143204 STM Annual Report Cover 2010_143204 STM Annual Report Cover 2010 02/04/2011 00:02 Page 1
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Annual Report
& Accounts
2010
STM Group Plc
18 Athol Street
Douglas
Isle of Man IM1 1JA
T +44 (0)1624 626 242
www.stmgroupplc.com
143204 STM Annual Report Cover 2010_143204 STM Annual Report Cover 2010 02/04/2011 00:02 Page 3
STM Group Plc
STM Group Plc continues to
build on its reputation as an
independent cross-border
financial services provider.
Its core business of providing
corporate and trustee services
(“CTS”) is complemented by
the other emerging businesses
of offshore pensions and
life assurance products.
01 Highlights
03 Our Offices
04 Chairman’s Statement
06 Chief Executive Officer’s Review
11 Directors’ Report
12 Board of Directors
13 Directors’ Remuneration Report and
Statement of Directors’ Responsibilities
14 Corporate Governance
15 Independent Auditors’ Report
16 Consolidated Income Statement
17 Consolidated Statement of Comprehensive Income
18 Consolidated Balance Sheet
19 Company Balance Sheet
20 Consolidated Cash Flow Statement
21 Statement of Consolidated Changes in Equity
22 Statement of Company Changes in Equity
23 Notes to the Consolidated Results
39 Notice of Annual General Meeting
40 Company Information
online
www.stmgroupplc.com/
html/investor/annual_report.asp
143204 STM Group Annual Report_1Frontend_143204 STM Group Annual Report_1Frontend 01/04/2011 23:14 Page 1
Annual Report & Accounts 2010
Revenue of £10.5 million
2009: £8.5m
Profit before tax of £1.5 million
2009: £0.7m
EPS of 2.90 pence
2009: 1.57p
Strong balance sheet with cash
of £3.7 million at year end
Final dividend of 0.4 pence,
payable on 10 June 2011
representing a total dividend
for 2010 of 0.6 pence
Enhanced profitability
Overall performance benefits from strategic
focus and improved trading conditions.
Strategic acquisition in Jersey
STM’s acquisition gives critical mass and strong
management to its business unit in Jersey.
Malta operation opened
New subsidiary trading profitably from
commencement through organic growth.
1
143204 STM Group Annual Report_1Frontend_143204 STM Group Annual Report_1Frontend 01/04/2011 23:14 Page 2
STM Group Plc
Solutions for expatriates
from around the globe
The UK Expatriate market
Expats repatriate a considerable proportion
of wealth. Although expats tend to use a
large variety of vehicles to save and invest,
a large proportion of wealth in longer term
investments is repatriated, the most common
being property (30%), equity (22%), and
bonds (11%). Typically less than 30% of an
expats wealth is kept in the host country.
Using financial centres for structuring wealth
is becoming increasingly common practice.*
*Extracts taken from HSBC Expat Explorer Survey 2010
Expat allocation of money for savings and investments
Savings (unspecified)
36
46
27
8
Bank / building society
savings account
26
33
17
7
Property
30
26
11
Equity
22
13
13
9
Managed funds
19
13
16
6
Bank / building society
fixed term investment
12
12
10 3
Foreign exchange
8
10
12
4
Shares in company
10
13 3
6
Bonds
11
6
7 3
Country of origin
Offshore centre
Host country
Other country
2
143204 STM Group Annual Report_1Frontend_143204 STM Group Annual Report_1Frontend 01/04/2011 23:15 Page 3
Annual Report & Accounts 2010
Spain
1
Jersey
2
Gibraltar
3
Switzerland
4
Malta
5
Legal and tax services
for expatriates
Corporate and trustee
service providers
Corporate and trustee
service providers,
insurance management,
retirement benefits,
life bonds
Wealth protection
for HNWIs, corporate
and trustee service
providers
Wealth protection
using tax treaties,
corporate and trustee
services, pension
trustee, insurance
management
2
4
1
3
5
3
143204 STM Group Annual Report_1Frontend_143204 STM Group Annual Report_1Frontend 01/04/2011 23:15 Page 4
STM Group Plc
Chairman’s Statement
“ The Group has doubled
profits on the previous year,
demonstrating a robust
revenue generation model
and a re-inforced focus on
cost efficiencies.”
Preserving wealth through
pro-active solutions.
The financial requirements of private clients
continues to become more international
requiring pro-active and tailored solutions.
STM believes that no one financial centre
can deliver on all these requirements. At
STM we have both the independence and
jurisdictional spread to address your
specific tax and legal requirements.
4
143204 STM Group Annual Report_1Frontend_143204 STM Group Annual Report_1Frontend 01/04/2011 23:15 Page 5
Annual Report & Accounts 2010
With STM’s commitment to business
development and expanded product offering
including overseas pensions and life insurance
wrapper products, the stage is set for revenue
growth in 2011.
Bernard Gallagher
Chairman
2010 has been a year of good progress for
STM. The Group has doubled profits on the
previous year and continues to benefit from
the robust and recurring nature of its core
business and gains from cost efficiency drives
commenced in 2009. Our core Corporate
and Trustee Service divisions (“CTS”) delivered
revenues and profitability in line with
expectations, augmented by the strategic
acquisition of Zenith Trust Company Limited
(“Zenith”) in April 2010. Zenith has given the
STM Group the critical mass that it needed in
Jersey and the Board is delighted with STM
Jersey’s progress and contribution to the
Group to date.
In addition, with the opening of STM Malta
in late 2010, the Group’s overseas pension
product is now gaining significant traction
and the Board has high expectations that this
will be a strong area of growth for the Group.
STM Malta was revenue generating and
profitable from inception.
