Preliminary Results
For the 11 months ended 31 December 2007
04 March 2008
STM Group Plc (AIM:STM), the cross border financial services provider, announces its preliminary results for the 11 months ended 31 December 2007.
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- Highlights
- Chairman's Statement
- Chief Executive Officer's Review
- Consolidated Income Statement
- Consolidated Balance Sheet
- Company Balance Sheet
- Cashflow Statement
- Consolidated Changes in Equity
- Notes
Highlights
- Raised £7.5 million through IPO in March 2007
- Successfully acquired and integrated:
- Fidecs Group Limited
- Atlas Group Limited
- Parliament Corporate Services Limited
- Compagnie Fiduciaire Trustees Limited
- Revenue of £5.29 million*
- Profit before tax of £1.78 million*
- EPS at 5.29 pence*
* Figures are not for the full year, rather from 1 February 2007 to 31 December 2007 [although they relate to just a nine month trading period post the acquisition of Fidecs on 28 March 2007].
Commenting on the results, Tim Revill, Chief Executive Officer, said: "2007 has been an exceptional year for STM, with the Group achieving its goals of growing through strategic acquisitions and organic growth. The Group enters 2008 with a pro-forma annual turnover of approximately £7.5 million, before any further organic growth or acquisitions, and therefore looks forward to the coming year with confidence."
Chairman's Statement
Overview
I am delighted to present STM Group plc's ("STM", "the Company", or "the Group") maiden preliminary results for the period from 1 February 2007 to 31 December 2007. These results reflect the transition from a private company to an AIM traded public company, and encompass the Company's move from a dormant status to that of a trading group. STM was created specifically to build a leading financial services group operating in the international corporate and trustee services provider ("CTSP") sector.
STM's strategy is to build an international group of CTSPs operating from a number of complementary tax efficient jurisdictions, with each offering its clients high quality products and services. Potential acquisition targets are subject to extensive due diligence, with a focus on the quality of the client portfolio, client service and compliance, and each acquisition will be required to adhere to STM group-wide standards following acquisition.
The Group was admitted to trading on AIM on 28 March 2007, raising £7.5 million through the issue of 15.0 million new shares to institutional and other investors at 50 pence per share, and on the same day completed the acquisition of the entire issued share capital of Fidecs Group Limited (renamed "STM Fidecs"). STM Fidecs, one of the largest CTSPs based in Gibraltar, was the Company's principal trading subsidiary during the period under review. During the remainder of 2007, STM Fidecs acquired three further CTSPs, two of which operate in Gibraltar and one in Jersey.
Accordingly, STM's consolidated results for the eleven month period to 31 December 2007 include trading activities for the period from 28 March 2007 to 31 December 2007 only. However for the benefit of shareholders and for the ease of comparative purposes, we have also included some additional pro-forma financial information on STM Fidecs for the full year to 31 December 2007.
The "buy and build" strategy, as set out in our AIM Admission Document, continues to progress well and would not be possible without the continued support of our shareholders. Our established formula for such purchases has proven to be efficient, effective and earnings enhancing, and confirms our assertion that the CTSP sector is ripe for consolidation. Furthermore, I'm particularly pleased to announce that the organic growth shown by all the acquired business has exceeded our expectations and bodes well for the future.
STM is a people and relationship business and its strength is in the quality of its management and staff. 2007 has been a year of significant change for most of the people within STM and, on behalf of the whole board, I would like to express thanks for their continued dedication, professionalism and hard work over the last year.
Bernard Gallagher
Non-Executive Chairman
4 March 2008
Chief Executive Officer's Review
Summary of the year 2007
2007 was a transformational year for STM Group plc. On 28 March 2007, the Company was admitted to the London Stock Exchange's AIM market (AIM:STM), raising £7.5 million through a placing of 15.0 million shares and, on the same day, acquiring Fidecs Group (renamed "STM Fidecs").
