - 173,673
Grade B - 5,735 5,594 11,329 - 5,728 7,751 13,479
Grade C 342 541 12,656 13,539 335 9 12,771 13,115
Gross value 213,445 6,276 18,250 237,971 174,008 5,737 20,522 200,267
Allowance for impairment (503) (124) (8,093) (8,720) (423) (18) (6,683) (7,124)
Carrying value 212,942 6,152 10,157 229,251 173,585 5,719 13,839 193,143
Loans are graded A to C depending on the level of risk. Grade A relates to
agreements with the lowest risk, Grade B with medium risk and Grade C relates
to agreements with the highest of risk.
The following table sets out information about the overdue status of loans and
advances to customers in Stage 1, 2 and 3:
2021 2020
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
31 December £000 £000 £000 £000 £000 £000 £000 £000
Current 210,491 - - 210,491 170,436 - - 170,436
Overdue < 30 days 2,954 - - 2,954 3,572 - - 3,572
Overdue > 30 days - 6,276 18,250 24,526 - 5,737 20,522 26,259
213,445 6,276 18,250 237,971 174,008 5,737 20,522 200,267
For Stage 3 loans and advances that are overdue for more than 30 days, the
Bank holds collateral with a value of £11,625,250 (2020: £13,362,468)
representing security cover of 64% (2020: 65%).
Debt securities, cash and cash equivalents
The following table sets out the credit quality of liquid assets:
2021 2020
£000 £000
Government bonds and treasury bills
Rated A to A+ 40,987 24,431
Floating rate notes
Rated A to A+ - 1,101
Cash and cash equivalents
Rated A to A+ 20,279 34,053
61,266 59,585
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 2021, 76% of loans and advances had
an element of capital indemnification (2020: 34.0%).
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.
Collateral is valued at the time of borrowing, and generally are not updated
except when a loan is individually assessed as impaired.
iii. Amounts arising from ECL
See accounting policy in note 43(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.
§ The Group has granted payment holidays to customers with no prior arrears
based on individual circumstances. These customers are not able to incur
further arrears as no payments are being called whilst they are on the payment
holiday. These customers have not been deemed to have a SICR unless the
customer is under exceptional financial hardship due to COVID-19.
§ 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 9 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 the 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 2021 (2020: none).
B. Liquidity risk
For the definition of liquidity risk and information on how liquidity risk is
manged by the Group, see note 41.
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 includes 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:
2021 2020
At 31 December 24% 27%
Average for the year 25% 28%
Maximum for the year 28% 32%
Minimum for the year 20% 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):
Sight- >8 days >1 month >3 months >6 months >1 year >3 years >5 Total
8 days - 1 month - 3 months - 6 months - 1 year - 3 years - 5 years years £000
31 December 2021 £000 £000 £000 £000 £000 £000 £000 £000
Deposits 6,864 4,743 18,359 63,733 61,891 88,036 16,738 - 260,364
Other liabilities 291 83 1,210 1,253 10,995 9,091 9,053 869 32,845
Total liabilities 7,155 4,826 19,569 64,986 72,886 97,127 25,791 869 293,209
Sight- >8 days >1 month >3 months >6 months >1 year >3 years >5 Total
8 days - 1 month - 3 months - 6 months - 1 year - 3 years - 5 years years £000
31 December 2020 £000 £000 £000 £000 £000 £000 £000 £000
Deposits 3,106 3,194 19,775 53,380 59,023 61,491 25,221 - 225,190
Other liabilities 27 88 668 819 3,630 16,401 7,851 1,141 30,625
Total liabilities 3,133 3,282 20,443 54,199 62,653 77,892 33,072 1,141 255,815
Maturity of assets and liabilities at the reporting date:
Sight- >8 days >1 month >3 months - 6 months >6 months >1 year >3 years >5 years Total
8 days - 1 month - 3 months £000 - 1 year - 3 years - 5 years £000 £000
31 December 2021 £000 £000 £000 £000 £000 £000
Assets
Cash 20,279 - - - - - - - 20,279
Debt securities - 5,001 20,994 14,992 - - - - 40,987
Loans and advances 9,271 8,372 12,378 25,458 30,835 94,395 44,081 4,462 229,252
Other assets 68 - - - 3,186 - 6,018 8,964 18,236
Total assets 29,618 13,373 33,372 40,450 34,021 94,395 50,099 13,426 308,754
Liabilities
Deposits 6,864 4,285 17,565 62,831 60,790 85,350 15,774 - 253,459
Other liabilities 238 - 1,000 946 10,512 7,967 8,777 869 30,309
Total liabilities 7,102 4,285 18,565 63,777 71,302 93,317 24,551 869 283,768
Sight- >8 days >1 month >3 months - 6 months >6 months >1 year >3 years >5 Total
8 days - 1 month - 3 months £000 - 1 year - 3 years - 5 years years £000
31 December 2020 £000 £000 £000 £000 £000 £000 £000
Assets
Cash 34,053 - - - - - - - 34,053
Debt securities - 5,301 14,000 - 6,231 - - - 25,532
Loans and advances 6,270 7,750 21,565 17,822 27,490 84,111 25,756 2,379 193,143
Other assets 4 - - - 2,578 - 5,637 7,014 15,233
Total assets 40,327 13,051 35,565 17,822 36,299 84,111 31,393 9,393 267,961
Liabilities
Deposits 3,106 2,736 18,981 52,478 57,922 58,805 24,257 - 218,285
Other liabilities - - 450 496 2,983 14,874 7,297 1,141 27,241
Total liabilities 3,106 2,736 19,431 52,974 60,905 73,679 31,554 1,141 245,526
iii. Liquidity reserves
The following table sets out the components of the Group's liquidity reserves:
2021 2021 2020 2020
Carrying amount Fair Carrying amount Fair
value value
£000 £000 £000 £000
Balances with other banks 20,279 20,279 34,053 34,053
Unencumbered debt securities 40,987 40,987 25,532 25,532
Total liquidity reserves 61,266 61,266 59,585 59,585
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 41.
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 2021 £000 £000 £000
Assets subject to market risk
Debt securities 40,987 - 40,987
Financial asset 68 - 68
Total 41,055 - 41,055
Market risk measure
Non-trading portfolios
Carrying amount Trading portfolios
31 December 2020 £000 £000 £000
Assets subject to market risk
Debt securities 25,532 - 25,532
Financial asset 4 4 -
Total 25,536 4 25,532
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.
