TIDMSTM
RNS Number : 0444L
STM Group PLC
28 April 2020
STM Group Plc
("STM", "the Company" or "the Group")
Final Results for the
12 months ended 31 December 2019
STM Group Plc (AIM: STM), the multi-jurisdictional financial
services group, is pleased to announce its audited final results
for the 12 months ended 31 December 2019.
Financial Highlights:
2019 2019 2018 (reported) 2018
(reported) (underlying)** (underlying)**
Revenue GBP23.2m GBP22.9m GBP21.4m GBP20.5m
------------- ----------------- ---------------- -----------------
Profit before other items(*) GBP3.5m GBP4.2m GBP4.7m GBP4.4m
------------- ----------------- ---------------- -----------------
Margin 15% 18% 22% 21%
------------- ----------------- ---------------- -----------------
Profit before taxation ("PBT") GBP3.9m GBP2.6m GBP4.0m GBP3.7m
(and exceptional bargain purchase
gain)
------------- ----------------- ---------------- -----------------
Earnings per share 5.73p N/A 6.20p N/A
------------- ----------------- ---------------- -----------------
Cash at bank (net of borrowings) GBP17.2m N/A GBP15.6m N/A
------------- ----------------- ---------------- -----------------
Second interim dividend (2019)
/ final dividend (2018) 0.75p N/A 1.30p N/A
------------- ----------------- ---------------- -----------------
Total dividend 1.50p N/A 2.00p N/A
------------- ----------------- ---------------- -----------------
(*) Profit before other items is defined as revenue less
operating expenses i.e. profit before taxation, finance income and
costs, depreciation, amortisation, bargain purchase gain and gain
on the call options
** Underlying statistics are net of certain transactions which
do not form part of the regular operations of the business as
further detailed in Table 2 below
Operational Highlights:
-- Redefined Purpose and Vision that sets out our roadmap for the future
-- The continued repositioning of the Group as a UK centric PLC
with more UK focussed pensions and life products
-- Repositioned the Carey name to our new UK brand; "Options, for your tomorrow"
-- Entered the developing and exciting UK workplace pension
solutions market via the Carey acquisition - a sector now
effectively closed to new entrants
-- Implementation of new Target Operating Model allowing for
clearer and more efficient reporting lines, stronger governance and
control
-- Ongoing IT development to achieve greater efficiencies and enhance margins
-- Carey acquisition now operationally integrated to allow for cost benefits to materialise
-- Pipeline of acquisition opportunities, particularly in the UK
-- Launch of our new flexible annuity product as an alternative to a SIPP
Commenting on the results and prospects for STM, Alan Kentish,
Chief Executive Officer, said:
"2019 has been a year of transition for the Group as we move
towards a more efficient and unified business. This has meant that
the 2019 numbers have included some additional investments in
infrastructure under our revised Operating Model, and we saw a
timing delay in the uptake of certain new business initiatives,
however despite that, we delivered a statutory profit before tax of
GBP3.9 million for the year.
"The completion of the Carey acquisition occurred in February
2019, with all operational integration now finalised giving us one
solid UK hub for our SIPP and Workplace pension solutions
businesses from which to further expand. This expansion will be
driven organically through the relaunch of our UK products under
the new brand of "Options, for your tomorrow". This growth will be
complemented by selective acquisitions in the UK market.
"2020 has started with the unprecedented impact of the COVID-19
virus which has thrown the health, social and financial
environments of the world into turmoil. It is likely the financial
impact of this will have longer term implications on many industry
sectors. The resilience of our business model will be tested, but
we are confident that the nature of our annual recurring fees,
which are predominantly based on a fixed quantum rather than a
percentage of Assets Under Administration ('AUA'), gives a high
degree of visibility for the majority of our revenue for the
foreseeable future. An assessment of our business has indicated
that based on existing interest rates and current depressed
financial markets only GBP0.4 million of our 2019 GBP18 million of
recurring revenue is at risk with a similar consequential risk to
profitability. As one would expect, our priority is to protect our
colleagues and maintain our service levels to our customers; and in
this regard the Board has implemented various business continuity
plans to ensure that our colleagues can work productively from
home. At this point in time we have not seen that these actions
have added any material cost to the business."
The information communicated in this announcement is inside
information for the purposes of Article 7 of Regulation
596/2014.
For further information, please contact:
STM Group Plc
Alan Kentish, Chief Executive Officer Via Walbrook PR
alan.kentish@stmgroupplc.com www.stmgroupplc.com
Therese Neish, Chief Financial Officer
therese.neish@stmgroupplc.com
finnCap www.finncap.com
Matt Goode / Simon Hicks - Corporate Finance Tel: +44 (0) 20 7220
Tim Redfern / Richard Chambers - ECM 0500
Walbrook www.walbrookpr.com
Tom Cooper / Paul Vann Tel: +44 (0) 20 7933
8780
Mob: +44 (0) 797 122
1972
tom.cooper@walbrookpr.com
Notes to editors:
STM is a multi jurisdictional financial services group which is
listed on the AIM Market of the London Stock Exchange. The Group
specialises in the administration of client assets in relation to
retirement, estate and succession planning and wealth
structuring.
Today, the Group has operations in the UK, Gibraltar, Malta,
Jersey and Spain. STM has developed a range of pension products for
UK nationals and internationally domiciled clients and has two
Gibraltar Life Assurance Companies which provide life insurance
bonds - wrappers in which a variety of investments, including
investment funds, can be held.
STM's growth strategy is focussed on both organic initiatives
and strategic acquisitions.
Further information on STM Group can be found at
www.stmgroupplc.com
Chairman's statement
I am pleased to present our 2019 financial statements which
reflect a challenging year but nevertheless one of significant
progress for delivering on the future aspirations of the STM
business. I have also cross referenced below the dramatic impact to
world economies being caused by COVID-19 and the potential
consequential impact on the STM Group.
The Board has a clear growth strategy in place which has driven
a commitment of resources in strengthening and broadening our
operating model. This in turn will allow for future growth of our
revenue line whilst still being able to deliver on our service
levels and operating margins, a key requirement for satisfying our
various stakeholders.
The acquisition of Carey in February 2019 has, as intended,
increased our UK footprint and given STM more depth to its UK
product base. This makes us a more robust business and diversifies
us away from being seen purely as a business that caters for UK
expatriates. There will be specific focus during 2020 in finalising
the IT and wider efficiencies gains which were implicit in the
Carey acquisition case.
There continues to be a major focus on building our distribution
network for the UK market, with a view that this in turn will
accelerate our underlying revenue and hence profitability going
forward.
I should also recognise that the Board naturally shares the
disappointment of the messages in our trading update in November
which resulted in revised 2019 profit expectations and a knock-on
effect into our 2020 forecasts. However, we continue to strongly
believe that our overall business strategy is resilient and
progressive, and will bear fruit in enhancing future shareholder
value.
As a board, we also believe that there remain opportunities to
make strategic acquisitions to complement our existing Group
companies and deliver enhanced shareholder value. The Board also
recognises that the Group has significant capital tied up across
its businesses and is actively investigating ways to make itself
more efficient in this regard.
I would like to take this opportunity to thank the Group's
Directors, executive and all our colleagues for their relentless
efforts during 2019. I look forward to updating all our
stakeholders as we focus on and execute our 2020 plans with real
determination and skill.
Finally, I am conscious that COVID-19 pandemic continues to
unfold and inflict enormous disruptions both at a personal, as well
as economic level. The delay from intending to announce our results
on 24 March until today, has allowed us to challenge and assess the
resilience of our business model, and I am pleased to confirm that
the majority of our recurring annual revenue is not sensitive to
interest rates or Assets Under Administration ("AUA") and thus
remains predictable for the foreseeable future.
I would like to confirm that my primary concern remains
protecting the welfare of our staff, their families and our
clients, whilst continuing to manage the day to day operations of
the business. Bearing this in mind we have implemented a range of
local and focussed contingency measures to achieve these aims as
best we can.
