Report and accounts year ended 31 Dec 2010

RNS Number : 8537D

Manx Financial Group PLC

29 March 2011

 



FOR IMMEDIATE RELEASE                                                                                           29 March 2011

Manx Financial Group PLC (the 'Company')

Report and accounts for the year ended 31 December 2010

Manx Financial Group PLC (LSE: MFX), the financial services Group which includes Conister Bank Limited, Conister Card Services Limited, Edgewater Associates Limited and ECF Asset Finance Plc presents its final results for the year ended 31 December 2010.

The 2010 Audited Annual Report and Accounts will be posted to shareholders shortly and are available from the Company's website www.mfg.im.

Financial Highlights

MFG - the Holding Company:

·      Financial performance improved by £2.4 million, 92.3%

·      Total equity increased by 41.0% to £8.6 million (2009: £6.1 million)

·      Total assets increased by 13.5% to £64.6 million (2009: £56.9 million)

·      £3.6 million of new capital and long term loans raised with £0.5 million of more expensive debt retired

·      Completed two strategic acquisitions in 2010

Conister Bank Limited:

·      Recorded a profit of £1.0 million (2009: a loss of £1.2 million)

·      Lent balances increased by 29.8% to £48.8 million (2009: £37.6 million)

·      Deposits grew by 6.5% to £52.7 million (2009: £49.5 million) and cost of funds reduced

Conister Card Services Limited:

·     Record financial performance by posting a profit of £0.1 million (2009: a loss of £0.4 million)

·     124,280 prepaid cards in issue (2009:  73,150), an increase of 70.0%

·     Cost base reduced further with the expiry of expensive processing and utility contracts

Edgewater Associates Limited:

·      Acquired 30 July 2010

·      Recorded a profit of £0.2 million (2009: equivalent not available)

·      Profitable every month post-acquisition

ECF Asset Finance Plc:

·      Acquired 20 November 2010

·      Integration nearing completion

·      Business volumes in line with expectations

Operational Highlights

·      Successfully installed a new lending system which will ensure future growth is not restricted by internal infrastructure

·      Underwriting, Collections and Compliance teams have been bolstered to reflect the expected increase in future lending

Contacts

Manx Financial Group PLC Denham Eke, Chief Executive Tel:  [phone]

Britton Financial PR Tim Blackstone Tel:  [phone]

Beaumont Cornish Limited Roland Cornish Tel:  [phone]

The financial information set out below comprises non-statutory accounts.  The financial information for the year ended 31 December 2010 has been extracted from accounts for the year ended 31 December 2010 on which the report of the auditors was unqualified.

Chairman's Statement

I am pleased to report a year of positive momentum for your Group, as I suggested would be the case in last year's review.

Review of Performance

Despite an uncertain economic backdrop we made significant progress towards our goal of creating a Group with a suite of financial services to both the retail and corporate markets. In this respect, we have made two important acquisitions and further strengthened the Group's capital base in the past twelve months.

Manx Financial Group PLC

During  the  financial  year  we  acquired  Edgewater  Associates Limited,  a  leading  Isle  of  Man  based Independent  Financial Advisor.   This   reduces   the   Group's   reliance   on   interest income   and   also   provides   an   array   of   complementary propositions to Conister Bank's customer base. The company
has  outperformed  our  expectations  since  its  purchase  and has  an  excellent  pipeline  of  opportunities.  We also acquired ECF Asset Finance PLC which will provide its sister company, Conister Bank, with the experience and brand to access the lucrative UK Small and Medium sized Entities (SMEs) market.

The business has historically lent for business critical assets which are a natural adjunct to Conister Bank's asset backed lending philosophy. With these acquisitions we now have sufficient mass to allow for future acquisitions to be made without the need of further overhead - which will improve the profitability of each
incremental investment.

During the year we also successfully raised two tranches of capital and long term loans totalling £3.6 million and retired £0.5 million of more expensive subordinated debt. As I wrote in my statement last year we maintained fairness throughout the whole shareholder base in this process.

I am pleased to report that these structural improvements will have benefits both in the short and medium term. In the short term, even including the costs of acquiring the new assets, financial performance improved by £2.4 million as the Group recorded a small loss of £0.2 million (2009: a loss of £2.6 million).

