Unaudited Interim Results

FOR IMMEDIATE RELEASE 15 September 2011

Manx Financial Group PLC

Unaudited Interim Results for the 6 months ended 30 June 2011

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 six months ended 30 June 2011.

Highlights 

For the Group:

·; Financial performance before specific items improved by 19%.

·; Interest Income grew by 56% to £3,507,000 (2010: £2,250,000).

·; Net Operating Income grew by 115% to £3,111,000 (2010: £1,446,000).

·; Headcount reducing as IT efficiencies are being leveraged. 

For Conister Bank Limited:

·; Profit before impairment of goodwill increased by 53% to £107,000 (2010: £70,000).

·; Net loans and advances increased by 52% to £49,934,000 (2010: £32,968,000).

·; Deferred income increased by 59% to £7,419,000 (2010: £4,680,000).

For Conister Card ServicesLimited:

·; Profitability increased by 54% to £183,000 (2010: £119,000).

·; Cards in issue increased by 52% to 153,747 (2010: 101,399).

·; Contract extended by primary customer.

  For Edgewater AssociatesLimited:

·; Recorded profit of £94,000 (2010: not available).

·; Acquired a general insurer which broadens its insurance offering and will increase profitability.

·; Well positioned to be a consolidator in the fragmented Isle of Man IFA market place.

Other:

·; New lending IT system installed.

·; ECF Asset Finance PLC integration complete.

Contacts: 

Manx Financial Group PLC

Denham Eke, Chief Executive

Tel: 01624 694694

Chairman's Statement

Moving forward in turbulent financial times

We are all familiar with the deepening gloom that surrounds the outlook for Britain's economy. The labour market continues to be much more fragile than expected and the Bank of England's Monetary Policy Committee signalled increasing concern about the prospect of recovery. The weak employment figures appear to be falling into line with slower GDP growth data, according to which Britain's economy has barely grown over the past nine months. Concerns about the UK are echoed in similar fears for global growth, unemployment, inflation and the long-term viability of the Economic and Monetary Union. As an example of the effect of this climate of uncertainty, Standard & Poor's decision to downgrade the USA's long term sovereign debt to AA+ leaves the Isle of Man in the incredible position of having a higher credit rating than the USA.

It is clear the current stagnation in the UK will continue for far longer than originally envisaged. In comparison the Isle of Man's economy has continued to grow and the Government remains committed to further sector diversification. The most recent budget reported a slightly better than expected financial position and currently inflation is stable and the island continues to have a low level of unemployment in comparison to the UK. 

However the solutions to the current economic conditions don't lie solely with governments. The private sector has a significant role to play and we are committed to helping individuals and companies by continuing to provide asset backed lending throughout these difficult times. We will also continue to help those who wish to save by providing secure fixed rate deposit rates over terms to suit their needs.

We continue to strive for sustainable profit despite these difficult times and by following our growth strategy adopted last year we have seen our Interest Income increase by 56% to £3,507,000 (2010: £2,250,000). At the same time we continue to reduce the cost base. The full benefit of these actions will not all flow through the Income Statement until the second half of this year.

Financial Review

The Group delivered a very encouraging performance for the first half of 2011 by recording an improvement in financial results before specific items of 19% with Net Operating Income increasing by 115% to £3,111,000 (2010: £1,446,000). Our operating margin continues to grow and increased by 16% to 67% (2010: 51%).

Cost savings from further integration will flow through the accounts during the second half of the year. Although the Interim Accounts do not reflect these savings from integration it is pleasing to note our income is increasing faster than our costs which, in turn, will help profitability.

Our Net Asset per share improved on the comparative period last year but our share price has been a casualty of the UK and global uncertainty. It continues to be our goal to develop a sustainable, profitable financial services group which when achieved will allow a sustainable dividend policy to be adopted.

We have invested heavily in IT in the last two years and this investment is allowing us to achieve greater integration of the acquired asset finance house, ECF Asset Finance PLC.

The Group's headcount excluding the IFA business is forecast to reduce by 27% in this financial year.

Conister Bank Limited

The Bank's profitability before goodwill impairment continues to improve, increasing by 53% to £107,000 (2010: £70,000). The bank is on a solid footing with retained earnings generating additional capital, leading to enhanced liquidity coupled with buoyant deposit funding. By way of example, the Bank's Core 1 capital ratio at June month end was 17% which compares favourably to Barclays published Core 1 capital ratio of 11%.

Our Loans and Advances to customers have increased by 52% to £49,943,000 (2010: £32,968,000) by both acquisition and greater market penetration. Our deferred income balance on these loans has increased by 59% to £7,419,000 (2010: £4,680,000) which now represents more than one year's income already earned.