Duncan Crocker
Chairman
Chief Executive's statement
Introduction
2019 has been a year of transition Group-wide, not just in our
operating model but across the various companies and product areas,
to create a more efficient and unified business. The acquisition of
Carey Pensions, completed in February 2019, added another positive
dimension.
Our new operating model now defines the accountabilities and
responsibilities of the various functions within the Group and our
subsidiaries, which will enable more efficient and effective ways
of working. This model has given the Group additional resources in
the form of a COO, Head of IT and Head of Human Resources, which in
turn has helped us to structure the Group for further expansion
both by acquisitions and organic growth, while further
strengthening our governance and controls.
The Group delivered an overall profit before tax of GBP3.9
million in 2019, similar to 2018 at GBP4.0 million. Our profit
before other items, (defined as profit before taxation, finance
income and costs, depreciation, amortisation, bargain purchase gain
and gain on the call options) was GBP3.5 million for 2019 compared
to GBP4.7 million in 2018.
Revenue increased by almost 9% to GBP23.2 million (2018: GBP21.4
million), although underlying profit margins (before other items)
have reduced from 21% in 2018 to 18% in 2019, on the back of the
Group-wide investment and the development of the Workplace pensions
business which, as anticipated, is yet to reach breakeven.
The SIPP market remains in a state of uncertainty with the
Berkeley Burke appeal not proceeding due to lack of funding and the
Carey vs Adams case of March 2018 still not having a published
determination. This has driven additional costs within the market,
such as rising professional indemnity insurance, as well as
concerns from intermediaries in providing advice that have all
created an unhelpful market backdrop.
The Carey acquisition has meant that we have now relocated our
UK trading hub from Haywards Heath to Milton Keynes, which has
taken some time and effort to achieve. Integration costs of
bringing Carey into the Group amounted to circa GBP0.5 million,
whilst the primary benefits will only be seen in 2020 onwards. On
top of these costs, the Carey pensions group included the Corporate
UK Auto-enrolment business that was still loss making at the time,
and eroded GBP0.6 million of underlying Group profitability. As
described in more detail below, this particular business is
scheduled to move into profitability in 2020. On the positive side,
but not forming part of operating profits, the Group was able to
demonstrate a bargain purchase of GBP1.7 million upon acquiring the
Carey businesses. 2019 concluded with the rebranding of the Carey
businesses to our new UK brand, Options.
Underlying trading performance across the various subsidiaries
was very much in line with management expectations. The Group saw a
slight slowing down of new business volume for its ROPs and
International SIPP products when compared to 2018 volumes, however
attrition rates remain low when compared to the UK SIPP product.
The UK focussed flexible annuity products and the re-launch of the
Carey SIPP did not generate the volumes initially expected, and
this appears to be down to a longer than expected timeline to
conversion as opposed to the products themselves.
Following the strengthening of our IT operating model and
controls, 2019 saw the initiation of a number of important IT
projects that will deliver efficiencies and improved margins upon
their successful conclusion during 2020 and early 2021.
As noted within the operational highlights below, the strong
common theme underpinning our core business units is the
significantly high percentage of recurring revenue. This
predictability allows us the confidence to invest for the future
knowing that such investment will provide enhanced operating
margins going forward. Within the "Outlook" section below, we
consider in more detail impact of the COVID-19 virus on our
existing revenue stream, and our expectations for 2020 new business
revenues.
Financial Review
Performance in the year
The principal key performance indicators used by the Board to
assess the financial performance of the Group are as per Table 1
below.
Profitability in 2019 remained similar to that of 2018 and
amounted to a reported profit before tax ("PBT") of GBP3.9 million
(2018: GBP4.0 million), and profit before other items of GBP3.5
million (2018: GBP4.7 million).
Within this measure there are a number of one off non-recurring
movements, and accounting adjustments as shown in Table 2 below.
Some of these accounting adjustments are inevitable for an
acquisitive group, and will either occur at profit before other
items level or at reported PBT level. Non-recurring costs of
approximately GBP0.6 million were incurred in relation to the
application for authorisation for the workplace pension business,
recruitment costs in building the enhanced infrastructure,
assurance reviews over board efficiencies and the write off of some
legacy issues surrounding the CTS and Spanish entities.
Underlying profit before other items has remained similar
between the years, with GBP4.2 million in 2019 and GBP4.4 million
in 2018. However, 2019 includes the impact of applying IFRS 16:
Leases, which for 2019 reduced operating expenses by GBP0.7 million
and increased depreciation and interest charges by this amount.
In addition, and offsetting the IFRS 16 impact, 2019 results
include the underlying expected losses for Carey of GBP0.7 million.
Adjusting for these and the IFRS 16 impact would result in a like
for like underlying profit before other items for 2019 of GBP4.2
million demonstrating a stable and predictable business.
The underlying PBT for the year amounted to GBP2.6 million
(2018: GBP3.7 million). Underlying Group revenue (defined on a
consistent basis with underlying PBT and profit before other items)
for 2019 has increased from GBP20.5 million to GBP22.9 million,
with overall Group reported revenue of GBP23.3 million (2018:
GBP21.4 million).
Pleasingly, recurring annual revenue, which is an important key
performance indicator for the Board remains steady at 77% of 2019
total revenues (2018: 76%), thus a total of GBP18.0 million (2018:
GBP16.3 million).
Table 1
KPI Definition 2019 result 2018 result
-------------------------------------- ---------------------- --------------
Revenue Income derived from the provision
(GBP'000s) of services 23,251 21,401
-------------------------------------- ---------------------- --------------
Revenue less operating expenses
i.e. profit before taxation,
Profit before finance income and costs,
other depreciation, amortisation,
items bargain purchase gain and
(GBP'000s) gain on the call options 3,475 4,709
-------------------------------------- ---------------------- --------------
Profit before
other
items margins Profit before other items
(%) divided by revenue 15% 22%
-------------------------------------- ---------------------- --------------
Profit before
tax Profit before taxation 3,923 4,033
-------------------------------------- ---------------------- --------------
Revenue net of non-recurring
costs and other exceptional
items including bargain purchase
gains and technical reserve
releases that do not form
Underlying part of the normal course
revenue of business as per Table 2
(GBP'000) below. 22,911 20,518
-------------------------------------- ---------------------- --------------
Profit before other items
net of non-recurring costs
and other exceptional items
including bargain purchase
Underlying gains and technical reserve
profit releases that do not form
before other part of the normal course
items of business as per Table 2
(GBP'000s) below. 4,235 4,421
-------------------------------------- ---------------------- --------------
Profit before tax net of
non-recurring
costs and other exceptional
items including bargain purchase
gains and technical reserve
Underlying releases that do not form
profit part of the normal course
before tax of business as per Table 2
(GBP'000s) below. 2,565 3,745
-------------------------------------- ---------------------- --------------
Underlying
profit Underlying profit before other
margins (%) items divided by revenue. 18% 21%
-------------------------------------- ---------------------- --------------
Recurring Revenue derived from annual
revenue management charges and/or
(GBP'000s) contractual fixed fee agreements. 18,025 16,300
-------------------------------------- ---------------------- --------------
Like for like
underlying Underlying profit before other
profit before items adjusted for the impact
other of new accounting standards
items and acquisitions in the year
(GBP'000s) of acquisition 4,200 4,400
-------------------------------------- ---------------------- --------------
Table 2
------------------- ------------------------------------- ---------------------- --------------------------
Profit before Profit before
Revenue other items tax
------------------- ------------------------------------- ---------------------- --------------------------
2019 2018 2019 2018 2019 2018
GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's
----------------- ------------------ ---------- ---------- -------------- ----------
Reported measure 23,251 21,401 3,475 4,709 3,923 4,033
Less: release on
technical
reserve (946) (583) (946) (583) (946) (583)
Add/(less):
adjustment
due to revenue
recognition
policy changes on
acquisitions 606* (300) 606* (300) 606 * (300)
Less: bargain
purchase
gain on
acquisition and
gain on call
options - - - - (2,118) -
Add: integration
and acquisition
costs - - 461 - 461 -
Add: costs of
skilled person
review on
Gibraltar
regulated
entities - - - 275 - 275
Add: other
non-recurring
costs - - 639 320 639 320
------------------- ----------------- ------------------ ---------- ---------- -------------- ----------
Underlying measure 22,911 20,518 4,235 4,421 2,565 3,745
------------------- ----------------- ------------------ ---------- ---------- -------------- ----------
* As more fully disclosed in Note 5 an exercise was carried out
following the acquisition of CAHL to align their accounting
policies with the Group's which resulted in a pre-acquisition
adjustment in CAHL's financial statements. This amount is not
included in our consolidated reported measures but represents the
revenue and profit that would have been obtained if STM Group plc
had had full ownership of CAHL for the full year.
