REG - STM Group PLC - Final Results
27/06/2023 07:15
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RNS Number : 9674D STM Group PLC 27 June 2023
Press Release 27 June 2023
STM Group plc
("STM", "the Company" or "the Group")
Final Results for the
12 months ended 31 December 2022
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 2022.
Financial Highlights:
2022 (reported) 2022 2021 (reported) 2021
(adjusted)**
(adjusted)**
Revenue £24.1m £24.6m £22.4m £21.6m
Profit before other items(*) £3.3m £4.7m £2.8m £2.9m
Margin 14% 19% 13% 13%
Earnings per share^ 1.42p N/A 2.94p N/A
Cash at bank (net of borrowings) £13.9m N/A £16.7m N/A
Final dividend 0.60p N/A 0.90p N/A
Total dividend 1.20p 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, bargain purchase gain,
goodwill impairment and gain on the call options
** Adjusted 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
^ The decrease in EPS was largely as a result of having a tax credit of £0.5
million in 2021 as compared to a tax charge of £0.7 million in 2022
Operational Highlights:
· Recurring revenues remain predictable and a corner stone of the
business representing 91% of reported revenues, building on the 2021 base
· All personal pension businesses (with the exclusion of the Mercer
acquisition) now on one administration system
· Launch of the Malta occupational pension on a straight through
processing technology
· Corporate pensions (auto-enrolment) effectively negates most of the
financial impact of the "small pots" legislation by negotiating share of
investment management fees
· Growth in the UK proposition as a key jurisdictional focus following
integration of UK acquisitions
· Centralisation of the business development function driving increased
"top line" growth - new Group Head of Business Development joined earlier in
the year
· Analysis of value chain identifies further opportunities to generate
revenue and profits, including interest sharing policy.
· Revitalised PLC board, as well as some changes at senior management
level
Commenting on the results and prospects for STM, Alan Kentish, Chief Executive
Officer, said:
"These results demonstrate the solid underlying performance of our business,
in a market which continues to evolve and present opportunities for an
independent such as STM.
"We are conscious that we have not yet realised our true potential, and are
working towards a revised strategy to maximising the opportunities and to
deliver shareholder value. Progress has been made in 2023 and we look
forward to updating the market at the earliest opportunity."
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 (http://www.stmgroupplc.com)
finnCap www.finncap.com (http://www.finncap.com)
Matt Goode / Emily Watts - Corporate Finance Tel: +44 (0) 20 7220 0500
Tim Redfern - ECM
Walbrook www.walbrookpr.com (http://www.walbrookpr.com)
Tom Cooper / Paul Vann Tel: +44 (0) 20 7933 8780
Mob: +44 (http://www.abchurch-group.com) (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 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
(http://www.stmgroupplc.com)
CHAIRMAN'S STATEMENT
I am pleased to present to you the STM Group Plc ("STM") results for the year
ended 31 December 2022.
Having taken over the chair in September 2022, this is my inaugural chairman's
statement for STM within the financial statements.
I am pleased to say that the reported and underlying 2022 revenue and profit
before tax are an improvement on the prior year, however, there continues to
be much to do in relation to delivering the true potential of STM. The Plc
board have proposed a final 2022 dividend of 0.60 pence (2021: 0.90 pence),
having taken into account the impact of some exceptional costs in the first
half year of 2023.
The recurring revenue base gives more predictability and certainty around
underlying profits and allows for a solid foundation in which to grow our
revenue streams, as well as allowing for us to significantly improve operating
margins. Frustratingly, there continues to be too many non-recurring costs
generally across the Group. However, these parameters in themselves indicate
and the Board believes that there is embedded shareholder value within the
group that is not reflected by the current market capitalisation of the
Company.
STM is at a cross-roads in its evolution, and whilst it is fortunate to have a
wide range of products and services it is important that we focus on those
areas that have the potential to deliver a step-change in profitability.
As part of this assessment of our next steps, the Group board initiated a
strategic review in the first quarter of 2023, with the aid of external
consultants. As announced in May 2023, the external advisor engagement is
complete, and the Board have assessed the conclusions from it and have begun
to refine the Group's strategy. In particular, the review has identified
areas of the business where we are likely to struggle to materially grow in
revenue and profitability, but also areas with the potential for future growth
following further investment. The Board is therefore considering whether we
crystallise some of that embedded shareholder value from those areas of the
businesses which may struggle to materially grow under the Group's ownership.
The strategic review demonstrates that some of our competitors are
significantly more profitable than ourselves in certain areas, and this in
turn has initiated the natural next step of our strategic review into our use
of technology and our current capabilities. There has been significant M&A
activity in the UK pensions sector driven by technology and trading platform
capabilities. The outcome of this technology review will inform our decisions
of the areas to focus on to drive the Group's future growth.
2023 will undoubtedly be a year of significant change for STM, as we look to
re-shape the Group and conclude on some material items around how we operate.
This will invariably lead to some further exceptional costs but having
implemented some positive changes, such as our interest sharing policy, it is
anticipated that we will achieve a solid 2023 performance when compared to
2022.
Finally, I would like to thank the various outgoing Plc directors for all
their hard work during their tenure, and I welcome Peter Smith to the board.
We are also in the process of recruiting Therese Neish's replacement as CFO,
and a further NED. I would like to thank Therese for once again joining the
board on an interim basis so as to see us through the year end process, and I
wish her every success for the future. In addition, my thanks go to all my STM
colleagues for their hard work and commitment during the course of 2022 and
into 2023.
I look forward to updating the market in due course.
Nigel Birrell
Chairman
26 June 2023
CHIEF EXECUTIVE OFFICER'S STATEMENT
Introduction
Whilst we have made progress with the underlying business performance as
compared to 2021, new business growth has not been at the speed or levels that
I would have wanted or expected.
Recurring revenue, representing 92% of our revenue, remained the cornerstone
of our profitability and continues to remain predictable and stable albeit
with additional efficiencies around existing systems being slower to
materialise than previously anticipated.
Our new business revenue for our pensions businesses, particularly in the UK
SIPP market, whilst steady was below our previous expectations, with reliance
being placed on a number of strategic partners that have not, as yet delivered
new business in line with those previous expectations. Our UK personal
pensions business saw organic growth of circa 9% in terms of new SIPP
policies, but this was offset by similar levels of attrition. This general
shortfall was somewhat compensated for by an uplift in new business in the
Gibraltar based life assurance businesses, and in particular in relation to
the short-term annuity product.
