INVESTOR RELATIONS

CHIEF'S EXECUTIVE REVIEW

AS EXPECTED, GIBRALTAR HAS NOW BECOME A WELL ESTABLISHED QROPS MARKET AND I’M PLEASED TO NOTE THAT STM, HAVING BEEN IN THIS MARKET SINCE ITS INFANCY, HAS MANAGED TO MAINTAIN ITS POSITION AS MARKET LEADER.

OPERATIONAL OVERVIEW

It gives me great pleasure to present the annual results for the year ended 31 December 2014, which pleasingly not only reflect continued growth in turnover, but a significant increase in profitability.
As advised this time last year, profitability lagged turnover as a result of having to build on resources required to sustain the expected increases in turnover. I am pleased to note that this is no longer the case and the investments made in resources over recent years, together with the creation of the Business and Product Development team earlier this year, have resulted in this year’s significant increase in profitability.
As expected by management, the growth continues to come from the Pensions and Life Assurance businesses. Part of the work carried out by the Business and Product Development team was to increase the distribution network mainly through the international IFA market. This has resulted in STM generating business on a much more global basis thereby reducing reliance on the UK market.
Over the last few years STM has found the Corporate and Trustee Services (“CTS”) markets challenging and regrettably this has continued throughout 2014.

 

STM PENSIONS

As noted already, Pensions has continued to grow during the year with this area now accounting for 50% of the Group’s turnover. The Pensions division reported turnover of £8.0 million (2013: £5.9 million) reflecting a 36% increase from the previous year.
As expected, Gibraltar has now become a well-established QROPS market and I am pleased to note that STM, having been in this market since its infancy, has managed to maintain its position as market leader. Whilst our Malta division remains by far the larger of the two, the growth in the year has largely come from our Gibraltar division which has reported an increase in revenue of circa 150% from £1.0 million in 2013 to £2.5 million in 2014. Malta revenues also continue to show steady growth of 13% resulting in total turnover for the year for this division of £5.5 million (2013: £4.9 million).

 
 

STM IS NOW IN A MUCH STRONGER AND MORE MARKET DOMINANT POSITION. THE FOCUS FOR 2015 IS TO FURTHER STRENGTHEN AND MAXIMISE ITS BUSINESS DEVELOPMENT ACTIVITIES BY SECURING A MORE GLOBAL INTERMEDIARY NETWORK.

CORPORATE AND TRUSTEE SERVICES

CTS turnover currently accounts for 35% of the Group’s revenue compared to 44% in 2013. Whilst, in part, this is as a result of the decrease in actual CTS revenue, it is also largely due to the increase in the Group’s overall revenue given the growth in Pensions and Life.
Total turnover for this business for the year was £5.5 million (2013: £5.8 million), generated predominantly in Jersey and Gibraltar. Jersey revenue accounted for circa 57% (2013: 58%) of the CTS business at £3.1 million (2013: £3.4 million), with Gibraltar having generated £2.4 million (43%) in 2014, directly comparable to the £2.4 million (42%) generated in the previous year.
As noted at the half-year stage, the decrease in revenues can be seen across both jurisdictions demonstrating the overall downward cycle being experienced in this area of our business. That said, these two jurisdictions typically have a different market focus which gives STM a better product spread.

 

STM LIFE

2014 has seen STM Life become a Group contributor both in terms of revenue and profitability, with turnover for the year of £1.4 million compared to £0.6 million in 2013.
New business is being generated from a range of intermediaries and across a wide spread of products. Not only does this suggest diversification within the division but pleasingly it also indicates that the efforts put in by management over the last few years to develop these products and build on these relationships is finally coming to fruition. New business continues to grow in this area which, together with annual management fees, provides solid and steady revenue for 2015 and beyond.

 

OTHER TRADING DIVISIONS AND NEW INITIATIVES

Trading in other divisions which are mainly insurance management, advisory and the Spanish office was broadly in line with management expectations. These are expected to continue at similar levels going forward having generated revenue of £1.0 million in the year (2013: £1.1 million).

