REG - STM Group PLC - Final Results
27/06/2024 07:00
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RNS Number : 0473U STM Group PLC 27 June 2024
Press Release 27th June 2024
STM Group plc
("STM", "the Company" or "the Group")
Final Results for the
12 months ended 31(st) December 2023
STM Group plc (AIM: STM), the cross-border provider of retirement solutions,
life assurance products and related administrative services, is pleased to
announce its audited final results for the 12 months ended 31(st) December
2023.
Financial Highlights:
2023 (reported) 2023 (adjusted)** 2022 (reported) 2022
(adjusted)**
Revenue £28.1m £28.1m £24.1m £24.6m
Profit before other items(*) £3.2m £5.8m £3.3m £4.7m
Profit before taxation £0.4m £3.1m £1.6m £2.8m
Operating margin before other items 11% 21% 14% 19%
Earnings per share^ 0.70p 5.12p 1.42p 3.44p
Cash at bank (net of borrowings) £13.6m £13.6m £13.9m £13.9m
(*) 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
· Group's revenue and profit before tax in line with the Board's
expectations;
· Reported revenue up 17 % as a result of the interest sharing
policy and full year contribution of Mercer portfolio acquisition.
· High percentage of annual recurring revenue - amounting to 81% of
total revenues - provides a base for the Group's ongoing profitability;
· Adjusted profit before other items increased by 24% to £5.8m
(2022: £4.7m);
· Adjusted profit before taxation increased by 10% to £3.1m (2022:
£2.8m); and
· Profit before taxation decreased by 72% to £0.4m (2022: £1.6m)
due to £1.2m professional costs incurred and expensed in relation to the
proposed acquisition by Jambo;
· No dividends declared for 2023 in line with the terms announced
for the proposed acquisition of STM by Jambo SRC Limited (see below) (2022:
1.2 pence per ordinary share).
Operational Highlights:
· Agreement reached between STM Independent Directors and the board
of Jambo SRC Limited ("Jambo"), regarding the terms of the acquisition
("Acquisition") of the entire issued and to be issued ordinary shares of STM
by way of a Scheme of Arrangement (the "Scheme").
o Scheme approved on 6(th) December 2023 by 99.9% of independent Scheme
Shares voted and by 89.5% of independent Scheme Shareholders who voted;
o Shareholders entitled to receive 60 pence per ordinary share in cash at
completion of the Acquisition as well as a Deferred Consideration Unit which
may deliver up to 7 pence per ordinary share in cash; and
o Acquisition subject to change of control approvals by Gibraltar and Malta;
regulatory assessment processes continue in both jurisdictions but approvals
yet to be received.
· Acquisition also conditional on STM board selling the UK SIPP
Companies by way of an MBO to Pathlines Holdings Limited (a company in which
STM CEO, Alan Kentish, and his family hold a significant minority interest)
for a total cash consideration of £4.5 million; and
· Integration of Mercer SIPP & SSAS portfolios acquired in
September 2022 was completed during the year - businesses performed in line
with expectations.
Post Period Highlights:
· After careful consideration of its options for its Options
Workplace Pensions Master Trust ("Options Master Trust"), STM signed a
commercial contract with Smart Pension Limited ("Smart") on 14(th) June 2024;
· Subject to approval by the trustees of the Options Master Trust,
Smart will become default provider, and members of the Options Master Trust
will transfer over time to Smart's own Master Trust. STM will receive an
estimated £4.7 million consideration for such transfers over the next two
years;
· An introducer agreement was also signed with Smart offering STM
introductory commission to new business relationships introduced to Smart.
Additional introducer income from this agreement is estimated at between £1
million and £5 million over the next three years; and
· Since 31(st) December 2023 the Group has continued to trade in
line with the Board's expectations.
Commenting, Alan Kentish, Chief Executive Officer, said: "The Group continued
to perform in line with the Board's expectations during 2023, with the
increase in interest income from the revised interest sharing policies
introduced during the second half of the year offsetting the continued
shortfall in new business across the Group, pending decisions re future
technology strategy that have been deferred as a result of the Jambo
acquisition process, and increased costs arising from that process and from
other factors."
Annual Report & Accounts - the Annual Report & Accounts will be
available at the Company's website -
https://www.stmgroupplc.com/investor/annual_report
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
www.stmgroupplc.com (http://www.stmgroupplc.com)
Cavendish Capital Markets Limited (Nominated Adviser and Broker to STM)
Matt Goode / Emily Watts / Abigail Kelly - Corporate Finance Tel: +44 (0) 20 7220 0500
Tim Redfern - ECM
Walbrook www.walbrookpr.com (http://www.walbrookpr.com)
Tom Cooper / Nick Rome / Joseph Walker Tel: +44 (0) 20 7933 8780
Mob: +44 (http://www.abchurch-group.com) (0) 797 122 1972
tom.cooper@walbrookpr.com (mailto:tom.cooper@winningtons.co.uk)
Notes to editors:
STM is a multi-jurisdictional financial services group traded on AIM, a market
operated by the London Stock Exchange. The Group specialises in the provision
of retirement and life assurance solutions and related administration of
client assets.
The Group has operations in the UK, Gibraltar, Malta, Australia and Spain. STM
has developed a range of pension products for UK nationals and internationally
domiciled clients and has two Gibraltar life assurance companies which provide
life insurance bonds - wrappers in which a variety of investments, including
investment funds, can be held.
STM's growth strategy is focussed on both organic initiatives and strategic
acquisitions.
Further information on STM Group can be found at www.stmgroupplc.com
(https://urldefense.proofpoint.com/v2/url?u=http-3A__www.stmgroupplc.com&d=DwMGaQ&c=euGZstcaTDllvimEN8b7jXrwqOf-v5A_CdpgnVfiiMM&r=05PHl3GHdShYuaCii2fBRpoqaNr9B1d97X09daeosu0&m=PU7KD9-tYowY3PC9sXem4PQSmJ-Zm8TJB2ox4M8NHwI&s=39Vvq5Ccz7txaqksRCl4B8zUxhpd6elnqEy0XmTed50&e=)
CHAIRMAN'S STATEMENT
I am pleased to present to you the STM Group PLC ("STM") results for the year
ended 31(st) December 2023 - the first full year that the newly constituted
Board has been in situ.
Given the embedded value within the Group's businesses and the backdrop of
predictable recurring revenue and ongoing profitability, my role as Chair and
that of my fellow directors has been to set a strategic course which would
deliver enhanced shareholder value. This could come about by the introduction
of new products and the achievement of greater efficiencies or by the orderly
break-up or sale of the Group.
As announced in January 2023, the Board commissioned an independent strategic
review from a third-party consultancy company to assess the Group's operating
businesses, identify those with the most potential for future profitability
and recommend alternative strategies for those and the remaining businesses
within the Group. The results of the review were presented to the Board in
March 2023 and concluded that the success of the Group would ultimately be
dependent on its technology capabilities. The review did highlight that the
anticipated externally realisable value of the various businesses within the
Group was significantly more that the market capitalisation of the Group at
the time. As a result of the strategic review, the Board initiated a
technology review as the final input required for the Board to determine the
strategy going forward.
However, as well documented in the various market announcements from July 2023
onwards, the Group received an initial approach and expression of interest in
the Group, which culminated in the announcement of an offer for the whole of
the issued and to be issued share capital of the Company, issued in accordance
with Rule 2.7 of the Takeover Code, on 10(th) October 2023. The offer was to
be effected via a Scheme of Arrangement, and the Scheme document was issued to
shareholders on 9(th) November 2023.
Full details of the offer are set out in the CEO's Review within the Annual
Report, but in summary the offeror, Jambo SRC Limited ("Jambo'), would acquire
the whole STM Group, with the exception of the two SIPP businesses which would
exit by way of a management buyout to be completed immediately prior to the
overall transaction. The acquisition, once completed, will deliver an up-front
60 pence per share in cash to STM shareholders, with up to a further 7 pence
per share in deferred contingent consideration at the one-year anniversary,
dependant on certain criteria.
