STM Group Plc

("STM", "the Company" or "the Group")

Unaudited Interim Results for the six months ended 30 June 2017

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 2017.

Financial Highlights:

* stated including impact of £0.5m release of L&C technical expense reserve

Operational Highlights:

·     Recurring revenue for the period of £8.0 million (2016: £6.0 million)

·     Successful launch of International SIPP product as an alternative to QROPS

·     Continued smooth integration of the L&C acquisition, maintaining predictable revenue stream and delivering annualised direct cost savings of £0.7m

·     Further release of £0.5m L&C technical expense reserve, with potential for further releases

·     Increased deferred income shows visibility of revenue stream

Commenting on the results and prospects for STM, Alan Kentish, Chief Executive Officer, said:

"It is pleasing to be able to announce that the 2017 interims have delivered record six month profits for STM, despite the unprecedented UK Spring budget announcement that effectively curtailed new QROPS business by 80%.

"It goes to the core of the STM proposition of the predictable and dependable recurring revenue model that underlying profitability was maintained, whilst the flexibility and innovation of our management team has allowed us to start replacing that lost new business stream, with the International SIPP.

"There is no doubt that the International SIPP catering for the UK expatriate market is a healthy replacement for the expected reduced new business volumes in our QROPS market-place. The fact that the product is more straight-forward to understand as compared to a QROPS, supported by the fact that it is administered by a UK regulated firm, has attracted the interest of the UK expat.

"Furthermore, it is pleasing to see that the re-structuring and cost savings initiated as part of the L&C acquisition, as planned by management, are now bearing fruit in relation to direct cost savings as well as a release of technical reserves to profit from the life assurance company. This was an easy-win for STM, and it is anticipated that there will be further releases in the foreseeable future. 

"Following the strong performance to date, and looking forward therefore to the rest of the year, the Board is confident that the Group is performing ahead of existing expectations."

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.

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Notes to editors:

STM is a multi jurisdictional financial services group which is listed on the AIM Market of the London Stock Exchange. The Group specialises in the delivery of a wide range of financial service products to professional intermediaries and the administration of assets for international clients in relation to retirement, estate and succession planning and wealth structuring.

Today, STM has operations in UK, Gibraltar, Malta, Jersey and Spain. The Group is looking to expand through the development of additional products and services that its ever more sophisticated clients demand. STM has developed a specialist international pensions division which specialises in Qualifying Recognised Overseas Pension Schemes (QROPS), Qualifying Non UK Pension Schemes (QNUPS). STM has a Gibraltar Life Insurance Company, STM Life plc, which provides life insurance bonds - wrappers in which a variety of investments, including investment funds, can be held.

Further information on STM Group can be found at www.stmgroupplc.com

Chairman's Statement

I am pleased to present the Group's financial results for the six month period ended 30 June 2017 which show a strong uplift in profitability, despite the significant challenges that the UK Spring budget brought about.

STM's decision to enter the UK SIPP market in 2016 has enabled the Group to adapt its UK expatriate pension products offering in response to the changing legislation, thus protecting its new business revenue stream generated from its network of intermediaries.

Organic growth strategy for the Group remains targeted on the expansion of its various pension product offerings, including expectations of the launch of an Australian Superannuation solution which is HMRC compliant, as well as building on the life assurance wrapper distribution and product range.

Non-organic growth will be targeted through opportunistic purchases of books of QROPS business in Malta and Gibraltar, as circumstances allow.

It is also pleasing to note the successful integration of the London & Colonial business into the STM Group from the date of acquisition in October 2016. This re-structuring has led to direct cost savings, as well as a further release of the actuarially calculated expense reserve held in the L&C life business during the first six months of the year. It is anticipated that we will see additional releases in the foreseeable future as we move to the next phase of the integration of the life businesses.

The above component parts, coupled with the strong underlying predictable recurring revenue as we opened our doors to 2017, has resulted in record half-year profits for the Group which, in turn, bodes well for 2017 as a whole.

I would like to take this opportunity to thank the staff for their hard work in the first half of this year.

Michael Riddell

Chairman

Chief Executive's Review

Overview

I am pleased to present the interim results for the six months ended 30 June 2017. Whilst the events in that time have, by any stretch of the imagination, tested management's capabilities and the resilience of the Group's business model, I am delighted to announce that the Group has overcome these challenges to report record profitability for a six month period.