The Board continues to believe that both
the STM Life insurance wrapper product and
the jurisdictional importance of Switzerland
justify the short-term cost of entry into areas
that will prove profitable for the Group
going forward.
During 2010 there were a significant number
of senior management changes, not least of
which Colin Porter was appointed Group CEO
in March 2010, taking over from Tim Revill, a
founding shareholder, who has subsequently
stepped down from the Board. Colin, who
joined STM in 2008 as CEO of the Gibraltar and
Jersey offices, has helped to ensure that STM’s
senior management have delivered the
expected growth for 2010.
STM can justifiably say that it has a significant
international presence, and the Board
believes that it is able to service its
international clientele for all their structuring
requirements. STM now has offices in
Gibraltar, Spain, Jersey, Switzerland, and
Malta, and is poised to benefit from the
ability to cross-sell to clients across these
jurisdictions. These jurisdictions also allow
the Group to increase its product offering.
The Board views 2011 as a year in which
to continue to consolidate the initiatives of
previous years in order to deliver enhanced
profitable growth. Acquisition activity is likely
to be limited in 2011.
2010 has seen a significant focus and
investment on business development across
the Group to increase STM’s market share of
the CTS sector, as well as targeted marketing
of the Group’s newly launched products.
Whilst this is still in its infancy, it is a major step
forward and one that should contribute to a
wider range of intermediary introducers and
geographical referrals.
STM is a people and relationship business
and the Group’s strength is in the quality of
its management and staff. On behalf of the
whole Board, I would like to express thanks
for their continued dedication, professionalism
and hard work over the last year.
Finally, on a personal note, I have advised
the Board that I will be stepping down from
my role of Chairman of STM Group Plc in
the near future so as to pursue my other
business interests. It has been a pleasure
to be involved with STM since its inception
and flotation in 2007 and I am pleased that
the Group is now approaching the next phase
of its exciting growth plans in a strong
position. I understand that the search for
my replacement is progressing well.
Bernard Gallagher
Non-Executive Chairman
4 April 2011
5
143204 STM Group Annual Report_1Frontend_143204 STM Group Annual Report_1Frontend 01/04/2011 23:15 Page 6
STM Group Plc
Chief Executive Officer’s Review
“ 2010 has seen solid
performance in the Group’s
Core CTS engine rooms
which has helped to
underpin a doubling in
profitability.”
Preserving wealth through
pro-active solutions.
The economic environment continues to
encourage private individuals to organise
themselves, their businesses and their families in
a fiscally and administratively efficient manner.
STM has the tools and expertise to manage
that process.
6
143204 STM Group Annual Report_1Frontend_143204 STM Group Annual Report_1Frontend 01/04/2011 23:15 Page 7
Annual Report & Accounts 2010
A significant benefit that our acquisition of
Zenith in Jersey brought to the Group was an
experienced and very capable management
team that has provided a solid foundation
for future growth in this jurisdiction.
Colin Porter
Chief Executive Officer
I am pleased to state that 2010 has delivered
according to expectations. The focus was
to ensure that the Board’s cost efficiency
drive in the latter part of 2009 resulted in
enhanced profitability. This, coupled with solid
performance in the Group’s core CTS “engine
rooms” delivering robust and profitable organic
growth, has helped to put STM’s profitability
back in line with market expectations. Activity
levels, with regards to transactions, continue to
improve as the economy recovers from the
crisis of 2008 / 2009, which should further
bolster 2011 revenue levels.
With 2010 revenues of circa £10.5 million
(2009: £8.5 million), it is pleasing to note that the
business is starting to deliver improved profit
margins, although there is still scope to enhance
these further. The profit before tax but after
exchange gains for 2010 doubled to £1.5 million
from £0.7 million in 2009, and was helped by
the cost efficiency drive that had been
implemented in late 2009 and early 2010.
A significant milestone in the development of
STM’s business model was the acquisition of
Zenith Trust Company Limited (“Zenith”), which
gave the Group’s Jersey operation the critical
mass that it was previously lacking. The STM
Jersey business, with some 35 staff and an
annualised turnover of almost £4.0 million, is
now a well managed and significant contributor
to the Group’s profitability.
The deliberately low-key opening of STM’s Malta
office in the last quarter of 2010 is also worth
highlighting. The products that the Group can
now offer through STM Malta are important
differentiators for STM and I am pleased to be
able to report strong early demand, which has
meant that this business unit has been
profitable from day one of receiving its licence.
STM’s business model –
a robust platform for growth
The Board believes that the investment
into the various acquisitions during the last
few years to give the Group a balanced
jurisdictional spread and a true international
presence, is starting to pay off as efficiencies
and the ability to administer complete
international structures becomes apparent.
The Group’s core business continues to be the
custodianship and administration of clients’
assets within a variety of “wrappers” including
companies and trusts in various jurisdictions;
pension schemes; unit-linked life assurance
policies; and foundations.
The Group’s income continues to be
mainly derived from fixed and time-based
administration fees from each entity and is
not generally linked directly to the value of
the assets under our custody. Some 30% of the
Group’s CTS income relates to fixed fees giving a
significant certainty of income and therefore
reducing volatility in the Group’s profitability.
Acquisition activity during 2010
Without a doubt, the acquisition of STM’s
long-awaited pathfinder vehicle in 2010 has
brought about a better jurisdictionally
balanced Group. Zenith was acquired in the
early part of 2010 for a maximum total cash
consideration of £5.1 million, being £1.85
million paid upon completion, a further
£1.85 million in September 2010, a further
£1.3 million deferred consideration payable
in 2011 and £0.1 million in 2012.
A significant benefit that Zenith brought
to the Group was an experienced and
very capable management team that has
provided a solid foundation for future
growth in this jurisdiction. The integration
of the Group’s legacy business in Jersey
was completed successfully, and the
benefits of integration gains will be felt
in 2011.