Sight- >1month >3months >6months- 1 year >1 year >3 years >5 years Non-Interest Bearing Total
1 month - 3months - 6months £000 - 3 years - 5 years £000 £000 £000
£000 £000 £000 £000 £000
31 December 2021
Assets
Cash & cash equivalents 20,279 - - - - - - - 20,279
Debt securities 5,001 20,994 14,992 - - - - - 40,987
Loans and advances to customers 17,642 12,378 25,458 30,835 94,395 44,081 4,462 - 229,251
Other assets - - - - - - - 18,236 18,236
Total assets 42,922 33,372 40,450 30,835 94,395 44,081 4,462 18,236 308,753
Liabilities and equity
Deposits from customers 11,149 17,565 62,831 60,790 85,350 15,774 - - 253,459
Other liabilities 238 1,000 946 7,050 7,967 8,777 687 3,644 30,309
Total equity - - - - - - - 24,985 24,985
Total liabilities and equity 11,387 18,565 63,777 67,840 93,317 24,551 687 28,629 308,753
31,535 14,807 (23,327) (37,005) 1,078 19,530 3,775 (10,393) -
Interest rate sensitivity gap
Cumulative 31,535 46,312 23,015 (13,990) (12,912) 6,618 10,393 - -
Sight- >1month >3months >6months- 1 year >1 year >3 years >5 years Non-Interest Total
Bearing
1 month - 3months - 6months £000 - 3 years - 5 years £000
£000
£000
£000 £000 £000 £000 £000
31 December 2020
Assets
Cash & cash equivalents 34,053 - - - - - - - 34,053
Debt securities 5,301 14,000 - 6,231 - - - - 25,532
Loans and advances to customers 14,020 21,565 17,822 27,490 84,111 25,756 2,379 - 193,143
Other assets - - - - - - - 15,233 15,233
Total assets 53,374 35,565 17,822 33,721 84,111 25,756 2,379 15,233 267,961
Liabilities and equity
Deposits from customers 5,842 18,981 52,478 57,922 58,805 24,257 - - 218,285
Other liabilities - 450 496 280 14,874 7,297 944 2,900 27,241
Total equity - - - - - - - 22,435 22,535
Total liabilities and equity 5,842 19,431 52,974 58,202 73,679 31,554 944 25,335 267,961
47,532 16,134 (35,152) (24,481) 10,432 (5,798) 1,435 (10,102) -
Interest rate sensitivity gap
Cumulative 47,532 63,666 28,514 4,033 14,465 8,667 10,102 - -
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 (2020: 2.0%). The following tables set out
the estimated total impact of such a change based on the mismatch at the
reporting date:
Sight- >1month >3months >6months >1 year >3 years >5 years Non-Interest Bearing Total
1 month -3months - 6months - 1 year - 3 years - 5 years
31 December 2021
Interest rate sensitivity gap £000 31,535 14,807 (23,327) (37,005) 1,078 19,530 3,775 (10,393) -
Weighting 0 0.003 0.007 0.014 0.027 0.054 0.115 0 0
£000 - 44 (163) (518) 29 1,055 434 - 881
i. Exposure to interest rate risk (continued)
Sight- >1month >3months >6months >1 year >3 years >5 years Non-Interest Bearing Total
1 month -3months - 6months - 1 year - 3 years - 5 years
31 December 2020
Interest rate sensitivity gap £000 47,532 16,134 (35,152) (24,481) 10,432 (5,798) 1,435 (10,102) -
Weighting - 0.003 0.007 0.014 0.027 0.054 0.115 - -
£000 - 48 (246) (343) 282 (313) 165 - (407)
D. Capital Management
i. Regulatory capital
The lead regulator of the Group's wholly owned subsidiary, the Bank, is the
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 FCA in the UK 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.
8. 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 three (2020: 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); Edgewater Associates Limited
(provision of financial advice); and Manx FX Limited (provision of foreign
currency transaction services).
Asset and
Personal Edgewater Associates Investing
Finance £000 Manx FX Activities Total
For the year ended 31 December 2021 £000 £000 £000 £000
Net interest income 17,980 - - - 17,980
Fee and commission income 811 2,282 1,528 - 4,621
Operating income 16,251 2,282 1,514 - 20,047
Profit / (loss) before tax payable 2,528 114 1,227 (826) 3,043
Capital expenditure 3,083 13 1 5 3,102
Total assets 292,721 2,330 802 12,900 308,753
Total liabilities 265,751 638 61 17,318 283,768
Asset and
Personal Edgewater Associates Investing
Finance £000 Manx FX Activities Total
For the year ended 31 December 2020 £000 £000 £000 £000
Net interest income 15,470 - - - 15,470
Fee and commission income 430 2,103 1,332 - 3,865
Operating income 13,206 2,103 1,096 - 16,405
Profit / (loss) before tax payable 1,316 (94) 1,096 (297) 2,021
Capital expenditure 1,138 46 2 1 1,187
Total assets 260,155 2,638 536 4,632 267,961
Total liabilities 230,001 660 12 14,853 245,526
9. Net interest income
2021 2020
£000 £000
Interest income
Loans and advances to customers 21,010 19,484
Total interest income calculated using the effective interest method 21,010 19,484
Operating lease income 1,937 1,208
Total interest income 22,947 20,692
Interest expense
Deposits from customers (3,512) (4,044)
Loan note interest (1,299) (1,016)
Lease liability (42) (40)
Contingent consideration: interest expense (114) (122)
Total interest expense (4,967) (5,222)
Net interest income 17,980 15,470
10. Net 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. See note 43D regarding revenue recognition.
2021 2020
£000 £000
Major service lines
EAL: Independent financial advice income 2,282 2,103
MFX: Foreign exchange trading income 1,528 1,332
Asset and personal finance: Brokerage services income 510 430
MCL: Debt collection 301 -
Fee and commission income 4,621 3,865
Fee and commission expense (3,339) (3,481)
Net fee and commission income 1,282 384
11. Personnel expenses
2021 2020
£000 £000
Staff gross salaries (5,416) (5,331)
Executive Directors' remuneration (440) (299)
Non-executive Directors' fees (176) (163)
Executive Directors' pensions (34) (21)
Executive Directors' performance related pay (51) (50)
Staff pension costs (330) (297)
National insurance and payroll taxes (623) (606)
Staff training and recruitment costs (86) (56)
(7,156) (6,823)
12. Other expenses
2021 2020
£000 £000
Professional and legal fees (1,367) (1,063)
Marketing costs (264) (177)
IT costs (1,001) (822)
Establishment costs (317) (270)
Communication costs (129) (105)
Travel costs (104) (95)
Bank charges (124) (151)
Insurance (344) (300)
Irrecoverable VAT (268) (436)
Other costs (582) (288)
(4,500) (3,707)
13. Impairment on loans and advances to customers
The charge in respect of allowances for impairment comprises, excluding loss
allowances on financial assets managed on a collective basis.