The Scheme was approved by 99.99% of all independent Scheme Shares voted and
by 89.5% of independent Scheme Shareholders who voted on 6(th) December 2023.
The transaction remains subject to regulatory approval of the proposed change
in control of the Group by the Gibraltar and Malta regulators.
Given the anticipated acquisition by Jambo, and the fact that any dividend
declared would be deducted from the final consideration under the terms of the
Scheme, the Board has taken the decision not to declare a final dividend for
2023 (2022: 0.60 pence).
Turning to the performance of the business, I am pleased to confirm that the
reported 2023 revenue and underlying profit before tax were in line with
management's expectations, although reported profitability was significantly
reduced as a result of expensing £1.2 million of non-recurring professional
advisory costs relating to the potential acquisition by Jambo.
The Group's recurring revenue continues to provide a predictable base for the
Group's ongoing profitability, and this has been bolstered by the additional
revenue generated from the new interest sharing policy that was implemented
for the UK SIPP businesses in July 2023. Similar policies are in the process
of being rolled out for the other areas of the business.
I noted in my previous Chairman's statement that STM was at a cross-roads in
its evolution, and that certain parts of the business would be difficult to
grow or to achieve a full valuation. In this regard, I am delighted to confirm
that, on 14(th) June 2024, the Group announced it had signed a commercial
agreement with Smart Pension Limited ("Smart"), and related agreements under
which, subject to trustee approval, the members in the Group's Options master
trust will transfer to Smart's master trust. This is likely to generate a
consideration of £4.7m payable over the next couple of years. In addition,
the Group has also signed an introducers agreement with Smart, which will
allow for the Group to receive introductory fees for new business introduced
by STM to Smart.
Importantly, the agreement allows STM to exit the UK workplace pension market,
which is becoming more competitive and starting to be dominated by the larger
players. The transaction was undertaken with Jambo's consent.
Finally, my thanks go to all of my STM colleagues for their hard work and
commitment during the course of 2023 and into 2024.
I would like to extend my particular thanks to Therese Neish, who left the
Group on 31(st) May 2024, for her considerable contribution and dedication to
the Group over many years.
I look forward to updating the market in due course in relation to the change
of control approvals from the Malta and Gibraltar regulators which, once
received, will allow the acquisition by Jambo to conclude and the initial
consideration of 60 pence per ordinary share to be paid to shareholders.
Nigel Birrell
Chairman
CHIEF EXECUTIVE OFFICER'S REVIEW
Introduction
The 2023 financial year has been dominated by strategic projects, with the
focus in the second half of the year being on the initial approach and
expression of interest by Jambo SRC Limited ("Jambo") in June 2023, which
culminated in an offer by Jambo for the whole of the issued and to be issued
share capital of the Company on 10(th) October 2023, subject to regulatory
approval of the change of control in Gibraltar and Malta. The offer was also
conditional on the UK SIPP businesses completing a management buy-out
immediately prior to the Court approval of the Scheme of Arrangement (the
"Scheme") by which the acquisition was to be effected, subject to change of
control approval in the UK.
The Scheme was approved at an EGM held on 6(th) December 2023 with 99.9% of
Scheme shares voting to accept the Scheme offer. As at the date of these
financial statements, the FCA in the UK has approved the prospective change of
control of the companies subject to the management buyout, but the approval
processes in Gibraltar and Malta have yet to be concluded.
2023 commenced with the appointment of third-party consultants to undertake a
strategic review of the Group's operation, the results of which were reported
to the Board in late March 2023. Further details of the results of the review
and the impact of the approach and subsequent offer by Jambo on the Board's
conclusions and further actions are set out in the Chairman's Statement.
Notwithstanding the significant distractions arising from the approach by
Jambo, the Group has continued to trade in line with management expectations.
The continuing high percentage of annual recurring revenue for 2023, amounting
to 81% of total revenues, underpinned the day-to-day performance of the
various trading divisions, and for the latter part of 2023 this was
supplemented by the new interest sharing policy implemented in the UK SIPP
businesses.
The integration of the Mercer SIPP and SSAS portfolios acquired in September
2022 was successfully completed during the course of 2023, and the books of
business acquired performed in line with expectations.
New business volumes remained generally disappointing across the Group, but
this needs to be viewed in conjunction with the fact that certain areas of the
business would only see better volumes upon an improved technology-based
service offering, and that potential strategic developments of the Group's
technology platforms have been paused pending the outcome of the Jambo
transaction. All strategic projects remain on hold whilst the Group awaits the
change of control regulatory approvals previously referred to,
Finance 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 reports both basic and adjusted financial key performance indicators
in Table 1 and 2 below, as the impact of non-recurring movements does not
allow for a clear understanding of operating performance without highlighting
key non-recurring elements.
The Group reported revenues of £28.1 million for 2023 (2022: £24.1 million).
The 17% uplift in revenues over 2022 is largely attributable to a full year's
revenue contribution from the 2022 acquisition of the SIPP and SSAS books from
Mercer, which contributed £2.3 million in additional revenues, and the
additional £3.2 million interest income earned as a result of the new SIPP
interest sharing policy. This offset the shortfalls in new business revenues
across the Group.
Profit before other items on both a reported and adjusted basis for 2023, was
£3.2 million and £5.8 million respectively (£3.3 million and £4.7 million
respectively), and the latter represented a healthy uplift compared to 2022.
The uplift in adjusted profit before other items over 2022 was principally due
to the impact of the client interest sharing policy incepted in the SIPP
businesses in July 2023 which flowed through to the bottom line.
On a like-for-like basis, adjusted profit before tax was similar to the
previous year, with 2023 showing £3.1 million (2022 £2.8 million), although
on a statutory basis the pre-tax result for 2023 was significantly lower at
£0.4 million (2022 £1.6 million). This reduction was primarily driven by the
one-off, non-recurring professional advisory and legal fees of £1.2 million
incurred in relation to the proposed acquisition of the Company by Jambo.
In addition, as set out below in Table 2, there were a number of non-recurring
income and expense items that are added back to the reported measure for
Profit Before Tax so as to give a better picture of the operating performance
of the business. For 2023, this included £0.6 million (2022: £Nil) of
deferred consideration and old debtors previously recognised in the sale of
the Company Management and Trustee Services businesses in 2021, £0.2 million
of deferred consideration previously recognised on the Berkeley Burke and
Mercer acquisitions in 2020 and 2022 respectively that were ultimately not
deemed to be recoverable (2022: £Nil), £0.5 million (2022: £0.5 million) of
one-off costs in relation to management restructuring and legal costs and
£0.1 million (2022: £Nil) advisory fees paid for the independent strategic
review undertaken in the first part of the year.
Table 12022
KPI Definition 2023 (reported) 2022 (reported) 2023 (adjusted) 2022 (adjusted)
Revenue (£'000s) Income derived from the provision of services. 28,078 24,094 28,078 24,599
Recurring revenue (£'000s) Revenue derived from annual management charges and/or contractual fixed fee 22,686 22,219 22,686 22,219
agreements.