7
143204 STM Group Annual Report_1Frontend_143204 STM Group Annual Report_1Frontend 01/04/2011 23:15 Page 8
STM Group Plc
Chief Executive Officer’s Review
Operational Review
For the purposes of reporting the Group’s
performance during 2010, the principal trading
division was Corporate and Trustee Services
(“CTS”), the primary jurisdictions of which were
Gibraltar and Jersey.
Group turnover for 2010 amounted to £10.5
million compared to £8.5 million in 2009. The
increase is primarily as a result of the Zenith
acquisition in April 2010 which produced
revenue for STM Group of circa £2 million
for the period ended 31 December 2010.
As can be seen from the more in-depth
review below, our CTS division, the main
engine of the Group’s business, continues to
perform in line with the Board’s expectations.
However, as previously identified, certain
challenges remain in some of STM’s smaller
divisions which have struggled to grow their
turnover compared to 2009. STM Swiss and
STM Life are not yet profitable which has in
turn reduced Group profitability.
In addition, during 2010 costs of circa
£0.2 million have been invested in business
development personnel, the benefits of which
will be seen primarily from 2011 onwards.
Board Changes
Colin Porter joined the STM Group plc board in
July 2009 as COO, and during March 2010 was
promoted from COO to CEO of STM Group plc.
Tim Revill, founder of STM’s first acquisition,
Fidecs Group Limited, stepped down from his
role as Chief Executive Officer at that date, and
subsequently retired from the Board in
September 2010 to pursue other personal
interests.
In December 2010, there was a further change
of the Isle of Man Non-Executive Directors, with
Martin Derbyshire and Mark Denton stepping
down to be replaced by Mike Riddell.
Corporate and Trustee Services (“CTS”)
CTS is the core revenue stream of the Group,
with revenue in 2010 being generated from
both Gibraltar and Jersey. STM’s CTS fees
comprise a fixed annual fee per entity plus
time charges for ongoing administration fees
STM has taken on a number of full time
business developers to help grow the
company organically. That strategy for
growth is already starting to deliver results.
In July 2009 STM announced, subject to
regulatory approval, the purchase of Citadel
Group, a CTSP in Luxembourg. As a result of
the significant delay in the regulatory approval
process, the Board re-evaluated the proposed
acquisition in Luxembourg and during the year
withdrew their offer for the business on the
basis that the jurisdiction was more corporate
rather than private individual facing.
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. The Group’s objective is to ensure
that its clients’ assets are secure, their wealth
is preserved and the transfer to the next
generation and/or to philanthropic causes
is planned for and executed efficiently.
For 2011 the overriding focus will centre
on delivering integration gains on existing
acquisitions rather than specifically looking for
further acquisition targets in new jurisdictions.
Product and business development
2010 has been a significant year of change with
regards to the resources allocated to business
and product development. STM has taken on
a number of full time business developers to
help grow the Company organically. As at the
year end there were five full time business
developers compared to only one individual at
the end of 2009. This investment into the future
was sourced from the cost savings within other
parts of the business. I am pleased to say that
this strategy of growth is already starting to
deliver results, with increased business coming
not only from the UK but also Southern Africa
and Central and Eastern Europe.
As a result of STM’s jurisdictional spread,
the Group is now able to keep in-house
significantly more of a HNWI’s expenditure on
wealth preservation and asset administration,
rather than outsourcing to other providers.
This leads to new business from existing
clients as the STM service is able to cater for
the ever increasing financial sophistication
of its clients.
STM has also invested in product development.
Again, this is aimed at offering a wider service
and accommodating the needs of both
existing and new HNWI clients. STM has
developed products in the area of Jersey
and Malta foundations, retirement benefits,
pension transfers, life bonds for expatriates
returning to the UK, and an integrated
inheritance management solution for
expatriates in Spain.
8
143204 STM Group Annual Report_1Frontend_143204 STM Group Annual Report_1Frontend 01/04/2011 23:15 Page 9
Annual Report & Accounts 2010
and are not based on the value of assets under
management. Therefore the administration
revenue stream has not been significantly
affected by the instability experienced in the
wider financial markets during 2009.
The Group is pleased to say that the turnover
of STM’s CTS revenue rose from £5.3 million
in 2009 to £7.6 million in 2010 and accounted
for approximately 70% of the Group’s 2010
revenues. Approximately £2.2 million of this
can be attributed to the contribution from
Zenith, acquired in 2010. The underlying
organic growth demonstrates that the
principal revenue stream of the business
remains robust and predictable, even after
a significant cost saving exercise during the
latter part of 2009.
CTS Gibraltar revenue held its own in 2010
with a revenue of £4.3 million compared to £4.5
million in 2009. The small decrease in revenue is
primarily as a result of an effort to shed some of
the smaller entity business which proved not to
be profitable, as well as a certain amount of
down-time in relation to the implementation
of new, upgraded IT systems. The prognosis for
2011 is that CTS Gibraltar has a solid platform in
which to grow its revenue without incurring
any material costs to service such business.
CTS Jersey revenue rose to £3.3 million from
£0.9 million in 2009, the increase being primarily
a part year contribution from Zenith, but also
pleasingly some organic growth from our
underlying Jersey operation of £0.1 million.
Again, this “second engine room” to the Group is
a solid platform in which to continue to grow
organically, meaning that profit margins are
expected to improve further.
Following the Zenith acquisition, the number
of entities under management in our CTS
businesses now exceeds 2,000. These figures
demonstrate a healthy spread of revenue
across a large portfolio of entities thus
contributing to the predictability and
robustness of the CTS business.