Conister Bank Limited

It is pleasing to report the Bank recorded a profit of just over £1.0 million for the financial period ended 31 December 2010 (2009: a loss of £1.2 million) an improvement of £2.2 million driven by a mixture of increased operating income and the application of the amended provisioning policy. The balance sheet strengthened with net assets increasing by £1.0 million to £9.3 million (2009: £8.3 million).

The Bank continues to maximise capital efficiency and it has also improved its cash management by using surpluses to grow the net loan book to £48.8 million (2009: £37.6 million).This will deliver improved interest income levels in 2011 and beyond as our deferred income increased by £2.5 million to £7.1 million (2009: £4.6 million). This loan book growth has been achieved by increasing our sales teams in our traditional markets and by the introduction of new revenue streams such as Block Discounting, outsourcing to Marsh Finance, specialist car benefit schemes and the acquisition of ECF Asset Finance PLC's loan book in November 2010.

We remain funded solely by retail deposits and as such our funding model is not exposed to the same market pressures as our competitors, who are now forecast to find their cost of funds rising. Our deposit base has again proved incredibly loyal with the year end balance being £52.7 million (2009: £49.5 million).

The development of new lending lines and new distribution agreements within the Bank has diversified our loan portfolio across a greater number of asset types ensuring our exposure to individual market and geographic segments is well controlled. We have been able to maintain our cost of funding which has meant margins have remained stable throughout the year.

During the year we enhanced our credit control and underwriting processes which in turn allowed the Board of Directors to consider the adequacy of the existing provisioning procedures.  The output of this review was twofold, the asset backed lending book's provisioning policy was amended to take greater cognisance of each loan's underlying security and the Litigation Finance provisioning now more accurately reflects the significant progress made this year in settling the outstanding debtor.  The impact of these changes in policy was to decrease total provisions in this area.  Balance sheet total provisions have increased to £4.7 million (2009: £4.4 million) driven by the ECF Asset Finance PLC loan book acquisition.

Conister Card Services Limited

The re-organisation of our cards business is starting to flow through to its financial performance; indeed this business segment recorded its first ever full year profit in 2010 of £0.1 million (2009: a loss of £0.4 million). The business will endeavour to continue to develop new programme managers with profitable contracts and will find further ways to leverage the Bank's MasterCard^® licence.

Edgewater Associates Limited

I am pleased to report that the integration process is now complete and I would like to thank all the staff involved for their professional and enthusiastic approach to this project. In the period post acquisition this subsidiary has generated a profit of £0.2 million (2009 comparative not available) which was in excess of our pre-acquisition forecast. Marketing to the enlarged customer base has now commenced and initial results are very encouraging. Good growth is expected from this business through both our unique revenue strategy and by increasing the number of independent financial advisors we employ.

ECF Asset Finance Plc

The transformation of the business to that of an exclusive broker for Conister Bank has commenced and is proceeding as planned. This business has a good pedigree of providing asset backed finance opportunities for UK based SMEs and of underwriting these type of deals to provide the necessary level of security to the lender. This, alongside their collections team, will bring greater resilience to our existing UK based lending team and together we have created sufficient mass to allow us to compete in this market sector.

Customer Services and Our People

As part of our drive to continually improve processes, controls and customer service standards a new asset finance lending system was installed at Conister Bank, which will allow secondary processes and workflows also to be overhauled. The new system, accompanied by our strengthened Risk and Compliance team, will ensure our lending processes can adequately match our expected growth in lending propositions.

Our staff have all contributed to the improved performance of the Group. Not only have we integrated a new lending system; ensured continued compliance with Consumer Credit Act regulations in the UK; developed new business segments during 2010; and integrated new businesses; our people have achieved all of this whilst producing significant year on year growth and for this I would like to thank them all for their efforts.

Outlook

Despite the currently unpredictable events in the Middle East and in Japan the outlook for the Bank, with our Isle of Man and UK focus, is now very encouraging. This, alongside the continued withdrawal of major banking groups from our core lending markets as they struggle  to  manage  regulatory  pressures,  market  contraction,
and a continued funding squeeze, presents us with significant opportunities which we are seizing.