Interest income (£'000s) Interest earned from the Group's and customer cash balances 3,740 531 3,740 531
Profit before other items (£'000s) Revenue less administrative expenses i.e. profit before finance income and 3,200 3,321 5,824 4,686
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 442 1,578 3,066 2,778
Profit after taxation (£'000s) Revenue less administrative expenses and other items less/add taxation 417 854 3,041 2,054
charge/credit
Earnings per share (pence) Profit after taxation attributable to shareholder of the Company divided by 0.70 1.42 5.12 3.44
weighted average number of ordinary shares outstanding
Profit margin before other items (%) Profit before other items divided by revenue. 11% 14% 21% 19%
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 other items Profit before tax
2023 2022 2023 2022 2023 2022
£'000s £'000s £'000s £'000s £'000s £'000s
Reported measure 28,078 24,094 3,200 3,321 442 1,578
Add: adjustment due to revenue recognition policy change on acquisition - 505 - 505 - 505
Add: integration and acquisition cost - - - 390 - 390
Add: Project Atlantic professional costs 1,202 - 1,202 -
Less: bargain purchase gain on acquisition and gain on call options - - - - - (327)
Less: loss on disposal of companies and trust management - - - - - 162
Less: movement in deferred consideration related to prior year acquisitions - - 761 - 761 -
Add: costs of strategic review - - 135 - 135 -
Add: other non-recurring costs - - 526 470 526 470
Adjusted measure 28,078 24,599 5,824 4,686 3,066 2,778
Tax Charge and Earnings per Share
The tax charge for the year was £0.03 million (2022: £0.7 million). This was
an effective tax rate of 6% (2022: 46%), which was lower than the rates noted
in prior years due to the writeback of tax over provided for in prior years.
In the year ended 31(st) December 2022, the Group's effective tax rate was
higher than the jurisdictional effective tax rate, as tax losses brought
forward or incurred in that year in some jurisdictions could not be utilised
by the profitable subsidiaries in other jurisdictions and dividends remitted
to the holding company by overseas jurisdictions were higher than in prior
years, thus resulting in a higher overall tax charge.
Earnings per share ("EPS") for 2023 was 0.7 pence per ordinary share compared
to 1.42 pence per ordinary share in 2022. The decrease was a direct result of
the lower profits before tax as explained above. There were no dilutive
factors in either 2023 or 2022.
Cashflows and Balance Sheet
Cash and cash equivalents amounted to £18.4 million as at 31(st) December
2023 (2022: £19.2 million), with net cash inflow from operating activities of
£2.5 million for the year ended 31(st) December 2023 (2022: £5.3m).
The bank loan from RBSI, drawn down in 2021 and 2022 to finance the
acquisition of the SIPP and SSAS books from Mercer, remained in place as at
31(st) December 2023. As at the year end the outstanding balance on the
facility was £4.8 million (2022: £5.4 million).
Cash and cash equivalents, net of the above mentioned outstanding bank loan,
as at 31(st) December 2023 amounted to £13.6 million (2022: £13.9
million).
As would be expected for a Group regulated in several jurisdictions, a
significant proportion of the 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(st) December 2023 was £17.3 million (2022: £17.3 million).
As further disclosed in the notes to the financial statements, the Carey
("Options") v Adams case came to a conclusion in 2022 and was settled during
the course of that year. During the course of 2023 it was therefore possible
to quantify the likely exposure to similar cases with the same profile. In a
similar manner, but in an unrelated case, Options was unsuccessful in the
Judicial review hearing of a previously determined case by the Financial
Ombudsman Scheme.
As a result, this case has been settled by the professional indemnity
insurers, and cases with similar characteristics have now been provided for as
at 31(st) December 2023. Whilst a provision has been established for the
estimated likely amounts payable in relation to such claims, the Group has
recognised an asset equal to an equivalent recovery of such exposure from the
Group's professional indemnity insurers, such that the net assets indicated in
the consolidated statement of financial position are not affected. Further
details in relation to the provisions held are set out in note 26 to the
financial statements.
Within the consolidated statement of financial position, the Group recognised
accrued income in the form of work performed for clients but not yet billed,
as well as accrued interest income, of £3.1 million as at 31(st) December
2023 (2022: £0.9 million). Additionally, deferred income (included within
current liabilities in the statement of financial position), relating to
annual fees invoiced but not yet earned, amounted to £3.7 million (2022:
£3.8 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 not proposing a final dividend (2022: 0.60 pence per ordinary
share), as, under the terms of the Scheme offer, any dividend declared would
be deducted from the overall consideration payable by Jambo in respect of the
potential acquisition, with potential adverse tax consequences for
shareholders. As a result, the total proposed dividend for 2023 amounted to
Nil pence per ordinary share (2022: 1.20 pence per ordinary share).
Operational Performance
Pensions
The Group's pension administration businesses continue to be the largest
revenue generating stream, accounting for 84% of total Group revenues (2021:
77%), excluding interest earned on client interest sharing policy.
Total revenue, excluding interest on client funds, across the Group's pension
businesses amounted to £20.4 million (2022: £18.5 million). The full year of
the Mercer SIPP and SSAS acquisition during 2022 contributed £2.8 million of
revenue in 2023 (2022: £0.5 million in 4 months).
In addition to the above pension administration revenue, the Pensions division
also benefited from the increase in market interest rates and the
implementation of its interest sharing policy within the Group's SIPP
businesses, which was incepted in July 2023 to bring the Group's policy in
line with market norms. Across the whole of the pension division, interest
income for 2023 amounted to £3.0 million (2022: £0.3 million). 68% of this
amount (2022: 86%) was attributable to the SIPP businesses.
The administration of the Group's QROPS products continues to be the largest
revenue generator within the pensions division, accounting for £9.0 million
of revenue (2022: £9.4 million) and remains a robust and predictable revenue
stream. Since the UK pension legislation changes in 2017, these products are
no longer a growth driver. There remains a small net attrition rate on the
QROPS book which is expected to continue as the member age profile gradually
increases and members look to take advantage of flexi-access benefits. The
administration of such schemes is undertaken in Malta and Gibraltar.
The SIPP businesses, both Options Personal Pensions and London & Colonial
Services Limited, contributed total pension administration revenues of £4.7
million in 2023 (2022: £4.1 million). As noted above, the increase is down to
the full year benefit of the Mercer SIPP book of business acquired in
September 2022.
The Group's Options Corporate pension auto-enrolment business generated
revenue of £4.1 million in 2023 (2022: £3.4 million) and has performed as
expected in a relatively mature marketplace.
The final revenue stream of the pensions divisions comes from the SSAS and EBC
third-party administration businesses. These contributed revenues of £2.7
million in 2023 (2022: £1.6 million), with the uplift again being down to a
full year contribution from the Mercer SSAS book acquired in September 2022.
Life Assurance
The combined revenues of the two life assurances businesses in Gibraltar was
£4.0 million in 2023 (2022: £5.0 million). Those businesses did not generate
any new business revenues from the Group's short term annuity product, which
had contributed circa £0.8 million of revenue in 2022.
The main products for the life companies remain the flexible annuity products
for both private wealth and pension solutions. Whilst there has been a small
increase in illustrations requested and provided during 2023, disappointingly
we have not seen conversions increase, and the Group has struggled to broaden
the range of IFAs that utilise the products.
During the latter part of the year, the life companies revisited the pricing
of the flexible annuity products and capped the establishment fee. Whilst this
potentially reduces any upfront fees, it is anticipated that this will make
the product more compelling and attractive to the larger potential
policyholders.
The Group retains its intention to broaden the range of products that will be
available through the two life companies, and it is expected that over time
this should allow stronger organic growth. However, part of that strategy will
be reliant on the finalisation of the technology review instigated as part of
the strategic review but subsequently deferred in the light of the proposed
acquisition of the Company by Jambo which would determine what systems could
and should be used as the main administration platform for the Group.
Regulatory developments - Consumer Duty
The Consumer Duty rules introduced by the Financial Conduct Authority in the
UK came into effect on 31(st) July 2023.
These rules require regulated firms to act to deliver good outcomes for retail
customers.
These outcomes relate to:
· Products and services;
· Price and value;
· Consumer understanding; and
· Consumer support.
The new rules require firms to consider the needs, characteristics and
objectives of their customers - including those with characteristics of
vulnerability - and how they behave, at every stage of the customer journey.
As well as acting to deliver good customer outcomes, firms will need to
understand and evidence whether those outcomes are being met.