Profit before other items as a percentage of revenue in 2019 was
15% (2018: 22%) resulting in an actual figure of GBP3.5 million
(2018: GBP4.7 million). The fall in margin results from specific
one-off costs and infrastructure initiatives rather than an erosion
of profitability at subsidiary trading levels, as further detailed
above.
As detailed above, financing, depreciation and amortisation
costs have been impacted by this year's adoption of IFRS 16. This
is most significant in depreciation and amortisation which has
increased by GBP0.9 million from GBP0.4 million in 2018 to GBP1.3
million in 2019. A total of GBP0.5 million is as a result of IFRS
16 with the remaining increase being predominantly due to the
recognition of the intangible assets acquired with the Carey
Group.
Following the acquisition of the Carey Group in February 2019
and as previously reported, the Board has determined that this
acquisition has resulted in a bargain purchase gain as defined by
International Financial Accounting Standard ("IFRS") 3, Business
Combinations. This is in effect negative goodwill as a result of
the consideration paid plus the amount of the non-controlling
interest being lower than the fair value of the net assets
acquired, which comprise mainly the SIPP and the Corporate Pension
client portfolios. The value of the bargain purchase gain has been
calculated at GBP1.7 million and is recognised immediately in the
Statement of Comprehensive Income.
Furthermore, the Group entered into call option agreements to
acquire the non-controlling interests in the Carey Group from the
current owner of the non-controlling interests. These have been
valued at GBP0.4 million which is also recognised in the Statement
of Comprehensive Income.
Tax Charge and Earnings per Share
The tax charge for the year was GBP0.5 million (2018: GBP0.4
million). This is an effective tax rate of 13% (2018: 9%) which is
in line with expectations.
Earnings per share ("EPS") for 2019 is 5.73p compared to 6.20p
for 2018. Diluted earnings per share takes into consideration the
long-term incentive plan as approved by the shareholders at the
Annual General Meeting on 18 May 2016 which expired in April 2019.
This stipulated a maximum dilution factor of 5% resulting in
diluted EPS of 5.64p (2018: 5.90p).
Cashflows
Cash and cash equivalents amounted to GBP18.4 million as at 31
December 2019 (2018: GBP17.3 million) with net cash inflow from
operating activities of GBP3.1 million for the year ended 31
December 2019 (2018: GBP2.6 million).
During the year the Company repaid the remaining balance of the
bank loan taken out in 2016 for the acquisition of London &
Colonial. Whilst this loan was a three year loan it was interest
only for the first year thus repaid during 2018 and 2019.
Repayments during 2019 for this loan amounted to GBP1.65 million
(2018: GBP1.65 million). In addition the Company took out a
separate bank loan for GBP1.20 million, repayable over one year,
the funds of which are earmarked for Carey Corporate should the
need arise through a trigger event, as defined by The Pension
Regulator. This loan was outstanding as at 31 December 2019.
Net cash and cash equivalents as at 31 December 2019 were
GBP17.2 million (2018: GBP15.6 million). However, as would be
expected for a Group with regulated entities, a significant
proportion of this balance forms part of the regulatory and
solvency requirements.
In addition to the bank borrowing repayments, the Group has paid
consideration in relation to both Harbour and Carey acquisitions
amounting to GBP0.4 million. This cash outflow on acquisitions is
consistent with the prior year where the Group also paid GBP0.8
million to the previous shareholders of the Harbour business.
As with most services businesses, the Group had accrued income
in the form of work performed for clients but not yet billed which
at the 2019 year end amounted to GBP1.2 million (2018: GBP0.8
million). The reason for the increase is largely due to the new
auto-enrolment business acquired from Carey. These amounts will be
billed during the course of 2020.
Deferred income (a liability in the statement of financial
position), representing fees billed in advance yet to be credited
to the statement of total comprehensive income, has increased
slightly this year and stands at GBP4.2 million as at 31 December
2019 (2018: GBP4.0 million). This is predominantly due to increased
revenues within the business.
Other large balance sheet items relate to trade and other
receivables of GBP5.8 million as at 31 December 2019 (2018: GBP6.3
million). It should be noted that within this balance, trade
receivables at the year end stood at GBP3.9 million, an increase
from prior year's balance of GBP3.5 million due to the acquisition
of the Carey Group and the revenue growth across the overall
Group.
Dividend
In light of the exceptional and continuing global impact of
COVID-19, the Board considers it appropriate to take a prudent
approach to cash management. Accordingly, and in order to provide
the Board with maximum flexibility, instead of proposing a Final
Dividend at the forthcoming AGM the Directors have declared a
second interim cash dividend to shareholders of 0.75p per share.
This together with the first interim dividend of 0.75p (2018:
0.70p) brings the total dividend proposed in respect of the year to
1.50p per share (2018: 2.00p).
The Board has decided that it would be prudent to maintain
higher cash balances at this time, whilst recognising that the high
proportion of recurring revenues gives the Board confidence in the
resilience of the business
The second interim dividend will be paid on 26 June 2020 to
shareholders on the register at the close of business on 5 June
2020. The ordinary shares will be marked ex-dividend on 4 June
2020.
Operational Overview
Pensions
Our pension administration businesses are the life-blood of our
group, and the corner stone to our profitability.
Over the last few years we have successfully moved from offering
solely pension solutions to expatriates, through to offering SIPP
and other solutions to UK residents. The addition of our Workplace
pensions solutions for UK corporate businesses delivers a further
string to our bow.
This strategic diversification invariably makes our business
model more robust, and less reliant on one specific product. In
addition, it provides financial intermediaries with a full range of
retirement solutions for their clients within one group.
Unfortunately, as noted above, the uncertainty in the SIPP
market in relation to the legal duties of a SIPP provider continue
to have a negative impact on the industry generally.
Total revenue across our pensions businesses amounted to GBP14.1
million (2018: GBP11.5 million) and accounted for 61% of total
Group revenue (2018: 54%).
The administration of our ROPS products continues to be our
largest revenue generator accounting for GBP10.1 million of revenue
(2018: GBP10.0 million). This administration is carried out in
Malta and Gibraltar with the revenue split 75% and 25% respectively
(2018: 74% and 26%).
The acquisition of the Carey SIPP business in February 2019 has
helped to bolster our overall SIPP revenue stream from GBP1.6
million in 2018 to GBP2.7 million in 2019, allowing the businesses
to gain more efficiencies through the integration of the two UK
offices. Whilst the integration costs incurred effectively offset
any profit contribution for 2019, these recurring benefits will be
apparent in 2020.
Finally, the acquisition of the Carey corporate pension business
has generated a new and exciting growth area for our pensions
business. Whilst, as with all the auto-enrolment master trusts, it
is in its fledgling days and incurred an expected loss of GBP0.6
million for 2019, based on revenue for the 10 months of GBP1.3
million, the market place allows for significant organic growth
going forward. The business model is very scalable with an
underlying fixed cost base, with further efficiencies coming
through as part of a specific IT project that will conclude towards
the end of 2020.