2021 2020
£000 £000
Impairment allowances made (5,457) (6,833)
Reversal of allowances previously made 1,055 3,039
Total charge for provision for impairment (4,402) (3,794)
The charge in respect of allowances for impairment on financial assets managed
on a collective basis comprises:
2021 2020
£000 £000
Collective impairment allowances made (77) (421)
Release of allowances previously made 119 265
Total credit / (charge) for allowances for impairment on financial assets 42 (156)
managed on a collective basis
Total charge for allowances for impairment (4,360) (3,950)
14. Profit before tax payable
The profit before tax payable for the year is stated after charging:
Group Company
2021 2020 2021 2020
£000 £000 £000 £000
Auditor's remuneration: as Auditor current year (232) (167) - -
(2) (10) - -
non-audit services
Pension cost defined benefit scheme (13) (16) - -
Operating lease rentals for property (64) (97) - -
15. Income tax expense
2021 2020
£000 £000
Current tax expense
Current year (132) 3
Changes to estimates for prior years (50) -
(182) 3
Deferred tax expense
Origination and reversal of temporary differences (52) (56)
Tax expense (234) (53)
2021 2020
% £000 % £000
Reconciliation of effective tax rate
Profit before tax 3,043 2,021
Tax using the Bank's domestic tax rate (10.0) (304) (10.0) (202)
Effect of tax rates in foreign jurisdictions (1.45) (44) 1.4 28
Tax exempt income 5.19 158 0.0 -
Timing difference in current year 0.0 - 3.2 65
Changes to estimates for prior years 1.64 50
Origination and reversal of temporary differences in deferred tax (1.71) (52) 2.8 56
R&D claim (1.38) (42) 0.0 -
Tax expense (11.41) (234) (2.6) (53)
The main rate of corporation tax in the Isle of Man is 0.0% (2020: 0.0%).
However, the profits of the Group's Isle of Man banking activities are taxed
at 10.0% (2020: 10.0%). The profits of the Group's subsidiaries that are
subject to UK corporation tax are taxed at a rate of 19.0% (2020: 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
£182,000 liability (2020: £197,000 liability). This resulted in an expense
of £52,000 (2020: £56,000) to the Consolidated Income Statement offset by a
deferred tax credit on the defined benefit pension through the OCI of £67,000
(2020: £nil).
16. Earnings per share
2021 2020
Profit for the year £2,809,000 £1,968,000
Weighted average number of Ordinary Shares in issue (basic) 114,291,639 118,964,270
Basic earnings per share (pence) 2.46 1.65
Diluted earnings per share (pence) 1.97 1.37
Total comprehensive income for the year £3,045,000 £1,676,000
Weighted average number of Ordinary Shares in issue (basic) 114,291,639 118,964,270
Basic earnings per share (pence) 2.66 1.41
Diluted earnings per share (pence) 2.13 1.19
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: 2021 2020
Reconciliation of weighted average number of Ordinary Shares in issue between
basic and diluted
Weighted average number of Ordinary Shares (basic) 114,291,639 118,964,270
Number of shares issued if all convertible loan notes were exchanged for 36,555,556 36,555,556
equity
Dilutive element of share options if exercised - -
Weighted average number of Ordinary Shares (diluted) 150,847,195 155,519,826
Reconciliation of profit for the year between basic and diluted
Profit for the year (basic) £2,809,000 £1,968,000
Interest expense saved if all convertible loan notes were exchanged for equity £166,250 £166,250
Profit for the year (diluted) £2,975,250 £2,134,250
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: 2021 2020
Reconciliation of total comprehensive income for the year between basic and
diluted
Total comprehensive income for the year (basic) £3,045,000 £1,676,000
Interest expense saved if all convertible loan notes were exchanged for equity £166,250 £166,250
Total comprehensive income for the year (diluted) £3,211,250 £1,842,250
17. Cash and cash equivalents
Group Company
2021 2020 2021 2020
£000 £000 £000 £000
Cash at bank and in hand 18,278 11,728 430 1,378
Notice account balance (less than 90 days) 2,001 21,025 - -
Fixed deposit (less than 90 days) - 1,300 - -
20,279 34,053 430 1,378
Cash at bank includes an amount of £56,000 (2020: £120,000) representing
receipts which are in the course of transmission.
18. Debt securities
Group Company
2021 2020 2021 2020
£000 £000 £000 £000
Financial assets at FVOCI:
UK Government Treasury Bills 40,987 24,431 - -
Floating Rate Notes - 1,101 - -
40,987 25,532 - -
UK Government Treasury Bills are stated at fair value and unrealised changes
in the fair value are reflected in other comprehensive income. There were
realised losses of £1,000 (2020: gains of £261,000) and unrealised losses of
£18,000 (2020: unrealised losses of £51,000) during the year.
19. Financial assets
Group Company
2021 2020 2021 2020
£000 £000 £000 £000
Financial assets at FVOCI:
Gain on Contingent consideration (see note 6(ii)) 30 253 - -
Gain on equity instrument - 6 - -
30 259 - -
The equity instrument representing an investment in a UK quoted company was
disposed of during the period at the carrying amount. No gain / loss has thus
been recognised due to the disposal.
The Bank acquired a new equity instrument during the financial year. (See Note
33)
20. Loans and advances to customers
2021 2020
Gross Impairment Carrying Gross Impairment Carrying
Amount Allowance Value Amount Allowance Value
Group £000 £000 £000 £000 £000 £000
HP balances 71,789 (4,107) 67,682 72,930 (1,779) 71,151
Finance lease balances 28,131 (3,317) 24,814 34,373 (3,241) 31,132
Unsecured personal loans 31,267 (537) 30,730 27,762 (364) 27,398
Vehicle stocking plans 1,675 - 1,675 1,807 - 1,807
Wholesale funding arrangements 15,447 - 15,447 18,080 (808) 17,272
Block discounting 16,465 - 16,465 13,848 (418) 13,430
Secured commercial loans 11,099 (519) 10,580 9,602 (511) 9,091
Secured personal loans 1,739 - 1,739 2,152 - 2,152
Government backed loans 60,358 (239) 60,119 19,710 - 19,710
237,970 (8,719) 229,251 200,264 (7,121) 193,143
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.
2021 2020
Allowance for impairment £000 £000
Balance at 1 January 6,824 4,632
Allowance for impairment made 5,457 5,231
Release of allowances previously made (1,055) (1,519)
Write-offs (2,762) (1,520)
Balance at 31 December 8,464 6,824
2021 2020
Collective allowance for impairment £000 £000
Balance at 1 January 297 141
Collective allowance for impairment made 77 421
Release of allowances previously made (119) (265)
Balance at 31 December 255 297
Total allowances for impairment 8,719 7,121
Advances on preferential terms are available to all Directors, management and
staff. As at 31 December 2021 £945,625 (2020: £629,345) 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
(see note 33).
