TIDMSTM
RNS Number : 1484Y
STM Group PLC
11 May 2021
STM Group plc
("STM", "the Company" or "the Group")
Final Results for the
12 months ended 31 December 2020
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 2020.
Financial Highlights:
2020 (reported) 2020 2019 2019
(underlying)** (reported) (underlying)**
Revenue GBP24.0m GBP24.0m GBP23.2m GBP22.9m
---------------- ----------------- ------------- -----------------
Profit before other items(*) GBP3.6m GBP4.0m GBP3.5m GBP4.2m
---------------- ----------------- ------------- -----------------
Margin 15% 17% 15% 18%
---------------- ----------------- ------------- -----------------
Profit before taxation ("PBT") GBP2.0m GBP2.4m GBP3.9m GBP2.6m
(and exceptional bargain purchase
gain)
---------------- ----------------- ------------- -----------------
Earnings per share 2.7p N/A 5.73p N/A
---------------- ----------------- ------------- -----------------
Cash at bank (net of borrowings) GBP14.8m N/A GBP17.2m N/A
---------------- ----------------- ------------- -----------------
Final dividend (2020) / second
interim dividend (2019) 0.85p N/A 0.75p N/A
---------------- ----------------- ------------- -----------------
Total dividend 1.40p N/A 1.50p 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:
-- Stability of recurring revenue apparent through the Covid-19 virus
-- Focussed on keeping colleagues safe through working from home
and following Governments' guidelines and maintaining customers
service levels
-- The majority of our key IT projects for improved
profitability are now live with the remaining concluding in the
first half of 2021. Continued focus on technology to become a key
differentiator.
-- UK orientated products - Shariah SIPP and Workplace Pension
Plan ("WPP") solutions - now launched, with opportunity for
international solution as well
-- WPP corporate business moving towards break-even
-- Flexible annuity pipeline building, but slower than anticipated conversion
-- Active pipeline of acquisition opportunities, particularly in the UK
-- Strategic focus on core activities of pension administration
and life assurance, with post period end disposals of the CTS
businesses
Commenting on the results and prospects for STM, Alan Kentish,
Chief Executive Officer, said:
"Whilst the year has had challenges, we have achieved a great
deal in progressing our three year transformation and growth
strategy. We see 2021 being a year where a number of strategic
initiatives come to fruition that will build on efficiencies within
the business. There is an energy and focus for the remainder of
2021 in building some key partnerships that will help drive new
business volumes. Additionally, our acquisition pipeline is active
and expected to be a pillar of our future growth.
"The recent Judgment in the Carey v Adams case will have
implications across the whole of the Financial Services industry
who have dealings on an execution only basis. This was a historical
claim and the Options management team will continue to drive the
business forward as they have done since being part of the STM
team.
"STM is an increasingly streamlined and more focused business.
The Board is optimistic for its future and looks forward to
updating on progress in 2021."
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it
forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with
the company's obligations under Article 17 of MAR.
For further information, please contact:
STM Group Plc
Alan Kentish, Chief Executive Officer Via Walbrook PR
Therese Neish, Chief Financial Officer www.stmgroupplc.com
finnCap www.finncap.com
Matt Goode / Emily Watts - 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 delivery of a wide range of financial service
products to professional intermediaries and the administration of
assets for international clients in relation to retirement, estate
and succession planning and wealth structuring.
Today, STM has operations in UK, Gibraltar, Malta, Jersey and
Spain. The Group is looking to expand through the development of
additional products and services that its ever more sophisticated
clients demand. STM has developed a specialist international
pensions division which specialises in SIPPs, Qualifying Recognised
Overseas Pension Schemes (QROPS), Qualifying non UK Pension Schemes
(QNUPS). STM has two Gibraltar life assurance companies which
provide life insurance bonds - wrappers in which a variety of
investments, including investment funds, can be held.
Further information on STM Group can be found at
www.stmgroupplc.com
Chairman's statement
I am pleased to present our 2020 financial statements which
reflect another challenging but progressive year against the
backdrop of the significant Co vid-19 complications. We have
however , made significant progress in a number of areas as we
continue to implement our three-year growth strategy and have also
kept our colleagues safe and protected during the pandemic .
Our operating model has come a long way since it was revised in
2019, giving much clearer demarcations of personal and Divisional
accountability. We will continue to challenge and revise it where
appropriate so as to adapt to changes in the marketplace, and how
we need to operate. The key criteria being that we must set a firm
foundation for future profitable growth.
Following the 2019 acquisition of Options, we have further
strengthened our UK operations in August 2020 with the acquisition
of a small SSAS and Group Pension Plan business, that will deliver
annual revenue of circa GBP1.7 million. This complements our
aspirations of building on a stronger UK focus going forward, and
we will expect to make further acquisitions in the UK in the near
future.
There have been a number of important IT projects carried out
during 2020, and I am pleased to say that these have progressed
well, with the 'go-live' of Office 365 and the two administration
systems for the UK businesses, alongside the two QROPS businesses
due to migrate in the second quarter of 2021. These will deliver
important efficiencies during the second half of 2021 and will
contribute to an improvement of our operating margins going
forward.
Our primary challenge during 2020 and into 2021 is how we
accelerate our new business growth, which has been a frustration
that I share with the executive and the wider Plc board. We have a
robust and solid infrastructure that requires a healthy stream of
new business. We continue to have a major focus on building our
distribution network for both the UK and international markets
despite Covid hindering the process. We are also actively seeking
new strategic distribution partnerships in all jurisdictions.
Post period end, we realised the sale of our non-core CTSP
businesses which was a key deliverable on the Group's roadmap in
order to allow STM's executive management to focus on STM's core
activities of pension administration and provision of life
assurance wrappers. Accordingly, I am acutely conscious that our
numbers for 2021 have been pared back, reflecting a spreading of
our fixed head-office costs over a smaller revenue base. We are
actively challenging how we can mitigate this as we continue to
streamline our corporate structure to focus on our core activities
of pension administration and life assurance products. In addition,
we are actively reviewing our capital allocation processes to
obtain a more efficient solution.
Finally, I continue to watch the developments of the Adams vs
Carey case, and believe that further guidance and clarity for SIPP
providers, and indeed the wider UK financial services industry
which operates in an execution only environment can only be
beneficial to all parties. The new case law in the original ruling,
and upheld in the Court of Appeal, in relation to Conduct of
Business principles will be something that future Ombudsman rulings
are expected to take into account.
I would like to take this opportunity to thank the Group ' s
Directors, executive and all our colleagues for their relentless
efforts during 2020, and one of my primary concerns remains
protecting the welfare of our staff, their families and our
clients' service standards in these uncertain times. I would
specifically like to thank our CFO, Therese Neish for her enormous
efforts and ongoing professionalism in a year where she has
declared her intent to move on.