The acquisition of the SIPP and SSAS book from Mercer in September 2022 was
however particularly pleasing. The portfolios were acquired at sensible
multiples and add a solid and predictable revenue stream of circa £2.7
million for 2023 and beyond. The smooth transition from Mercer and integration
into STM was achieved prior to the year end.
Our UK workplace pensions business continued to see double digit growth, with
a 19% net uplift in terms of number of members. However, the change in
legislation around charging ability for members with "small pots" had a more
material impact than envisaged, reducing revenue generating capability by
£0.6m.
In our international pensions businesses, our QROPS book remains stable but
focus on growth has moved to alternative pension products. In this regard, I
am pleased to confirm that by the end of 2022 we had launched our Malta
international occupational scheme, which saw its first client commence in
January of this year.
We also continue to see increased activity from intermediaries in the form of
illustrations for our flexible annuity products issued from our Gibraltar life
companies, albeit the lead time to receiving applications remains
frustratingly slow.
Operationally, with the exception of the newly acquired Mercer business, we
now have moved all our personal pension businesses on to our in-house "BOSS"
administration system. This process has helped to align our thoughts as to the
areas in our technology stack that we now need to address. The exercise has
also helped us to appreciate that not all technology solutions need to be
produced in-house, and that some of the functionalities available through
third-party investment platforms would make our business more efficient.
During 2022, we have continued to look at ways to centralise more of the
Group's business functions, so as to obtain additional efficiencies.
During 2022 and into 2023, there has been significant changes to the senior
leadership team as well as the Plc board. These changes have included a new
managing director for both the Malta and Gibraltar businesses, the redundancy
of our dedicated acquisition resource, and the appointment of a new head of
business development.
In addition, there has been a change of Chairman and of the independent
non-executive directors at Plc level.
I would like to thank all of the above individuals for their contributions to
STM over the years.
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 reported revenues of £24.1 million (2021: £22.4 million) in the
year with profit before other items and tax of £3.3 million (2021: £2.8
million). This £1.7m increase in revenue was largely due to the acquisition
of the Mercer books which contributed £0.8 million of revenue in the year,
and revenue growth in the life companies of £1.5 million. The sale of the
corporate trustee service companies in 2021, which contributed £0.8 million
of revenue that year, account for the balance in this movement. Pleasingly,
recurring annual revenue, which is an important key performance indicator for
the Board, has continued to be a significant portion (92%) of the total
revenues achieved.
The Group shows both reported and adjusted financial key performance
indicators in Table 1 and 2 below as historically the impact of non-recurring
movements have not allowed for a clear understanding of operating performance.
Reported profit before tax ("PBT") for the year amounted to £1.6 million
(2021: £1.2 million) with adjusted PBT (defined on a consistent basis with
adjusted revenue and profit before other items) for the year of £2.8 million
(2021: £1.2 million).
The reported PBT is calculated after deducting net finance costs of £0.3
million (2021: £0.3 million), depreciation and amortisation of £1.6 million
(2021: £1.5 million) and the bargain purchase gain on the acquisition of
£0.3m (2021: £0.4m).
Reported profit after tax ("PAT") is £0.9 million (2021: £1.7 million). The
decrease compared to the prior year is largely due to a change in tax
treatment in Malta in 2021 which resulted in a one-off £1.0 million tax
rebate being recognised in that year.
Table 1
KPI Definition 2022 2021 2022 2021
(reported) (reported) (adjusted) (adjusted)
Revenue (£'000s) Income derived from the provision of services. 24,094 22,355 24,599 21,581
Recurring revenue (£'000s) Revenue derived from annual management charges and/or contractual fixed fee 22,219 20,427 22,219 20,427
agreements.
Profit before other items (£'000s) Revenue less administrative expenses i.e. profit before finance income and 3,321 2,823 4,686 2,948
costs, gain on disposal of subsidiary bargain purchase gain, goodwill
impairment and gain on the call options and before taxation.
Profit before taxation (£'000s) Revenue less administrative expenses and other items 1,578 1,200 2,778 1,168
Profit after taxation (£'000s) Revenue less administrative expenses and other items less/add taxation 854 1,742 2,054 1,710
charge/credit
Earnings per share (pence) Profit after taxation attributable to shareholder of the Company divided by 1.42 2.94 3.44 2.89
weighted average number of ordinary shares outstanding
Profit margin before other items (%) Profit before other items divided by revenue. 14% 13% 19% 14%
Adjusted measures are net of non-recurring costs and other exceptional items
that do not form part of the normal course of business.
Table 2
Revenue Profit before Profit before tax
other items
2022 2021 2022 2021 2022 2021
£'000s £'000s £'000s £'000s £'000s £'000s
Reported measure 24,094 22,355 3,321 2,823 1,578 1,200
Add: adjustment due to revenue recognition policy change on acquisition 505 - 505 - 505 -
Add: integration and acquisition cost - - 390 - 390 -
Less: effect of corporate trustee service companies disposal - (774) - (54) - (54)
Less: bargain purchase gain on acquisition and gain on call options - - - - (327) (406)
Less: loss/(gain) on disposal of companies and trust management - - - - 162 (219)
Less: movement in deferred consideration related to prior year acquisitions - - - - - (330)
Add: impairment of goodwill - - - - - 798
Add: other non-recurring costs - - 470 179 470 179
Adjusted measure 24,599 21,581 4,686 2,948 2,778 1,168
Tax Charge and Earnings per Share
The tax charge for the year was £0.7 million (2021: credit of £0.5 million).
This is an effective tax rate of 46% which is higher than the rates noted in
prior years, with the exception of 2021 which is considered an anomaly given
the Malta tax rebate as noted above. This increased effective tax rate, which
is also higher than the standard rates applicable across the various
jurisdictions, is partly caused by some jurisdictions having tax losses
brought forward or incurred in the current year but unrelieved which cannot be
utilised by the profitable subsidiaries in other jurisdictions, as well as
higher tax charge due to higher dividends remitted to the holding company by
overseas subsidiaries.
Earnings per share ("EPS") for 2022 was 1.42p compared to 2.94p for 2021. The
decrease was largely as a result of having a tax charge of £0.7 million for
this year as compared to a tax credit of £0.5 million in 2021. The 2021 EPS
net of the Malta tax rebate of £1.0 million would have been 1.15p. There was
no dilutive factor in 2022 or 2021.