The performance of the various pension revenue streams within
the Group is as follows:
Product Revenue Revenue Recurring percentage Recurring percentage
2019 2018 2019 2018
GBPm GBPm % %
-------- -------- --------------------- ---------------------
ROPS 10.1 10.0 94% 94%
-------- -------- --------------------- ---------------------
SIPPs 2.7 1.6 76% 83%
-------- -------- --------------------- ---------------------
Workplace
pensions 1.3 - 95% -
-------- -------- --------------------- ---------------------
Totals 14.1 11.6 90% 92%
-------- -------- --------------------- ---------------------
Life Assurance
The Group currently has two Gibraltar based Life Assurance
companies, with the original intention of relocating one of these
to Malta. Given the length of time that has passed, and with no
successful outcome in sight, it has been agreed that a more
efficient use of capital can be attained by initiating a portfolio
transfer of policies from one life company to the other. This will
ultimately allow a release of capital once that company no longer
carries on insurance business and surrenders its license. Currently
there is agreement from the European regulators that Gibraltar
insurance companies are able to continue to service existing EU
policies. Discussions are taking place to allow this to continue
post 31 December 2020. However, if EU trade negotiations do not
result in a favourable outcome in this respect STM Life has other
options for this client portfolio.
The 2019 combined revenue figure was GBP4.8 million compared to
GBP4.7 million for 2018. In both years there have been releases of
technical reserves that are reflected as one-off contributions to
revenue. For 2019 this amounted to GBP0.9 million (2018: GBP0.6
million), giving a like for like net revenue comparison of GBP3.8
million in 2019 as compared to GBP4.1 million in 2018.
In a similar manner to that of our pensions administration
businesses, recurring revenue is a significant proportion of
revenue (net of revenue releases) being 75% in 2019, and 84% in
2018, giving a predictable revenue trait to this business.
Corporate and Trustee Services (CTS)
Turnover from the Corporate and Trustee Services (CTS) division
for the year was GBP3.7 million (2018: GBP4.2 million) thus
accounting for 16% of the Group's total turnover (2018: 20%).
Our Jersey business contributed 52% (2018: 62%) of this revenue,
with Gibraltar contributing the other 48% (2018: 38%).
Recurring revenue for the CTS operating segment was GBP1.3
million (2018: GBP1.5 million) and thus 35% of the total CTS
revenues (2018: 35%).
As noted in previous year's reports, the CTS environment and
sector remains challenging, and it is fully recognised by the Group
that this will be a difficult segment to grow organically.
Other trading divisions
Turnover classified as "other trading divisions" relate to the
Spanish office that provides tax compliance and conveyancing to the
expatriate market, and the now discontinued insurance management
business and amounted to GBP0.7 million (2018: GBP1.0 million).
COVID-19
The COVID-19 virus has not only created unprecedented times from
a health and social perspective but has changed the economic
landscape for the immediate future, and probably for significantly
longer. It is difficult to assess the long term financial impact on
the business community generally, however our business model of
fixed annual fees should mean that our existing recurring annual
revenue stream is largely protected from any significant
downturn.
The recently enforced delay in announcing our preliminary
results originally intended for 24 March, has given us time to
assess potential impacts on our business as a result of COVID-19's
challenges to the world economy. Under this assessment, and based
on current interest rates and the existing fall in AUA values as a
result of COVID-19, we estimate that some GBP0.4 million of our
existing GBP18 million of 2020 recurring revenue is at risk, with a
similar consequential risk to profitability. In a similar vein and
with depressed financial markets we would not expect to see
increased attrition rates within our existing business.
At this time, it is incredibly difficult to assess the likely
impact of COVID-19 on new business income for 2020, with the
primary variables being the unknown impact on timeframe for
individuals to make decisions in the financial services market, as
well as the general ability for financial intermediaries to be able
to interact with their clients in relation to that decision making
process.
Having said the above, it is already apparent that both
intermediaries and providers, including ourselves, are embracing
technology to utilise new ways of conducting business. The reality
is that decisions in relation to financial planning still need to
be made, arguably even more so now, and therefore new business
volumes might be delayed by a number of months but will over time
revert back to normal. There is therefore a risk that new business
run-rates will be set back by some months, although this is not a
trend that we have observed to date.
From an operational point of view, we have successfully
implemented continuity plans across our businesses within the
various jurisdictions. We have instigated contingency procedures
within our businesses so as to both protect our staff as well as
ensure that we are able to maintain service levels to our clients.
Almost in their entirety, my STM colleagues have now adopted a
working from home routine, and it is commendable that we have not
seen any changes to our service levels to our customers, and other
stakeholders.
Outlook
2019 has been a year of transition, moving from a set of small
businesses that are part of a group, through to now operating in a
more cohesive and collective manner. The Group infrastructure has
been expanded to allow for growth, both organic as well as by
acquisition. In addition, there are a number of IT initiatives that
have been commenced that will improve margins going into 2020 and
2021, and the integration of our two UK businesses is now
complete.
This sets out our stall for 2020, where there is a strong focus
on new business revenues to complement our solid recurring revenue
streams. In this regard, the first half of 2020 will showcase our
UK orientated products across our rebranded SIPP and Workplace
pensions offerings, as well as our unique flexible annuity wealth
preservation solution. These initiatives are supported by a
dedicated and expanded UK based business development team, overseen
by a new Head of Distribution.
The second half of 2020 will see the launch of our international
occupational pension solutions from both Malta and Gibraltar, which
will give additional growth opportunities to these
jurisdictions.
The Plc board remains focussed on developing the core activities
of Life Assurance and Pensions administration, and will continue to
look at opportunities to acquire businesses that support this
strategy, whilst at the same time simplifying the overall Group
structure going forward.
I would like to take this opportunity to thank all my STM
colleagues for their continued hard work and professionalism in
carrying out their duties, specifically at such a time of change
and uncertainty. I look forward to updating the market during the
course of 2020.
Alan Kentish
Chief Executive Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR FROM 1 JANUARY 2019 TO 31 DECEMBER 2019
31 December 31 December
2019 2018
Note GBP000's GBP000's
------------------------------------------ ----- ------------ ------------
Revenue 9 23,251 21,401
Administrative expenses 10 (19,776) (16,692)
------------------------------------------ ----- ------------ ------------
Profit before other items 11 3,475 4,709
------------------------------------------ ----- ------------ ------------
OTHER ITEMS
Bargain purchase gain 6 1,702 -
Gains from financial instruments at
FVTPL 6 416 -
Finance costs (325) (249)
14,
Depreciation and amortisation 15 (1,345) (427)
------------------------------------------ ----- ------------ ------------
Profit before taxation 3,923 4,033
------------------------------------------ ----- ------------ ------------
Taxation 13 (520) (350)
------------------------------------------ ----- ------------ ------------
Profit after taxation 3,403 3,683
------------------------------------------ ----- ------------ ------------
OTHER COMPREHENSIVE INCOME
Items that are or may be reclassified
to profit or loss
Foreign currency translation differences
for foreign operations (97) 3
------------------------------------------ ----- ------------ ------------
Total other comprehensive (loss)/income (97) 3
------------------------------------------ ----- ------------ ------------
Total comprehensive income for the year 3,306 3,686
------------------------------------------ ----- ------------ ------------
Profit attributable to:
Owners of the Company 3,756 3,686
Non-Controlling interests (353) -
------------------------------------------ ----- ------------ ------------
3,403 3,686
------------------------------------------ ----- ------------ ------------
Total comprehensive income attributable
to:
Owners of the Company 3,659 3,686
Non-Controlling interests (353) -
------------------------------------------ ----- ------------ ------------
3,306 3,686
------------------------------------------ ----- ------------ ------------
Earnings per share basic (pence) 21 5.73 6.20
Earnings per share diluted (pence) 21 5.64 5.90
The above results relate to both continuing and discontinued
activities. Discontinued activities in the year are disclosed in
note 4.