As customers continue to pay down debt at record levels it may become harder to grow our book organically. To this end we continue to scan the UK market for opportunities to take on new loan books from Banks and Finance Houses who have been unable to secure new or existing funding lines. These are NOT distressed books of business and will complement our existing asset base. I expect 2011 to be another year of remarkable growth for your Group.

I thank all the staff of MFG for their focus, dedication and enthusiasm on behalf of their customers and shareholders.

Jim Mellon

Executive Chairman

29 March 2011

Consolidated Comprehensive Statement of Income

For the year ended 31 December	Notes		2010 £000		2009 £000
Interest income			5,103		5,341
Interest expense			(1,866)		(3,222)
Net interest income			3,237 654 (700)		2,119 9 (459)
Fee and commission income Fee and commission expense
Net fee and commission expense Net trading income			(46) 3,191		(450) 1,669
Other operating income			1,041		871
Programme costs			(449)		(591)
Foreign exchange gain/(loss)			12		(26)
Operating Income			3,795		1,923
Personnel expenses			(2,713)		(2,425)
Depreciation			(163)		(102)
Other expenses			(1,688)		(1,395)
Provision of impairment of loan assets			1,027		(643)
Depositors' Compensation Scheme			2		(89)
Realised gains on available-for-sale  investments	17		26		30
Unrealised (loss)/gain on financial assets carried at fair value			(200)		238
Profit/(loss) before specific items			86		(2,463)
Acquisition and associated restricting costs	9		(274)		(158)
Loss before income tax expense			(188)		(2,621)
Income tax expense			-		-
Loss for the year			(188)		(2,621)
Other comprehensive income
Available-for-sale gains taken to equity	17		-		6
Actuarial gain/(loss) on defined benefit pension scheme			5		(111)
Total comprehensive loss for the year attributable to owners			(183)		(2,726)
Basic and diluted loss per share (pence)			(0.24)		(4.13)

Consolidated and Company Statement of Financial Position

		Group				Company
As at 31 December	Notes	2010 £000		2009 £000		2010 £000		2009 £000
Assets
Cash and cash equivalents		4,795		7,976		-		-
Financial assets at a fair value through profit or loss		174		374		174		-
Available-for-sale financial instruments	17	7,292		9,989		-		-
Loans and advances to customers		48,678		37,554		-		-
Commissions receivable		237		-		-		-
Property, plant and equipment		760		601		-		6
Investment in Group undertakings	20	-		-		12,067		10,067
Trade and other receivables		449		450		15		24
Goodwill	20	2,203		-		-		-
Total assets		64,588		56,944		12,256		10,097
Liabilities
Customer accounts		52,745		49,544		-		-
Creditor and accrued charges		978		1,282		209		192
Amounts owed to Group undertakings		-		-		2,418		3,876
Convertible loan notes		1,710		-		1,710		-
Deferred consideration	20	475		-		475		-
Pension liability		60		66		-		-
Total liabilities		55,968		50,892		4,812		4,068
Equity
Called up share capital		18,258		15,854		18,258		15,854
Share premium account		-		6,142		-		6,142
Profit and loss account		(9,638)		(15,944)		(10,814)		(15,967)
Total equity		8,620		6,052		7,444		6,029
Total liabilities and equity		64,588		56,944		12,256		10,097