The resulting challenges for the Group, as a result of the UK Spring budget changes are well documented and led management to re-define its pension administration services to the UK expatriate market, with the launch of the UK International SIPP proposition from its offices in Haywards Heath.

As previously indicated, early signs of the take-up of the International SIPP remain encouraging and have already gone a significant way to replacing the fall-off of new QROPS applications. The fact that the product is more straight-forward to understand as compared to a QROPS, supported by the fact that it is administered by a UK regulated firm has attracted the interest of UK expats.

Other business units continue to perform in line with expectations, including the full integration of the London & Colonial (L&C) acquisition of the 4^th quarter of 2016. As part of this integration, management continues to reduce the cost base of the L&C life assurance business. In addition, the reporting actuary at the six months reporting date has reduced the required level of expense reserve to be carried by the company.

It is this new SIPP business, along with the solid predictable underlying recurring revenue stream and the release of part of the expense reserve within L&C that has allowed the Group to post a record half-year profit before tax of £2.4 million (2016: £1.2 million).

Financial results

For the six month period ended 30 June 2017 the Group recorded a 36 per cent. increase in turnover to £10.7 million (2016: £7.9 million) after a £2.4m contribution from L&C (2016: £0.0m).  Excluding the impact of the L&C acquisition, revenue growth was 5 per cent.  Profit before tax for the period amounted to £2.4 million (profit margin of 23%) compared to £1.2 million for the period ended 30 June 2016 (profit margin of 15%). Like for like profits for 2017 (excluding the impact of the L&C acquisition) amount to £1.5 million and hence up 25% on 2016.

Pleasingly, all component parts of the Group's trading operations have performed in line with management expectations having taken into account the changing environment within our pension administration divisions. Solid and predictable recurring revenue on a monthly basis has been a key component in being able to achieve enhanced profits across the Group. This, in conjunction with managing costs, particularly in relation to the reduction in QROPS new business post March 2017, has also allowed better profit margins to be achieved.

The results and financial information set out below for the six months to 30 June 2017, include a full six months contribution for the London & Colonial acquisition.

In line with previous years, STM continues to receive a refund on a proportion of the tax paid to the Malta tax authorities on dividends declared to the holding company which has resulted in a lower effective tax rate. This is predominantly as a result of timing and is expected to revert to normal rates by the year end.

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 £1.0 million as at the period end (2016: £1.5 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. The decrease in accrued income as compared to 30 June 2016 is evenly split between pensions and CTS, with the former being as a result of the reduced QROPS business. 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 £4.0 million (2016: £2.6 million).  The Group's accounting policy for its pension businesses is 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. Consequently, deferred income continues to increase as more and more invoices for second year fees and subsequent years are raised as the Group continues to attract more clients. Pleasingly, this gives good visibility of revenue that has still to be earned through the Profit and Loss account in the coming months. The increase in deferred income is predominantly due to the L&C life assurance company.

Trade receivables as at 30 June 2017 were £2.3 million as compared to £1.8 million in the previous year.

During 2016, the Company took out a bank loan of £3.3 million to finance the acquisition of London & Colonial in October 2016 which has resulted in financing costs of £0.2 million (2016: £0.0 million).

Cash and cash equivalents at 30 June 2017 were £14.7 million (30 June 2016: £9.3 million). The increase is partly due to the acquisition of L&C as well as continued profitability. Of this balance some £10.9 million (30 June 2016: £4.9 million) currently represents regulatory cash or assets supporting capital solvency requirements. More importantly, and demonstrating the visibility and robustness of the business model, cash generated from operating activities amounted to £4.1 million (2016: £2.3 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 0.6 pence per share (2016: 0.5 pence). The interim dividend is expected to be paid on 8 November 2017 to those shareholders on the register on 6 October 2017. The ordinary shares will become ex-dividend on 5 October 2017.

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

Review of operations

Pensions business

STM's pension administration businesses are now based in three locations, Malta, Gibraltar and more recently, since October 2016, in the UK.

Whilst the composition of where our new pension business is administered has changed significantly, overall the volumes of new business has continued to climb steadily since the UK Spring budget.  