The Group then set about its stated objective of growing both organically and via acquisition. In June, STM acquired Gibraltar based Atlas Group and, in August, acquired Parliament Corporate Services also based in Gibraltar. Both of these businesses and all the staff have been successfully integrated into STM Fidecs. In December, STM made its first acquisition outside Gibraltar, buying Compagnie Fiduciaire Trustees, a fully licensed trust company in Jersey.
We are delighted to report that each of the Group's businesses, following acquisition has achieved strong organic growth. We have a clear understanding of our clients' needs and we devote considerable effort to improving processes and developing products to meet them. Although, the statutory consolidated accounts for STM only include nine months trading since its first acquisition (STM Fidecs) at the end of March, the 2007 unaudited annual turnover of STM Fidecs alone (excluding the effect of Atlas and Parliament) increased by more than 22 per cent. to £6.1 million compared to 2006.
Our corporate structure is designed to allow the management of each of our operating divisions a high degree of autonomy, but within a single group-wide code of governance and a high level of client service, common to all divisions. We share best practice and experience throughout the Group, but avoid duplication of overheads by sharing such matters as treasury, risk management and, I.T. systems. Our Group management agrees clear objectives with each divisional board and they are then left to get on with their business, reporting on a monthly basis.
Strategy
STM's purpose is to provide innovative and unbiased financial solutions to High Net Worth Individuals ("HNWI"), who are investing or moving cross-border or opening a business overseas, explained in a language they understand. Once our client is happy with the solution proposed, we implement our advice. Our strategy is designed to achieve this mission.
With the European Union now comprising 27 member states, in which European Citizens have the right of establishment and freedom to purchase real estate and other assets, there is a rapidly expanding market for our cross-border advisory services and financial products. Gibraltar is part of the UK Member State for EU purposes (unlike the Channel Islands and the Isle of Man) which means that STM's Gibraltar subsidiaries benefit from the fundamental freedom to provide financial products and services directly to 456 million EU citizens. There are also increasing numbers of EU citizens moving to work or retire outside Europe in such areas as the Middle East (esp. Dubai), Thailand, Malaysia, Australia and New Zealand.
STM looks to develop a long-term professional relationship with our clients, based on mutual trust, which results in repeat business and referrals from satisfied clients. It is estimated that 19% of children of HNWIs now live in a different jurisdiction from their parents, so expertise in planning for cross-border wealth transfer is required.
The sophistication and international involvement of our HNWI clients is growing day-by-day and our products, services and processes have to keep pace. For this reason STM will continue its "buy and build" strategy, acquiring CTSPs in complementary jurisdictions, to achieve global spread. We will also develop new financial products and services to satisfy market demand.
Operational Results
The operational highlights in 2007 for each of the main divisions follows. For the purposes of reporting the Group's progress during 2007, the principal trading divisions were Corporate and Trustee Services ("CTS") and Insurance Management, as well a number of other smaller, but growing divisions offering complementary services. Pro-forma turnover and other figures stated are for the full 12 months, so that like-for-like comparisons can be made.
Corporate and Trustee Services ("CTS")
During the twelve months to December 2007, pro-forma like for like turnover of STM Fidecs CTS division increased by 8% to £2.734 million, compared to 2006. Due to the fact that our CTS fees comprise a fixed annual fee per entity plus time charges for ongoing administration and are not based on the value of assets under management, we have not been unduly affected by the instability recently experienced in the wider financial markets in the latter part of 2007.
The total number of entities administered by STM Fidecs appears to have remained virtually static between the date of acquisition and the year end. In fact we gained 31 trusts and 48 companies, which replace the 13 trusts and 50 companies, which ceased operations during 2007. These figures show an annual attrition rate slightly less than the generally accepted industry average of 10%.
The two bolt-on Gibraltar acquisitions, Atlas and Parliament, added a further £0.2 million and £0.5 million of fee income respectively, since the date of their acquisition, bringing with them a combined total of 145 trusts and 335 companies.