Our deposit base continues to be loyal and growing having increased to £56,601,000 (2010: £44,942,000). Our efficiency in acquiring deposits to match our lending requirements has improved thereby minimising the strain on the Income Statement of holding excess deposits.

Edgewater Associates Limited

Edgewater's profits are traditionally biased to the second half of the year. Edgewater generated a commendable profit of £94,000 (2010: not available) in the first half of 2011.

Edgewater acquired a small Isle of Man based general insurer, Three Spires Insurance Services Limited on 21 June 2011. This acquisition will allow both businesses' insurance books to be consolidated and broaden the range of policies we can collectively offer. In addition, the acquisition will allow Edgewater access to another set of customers.

The Isle of Man is scheduled to implement the UK's Retail Distribution Review (RDR) with effect from 1 January 2014. This will require a higher standard of competency, more robust systems and greater compliance reviews within IFA businesses. Edgewater already has these skills within its business and is now well positioned to take advantage of the fragmented IFA market place within the Isle of Man as smaller businesses will find it difficult to carry the increase in overhead that comes with RDR or achieve the required level of competency prescribed.

Conister Card Services Limited

Conister Card's profitability improved by 54% to £183,000 (2010: £119,000). The re-structuring of this business is now complete and I'm also delighted to report we have negotiated an extension to our largest pre-paid card contract for a minimum of 12 months.

Our cards in issue grew by 52% to 153,747 (2010: 101,399).

Our people

Our integration policy has reduced our requirement for support staff but we have where needed recruited professionals from banking environments. We will continue to upgrade our teams through personal development and training and we believe excellent customer service generates repeat income to bolster profits.

On 14 January 2011 Oliver Hare joined the Board as a Non Executive Director and he will bring a wealth of experience and contacts for the Group to explore.

On 1 April 2011 the Bank's Managing Director Simon Hull resigned and I would like to thank him for his drive and commitment during his time with us. Douglas Grant, our Group Finance Director, is acting as Managing Director for the Bank whilst we undertake a comprehensive recruitment campaign to find a permanent Managing Director. This task is almost complete.

Outlook

This is a testing economic environment but it brings opportunities to us as we seek to find sustainable solutions to our customers' problems. Last year we entered the Block Discounting market and to-date we have grown a robust book with little to no arrears. Presently we are considering other new product lines which will complement our existing portfolio of lending.

We are constantly reviewing acquisitions, whether they be for an asset backed loan book or a complete business. The Executive has a number of opportunities under review and are diligently working their way through them and we would shortly expect to release some more news on their progress.

Opportunities are not restricted to the banking sector. Edgewater has a clear sustainable profitable market position and is well placed to capitalise on the introduction of RDR in the Isle of Man. Also with Conister Cards we have a small niche profitable business from which to grow our customer base.

Finally, I would like to thank you for your support as we continue to develop your company.

Jim Mellon

Executive Chairman

15 September 2011

Manx Financial Group PLC

Condensed Consolidated Statement of Comprehensive Income

Manx Financial Group PLC

Condensed Consolidated Statement of Financial Position

Manx Financial Group PLC

Condensed Consolidated Statement of Cash Flows

Manx Financial Group PLC

Condensed Consolidated Statement of Changes in Equity

Manx Financial Group PLC

Notes to the Consolidated Financial Statements

1. Preparation of the interim statements

The interim financial statements are unaudited. The financial information included in this interim financial report for the six months ended 30 June 2010 was also unaudited.

The interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting". The accounting policies (unless stated otherwise) have been applied consistently with those presented in the Annual Report for the twelve months to 31 December 2010 and comply with IFRSs and IFRIC interpretations applicable to companies reporting under IFRS.

2. Interest income

3. Segmental analysis

Segment information is presented in respect of the Group's business segments. The Directors consider that the Group currently operates in one geographic segment, the Isle of Man and UK. The primary format, business segments, is based on the Group's management and internal reporting structure. The Directors consider that the Group operates in four product orientated segments in addition to its investing activities: Asset and Personal Finance (including provision of HP contracts, finance leases, personal loans, commercial loans, block discounting and 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 lending in June 2007.

4.Depositors' Compensation Scheme

On 27 May 2009, the Isle of Man Government Depositors' Compensation Scheme ("the Scheme") was activated in connection with the liquidation of Kaupthing Singer & Friedlander (Isle of Man) Limited. A total of £150,000 had been paid into the scheme during the prior year with a further call of £73,880 being made in the period to 30 June 2011.