 

FINANCIAL POSITION

For the year ended 31 December 2014, the Group recorded turnover of £15.9 million (2013: £13.4 million) and EBITDA of £2.3 million (2013: £0.9 million). In spite of turnover having increased by 19%, administrative expenses have only increased by 9%, predominantly due to the increase in commissions payable on the Pensions business. This is as expected given the increase in growth in this part of the business however
additionally goes to demonstrate the operational gearing in the Group and the potential impact on Group profitability from increasing revenues.
As would be expected given the decrease in Group borrowings (see below), finance costs are down at £0.3 million (2013: £0.4 million). The depreciation and amortisation charge, a non-cash expense to the income statement, has remained consistent in 2014 at £0.3 million (2013: £0.3 million). Profit before tax is consequently £1.7 million for the year (2013: £0.3 million) reflecting an increase of over 500%.
As noted in last year’s report STM has recovered an element of the taxation charge paid by the Malta subsidiary upon the declaration of dividends up to the holding company. This has therefore reduced the Group’s effective tax rate. The charge for the year was £0.7 million (2013: £0.4 million).

 

In line with most services businesses, the Group had accrued income in the form of work performed for clients but not yet billed at the year-end of £2.1 million (2013: £3.0 million) which provides immediate visibility of billable fees in the early part of 2015. This decrease is predominantly within the Pensions business and is mainly as a result of increased efficiencies in the overall process. Trade receivables as at 31 December 2014 amounted to £3.1 million, compared with £2.5 million as at 31 December 2013.
This increase is purely due to the Pensions business, given the increase in revenue related to this division. I am pleased to note that the debtor days, a key measure in the management of debtors, have remained consistent. Deferred income, representing fees billed in advance yet to be credited to the statement of total comprehensive income, have once again increased considerably to £2.3 million (2013: £1.6 million). As is the case with the trade debtors this is wholly linked to the Pensions business. In line with the Group’s accounting policy for the Pensions business, first year fees are reflected as turnover upon invoicing whereas second year fees and beyond are deferred.

 

Consequently as the Pension business matures and enters into its second and third years, this will continue to increase. As with the accrued income, this provides visibility into 2015 revenues.
The Group ended the year with cash of £5.7 million (2013: £4.1 million). The Group’s overall external borrowings were reduced by £1.0 million during the year, through the repayment of £0.9 million of convertible loan notes and the £0.1 million overdraft facility.

Revenue of £15.9 Million.

(2013: £13.4 million)
Share price
 

INVESTOR RELATIONS

OUTLOOK

STM is now in a much stronger and more market dominant position. The focus for 2015 is to further strengthen and maximise its business development activities by securing a more global intermediary network.

SUMMARY & OUTLOOK

GROUP FINANCES

During the year the Group has decreased the level of external borrowing by £1.0 million. This decrease is largely as a result of having repaid the convertible loan notes (“Loan Notes”) issued in 2010 to the value of £3.5 million and having issued new ones to certain holders of the 2010 Loan Notes to the value £2.6 million. The new Loan Notes have a fixed term of 2 years and carry an annual coupon of 7%, payable half-yearly. They also carry an option to convert into new ordinary shares at a price of 26p per share after the first year with STM having the option to repay those that do not convert. Those Loan Notes not converted or redeemed will run to term.

 

BOARDS CHANGES DURING THE YEAR

After three and a half years as the Group’s Chairman, Julian Telling stepped down from this role on 31 December 2014 and has been replaced by Michael Riddell who has been a member of the Board since 2010. Julian has been instrumental in STM’s transition from offering bespoke solutions in the CTS market to becoming a multi-disciplinary international financial services provider delivering tailor-made solutions for our clients. The Board joins me in thanking him for his dedicated and valued work and we wish him every success in the future.
Therese Neish, having assumed the role of Chief Financial Officer in December 2013, was officially appointed to the Board in January 2014.

OUTLOOK 2015

STM is now in a much stronger and more market dominant position. The focus for 2015 is to further strengthen and maximise its business development activities by securing a more global intermediary network. These specialist business developers in untapped regions will significantly enhance the scalability of the Group across all product areas, particularly in our Pensions and Life Assurance businesses.
Much progress has already been made in achieving these ambitions, without compromising the high levels of service our clients have come to expect of us. New financial products and services have been developed from a deep understanding of
our clients’ needs and objectives. This is a focus that we will maintain to ensure that we remain at the forefront of their needs as the financial world and their circumstances evolve.
The Board is confident in the prospects for the Group and looks forward to updating the market on further progress.

DIVIDENDS 2014

No dividend has been recommended for the year ended 31 December 2014, however, noting the steady progress in the business, the Board hopes to re-introduce a progressive dividend policy as resources allow.

10 March 2015

Colin D Porter
STM GROUP PLC
Chief Financial Officer
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