Other Divisions
Revenue from the Group’s other divisions
amounted to £2.9 million compared to
£3.2 million for 2009. These divisions are all
complimentary to the core business of the
Group, being the administration of clients’
assets. They either provide advisory and
structuring support or offer client asset
administration through another form of “wrap”,
such as a life assurance bond. No single
division accounts for more than
10% of the Group’s revenue.
Insurance Management (“FIM”)
As previously identified, FIM has continued
to suffer from the lack of investment by
entrepreneurs in new insurance company
start-ups, although FIM is seeing signs of
increased activity. As a result the revenue
for FIM amounted to £0.8 million compared
to £1.0 million in 2009. FIM has restructured
its division as a result of this anticipated
fall in revenue and a significant staff
cost reduction has been made that has
improved profitability.
Average annual fees for the management
of a third party insurance client are in
excess of £100,000 per annum and remain
sustainable going forward. With a stable
platform of clients going into 2011 and the
cost reductions mentioned above, coupled
with an appointment of a full time business
developer and now having the ability to offer
insurance management capabilities in STM
Malta, FIM is confident that it will see revenue
growth in 2011.
STM Nummos
STM Nummos’ business is the provision of legal
services, including conveyancing, tax planning,
tax and accounting compliance to expatriates
resident in Spain and to non-residents investing
in Spain. In 2010, fee and commission income
for STM Nummos remained static at £0.7
million. This was in line with management’s
expectations and a positive result given the
difficult state of the Spanish economy.
The standard attrition rate for CTSP client
portfolios throughout the sector, which also
applies to STM, is approximately 10% per annum.
Pensions
This division was launched during 2007 and has
rapidly established a reputation as the pension
specialists in Gibraltar. STM Fidecs Life, Health
and Pensions (“FLHP”) and its associated trust
company provides advice on structuring
pensions, acts as a registered Pensioneer
Trustee (professional trustee) and provides
administration services both in the local market
and for international pension schemes.
This division has the potential to be a
significant growth area of the Group moving
into 2011. The 2010 revenue was truncated
by the continued uncertainties over Gibraltar’s
overseas pensions product (QROPS). However,
in late 2010 the STM Malta QROPS was
approved by HMRC in the UK, and the division
is now processing numerous applications.
The pipeline and interest for this product is
growing significantly and is a focus for 2011
marketing initiatives. 2010’s turnover for the
division remained similar to that of 2009 at
around £0.3 million, but the Board has realistic
expectations of doubling that level in 2011.
Other initiatives
STM Life’s “wrapper” product has some clear
advantages over its competitors and has now
been marketed through various IFA networks
in the UK and has been well received, with
new policies and illustrations now being
issued. STM Life’s platform and its ability to
write business across the EU mean that it
will be able to market its bond in other
jurisdictions at a very low cost of entry.
However, the complexity of the product has
meant that revenues have still been slow to
materialise, although the distribution network
that has been built should allow for significant
revenue growth in the future.
In a similar vein, STM Swiss started to generate
revenue in 2010, although the business unit
remains loss making going into 2011. Whilst the
pipeline of potential business is materialising it
remains a slow process.
Financial Review
For the year to 31 December 2010, the Group
recorded turnover of £10.5 million (2009:
£8.5 million) and a profit before tax and after
exchange gains of £1.5 million (2009: £0.7
million). Turnover was in line with the Board’s
expectations and a significant increase to that
9
143204 STM Group Annual Report_1Frontend_143204 STM Group Annual Report_1Frontend 01/04/2011 23:15 Page 10
STM Group Plc
Chief Executive Officer’s Review
of 2009 primarily due to the acquisition of
Zenith, but pleasingly the margin improved
significantly to 14.3% (2009: 7.9%). Integration
costs and lost management time as part of the
Zenith acquisition, as well as the treading water
of the QROPS product in 2010, should result in
further material margin improvements in 2011.
STM’s taxation charge for the year was on
budget at £0.2 million (2009: £0.04 million).
Basic EPS for the year was 2.9 pence (2009:
1.57 pence).
In line with all CTS businesses, the Group
had accrued income, in the form of work
performed for clients but not yet billed at the
balance sheet date, of £3.1 million (up from
£2.3 million at 31 December 2009). The
increase in accrued income is in part due to
the build up of pension’s work that is awaiting
HMRC approval and the Zenith acquisition
accrued income. This also provides some
immediate visibility of billable fees in the
early part of 2011.
Trade receivables as at the 31 December 2010
amounted to £4.0 million, up from £3.3 million
at 31 December 2009, this is primarily as a
result of the new Zenith trade debtors. There
continues to be significant effort put in to
accelerate cash collection, with a full time credit
control function being implemented during
2010. Whilst bad debts are generally low as
a result of the entities under management
having assets within their structures, it remains
a frustration that debtor days remain higher
than targeted. Deferred income, representing
fees billed in advance, yet to be credited to
profit and loss account were comparable year
on year at £0.9 million (2009 £1.0 million)
reflecting the stable portfolio of the core CTS
business. Zenith’s fixed fees are billed annually in
advance in January.
The Group ended the year with cash of
£3.7 million (2009: £3.8 million), having paid
out further consideration on acquisitions
amounting to £3.8 million and bank loan
repayments of £0.5 million. In addition
dividends of £0.26 million were paid
during 2010.
Group financing
At 31 December 2010, the Group had bank
borrowings of £2.6 million (2009: £1.29 million),
being loans from RBS International Limited
(“RBSI”) to provide part of the solvency capital
required for STM Life, as well as funding the first
payment of the Zenith acquisition. The term of
the original loan for STM Life is for five years
from March 2008. Two further loans were taken
out in 2010, one for £0.4 million and one for £1.5
million; both are repayable over a three year
term but being amortised over five years.
