Menu
 

INVESTOR RELATIONS

Latest Results

Unaudited Interim Results for the six months ended 30 June 2018

Download
The full results are available to
view and download in PDF format

STM Group Plc (AIM: STM), the multi-jurisdictional financial services group, is pleased to announce its unaudited interim results for the six months ended 30 June 2018.

Chief Executive's Review

Overview

I am pleased to present the interim results for the six months ended 30 June 2018 which show a solid and comparable performance to that of the previous year.

Underlying performance of the various business units remains consistent with the expectations of the executives. As previously noted, the strength of the trading performance is very much underpinned by the high percentage of recurring revenue of the STM business model, along with a primarily fixed cost base. New business volumes for our international SIPP product remain consistent with 2017 numbers, whilst our Malta and Gibraltar QROP's books continue to show pleasingly low attrition rates.

In addition, as part of a continued drive to become more efficient in 2018, we have seen normalised profit margins continue to improve.

The integration of the Harbour acquisition is complete and has demonstrated the potential profitability of these "bolt-on" types of opportunities for the Group. We continue to actively seek out further acquisitions of this type.

As part of continuing to build on our corporate governance framework, for both the Group and its underlying subsidiaries, we have appointed two new members to the Board. Duncan Crocker joins as new Chairman, after Mike Riddell stepped down at the AGM in May 2018, and Graham Kettleborough joins as a new Non-Executive Director. Both come with decades of solid relevant financial services experience and will invariably complement the skill set that we already have around the board-room table. In addition to the Board appointments, we have further built on our governance framework, having appointed a Group Internal Auditor earlier this year and have also taken the decision to recruit a Chief Operating Officer to join the existing executive team.

Financial results

For the six month period ended 30 June 2018 the Group reported revenues of £10.8 million (2017: £10.7 million). Whilst this may appear to be a consistent performance with prior year it should be noted that the prior year results included a one-off amount of £0.5 million being a release of the insurance technical reserve acquired with the London & Colonial acquisition. Therefore, Group revenue has increased by approximately 6% on a like for like basis.

Profit before tax for the period amounted to £2.1 million (profit margin of 20%) compared to £1.9 million on a like for like basis i.e. net of the expense release for the period ended 30 June 2017 (profit margin of 19%). Profit before tax for the period is after absorbing circa £0.3 million of legal and professional costs in relation to the Skilled Person Review carried out on the Gibraltar regulated entities.

Pleasingly, all of the Group's trading operations have performed in line with management expectations. The Group's solid and robust recurring revenue stream continues to grow and forms 79% (2017: 74%) of total revenues.

In line with all administration services businesses and, as per previous years, the Group had accrued income in the form of work performed for clients but not yet billed of £0.9 million as at the period end (2017: £1.0 million). The Group's accounting policy for accrued income in relation to the pensions business is based on the number of new business applications received but for which an invoice has not yet been raised. Invoices are raised once the pension funds are received and the fees can be taken. This gives some visibility of revenue still to be billed and collected as cash at bank.

In addition, deferred income relating to annual fees invoiced but not yet earned stood at £4.3 million (2017: £4.0 million). The Group's accounting policy for its pension businesses was previously for first year fees to be recognised in full at the time of receiving the application with a proportion of the second year fees and beyond to be deferred over the year in which the fee relates. However, following the transition to International Financial Reporting Standard 15 ("IFRS 15") Revenue from Contracts with Customers, first year's fees are now recognised in line with second year fees and beyond with a proportion deferred over the year in which they relate. However, as previously announced and expected, this change has had no material financial impact on the business, with deferred income being consistent with the prior year. This figure gives good visibility of revenue that has still to be earned through the Income Statement in the coming months.

Trade receivables as at 30 June 2018 were £2.3 million showing no change from the position as at 30 June 2017.

During the current period, the Company has started making capital repayments on the bank loan taken out to finance the acquisition of London & Colonial in October 2016. As such, the balance on the outstanding loan is £2.5 million (30 June 2017: £3.3 million) and has resulted in reduced financing costs of £0.1 million (2017: £0.2 million).

Cash and cash equivalents at 30 June 2018 were £18.8 million (30 June 2017: £14.7 million). As would be expected for a Group regulated in a number of jurisdictions, a significant proportion of this balance forms part of the regulatory and solvency requirements. As at 30 June 2018 this was circa £12 million. In addition, there are working capital requirements across the Group. Importantly, and demonstrating the visibility and robustness of the business model, cash generated from operating activities amounted to £2.6 million (2017: £4.1 million).

Dividend

The Group continues to follow a progressive dividend policy and I am pleased to announce that the Board has declared an interim dividend of 0.7 pence per share (2017: 0.6 pence). The interim dividend is expected to be paid on 15 November 2018 to those shareholders on the register on 12 October 2018. The ordinary shares will become ex-dividend on 11 October 2018.