The number of entities on acquisition and at 31 December 2007 were:
| Date of acquisition | Business acquired | Trusts on acquisition | Companies on acquisition | Trusts at 31/12/07 | Companies at 31/12/07 |
| March | STM Fidecs | 375 | 550 | 393 | 548 |
| June | Atlas | 30 | 60 | 30 | 65 |
| August | Parliament | 115 | 275 | 112 | 272 |
| December | Comp. Fid. | 23 | 0 | 23 | 0 |
| Total | 543 | 885 | 558 | 885 |
The above analysis shows how successfully Atlas and Parliament have been integrated, resulting in almost 100% client retention. In the same vein, STM Fidecs' core business has continued to grow organically, despite the extra demands placed on its management.
Since the year-end, STM has also purchased a portfolio of 284 Gibraltar companies from Jordans (Gibraltar).
Insurance Management ("STM FIM")
STM FIM had a frustrating 2007, with a number of new licence applications which were expected to be completed in 2007 being deferred into 2008. This, coupled with a lower than expected level of premium income of several of the managed insurance companies due to the soft conditions in the insurance market generally, (which is cyclical), resulted in pro-forma annual income for 2007 dropping to £1.53 million from £1.7 million in 2006. However, there was a notable increase in activity towards the end of the year and STM FIM is currently managing three licence applications, the benefit of which will be felt in 2008.
Working closely with other divisions within STM, considerable resource was invested during the year in the development and the application for a licence for STM's own life assurance company, STM Life Assurance PCC Plc ("STM Life"). All STM FIM's development costs on this project have been expensed during 2007.
Other Divisions
Tax and Financial Advisory
STM operates a number of other complementary divisions, the largest of which is Tax and Financial Advisory. The requirement for international tax and financial advisory services was buoyant throughout 2007, with pro-forma annual income increasing to £0.6 million from £0.3 million the previous year. Advice given by the division resulted in the establishment of over twenty new entities to be administered by the corporate and trustee services division. The division has built and is cultivating a broad base of professional intermediaries, reducing STM's dependence on any particular network. As with STM FIM, our tax planners also invested a considerable amount of time in researching and developing STM Life, where again all development time costs were expensed in 2007.
STM Nummos
The re-establishment of STM Nummos, the Group's Spanish subsidiary was completed during 2007 following the acquisition of the balance of the outstanding shares in the previous year. STM Nummos' business is the provision of legal, including conveyancing, tax planning, tax and accounting compliance services to expatriates. Fee income for STM Nummos almost doubled to £0.4 million in 2007.
In 2007 we incorporated a new subsidiary and made the necessary applications for an insurance intermediary licence to provide medical insurance throughout Spain representing BUPA and Sanitas. The strategy behind this move is that it should lead to considerably increased ‘footfall' of HNWI expatriates to STM's offices to whom we will cross-sell the full range of STM Group services.
Pensions
This division was launched during 2007 and has immediately established a reputation as the specialist pension advisers and administrators in Gibraltar. Introductions are beginning to flow from the banks and other financial intermediaries in Gibraltar and the division is currently setting up a sizeable self-administered pension scheme for one of the major online gambling companies. Demand for Qualifying Recognised Overseas Pension Schemes (QROPS), which are eligible for tax-free transfers from the UK, has exceeded expectations and time spent in developing this service in 2007 will bear fruit in 2008.
Financial Review
The Group's statutory accounts only take into account the post acquisition trading (effectively from the date of admission to trading on AIM onwards, amounting to nine months trading).
Trading in STM commenced on 28 March 2007 with the acquisition of STM Fidecs. During the period to 31 December 2007, the Group recorded turnover of £5.29 million and a profit after tax of £1.65 million. Turnover was slightly ahead of our expectations, primarily due to approximately £0.3 million of shared office establishment costs, recharged to previously associated businesses, which if extracted, would result in a 33 per cent. net profit margin, in line with our expectations. STM's taxation charge for the year was on budget at £0.14 million. Basic EPS for the period was 5.29 pence.