In March 2010, the Group raised a further
£2.2 million in connection with the Zenith
acquisition through the issue of a convertible
loan note instrument (“CLN”). The loan from
shareholders as at 31 December 2009 of £1.3
million which has existed since the Group’s
listing in March 2007 was also rolled up into the
CLN. 50% of the CLN may be converted into
new ordinary shares in STM at the holders’
discretion at a price of 33 pence per share
in March 2012. The remainder of the CLN is
repayable in March 2014.
Dividends
In recognition of the Board’s positive outlook
on the Group’s prospects, the Board is pleased
to propose a final dividend of 0.4 pence per
share, which, when added to the interim
dividend already paid, totals 0.6 pence per
share for 2010 (2009: 0.6 pence per share).
Subject to shareholder approval, the final
dividend will be paid on 10 June 2011 to
shareholders on the Register on 13 May 2011.
It is the Board’s intention to continue a
progressive dividend policy reflecting
the Group’s ongoing performance.
Current trading and outlook
2010 was a satisfactory year for STM with
increased profitability coming through from a
robust underlying revenue base which, coupled
with the significant Zenith acquisition, leaves
the business well placed for further increases in
profitability during 2011. Trading in the second
half of our financial year is traditionally stronger
than that of the first half and this trend is
expected to continue into 2011.
The Board are of the view that a concerted
effort to increase productivity levels of staff
and to ensure that process efficiencies continue
to improve, particularly in light of the new IT
system will help to improve margins further.
The core CTS business has proved itself to
be predictable and robust even in difficult
economic conditions and this visibility and
predictability is expected to continue into 2011
and beyond. Expectations are that 2011 will
deliver solid organic growth in the CTS business.
Going into 2011, there will be a strong
marketing focus on increasing pensions and
STM Life revenue significantly, both of which
are relatively unique products for the CTS
sector and have enormous opportunity
for growth.
The Board will not actively seek new acquisition
targets in 2011 but will consider opportunistic
acquisitions as and when they arise. The focus
will be to ensure that STM extracts the full value
from the Zenith integration.
The Board is aware that 2011 will be
another important year in delivering further
enhanced value to its shareholders and we
look forward to updating the market on
the Group’s progress.
Colin Porter
Chief Executive Officer
4 April 2011
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143204 STM Group Annual Report_1Frontend_143204 STM Group Annual Report_1Frontend 01/04/2011 23:15 Page 11
Directors’ Report
Annual Report & Accounts 2010
Independent auditors
At a meeting of the directors, it was resolved
that Moore Stephens Chartered Accountants of
26 – 28 Athol Street, Douglas, Isle of Man, be
appointed as auditors of the Company. As such,
Moore Stephens Chartered Accountants, have
accepted the appointment as auditors.
Annual General Meeting
The Notice of the Annual General Meeting
to be held on 6 May 2011 is set out on
page 39 and includes the following
special business:
– Directors’ powers to disapply
pre-emption rights
By order of the Board
Elizabeth A Plummer
Company Secretary
18 Athol Street
Douglas
Isle of Man IM1 1JA
4 April 2011
The Directors of STM Group plc present their
Report for the year to 31 December 2010
together with the accounts of the Group
and the independent auditors’ report for
the period. These will be laid before the
shareholders at the Annual General Meeting
to be held on 6 May 2011.
Principal activities and business review
The principal activity of the Group during the
year was the structuring and administration
of clients’ assets.
Result and dividends
The retained profit for the year after dividends
of £1,047,000 (31 December 2009: £380,000)
has been transferred to reserves.
The Board recommends the payment of
a dividend of 0.6p for the year ended 31
December 2010 of which 0.2p was paid as
an interim dividend in November 2010 (31
December 2009: 0.6p).
Directors
Details of the Directors of the Company who
served during the period and to date, and their
interests in the shares of the Company were:
Mark William Denton (Resigned 10 December
2010), Martin James Derbyshire (Resigned 10
December 2010), Bernard Gallagher, Alan Roy
Kentish, Colin Douglas Porter, Timothy John
Revill (Resigned 15 September 2010), Michael
Ross Riddell (Appointed 13 December 2010),
Matthew Graham Wood.
Timothy Revill has an interest in 7,647,500
ordinary shares – 7,600,000 of these shares are
held by Hearth Investments Limited, the trustee
of the Revill Family Settlement, a discretionary
settlement of which Timothy Revill is a potential
beneficiary. Michael Ross Riddell is a director of
Hearth Investments Limited.
Alan Kentish has an interest in 2,877,500
ordinary shares – 2,850,000 of these shares are
held in the name of Clifton Participations Inc
and form part of the assets of the Perros Trust
of which Alan Kentish is a potential beneficiary.
Colin Porter has an interest in 377,613
ordinary shares.
Bernard Gallagher has an interest in 625,395
ordinary shares – these shares are held in the
name of STM Fidecs Nominees Limited as
nominee for Bernard Gallagher.
Michael Ross Riddell has been appointed
as a Director since the last Annual General
Meeting and a resolution to confirm his
appointment will be tabled at the Annual
General Meeting.
In accordance with the Articles of Association
Alan Roy Kentish retires as a Director of the
Company at the Annual General Meeting and,
being eligible, offers himself for re-election.
Political and charitable donations
The Group’s charitable donations for the
period amounted to £nil (31 December 2009:
£2,000). There were no political contributions
in either period.
International Financial Reporting
Standards (“IFRS”)
These financial statements were prepared
under IFRS and interpretations adopted
by the International Accounting Standards
Board (“IASB”).
Substantial interests
Save as disclosed in the table below, the
Directors are not aware of any person who
directly or indirectly is interested in 3% or
more of the issued ordinary share capital of
the Company as at 28 March 2011 or any
persons who, directly or indirectly, jointly or
separately, exercise or could exercise control
over the Company.