Consolidated Statement of Cash Flows

For the year ended 31 December	Notes		2010 £000		2009 £000
RECONCILIATION OF LOSS BEFORE TAXATION TO OPERATING CASH FLOWS
Loss before tax on continuing activities			(188)		(2,621)
Unrealised loss/(gain) on financial asset carried at fair value			200		(238)
Loss on disposal of property, plant and equipment			3		2
Depreciation charge			163		102
Realised gains on available-for-sale investments			(26)		-
Shares issued in lieu of bonuses			26		-
Available-for-sale gains taken to equity			-		6
Actuarial gain/(loss) on defined benefit pension scheme taken to equity			5		(111)
Decrease in pension liability			(6)		(248)
Share-based payment (credit)/expense			(178)		22
Decrease in trade debtors			69		939
Decrease in trade creditors			(589)		(1,812)
Decrease in commission debtors			55		-
Net cash outflow from trading activities			(466)		(3,959)
(Increase)/decrease in loans and advances to customers			(13)		18,362
Increase/(decrease) in deposit accounts			3,202		(16,514)
Cash inflow/(outflow) from operating activities			2,723		(2,111)
CASH FLOW STATEMENT
Cash flows from operating activities
Cash inflow/(outflow)  from operating activities			2,723 -		(2,111) -
Taxation paid
Net cash inflow/(outflow) from operating activities			2,723		(2,111)
Cash flows from investing activities
Purchase of tangible fixed assets			(179)		(526)
Sale/(purchase) of available-for-sale financial instruments	17		2,723		(9,989)
Sale of  tangible fixed assets			12		13
Acquisition of subsidiaries net of cash acquired	20		(11,573)		-
Net cash outflow from investing activities			(9,017)		(10,502)
Cash flows from financing activities
Issue of convertible loans			1,710		-
Issue of ordinary share capital			1,903		-
Repayment of subordinated loan	29		(500)		-
Net cash inflow from financing activities			3,113		-
Decrease in cash and cash equivalents			(3,181)		(12,613)

Statement of Changes in Equity

For the year ended 31 December	Share Capital		Share Premium		Retained earnings		2010		2009
Group	£000		£000		£000		£000		£000
Balance as at 1 January	15,854		6,142		(15,944)		6,052		8,756
Loss for the year	-		-		(188)		(188)		(2,621)
Other comprehensive income/(expense)	-		-		5		5		(105)
Transactions with owners:
Arising on shares issued in the year	2,404		-		-		2,404		-
Share-based payment expense	-		-		347		347		22
Transfer to retained reserves	-		(6,142)		6,142		-		-
Balance as at 31 December	18,258		-		(9,638)		8,620		6,052

For the year ended 31 December	Share Capital		Share Premium		Retained earnings		2010		2009
Company	£000		£000		£000		£000		£000
Balance as at 1 January	15,854		6,142		(15,967)		6,029		9,023
Loss for the year	-		-		(1,336)		(1,336)		(3,016)
Transactions with owners:
Arising on shares issued in the year	2,404		-		-		2,404		-
Share-based payment expense	-		-		347		347		22
Transfer to retained reserves	-		(6,142)		6,142		-		-
Balance as at 31 December	18,258		-		(10,814)		7,444		6,029

Notes

Segmental analysis (Note 5)

Segmental information is presented in respect of the Group's business segments. The Directors consider that the Group currently operates in one geographic segment, the Isle of Man and UK. The primary format, business segments, is based on the Group's management and internal reporting structure. The Directors consider that the Group operates in four product orientated segments in addition to its investing activities: Asset and Personal Finance (including provision of HP contracts, finance leases, personal loans, commercial loans, block discounting and premium finance); Litigation Finance; a Prepaid Card division, Conister Card Services; and a Wealth Management division, Edgewater Associates Limited. The Group ceased to provide new Litigation Finance in June 2007.

Included within personnel expenses in the Consolidated Income Statement is £265,316 (2009: £362,064) relating to direct salary costs for Conister Card Services.

	Asset and Personal Finance	Litigation Finance	Conister Card Services	Wealth Management	Investing Activities	Total 2010
For the year ended 31 December	£000	£000	£000	£000	£000	£000
Net interest income	2,999	238	-	-	-	3,237
Operating income	2,339	238	579	621	-	3,777
Provision for impairment	361	666	-	-	-	1,027
Profit/(loss) before unallocated items	209	861	107	274	(200)	1,251
Group central costs	-	-	-	-	-	(1,165)
Profit before specific items						86
Capital expenditure	335	-	-	1	-	336
Total assets	61,042	1,011	116	2,245	174	64,588
Total liabilities and equity	62,953	1,011	59	565	-	64,588

	Asset and Personal Finance	Litigation Finance	Conister Card Services	Investing Activities	Total 2009
For the year ended 31 December	£000	£000	£000	£000	£000
Net interest income	1,866	253	-	-	2,119
Operating income	1,447	253	223	-	1,923
Provision for impairment	28	(671)	-	-	(643)
Loss before unallocated items	(922)	(468)	(225)	268	(1,347)
Group central costs	-	-	-	-	(1,116)
Loss before specific items					(2,463)
Capital expenditure	526	-	-	-	526
Total assets	56,183	188	199	374	56,944
Total liabilities and equity	56,598	188	158	-	56,944

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

Acquisition and associated restructuring costs (Note 9)

Acquisition and restructuring costs in the current year relate to the purchase of Edgewater Associates Limited and ECF Asset Finance PLC and the subsequent restructuring of the UK operations.