Duncan Crocker
Chairman
Chief Executive's statement
Introduction
From a macro-economic viewpoint, 2020 will be remembered as a
year that kept on throwing up uncertainties, from the hard/soft
Brexit debate through to the unprecedented turmoil, distress and
unknown of Covid-19. It has been a hard year not only for
businesses but also for people as a whole.
As a business, STM has been very fortunate that it has a solid
and predictable recurring revenue base, and this has held us in
good stead throughout the year. On the face of it, we have achieved
a significant amount of what we set out to achieve during 2020, and
into the early part of 2021.
Our colleagues across the various jurisdictions in which we have
trading operations were able to successfully implement our
"working-from-home" plans so that our day to day interaction with
customers and other stakeholders were more or less unaffected by
Covid-19. This is a credit to our management team and the various
hardworking teams that have carried on their duties as usual.
Importantly, we were still able to complete one acquisition
during the year and this will add to our UK recurring revenue base
for 2021 and beyond. Subsequent to the year end, we successfully
sold both our CTSP businesses, which were no longer core to our
strategy and had struggled for organic growth under our
stewardship.
Many of our 2020 building blocks are now in place that will
allow increased operating margins in our trading entities. Such
building blocks were focused on moving to three core IT systems
across the businesses, implementing Office 365 as our underlying
business tool, replacing two of our personal pension administrative
systems with BOSS, our in-house pension administrative system,
which now supports all our personal pensions, and finally the
successful migration of our auto-enrolment business onto the ITM
administrative system.
Despite recognising the significant revenue growth within our
pensions business, without a doubt the biggest frustration of 2020
has been the slower than anticipated new business take-on across
the Group. Certainly Covid-19 played a significant part in that.
There was an expectation of some bulk transfers to Options in
relation to the UK workplace pensions that were delayed or did not
occur, as well as some partnership ventures particularly with
regards to the UK SIPP business that have been slower to progress
than anticipated. Our flexible annuity product shows significant
promise in relation to future business but continues to be slower
to convert than anticipated. The Plc board continues to have a
focus on accelerating this.
Generally speaking, our trading subsidiaries have performed
broadly as expected, albeit during 2020 we revised downwards our
profit expectations on the back of the slower than anticipated new
business take up, that is referred to above. Certain important
milestones were achieved, including the transition of our UK
workplace pension solutions business from a significant loss-making
business at the time that we acquired it in 2019 into a scalable
business that is expected to be profitable in 2021.
There remains significant uncertainty in the personal pensions'
environment in relation to the duties and obligations of pension
administrators, particularly in the UK. The original ruling in 2020
on the Adams vs Carey case found on all counts in favour of Carey,
however at the recent judgment handed down on 1 April 2021 the
Court of Appeal found in favour of Mr Adams so that the setting up
of the SIPP was unenforceable. This ruling is likely to have a
significant impact on UK financial services businesses that have
interactions with unregulated introducers. On 28 April 2021 Options
sought permission from the Supreme Court to appeal the Court of
Appeal judgment.
Financial Review
Financial 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.
The Group has reported revenues of GBP24.0 million (2019:
GBP23.3 million) in the year with profit before other items of
GBP3.6 million (2019: GBP3.5 million). Whilst these measures show
modest growth it is on the back of an unprecedent year in terms of
the global pandemic resulting in new ways of working for our teams
and financial uncertainty, which has no doubt impacted our new
business levels.
Historically the business has had a large number of one off
non-recurring movements such as the insurance technical revenue
releases, and accounting adjustments due to acquisitions. These
have been considerably less in 2020 as shown in Table 2 below. As
such there are none which impact revenue so that underlying revenue
is as per our reported revenue at GBP24.0 million (2019: GBP22.9
million). A small number of non-recurring costs have been incurred
within operating expenses mainly in relation to integration costs
and redundancies resulting in underlying profit before other items
of GBP4.0 million (2019: GBP4.2 million). The decrease in
underlying profit before other items is largely as a result of the
higher professional indemnity insurance premiums, an increase which
was seen across the market, which were introduced in September 2019
resulting in 2020 being a full year with these higher costs. This
has also contributed to the slightly lower underlying profit margin
of 17% (2019: 18%).
The reported profit before tax ("PBT") is calculated after
deducting net finance costs of GBP0.2 million (2019: GBP0.3
million) and various non-cash expenses such as depreciation and
amortisation on both client portfolios acquired as part of the
acquisitions and IT projects totalling GBP1.4 million (2019: GBP1.3
million). In addition, last year the Group also recognised a
bargain purchase gain on the Options acquisition of GBP1.7 million
as well as the value of the call options agreement in relation to
these minority shares of GBP0.4 million, the change in valuation in
2020 was GBP0.1 million.
Reported PBT for the year amounted to GBP2.0 million (2019:
GBP3.9 million) with underlying PBT (defined on a consistent basis
with underlying revenue and profit before other items) for the year
of GBP2.4 million (2019: GBP2.6 million).
Pleasingly, recurring annual revenue, which is an important key
performance indicator for the Board has increased quite
significantly. This has been as a result of both organic growth as
well as the results no longer benefitting from the technical
reserve releases which were classified as one-off as there was
always a finite timeframe for these. Recurring revenue for 2020 has
accounted for 85% of total revenues (2019: 77%), thus a total of
GBP20.3 million (2019: GBP18.0 million).