Cashflows and Balance Sheet
Cash and cash equivalents amounted to £19.2 million as at 31 December 2022
(2021: £18.2 million) with net cash inflow from operating activities of £3.8
million for the year ended 31 December 2022 (2021: £nil movement).
During 2020 the Company signed a credit facility with Royal Bank of Scotland
(International) Ltd for £5.5 million which was fully drawn down during the
year ended 31 December 2022 for the purposes of the Mercer portfolio
acquisition. 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 year term. As at the year end the outstanding balance
on the facility was £5.4 million (2021: £1.5 million).
Cash and cash equivalents, net of the above mentioned outstanding bank loan of
£5.4 million, as at 31 December 2022 were £13.9 million (2021: £16.7
million).
As would be expected for a Group regulated in several jurisdictions, a
significant proportion of this gross cash balance is required to underpin the
regulatory capital and solvency requirements. The cash and cash equivalents
required for solvency purposes varies as other, non-cash assets can be used to
support the regulatory solvency requirement. The total regulatory capital
requirement across the Group as at 31 December 2022 was £17.3 million
(2021: £16.9 million).
As further disclosed in the notes to the financial statements, the Carey
(Options) v Adams case came to a conclusion and was settled during the course
of the year. Whilst the right to appeal the Court of Appeal's decision of 1
April 2021 to the Supreme Court was rejected, the Group has received agreement
for a judicial review on the Financial Ombudsmen Service's decision on the
basis that it impacts on a large number of claims and raises issues of general
importance. Given the potential new developments which could arise from this
judicial review, and the increasing uncertainty surrounding the potential
liability of other claims, the Group considers that it is not practical to
estimate the potential impact on likelihood, quantum, or timing of these. As
such the provision has been reclassified as a contingent liability, along with
the corresponding receivables due from insurers, and both have been
derecognised as at 31 December 2022. The revised treatment had no impact on
the consolidated net assets of the Group as previously reported.
The Call Option Agreements entered into in 2019 as part of the acquisition of
Carey Administration Holdings Limited were exercisable in 2022. It is the
Company's policy to only hold wholly-owned subsidiaries and accordingly these
Call Options were exercised during the year. As at the year end, the Options
Corporate Pensions UK Limited acquisition was completed and the balance sheet
no longer reflects this 20% non-controlling interest. The Options Personal
Pensions UK LLP acquisition was completed shortly after the year end. The
Group's year-end balance sheet therefore reflected this remaining 30%
non-controlling interest as well as a £0.4 million liability to settle the
Option and acquire the remaining interest in this business.
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
£0.9 million as at the year-end (2021: £1.3 million). Additionally, deferred
income (included within current liabilities in the statement of financial
position) relating to annual fees invoiced but not yet earned stood at £3.8
million (2021: £3.6 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.
Dividend
The Board is proposing a final dividend of 0.60p per ordinary share (2021:
0.90p) which recognises that there are a number of material operational and
strategic matters that are yet to be concluded upon. This makes the total
proposed dividend of 1.20p per ordinary share (2021: 1.50p).
Subject to approval at the Company's Annual General Meeting to be held on 22
August 2023, the final dividend will be paid on 19 September 2023 to
shareholders on the register at the close of business on 1 September 2023. The
ordinary shares will be marked ex dividend on 31 August 2023.
Operational Performance
Pensions
Our pension administration businesses continue to be the largest revenue
stream for the Group accounting for 77% of total Group revenues (2021: 79%).
Total revenue across our pension businesses amounted to £18.5 million (2021:
£17.6 million). As mentioned above, the Mercer acquisition contributed £0.8
million of this uplift, with the organic growth in the year compensating for
natural attrition. In addition, recurring revenues for the pension businesses
increased to 95% of total revenues (2021: 81%).
The administration of our QROPS products continues to be our largest revenue
generator accounting for £9.4 million of revenue (2021: £9.7 million). As
has been known for several years, this product is no longer a growth driver as
a result of changes in the UK pension legislation in 2017. Whilst we continue
to receive a small number of new members in Malta from EEA countries the
attrition rate is modestly increasing as we see our member profile age and
take advantage of flexi-access benefits. The administration is carried out in
Malta and Gibraltar with the revenue split at 77% and 23% respectively (2021:
75% and 25% respectively). The change in split is largely as a result of
higher attrition seen in Gibraltar compared to Malta which is as expected
given that any growth in this product line is in Malta.
The SIPP businesses, both Options Personal Pensions and London & Colonial
Services Limited, have contributed total revenues of £4.1 million (2021:
£3.2 million), with the acquisition accounting for £0.7 million of this
increase and the balance coming through from net organic growth.
The pension auto-enrolment business has generated revenue of £3.4 million
(2021: £3.3 million).
The final revenue stream of the pensions divisions comes from the SSAS and
third-party administration businesses. These contributed revenues of £1.6
million (2021: £1.5 million) in the year.
Life Assurance
The 2022 combined revenue figure for both life assurance companies was £5.0
million compared to £3.4 million for 2021. The reason for this significant
increase is two-fold, an organic growth of £0.7 million on existing products
and £0.8 million of revenue generated from the recently launched short-term
annuity product.
Whilst there is a healthy pipeline of potential new business for these
short-term annuities, which are highly profitable, they do have a long lead
time. Consequently, judging the timing of receipt of such items for budgeting
and forecasting purposes is not straightforward.
As previously advised our flexible annuity products are aimed at the UK
markets and remain the key focus for organic growth within our life
businesses.
Outlook
The latter part of 2022 and into 2023 has seen significant change in the
make-up of our senior leadership team as we embark on the next phase of our
change programme.
The focus for 2023 is to build our pipeline for new business revenues, both
internationally and for the UK market. A key driver for success in this area
is to ensure our technology is a business enabler, that compliments the hard
work of our staff. As part of supporting this process, we have contracted a
Head of Transformation who will oversee our IT function as well as our change
programme.
The UK pensions market remains buoyant and there is significant consolidation
activity in the sector, as PE-backed investment platforms seek to build AUM on
their platforms. The result is a shrinking pool of independent pension
providers such as STM. In addition, the Consumer Duty regime, introduced by
the FCA in the UK and which comes into force on 31(st) July 2023, has also
seen a levelling of the playing field with interest sharing policies becoming
more normalised, again this typically favours the independent pension
provider.