At the end of the current financial year 5 loan exposures (2020: 6) exceeded
10.0% of the capital base of the Bank:
Outstanding Balance Outstanding Balance
2021 2020 Facility
£000 £000 Limit
Exposure £000
Block discounting facility 16,465 5,878 46,529
Wholesale funding agreement 25,645 16,315 37,042
HP and finance lease receivables
Loans and advances to customers include the following HP and finance lease
receivables:
2021 2020
£000 £000
Less than one year 34,833 52,028
Between one and five years 58,949 71,348
Gross investment in HP and finance lease receivables 93,782 123,376
The investment in HP and finance lease receivables net of unearned income
comprises:
2021 2020
£000 £000
Less than one year 32,495 45,250
Between one and five years 54,994 62,053
Net investment in HP and finance lease receivables 87,489 107,303
21. Trade and other receivables
Group Company
2021 2020 2021 2020
£000 £000 £000 £000
Prepayments 498 482 100 53
VAT claim - 586 371 256
Other debtors 1,449 1,102 1 -
1,947 2,170 472 309
After consultation with its professional advisors, the Bank made a notice of
error correction ("NEC") to the Isle of Man Government Customs & Exercise
Division in respect of a repayment for overpaid VAT to the amount of £534,000
exclusive of statutory interest. The NEC relates to bad debt relief that was
not claimed during the period from 1 April 1989 to 18 March 1997. The Bank
recognised a receivable and income of £534,000 during 2020.
The VAT claim was settled in full and the Bank received £699,000 during the
period. An additional recovery of £113,000 over and
above the carrying amount recognised at year end has been recognised in profit
and loss.
22. Property, plant and equipment and right-of-use assets
Buildings and Leasehold
Improvements IT Furniture and Motor Right-of-use assets
Group £000 Equipment Equipment Vehicles(1) £000 Total
£000 £000 £000 £000
Cost
As at 1 January 2021 698 462 4,332 2,477 737 8,706
Revaluation 15 - - - - 15
Additions 25 62 2,019 3 993 3,102
Disposals (57) (87) (422) (1,769) (285) (2,620)
As at 31 December 2021 681 437 5,929 711 1,445 9,203
Accumulated depreciation
As at 1 January 2021 384 343 801 804 329 2,661
Charge for year 55 61 389 277 162 944
Disposals (12) (91) (381) (890) (285) (1,659)
As at 31 December 2021 427 313 809 191 206 1,946
Carrying value at 31 December 2021 254 124 5,120 520 1,239 7,257
Carrying value at 31 December 2020 314 119 3,531 1,673 408 6,045
(1)Included in motor vehicles are operating leases with the Group as lessor.
Depreciation on leasing assets was £269,000 (2020: £406,000).
Buildings with an original cost of £160,000 were revalued by independent
valuers Vospers Limited to £175,000 on the basis of market value as at 15
September 2021. The valuation conforms to International Valuation Standards
and was based on recent market transactions on arm's length terms for similar
properties. The Directors consider the valuation of the Buildings as at 31
December 2021 remains £175,000.
Leasehold IT Furniture and Right-of use-assets
Improvements Equipment Equipment £000 Total
Company £000 £000 £000 £000
Cost
As at 1 January 2021 234 18 17 424 693
Additions - - - - -
Disposals - - - - -
As at 31 December 2021 234 18 17 424 693
Accumulated depreciation
As at 1 January 2021 207 5 7 120 339
Charge for year 27 1 2 61 91
Disposals - - - - -
As at 31 December 2021 234 6 9 181 430
Carrying value at 31 December 2021 - 12 8 243 263
Carrying value at 31 December 2020 27 13 10 304 354
23. Intangible assets
IT Software and Website Development
Customer Contracts Intellectual £000
£000 Property Rights Total
Group £000 £000
Cost
As at 1 January 2021 1,920 749 2,320 4,989
Acquisition of subsidiary (see note 31) 199 - - 199
Additions 260 - 221 481
Disposals 278 - - 278
As at 31 December 2021 2,657 749 2,541 5,947
Accumulated amortisation
As at 1 January 2021 408 523 1,772 2,703
Charge for year 179 - 279 458
Disposals 278 - - 278
As at 31 December 2021 865 523 2,051 3,439
Carrying value at 31 December 2021 1,792 226 490 2,508
Carrying value at 31 December 2020 1,512 226 548 2,286
24. Deposits from customers
2021 2020
£000 £000
Retail customers: term deposits 242,788 209,235
Corporate customers: term deposits 10,671 9,050
253,459 218,285
25. Creditors and accrued charges
Group Company
2021 2020 2021 2020
£000 £000 £000 £000
Commission creditors 1,520 1,748 - -
Other creditors and accruals 1,380 822 182 83
Lease liability 1,295 503 319 418
Taxation creditors 550 133 - -
4,745 3,206 501 501
26. Loan notes
Group Company
2021 2020 2021 2020
Notes £000 £000 £000 £000
Related parties
J Mellon JM 1,750 1,750 1,750 1,750
Burnbrae Limited BL 3,200 3,200 3,200 3,200
Southern Rock Insurance Company Limited SR 2,097 2,097 2,097 2,097
7,047 7,047 7,047 7,047
Unrelated parties UP 16,625 15,175 16,625 15,175
23,672 22,222 23,672 22,222
JM - Two loans, one of £1,250,000 maturing on 26 February 2025, paying
interest of 5.4% per annum, and one of £500,000 maturing on 31 July 2022
paying interest of 5.0% per annum. Both loans are convertible at the rate of
7.5 pence and 9 pence respectively.
BL - Three loans, one of £1,200,000 maturing on 31 July 2022, paying
interest of 5.0% per annum, and one of £1,000,000 maturing 25 February 2025,
paying interest of 5.4% per annum, and one of £1,000,000 maturing 28 February
2025 paying interest of 6% per annum. Jim Mellon is the beneficial owner of
BL and Denham Eke is also a director. The £1,200,000 loan is convertible at
a rate of 7.5 pence.
SR - One loan consisting of £2,097,085 maturing on 14 April 2025, paying
interest of 6.5% per annum.
UP - Forty-two loans (2020: Thirty-three) consisting of an average £461,806
(2020: £459,848) with an average interest payable of 5.7% (2020: 5.8%) per
annum. The earliest maturity date is 3 January 2022 and the latest maturity
is 3 November 2026.
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.
27. 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 2021 (2020: 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 31 March
2020, which showed that the market value of the Scheme's assets was
£1,432,000 representing 65.2% 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 2021.