	2010		2009
	£000		£000
Acquisition costs
Legal and professional fees	181		-
Reorganisation of UK operations in relation to acquisitions
Redundancy costs	93		-
Reorganisation of Isle of Man operations process
Redundancy costs	-		57
Closure of UK Conister Card Services operation
Redundancy costs	-		101
	274		158

Loss per share (Note 13)

	2010		2009
	£000		£000
Loss for the year	(188)		(2,621
	Number		Number
Weighted average number of ordinary shares in issue	76,143,178		63,416,450
Basic and diluted loss per share	(0.24)p		(4.13)p

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

Diluted earnings per share is the same as basic loss per share, as for the year ended 31 December 2010 there is no dilution from potential ordinary shares.

Available-for-sale financial instruments (Note 17)

	Group				Company
	2010		2009		2010		2009
	£000		£000		£000		£000
UK Government Treasury Bills	7,292		9,989		-		-
	7,292		9,989		-		-

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

Investment in Group undertakings (Note 20)

	Nature of business	31 December 2010 % Holding	Date of incorporation	Total 2010 £		Total 2009 £
Carrying values of investments
Conister Bank Limited	Asset and personal finance	100	5.12.1935	10,067,000		10,067,000
TransSend Holdings Limited	Holding Co for prepaid card division	100	5.11.2007	-		-
Bradburn Limited	Holding Company	100	15.05.2009	1		-
Edgewater Associates Limited	Wealth Management	100	24.12.1996	2,000,000		-
				12,067,001		10,067,000

Acquisition of subsidiaries

Acquisition of Edgewater Associates Limited

On 30 July 2010 the Group acquired the entire share capital of Edgewater Associates Limited ("Edgewater"). Edgewater is regulated by both the Financial Services Commission and the Insurance and Pensions Authority.

In the five months to 31 December 2010 Edgewater contributed revenue of £552,000, and profit of £205,000 to the Group's results.

The following summarises the major classes of consideration transferred, and the recognised amounts of assets acquired and liabilities assumed at the acquisition date:

Consideration transferred

	£'000
Cash	525
Equity instruments issued	475
Deferred cash consideration	475
Deferred equity consideration	525
Total consideration	2,000

Equity instruments issued

The ordinary shares were issued at a price of 14p per share.

Deferred consideration

The deferred element of the consideration is payable over the next three years on approval of the respective company accounts for each of the financial years ending 31 December 2010, 2011 and 2012.  The deferred element, payable on the approval of the respective account, is:

·      31 December 2010:  £158,000 in cash and £175,000 payable in Consideration Shares;

·      31 December 2011:  £158,000 in cash and £175,000 payable in Consideration Shares;

·      31 December 2012:  £159,000 in cash and £175,000 payable in Consideration Shares; and

·      Total deferred cash and share consideration payable is £475,000 and £525,000 respectively.

The Consideration Shares shall be issued on the basis of the mean average offer price of the Group's ordinary shares for the five business days immediately preceding the date on which the obligation arises.  The cash consideration will be financed from existing cash resources.

Incentive commission

It has also been agreed that an incentive commission will be paid to Edgewater's principals, calculated at 40% of the EBITDA in excess of £400,000, £450,000 and £500,000 thresholds in each of the financial years ending 31 December 2010, 2011 and 2012 on a cumulative basis so as to make good any prior year or years' shortfall before triggering any additional consideration.  The incentive commission will be payable 50% in cash and 50% in the Group's shares.  Such additional shares will be issued at the same price as the Consideration Shares for that year.

Based on current expectations no provision has been made in the accounts of the Group in respect of the incentive commission.

Identifiable assets acquired and liabilities assumed

	£000
Property, plant and equipment	90
Commission debtors	292
Cash	63
Inventories	3
Trade and other payables	(214)
HP obligations†	(83)
Total identifiable net assets	151

^† HP obligations relates to amounts outstanding under a HP agreement with a fellow subsidiary.