Table 1
KPI Definition 2020 result 2019 result
------------------------------------- ------------ ------------
Income derived from the
Revenue (GBP'000s) provision of services. 23,982 23,251
------------------------------------- ------------ ------------
Revenue less operating
expenses i.e. profit before
taxation, finance income
and costs, depreciation,
amortisation, bargain purchase
Profit before gain and gain on the call
other items (GBP'000s) options. 3,570 3,475
------------------------------------- ------------ ------------
Profit before
other items margins Profit before other items
(%) divided by revenue. 15% 15%
------------------------------------- ------------ ------------
Profit before
tax Profit before taxation. 2,020 3,923
------------------------------------- ------------ ------------
Revenue 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
Underlying revenue course of business as per
(GBP'000) Table 2 below. 23,982 22,911
------------------------------------- ------------ ------------
Profit before other items
net of non-recurring costs
and other exceptional items
including bargain purchase
gains and technical reserve
releases that do not form
Underlying profit part of the normal course
before other of business as per Table
items (GBP'000s) 2 below. 4,034 4,235
------------------------------------- ------------ ------------
Profit before tax 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
Underlying profit of business as per Table
before tax (GBP'000s) 2 below. 2,425 2,565
------------------------------------- ------------ ------------
Underlying profit before
Underlying profit other items divided by
margins (%) revenue. 17% 18%
------------------------------------- ------------ ------------
Revenue derived from annual
Recurring revenue management charges and/or
(GBP'000s) contractual fixed fee agreements. 20,334 18,025
------------------------------------- ------------ ------------
Table 2
---------------------------------- ---------------------- ---------------------- ----------------------
Profit before Profit before
Revenue other items tax
---------------------------------- ---------------------- ---------------------- ----------------------
2020 2019 2020 2019 2020 2019
GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's
---------- ---------- ---------- ---------- ---------- ----------
Reported measure 23,982 23,251 3,570 3,475 2,020 3,923
Less: release on technical
reserve - (946) - (946) - (946)
Add/(less): adjustment
due to revenue recognition
policy changes on acquisitions - 606 - 606 - 606
Less: bargain purchase
gain on acquisition and
gain on call options - - - - (59) (2,118)
Add: integration and acquisition
costs - - 179 461 179 461
Add: other non-recurring
costs - - 285 639 285 639
---------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Underlying measure 23,982 22,911 4,034 4,235 2,425 2,565
---------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Tax Charge and Earnings per Share
The tax charge for the year was GBP0.4 million (2019: GBP0.5
million). This is an effective tax rate of 20% (2019: 13%) which is
in line with expectations.
Earnings per share ("EPS") for 2020 is 2.70p compared to 5.73p
for 2019 due to the higher PBT in 2019 as a result of the bargain
purchase gain. Diluted earnings per share for 2019 took into
consideration the long-term incentive plan which was in existence
for part of 2019. There was no dilutive factor in 2020 as such the
diluted EPS for 2020 is also 2.70p (2019: 5.64p).
Cashflows
Cash and cash equivalents amounted to GBP16.4 million as at 31
December 2020 (2019: GBP18.4 million) with net cash inflow from
operating activities of GBP2.3 million for the year ended 31
December 2020 (2019: GBP3.1 million).
During the year the Company repaid the one-year bank loan of
GBP1.2 million taken out in 2019. In addition, during the year the
Company signed a credit facility with Royal Bank of Scotland
(International) Ltd for GBP5.5 million. The facility has a 5-year
term with capital repayments structured over ten years and a final
instalment to settle the outstanding balance in full at the end of
the 5 years. The Company drew down GBP1.6 million of this facility
as part of the Berkeley Burke acquisition, all of which was
outstanding at the year end.
As such, net cash and cash equivalents as at 31 December 2020
were GBP14.8 million (2019: GBP17.2 million).
As would be expected for a Group regulated in a number of
jurisdictions, a significant proportion of this balance forms part
of the regulatory and solvency requirements. It is not possible to
determine exactly how much of the cash and cash equivalents are
required for solvency purposes as other assets can be used to
support the regulatory solvency requirement. The total regulatory
capital requirement across the Group as at 31 December 2020 was
GBP18.3 million (2019: GBP17.4 million).
The balance sheet also gives visibility of future revenue and
cash generation and, in line with all administration services
businesses, the Group had accrued income in the form of work
performed for clients but not yet billed of GBP1.3 million as at
the year end (2019: GBP1.2 million). Additionally, deferred income
(a liability in the statement of financial position) relating to
annual fees invoiced but not yet earned stood at GBP3.6 million
(2019: GBP4.2 million). Both these figures give good visibility of
cash collections and in the case of deferred income revenue still
to be earned through the Income Statement in the coming months.
Other large balance sheet items relate to trade and other
receivables of GBP5.5 million as at 31 December 2020 (2019: GBP5.8
million) and a new balance in 2020 for assets held for sale. It is
a requirement of accounting standards to reflect all assets held
for sale separately on the Statement of Financial Position thus
this is purely a reallocation of the net assets and goodwill in
relation to these assets held for sale.
As required by accounting standards (IAS 37 - Provisions,
Contingent Liabilities and Contingent Assets) consideration has had
to be given as to whether the Court of Appeal judgment against
Options has given rise to a provision as to the potential financial
obligation which could arise in the future and whether such a
provision can be reliably estimated. Whilst permission to appeal
this judgment has been sought from the Supreme Court a provision
has been reflected in the Balance Sheet within trade and other
payables. Given that the ruling made in Mr Adams case is fact
specific it is difficult to assess the exact obligation that could
arise on other claims based on this one case. An estimate has been
arrived at by considering a cohort of claims which may be deemed to
have similar characteristics to Mr Adams' claim. This is covered by
professional indemnity insurance and thus has also been reflected
within trade and other receivables.
Dividend
I am pleased to advise that the Board is recommending the
payment of a final dividend of 0.85p per share (2019: 0.75p per
share), an increase of 13% from prior year. This together with the
interim dividend paid of 0.55p in November 2020 (2019: 0.75p) makes
a proposed total dividend for the year of 1.40p per share (2019:
1.50p).
Subject to approval at the Company's Annual General Meeting to
be held on 24 June 2021, the final dividend will be paid on 30 June
2021 to shareholders on the register at the close of business on 28
May 2021. The ordinary shares will be marked ex-dividend on 27 May
2021.
Operational Performance
Pensions
Our pension administration businesses continue to be the
life-blood of our group, and the corner stone to our profitability.
The Options acquisition made in 2019 has shown significant revenue
growth in 2020 and the integration savings expected from the SIPP
business have now started to come through. In addition, the
Berkeley Burke acquisition in 2020 is also generating both revenue
and profit contributions in the 5-month period since
acquisition.
Whilst new business levels were slower to come through than we
originally expected as a result of the global pandemic impact they
were still higher volumes than in prior year within the SIPP and
auto-enrolment businesses. A total of 585 SIPPS were signed up in
2020 compared to 452 in 2019. In addition, the auto-enrolment
business saw 40,000 new members since acquisition to 31 December
2019 as compared to 72,000 new members in 2020.
Total revenue across our pensions businesses amounted to GBP16.5
million (2019: GBP14.1 million) and accounted for 69% of total
Group revenue (2019: 61%). In addition, recurring revenues for the
pension businesses remain high at 93% (2019: 90%).
The administration of our ROPS products continues to be our
largest revenue generator accounting for GBP10.1 million of revenue
(2019: GBP10.1 million). This administration is carried out in
Malta and Gibraltar with the revenue continuing to be split 75% and
25% respectively as was the case in 2019. As has been known for a
number of years, this product is no longer a growth factor as a
result of changes in the UK pension legislation in 2017. Whilst we
continue to receive a small number of new members from EEA
countries (203 in 2020 compared to 225 in 2019) the attrition rate
is increasing as we see our member profile age and take advantage
of flexi access benefits in Malta. The attrition rate in 2020 was
6% (2019: 5%).