The notes to the accounts form an integral part of these financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2019
31 December 31 December
2019 2018
Note GBP000's GBP000's
-------------------------------------- ----- ------------ ------------
ASSETS
Non-current assets
Property, plant and equipment 14 2,953 1,096
Intangible assets 15 20,488 18,966
Financial assets 6 416 -
Deferred tax asset 92 -
Total non-current assets 23,949 20,062
-------------------------------------- ----- ------------ ------------
Current assets
Investments 16 - 74
Accrued income 1,186 787
Trade and other receivables 17 5,765 6,281
Cash and cash equivalents 18 18,406 17,267
-------------------------------------- ----- ------------ ------------
Total current assets 25,357 24,409
-------------------------------------- ----- ------------ ------------
Total assets 49,306 44,471
-------------------------------------- ----- ------------ ------------
EQUITY
Called up share capital 19 59 59
Share premium account 19 22,372 22,372
Retained earnings 12,536 10,881
Other reserves (446) (250)
-------------------------------------- ----- ------------ ------------
Equity attributable to owners of the
Company 34,521 33,062
Non-controlling interest (275) -
-------------------------------------- ----- ------------ ------------
Total equity 34,246 33,062
-------------------------------------- ----- ------------ ------------
LIABILITIES
Current liabilities
Liabilities for current tax 1,083 908
Trade and other payables 22 11,634 10,501
-------------------------------------- ----- ------------ ------------
Total current liabilities 12,717 11,409
-------------------------------------- ----- ------------ ------------
Non current liabilities
Other payables 23 2,343 -
-------------------------------------- ----- ------------ ------------
Total non-current liabilities 2,343 -
-------------------------------------- ----- ------------ ------------
Total liabilities and equity 49,306 44,471
-------------------------------------- ----- ------------ ------------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR FROM 1 JANUARY 2019 TO 31 DECEMBER 2019
31 December 31 December
2019 2018
Note GBP000's GBP000's
--------------------------------------------- ------ ------------ ------------
OPERATING ACTIVITIES
Profit for the year before tax 3,923 4,033
ADJUSTMENTS FOR:
Depreciation of property, plant and
equipment 14 773 220
Amortisation of intangible assets 15 572 205
Write-off of intangible assets 15 71 -
Loss on sale of fixed asset 5 -
Taxation paid (345) (515)
Bargain purchase gain 6 (1,702) -
Unrealised gains on financial instruments
at FVTPL 6 (416) 7
Share based payments 18 55
Decrease/(increase) in trade and other
receivables 6,17 827 (437)
(Increase)/decrease in accrued income (301) 103
Decrease in trade and other payables 6, 22 (326) (1,068)
Net cash from operating activities 3,099 2,603
--------------------------------------------- ------ ------------ ------------
INVESTING ACTIVITIES
Disposal of investments 74 -
Purchase of property, plant and equipment 6,14 (117) (60)
Increase in intangible assets 15 (160) (185)
Consideration paid on acquisition of
subsidiary 6, 22 (350) (800)
Cash acquired on acquisition of subsidiary 6 1,116 302
--------------------------------------------- ------ ------------ ------------
Net cash used in investing activities 563 (743)
--------------------------------------------- ------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans 22 1,200 -
Bank loan repayment 22 (1,650) (1,650)
Lease liabilities paid (745) -
Treasury shares purchased (117) (206)
Dividends paid 19 (1,218) (1,129)
--------------------------------------------- ------ ------------ ------------
Net cash from financing activities (2,530) (2,985)
--------------------------------------------- ------ ------------ ------------
Increase in cash and cash equivalents 1,132 (1,125)
--------------------------------------------- ------ ------------ ------------
RECONCILIATION OF NET CASH FLOW TO MOVEMENT
IN NET FUNDS
Analysis of cash and cash equivalents
during the year
Increase in cash and cash equivalents 1,132 (1,125)
Effect of movements in exchange rates
on cash and cash equivalents 7 29
--------------------------------------------- ------ ------------ ------------
Balance at start of year 17,267 18,363
Balance at end of year 18 18,406 17,267
--------------------------------------------- ------ ------------ ------------
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY
FOR THE YEAR FROM 1 JANUARY 2019 TO 31 DECEMBER 2019
Foreign Shares
Currency Based
Share Share Retained Treasury Translation Payments Non-Controlling Total
Capital Premium Earnings Shares Reserve Reserve Total Interests Equity
GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's
-------------- --------- --------- --------- --------- ------------ --------- --------- ---------------- ---------
Balance at
1 January
2018 59 22,372 8,327 (226) 35 89 30,656 - 30,656
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Profit for
the period - - 3,683 - - - 3,683 - 3,683
Other comprehensive income
Foreign
currency
translation
differences - - - - 3 - 3 - 3
Transactions with owners, recorded directly in equity
Dividend paid - - (1,129) - - - (1,129) - (1,129)
Share based
payments - - - - - 55 55 - 55
Treasury
shares
purchased - - - (206) - - (206) - (206)
-------------- --------- --------- --------- --------- ------------ --------- --------- ---------------- ---------
31 December
2018
and
1 January
2019 59 22,372 10,881 (432) 38 144 33,062 - 33,062
-------------- --------- --------- --------- --------- ------------ --------- --------- ---------------- ---------
Adjustment
on initial
application
of IFRS 16
(net of tax)
(Note 3) - - (883) - - - (883) - (883)
Adjusted
balance
at 1 January
2019 59 22,372 9,998 (432) 38 144 32,179 - 32,179
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Profit for
the year -- - 3,756 - - - 3,756 (353) 3,403
Other comprehensive income
Foreign
currency
translation
differences - - - - (97) - (97) - (97)
Transactions with owners, recorded directly in equity
Dividend paid - - (1,218) - - - (1,218) - (1,218)
Treasury
shares
purchased - - - (117) - - (117) - (117)
Share based
payments - - - - - 18 18 - 18
Changes in ownership interest
Acquisition
of
subsidiary
with NCI
(Note
5) - - - - - - - 78 78
-------------- --------- --------- --------- --------- ------------ --------- --------- ---------------- ---------
At 31
December
2019 59 22,372 12,536 (549) (59) 162 34,521 (275) 34,246
-------------- --------- --------- --------- --------- ------------ --------- --------- ---------------- ---------
Notes:
1. Reporting entity
STM Group Plc (the "Company") is a company incorporated and
domiciled in the Isle of Man and is traded on AIM, a market
operated by the London Stock Exchange. The address of the Company's
registered office is 18 Athol Street, Douglas, Isle of Man, IM1
1JA. The Group is primarily involved in financial services.
2. Basis of preparation
The financial information, which comprises the consolidated
statement of comprehensive income, consolidated statement of
financial position, the statement of consolidated changes in
equity, the consolidated statement of cash flows and the related
notes, is derived from the full group financial statements for the
year ended 31 December 2019, which have been prepared under
International Financial Reporting Standards (IFRS) as adopted by
the European Union and in accordance with Isle of Man company
law.
The Directors have considered the current position, foreseeable
risks and uncertainties facing the business, in particular the
COVID-19 pandemic, and are of the opinion that the business remains
a going concern. As such the financial statements have been
prepared on a going concern basis under the historical cost
convention, unless otherwise stated. The accounting policies
applied in preparing the financial information are consistent with
those used in preparing the consolidated financial statements for
the year ended 31 December 2019.
3. Changes in significant accounting policies
The Group initially adopted IFRS 16 Leases from 1 January 2019.
IFRS 16 introduced a single, on--balance sheet accounting model for
lessees. As a result, the Group, as a lessee, has recognised
right--of-use assets representing its rights to use the underlying
assets. In addition, it has recognised lease liabilities
representing its obligation to make lease payments.