Under Nigel Birrell, the recently appointed charman of the board, we have
started the process of reviewing and challenging our strategy for the next
three to five years. This process, when completed, will enable the Group to
focus its resources on developing businesses where the maximum growth
opportunities exist and to deliver enhanced shareholder value. Progress has
been made in 2023 and I look forward to updating the market in due course.
Following on from the above, and as a continuing theme of our ongoing
strategic review it is recognised that the Board needs to demonstrate the
ability for a tangible step change in operational efficiencies that will allow
a higher proportion of the Group's 90% plus recurring revenues to be retained
as profits by the Group. A key part of that is to work with technology, be it
internal or external, that takes away the majority of the processes that are
currently performed manually. This technology review work stream has
commenced, and the changes implemented following its conclusion will create
the building blocks for a more profitable Group, not just from an efficiency
point of view but also from a customer and intermediary journey.
Our technology review has identified opportunities to benefit more from the
value chain through our customer's journey, with regards to changing some of
our policies and offerings. A good example would be the recently announced
change to our interest sharing policy, to fall more in line with the rest of
the UK pension market.
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.
I look forward to presenting our finalised strategy in the near future.
Alan Kentish
Chief Executive Officer
26 June 2023
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2022
Notes Year ended Year ended
31 December 2022 31 December 2021
£000 £000
Revenue 7 24,094 22,355
Administrative expenses 8 (20,773) (19,532)
Profit before other items 9 3,321 2,823
OTHER ITEMS
Bargain purchase gain 4 327 -
Gains on revaluation of financial instruments 11 406
(Loss)/gain on disposals of subsidiaries 3 (162) 219
Movement on deferred consideration - 330
Impairment of goodwill 12 - (798)
Finance costs (322) (330)
Depreciation and amortisation 11,12 (1,597) (1,450)
Profit before taxation 1,578 1,200
Taxation 10 (724) 542
Profit after taxation 854 1,742
OTHER COMPREHENSIVE INCOME
Items that are or may be reclassified to profit or loss
Foreign currency translation differences for foreign operations 12 (33)
Total other comprehensive income/(loss) 12 (33)
Total comprehensive income for the year 866 1,709
Profit/(loss) attributable to:
Owners of the Company 844 1,749
Non-controlling Interests 10 (7)
854 1,742
Total comprehensive income/(loss) attributable to:
Owners of the Company 856 1,716
Non-controlling Interests 10 (7)
866 1,709
Earnings per share basic (pence) 16 1.42 2.94
Earnings per share diluted (pence) 16 1.42 2.94
The results for 2022 and 2021 related to continuing activities. Disposed of
activities in 2021 are disclosed in Note 3.
The notes form an integral part of these financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
Notes 31 December 2022 31 December 2021
£000 £000
ASSETS
Non-current assets
Property and office equipment 11 1,161 1,663
Intangible assets 12 22,125 19,355
Financial assets 1,762 881
Deferred tax asset 10 58 76
Total non-current assets 25,106 21,975
Current assets
Accrued income 860 1,311
Trade and other receivables 13 8,461 7,699
Receivables due from insurers 19 488 24,130
Cash and cash equivalents 14 19,234 18,207
Total current assets 29,043 51,347
Total assets 54,149 73,322
EQUITY
Called up share capital 15 59 59
Share premium account 15 22,372 22,372
Retained earnings 14,382 14,429
Other reserves (1,843) (480)
Equity attributable to owners of the Company 34,970 36,380
Non-controlling interests (68) (452)
Total equity 34,902 35,928
LIABILITIES
Current liabilities
Liabilities for current tax 788 640
Trade and other payables 17 12,517 10,532
Provisions 19 488 24,130
Total current liabilities 13,793 35,302
Non-current liabilities
Other payables 18 5,050 1,628
Deferred tax liabilities 10 404 464
Total non-current liabilities 5,454 2,092
Total liabilities and equity 54,149 73,322
STATEMENT OF CONSOLIDATED CASH FLOW
FOR THE YEAR FROM 1 JANUARY 2022 TO 31 DECEMBER 2022
Notes
Year ended Year ended
31 December 31 December
2022 2021
£000 £000
OPERATING ACTIVITIES
Profit for the year before tax 1,578 1,200
ADJUSTMENTS FOR:
Depreciation of property and office equipment 11 673 659
Amortisation of intangible assets 12 924 791
Loss on disposal of property and office equipment 4 -
Unrealised gains on financial instruments (11) (406)
Bargain purchase gain 4 (327) -
Impairment of goodwill 12 - 798
Taxation paid (619) (14)
Increase in trade and other receivables (1,396) (2,226)
Decrease/(increase) in receivables due from insurers 19 23,642 (20,530)
Decrease in accrued income 558 8
Increase/(decrease) in trade and other payables 2,428 (815)
(Decrease)/increase in provisions 19 (23,642) 20,530
Net cash generated from/(absorbed by) operating activities 3,812 (5)
INVESTING ACTIVITIES
Purchase of property and office equipment 11 (165) (352)
Increase in intangible assets 12 (937) (1,032)
Disposal of investments 1,477 4,821
Purchase of financial instruments (1,734) -
Acquisition of non-controlling interests 5 (120) -
Consideration paid on acquisition of portfolio 4 (3,454) -
Net cash (absorbed by)/generated from investing activities (4,933) 3,437
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loan 17,18 4,463 900
Repayments of bank loan 17,18 (550) (1,050)
Interest paid on bank loan(*) (162) (121)
Lease liabilities paid (724) (469)
Dividends paid 15 (891) (861)
Net cash generated from/(absorbed by) financing activities 2,136 (1,601)
Increase in cash and cash equivalents 1,015 1,831
Effect of movements in exchange rates on cash and cash equivalents 12 (33)
Cash and cash equivalents at the beginning of the year 18,207 16,409
Cash and cash equivalents at the end of the year 14 19,234 18,207
*The interest paid on bank loan is presented separately this year to enhance
understanding. The comparatives have been adjusted to conform with the current
year presentation.