The SIPP businesses, both Options Personal Pensions and London
& Colonial Services Limited, have contributed total revenues of
GBP3.5 million (2019: GBP2.7 million). The increase in revenues is
a combination of now having the benefit of a full year of Options
as well as organic growth. The administration for both these
businesses is now being carried out from the Milton Keynes offices
and the integration savings expected are now starting to come
through. The final aspect of this integration, being the IT
migration, happened towards the end of the year and thus the
benefits will come through in 2021.
As mentioned above the auto-enrolment business saw a significant
increase in members and this has resulted in increased revenues for
the year of GBP2.2 million (2019: GBP1.3 million). Whilst this
business remains break-even we expect it to become a profit
generator for the Group during the early part of 2021.
The final revenue stream of the pensions divisions comes from
the recently acquired Berkeley Burke companies. This acquisition
came with a small SSAS business and a Group Pension Plan business
providing third party administration. The SSAS business contributed
revenues of GBP0.1 million in the year with the Group Pension Plan
generating revenue of GBP0.6 million.
Life Assurance
The 2020 combined revenue figure was GBP3.7 million compared to
GBP4.8 million for 2019. The main reason for the decrease is due to
the final release of GBP1.0 million in 2019 in relation to the
technical reserve which came with the London & Colonial
acquisition made in 2016. Adjusting for this one-off transaction
results in similar revenue figures year on year.
Whilst the business saw some new business materialise through
the launch of the flexible annuity products this growth has made up
for the loss of interest income as a result of the decreased
interest rates and natural attrition on the existing client
portfolios.
Our flexible annuity products aimed at the UK market remain the
key focus for organic growth within our life businesses. As
previously reported our pipeline of potential new business remains
significant, albeit, as mentioned above the length of time for that
to convert into new business is longer than we originally
envisaged.
In a similar manner to that of our pensions administration
businesses, recurring revenue is a significant proportion of
revenue being 94% in 2020 (2019: 75% due to the one-off technical
reserve release of GBP1.0 million distorting this percentage).
Corporate and Trustee Services (CTS)
Turnover from the Corporate and Trustee Services (CTS) division
for the year was GBP3.2 million (2019: GBP3.7 million) thus
accounting for 13% of the Group's total turnover (2019: 16%).
Our Gibraltar business contributed 53% (2019: 48%) of this
revenue, with Jersey contributing the other 47% (2019: 52%).
As noted in previous year's reports, the CTS environment and
sector remains challenging, and it is fully recognised by the Group
that this revenue stream was not a core area going forward.
Subsequent to the year end the Company has sold off both its CTS
businesses. On 23 March 2021 it sold the Gibraltar business to the
privately-owned Sovereign Group which already has a significant
presence in Gibraltar, and on 8 May 2021 it sold the Jersey
business to the privately-owned Imperium Group which has its head
office in Guernsey. Part of ensuring that we exited the CTS sector
in an orderly manner was ensuring that both our work colleagues and
our CTS clients would be well looked after going forward. I am
pleased to say that this will be the case with the new respective
owners of each business.
Outlook
Our trading outlook for the year remains in line with
management's expectations and we believe the Group is positioned to
grow, both organically and by acquisition.
2021 is all about capitalising on the hard work carried out in
2020; ensuring the efficiency benefits of the completed IT projects
fully materialise, and the partnerships that were in their infancy
in 2020 truly blossom to meet the management team's expectations.
We continue to look at entering further key distribution
partnerships for our core products with a view to accelerate
organic growth in these areas.
There continues to be a strong focus on bringing products to
market and ensuring we generate that new business growth that we
know our product offerings and trading operations are capable of.
In this regard, we must balance our governance structure and
controls against a background of ambitious growth as an AIM listed
company.
We anticipate that there will be further clarity given in
relation to the duties of UK SIPP providers following the latest
judgment by the Court of Appeal. On 28 April 2021 Options sought
permission from the Supreme Court to appeal this judgment. It is
anticipated that the outcome of this request will not be known for
a further few months albeit the company is well protected
financially due to the insurance protections it has in place.
Importantly, the Court of Appeal upheld the Judge of first instance
decision in relation to Carey acting correctly under the FCA's
Conduct of Business principles, and this new law hopefully will be
taken into account in future Ombudsman rulings.
A number of key initiatives will conclude in the first half of
2021, including a capital management review as to how we can be
more efficient with capital across our business; and we will
continue to look to streamline our trading operations so that we
focus purely on our core activities of pension administration and
provision of life assurance "wrappers".
The Board remains fully committed to our acquisition strategy,
and see this as an important pillar of our overall growth
aspirations.
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.
Finally, it would be remiss of me not to single-out Therese, our
CFO for the last seven years, to thank her for all her hard work
over those years, and for the support she has given to both me
personally and the business overall during some very difficult
times. Whilst she will be with the business for the foreseeable
future, whilst we recruit her replacement, I wish her success in
the next step of her career.
I look forward to updating the market during the course of 2021
with our progress.
Alan Kentish
Chief Executive Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR FROM 1 JANUARY 2020 TO 31 DECEMBER 2020
31 December 31 December
2020 2019
Note GBP000's GBP000's
----------------------------------------------- ----- ------------ ------------
Revenue 6, 7 23,982 23,251
Administrative expenses 0 (20,412) (19,776)
----------------------------------------------- ----- ------------ ------------
Profit before other items 3,570 3,475
----------------------------------------------- ----- ------------ ------------
OTHER ITEMS
Bargain purchase gain - 1,702
Gains on revaluation of financial instruments 5 59 416
Finance costs (246) (325)
10 ,
Depreciation and amortisation 11 (1,363) (1,345)
----------------------------------------------- ----- ------------ ------------
Profit before taxation 2,020 3,923
----------------------------------------------- ----- ------------ ------------
Taxation (413) (520)
----------------------------------------------- ----- ------------ ------------
Profit after taxation 1,607 3,403
----------------------------------------------- ----- ------------ ------------
OTHER COMPREHENSIVE INCOME
Items that are or may be reclassified
to profit or loss
Foreign currency translation differences
for foreign operations (1) (97)
----------------------------------------------- ----- ------------ ------------
Total other comprehensive loss (1) (97)
----------------------------------------------- ----- ------------ ------------
Total comprehensive income for the
year 1,606 3,306
----------------------------------------------- ----- ------------ ------------
Profit attributable to:
Owners of the Company 1,777 3,756
Non-Controlling Interests (170) (353)
----------------------------------------------- ----- ------------ ------------
1,607 3,403
----------------------------------------------- ----- ------------ ------------
Total comprehensive income attributable
to:
Owners of the Company 1,776 3,659
Non-Controlling Interests (170) (353)
----------------------------------------------- ----- ------------ ------------
1,606 3,306
----------------------------------------------- ----- ------------ ------------
Earnings per share basic (pence) 16 2.70 5.73
Earnings per share diluted (pence) 16 2.70 5.64
The results for 2020 relate to continuing activities.