The Group has applied IFRS 16 using the modified retrospective
approach, under which the cumulative effect of initial application
is recognised in retained earnings at 1 January 2019. Accordingly,
the comparative information presented for 2018 has not been
restated i.e. it is presented, as previously reported, under IAS 17
and related interpretations. The details of the changes in
accounting policies are disclosed below.
The Group leases properties and IT equipment. As a lessee, the
Group previously classified leases as operating leases. Under IFRS
16, however the Group recognises right-of-use assets and lease
liabilities for most leases i.e. these leases are now on-balance
sheet.
However, in line with IFRS 16 the Group has elected not to
recognise right-of-use assets and lease liabilities for some leases
of low-value assets (e.g. IT equipment). The Group recognises the
lease payments associated with these leases as an expense on a
straight-line basis over the lease term.
The Group recognises a right-of-use asset and a lease liability
at the lease commencement date. The right-of-use asset is initially
measured at cost, and subsequently at cost less any accumulated
depreciation and impairment losses 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 Group's incremental borrowing rate. The lease
liability is subsequently increased by the interest cost on the
lease liability and decreased by lease payments made.
On transition to IFRS 16, the Group has recognised right-of-use
assets, lease liabilities and dilapidation costs with the
difference being recognised in retained earnings. The impact on
transition is summarised below.
1 January
2019
GBP000's
----------------------------------------------------------------- ----------
Right-of-use assets presented in property, plant and equipment
Deferred tax assets 1,928
Prepayments 98
Provision for dilapidation costs (30)
Lease liabilities 100
Retained earnings 2,779
(883)
----------------------------------------------------------------- ----------
When measuring lease liabilities for those leases that were
previously classified as operating leases, the Group discounted the
lease payments using its incremental borrowing rate at 1 January
2019.
1 January
2019
GBP'000
------------------------------------------------------------ ----------
Operating lease commitments on properties as disclosed
in the 2018 consolidated financial statements under IAS
17 3,096
Operating lease commitments on IT equipment at 31 December
2018 105
------------------------------------------------------------ ----------
Discounted using the incremental borrowing rate at 1
January 2019 2,842
Recognition of exemption for leases with less than 12
months of lease term or with the ability to be terminated
with no penalties at transition (57)
Recognition of exemption for leases of low-value (6)
Lease liabilities recognised at 1 January 2019 2,779
------------------------------------------------------------ ----------
As a result of initially applying IFRS 16, in relation to the
leases that were previously classified as operating leases, the
Group has GBP1,968,000 of right-of-use assets and GBP2,685,000 of
lease liabilities as at 31 December 2019.
Also, in relation to those leases under IFRS 16, the Group has
charged depreciation and interest costs, rather than operating
lease expenses. The Group recogn ised GBP531,000 of depreciation
charges and GBP134,000 of interest expenses from these leases
during the year ended 31 December 2019. The Group recognised
GBP56,000 of expenses relating to short-term leases or leases that
can be cancelled with no penalties and GBP4,000 of expenses for
leases of low-value assets, excluding short-term leases of
low-value assets, for the year ended 31 December 2019.
4. Discontinued Operations
In March 2019, the Group closed down its insurance management
business, STM Fidecs Insurance Management Limited. Management
committed to a plan to cease trading for this part of the segment
following an assessment of the viability of the insurance
management business and its alignment with the Group's long term
strategy to focus on its core activities.
This other services segment, of which the insurance management
business was a part, was not previously classified as held-for-sale
or as a discontinued operation.
Results of the discontinued operation are as follows:
2019 2018
GBP000's GBP000's
----------------------------------------------- ---------- ----------
Revenue 179 362
Expenditure (140) (325)
Results from operating activities 39 37
Income tax (3) (4)
Results from operating activities, net of tax 36 33
Gain on sale of discontinued operation - -
Profit from discontinued operation 36 33
Basic earnings per share (pence) 0.0001 0.0001
Diluted earnings per share (pence) 0.0001 0.0001
----------------------------------------------- ---------- ----------
The profit from the discontinued operation is attributable
entirely to the owners of the Company. During the year the
discontinued operation contributed GBP36,000 to the group's net
operating cashflows.
5. Acquisition of subsidiary
On 12 February 2019, the Group acquired 100% of Carey
Administration Holdings Limited ("CAHL"). CAHL in turn owns 70% of
Carey Pensions UK LLP, offering SIPP administration products to the
UK market, and 80% of Carey Corporate Pensions UK Limited, offering
auto-enrolment workplace pensions solutions ("AE") to the UK based
SMEs. The non-controlling interests ("NCI") of both entities are
owned by Christine Hallett, who continues as Managing Director of
the Carey Pensions businesses.
The acquisition of the SIPP business is highly complementary to
the existing Group's business and strategy and will contribute to
the growth of the UK focused business. In addition, the acquisition
of the AE business enabled the Group to diversify its business by
entering a new market which is at an early stage of its lifecycle
providing the Group momentum for success. Taking control of CAHL
will also benefit from cost synergies, economies of scale and an
experienced management team that has been retained by the
Group.
The acquisition has been accounted for using the acquisition
method. Transaction costs incurred on the acquisition total
GBP67,000 and have been expensed within administrative expenses in
the consolidated statement of comprehensive income.
Consideration for the acquisition is broken down as follows:
GBP000's
--------------------------------- ---------
Initial cash payment 100
Second cash payment 200
Contingent consideration 39
--------------------------------- ---------
Total consideration transferred 339
--------------------------------- ---------
The initial cash payment was made at the date of signing the
Sale & Purchase Agreement with the second cash payment made on
the completion date. The contingent consideration is due on the
first anniversary date following the completion of the acquisition
and was dependent on standard indemnities provided by the
Sellers.
The following table summarises the fair value of the
identifiable assets and liabilities assumed of CAHL as at the date
of the acquisition.
Fair value recognised Fair value Previous carrying
on acquisition adjustments value
GBP000's GBP000's GBP000's
------------------------------------ ---------------------- ------------- ------------------
Tangible fixed assets 19 - 19
Intangible assets 105 - 105
Client portfolio acquired 1,900 1,900 -
ROU assets 90 90 -
Accrued income 98 - 98
Debtors 404 - 404
Cash at bank 1,116 - 1,116
Lease liabilities (90) (90) -
Liabilities (660) - (660)
Deferred income on annual fees (540) 606 (1,146)
Deferred tax liabilities on client
portfolio (323) (323) -
------------------------------------ ---------------------- ------------- ------------------
Total identifiable assets 2,119 2,183 (64)
------------------------------------ ---------------------- ------------- ------------------
At acquisition the Group performed an exercise to identify the
fair value of intangible assets acquired. As a result of that
exercise, a client portfolio asset of GBP1,200,000 relating to the
UK SIPP business and GBP700,000 related to the AE business were
recognised.
The SIPP portfolio has been valued using an excess earnings
model which disregards future growth of the acquired portfolio but
takes into consideration cost synergies achieved following the
integration of the businesses. The AE business has been valued
using the market approach.
The assumptions used for the valuation of the SIPP client
portfolio were as follows:
Attrition rate 7% - 13%
Cost synergies (specific to the GBP400,000
acquired portfolio)
-----------
Discount factor 13%
-----------
A movement of +/- 1% on the above assumptions results in a range
of values of GBP1,132,000 to GBP1,283,000.
In addition, following a detailed review of the revenue
recognition policy for the Carey Pensions businesses, the Group
made a fair value adjustment of GBP606,000 to deferred income to
align the accounting policy for the SIPP business with the one for
the Group, which complies with IFRS 15. In respect to the remaining
balances, the Group determined that the fair value of the
identifiable assets and liabilities assumed was equal to the
carrying value.
From the date of acquisition CAHL has generated revenue of
GBP2,231,000 and incurred a loss of GBP1,266,000. If the
acquisition had occurred on 1 January 2019, management estimates
that consolidated revenue would have been GBP3,225,000 and
consolidated loss would have been GBP779,000 due to the fair value
adjustment to align the revenue recognition policy of
GBP606,000.