They apply to all UK retail customers, whether serviced by firms based in the
UK or in other jurisdictions such as Gibraltar.
The Group recognised the importance of the new rules and established a project
group to identify the key factors to be considered in assessing the rules,
develop new or amended rules and processes (including data gathering) to
enable the Group to comply with its Consumer Duty obligations and to oversee
such compliance.
The 31(st) July 2023 deadline was met in all material aspects, with some minor
additional processes and procedures being identified for future development.
The process is ongoing and the Group continues to prioritise the delivery of
good outcomes for its retail customers.
Outlook
The future direction of the STM Group is currently awaiting the outcome of the
applications by Jambo to the Gibraltar and Maltese regulatory authorities for
change of control approvals pursuant to the proposed acquisition by Jambo of
the whole of the issued share capital of the Company, and to sanction the
completion of the transaction that was approved by 99.99 % of Scheme shares
voted on 6(th) December 2023.
In the meantime, other than the potential exit strategy of the Options master
trust from the UK workplace pensions marketplace, which had been agreed by
both the PLC board and the potential acquirer as set out in the Scheme
document, there is minimal ability to make strategic decisions on the
business.
On 14(th) June 2024, the Board announced that the Group had signed a
commercial agreement with Smart Pensions Limited in which, subject to approval
by the trustees and regulator, members transferring from Options Master trust
to Smart would result in Smart paying a consideration to the Group. It is
anticipated that, over a two-year period, this consideration is likely to
amount to circa £4.7million. In addition, the Group also entered into an
introducers agreement with Smart at the same time, whereby any new members
introduced to Smart by the Group's existing or new intermediary contacts would
lead to introductory commission income for the Group. The agreement is in
place for a maximum period of three years, and management estimates that the
quantum of such additional introductory commission could lie in the range of
£1.0 million to £5.0 million over the three-year period.
Notwithstanding the above, the Group's businesses continue to perform in line
with expectations, and underlying performance for 2024 will continue to
benefit from the interest sharing policies for the SIPP businesses that were
implemented in the second half of 2023.
Interest sharing policies for the other parts of the Group have now been
agreed, and these are in the process of being rolled out. It is anticipated
that this will provide additional contribution for 2024, although, given the
ongoing uncertainty around market interest rates, it is not possible to
forecast any incremental contribution over market expectations with any
material degree of accuracy
Whilst the technology review referred to above remains on hold as a result of
the offer by Jambo, that process will need to be recommenced once the
potential acquisition has been approved by the regulators in Malta and
Gibraltar.
As noted in my 2022 report, the outcome of any technology reviews will no
doubt determine the strategy that the Plc board will take going forward. The
UK and expatriate pension space remains buoyant and exciting, with
opportunities to differentiate the business from industry peers, but only if
the technology can support a self-serve administration process.
I would like to take this opportunity to thank all my STM colleagues, and
particularly Therese Neish, who returned as interim CFO on a fixed-term
contract which was expected to see the conclusion of the acquisition, for
their continued hard work and professionalism in carrying out their duties.
The Board looks forward to updating you on the progress of the proposed
acquisition of the Company by Jambo in due course.
Alan Kentish
Chief Executive Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2023
Notes Year ended Year ended
31 December 2023 31 December 2022
£000 £000
Revenue 8 28,078 24,094
Administrative expenses 9 (24,878) (20,773)
Profit before other items 10 3,200 3,321
OTHER ITEMS
Bargain purchase gain 4 - 327
Gains on revaluation of financial instruments - 11
Loss on disposals of subsidiaries 3 - (162)
Loss on disposal of fixed assets (96) -
Finance costs (689) (322)
Depreciation and amortisation 13,14 (1,973) (1,597)
Profit before taxation 442 1,578
Taxation 12 (25) (724)
Profit after taxation 417 854
OTHER COMPREHENSIVE INCOME
Items that are or may be reclassified to profit or loss
Foreign currency translation differences for foreign operations 32 12
Total other comprehensive income 32 12
Total comprehensive income for the year 449 866
Profit attributable to:
Owners of the Company 417 844
Non-controlling Interests - 10
417 854
Total comprehensive income
attributable to:
Owners of the Company 449 856
Non-controlling Interests - 10
449 866
Earnings per share basic (pence) 20 0.70 1.42
Earnings per share diluted (pence) 20 0.70 1.42
The results for 2023 and 2022 relate to continuing activities.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2023
Notes 31 December 2023 31 December 2022
£000 £000
ASSETS
Non-current assets
Property and office equipment 13 1,304 1,161
Intangible assets 14 21,444 22,125
Financial assets 15 1,839 1,762
Deferred tax asset 12 39 58
Total non-current assets 24,626 25,106
Current assets
Accrued income 3,078 860
Trade and other receivables 16 7,349 8,461
Receivables due from insurers 26 27,441 488
Cash and cash equivalents 17 18,365 19,234
Total current assets 56,233 29,043
Total assets 80,859 54,149
EQUITY
Called up share capital 18 59 59
Share premium account 18 22,372 22,372
Retained earnings 14,443 14,382
Other reserves 18 (2,279) (1,843)
Equity attributable to owners of the Company 34,595 34,970
Non-controlling interests - (68)
Total equity 34,595 34,902
LIABILITIES
Current liabilities
Liabilities for current tax 425 788
Trade and other payables 21 13,271 12,517
Provisions 26 27,441 488
Total current liabilities 41,137 13,793
Non-current liabilities
Other payables 22 4,808 5,050
Deferred tax liabilities 12 319 404
Total non-current liabilities 5,127 5,454
Total liabilities and equity 80,859 54,149
STATEMENT OF CONSOLIDATED CASH FLOW
FOR THE YEAR FROM 1 JANUARY 2023 TO 31 DECEMBER 2023
Notes
Year ended Year ended
31 December 31 December
2023 2022 (restated)
£000 £000
OPERATING ACTIVITIES
Profit for the year before tax 442 1,578
ADJUSTMENTS FOR:
Depreciation of property and office equipment 13 620 673
Amortisation of intangible assets 14 1,353 924
Loss on disposal of property and office equipment 96 4
Unrealised gains on financial instruments (77) (11)
Bargain purchase gain 4 - (327)
Taxation paid (454) (619)
(Increase)/decrease in trade and other receivables including insurers (25,841) 22,246
(Increase)/decrease in accrued income (2,218) 558
Increase in trade and other payables including insurers 28,541 (19,737)
Net cash generated from operating activities 2,462 5,289
INVESTING ACTIVITIES
Purchase of property and office equipment 13 (170) (165)
Increase in intangible assets 14 (672) (937)
Purchase of financial instruments - (1,734)
Acquisition of non-controlling interests 5 (400) (120)
Additional consideration paid on prior acquisitions (228) -
Consideration paid on acquisition of portfolio 4 - (3,454)
Net cash absorbed by from investing activities (1,470) (6,410)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loan 21,22 - 4,463
Repayments of bank loan 21,22 (551) (550)
Interest paid on bank loan (405) (162)
Lease liabilities paid (581) (724)
Dividends paid 18 (356) (891)
Net cash (absorbed by)/generated from financing activities (1,893) 2,136
(Decrease)/increase in cash and cash equivalents (901) 1,015
Effect of movements in exchange rates on cash and cash equivalents 12
32
Cash and cash equivalents at the beginning of the year 19,234 18,207
Cash and cash equivalents at the end of the year 17 18,365 19,234
The comparative cash flow movements for the year ended 31st December 2022 have
been restated to aggregate and reclassify certain flows in order to be
consistent with the presentation adopted in the year ended 31st December 2023.