Discontinued activities in 2019 are disclosed in note 3.
The notes on the accounts form an integral part of these financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2020
31 December 31 December
2020 2019
Note GBP000's GBP000's
-------------------------------------- ----- ------------ ------------
ASSETS
Non-current assets
Property, plant and equipment 10 1,970 2,953
Intangible assets 11 19,912 20,488
Financial assets 5 475 416
Deferred tax asset 75 92
Total non-current assets 22,432 23,949
-------------------------------------- ----- ------------ ------------
Current assets
Accrued income 1,319 1,186
Trade and other receivables 14 9,073 5,765
Cash and cash equivalents 12 16,409 18,406
Assets held for sale 13 5,978 -
-------------------------------------- ----- ------------ ------------
Total current assets 32,779 25,357
-------------------------------------- ----- ------------ ------------
Total assets 55,211 49,306
-------------------------------------- ----- ------------ ------------
EQUITY
Called up share capital 15 59 59
Share premium account 15 22,372 22,372
Retained earnings 13,541 12,536
Other reserves (447) (446)
-------------------------------------- ----- ------------ ------------
Equity attributable to owners of the
Company 35,525 34,521
Non-controlling interest (445) (275)
-------------------------------------- ----- ------------ ------------
Total equity 35,080 34,246
-------------------------------------- ----- ------------ ------------
LIABILITIES
Current liabilities
Liabilities for current tax 1,197 1,083
Trade and other payables 14 14,974 11,634
Liabilities directly associated with
assets held for sale 13 1,154 -
-------------------------------------- ----- ------------ ------------
Total current liabilities 17,325 12,717
-------------------------------------- ----- ------------ ------------
Non current liabilities
Other payables 2,806 2,343
-------------------------------------- ----- ------------ ------------
Total non-current liabilities 2,806 2,343
-------------------------------------- ----- ------------ ------------
Total liabilities and equity 55,211 49,306
-------------------------------------- ----- ------------ ------------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR FROM 1 JANUARY 2020 TO 31 DECEMBER 2020
31 December 31 December
2020 2019
Note GBP000's GBP000's
-------------------------------------------- ----- ------------ ------------
OPERATING ACTIVITIES
Profit for the year before tax 2,020 3,923
ADJUSTMENTS FOR:
Depreciation of property, plant and
equipment 10 793 773
Amortisation of intangible assets 11 570 572
Write-off of intangible assets 11 - 71
Loss on sale of fixed asset - 5
Taxation paid (299) (345)
Bargain purchase gain - (1,702)
Unrealised gains on financial instruments
at FVTPL 5 (59) (416)
Share based payments - 18
(Increase)/decrease in trade and other
receivables (215) 827
Increase in accrued income (485) (301)
Decrease in trade and other payables (12) (326)
Net cash from operating activities 2,313 3,099
-------------------------------------------- ----- ------------ ------------
INVESTING ACTIVITIES
Disposal of investments - 74
Purchase of property, plant and equipment 10 (70) (117)
Increase in intangible assets 11 (875) (160)
Consideration paid on acquisition of
subsidiary 4 (1,447) (350)
Cash acquired on acquisition of subsidiary 4 27 1,116
Reclassification to assets held for
sale 13 (725) -
-------------------------------------------- ----- ------------ ------------
Net cash used in investing activities (3,090) 563
-------------------------------------------- ----- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans 1,600 1,200
Bank loan repayment (1,200) (1,650)
Lease liabilities paid (843) (745)
Treasury shares purchased - (117)
Dividends paid 15 (772) (1,218)
-------------------------------------------- ----- ------------ ------------
Net cash from financing activities (1,215) (2,530)
-------------------------------------------- ----- ------------ ------------
(Decrease)/increase in cash and cash
equivalents (1,992) 1,132
-------------------------------------------- ----- ------------ ------------
RECONCILIATION OF NET CASH FLOW TO
MOVEMENT IN NET FUNDS
Analysis of cash and cash equivalents
during the year
(Decrease)/increase in cash and cash
equivalents (1,992) 1,132
Effect of movements in exchange rates
on cash and cash equivalents (5) 7
-------------------------------------------- ----- ------------ ------------
Balance at start of year 18,406 17,267
Balance at end of year 12 16,409 18,406
-------------------------------------------- ----- ------------ ------------
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY
FOR THE YEAR FROM 1 JANUARY 2020 TO 31 DECEMBER 2020
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
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 - - - - - - - 78 78
------------- --------- --------- --------- --------- ------------ --------- --------- ---------------- ---------
31 December 2019 and
1 January
2020 59 22,372 12,536 (549) (59) 162 34,521 (275) 34,246
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Profit for
the year - - 1,777 - - - 1,777 (170) 1,607
Other comprehensive income
Foreign
currency
translation
differences - - - - (1) - (1) - (1)
Transactions with owners, recorded directly in equity
Dividend
paid - - (772) - - - (772) - (772)
Treasury
shares
purchased - - - -- - - - - -
Share based
payments - - - - - - - - -
Changes in ownership interest
At 31
December
2020 59 22,372 13,541 (549) (60) 162 35,525 (445) 35,080
------------- --------- --------- --------- --------- ------------ --------- --------- ---------------- ---------
STM Group Plc
Notes to the consolidated financial statements for 2020
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 2020, which have been prepared under
International Financial Reporting Standards (IFRS) and in
accordance with Isle of Man company law.
The Directors have considered the current position, foreseeable
risks and uncertainties facing the business 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 2020.
3. Discontinued Operations
The Group had no discontinued operations in 2020.
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 proportion of the other services segment was not previously
classified as held-for-sale or as a discontinued operation.
Results of the discontinued operation were as follows:
2019
GBP000's
----------------------------------------------- ----------
Revenue 179
Expenditure (140)
Results from operating activities 39
Income tax (3)
Results from operating activities, net of tax 36
Gain on sale of discontinued operation -
Profit from discontinued operation 36
Basic earnings per share (pence) 0.0001
Diluted earnings per share (pence) 0.0001
----------------------------------------------- ----------
The profit from the discontinued operation is attributable
entirely to the owners of the Company. During 2019 the discontinued
operation contributed GBP36,000 to the Group's net operating
cashflows.