Subject to trading continuing to perform in line with our expectations, the Board expects to propose a final dividend for the full year.

Review of operations

Pensions business

STM's pension administration businesses continue to be based in three locations: Malta and Gibraltar which administer the QROPS pensions, and the UK where the SIPPs are administered.

New applications for QROPS pensions continue to be received in Malta for residents situated in the EEA. In addition, the International SIPP, which was launched in April 2017 to service the needs of the Group's international clients, continues to show comparable monthly new business volumes to that of the previous year.

The acquisition of Harbour Pensions Limited in February 2018 saw the addition of 1,600 QROPS which has contributed £0.5 million to the overall Group's revenue for the period. Within this revenue there is a one off of £0.2 million as a result of bringing Harbour's revenue recognition in line with the Group's.

Overall the pensions revenue for the period was £5.9 million (2017: £5.3 million) thus accounting for 55% of the Group's overall turnover (2017: 49%). Total revenue is split between £5.1 million for QROPS (2017: £4.5 million) and £0.8 million (2017: £0.8 million) for the SIPP business.

Splitting the QROPS business further into the two jurisdictions shows Gibraltar remaining consistent with prior years at £1.3 million (2017: £1.3 million) and Malta having increased by circa 19% to £3.8 million (2017: £3.2 million).

Life assurance divisions

Following the acquisition of London & Colonial in October 2016, the Group continues to run two separate life assurance businesses. Whilst the intention at the acquisition date was to merge these two companies, a decision was recently taken to keep these separate to allow the Group to continue to service both Europe and the UK market beyond March 2019 when the UK is expected to leave the European Union.

Revenue for this operating segment for the six months to 30 June 2018 amounted to £2.2 million (2017: £2.9 million). As mentioned above, the 2017 results included a release on the technical expense reserve of £0.5 million thus, when this is excluded, total revenues show an increase of 10% in underlying revenues. Pleasingly, the revenue growth has come from a steady and predictable increase in monthly recurring revenue in STM Life. This complements the very predictable nature of the L&C book of business that continues to deliver recurring revenues of £1.0 million (2017: £1.0 million) in line with management's expectations.

CTS division

Whilst there was a time when the Group's revenue was predominantly generated from the Corporate and Trustee Services division ("CTS") this lower margin revenue stream has been diluted over time and now accounts for just 21% (2017: 19%) of the Group's total revenue during the first half of 2018. Revenues generated by the CTS business for the period were £2.2 million as compared to £2.0 million in the same period for 2017.

Revenue resulting from the Jersey CTS business has surpassed management expectations by £0.3 million of non-recurring ad-hoc fees and overall accounted for 63% (2017: 60%) of the CTS division's revenue at £1.4 million (2017: £1.2 million), with Gibraltar's revenue remaining consistent at £0.8 million (2017: £0.8 million). Whilst Jersey has performed better than expected, the CTS market remains a difficult market for expansion, due to various macro and micro economic factors. In this regard STM's focus in this area is on client retention and maintaining operating profit margins, rather than anticipating growth.

Other divisions

Turnover from other divisions remains at approximately £1.0 million annually and thus has generated £0.5 million (2017: £0.5 million) for the six month period. The main contributors of this are the Insurance Management division and the Spanish office, with both divisions performing in line with management expectations.

Outlook

We have entered the second half of 2018 knowing that our recurring revenue streams will underpin a solid profitable performance for the year as a whole.

At the same time the Board is working on a three year strategy that focusses on organic growth, potential acquisitions and increased profit margins.

Organic growth will be delivered by a continued emphasis to provide additional products to the marketplace within our pensions and life businesses and also to expand our distribution network. This will also allow us to be less reliant on purely the expatriate marketplace and will reduce concentration risk across our intermediary base.

Senior management are committed to driving efficiency in how we process our day to day business so as to improve profit margins. In addition, we will continue to seek out opportunistic acquisitions in the pensions and life sector that will enhance and diversify our existing operations.

The STM Life board has now made its decision to redomicile from Gibraltar to Malta so as to be in a position to service its EEA based clients going forward, and this project has now commenced.

As previously announced, some of the Gibraltar regulated companies have undergone a Skilled Persons Review which was conducted by Deloitte Limited. That review has now concluded and the companies are working towards implementing the recommendations put forward by Deloitte in their report. As a result of this the Group will emerge with a stronger and more robust business.

Finally, I am delighted that there have, in recent weeks, been two appointments to the Board. This will invariably help to strengthen our corporate governance and risk management framework, and ensure that we meet the expectations of all our stakeholders.

The Board looks forward to updating the market during the second half of the year.

 

Alan Kentish
Chief Executive Officer

11 September 2018

 

Page last up-dated: 11 September 2018

 

"STM Group PLC strives to be the provider of choice for cross-border investors, entrepreneurs and expatriates by offering clear, innovative and impartial financial and commercial solutions which help clients protect and grow their investments."