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY
FOR THE YEAR FROM 1 JANUARY 2023 TO 31 DECEMBER 2023
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 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 and 1 January 2023 59 22,372 14,382 (549) (81) 162 (1,375) 34,970 (68) 34,902
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Profit for the year - - 417 - - - - 417 - 417
Other comprehensive income
Foreign currency translation differences - - - - 32 - - 32 - 32
Transactions with owners, recorded directly in equity
Acquisition of non-controlling interests - - - - - - (468) (468) 68 (400)
Dividends paid - - (356) - - - - (356) - (356)
At 31 December 2023 59 22,372 14,443 (549) (49) 162 (1,843) 34,595 - 34,595
STM GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR FROM 1 JANUARY 2023 TO 31 DECEMBER 2023
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(st)
December 2023 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 consolidated
financial statements for the year ended 31(st) December 2023, which have been
prepared in accordance with International Financial Reporting Standards
("IFRS") and interpretations adopted by the International Accounting Standards
Board ("IASB") and in accordance with Isle of Man law. 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(st)
December 2023.
Going concern basis of accounting
The Directors have prepared the financial statements on a going concern basis,
as in their opinion the Group is able to meet its obligations as they fall due
for a period of at least 12 months from the date of this report. In
considering this requirement, the Directors have considered budgets and
rolling cashflow forecasts for the forthcoming 18-month period and the level
of professional indemnity insurance held by the Group. In addition, the risks
included on the Group's risk register that could impact on the Group's
liquidity and solvency over the next 12 months. These show that the Group
should continue to be cash generative, and have sufficient resources to meet
its business objectives, both in the short-term and in relation to its
strategic priorities.
Having due regard to these matters, the Directors have a reasonable
expectation that the Group has adequate resources to continue in operational
existence for at least 12 months from the date of approval and signing of the
financial statements. As such, the Board continues to adopt the going concern
basis in preparing the financial statements.
Functional and presentation currency
These consolidated financial statements are presented in Pounds Sterling (£),
rounded to the nearest £'000, which is the Group's functional currency as
this is the main currency in which it transacts business. Foreign operations
are included in accordance with the policies set out in the financial
statements.
3. Disposal of subsidiaries
There were no disposals of subsidiaries in the two years ended 31(st) December
2023 and 31(st) December 2022. The loss on disposal reported in 2022 comprised
a reduction in the final consideration received in that year in respect of the
disposal of the Group's Gibraltar company and trustee services ("CTS") and tax
compliance business, STM Fidecs Management Limited, and the Jersey based CTS
business, STM Fiduciaire Limited, in 2021. The reduction arose from audited
revenues for those businesses being lower than originally estimated.
4. Acquisition of portfolios
There were no acquisitions in 2023.
On 31(st) 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 was complementary to the
Group's existing product offerings in the UK SIPP and SSAS markets and
provided a solid platform for scalability, particularly for the Group's SSAS
operations, and efficiencies going forward. In addition, it provided the
Group with access to an expanded network of intermediaries who 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 totalled £150,000 and were expensed within
administrative expenses in the Consolidated Statement of Comprehensive Income
for the year ended 31(st) 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 was 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 SSAS
portfolio were recognised.
A bargain purchase gain arose as a result of negotiations due to the previous
revenue recognition policy being more aggressive than, and an adjustment being
necessary to align that policy 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 was attributable to the Portfolio acquired and was
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
SSAS portfolios generated revenue of £821,000 and incurred a loss of
£145,000. If the acquisition had occurred on 1(st) January 2022, management
estimates that the impact on the consolidated revenue and profit before tax
for the year ended 31(st) December 2022 would have been £2,243,000 and a loss
of £99,000 respectively.
In addition, the Group paid deferred cash consideration of £217,000 during
the year (2022: £114,000) relating to the final payment for the acquisition
of the Berkeley Burke companies completed in 2020. The consideration paid in
2023 was £161,000 higher than the amount provided as at 31(st) December 2022
due to the collection and onward remittance of trade receivables due to the
seller under the relevant share purchase agreements but not previously
provided.
The Group also paid additional net consideration in 2023 of £11,000 in
respect of the companies and SIPP and SSAS portfolios acquired from Mercer
Limited in 2022.
As these acquisitions were completed more than twelve months prior to the
dates of payment in the current reporting period, the aggregate amount of
£172,000, net of the amount provided at 31(st) December 2022, has been
written off to administrative expenses in 2023.
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 UK Personal Pensions 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(st) December 2021.
On 9(th) 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(th) November 2022, the Group completed the transaction to acquire 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 was recognised in
the other reserve for the year ended 31(st) December 2022.
Options Pensions UK LLP
On 12(th) January 2023, the Group completed the transaction to acquire an
additional 30% interest in OSUK, increasing its ownership from 70% to 100%.
The carrying amount of OSUK's net liabilities in the Group's consolidated
financial statement on the date of acquisition was £227,000.
£'000
Carrying amount of NCIs acquired (£227,000 x 30%) 68
Exercise of OSUK's call option -
Cash consideration paid to NCIs 400
A decrease in equity attributable to owners of the Company 468
The decrease in equity attributable to owners of the Company has been
recognised in the other reserve for the year ended 31(st) December 2023.
6. Segmental Information
STM Group has three reportable segments: Pensions, Life Assurance 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 2023 2022
£000 £000
Pensions 23,474 18,421
Life Assurance 4,039 5,001
Other services 565 672
Total 28,078 24,094
Analysis of the Group's turnover information by geographical location is
detailed below:
Turnover
Geographical segment 2023 2022
£000 £000
Gibraltar 6,112 7,324
Malta 7,146 7,178
United Kingdom 14,358 9,110
Other 462 482
Total 28,078 24,094
7. Life Assurance Operating Segment
These consolidated financial statements include the results for STM Life
Assurance PCC PLC and London & Colonial Assurance PLC, two 100% owned
subsidiaries whose principal activities are that of the provision of life
assurance services. These companies are licenced to carry on linked long-term
insurance business under the Financial Services (Insurance Companies) Act by
the Gibraltar Financial Services Commission.
For the purposes of these consolidated financial statements, only the
shareholders' funds and surpluses that emerges on the long-term funds have
been included. The assets invested by the Life Assurance clients are
determined by either the clients or their advisers and are segregated from the
assets and liabilities of other clients. Therefore, the Group considers that
it does not control the investment decision nor does it bear any financial
risk in respect of that decision and, therefore, the investment assets and
associated liabilities to the customers should not be presented within the
consolidated statement of financial position. The total revenue of the Group
of £28,078,000 (2022: £24,094,000) included £4,039,000 (2022: £5,001,000)
relating to revenues attributable to the life assurance businesses.
8. Revenue
31 December 2023 31 December 2022
£000 £000
Revenue from provision of retirement and life assurance solutions and related
administrative services
24,338 23,563
Interest and investment income 3,740 531
Total revenue 28,078 24,094
9. Administrative expenses
Included within administrative expenses are personnel costs as follows:
31 December 2023 31 December 2022
£000 £000
Wages and salaries 12,263 11,633
Social insurance costs 1,045 484
Pension contributions 398 104
Total personnel expenses 13,706 12,221
Average number of employees
Group 31 December 2023 31 December 2022
Number Number
Average number of people employed 293 285
(including executive directors)
10. Profit before other items
Profit before other items of £3,200,000 (2022: £3,321,000), was arrived at
after charging the following to the income statement:
31 December 2023 31 December 2022
£000 £000
(Loss)/profit on disposal of property and office equipment (96) 4
Directors' remuneration 588 663
Auditors' remuneration for audit services 450 472
11. Reconciliation of reported to adjusted measures
Revenue Profit before other items Profit before tax
2023 2022 2023 2022 2023 2022
£000 £000 £000 £000 £000 £000
Reported measure 28,078 24,094 3,200 3,321 442 1,578
Add: adjustment due to revenue recognition policy change on acquisition - 505 - 505 - 505
Add: integration and acquisition cost - - - 390 - 390
- - 1,202 - 1,202 -
Add: Professional advisory costs incurred in relation to the proposed
acquisition of the Company
- - 761 - 761 -
Add: write-off of debtors related to prior year disposals
Less: bargain purchase gain on acquisition - - - - - (327)
Less: loss on disposal of companies and trust management - - - - 162
Add: costs of strategic reviews - - 135 - 135 -
Add: senior management exit costs, non-recurring professional costs and other
non-recurring costs
- - 526 470 526 470
Adjusted measure 28,078 24,599 5,824 4,686 3,066 2,778
Adjusted measures exclude non-recurring costs and other exceptional items
including bargain purchase gains that do not form part of the normal course of
business.