A bargain purchase gain has arisen as a result of the previous
majority shareholder's decision to exit the pension market and a
reluctance to financially support these businesses further. This
has resulted in the fair value of the identifiable net assets being
higher than the consideration transferred as per below.
GBP000's
------------------------------------------------------------- ---------
Total consideration transferred 339
NCI based on their proportionate interest in the recognised
amounts of the assets and liabilities 78
Fair value of identifiable net assets (2,119)
------------------------------------------------------------- ---------
(1,702)
------------------------------------------------------------- ---------
The bargain purchase is attributable to the client portfolios
acquired. Under IFRS 3, this needs to be recognised in the
consolidated statement of comprehensive income for the period.
Call options to acquire non-controlling interests
As part of the acquisition of CAHL, the Group entered into call
option agreements to acquire the non--controlling interests in
Carey Pensions UK LLP and Carey Corporate Pensions UK Limited from
the current owner of the NCIs. The call options are exercisable in
2022 and the prices are based on the audited financial statements
for the year ended 31 December 2021. The fair value of the call
options as at acquisition date was determined at GBP416,000 using
discounted cashflow techniques as no observable market transactions
are available. This is subject to revaluation as at each reporting
date. No revaluation adjustment to the fair value of the options
was required as at 31 December 2019.
The assumptions used for the valuations of the call options as
at 31 December 2019 were as follows:
Carey Pensions UK LLP Carey Corporate Pensions
UK
Income growth rate 2% 2%
---------------------- -------------------------
Cost growth rate 4% 6%
---------------------- -------------------------
Discount factor 13% 13%
---------------------- -------------------------
A movement of +/- 1% on the above assumptions results in a range
of values of GBP136,000 to GBP702,000.
6. Segmental Information
STM Group has four reportable segments: Pensions, Life
Assurance, Corporate Trustee Services and Other Services. Each
segment is defined as a set of business activities generating a
revenue stream and offering different services to other operating
segments. The Group's operating segments have been determined based
on the management information reviewed by the CEO and board of
directors.
The Board assesses the performance of the operating segments
based on turnover generated. The performance of the operating
segments is not measured using costs incurred as the costs of
certain segments within the Group are predominantly centrally
controlled and therefore the allocation of these is based on
utilisation of arbitrary proportions. Management believe that this
information and consequently profitability could potentially be
misleading and would not enhance the disclosure above.
The following table presents the turnover information regarding
the Group's operating segments:
Turnover
Operating segment 2019 2018
GBP000's GBP000's
---------------------------- --------- ---------
Pensions 14,074 11,555
Life Assurance 4,768 4,669
Corporate Trustee Services 3,662 4,185
Other Services 747 992
23,251 21,401
---------------------------- --------- ---------
Analysis of the Group's turnover information by geographical
location is detailed below:
Turnover
Geographical segment 2019 2018
GBP000's GBP000's
---------------------- --------- ---------
Gibraltar 9,329 9,235
Malta 7,542 7,383
United Kingdom 3,964 1,585
Jersey 1,901 2,611
Other 515 587
---------------------- --------- ---------
23,251 21,401
---------------------- --------- ---------
7. Revenue
31 December 31 December
2019 2018
GBP000's GBP000's
----------------------------------------- ------------ ------------
Revenue from administration of assets 23,251 21,401
----------------------------------------- ------------ ------------
Total revenues 23,251 21,401
----------------------------------------- ------------ ------------
8. Administrative expenses
Included within administrative expenses are personnel costs as
follows:
31 December 31 December
2019 2018
GBP000's GBP000's
Wages and salaries 11,180 8,888
Social insurance costs 502 428
Pension contributions 199 170
Share based payments 18 55
Total personnel expenses 11,899 9,541
-------------------------- ------------ ------------
Average number of employees
31 December 31 December
2019 2018
Group Number Number
---------------------------------------------- ------------ ------------
Average number of people employed (including
executive directors) 268 199
---------------------------------------------- ------------ ------------
9. Reconciliation of reported to underlying measures
Profit before Profit before
Revenue other items tax
---------------------------------- ---------------------- ---------------------- ----------------------
2019 2018 2019 2018 2019 2018
GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's
---------- ---------- ---------- ---------- ---------- ----------
Reported measure 23,251 21,401 3,475 4,709 3,923 4,033
Less: release on technical
reserve (946) (583) (946) (583) (946) (583)
Add/(less): adjustment due
to revenue recognition policy
changes on acquisition 606(*) (300) 606(*) (300) 606 (*) (300)
Less: bargain purchase gain
on acquisition - - - - (2,118) -
Add: integration and acquisition
costs - - 461 - 461 -
Add: costs of skilled person
review on Gibraltar regulated
entities - - - 275 - 275
Add: other non-recurring
costs - - 639 320 639 320
---------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Underlying measure 22,911 20,518 4,235(**) 4,421 2,565 3,745
---------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
(*) As more fully disclosed in Note 5 an exercise was carried
out following the acquisition of CAHL to align their accounting
policies with the Group's which resulted in a pre-acquisition
adjustment in CAHL's financial statements. This amount is not
included in our consolidated reported measures but represents the
revenue and profit that would have been obtained if STM Group plc
had had full ownership of CAHL for the full year.
(**) The Group initially applied IFRS 16 at 1 January 2019,
using the modified retrospective approach. Under this approach,
comparative information is not restated (see note 3(v)). Like for
like underlying Profit before other items for 2019 would have been
GBP3,570,000.
Underlying measures are net of non-recurring costs and other
exceptional items including bargain purchase gains and technical
reserve releases that do not form part of the normal course of
business.
10. Property, plant and equipment
Motor Office Leasehold Right-of-use
Vehicles Equipment Improvements Assets Total
Group GBP000's GBP000's GBP000's GBP000's GBP000's
-------------------------------- ---------- ----------- -------------- ------------- ----------
Costs
As at 1 January 2018 15 2,054 641 - 2,710
Additions at cost - 76 - - 76
As at 31 December 2018 15 2,130 641 - 2,786
-------------------------------- ---------- ----------- -------------- ------------- ----------
As at 1 January 2019 15 2,130 641 - 2,786
Recognition of right-of-use
assets on initial application
of IFRS 16 - - - 5,151 5,151
-------------------------------- ---------- ----------- -------------- ------------- ----------
Adjusted balance at 1 January
2019 15 2,130 641 5,151 7,937
Acquired through business
combination - 19 - 90 109
Additions - 117 - 481 598
Disposals - (167) - - (167)
-------------------------------- ---------- ----------- -------------- ------------- ----------
As at 31 December 2019 15 2,099 641 5,722 8,477
-------------------------------- ---------- ----------- -------------- ------------- ----------
Depreciation
As at 1 January 2018 6 1,160 304 - 1,470
Charge for the year 2 194 24 - 220
As at 31 December 2018 8 1,354 328 - 1,690
-------------------------------- ---------- ----------- -------------- ------------- ----------
As at 1 January 2019 8 1,354 328 - 1,690
Recognition of right-of-use
asset on initial application
of IFRS 16 - - - 3,223 3,223
-------------------------------- ---------- ----------- -------------- ------------- ----------
Adjusted balance at 1 January
2019 8 1,354 328 3,223 4,913
Charge for the year 2 187 53 531 773
Disposals - (162) - - (162)
-------------------------------- ---------- ----------- -------------- ------------- ----------
As at 31 December 2019 10 1,379 381 3,754 5,524
-------------------------------- ---------- ----------- -------------- ------------- ----------
Net Book Value
As at 31 December 2018 7 776 313 - 1,096
-------------------------------- ---------- ----------- -------------- ------------- ----------
As at 31 December 2019 5 720 260 1,968 2,953
-------------------------------- ---------- ----------- -------------- ------------- ----------
11. Intangible assets
IT
Client Product Development
Goodwill Portfolio Development Costs Total
Group GBP000's GBP000's GBP000's GBP000's GBP000's
----------------------------------------- ---------- ----------- ------------- ------------- ----------
Costs
Balance as at 1 January 2018 16,490 1,422 586 - 18,498
Acquired through business
combination - 920 - - 920
Additions - - - 185 185
Balance at 31 December 2018 16,490 2,342 586 185 19,603
----------------------------------------- ---------- ----------- ------------- ------------- ----------
Balance as at 1 January 2019 16,490 2,342 586 185 19,603
Acquired through business
combination - 1,900 - 105 2,005
Additions - - 27 133 160
Balance at 31 December 2019 16,490 4,242 613 423 21,768
----------------------------------------- ---------- ----------- ------------- ------------- ----------
Amortisation and impairment
Balance as at 1 January 2018 - 117 315 - 432
Charge for the year - 157 36 12 205
Balance at 31 December 2018 - 274 351 12 637
----------------------------------------- ---------- ----------- ------------- ------------- ----------
Balance as at 1 January 2019 - 274 351 12 637
Charge for the year - 400 34 138 572
Write-off intangible assets/adjustments 26 - 45 - 71
Balance at 31 December 2019 26 674 430 150 1,280
----------------------------------------- ---------- ----------- ------------- ------------- ----------
Carrying amounts
At 31 December 2018 16,490 2,068 235 173 18,966
----------------------------------------- ---------- ----------- ------------- ------------- ----------
At 31 December 2019 16,464 3,568 183 273 20,488
----------------------------------------- ---------- ----------- ------------- ------------- ----------
Impairment testing for cash-generating units containing
goodwill
All goodwill relates to the acquisitions made during the period
from 28 March 2007 to 31 December 2019, and reflects the difference
between the identifiable net asset value of those acquisitions and
the total consideration incurred for those acquisitions.