In line with all CTSP businesses, the Group had accrued income, in the form of work performed for clients but not yet billed at the balance sheet date, of £1.56 million (up from £1.2 million at 30 June 2007). This provides some immediate visibility of billable fees for 2008, a good proportion of which have already been billed in the first two months of the current year.
Trade receivables at the year end of £1.99 million was up from the interim stage (30 June 2007: £1.65 million) due to increased billing from organic growth and the effect of second half acquisitions. Since the year end, cash of approximately £1.2 million has been collected.
The Group ended the year with cash of £0.97 million, having spent approximately £7.4 million of cash on acquisitions between 28 March and 31 December. Deferred cash consideration relating to acquisitions made in 2007 of approximately £0.72 million is expected to be paid out of operating cash flow in 2008.
Year on year comparators
As stated above, we believe that it is in the best interests of Shareholders to also include, and comment upon, the trading results for the full year to 31 December 2007 in respect of STM's largest acquisition to date, that of STM Fidecs, albeit based upon annual unaudited numbers which will not, in their entirety, form part of the Group's statutory accounts for the current financial period. This, will demonstrate the year on year organic growth of STM's businesses in spite of STM's own relatively short history.
Accordingly, STM Fidecs' turnover in the full year to 31 December 2007, on a like-for-like basis stripping out the effect of subsequent acquisitions, was £6.09 million compared to £4.97 million in 2006, an increase of more than 22%. Inclusive of the subsequent acquisitions (principally Atlas and Parliament), STM Fidecs' annual turnover in 2007 was £6.83 million, an increase of more than 37% on the previous year. Annual operating profit margin in 2007 grew to 35.3%, up from 32.6% in 2006.
The results from the period under review show the Company to be in good health and trading comfortably in line with our expectations.
In line with the statement made at the time our IPO, no dividend has been declared in respect of the period ended 31 December 2007.
Our people
STM is a people business and its strength is in the quality of its management and staff. We seek to attract, retain and develop the very best people. We have attractive incentive and reward schemes, which encourage both personal performance and contribution to team success.
As we are in a ‘knowledge business', our staff are encouraged to pursue continuous professional education to maintain their technical capability and unlock their potential.
Today the team numbers over ninety people. I would like to thank each one of them for the contribution they have made, to the success of STM Group in 2007.
Current Trading and outlook
Trading in 2008 has started well and is in line with market expectations.
In addition to the continued global growth in the number of HNWI and the increased migration of HNWI, we will also undoubtedly benefit from the UK Government's recent changes to taxation of non domiciled residents. This has given rise to numerous enquiries from UK intermediaries concerning how to restructure their clients' overseas assets or where their clients should relocate to. We have solutions for them and this should result in considerable new business for STM Group during 2008.
The CTSP sector remains buoyant, with significant opportunities for consolidation activity, providing confidence in our stated "buy and build" strategy is being executed at an opportune time. The Company will continue to focus on both accelerating organic growth and seeking out high quality earnings enhancing acquisitions in both existing and complementary jurisdictions. We remain confident of our prospects for the future.
Timothy Revill
Chief Executive Officer
4 March 2008
Consolidated Income Statement
For the period from 1 February 2007 to 31 December 2007
| Unaudited | *Unaudited | ||
| Notes | 1 February 2007 to 31 December 2007 £'000 |
Proforma year to 31 December 2007 £'000 |
|
| Revenue | 5,292 | 6,833 | |
| Administrative expenses | (3,520) | (4,422) | |
| Operating Profit | 1,772 | 2,411 | |
| Share of profit of associate | 12 | 25 | |
| Profit on ordinary activities before taxation | 1,784 | 2,436 | |
| Taxation | 5 | (137) | (135) |
| Profit on ordinary activities after taxation | 1,647 | 2,301 | |
| Dividends | - | - | |
| Retained profit for the period | 1,647 | 2,301 | |
| Earnings per share basic (pence) Earnings per share diluted (pence) |
4 4 |
5.3 5.2 |
6.4 6.3 |
*For reference purposes only before Plc costs
The Directors consider the activities of the Group to be derived from continuing activities.