12. Taxation
31 December 2023 31 December 2022
£000 £000
Current tax expense 91 766
Deferred tax expenses/(income)
Release of deferred tax assets on leases as per IFRS 16 19 18
Release of deferred tax liabilities on intangible assets (85) (60)
Total tax expense 25 724
Reconciliation of existing tax rate 2023 31 December 2022 31 December
% 2023 % 2022
£000 £000
Profit before tax for the year - 442 - 1,578
Income tax using the Company's domestic rate 0.00% - 0.00% -
Effect of tax rates in other jurisdictions 20.59% 91 48.54% 766
Release of deferred tax assets on leases as per IFRS 16 4.30% 19 1.14% 18
Release of deferred tax liabilities on intangible assets (19.23%) (85) (3.80%) (60)
Total tax expense - 25 - 724
Effective tax rate (%) - 5.66% - 45.88%
The effective tax rate for UK increased to 25% from 1 April 2023. The
effective tax rates in Malta and Gibraltar are 5% and 12.5% respectively. The
Group effective tax rate is lower in the year ended 31st December 2023 than
the jurisdictional effective tax rate due to the writeback of tax over
provided for in prior years. However, in the year ended 31st December 2022,
the Group effective tax rate was higher than the jurisdictional effective tax
rate because tax losses brought forward or incurred in that year in some
jurisdictions could not be utilised by the profitable subsidiaries in other
jurisdictions and dividends remitted to the holding company by overseas
jurisdictions were higher than in the prior year thus resulting in a higher
tax charge on these.
13. 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(st) 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(st) December 2022 and 1(st) January 2023 15 2,083 492 5,585 8,175
Additions - 170 - 689 859
Disposals (15) (1,189) (15) (4,705) (5,924)
At 31(st) December 2023 - 1,064 477 1,569 3,110
Depreciation
At 1(st) January 2022 12 1,346 380 4,605 6,343
Charge for the year 1 165 20 487 673
Disposals - (2) - - (2)
At 31(st) December 2022 and 1(st) January 2023 13 1,509 400 5,092 7,014
Charge for the year 2 143 20 455 620
Disposals (15) (1,104) (4) (4,705) (5,828)
At 31(st) December 2023 - 548 416 842 1,806
Net Book Value
At 31(st) December 2022 2 574 92 493 1,161
At 31(st) December 2023 - 516 61 727 1,304
14. Intangible assets
Group Note Goodwill Client Portfolio Product IT Total
£000 £000 Development Development £000
£000 £000
Costs
At 1(st) 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(st) December 2022 and 1(st) January 2023 14,109 8,499 731 3,149 26,488
Additions - - - 672 672
At 31st December 2023 14,109 8,499 731 3,821 27,160
Amortisation and impairment
At 1(st) January 2022 824 1,717 445 453 3,439
Charge for the year - 574 30 320 924
At 31(st) December 2022 and 1(st) January 2023 824 2,291 475 773 4,363
Charge for the year - 850 57 446 1,353
At 31(st) December 2023 824 3,141 532 1,219 5,716
Carrying amounts
At 31(st) December 2022 13,285 6,208 256 2,376 22,125
At 31(st) December 2023 13,285 5,358 199 2,602 21,444
Impairment testing for cash-generating units containing goodwill
All goodwill relates to 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 four 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.
Impairment testing for cash-generating units containing goodwill (continued)
The carrying amount of goodwill allocated to each of the CGUs is as follows:
2023 2022
£000 £000
STM Life 1,256 1,256
LCA 7,735 7,735
FLHP 3,698 3,698
Options - Berkeley Burke acquisition 596 596
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.
The recoverable amount of each CGU or group of CGUs as at 31(st) December 2023
has been determined based on a value in use calculation using cash flow
projections from financial budgets prepared for the subsequent three years and
which have been approved by the Board. The subsequent two years' cashflows
have been calculated based on the following assumptions thereby providing a
five-year estimate of prospective net cashflows:
2023 2022
Percentage ranged from: % %
Revenue growth rates and attrition -1.5% - 2% -1.5% - 4%
Expense increases and inflation rates -2% - 3% -3% - 4%
The range of revenue growth and attrition rates, and those for expense
increases and inflation, has narrowed in comparison with 2022,to bring the
assumptions for certain business units in line with those used elsewhere in
the Group. 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
13.5% (2022: 14%) 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, no impairment charge has been recognised in
either of the two years ended 31(st) December 2023 or 31(st) December 2022.
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 customer attrition rates
· Expense increases and inflation rates
· Discount rates
Revenue growth rates and attrition - a higher decline in revenue growth rates
and/or an increase in attrition rates would result in a further impairment
charge being required. A 1% reduction in both revenue growth and attrition
rates would result in a potential impairment charge of approximately £199,000
(2022: £185,000).
Key assumptions used in value in use calculations and sensitivity to changes
in assumptions (continued)
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 being required of £50k (2022: £nil).
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
£173,000 (2022: £229,000).
Management also considered the potential impact of a scenario that combines
adverse changes in all three key metrics, namely where the revenue growth rate
reduces by 1%, expenses increase by 1% and the WACC increases by 1%. This
would result in a potential impairment charge of approximately £510,000
(2022: £1,194,000).
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
2023 2022
Acquisition date £000 £000
London & Colonial Services Ltd October 2016 283 383
STM Nummos Life SL January 2018 173 215
Harbour Pensions Ltd February 2018 453 545
Options Corporate Pensions UK Limited February 2019 359 429
Options UK Personal Pensions LLP February 2019 615 735
Options SSAS Limited August 2020 199 229
Options EBC Limited August 2020 795 915
SIPP portfolio acquired from Mercer Ltd August 2022 1,389 1,543
SSAS portfolio acquired from Mercer Ltd August 2022 1,092 1,214
Total 5,358 6,208
15. Financial assets
Group 31 December 31 December
2023 2022
£000 £000
Financial instrument designated at FVTPL 1,839 1,762
Total 1,839 1,762
The financial instrument designated at FVTPL represents UK sovereign debt
instrument with a stated interest rate of 2% and is held for trading.
This investment has been classified as Level 1 as its value is derived from
quoted prices in active market.
16. Trade and other receivables
Group 31 December 31 December
2023 2022
£000 £000
Trade receivables 3,915 4,266
Prepayments 1,691 999
Other receivables 1,743 3,196
Total 7,349 8,461
Amounts due from related parties comprise intercompany balances which are
unsecured, interest free and repayable on demand.
The Group's exposure to credit risks and impairment losses related to trade
and other receivables (excluding accrued income) are described in Note 24.
17. Cash and cash equivalents
Group 31 December 2023 31 December 2022
£000 £000
Bank balances 18,365 19,234
The Group has a secured bank loan liability of £4,813,000 (2022: £5,363,000)
which is included within Trade and Other Payables in Notes 21 and 22. Details
of the security held is set out in Note 21.
Within cash and cash equivalents held by the Group there is a balance of
£4,209,000 (2022: £2,903,000) which is not available for use by the Group.
This mainly represented the blocked accounts that form part of Options
Corporate and Options SIPP regulatory requirements and the funds collected on
behalf of clients but yet to be paid across to the respective clients or
relevant authority bodies.
18. Capital and reserves
Authorised, called up, issued and fully paid 31 December 2023 31 December 2022
£000 £000
59,408,088 ordinary shares of £0.001 each 59 59
(2022: 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.