5. Restructuring costs

Acquisition and restructuring costs in prior periods related to the purchase of Edgewater Associates Limited and ECF Asset Finance PLC and the subsequent restructuring of the UK operation.

6. Loss per share

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

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

7.Financial assets at fair value through profit and loss

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

8. Available-for-sale financial assets

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

9. Loans and advances to customers

10. Trade and other receivables

11. Creditor and accrued charges

12. Loan Notes

On 31 May 2011 MFG entered into a loan agreement with a related party company guarantee by Burnbrae Limited for £0.5 million. The loan is repayable within one year and bears interest at a rate of 3.5%p.a.

On 3 March 2010 MFG entered into a convertible loan agreement with J Mellon for £1.25 million. The loan is convertible into shares from the first anniversary of the loan drawdown at £0.09 per share and bears interest until conversion at a rate of 9%p.a. MFG also entered into an identical agreement with Rock Holdings Limited (a company linked to A Banks) for £0.46 million on 26 March 2010. No amounts have been exercised as at the date of these Interim Financial Statements.

13. Goodwill, deferred consideration and acquisitions

Following a detailed review of the acquired ECF loan book at 30 June 2011 an adjustment has been made to the fair value of the assets acquired under the provisions of IFRS 3. A reduction of £211,000 was made to the value of certain loan assets where evidence from the review identified that the recoverable value assumed at the date of acquisition was overstated.

Goodwill on the ECF acquisition was reviewed for impairment based on anticipated future business and an impairment provision of £111,000 was made in the period to 30 June 2011. The comparative information presented in these Interim statements for 31 December 2010 has been adjusted to reflect the revised fair values.

Three Spires Insurance Services Limited

On 21 June 2011 Edgewater Associates Limited acquired the entire share capital of Three Spires Insurance Services Limited, an Independent Financial Advisor and General Insurance broker based in the Isle of Man. Three Spires Insurance Services Limited ("Three Spires") is regulated by both the Financial Supervision Commission and the Insurance and Pensions Authority.

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

Deferred consideration

The deferred element of the consideration is payable in cash over the three month period from July to September 2011 on the last day of the month.

The goodwill attributable to Three Spires is in relation to its established IFA and General Insurance client base and the skills and experience of its staff.

14. Called up share capital and share premium

15. Regulatory

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

16. Contingent liabilities

Conister Bank Limited is required to be a member of the Isle of Man Government Depositors' Compensation Scheme which was introduced by the Isle of Man Government under the Banking Business (Compensation of Depositors) Regulations 1991. The Scheme creates a liability on the Company to participate in the compensation of depositors should it be activated (note 4).

17. Related party transactions

Cash Deposits

During the period Conister Bank Limited held cash on deposit on behalf of J Mellon and a company related to Denham Eke. Normal commercial interest rates are paid on these deposits.

Subordinated loan and convertible loan notes

On 31 May 2011 MFG entered into a loan agreement with Burnbrae Limited, a significant Shareholder, see note 12. Loan notes were issued to two Directors on 3 March 2010, see note 12.

On 22 December 2008 the Bank entered into a subordinated loan agreement for £500,000 with J Mellon. The loan was unsecured, carried interest on commercial terms and no repayment of the loan was necessary on the first five years. This loan was repaid on 3 March 2010.

Premium Finance (prior year)

Conister Bank 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. Lending under this agreement ceased on 6 January 2010. The group provided financing of £16,446 and earned interest income of £91,140 during 2010.

Group Direct Limited and Southern Rock Insurance Company Limited are related parties of A Banks. A Banks is a Director and significant shareholder of MFG.

Key management personnel (including Executive Directors') compensation

The share-based payments expense in prior periods related to shares issued in lieu of cash bonuses to two of the Executive Directors.

18. Litigation

The Bank is vigorously pursuing the repayment of litigation funding loans made to clients of other solicitor firms and further litigation may be required in this regard. Counter claims have been received and there is the possibility of litigation being necessary. There is a risk of an adverse outcome in all litigation and the costs and timescale to resolve these matters are uncertain.

19. Approval of interim statements

The interim statements were approved by the Board on 15 September 2011. The interim report will be available from that date at the Group's Registered Office: Conister House, Isle of Man Business Park, Cooil Road, Braddan, Isle of Man, IM2 2QZ.

The Group's nominated adviser is Beaumont Cornish Limited, 2nd Floor, Bowman House, 29 Wilson Street, London, EC2R 7DE. The Group's broker is Fairfax I.S. PLC, 46 Berkeley Square, London, W1J 5AT. The Interim and Annual reports along with other supplementary information of interest to Shareholders, are included on our website. The address of the website is www.mfg.im which includes investor relations information and contact details.