4. Acquisition of subsidiary
On 13 August 2020, the Group acquired 100% of the share capital
of Berkeley Burke (Financial Services) Ltd ("BBFS") and Berkeley
Burke Employee Benefit Consultants Ltd ("EBC"), referred to jointly
as the BB companies, from Berkeley Burke Group Limited, which
together provide administration and consultancy services to Small
Self-administered Pension schemes (SSAS) in the UK and to large and
medium sized UK and international businesses, delivering pension
solutions for their UK and overseas employees.
The SSAS business will allow for efficiency gains when it is
integrated into the Group's existing UK operations, and the UK and
international group pension plan business will strengthen our
position in that sector. In addition, the acquisition allowed the
Group to enter a new market - the group pension plan business -
providing the growth opportunities in the UK.
The acquisition has been accounted for using the acquisition
method. Transaction costs incurred on the acquisition total
GBP88,000 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 1,447
Deferred consideration 700
--------------------------------- ---------
Total consideration transferred 2,147
--------------------------------- ---------
The initial cash payment was made at the date of signing the
Sale & Purchase Agreement. The deferred consideration is due
for payment within 10 days following the first-year anniversary
date of the completion accounts being 31 July 2021. The deferred
consideration is dependent on revenue generated from the acquired
clients.
The following table summarises the fair value of the
identifiable assets and liabilities assumed of the acquired
companies as at the acquisition date:
Previous
FV recognised Fair value carrying
on acquisition adjustments value
------------------------------------ ---------------- ------------- ----------
GBP'000s GBP'000s GBP'000s
Client portfolio 1,500 1,500 -
Accrued income 112 - 112
Debtors 157 - 157
Cash at bank 27 - 27
Liabilities (225) - (225)
Deferred tax liabilities on Client
portfolio (270) (270) -
------------------------------------ ---------------- ------------- ----------
Total identifiable assets 1,301 1,230 71
------------------------------------ ---------------- ------------- ----------
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 GBP300,000 relating to the
BBFS portfolio and GBP1,200,000 related to the EBC portfolio were
recognised.
The client portfolios have 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 assumptions used for the valuation of the client portfolio
were as follows:
Attrition rate 7% - 12%
Discount factor 13%
---------
A movement of +/- 1% on the above assumptions results in a range
of values of GBP1,467,000 to GBP1,611,000.
From the date of acquisition the Berkeley Burke companies have
generated revenue of GBP695,000 and profit of GBP261,000. If the
acquisition had occurred on 1 January 2020, management estimates
that consolidated revenue would have been GBP1,702,000 and
consolidated profit would have been GBP545,000.
Goodwill arising from the acquisition has been recognised as
follows:
GBP'000s
Total acquisition cost 2,147
Fair value of identifiable net assets (1,301)
--------------------------------------- ----------------------------------
Goodwill 846
--------------------------------------- ----------------------------------
5. Call options to acquire non-controlling interests
As part of the acquisition of Carey Administration Holdings
Limited, the Group entered into call option agreements to acquire
the non--controlling interests in Options Pensions UK LLP and
Options 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 of these entities for the
year ended 31 December 2021. The fair value of the call options as
at acquisition date and as at 31 December 2019 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.
As at 31 December 2020 these call options were valued at
GBP475,000.
The assumptions used for the valuations of the call options as
at 31 December 2020 and 31 December 2019 were as follows:
Options Pensions UK LLP Options Corporate Pensions
UK
-------------------------- -----------------------------
2020 2019 2020 2019
Income growth rate 2% 2% 2% 2%
Cost growth rate 2% 4% 3% 6%
Discount factor 13% 13% 13% 13%
A movement of +/- 1% on the above assumptions results in a range
of values of GBP184,000 to GBP1,151,000.
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 internally calculated 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 2020 2019
GBP000's GBP000's
---------------------------- --------- ---------
Pensions 16,488 14,074
Life Assurance 3,709 4,768
Corporate Trustee Services 3,167 3,662
Other Services 618 747
23,982 23,251
---------------------------- --------- ---------
Analysis of the Group's turnover information by geographical
location is detailed below:
Turnover
Geographical segment 2020 2019
GBP000's GBP000's
---------------------- --------- ---------
Gibraltar 7,999 9,329
Malta 7,625 7,542
United Kingdom 6,379 3,964
Jersey 1,483 1,901
Other 496 515
---------------------- --------- ---------
23,982 23,251
---------------------- --------- ---------
7. Revenue
31 December 31 December
2020 2019
GBP000's GBP000's
----------------------------------------- ------------ ------------
Revenue from administration of assets 23,982 23,251
----------------------------------------- ------------ ------------
Total revenues 23,982 23,251
----------------------------------------- ------------ ------------
8. Administrative expenses
Included within administrative expenses are personnel costs as
follows:
31 December 31 December
2020 2019
GBP000's GBP000's
Wages and salaries 11,634 11,180
Social insurance costs 522 502
Pension contributions 156 199
Share based payments - 18
Total personnel expenses 12,312 11,899
-------------------------- ------------ ------------
Average number of employees
31 December 31 December
2020 2019
Group Number Number
---------------------------------------------- ------------ ------------
Average number of people employed (including
executive directors) 287 268
---------------------------------------------- ------------ ------------
9. Reconciliation of reported to underlying measures
Profit before Profit before
Revenue other items tax
---------------------------------- ---------------------- ---------------------- ----------------------
2020 2019 2020 2019 2020 2019
GBP000's GBP000's GBP000's GBP000's GBP000's GBP000's
---------- ---------- ---------- ---------- ---------- ----------
Reported measure 23,982 23,251 3,570 3,475 2,020 3,923
Less: release on technical
reserve - (946) - (946) - (946)
Add: adjustment due to revenue
recognition policy changes
on acquisition - 606 - 606 - 606
Less: bargain purchase gain
on acquisition and gain on
call options - - - - (59) (2,118)
Add: integration and acquisition
costs - - 179 461 179 461
Add: other non-recurring
costs - - 285 639 285 639
---------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Underlying measure 23,982 22,911 4,034 4,235 2,425 2,565
---------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
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 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 and
1 January 2020 15 2,099 641 5,722 8,477
---------------------------- ---------- ----------- -------------- ------------- ----------
Additions - 70 - - 70
Reclassification to assets
held for sale (Note 13 ) - (410) (164) (319) (893)
Disposals - - - - -
As at 31 December 2020 15 1,759 477 5,403 7,654
---------------------------- ---------- ----------- -------------- ------------- ----------
Depreciation
As 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 and
1 January 2020 10 1,379 381 3,754 5,524
---------------------------- ---------- ----------- -------------- ------------- ----------
Charge for the year 1 171 37 584 793
Reclassification to assets
held for sale (Note 13 ) - (357) (58) (218) (633)
As at 31 December 2020 11 1,193 360 4,120 5,684
Net Book Value
As at 31 December 2019 5 720 260 1,968 2,953
---------------------------- ---------- ----------- -------------- ------------- ----------
As at 31 December 2020 4 566 117 1,283 1,970
---------------------------- ---------- ----------- -------------- ------------- ----------
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 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
and
1 January 2020 16,490 4,242 613 423 21,768
----------------------------------------- ---------- ----------- ------------- ------------- ----------
Acquired through business
combination (Note 4) 846 1,500 - - 2,346
Additions - - 10 865 875
Reclassification to assets
held for sale (Note 13 ) (3,227) - - - (3,227)
Balance at 31 December 2020 14,109 5,742 623 1,288 21,762
----------------------------------------- ---------- ----------- ------------- ------------- ----------
Amortisation and impairment
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
and
1 January 2020 26 674 430 150 1,280
----------------------------------------- ---------- ----------- ------------- ------------- ----------
Charge for the year - 469 17 84 570
Balance at 31 December 2020 26 1,143 447 234 1,850
----------------------------------------- ---------- ----------- ------------- ------------- ----------
Carrying amounts
At 31 December 2019 16,464 3,568 183 273 20,488
----------------------------------------- ---------- ----------- ------------- ------------- ----------
At 31 December 2020 14,083 4,599 176 1,054 19,912
----------------------------------------- ---------- ----------- ------------- ------------- ----------
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 2020, and reflects the difference
between the identifiable net asset value of those acquisitions and
the total consideration incurred for those acquisitions.