Share premium
There were no new shares issued during either of the two years ended 31(st)
December 2023 and 31(st) December 2022. The balance of the share premium
account as at 31(st) December 2023 amounted to £22,372,000 (2022:
£22,372,000).
Other reserves
Other reserves are made up of:
31 December 2023 31 December 2022
£000 £000
Note
Treasury reserves 549 549
Foreign Currency translation reserve 49 81
Share based payments reserve 19 (162) (162)
Other reserve 5 1,843 1,375
Total other reserves 2,279 1,843
Treasury shares
The treasury shares relate to those shares purchased by the STM Group Employee
Benefit Trust (EBT) for allocation to executives. The trustees of the Employee
Benefit Trust held 1,089,780 ordinary shares of £0.001 each in the Company at
31st December 2023 and at 31st December 2022. 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. The balance held on the
treasury shares account as at 31(st) December 2023 amounted to £549,000
(2022: £549,000).
Translation reserve
The translation reserve comprises all cumulative foreign currency differences
arising from the translation of the financial statements of foreign
operations. The balance at 31(st) December 2023 amounted to a negative
£49,000 (2022: negative £81,000), with the movement of £32,000 in 2023
(2022: £12,000) representing the foreign currency differences arising from
the translation of the financial statements of foreign operations during the
year.
Dividends
The following dividends were declared and paid by the Group during the year:
31 December 2023 31 December 2022
£000 £000
Nil pence per qualifying ordinary share (2022: 1.50 pence per qualifying - 891
ordinary share)
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 2023 31 December 2022
£000 £000
Nil pence per qualifying ordinary share (2022: 0.60 pence per qualifying - 356
ordinary share)
19. Share based payments
There was no Long-Term Incentive Plan in place during the year. As such the
charge for the year which has been recognised within the share-based payment
reserve is £Nil (2022: £Nil). The share-based payments reserve at 31(st)
December 2023 amounted to £162,000 (2022: £162,000).
20. Earnings per share
Earnings per share for the year from 1(st) January 2023 to 31(st) December
2023 is based on the profit attributable to owners of £417,000 (2022:
£844,000) divided by the weighted average number of £0.001 ordinary shares
outstanding during the year of 59,408,088 basic (2022: 59,408,088) and
£59,408,088 dilutive (2022: 59,408,088) in issue.
21. Trade and other payables
Group 31 December 2023 31 December 2022
£000 £000
Deferred income 3,664 3,842
Trade payables 1,970 882
Bank loan (secured) 550 552
Deferred consideration - 56
Lease liabilities 304 570
Other creditors and accruals 6,783 6,615
Total 13,271 12,517
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, with drawn down being completed
in September in 2022 to fund the acquisition of the Mercer portfolios (Note
4). The facility has a 5-year term from November 2020, 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 balance outstanding on this
facility as at 31(st) December 2023 was £4.8 million (2022: £5.4 million).
Interest on the loan is charged at 3.5% per annum over the Sterling Relevant
Reference Rate on the outstanding balance. 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.
The Group's exposure to liquidity risk related to trade and other payables is
described in Note 23.
22. Other payables - amounts falling due in more than one year
Group 31 December 2023 31 December 2022
£000 £000
Lease 546 143
liabilities
Bank loan (secured) 4,262 4,811
Other payables - 96
Total 4,808 5,050
23. Financial risk management
The Group has exposure to the following risks from its use of financial
instruments:
• Credit risk
• Liquidity risk
• Market risk
• Interest rate risk
• Currency risk
• Regulatory risk
• Capital management
This note presents information about the Group's exposure to each of the above
risks, the Group's objectives, policies and processes for measuring and
managing risk, and the Group's management of capital. Further quantitative
disclosures are included throughout these consolidated financial statements.
The Board of Directors has overall responsibility for the establishment and
oversight of the Group's risk management framework. The Board has an Audit and
Risk Committee, which is responsible for developing and monitoring the Group's
risk management policies.
The Group's risk management policies are established to identify and analyse
the risks faced by the Group, to set appropriate risk limits and controls, and
to monitor risks and adherence to limits. Risk management policies and
systems are reviewed regularly to reflect changes in market condition and the
Group's activities. The Group, through its training and management standards
and procedures, aims to develop a disciplined and constructive control
environment in which all employees understand their roles and obligations.
(a) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Group's receivables from clients.
Trade and other receivables
The Group's exposure to credit risk is influenced mainly by the individual
characteristics of each client. The demographics of the Group's client base,
including the default risk of the country in which the clients operate, has
less of an influence on credit risk. There is no one client to which a
significant percentage of the Group's revenue can be attributed. The level of
liquidity of customer investments determines the level of credit risk
associated with each customer. The liquidity of customers is monitored at each
anniversary date.
(b) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due. The Group's approach to managing
liquidity is to ensure, as far as possible, that it will always have
sufficient liquidity to meet its liabilities when due, under both normal and
stressed conditions. The Group believes its exposure to liquidity risk is
minimal given its current cash balances and existing financial obligations.
(c) Market risk
Market risk is the risk that changes in market prices, such as foreign
exchange rates, interest rates and equity prices will affect the Group's
income or the value of its holdings of financial instruments. The object of
market risk management is to manage and control market risk expenses within
acceptable parameters, while optimising the return. The Group does not have a
significant exposure to market risk.
(d) Interest rate risk
The Group has one bank borrowing at the year end, as detailed in Note 21. A
change of 100 basis points in the relevant underlying interest rate would have
increased or decreased equity and profit or loss by £51,000 before tax
(2022: £34,000).
(e) Currency risk
The Group has a small exposure to currency risk in relation to its investment
in STM Nummos. This is mitigated by the fact that the assets and liabilities
held by STM Nummos are in its functional currency of Euros (€). It has a
further currency risk in relation to the expenses incurred in Malta as these
are in Euros. A change of 100 basis points in the Euro to Sterling exchange
rate would have increased or decreased equity and profit or loss by £27,000
after tax (2022: £28,000) This is mitigated by the fact that clients are
invoiced in its and the Group's functional currency of Sterling (£).
The Company has minimised exposure to foreign exchange rates, with the
majority of transactions being carried out in its functional currency of
Pounds Sterling (£).
(f) Regulatory risk
The Group is subject to laws, regulations, and specific solvency requirements
in the various jurisdictions in which it operates. The Group has established
policies and procedures aimed at compliance with local laws and regulations.
(g) Capital management
The Board's policy is to maintain a strong capital base, which is defined as
share capital and retained earnings, so as to maintain investor, creditor and
market confidence and to sustain future development of the business.
Furthermore, certain of the Company's subsidiaries are licensed by the
respective jurisdictions regulators and as such all comply with the regulatory
capital requirements set by each respective regulatory body.
The Group manages its capital to ensure that the entities in the Group will be
able to continue as a going concern, while maximising the return to
stakeholders through optimisation of the debt and equity balance. The capital
structure of the Group consists of debt, which includes a bank loan as per
Notes 21 and 22, and equity attributable to shareholders, comprising share
capital, reserves and retained earnings as disclosed. The Board reviews the
capital structure and as part of this review, considers the cost of capital
and the risks associated with each class of capital. In addition, the Board
considers the liquidity and solvency of the Group on an ongoing basis.
The Group monitors capital using a ratio of "adjusted net debt" to "adjusted
equity". For this purpose, adjusted net debt is defined as total liabilities,
comprising interest-bearing loans and borrowings less cash and cash
equivalents net of the balances which are not available for use by the Group
(Note 17). Adjusted equity comprises all components of equity.