11. Intangible assets cont.
Goodwill arising on acquisition is allocated to the cash
generating units comprising the acquired businesses. Given the
level of integration and synergies these units comprise the
jurisdictions in which businesses have been acquired as
follows:
Gibraltar Spain Jersey Total
GBP000's GBP000's GBP000's GBP000's
--------------------- ---------- ---------- ---------- ----------
At 31 December 2019 15,439 48 977 16,464
--------------------- ---------- ---------- ---------- ----------
The Group tests goodwill annually for impairment with the
recoverable amount being determined from value in use calculations
which are based on board approved projections for a year. The
following four years cashflows have then been calculated based on
growth rates as detailed below. As goodwill is considered to have
an indefinite life the year 5 net cashflow has then been
extrapolated to perpetuity. A post-tax discount rate of 13% has
been used in discounting the projected cash flows. The
sensitivities applied for turnover growth range between 0% and 5%
for the various CGUs and have been arrived at using past experience
and knowledge of the various markets and internal strategies for
each CGU. Similarly for expenses a growth rate of between 0% and 3%
has been applied.
The valuations indicate sufficient headroom such that a
reasonable potential change to key assumptions is unlikely to
result in an impairment of the related goodwill.
Based on the operating performance of the respective CGUs, no
impairment loss was deemed necessary in the current financial
year.
Client portfolio
Client portfolio represents the value assigned to the individual
client portfolios acquired through the acquisition of London &
Colonial Holding Ltd in 2016, Harbour Pensions Ltd in 2018, CAHL in
2019 and the BUPA portfolio. The Group's client portfolios are
amortised over the useful life which has been determined to be ten
years.
12. Cash and cash equivalents
31 December 31 December
2019 2018
Group GBP000's GBP000's
-------------------------------------------- ------------ ------------
Bank balances 18,406 17,267
-------------------------------------------- ------------ ------------
Cash and cash equivalents in the statement
of cash flows 18,406 17,267
Bank loan (1,200) (1,650)
-------------------------------------------- ------------ ------------
Net funds 17,206 15,617
-------------------------------------------- ------------ ------------
Within cash and cash equivalents held by the Group there is a
balance of GBP4,287,000 which is not available for use by the
Group.
13. Capital and reserves
31 December 31 December
2019 2018
Authorised, called up, issued and fully paid GBP000's GBP000's
------------------------------------------------ ------------ ------------
59,408,088 ordinary shares of GBP0.001 each
(2018: 59,408,088 ordinary shares of GBP0.001
each) 59 59
------------------------------------------------ ------------ ------------
Treasury shares
The treasury shares relate to those shares purchased by the STM
Group EBT for allocation to executives. The trustees held 1,089,780
(2018: 869,780) shares at 31 December 2019.
Share premium
There were no new shares issued during the years ended 31
December 2019 and 31 December 2018.
Translation
The translation reserve comprises all foreign currency
differences arising from the translation of the financial
statements of foreign operations.
Dividends
The following dividends were declared and paid by the Group
during the year:
31 December 31 December
2019 2018
GBP000's GBP000's
------------------------------------------------ ------------ ------------
2.0 pence per qualifying ordinary share (2018:
1.9 pence) 1,218 1,129
------------------------------------------------ ------------ ------------
After the respective reporting dates the following dividends
were proposed by the directors. The dividends have not been
provided for and there are no income tax consequences.
31 December 31 December
2019 2018
GBP000's GBP000's
------------------------------------------------- ------------ ------------
0.75 pence per qualifying ordinary share (2018:
1.3 pence) 446 772
------------------------------------------------- ------------ ------------
14. Earnings per share
Earnings per share for the year from 1 January 2019 to 31
December 2019 is based on the profit after taxation of GBP3,403,000
(2018: GBP3,683,000) divided by the weighted average number of
GBP0.001 ordinary shares during the year of 59,408,088 basic (2018:
59,408,088) and 60,365,759 dilutive (2018: 62,378,492) in
issue.
A reconciliation of the basic and diluted number of shares used
in the year ended 31 December 2019 is:
31 December 2019 31 December 2018
Weighted average number of shares 59,408,088 59,408,088
Share incentive plan (Note 20) 957,671 2,970,404
----------------------------------- ----------------- -----------------
Diluted 60,365,759 62,378,492
----------------------------------- ----------------- -----------------
15. Subsequent events
The Corvid-19 virus has not only created unprecedented times
from a health and social perspective but has changed the economic
landscape for the immediate future, and probably for significantly
longer. It is difficult to assess the long term financial impact on
the business community generally, however our business model of
fixed annual fees should mean that our existing recurring annual
revenue stream is largely protected from any significant
downturn.
There is a small element of revenue that is dependant on an
interest rate differential that will be at risk as a result of
recent base rate changes made due to the pandemic as well as a
small element of recurring fees that are directly correlated to the
value of Assets Under Administration. On current interest rates and
depressed financial markets, we believe that there is likely to be
a GBP0.4 million loss in existing recurring revenues against a 2019
recurring revenue total of GBP18 million. This represents an
unaudited estimate of the likely impact to recurring revenue.
We have instigated contingency procedures within our various
businesses, which has meant almost all of our STM colleagues now
working from home so as to comply with the various Governments'
advice, protect our colleagues as well as ensuring that we are able
to maintain service levels to our customers.
Our expectations are that new business run-rates are likely to
have a time-lag as a result of the COVID-19 lock-down measures
implemented.
The directors consider the emergence of COVID-19 as a pandemic
during 2020, and the associated government measures in the
jurisdictions in which the group operates in response, as a
non-adjusting post balance sheet event. There is, however, a
possible and potentially signi cant impact on the forward looking
assumptions made in the various impairment reviews and fair value
estimates. The specific areas which could be affected are the
valuation of the goodwill for the Gibraltar cash generating unit
and the valuation of the call options. These could be impacted as a
result of lower than expected levels of new business, however,
given the uncertainties at this time, this cannot be quantified at
this stage as it is not possible to accurately estimate the impact
of this on the valuations.
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 or visit www.rns.com.
END
FR BCGDSGBDDGGR
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April 28, 2020 02:00 ET (06:00 GMT)
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