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY
FOR THE YEAR FROM 1 JANUARY 2022 TO 31 DECEMBER 2022
Share Share Retained Treasury Foreign currency translation Share Total Non-controlling Interests Total Equity
capital premium earnings shares reserve based £000 £000 £000
£000 £000 £000 £000 £000 payments
reserve Other
£000 reserve
£000
Balance at 1 January 2021 59 22,372 13,541 (549) (60) 162 - 35,525 (445) 35,080
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Profit/(loss) for the year - - 1,749 - - - - 1,749 (7) 1,742
Other comprehensive income
Foreign currency translation differences - - - - (33) - - (33) - (33)
Transactions with owners, recorded directly in equity
Dividends paid - - (861) - - - - (861) - (861)
At 31 December 2021 and 1 January 2022 59 22,372 14,429 (549) (93) 162 - 36,380 (452) 35,928
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Profit for the year - - 844 - - - - 844 10 854
Other comprehensive income
Foreign currency translation differences - - - - 12 - - 12 - 12
Transactions with owners, recorded directly in equity
Acquisition of non-controlling interests - - - - - - (1,375) (1,375) 374 (1,001)
Dividends paid - - (891) - - - - (891) - (891)
At 31 December 2022 59 22,372 14,382 (549) (81) 162 (1,375) 34,970 (68) 34,902
STM Group plc
Notes to the consolidated financial statements for 2022
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 1(st) Floor Viking
House, St Paul's Square, Ramsey, Isle of Man, IM8 1GB. The consolidated
financial statements of the Group as at, and for the year ended, 31 December
2022 comprise the Company and its subsidiaries (together referred to as the
"Group" and individually as "Group entities"). 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 2022, 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 statement 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 2022.
3. Disposal of subsidiaries
There were no results for disposal of operations included in the year ended
31 December 2022.
On 23 March 2021 the Group disposed of its Gibraltar company and trustee
services ("CTS") and tax compliance business, STM Fidecs Management Limited.
On 8 May 2021 the Group disposed of its Jersey based CTS business, STM
Fiduciaire Limited. These businesses were classified as discontinued
operations during the year ended 31 December 2021.
The results for the discontinued operation included in the year ended 31
December 2021 were shown below.
£'000
Revenue 774
Expenditure (736)
Results from operating activities 38
Income tax -
Results from operating activities, net of tax 38
Gain on sale of discontinued operation 219
Profit from disposal of subsidiaries 257
The profit from the discontinued operation was attributable entirely to the
owners of the Company.
Both disposals were subject to a deferred variable consideration based upon
the 2021 audited revenue generated by the companies. The final consideration
received during the year was lower than originally expected and as such a loss
of £162,000 was recognised for the year ended 31 December 2022.
4. Acquisition of portfolios
There were no acquisitions in 2021.
On 31 August 2022, the Group acquired the portfolios, net assets and trustee
companies of the SIPP and SSAS businesses from Mercer Ltd ("the Portfolio").
The acquisition of the Portfolios is complementary to the Group's existing
product offerings in the UK SIPP and SSAS markets and provides a solid
platform for scalability, particularly for the Group's SSAS operations, and
efficiencies going forward. In addition, it provides the Group with access
to an expanded network of intermediaries who have previously introduced
clients to Mercer Ltd.
The Group paid a gross cash consideration of £3,340,000 to acquire the
Portfolios. Such consideration included the purchase of the net assets of the
business which primarily related to fees yet to be collected from clients.
The acquisition was accounted for using the acquisition method. Transaction
costs incurred on the acquisition total £150,000 and were expensed within
administrative expenses in the consolidated statement of comprehensive income
for the year ended 31 December 2022.
Details of the fair value of the client portfolio, assets and liabilities
acquired are set out as follows:
Fair value recognised on acquisition Fair value adjustments Previous carrying value
£'000 £'000 £'000
Client portfolios 2,757 2,757 -
Fixed assets 10 - 10
Accrued income 107 - 107
Debtors((1)) 831 - 831
Prepaid assets 28 - 28
Liabilities (66) - (66)
Total identifiable net assets acquired 3,667 2,757 910
Note 1: The fair value of debtors is approximately the gross contractual
amount at the acquisition date.
At acquisition the Group performed a valuation on the client portfolios
acquired using the market approach. As a result, client portfolio assets of
£1,543,000 relating to the SIPP portfolio and £1,214,000 related to the SASS
portfolio were recognised.
A bargain purchase gain has arisen as a result of negotiations due to the
previous revenue recognition policy being more aggressive and an adjustment
being necessary to align with the Group's more conservative policy. This has
resulted in the fair value of the identifiable net assets being higher than
the cash consideration paid as noted below:
£'000
Total consideration transferred 3,340
Fair value of identifiable net assets (3,667)
Bargain purchase gain (327)
The bargain purchase gain is attributable to the Portfolio acquired and is
recognised in the consolidated statement of comprehensive income for the year
ended 31 December 2022.
From the effective date of acquisition to 31(st) December 2022, the SIPP and
SASS portfolios generated revenue of £821,000 and incurred a loss of
£145,000. If the acquisition had occurred on 1 January 2022, management
estimates that the impact on the consolidated revenue and profit before tax
for the year would have been £2,243,000 and a loss of £99,000 respectively.
In addition, the Group paid deferred cash consideration of £114,000 during
the year ended 31 December 2022 relating to the acquisition of the Berkeley
Burke companies completed in 2020.
5. Acquisition of non-controlling interests
As part of the acquisition of Carey Administration Holdings Limited
("Options") in 2019, the Group entered into call option agreements to acquire
the non‑controlling interests ("NCIs") in Options Corporate Pensions UK
Limited ("OCPUK") and Options Pensions UK LLP ("OSUK") from the current owner
of the NCIs. The call options were exercisable in 2022 with the exercise
prices based on the audited financial statements of these entities for the
year ended 31 December 2021.
The fair value of the call options was determined using discounted cashflow
techniques as no observable market transactions were available and was subject
to revaluation as at each reporting date. As at 31 December 2021 these call
options were valued at £881,000.
On 9 November 2022, the Group issued the Exercise Notices to the current owner
of the NCIs for acquiring the additional interests in OCPUK and OSUK.
Options Corporate Pensions UK Limited
On 30 November 2022, the Group completed the transaction and acquired an
additional 20% interest in OCPUK, increasing its ownership from 80% to 100%.
The carrying amount of OCPUK's net liabilities in the Group's consolidated
financial statement on the date of acquisition was £1,870,000.
£'000
Carrying amount of NCIs acquired (£1,870,000 x 20%) 374
Exercise of OCPUK's call option 881
Cash consideration paid to NCIs 120
A decrease in equity attributable to owners of the Company 1,375
The decrease in equity attributable to owners of the Company has been
recognised in the other reserve for the year ended 31 December 2022.