The amounts recognised in the Consolidated Statement of Financial Position are
as follows:
2021 2020
Total underfunding in funded plans recognised as a liability £000 £000
Fair value of plan assets 1,543 1,406
Present value of funded obligations (2,230) (2,350)
(687) (944)
2021 2020
Movement in the liability for defined benefit obligations £000 £000
Opening defined benefit obligations at 1 January 2,350 2,159
Benefits paid by the plan (74) (76)
Interest on obligations 32 45
Actuarial (gain) / loss (78) 222
Liability for defined benefit obligations at 31 December 2,230 2,350
2021 2020
Movement in plan assets £000 £000
Opening fair value of plan assets at 1 January 1,406 1,471
Expected return on assets 19 30
Contribution by employer 98 -
Actuarial gain / (loss) 94 (19)
Benefits paid (74) (76)
Closing fair value of plan assets at 31 December 1,543 1,406
2021 2020
Expense recognised in income statement £000 £000
Interest on obligation 32 45
Expected return on plan assets (19) (30)
Total included in personnel costs 13 15
Actual return on plan assets 113 11
2021 2020
Actuarial gain / (loss) recognised in other comprehensive income £000 £000
Actuarial gain / (loss) on plan assets 94 (19)
Actuarial gain / (loss) on defined benefit obligations 78 (222)
172 (241)
2021 2020
Plan assets consist of the following % %
Equity securities 52 47
Corporate bonds 26 19
Government bonds 17 29
Cash 2 2
Other 3 3
100 100
2021 2020 2019
The actuarial assumptions used to calculate Scheme liabilities under IAS19 are % % %
as follows:
Rate of increase in pension in payment:
- Service up to 5 April 1997 - - -
- Service from 6 April 1997 to 13 September 2005 3.4 2.9 3.0
- Service from 14 September 2005 2.2 2.1 2.1
Rate of increase in deferred pensions 5.0 5.0 5.0
Discount rate applied to scheme liabilities 1.7 1.8 2.9
Inflation 3.5 3.0 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.
28. Called up share capital
Ordinary shares of no par value available for issue Number
At 31 December 2021 200,200,000
At 31 December 2020 200,200,000
Issued and fully paid: Ordinary shares of no par value Number £000
At 31 December 2021 114,291,639 19,133
At 31 December 2020 114,130,077 19,121
On 7 July 2021, a Dividend was declared for £196,800 which could either be
taken up in cash or Shares. 161,562 new Shares were elected to be taken as
Shares and were admitted to the Alternative Investment Market ("AIM") for
7.0575 pence per Share, being a total cost of £11,402, on 10 August 2021.
On 9 April 2020, the Company and Southern Rock Insurance Company Limited
("SR") entered into a share buyback agreement ("SBA"), pursuant to which SR
agreed to sell 16,966,158 Ordinary Shares for a consideration of £1,611,785.
The consideration was left outstanding as a loan agreement (see note 26). The
Ordinary Shares acquired were cancelled, and the Company's issued share
capital reduced to 114,130,077 Ordinary Shares effective 14 April 2020.
Prior to the SBA, SR had a loan of £460,000, made to the Company, which was
due to be repaid or converted into Ordinary Shares on or before 26 April 2020.
Upon completion of the SBA, the Company and SR entered into an agreement
varying the terms of the convertible loan such that they became subject to the
terms of the SBA which contains no ability to convert the amounts outstanding
into Ordinary Shares. The principal amount outstanding in respect of the
convertible loan was increased by £25,300 to account for the reduction of the
interest rate in transition to the SBA.
There are three convertible loans totalling £2,950,000 (2020: £2,950,000).
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
(2020: 1,050,000) remain outstanding.
Performance and service conditions attached to share options that have not
fully vested are as follows: The options granted on 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
Fair value at date of grant £0.08
Share price at date of grant £0.14
Exercise price £0.14
Expected volatility 55.0%
Option life 3
Risk-free interest rate (based on government bonds) 0.5%
Forfeiture rate 33.3%
The charge for the year for share options granted was £nil (2020: £nil).
Analysis of changes in financing during the year
2021 2020
£000 £000
Balance at 1 January 41,846 37,410
Issue of loan notes 1,450 4,640
Issue of lease liability 993 -
Issue of shares via scrip dividend 12 -
Payment of lease liabilities (201) (204)
Balance at 31 December 44,100 41,846
The 2021 closing balance is represented by £19,133,000 share capital (2020:
£19,121,000), £23,672,000 of loan notes (2020: £22,222,000) and £1,295,000
lease liability (2020: £503,000).
29. List of associates
Set out below is a list of associates of the Group:
Group Group
2021 2020
£000 £000
The Business Lending Exchange ("BLX") - 190
Payitmonthly Ltd ("PIML") 136 126
136 316
In December 2017, 40.0% of the share capital of BLX was acquired for nil
consideration. During the year, the Group obtained control of the subsidiary
(see note 31). Prior to obtaining control, the share of the associate's total
comprehensive income during the year was £22,000 (2020: 23,000).
In August 2018, 30% of the share capital of PIML was acquired for £90,000
consideration. The Group's resulting share of the associate's total
comprehensive income during the year was £10,000 (2020: £31,000).
In April 2018, 20% of the share capital of BSL was acquired for nil
consideration. During 2020, the Group obtained control of the subsidiary.
Prior to obtaining control, the share of the associate's total comprehensive
income during the year was £nil (2020: 10,000).
30. List of subsidiaries
Set out below is a list of subsidiaries of the Group:
Nature of 31 December Date of
Business 2021 Incorporation 2021 2020
Carrying value of investments % Holding £000 £000
Conister Bank Limited Asset and Personal Finance 100 05/12/1935 20,592 20,592
Edgewater Associates Limited Wealth Management 100 24/12/1996 2,005 2,005
TranSend Holdings Limited Holding Company 100 05/11/2007 - -
Manx Ventures Limited (MVL) Holding Company 100 15/05/2009 - -
22,597 22,597
All subsidiaries are incorporated in the Isle of Man.
31. Acquisition of subsidiary
The Business Lending Exchange ("BLX")
On 11 October 2021, the Group (through MVL) announced that it entered into an
agreement to acquire 60% of the shares and voting interests in BLX. As a
result, the Group's equity interest in BLX increased from 40% to 100%, thereby
obtaining control of BLX.
Regulated by the FCA under Consumer Credit Authorisations, BLX primarily lends
to start-up companies and small businesses which require asset backed
finance.
This acquisition strengthens the Group's strategy of developing a network of
niche loan brokers within the UK.
For the 3 months ended 31 December 2021, BLX contributed revenue of £438,864
and profit of £193,395 to the Group's results. If the acquisition had
occurred on 1 January 2021, management estimates that the impact on
consolidated fee income would have been £1,444,137 and the impact on
consolidated profit for the period would have been £642,648.