Following management's commitment to exit the Group's non-core
activities the goodwill allocated to these CGU's has been
reclassified as assets held for sale (see note 13).
Goodwill needs to be allocated to the smallest identifiable
group of assets that generate largely independent cashflows.
Historically, these cash generating units have been identified as
the jurisdictions in which the acquisitions were made. Whilst the
synergies in Gibraltar remain management following the Group's
decision to exit its non-core activities management have reassessed
the number of CGUs and determined that there are four identifiable
cashflows and thus the CGU can be broken down further.
Following the post year end sale of the Gibraltar CTS business
(see note 17), the goodwill of GBP2,250,000 for which has been
reclassified as assets held for sale, the remaining Gibraltar
goodwill is now three separate CGUs with values of GBP7,766,000,
GBP3,698,000 and GBP1,725,000. This goodwill breakdown has been
determined by reference to the recoverable amount being the higher
of the fair value less costs of disposal or value in use of each
cash generating unit.
The Group tests goodwill annually for impairment. Historically
the Group has determined the recoverable amounts of the CGUs to be
the value in use which has been derived at using board approved
projections for a year. The following four years cashflows have
been calculated based on growth rates as detailed below. As
goodwill is considered to have an indefinite life the year 5 net
cashflow has been extrapolated to perpetuity. A post- tax discount
rate of 13% has been used in discounting the projected cashflows.
Sensitivities applied for turnover range from -1% to 5% based on
the historical performance and management experience of the various
markets and internal strategies.
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 impairment review carried out as detailed above, 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 acquisitions as follows:
31 December 31 December
2020 2019
Acquisition date GBP000's GBP000's
------------------------------------------------------- ------------ ------------
London & Colonial Holding Ltd October 2016 583 683
------------------------------------- ---------------- ------------ ------------
STM Nummos Life SL January 2018* 299 338
------------------------------------- ---------------- ------------ ------------
Harbour Pensions Ltd February 2018 729 813
------------------------------------- ---------------- ------------ ------------
Options Corporate Pensions
UK Limited February 2019 569 639
------------------------------------- ---------------- ------------ ------------
Options UK Personal Pensions
LLP February 2019 975 1,095
------------------------------------- ---------------- ------------ ------------
Berkeley Burke (Financial Services) August 2020 289 -
Limited
------------------------------------- ---------------- ------------ ------------
Berkeley Burke Employee Benefit August 2020 1,155 -
Consultants Limited
------------------------------------- ---------------- ------------ ------------
Total 4,599 3,568
------------------------------------------------------- ------------ ------------
*The client portfolio of STM Nummos Life SL was reclassified
from Goodwill in January 2018. The Group's client portfolios are
amortised over the useful lives which have been determined to be
ten years.
12. Cash and cash equivalents
31 December 31 December
2020 2019
Group GBP000's GBP000's
-------------------------------------------- ------------ ------------
Bank balances 16,409 18,406
-------------------------------------------- ------------ ------------
Cash and cash equivalents in the statement
of cash flows 16,409 18,406
Bank loan (1,600) (1,200 )
-------------------------------------------- ------------ ------------
Net funds 14,809 17,206
-------------------------------------------- ------------ ------------
Within cash and cash equivalents held by the Group there is a
balance of GBP2,566,000 (2019: GBP4,287,000) which is not available
for use by the Group as most of it is in a blocked account as part
of Options Corporate regulatory requirement. The balance relates to
funds collected on behalf of clients and yet to be paid across to
the relevant authority bodies.
13. Disposal group held for sale
At 31 December 2020 management was committed to exit the
non-core element of the Group's activities. Accordingly, net assets
together with the goodwill allocated to these businesses are
presented as a disposal group held for sale. Efforts to sell the
disposal group have started and the sale of the Gibraltar and
Jersey CTS businesses were completed subsequent to the year-end
(see note 17).
The impairment review for the goodwill of the assets held for
sale has been carried out by determining the recoverable amount
based on fair value less costs of disposal. No impairment loss was
deemed necessary in the current financial year as a result of the
impairment review.
Assets and liabilities of disposal group held for sale
At 31 December 2020, the disposal group was stated at fair value
less costs to sell and comprised the following assets and
liabilities.
31 December
2020
GBP000's
------------------------------- ------------
Property, plant and equipment 260
Goodwill 3,227
Accrued income 463
Trade and other receivables 1,303
Cash and cash equivalents 725
-------------------------------- ------------
Assets held for sale 5,978
-------------------------------- ------------
Trade and other payables 1,154
Liabilities held for sale 1,154
-------------------------------- ------------
Cumulative income or expenses included in OCI
There are no cumulative income or expenses included in OCI
relating to the disposal group.
14. Provision and contingent liability
As required by IFRS, provisions are recorded when there is a
present legal or constructive obligation as a result of a past
event, for which it is probable that an outflow of economic
benefits will be required to settle the obligation, and where a
reliable estimate can be made of the amount of the obligation. This
requires judgement and the use of assumptions about the likelihood
and magnitude of any cash outflow. The Group analyses its exposure
based on available information, including consultation with
professional indemnity insurers and external legal advisors where
appropriate, to assess any potential liability.