Options Pensions UK LLP
As at 31 December 2022 the acquisition of NCIs in OSUK was subject to
negotiation of the final exercise price and was therefore yet to complete. As
such the Group's ownership of OSUK remained unchanged as at 31 December 2022.
Negotiations were completed on 12 January 2023 (see Note 20) and a payable
amounting to £400,000 has been recognised by the Group representing its
obligation to pay the current owner of the NCIs with a receivable for the same
amount recognised to represent the Group's right to receive OSUK's shares from
the current owner of the NCIs.
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").
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 believes
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 2022 2021
£000 £000
Pensions 18,421 17,597
Life Assurance 5,001 3,402
Corporate Trustee Services - 774
Other Services 672 582
Total 24,094 22,355
Analysis of the Group's turnover information by geographical location is
detailed below:
Turnover
Geographical segment 2022 2021
£000 £000
Gibraltar 7,324 6,099
Malta 7,178 7,288
United Kingdom 9,110 7,952
Jersey - 445
Other 482 571
Total 24,094 22,355
Revenue generated from the Corporate Trustee Services companies which were
disposed of in 2021 (Note 3) is included in the above comparative figures. The
Gibraltar and Jersey companies contributed revenue of £329,000 and £445,000
respectively in 2021.
7. Revenue
31 December 2022 31 December 2021
£000 £000
Revenue from administration of assets 24,094 22,355
Total revenue 24,094 22,355
8. Administrative expenses
Included within administrative expenses are personnel costs as follows:
31 December 2022 31 December 2021
£000 £000
Wages and salaries 11,633 10,932
Social insurance costs 484 463
Pension contributions 104 128
Total personnel expenses 12,221 11,523
Average number of employees
Group 31 December 2022 31 December 2021
Number Number
Average number of people employed 285 286
(including executive directors)
9. Reconciliation of reported to adjusted measures
Revenue Profit before other items Profit before tax
2022 2021 2022 2021 2022 2021
£000 £000 £000 £000 £000 £000
Reported measure 24,094 22,355 3,321 2,823 1,578 1,200
Add: adjustment due to revenue recognition policy change on acquisition 505 - 505 - 505 -
Add: integration and acquisition cost - - 390 - 390 -
Less: effect of corporate trustee service companies disposal - (774) - (54) - (54)
Less: bargain purchase gain on acquisition and gain on call options - - - - (327) (406)
Less: loss/(gain) on disposal of companies and trust management - - - - 162 (219)
Less: movement in deferred consideration related to prior year acquisitions - - - - - (330)
Add: goodwill impairment - - - - - 798
Add: other non-recurring costs - - 470 179 470 179
Adjusted measure 24,599 21,581 4,686 2,948 2,778 1,168
Adjusted measures are net of non-recurring costs and other exceptional items
including bargain purchase gain that do not form part of the normal course of
business.
10. Taxation
31 December 2022 31 December 2021
£000 £000
Current tax expense/(benefit) 766 (502)
Release of deferred tax assets on leases as per IFRS 16 18 19
Release of deferred tax liabilities on intangible assets (60) (59)
Total tax expense/(benefit) 724 (542)
Reconciliation of existing tax rate 2022 31 December 2021 31 December
% 2022 % 2021
£000 £000
Profit before tax for the year - 1,578 - 1,200
Income tax using the Company's domestic rate 0.00% - 0.00% -
Effect of tax rates in other jurisdictions 48.54% 766 (41.81%) (502)
Release of deferred tax assets on leases as per IFRS 16 1.14% 18 1.59% 19
Release of deferred tax liabilities on intangible assets (3.80%) (60) (4.94%) (59)
Total tax expense/(benefit) - 724 - (542)
Effective tax rate (%) - 45.88% - (45.17%)
The effective tax rate for Gibraltar has increased to 12.5% from 1 August 2021
and the effective tax rate in the UK will increase to 25% from 1 April 2023.
The effective tax rate in Malta is 5%. The Group effective tax rate is higher
than the jurisdictional effective tax rate because tax losses brought forward
or incurred in the current year in some jurisdictions cannot be utilised by
the profitable subsidiaries in other jurisdictions and dividends remitted to
the holding company by overseas jurisdictions were higher during this year
than in prior year thus resulting in a higher tax charge on these.
Prior to 2020 tax was paid based on a corporate tax rate of 35% and then
reclaimed with the receipt of the rebate being accounted for when received.
From 2021, following a change in legislation, the Malta entities formed a
fiscal unit which alleviated the need for this reclaim process. As a result, a
one-off tax credit of £1,056,440 was recognised in 2021.
11. Property and office equipment
Group Note Motor Office Leasehold Right-of-use Total
Vehicles Equipment Improvements Assets £000
£000 £000 £000 £000
Costs
At 1 January 2021 15 1,759 477 5,403 7,654
Additions - 157 13 265 435
Disposals - - - (83) (83)
At 31 December 2021 and 1 January 2022 15 1,916 490 5,585 8,006
Additions - 163 2 - 165
Acquired through business combination 4 - 10 - - 10
Disposals - (6) - - (6)
At 31 December 2022 15 2,083 492 5,585 8,175
Depreciation
At 1 January 2021 11 1,193 360 4,120 5,684
Charge for the year 1 153 20 485 659
At 31 December 2021 and 1 January 2022 12 1,346 380 4,605 6,343
Charge for the year 1 165 20 487 673
Disposals - (2) - - (2)
At 31 December 2022 13 1,509 400 5,092 7,014
Net Book Value
At 31 December 2021 3 570 110 980 1,663
At 31 December 2022 2 574 92 493 1,161
12. Intangible assets
Group Note Goodwill Client Portfolio Product IT Total
£000 £000 Development Development £000
£000 £000
Costs
At 1 January 2021 14,109 5,742 623 1,288 21,762
Additions - - 78 954 1,032
At 31 December 2021 and 1 January 2022 14,109 5,742 701 2,242 22,794
Additions - - 30 907 937
Acquired through business combination 4 - 2,757 - - 2,757
At 31 December 2022 14,109 8,499 731 3,149 26,488
Amortisation and impairment
At 1 January 2021 26 1,143 447 234 1,850
Charge/(adjustment) for the year - 574 (2) 219 791
Impairment 798 - - - 798
At 31 December 2021 and 1 January 2022 824 1,717 445 453 3,439
Charge for the year - 574 30 320 924
At 31 December 2022 824 2,291 475 773 4,363
Carrying amounts
At 31 December 2021 13,285 4,025 256 1,789 19,355
At 31 December 2022 13,285 6,208 256 2,376 22,125
Impairment testing for cash-generating units containing goodwill
All goodwill relates to the acquisitions made and reflects the difference
between the fair value of the identifiable net asset value of those
acquisitions and the fair value of the consideration paid for those
acquisitions.