A. BLX - Consideration transferred
The following table summarises the acquisition date fair value of each major
class of consideration transferred:
£000
Cash 921
Contingent consideration 387
Settlement of pre-existing relationship 5,216
6,524
Up to £483,663 consideration is payable to the sellers in addition to the
cash consideration of £920,503. The total amount payable is contingent on the
recovery of certain loans and advances found to be in default at acquisition.
B. BLX - Settlement of pre-existing relationship
The Bank and BLX were parties to a wholesale loan agreement and a Coronavirus
Business Interruption Loan with the Bank as lender and BLX as borrower. This
pre-existing relationship was effectively terminated when the Bank acquired
BLX.
C. BLX - Acquisition-related costs
The Group incurred acquisition-related costs of £25,000 relating to external
legal fees and due diligence costs. These costs have been included in 'other
costs' in the consolidated statement of profit or loss and other comprehensive
income.
D. BLX - 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
Intangible assets - customer related 199
Cash and cash equivalents 676
Trade and other receivables 5,196
Creditors and accrued charges (583)
Total identifiable net assets acquired 5,488
E. BLX - Measurement of fair values
The valuation techniques use for measuring the fair value of material assets
acquired were as follows:
Assets acquired Valuation technique
Intangible assets Multi-period excess earnings method: The multi-period excess earnings method
considers the present value of net cash flows expected to be generated by the
customer relationships.
The trade and other receivables comprise gross contractual amounts due of
£6,237,576, of which £1,042,095 was expected to be uncollectable at the date
of acquisition.
F. BLX - Goodwill
The goodwill arising from the acquisition has been recognised as follows:
£'000
Total consideration transferred 6,524
Fair value of existing interest in BLX 872
Fair value of identifiable net assets (5,488)
Goodwill 1,908
The remeasurement to fair value of the Bank's existing 20% interest in BLX
resulted in a gain of £660,000 (£872,000 less the £212,000 carrying amount
of the equity accounted investee at the date of acquisition). This amount has
been included separately in the statement of profit or loss and other
comprehensive income.
Ninkasi Rentals & Finance Limited ("NRFL") (formerly Beer Swaps Limited
("BSL"))
On 28 February 2020, the Group (through the Bank) announced that it entered
into an agreement to acquire 55% of the shares and voting interests in BSL. As
a result, the Group's equity interest in BSL increased from 20% to 75%,
thereby obtaining control of BSL. BSL provides equipment finance and rental
products to UK based craft and micro-breweries. This acquisition strengthens
the Group's strategy of developing a network of niche loan brokers within the
UK.
The consideration transferred was £2,957,000 and transaction costs of
£30,000 were incurred. The net fair value of identifiable assets acquired and
liabilities assumed was £2,587,000. Goodwill of £678,000 was recognised.
The remeasurement to fair value of the Bank's existing 20% interest in BSL
resulted in a gain of £237,000 (£257,000 less the £20,000 carrying amount
of the equity accounted investee at the date of acquisition). This amount has
been included separately in the statement of profit or loss and other
comprehensive income.
Blue Star Business Solutions Limited ("BBSL")
On 16 April 2019, the Group (through BBL) acquired 100% of the shares and
voting interest in BBSL, obtaining control of BBSL. The Group 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 14.0%
per annum. The range of contingent consideration payable is £nil to
£2,500,000.
See note 6 for the fair value of the Contingent Consideration at 31 December
2021.
32. Acquisition of non-controlling interest
On 14 June 2021, the Group increased its shareholding in NRFL to 90% (30 June
and 31 December 2020: 75%) for a cash consideration of £310,000.
The carrying value of non-controlling interest acquired at the date of
acquisition was £44,000. The consideration in excess of the carrying amount
of £266,000 has been charged directly to the profit and loss account.
33. Acquisition of financial instrument
On 9 June 2021 the Group acquired 10% of the issued share capital of RFG for
nil consideration. The receipt of the issued share capital is considered to be
a commitment fee receivable by the Group in order to originate loan facilities
in aggregate not exceeding £6,250,000 to RFG. The commitment fee is an
integral part of the effective interest rate of the associated loan facilities
issued to RFG.
The Group is not considered to have a significant influence over RFG as it
holds less than a 20% shareholding and is not considered to participate in the
policy making decisions of the entity. The 10% shareholding has thus been
classified as a financial instrument.
The Group continues to obtain information necessary to measure the fair value
of the shares obtained. The fair value of the financial instrument received
has been determined as £68,000 at initial recognition based on the
proportionate share of the net asset value of RFG. There has been no change to
fair value at year-end.
As part of the transaction, the Group has been granted two warrants to acquire
further shares. The first warrant is for 5% of the share capital and the
second warrant is for a further 5% of the share capital.
The two warrants are exercisable dependent upon the Group's banking
subsidiary, the Bank, contracting with RFG, for a larger facility. The fair
value of the two warrants has been determined to be nil due to the significant
uncertainty that exists at acquisition date and the period end in issuing a
further debt facility.
34. Goodwill
Group Group
2021 2020
Cash generating unit £000 £000
EAL 1,849 1,849
BLX 1,908 -
BBSL 1,390 1,390
NRFL 678 678
Manx Collections Limited ("MCL") 454 454
Three Spires Insurance Services Limited ("Three Spires") 41 41
6,320 4,412
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 key assumptions used in the estimation of the recoverable amount are set
out in this note. The recoverable amount of the CGUs discussed in this note
were each based on value in use. The values assigned to key assumptions
represents management's assessment of future trends in the relevant industries
and have been based on historical data from both external and internal
sources.
The estimated recoverable amount in relation to the EAL CGU (including also
goodwill generated on acquisition 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 BLX 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 14.0% 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 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 14.0% 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 NRFL is based on a 4 year sales forecast, extrapolated to 14 years
using a 1.5% annual increment, and then discounted using a 12% discount
factor. The sensitivity of the analysis was tested using additional discount
factors of up to 20.0% on varying sales volumes. On the basis of the above
reviews no impairment to goodwill has been made in the current year.
The estimated recoverable amount in relation to the goodwill generated on the
purchase of MCL 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.
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.
35. Investment in Group undertakings
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.
Interest rate 2021 2020
Creation Maturity % p.a. £000 £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
21 February 2017 21 February 2027 7.0 150 150
14 May 2017 14 May 2027 7.0 128 128
7,728 7,728
36. 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
(CEO of MFG). At 31 December total deposits amounted to £507,908 (2020:
£432,213), at normal commercial interest rates in accordance with the
standard rates offered by the Bank.