As previously advised to the market, new QROPS applications following the UK Spring budget are very much in line with management's revised expectations at circa 20% of original pre-Budget forecasts but this reduction of anticipated new business has started to be offset by an uplift in our International SIPP offering.

The pensions business revenue has therefore remained stable when compared to the same period in 2016, but with the added benefit of the additional revenue contribution from the UK SIPP acquisition.  Revenue for the six month period to 30 June 2017 was £5.1 million (2016: £4.4 million) thus accounting for 48% of the Group's overall turnover.  

The total income for the period is split between the different jurisdictions as follows: Malta - £3.2 million (2016: £3.3 million); Gibraltar - £1.3 million (2016: £1.2 million); with UK being £0.6 million (2016: £nil).

Life assurance divisions

This is the first full six months results period that incorporates both of the life assurance businesses based in Gibraltar.

Revenue for the six months to 30 June 2017 amounted to £3.1 million (2016: £0.7 million). Pleasingly, the revenue growth has come from a steady and predictable increase in monthly recurring revenue in STM life, as well as a particularly good first quarter in relation to its short term annuity product. This complements the very predictable nature of the L&C book of business that delivered recurring revenues of £1.1 million (2016: £nil) in line with management's expectations.

In addition, and in line with the 2016 year end release, the actuarially calculated expense reserve in L&C has been decrease by a further £0.5 million, resulting in a balance as at 30 June 2017 of £2.34 million. This release is as a result of further costs savings and the diminishing portfolio. When added to the recurring revenues as per above the total revenue generated by L&C is £1.6 million (2016: £nil).

CTS division

Turnover from the Corporate and Trustee Services division ("CTS") accounted for 20% (2016: 27%) of the Group's total revenue during the first half of 2017.  Revenues generated by the CTS business for the period were £2.1 million as compared to £2.2 million in the second half of 2016.  The proportional reduction of the CTS division's revenue to Group is largely due to the increase of the other divisions.  

Revenue resulting from the Jersey CTS business accounted for 60% (2016: 55%) of the CTS division's revenue at £1.2 million (2016 £1.2 million), with Gibraltar's revenue totaling £0.8 million (2016: £1.0 million). The CTS market remains a difficult market for expansion, with various macro and micro economic factors; in this regard STM's focus in this area is on client retention and maintaining operating profit margins.

Other divisions

Turnover from other divisions for the six month period amounted to £0.5 million (2016: £0.6 million) with the main contributors being the Insurance Management division and the Spanish office. Both divisions are performing in line with management expectations.

Summary and outlook

There is no doubt that our International SIPP catering for the UK expatriate market, is a healthy replacement for the expected reduction in new business volumes in our QROPS market-place.

STM continues to see a steady increase in applications which has partly been as a result of the launch of the user-friendly electronic application version during July.

There remains a strong focus on our pension businesses both from an organic growth perspective as well as continuing to pursue acquisitions in the now static QROPS market. Management expectations are that the launch of our Australian superannuation product, currently awaiting HMRC approval under the QROPS regime, will open up opportunities in a new populace of UK expatriate and Australian nationals that have a UK pension.  On the acquisition front, we continue to explore the possibility of acquiring books of business which no longer have the ability to grow and that are struggling to deliver decent returns due to lack of critical mass.

In addition, it is pleasing to see that the re-structuring and cost savings planned by management as part of the L&C acquisition are now bearing fruit, and this has allowed a further release of technical reserves to profit from the life assurance company during the six month period. This was an "easy-win" for STM given that it already has a Gibraltar based life business and, as further integration continues, will likely result in further releases in the foreseeable future.

STM is on track to deliver record annual profits since its initial listing on AIM in 2007 for the year ended 31 December 2017. It does this, having transformed its core trading activities over the last few years in to a more robust and predictable business model where recurring revenue continues to account for circa 75% of total revenues.  The Board looks forward to updating the market during the second half of the year.

Alan Kentish

Chief Executive Officer

12 September 2017

CONSOLIDATED INCOME STATEMENT

for the period from 1 January 2017 to 30 June 2017

There have been no discontinued activities in the period.  Accordingly, the above results relate solely to continuing activities.

CONSOLIDATED BALANCE SHEET

as at 30 June 2017