Issued ordinary share capital of the Company
At 28 March 2011
%
Hearth Investments Limited
Southern Rock Insurance Company
Limited, Rock Holdings Limited,
Arron Banks and Paul Chase-Gardener
Nightingale Equities Inc
Clifton Participations Inc
KAS Bank NV
Barnard Nominees Limited
Quest Traders Limited
17.76
12.14
6.77
6.68
6.03
4.29
3.19
11
143204 STM Group Annual Report_1Frontend_143204 STM Group Annual Report_1Frontend 01/04/2011 23:15 Page 12
STM Group Plc
Board of Directors
Clockwise from top left:
Colin Douglas Porter
Alan Roy Kentish
Matthew Graham Wood
Michael Ross Riddell
Bernard Gallagher
Executive Directors
Colin Douglas Porter
Chief Executive Officer
Colin is a Barrister and Solicitor of the
High Court of New Zealand and was
admitted to the bar in 2000 and also
holds a double major business degree
in Finance and International Business.
Colin joined STM as CEO of the
Gibraltar and Jersey offices in June
2008, and brings with him a wealth of
experience in the company and trust
management field, having previously
held senior positions with other
international trust companies.
Non-Executive Directors
Bernard Gallagher FCMA
Non-Executive Chairman
Bernard held senior positions in both
financial and general management in
the manufacturing sector prior to joining
Premier Research as CFO in May 2003.
Premier Research floated on AIM in
Dec 2004 with a market capitalisation
of £18m. During the following four years
Bernard was responsible for M&A activity
for Premier prior to it returning to the
private sector in June 2008 with a market
capitalisation of £100M. Bernard left
Premier in Dec 2009 and is currently
providing consultancy services in both
the public and private sectors. Bernard is
a Fellow of the Chartered Institute of
Management Accountants.
12
Alan Roy Kentish ACA ACII AIRM
Chief Financial Officer
Alan qualified as a Chartered
Accountant in 1989 with Ernst &
Whinney, specialising in the financial
services industry. In 1993 he moved to
Ernst & Young, Gibraltar and shortly
afterwards qualified as an Associate of
the Chartered Insurance Institute. In
1997, Alan joined Fidecs and set up its
insurance management division, FIM.
Alan acts as Managing and Technical
Director of FIM, which is recognised as
one of the largest insurance manager
in Gibraltar.
Michael Ross Riddell CA
Non-Executive Director
Michael is an experienced company
director having qualified as a Chartered
Accountant in Canada in 1986. Michael
has worked in trust and corporate
services and financial services since 1988
and is managing director of Greystone
Trust Company Limited, the trust and
corporate services arm of Greystone LLC
based in the Isle of Man. Michael is
currently a director of Hearth
Investments Limited which holds a
significant shareholding in STM.
Matthew Graham Wood ACA
Non-Executive Director
Matt graduated with a First Class
honours degree in Economics in 1996
and qualified as a Chartered Accountant
in 1999. He joined the corporate finance
department of Beeson Gregory Limited
(now Evolution Securities) in 2000, where
he advised growing companies on
transactions including IPOs, fundraisings,
mergers and acquisitions, and all aspects
of the Listing Rules, AIM rules and the
takeover code. In 2006 he co-founded
CMS Ltd, a small consultancy boutique
specialising in assisting small quoted
companies on AIM.
143204 STM Group Annual Report_1Frontend_143204 STM Group Annual Report_1Frontend 01/04/2011 23:15 Page 13
Directors’ Remuneration Report and
Statement of Directors’ Responsibilities
Annual Report & Accounts 2010
Statement of Directors' Responsibilities
in Respect of the Directors' Report and
the Financial Statements
The Directors are responsible for preparing the
Directors' Report and the financial statements in
accordance with applicable law and regulations.
and fair view of the state of affairs of the Group
and Parent Company and of the profit or loss for
that period.
– Prepare financial statements on the going
concern basis unless it is inappropriate to
presume that the Group and Parent
Company will continue in business.
In preparing these financial statements, the
Directors are required to:
Company law requires the Directors to prepare
financial statements for each financial year.
Under that law the Directors have elected to
prepare the Group and Parent Company
financial statements in accordance with
International Financial Reporting Standards.
The Group and Parent Company financial
statements are required by law to give a true
– Select suitable accounting policies
and then apply them consistently;
– Make judgments and estimates that
are reasonable and prudent;
– State whether applicable International
Financial Reporting Standards have been
followed, subject to any material departures
disclosed and explained in the financial
statements; and
Directors’ Remuneration Report
Director
Executive Directors
Timothy Revill
Alan Kentish
Colin Porter
Non-Executive Directors
Bernard Gallagher
Matthew Wood
Mark Denton
Martin Derbyshire
Remuneration
Notes
£50,000
£130,000
£130,000
£30,000
£40,000
£5,000
£5,000
a, b
a, b
a, b
c
b, d
b, e
b, e
Notes
a) The Executive Directors are also each entitled to a bonus of £nil as at 31 December 2010.
b) No Directors received any benefits during the year in the form of either pension contributions or share based incentives.
c) Bernard Gallagher has opted to take his remuneration in the form of new shares in STM.
d) ABT Associates Limited invoices the Company for the Director services provided by Matthew Wood.
e) SMP Partners Limited invoices the Company for the Director services provided by Mark Denton and Martin Derbyshire.
The Directors are responsible for keeping
proper accounting records that disclose with
reasonable accuracy at any time the financial
position of the Group and Parent Company
and to enable them to ensure that the financial
statements comply with the Isle of Man
Companies Acts 2006. They are also responsible
for safeguarding the assets of the company
and hence for taking reasonable steps for
the prevention and detection of fraud and
other irregularities.