The Group's adjusted net debt to equity ratio at 31(st) December 2023 suggests
that the Group has sufficient liquidity to meet its obligations as they fall
due. Net debt compared to equity at 31(st) December 2022 was as follows:
31st December 2023 31st December 2022 (restated)
£000 £000
Total liabilities 18,823 18,759
Less: net cash and cash equivalents available (14,156) (16,331)
Adjusted net debt 4,667 2,428
Total equity attributable to owners of the Company 34,595 34,970
Adjusted net debt to equity ratio 13% 7%
Total liabilities above are stated after excluding provisions for customer
redress of £27,441,000 (2022: £488,000) as these are exactly matched buy
amounts recoverable from the Group's insurers. The comparative for total
liabilities has been adjusted accordingly as such provisions were not excluded
in the financial statements of the Group for the year ended 31(st) December
2022, as the amount involved was not material.
The net cash and cash equivalents available excludes the balances not
available for use by the Group of £4,209,000 (2022: £2,903,000) as more
fully explained in Note 17.
24. Financial Instruments
Credit risk
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit
exposure. The Group's maximum exposure to credit risk at the reporting date
was:
Carrying amount
31st December 2023 31st December 2022
£000 £000
Financial instrument designated as FVTPL 1,839 1,762
Trade and other receivables 7,349 8,461
Cash and cash equivalents 18,365 19,234
Total 27,553 29,457
The Group's maximum exposure to credit risk on trade and other receivables
relating to one entity or group of related entities amounts to less than 10%
of the overall trade receivables amount as at 31(st) December 2023 and 31(st)
December 2022. Segmental disclosures are included in Note 6 reflecting the
Group's operating segment and geographic concentration.
The Group limits its exposure to credit risk by investing only in liquid debt
securities issued by the UK government. The financial instrument designated at
FVTPL held by the Group is rated as investment grade.
Impairment on trade and other receivables is determined applying an ECL model
as discussed in the financial statements.
The ageing of the Group's trade receivables at the reporting date was:
Gross Individual Impairment Total Gross Individual Impairment Total
receivables 31st December £000 receivables 31st December £000
31st December 2023 2023 31st December 2022 2022
£000 £000 £000 £000
Not past 1,398 - 1,398 933 - 933
due
Past due 0-30 days 350 - 350 464 - 464
Past due 31-120 days 198 - 198 333 - 333
More than 120 days past due (601) 3,060 (524) 2,536
2,570 1,969
Total 4,516 (601) 3,915 4,790 (524) 4,266
Standard credit terms are 30 days from the date of issuing the fee note.
The movement in the allowance for impairment in respect of trade receivables
during the period was:
31st December 2023 31st December 2022
£000 £000
Balance at start of year 524 174
Movement in expected credit loss allowance 77 350
Balance at end of year 601 524
Based on historic default rates and knowledge of the customers, the Group
believes that no impairment allowance is necessary in respect of the trade
receivables.
Liquidity Risk
The Group holds sufficient liquid assets, including cash at bank, to enable it
to meet its liabilities as they fall due. The following are the Group's
contractual maturity liabilities. The amounts are gross and undiscounted and
include contractual interest payments and exclude the impact of netting
arrangements.
31st December 2023 Carrying amounts Contractual cash flow 6 months or less 6-12 months 1-4 years
£000 £000 £000 £000 £000
Non-derivative financial liabilities
Trade payables 1,970 1,970 1,970 - -
Bank loan (secured) 4,812 5,013 330 327 4,356
Lease liabilities 850 844 194 110 540
Other creditors and accruals 6,783 6,783 6,783 - -
Total 14,415 14,610 9,277 437 4,896
31st December 2022 Carrying amounts Contractual cash flow 6 months or less 6-12 months 1-4 years
£000 £000 £000 £000 £000
Non-derivative financial liabilities
Trade payables 882 882 882 - -
Bank loan (secured) 5,363 5,682 336 333 5,013
Deferred consideration 56 56 56 - -
Lease liabilities 713 736 363 226 147
Other creditors and accruals 6,615 6,615 6,615 - -
Total 13,629 13,971 8,252 559 5,160
Fair value hierarchy
The following table shows a reconciliation from the beginning balances to the
ending balances for fair value measurements in Level 3 of the fair value
hierarchy.
Financial assets - call options 31st December 2023 31st December 2022
£000 £000
Balance at 1st January - 881
Settlement (Note 5) - (881)
Balance at 31st December - -
25. Leases
In relation to leases under IFRS 16, the Group has charged depreciation and
interest expenses. The Group recognised £455,000 (2022: £487,000) of
depreciation charges and £41,000 (2021: £53,000) of interest expenses from
these leases during the year ended 31(st) December 2023. The Group recognised
£72,000 (2022: £61,000) of expenses relating to short-term leases or leases
that can be cancelled with no penalties and £6,000 (2022: £6,000) of
expenses for leases of low-value assets, excluding short-term leases, for the
year ended 31(st) December 2023.
The total cash outflow for leases for the year ended 31(st) December 2023 was
£660,000, including short-term lease cash outflows of £78,000 (2022:
£791,000, including short-term lease cash outflows of £67,000).
Lease liabilities
Non-cancellable lease liabilities as per IFRS 16 are payable as follows:
31st December 2023 31st December 2022
£000 £000
Less than one year 304 589
Between one year and five years 540 147
More than five years - -
Total 844 736
The maturity analysis of lease liabilities is disclosed in Note 24.
Right-of-use assets are disclosed in Note 13.
The Group leases a number of offices from which they operate, the largest of
which are the offices in Gibraltar, Cardiff and Milton Keynes with the leases
terminating in 2028, 2025 and 2024 respectively.
26. Provisions, receivables due from insurers 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.
Provisions and receivables due from insurers 31st December 31st December
2023 2022
£000 £000
Customer redress in relation to UK SIPP claims 27,441 -
Other claims - 488
Total 27,441 488
Customer redress in relation to UK SIPP claims
During the year ended 31(st) December 2023, numerous claims from clients
arising across various policy years and investments were settled and the cost
covered in full by the professional indemnity insurance in place for the
relevant policy years based on the relevant reserving held. In addition, a
Judicial Review heard on 16 and 17 April 2024 that affected a further cohort
of cases rejected the Group's appeal against the previous determination by the
Financial Ombudsman Service and upheld the original ruling. These events have
enabled a reasonably materially accurate assessment to be done of the
potential liability relating to the remaining open cases and legal claims in
similar circumstances. In accordance with IAS 37, a provision of £27,441,000
(2022: £nil) has been made in the financial statements for the year ended
31(st) December 2023 with a corresponding receivable from insurers as these
are fully covered by professional indemnity insurance.
With reference to the prejudicial exemption allowed under IAS 37, the Group
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.
Other claims
As at 31(st) December 2022 there were potential claims in respect of the
historic trading of 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 relevant
insurance case excesses and thus was also reflected as a receivable due from
insurers. Following progress made on these claims during the year ended 31(st)
December 2023, the provision (and corresponding receivable from insurers) has
reduced to £Nil (2022: £488,000).
General
With reference to the prejudicial exemption allowed under IAS 37, the Group
will not disclose any further information about the contingent liability,
including any details about current and potential claims as these claims are
ongoing.
27. Non-adjusting subsequent events
On 14(th) June 2024, the Company announced that the Group had signed a
commercial agreement with Smart Pension Limited ("Smart") under which members
transferring from of the Group's Options Workplace Master Trust would, subject
to approval by the Trustees and the Pensions Regulator, transfer to Smart's
Master Trust with Smart paying a consideration for such transfers to the
Group. It is anticipated that, over a two-year period, this consideration is
likely to amount to circa £4.7million. In addition, the Group also entered
into an introducer's agreement with Smart at the same time, whereby any new
members introduced to Smart by the Group's existing or new intermediary
contacts would lead to introductory commission income for the Group. The
agreement is in place for a maximum period of three years, and management
estimates that the quantum of such additional introductory commission could
lie in the range of £1.0 million to £5.0 million over the three-year period.
On 12th January 2023, the Group completed the acquisition of the remaining
external 30% interest in Options UK Personal Pensions 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.
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