Goodwill represents the excess of the cost of the acquisition, the amount of
any non-controlling interests in the acquiree and the fair value of the
acquirer's previously held equity interest in the acquiree (if any) over the
group's interest in the net fair value of the identifiable assets and
liabilities of the acquire. Goodwill is not amortised but is measured at cost
less accumulated impairment losses. Additionally, on disposal of a
cash-generating unit ("CGU"), the attributable amount of goodwill is included
in the determination of the profit or loss on disposal.
Goodwill is allocated to the smallest identifiable group of assets that
generate largely independent inflows. Management have assessed the number of
CGUs and determined that there are five identifiable CGUs, which are also
operating and reportable segments. CGUs are determined based on whether the
entity is a separate and distinct entity and/or whether that entity is
management as a standalone business unit.
The carrying amount of goodwill allocated to each of the CGUs is as follows:
2022 2021
£000 £000
STM Life 1,256 1,256
LCA 7,735 7,735
FLHP 3,698 3,698
Options - Berkeley Burke acquisition 596 596
Spain - -
Total 13,285 13,285
The Group tests goodwill annually for impairment or more frequently if there
is an indication that a CGU or group of CGUs may be impaired. The annual
impairment assessment is made by comparing the carrying amount of the CGU or
group of CGUs to which goodwill has been allocated with the recoverable amount
of the CGU or group of CGUs.
In addition, the Group considers the relationship between its market
capitalisation and its book value, among other factors, when reviewing for
indicators of impairment. At 31 December 2022 and 31 December 2021, the
market capitalisation of the Group was above the book value of its recorded
goodwill.
The recoverable amount of each CGU or group of CGUs as at 31 December 2022 has
been determined based on a value in use calculation using cash flow
projections from three-years financial budgets approved by the Board. The
subsequent two years cashflows have been calculated based on the following
assumptions thereby providing a five-year net cashflows:
2022 2021
Percentage ranged from: % %
Revenue growth rates and attrition -1.5% - 4% 0% - 2%
Expense increases and inflation rates -3% - 4% 2% - 3%
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 14% (2021:
13%) has been used in discounting the projected cashflows. It was concluded
that the fair value less costs of disposal did not exceed the value in use.
As a result of this analysis, £nil impairment charge has been recognised for
the year ended 31 December 2022. For the year ended 31 December 2021,
management recognised impairments charges of £500,000, £250,000 and £48,000
against the goodwill allocated to the STM Life, Options - Berkeley Burke
acquisition and Spain respectively and were recorded within the consolidated
statement of comprehensive income.
Key assumptions used in value in use calculations and sensitivity to changes
in assumptions
The calculation of the value in use for the CGUs is most sensitive to the
following assumptions:
· Revenue growth rates and attrition
· Expense increases and inflation rates
· Discount rates
Revenue growth rates and attrition - a decline revenue growth rates and/or an
increase in attrition rates would result in further impairment. A 1% reduction
in revenue growth rates would result in a potential impairment charge of
approximately £185,000 (2021: £360,000).
Expense increases and inflation rates - management has considered the
possibility of increased inflation resulting in higher than anticipated costs
and an increase in expenses growth rates would result in potential impairment.
A 1% increase in the expense growth rates would result in a potential
impairment charge of approximately £nil (2021: £515,000).
Discount rates - discount rates represent the current market assessment of the
risks specific to each CGU, taking into consideration the time value of money
and individual risks of the underlying assets that have not been incorporated
in the cash flow estimates. The discount rate calculation is based on the
specific circumstances of the Group and its operating segments and is derived
from its weighted average cost of capital ("WACC"). The WACC considers both
debt and equity. The cost of equity is derived from the expected return on
investment by the Group's investors. The cost of debt is based on the
interest-bearing borrowings the Group is obliged to service. Segment-specific
risk is incorporated by applying individual beta factors. The beta factors are
evaluated annually based on publicly available market data. Adjustments to the
discount rate is made to factor in the specific amount and timing of the
future tax flows in order to reflect a pre-tax discount rate. A 1% increase in
the WACC would result in a potential impairment charge of approximately
£229,000 (2021: £300,000).
Client portfolio
Client portfolio assets acquired in a business combination are recognised
separately from goodwill and are recognised initially at fair value at the
acquisition date and subsequently assessed annually for impairment. The
Group's client portfolios are amortised over the useful lives which have been
determined to be ten years. Client portfolios acquired through acquisitions
are as follows:
31 December 31 December
2022 2021
Acquisition date £000 £000
London & Colonial Services Ltd October 2016 383 483
STM Nummos Life SL January 2018* 215 257
Harbour Pensions Ltd February 2018 545 637
Options Corporate Pensions UK Limited February 2019 735 499
Options UK Personal Pensions LLP February 2019 429 855
Options SSAS Limited August 2020 229 259
Options EBC Limited August 2020 915 1,035
SIPP portfolio acquired from Mercer Ltd August 2022 1,543 -
SASS portfolio acquired from Mercer Ltd August 2022 1,214 -
Total 6,208 4,025
*The client portfolio of STM Nummos Life SL was reclassified from Goodwill in
January 2018.
13. Trade and other receivables
Group 31 December 31 December
2022 2021
£000 £000
Trade receivables 4,266 3,921
Prepayments 999 508
Other receivables 3,196 3,270
Total 8,461 7,699
Amounts due from related parties comprise intercompany balances which are
unsecured, interest free and repayable on demand.
14. Cash and cash equivalents
Group 31 December 2022 31 December 2021
£000 £000
Bank balances 19,234 18,207
The Group has a secured bank loan liability of £5,363,000 (2021: £1,450,000)
which is included in Notes 17 and 18.
Within cash and cash equivalents held by the Group there was a balance of
£2,903,000 (2021: £2,847,000) which is not available for use by the Group.
This mainly represented the blocked account that forms part of Options
Corporate's regulatory requirement and the funds collected on behalf of
clients but yet to be paid across to the respective clients or relevant
authority bodies.