13
143204 STM Group Annual Report_1Frontend_143204 STM Group Annual Report_1Frontend 01/04/2011 23:15 Page 14
STM Group Plc
Corporate Governance
The Board is responsible for establishing
the strategic direction of the Company,
monitoring the Group’s trading performance
and appraising and executing development
and acquisition opportunities. During the year
the Company held regular Board meetings in
the Isle of Man at which financial and other
reports, including reports on acquisition
opportunities, were considered and, where
appropriate, voted on.
Details of the Directors’ beneficial interests in
Ordinary Shares is set out in the Directors
Report. The Directors intend to comply with
Rule 21 of the AIM Rules relating to directors’
dealings and will take all reasonable steps to
ensure compliance by any employees of the
Company to whom Rule 21 applies. The
Company has, in addition, adopted the Share
Dealing Code for dealings in its Ordinary Shares
by directors and senior employees.
The Directors recognise the importance of
sound corporate governance. The Company
intends to comply with the QCA Guidelines so
far as is practicable and appropriate for a public
company of its size and nature.
The Board has established an audit committee
and a remuneration committee both with
formally delegated duties and responsibilities.
The audit committee comprises Bernard
Gallagher, as the Chairman, and Matthew
Wood, and the remuneration committee
comprises Matthew Wood, as the Chairman,
and Bernard Gallagher.
The terms of reference for the audit
committee provide that it will receive and
review reports from the Company’s
management and the Company’s auditors
relating to the annual and interim accounts
and the accounting and internal control
systems in use throughout the Group.
remuneration and the terms of their service
contracts. The remuneration and terms and
conditions of appointment of the non-
executive directors will be set by the Board. No
director may participate in any meeting at
which discussion or decision regarding his own
remuneration takes place. The remuneration
committee will also administer the long term
incentive plan (‘LTIP’) awards and set any
performance criteria thereunder.
The Directors have set up a Risk Management
Committee comprising the CEO, CFO and the
STM Fidecs group Risk Management Officer
(‘RMO’). The Committee has delegated the
review of the risks applicable to the business
and the actions required to reduce those risks
to the RMO and his team. Regular reports of
the status of this review have been provided
to the Board.
The terms of reference for the remuneration
committee provide that it will review the scale
and structure of the Executive Directors’
The Directors do not consider that, given the
size of the Board, it is appropriate at this stage to
have a nomination committee.
14
143204 STM Group Annual Report_1Frontend_143204 STM Group Annual Report_1Frontend 01/04/2011 23:15 Page 15
Report of the Independent Auditors
to the Members of STM Group Plc
Annual Report & Accounts 2010
We have audited the financial statements of
STM Group Plc for the year ended 31 December
2010 which comprises the Consolidated
Income Statement, Consolidated Statement
of Comprehensive Income, Consolidated
Balance Sheet, Company Balance Sheet,
Consolidated Cash Flow Statement, Statement
of Consolidated Changes in Equity, Statement of
Company Changes in Equity and related notes.
The financial reporting framework that has been
applied in their preparation is applicable law and
International Financial Reporting Standards.
This report is made solely to the Company’s
Shareholders, as a body. Our audit work has
been undertaken so that we might state to the
Company’s Shareholders those matters we are
required to state to them in an auditor’s report
and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume
responsibility to anyone other than the
company and the Company’s Shareholders
as a body, for our audit work, for this report,
or for the opinions we have formed.
Respective responsibilities
of directors and auditor
As explained more fully in the Directors’
Responsibilities Statement set out on page X ,
the directors are responsible for the preparation
of the financial statements and for being
satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion
on the financial statements in accordance with
applicable law and International Standards on
Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices
Boards (APB’s) Ethical Standards for Auditors.
Scope of the audit of
the financial statements
An audit involves obtaining evidence about
the amounts and disclosures in the financial
statements sufficient to give reasonable
assurance that the financial statements are
free from material misstatement, whether
caused by fraud or error. This includes an
assessment of: whether the accounting policies
are appropriate to the Group’s circumstances
and have been consistently applied and
adequately disclosed; the reasonableness of
significant accounting estimates made by the
directors; and the overall presentation of the
financial statements.
Opinion on financial statements
In our opinion the financial statements:
– give a true and fair view of the state of
the Group’s and Company’s affairs as at
31 December 2010 and of the Group’s
Profit for the year then ended;
– have been properly prepared in accordance
with International Financial Reporting
Standards; and
– have been prepared in accordance with the
requirements of the Isle of Man Companies
Act 2006.
Moore Stephens
Chartered Accountants
Douglas
Isle of Man
4 April 2011
15
143204 STM Group Annual Report_2_143204 STM Group Annual Report_2 01/04/2011 23:17 Page 16
STM Group Plc
Consolidated Income Statement
for the year from 1 January 2010 to 31 December 2010
Year ended Year ended
31 December 2010 31 December 2009
Notes £000 £000
Revenue 8 10,454 8,521
Administrative expenses 10 (8,804) (7,726)
Operating profit 11 1,650 795
Finance Costs (211) (120)
Profit on ordinary activities before taxation 1,439 675
Taxation 12 (192) (36)
Profit on ordinary activities after taxation 1,247 639
Dividends 17 (257) (257)
Retained profit for the year attributable to equity shareholders 990 382
Earnings per share basic (pence) 18 2.90 1.57
Earnings per share diluted (pence) 18 2.59 1.53
There have been no discontinued activities in the year. Accordingly, the above results relate solely to continuing activities.