At 31 December, the Bank held cash on deposit on behalf of David Gibson
(Non-executive Director of the Bank and MFG) of £nil (2020: £50,282).
Staff and commercial loans
Details of staff loans are given in note 20.
Commercial loans have been made to various companies connected to Jim Mellon
and Denham Eke on normal commercial terms. As at 31 December 2021, £nil of
capital and interest was outstanding (2020: £23,742).
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
2021 was £140,950 (2020: £273,568).
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 £1,219,000. At 31 December 2021,
£1,219,000 (2020: £685,000) had been advanced to PIML.
Subordinated loans
The Company has advanced £7,450,000 (2020: £7,450,000) of subordinated loans
to the Bank and £278,000 (2020: £278,000) to EAL as at 31 December 2021. See
note 33 for more details.
Loan notes
See note 26 for a list of related party loan notes as at 31 December 2021 and
2020.
Key management remuneration including Executive Directors
2021 2020
£000 £000
Short-term employee benefits 1,098 1,120
37. Leases
A. Leases as lessee
The Group leases the head office building in the Isle of Man. The leases
typically run for a period of 10 years with an option to renew the lease after
that date. Lease payments are renegotiated every 10 years to reflect market
rentals.
The Group leases an office unit in the United Kingdom and IT equipment with
contract terms of 2 to 3 years. These leases are short-term and/or leases of
low-value items. The Group has elected not to recognise right-of-use assets
and lease liabilities for these leases.
Information about leases for which the Group is a lessee is presented below.
i. Right-of-use assets
Right-of-use assets related to leased properties that do not meet the
definition of investment property are presented as property, plant and
equipment.
Land and Buildings
Total
Group £000 £000
Cost
As at 1 January 2021 737 737
Additions 993 993
Disposals (285) (285)
As at 31 December 2021 1,445 1,445
Accumulated depreciation
As at 1 January 2021 329 329
Charge for the year 162 162
Eliminated on disposals (285) (285)
As at 31 December 2021 206 206
Carrying value at 31 December 2021 1,239 1,239
Carrying value at 31 December 2020 408 408
ii. Amounts recognised in profit or loss
2021 2020
£000 £000
Interest on lease liabilities 42 40
Depreciation expense 162 164
Expenses relating to short-term leases and low-value assets 64 97
iii. Amounts recognised in statement of cash flows
2021 2020
£000 £000
Total cash outflow for leases 243 244
iv. Non-cancellable operating lease rentals are payable in respect of property
as follows:
2021 2020
£000 £000
Less than one year 64 84
Between one and five years 128 -
Over five years - -
Total operating lease rentals payable 192 84
38. Regulators
Certain Group subsidiaries are regulated by the FSA and the FCA as detailed
below.
The Bank and EAL are regulated by the FSA under a Class 1(1) - Deposit Taking
licence and Class 2 - Investment Business licence respectively. The Bank and
CFL are regulated by the FCA to provide regulated products and services.
39. Contingent liabilities
The Bank is required to be a member of the Isle of Man Government Depositors'
Compensation Scheme which was introduced by the Isle of Man Government under
the Banking Business (Compensation of Depositors) Regulations 1991 and creates
a liability on the Bank to participate in the compensation of depositors
should it be activated.
40. Subsequent events
There were no subsequent events occurring after 31 December 2021.
41. 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 risk; and
n operational risk.
Risk management framework
The Board has overall responsibility for the establishment and oversight of
the Group's risk management framework. The Board has established the ARCC,
which is responsible for approving and monitoring Group risk management
policies. The 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 gradings 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; and
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 occurring.
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") which 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 which are carried at cost adjusted for
the Group's share of net asset value. 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 does not hold any investments in listed equities.
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.
However, neither of these risks apply to 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 reported to the ARCC.
42. Basis of measurement
The financial statements are prepared on a historical cost basis, except for
the following material items:
Items Measurement basis
FVTPL - Trading asset Fair value
FVOCI - Debt securities Fair value
Net defined benefit liability Fair value of plan assets less the present value of the defined benefit
obligation
43. Significant accounting policies
A number of new standards have been effective from 1 January 2021 but they do
not have a material effect on the Group's financial statements.
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 76
the Company
B. Interest in equity accounted investees 76
C. Interest 76
D. Fee and commission income 77
E. Leases 77
F. Income tax 78
G. Financial assets and financial liabilities 79
H. Cash and cash equivalents 83
I. Loans and advances 83
J. Property, plant and equipment 83
K. Intangibles assets and goodwill 83
L. Impairment of non-financial assets 84
M. Deposits, debt securities issued and subordinated liabilities 85
N. Employee benefits 85
O. Share capital and reserves 85
P. Earnings per share ("EPS") 85
Q. Segmental reporting 86
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 control 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. Non-controlling interests ("NCI")
NCI are measured initially at their proportionate share of the acquiree's
identifiable net assets at the date of acquisition.
Changes in the Group's interest in a subsidiary that do not result in a loss
of control are accounted for as equity transactions.
iv. Loss of control
When the Group loses control over a subsidiary, it derecognises the assets and
liabilities of the subsidiary, and any related 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.
v. 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.
vi. 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.
i. 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 gross
carrying amount of the financial asset or amortised cost of the financial
liability. When calculating the effective interest rate for financial assets,
the Group estimates future cash flows considering all contractual terms of the
financial instruments, 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.
ii. Amortised cost and gross carrying amount
The amortised cost of a financial asset or financial liability is the amount
at which the financial asset or financial liability is measured on initial
recognition minus the principal repayments, plus or minus the cumulative
amortisation using the effective interest method of any difference between
that initial amount and the maturity amount and, for financial assets,
adjusted for any expected credit loss allowance.
The gross carrying amount of a financial asset is the amortised cost of a
financial asset before adjusting for any expected credit loss allowance.
iii. Calculation of interest income and expense
In calculating interest income and expense, the effective interest rate is
applied to the gross carrying amount of the asset (when the asset is not
credit-impaired) or to the amortised cost of the liability.
However, for financial assets that have become credit-impaired subsequent to
initial recognition, interest income is calculated by applying the effective
interest rate to the amortised cost of the financial asset. If the asset is no
longer credit-impaired, then the calculation of interest income reverts to the
gross basis.
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
At inception of a contract, the Group assesses whether a contract is, or
contains, a lease. A contract is, or contains, a lease if the contract coveys
the right to control the use of an identified asset for a period of time in
exchange for consideration.
i. As a lessee
At commencement or on modification of a contract that contains a lease
component, the Group allocates the consideration in the contract to each lease
component on the basis of its relative stand-alone prices. However, for the
leases of property the Group has elected not to separate non-lease components
and as a result, accounts for the lease and non-lease components as a single
lease component.