There were no gains or losses for any period other than those recognised in the income statement.
Consolidated Balance Sheet
as at 31 December 2007
| Unaudited | ||
| Notes | 31 December 2007 £'000 |
|
| ASSETS | ||
| Non-current assets | ||
| Property, plant and equipment | 7 | 503 |
| Intangible assets | 6 | 15,184 |
| Investments | 8 | 74 |
| Total non-current assets | 15,761 | |
| Current assets | ||
| Accrued income | 1,558 | |
| Trade and other receivables | 10 | 3,219 |
| Cash and cash equivalents | 9 | 971 |
| Total current assets | 5,748 | |
| Total assets | 21,509 | |
| EQUITY | ||
| Called up share capital | 12 | 38 |
| Share premium account | 15,898 | |
| Reserves | 1,579 | |
| Total equity attributable to equity shareholders | 17,515 | |
| LIABILITIES | ||
| Trade and other payables | 11 | 3,994 |
| Total liabilities and equity | 21,509 |
Company Balance Sheet
as at 31 December 2007
| Unaudited | ||
| Notes | 31 December 2007 £'000 |
|
| ASSETS | ||
| Non-current assets | ||
| Investments in subsidiaries | 8 | 14,267 |
| Total non-current assets | 14,267 | |
| Current assets | ||
| Trade and other receivables | 10 | 1,578 |
| Cash and cash equivalents | 9 | 91 |
| Total current assets | 1,669 | |
| Total assets | 15,936 | |
| EQUITY | ||
| Called up share capital | 12 | 38 |
| Share premium account | 15,898 | |
| Reserves | (198) | |
| Total equity attributable to equity shareholders | 15,738 | |
| LIABILITIES | ||
| Current liabilities | ||
| Trade and other payables | 11 | 198 |
| Total liabilities and equity | 15,936 | |
Consolidated Cash Flow Statement
for the period from 1 February 2007 to 31 December 2007
| Unaudited | |
| 31 December 2007 £'000 |
|
| Reconciliation of operating profit to net cash flow from operating activities | |
| Profit for the period before tax | 1,784 |
| Adjustments for:- | |
| Profit on sale of investments | (9) |
| Depreciation | 67 |
| Share of associate profits | (12) |
| Shares issued for services performed | 22 |
| Taxation paid | (3) |
| Increase in trade and other receivables | (2,919) |
| Increase in accrued income | (1,558) |
| Increase in trade and other payables | 3,860 |
| Net cash from operating activities | 1,232 |
| Investing activities | |
| Acquisition of investments of property, plant and equipment | (570) |
| Acquisition of treasury shares | (68) |
| Acquisition of investments –cash consideration | (7,747) |
| Cash acquired as part of investments | 1,182 |
| Net cash used in investing activities | (7,203) |
| Cash flows from financing activities | |
| Net cash consideration from shares issued | 6,942 |
| Net cash from financing activities | 6,942 |
| Increase in cash balances | 971 |
| Analysis of cash and cash equivalents during the period | |
| Balance at start of period | - |
| Increase in cash and cash equivalents | 971 |
| Balance at end of period | 971 |
Consolidated Changes in Equity
for the period from 1 February 2007 to 31 December 2007
| Unaudited | |||||
| Share Capital £000 |
Share Premium £000 |
Profit & Loss Reserve £000 |
Treasury Shares |
Total £000 |
|
| At 1 February 2007 | 6 | 294 | - | - | 300 |
| Profit for the period | - | - | 1,647 | - | 1,647 |
| Shares Issued | 32 | 15,604 | - | - | 15,636 |
| Treasury shares purchased | - | - | - | (68) | (68) |
| At 31 December 2007 | 38 | 15,898 | 1,647 | (68) | 17,515 |
Notes
The notes are available in the printable pdf of the results. To download it, please click here