The Group operates in a legal and regulatory environment that
exposes it to certain litigation risks and in particular the Group
recognises that the UK SIPP industry is becoming more litigious
over non-performing assets. Whilst the Group does not provide
financial or investment advice to its customers and therefore
believes it is not responsible for the performance of the
investments, the Group occasionally receives complaints in respect
to these matters as well as others relating to general services
provided. Each complaint is dealt with on its merits and remains a
contingent liability until an outflow of economic benefits is
probable and the quantum can be reliably estimated .
Following the Court of Appeal judgment on 1 April 2021 (see note
17) the Group has considered the potential impact this might have
on the outcome of other claims made by SIPP members in respect of
non-performing assets. Whilst the final outcome of Mr Adams' case
is not yet known, as Carey has sought permission to appeal to the
Supreme Court, under IAS 37 - Provisions, Contingent Liabilities
and Contingent Assets consideration has to be given as to whether
such provisions can reliably be estimated as to the potential
financial obligation which could arise in the future.
Furthermore, it is also recognised that the ruling made in Mr
Adams case was fact specific and included the exercise of
discretion on the part of the Court of Appeal, and which was
exercised in the context of those facts. The Court of Appeal has
also at the time of this filing not determined the appropriate
relief payable to Mr Adams. It is therefore difficult to assess the
exact obligation that could arise on other claims based on this one
case. An estimate has been arrived at by considering a cohort of
claims which may be deemed to have similar characteristics to Mr
Adams' claim. The value of this estimate, which has been reflected
within trade and other payables, is GBP3,600,000. This is covered
by professional indemnity insurance and thus has also been
reflected within trade and other receivables.
With reference to the prejudicial exemption allowed under IAS
37, the Company will not disclose any further information about the
assumptions for the provision, including any details about current
and potential claims.
15. Capital and reserves
31 December 31 December
2020 2019
Authorised, called up, issued and fully paid GBP000's GBP000's
------------------------------------------------ ------------ ------------
59,408,088 ordinary shares of GBP0.001 each
(2019: 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
shares at 31 December 2020 and 31 December 2019
Share premium
There were no new shares issued during the years ended 31
December 2020 and 31 December 2019.
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
2020 2019
GBP000's GBP000's
------------------------------------------------ ------------ ------------
1.3 pence per qualifying ordinary share (2019:
2.0 pence) 772 1,218
------------------------------------------------ ------------ ------------
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
2020 2019
GBP000's GBP000's
------------------------------------------------- ------------ ------------
0.85 pence per qualifying ordinary share (2019:
0.75 pence) 505 446
------------------------------------------------- ------------ ------------
16. Earnings per share
Earnings per share for the year from 1 January 2020 to 31
December 2020 is based on the profit after taxation of GBP1,607,000
(2019: GBP3,403,000) divided by the weighted average number of
GBP0.001 ordinary shares during the year of 59,408,088 basic (2019:
59,408,088) and GBP59,408,088 dilutive (2019: 60,365,759) in
issue.
A reconciliation of the basic and diluted number of shares used
in the year ended 31 December 2020 is:
31 December 2020 31 December 2019
Weighted average number of shares 59,408,088 59,408,088
Share incentive plan - 957,671
----------------------------------- ----------------- -----------------
Diluted 59,408,088 60,365,759
----------------------------------- ----------------- -----------------
17. Subsequent events
a) Disposal of Gibraltar CTS and tax compliance businesses
On 23 March 2021 the Group disposed of its Gibraltar CTS and Tax
Compliance businesses. The sale complements the Group's strategy to
focus on its core activities of pension administration and life
assurance. The sale companies are principally STM Fidecs Management
Limited and STM Fiscalis Limited, along with a number of
non-revenue generating support companies, including nominee
companies. Together these companies generated revenue of
GBP1,700,000 during 2020 and made a profit contribution of
GBP300,000 to the Group's 2020 results.
The sale has four staged consideration payments totalling
GBP2,450,000, with the amount payable upon completion being
GBP1,250,000 million, with a further GBP500,000 six months after
completion, and a further GBP375,000 12 months after completion.
The final payment, which will be made based upon 2021 audited
revenue, will amount to GBP325,000 and will be subject an
adjustment of 1.5 multiple for any revenue deficit below
GBP1,567,000 million or surplus above GBP1,600,000. The payment for
net assets of approximately GBP570,000 will be made partly upon
completion, with the remainder being paid over as and when debtors
and work-in-progress are collected by the sale companies.
b) Disposal of Jersey based trust and company services
businesses
On 8 May 2021 the Group disposed of its Jersey based trust and
company services businesses. The sale companies are principally STM
Fiduciaire Limited, along with a number of non-revenue generating
support companies, including nominee companies. Together these
companies generated revenue of GBP1,480,000 during 2020 and made a
profit before tax contribution of GBP100,000 to the Group's 2020
results.
The sale has two staged consideration payments totalling
GBP1,860,000, with the amount payable upon completion being
GBP1,260,000, with the final payment of GBP600,000 being paid six
months after completion. In addition, the sale agreement allows for
a further consideration payment of 50% of any revenue surplus above
GBP1,150,000 of revenue that is categorised as recurring revenue.
This calculation will be based on the twelve months trading from
date of completion. In addition to the consideration receivable
from the buyer, certain net assets relating to debtors and
work-in-progress are ringfenced by the Sale Companies for the
benefit of the STM Group, and these will be paid as these assets
are converted to cash at bank. It is anticipated that this will
amount to GBP420,000 and will be principally received in the first
six months post completion.
c) Appeal judgment in Adams v Carey case
On the 1 April 2021 the Court of Appeal handed down their
judgment on the Adams v Carey (now renamed Options) case which had
been heard remotely by video-conferencing in early March 2021. Mr
Adams had appealed primarily two causes of action as follows:
1 that under the FCA's Conduct of Business Sourcebook rules
(COBS) 2.1.1, Carey had failed to act fairly, honestly and in
accordance with the best interests of its client; and
2 that, given the unregulated introducer 'advised' (for the
purposes of the Financial Services and Markets Act 2000 (Regulated
Activities) Order 2001 (RAO)) Mr Adams to purchase the investment,
transfer his pension and establish the SIPP, and the introducer
'arranged' (for the purposes of the RAO) the underlying investment,
without the necessary permissions and therefore in breach of the
general prohibition under s.19 of FSMA, that under section 27 of
the FSMA, Mr Adams' agreement with Carey should be unwound, and
Carey should provide relief to Mr Adams.
The judgment dismissed the first claim but upheld the second.
Permission to appeal this judgment has been filed with the Supreme
Court on 29 April 2021. At the time of signing the financial
statements the Supreme Court was yet to rule on this.
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