15. Capital and reserves
Authorised, called up, issued and fully paid 31 December 2022 31 December 2021
£000 £000
59,408,088 ordinary shares of £0.001 each 59 59
(2021: 59,408,088 ordinary shares of £0.001 each)
Ordinary Shares
Ordinary shares carry full voting rights; full dividend rights; full rights as
respects capital, to participate in a distribution (including on winding up);
no redemption rights.
Employee Benefit Trust
The trustees of the Employee Benefit Trust held 1,089,780 shares at 31
December 2022 and 31 December 2021. The shares held may be used to satisfy
awards made to employees and/or senior executives, such as conditional share
awards granted under a long-term incentive plan.
Share premium
There were no new shares issued during the years ended 31 December 2022 and 31
December 2021.
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 2022 31 December 2021
£000 £000
1.50p pence per qualifying ordinary share (2021: 1.45 pence) 891 861
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 2022 31 December 2021
£000 £000
0.60 pence per qualifying ordinary share (2021: 0.90 pence) 356 535
16. Earnings per share
Earnings per share for the year from 1 January 2022 to 31 December 2022 is
based on the profit attributable to owners of £844,000 (2021: £1,749,000)
divided by the weighted average number of £0.001 ordinary shares outstanding
during the year of 59,408,088 basic (2021: 59,408,088) and £59,408,088
dilutive (2021: 59,408,088) in issue.
17. Trade and other payables
Group 31 December 2022 31 December 2021
£000 £000
Deferred income 3,842 3,579
Trade payables 882 638
Bank loan (secured) 552 550
Deferred consideration 56 170
Lease liabilities 570 747
Other creditors and accruals 6,615 4,848
Total 12,517 10,532
Amounts owed to related parties comprise intercompany balances which are
unsecured, interest free and repayable on demand.
Deferred income consists of fixed fee revenues billed in advance to clients
which have not yet been earned as at the year end.
The Company signed a credit facility with Royal Bank of Scotland
(International) Ltd for £5.5 million in 2020 which was fully drawn during the
year for the purposes of the acquisition of the Mercer portfolios (Note 4).
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. At the year-end the balance outstanding on this facility
was £5.4 million (2021: £1.5 million). Interest on the loan is charged at
3.5% per annum over the Sterling Relevant Reference Rate. Prior to fully
drawing down the loan interest was paid on the undrawn balance at a rate of
1.75% per annum over the Sterling Relevant Reference Rate.
The facility is subject to customary cashflow to debt service liability ratios
and EBITDA to debt service liability ratio covenants tested quarterly and is
secured by a capital guarantee provided by a number of non-regulated holding
subsidiary companies within the Group and debentures over these companies.
18. Other payables - amounts falling due in more than one year
Group 31 December 2022 31 December 2021
£000 £000
Lease 143 637
liabilities
Bank loan (secured) 4,811 900
Other payables 96 91
Total 5,050 1,628
19. Provisions, receivables due from insurers and contingent liability
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.
Provisions and receivables due from insurers 31 December 31 December
2022 2021
£000 £000
Carey (Options) v Adams - 21,400
Others 488 2,730
Total 488 24,130
Carey (Options) v Adams:
The high profile and protracted Court case of Carey (Options) v Adams came to
a conclusion in April 2022 when the right to appeal the Court of Appeal's
decision of 1 April 2021 to the Supreme Court was refused.
It was 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 also at
the time of its ruling did not determine the appropriate relief payable to Mr
Adams. It was therefore difficult to assess the exact obligation that could
arise on other claims based on this one case. An estimate was therefore
arrived at by considering a cohort of claims which were deemed to have similar
characteristics to Mr Adams' claim resulting in a provision of £3.6 million
for the year ended 31 December 2020. Following receipt of notice that right to
appeal to the Supreme Court had been denied in March 2022 management, in
consultation with its legal advisors and insurers reviewed the potential
claims payable applying a broader range of criteria given that there was no
further basis to appeal the judgement. This resulted in a provision of £21.4
million for the year ended 31 December 2021. This is covered by professional
indemnity insurance and was therefore also reflected as receivables due from
insurers.
During the year ended 31 December 2022 the insurers settled the claim with Mr
Adams as mandated by the Courts. However, the Group has received agreement for
a judicial review on a Financial Ombudsman Service's decision on the basis
that it impacts on a large number of claims and raises issues of general
importance. The outcome of this judicial review could subsequently impact a
significant number of claims handled, including the cohort of claims arising
from the Carey v Adams case. The matter is currently being considered by the
courts and the timing of any judgement remains uncertain.
The Group has reassessed the probability of an outflow of economic benefits
arising from this case and the reliability of estimates based on the latest
information. Subject to the new developments on the judicial review and the
increasing uncertainty surrounding the potential liability, the Group
considers that it is not practical to estimate the potential impacts on the
cohort of claims and the likelihood and timing of settlements. As a result,
the provision has been reclassified as contingent liability and the
corresponding receivables due from insurers have been derecognised as at 31
December 2022. There would have been no impact on the net assets of the Group
as previously reported if the same treatment had been adopted as at 31
December 2021.
Other:
As at 31 December 2022 and 31 December 2021 there were potential claims in
respect of the historic trading of STM Fidecs Life, Health & Pensions
Limited and STM Malta Pensions Services Limited. These claims were estimated
based on present information available at the time and a provision made. This
was covered by professional indemnity insurance net of insurance excesses and
thus also reflected as a receivable due from insurers. Following progress made
on these claims during the year ended 31 December 2022 the provision (and
corresponding receivable from insurers) has reduced to £488,000 (2021:
£2,730,000).
General:
With reference to the prejudicial exemption allowed under IAS 37, the Company
will not disclose any further information about the contingent liability,
including any details about current and potential claims as these claims are
ongoing.
On the basis of present information, amounts already recognised and the
availability of insurance coverage, it is the opinion of the Group that the
ultimate determination of complaints received to date will not have a material
adverse effect on the consolidated financial position of the Group. However,
it is possible that future results of operations or cash flows for any annual
period could be materially affected by an unfavourable resolution of these
matters.
20. Non-adjusting subsequent event
On 12 January 2023, the Group completed the acquisition of the remaining
external 30% interest in Options Pensions UK LLP, increasing its ownership
from 70% to 100% (Note 5). A decrease in equity attributable to owners of the
Company has been recognised in the other reserve amounted to £468,000.
Subsequent to this acquisition, all subsidiaries are wholly owned.
The Directors are not aware of any significant events occurring after the
reporting date.
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