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, which
comprises the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct
costs incurred and an estimate of costs to dismantle and remove the underlying
asset or to restore the underlying asset or the site on which it is located,
less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line
method from the commencement date to the end of the lease term, unless the
lease transfers ownership of the underlying asset to the Group by the end of
the lease term or the cost of the right-of-use asset reflects that the Group
will exercise a purchase option. In that case the right-of-use asset will be
depreciated over the useful life of the underlying asset, which is determined
on the same basis as those of property and equipment. In addition, the
right-of-use asset is periodically reduced by impairment losses, if any, 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 Group determines its incremental borrowing rate by obtaining interest
rates from various external financing sources and makes certain adjustments to
reflect the terms of the lease and the type of the asset leased.
Lease payments included in the measurement of the lease liability comprise the
following:
n Fixed payments, including in-substance fixed payments;
n Variable lease payments that depend on an index or a rate, initially
measured using the index or rate as at the commencement date;
n Amounts expected to be payable under a residual value guarantee; and
n The exercise price under a purchase option that the Group is reasonably
certain to exercise, lease payments in an optional renewal period if the Group
is reasonably certain to exercise an extension option, and penalties for early
termination of a lease unless the Group is reasonably certain not to terminate
early.
The lease liability is measured at amortised cost using the effective interest
method. It is remeasured when there is a change in future lease payments
arising from a change in an index or rate, if there is a change in the Group's
estimate of the amount expected to be payable under a residual value
guarantee, if the Group changes its assessment of whether it will exercise a
purchase, extension or termination option or if there is a revised
in-substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment
is made to the carrying amount of the right-of-use asset, or is recorded in
profit or loss if the carrying amount of the right-of-use asset has been
reduced to zero.
The Group presents right-of-use assets that do not meet the definition of
investment property in 'property, plant and equipment' and lease liabilities
in 'loans and borrowings' in the statement of financial position.
Short-term leases and leases of low-value assets
The Group has elected not to recognise right-of-use assets and lease
liabilities for leases of low-value assets and short-term leases, including IT
equipment. The Group recognises the lease payments associated with these
leases as an expense on a straight-line basis over the lease term.
ii. As a lessor
At inception or on modification of a contract that contains a lease component,
the Group allocates the consideration in the contract to each lease component
on the basis of their relative stand-alone prices.
When the Group acts as a lessor, it determines at lease inception whether each
lease is a finance or an operating lease.
To classify each lease, the Group makes an overall assessment of whether the
lease transfers substantially all of the risks and rewards incidental to
ownership of the underlying asset. If this is the case, then the lease is a
finance lease; if not, then it is an operating lease. As part of this
assessment, the Group considers certain indicators such as whether the lease
is for the major part of the economic life of the asset.
Finance leases and HP contracts
When assets are subject to a finance lease or HP contract, the present 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
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 profit or loss and other comprehensive income 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 tax is not recognised for taxable temporary
differences arising on the initial recognition of goodwill and temporary
differences related to investments in subsidiaries and associates to the
extent that the Group is able to control the timing of the reversal of the
temporary differences and it is probable that they will not reverse in the
foreseeable future.
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 solely payments of principal and interest ("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 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 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,
individual voluntary arragement, 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 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'.
Lifetime 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 9 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 2021 year-end,
28.8% had such credit enhancements (2020: 36.6%); 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 note 43 (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 note 43 (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 estimated 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
Plant and
machinery
5 - 20
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 to 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 CEO who is
the 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 CEO include items that are directly
attributable to a segment as well as those that can be allocated on a
reasonable basis.
Appendix - Glossary of terms
ALCO Assets and Liabilities Committee
ARCC Audit, Risk and Compliance Committee
BBSL Blue Star Business Solutions Limited
BL Burnbrae Limited
BLX The Business Lending Exchange Limited
Bank Conister Bank Limited
Bank's Board The Bank's Board of Directors
BSL Beer Swaps Limited
CEO Chief Executive Officer
CET1 Common Equity Tier 1
CFL Conister Finance & Leasing Ltd
CGU Cash Generating Unit
CODM Chief Operating Decision Maker
Company Manx Financial Group PLC
EAL Edgewater Associates Limited
ECF ECF Asset finance PLC
ECL Expected Credit Loss
ESG Environmental, Social and Governance
EPS Earnings Per Share
FCA UK Financial Conduct Authority
Fraud risks Risk of Material Misstatement Due to Fraud
FSA Isle of Man Financial Services Authority
FVOCI Fair Value Through Other Comprehensive Income
FVTPL Fair Value Through Profit or Loss
Group Comprise the Company and its subsidiaries
HP Hire Purchase
IAS International Accounting Standard
ICAAP Internal Capital Adequacy Assessment Process
ICG Individual Capital Guidance
IFA Independent Financial Advisors
IFRIC International Financial Reporting Interpretations Committee
IFRS International Financial Reporting Standards
Interim financial statements Condensed consolidated interim financial statements
IOM Isle of Man
ISA International Standards of Auditing
JM Jim Mellon
LSE London Stock Exchange
MBL MBL Financial Limited
MCL Manx Collections Limited
MFG Manx Financial Group PLC
MFX Manx FX Limited
MFX.L Manx Financial Group PLC ticker symbol on the LSE
MVL Manx Ventures Limited (previously Bradburn Limited)
NEC Notice of Error Correction
NOMCO Nomination Committee
NRFL Ninkasi Rentals & Finance Limited (previously Beer Swaps Limited)
OCI Other Comprehensive Income
PIML Payitmonthly Limited
QCA Quoted Companies Alliance
REMCO Remuneration Committee
RFG Rivers Finance Group Plc
RMF Risk Management Framework
SBA Share Buyback Agreement
Scheme The Conister Trust Pension and Life Assurance Scheme
SICR Significant Increase in Credit Risk
SPPI Solely Payments of Principal and Interest
SR Southern Rock Insurance Company Limited
Subsidiaries MFG's subsidiaries being Bank, BBSL, BLX, CFL, ECF, EAL, MFX, MVL, NRFL
TCF Treating Customers Fairly
Three Spires Three Spires Insurance Services Limited
UK United Kingdom
UP Unrelated parties
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR JLMRTMTIMBITRecent news on Manx Financial
See all newsRCS - Manx Financial Group - Conister Bank to provide Isle of Man mortgages
AnnouncementREG - Manx Financial Group - Loan Agreement Extensions
AnnouncementREG - Manx Financial Group - Acquisition of CAM Wealth Group Holdings Limited
AnnouncementREG - Manx Financial Group - Director/PDMR Shareholding
AnnouncementREG - AIM - AIM Notice - 06/11/2024
Announcement