Goodwill

	£000
Total consideration transferred	2,000
Fair value of identifiable net assets	(151)
Goodwill	1,849

The goodwill is attributable to Edgewater's established personal and commercial client base of over 5,000 accounts, the skills and technical talent of its workforce and the synergies expected to be achieved from Edgewater taking over responsibility for Conister Wealth.

Goodwill impairment

The goodwill is considered to have an indefinite life and will be reviewed annually by comparing its estimated recoverable amount with its carrying value. Estimated recoverable amount will be based on the revised forecast profits and cash flows of Edgewater. As at 31 December 2010, the Directors have reviewed the carrying value of goodwill and consider that no impairment is required.

Acquisition-related costs

The Group incurred acquisition-related costs of £70,995 in relation to external legal fees and due diligence costs. The legal fees and due diligence costs have been included in acquisition and associated restructuring costs in the Group's consolidated statement of comprehensive income.

Acquisition of ECF Asset Finance PLC

On 20 November 2010 Bradburn Limited acquired the entire share capital of ECF Asset Finance PLC, an asset finance house formed over 19 years ago to provide asset backed finance to UK based Small and Medium sized Entities ("SMEs"), for £12,177,000.

As part of this acquisition the loan book and all related assets and liabilities were transferred to Conister Bank Limited.

In the period from 20 November to 31 December 2010 ECF Asset Finance PLC contributed revenue of £nil, and a loss of £108,074 to the Group's results.

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

Identifiable assets acquired and liabilities assumed	£'000
Property, plant and equipment	69
Cash	1,066
Loans and advances to customers	11,194
Trade and other receivables	65
Trade and other payables	(571)
Total identifiable net assets	11,823

Goodwill	£'000
Total consideration transferred	12,177
Fair value of identifiable net assets	(11,823)
Goodwill	354

Acquisition-related costs

The Group incurred acquisition-related costs of £110,000 in relation to external legal fees and due diligence costs and associated redundancy costs of £93,872. The legal fees, due diligence costs and redundancy costs have been included in acquisition and associated restructuring costs in the Group's consolidated statement of comprehensive income.

Related party transactions (Note 29)

NewLaw

"Loans and advances to customers" include a loan due to Conister Bank Limited from NewLaw, a UK firm of solicitors. The loan carried interest at 7.3% per annum and was repayable over 36 months. As at 31 December 2010 the balance on the loan was £nil (31 December 2009: £139,084). NewLaw is a related party to Arron Banks*.

Premium finance

Conister Bank Limited had an agreement with Group Direct Limited, a UK insurance broker, to provide premium financing of insurance policies brokered by Group Direct. The majority of these policies were issued by Southern Rock Insurance Company Limited. In 2010 the Group provided financing of £16,446 (31 December 2009: £19 million), earning interest income of £91,140 (31 December 2009: £1,024,000). Twelve months' notice to terminate this agreement was given in August 2009 and no balance remained at 31 December 2010.  Group Direct Limited and Southern Rock Insurance Company Limited are related parties of Arron Banks*.

*Arron Banks is a Non-Executive Director and significant shareholder of MFG.

Cash deposits

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

Jim Mellon and a company related to him

A company related to Denham Eke
Douglas Grant

Normal commercial interest rates are paid on these deposits.

Subordinated loan

On 22 December 2008 the Bank entered into a subordinated loan agreement for £500,000 with Jim Mellon. The loan was unsecured, bore interest on commercial terms and no repayment of the loan was necessary in the first 5 years. This loan represented a Related Party Transaction in accordance with AIM Rule 13. Accordingly, the Independent Directors consulted with the Group's Nominated Adviser, considered the terms of the transaction to be fair and reasonable in so far as the shareholders of the Company were concerned.

On 3 March 2010 this loan was repaid by the Bank.

Staff loans

Details of staff loans are given in note 18 to the financial statements.

Convertible loans

Details of convertible loan arrangements are given in note 24 to the financial statements.

Key management personnel (including Executive Directors') compensation

	2010		2009
	£000		£000
Short-term employee benefits	395		729
Share-based payments	26		9
Total	421		738

 

END

 

 

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