16
143204 STM Group Annual Report_2_143204 STM Group Annual Report_2 01/04/2011 23:17 Page 17
Consolidated Statement of Comprehensive Income
for the year from 1 January 2010 to 31 December 2010
Annual Report & Accounts 2010
Year ended Year ended
31 December 2010 31 December 2009
£000 £000
Profit for the year 990 382
Other comprehensive income
Foreign currency translation differences for foreign operations 57 (2)
Other comprehensive income for the year, net of income tax 57 (2)
Total comprehensive income for the year 1,047 380
Attributable to:
Owners of the Company 1,047 380
Total comprehensive income for the year 1,047 380
17
143204 STM Group Annual Report_2_143204 STM Group Annual Report_2 01/04/2011 23:17 Page 18
STM Group Plc
Consolidated Balance Sheet
as at 31 December 2010
31 December 2010 31 December 2009
Notes £000 £000
ASSETS
Non-current assets
Property, plant and equipment 13 1,460 1,316
Intangible assets 14 21,812 16,886
Other investments 54 —
Total non-current assets 23,326 18,202
Current assets
Accrued income 3,052 2,286
Trade and other receivables 15 5,688 5,140
Cash and cash equivalents 16 3,696 3,768
Total current assets 12,436 11,194
Total assets 35,762 29,396
EQUITY
Called up share capital 17 43 43
Share premium account 17 19,043 19,011
Reserves 5,471 4,469
Total equity attributable to equity shareholders 24,557 23,523
LIABILITIES
Current liabilities
Liabilities for current tax 494 321
Trade and other payables 19 5,559 4,714
Total current liabilities 6,053 5,035
Non-current liabilities
Other payables 20 5,152 838
Total non-current liabilities 5,152 838
Total liabilities and equity 35,762 29,396
CD Porter
Chief Executive Officer
AR Kentish
Chief Financial Officer
4 April 2011
18
143204 STM Group Annual Report_2_143204 STM Group Annual Report_2 01/04/2011 23:17 Page 19
Company Balance Sheet
as at 31 December 2010
Annual Report & Accounts 2010
31 December 2010 31 December 2009
Notes £000 £000
ASSETS
Non-current assets
Property, plant and equipment 13 1,003 851
Investments in subsidiaries 7 20,956 15,231
Total non-current assets 21,959 16,082
Current assets
Accrued income 25 25
Trade and other receivables 15 8,371 6,031
Cash and cash equivalents 16 101 18
Total current assets 8,497 6,074
Total assets 30,456 22,156
EQUITY
Called up share capital 17 43 43
Share premium account 17 19,043 19,011
Reserves 249 471
Total equity attributable to equity shareholders 19,335 19,525
LIABILITIES
Current liabilities
Trade and other payables 19 6,328 2,631
Total current liabilities 6,328 2,631
Non-current liabilities
Other payables 4,793 —
Total non-current liabilities 4,793 —
Total liabilities and equity 30,456 22,156
CD Porter
Chief Executive Officer
AR Kentish
Chief Financial Officer
4 April 2011
19
143204 STM Group Annual Report_2_143204 STM Group Annual Report_2 01/04/2011 23:17 Page 20
STM Group Plc
Consolidated Cash Flow Statement
for the year from 1 January 2010 to 31 December 2010
Year ended Year ended
31 December 2010 31 December 2009
£000 £000
Reconciliation of operating profit to net cash flow from operating activities
Profit for the year before tax 1,439 675
Adjustments for:
Loss on sale of assets 3 —
Depreciation 157 139
Gain from bargain purchase (451) —
Shares issued for services performed 40 40
Non-cash acquisition costs 12 —
Taxation paid (19) 19
(Increase)/decrease in trade and other receivables (103) 242
Increase in accrued income (375) (692)
(Decrease)/increase in trade and other payables (590) 490
Net cash from operating activities 113 913
Investing activities
Acquisition of property, plant and equipment (282) (960)
Disposal of property, plant and equipment — 9
Acquisition of treasury shares — —
Acquisition of investments – cash consideration (3,759) (438)
Cash acquired as part of acquisitions 587 —
Net cash used in investing activities (3,454) (1,389)
Cash flows from financing activities
Bank loan advance/(repayments) 1,326 (441)
Cash consideration from convertible bond issued 2,200 —
Dividend paid (257) (257)
Net cash from financing activities 3,269 (698)
Decrease in cash and cash equivalents (72) (1,174)
Reconciliation of net cash flow to movement in net funds
Analysis of cash and cash equivalents during the year
Balance at start of year 3,768 4,942
Decrease in cash and cash equivalents (72) (1,174)
Balance at end of year 3,696 3,768
20
143204 STM Group Annual Report_2_143204 STM Group Annual Report_2 01/04/2011 23:17 Page 21
Statement of Consolidated Changes in Equity
for the year from 1 January 2010 to 31 December 2010
Annual Report & Accounts 2010
Share Share Retained Treasury Translation
Capital premium earnings Shares reserve Total
£000 £000 £000 £000 £000 £000
Balance at 1 January 2009 43 18,896 4,240 (144) — 23,035
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Profit for the year — — 639 — — 639
Other comprehensive income
Foreign currency translation differences — — (2) — — (2)
Transactions with owners, recorded directly in equity
Shares issued in the year — 115 — — — 115
Dividend paid — — (257) — — (257)
Exchange loss on equity — — — — (7) (7)
At 31 December 2009 43 19,011 4,620 (144) (7) 23,523
Balance at 1 January 2010 43 19,011 4,620 (144) (7) 23,523
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Profit for the year — — 1,247 — — 1,247
Other comprehensive income
Foreign currency translation differences — — 57 — — 57
Transactions with owners, recorded directly in equity
Shares issued in the year — 32 — — — 32
Dividend paid — — (257) — — (257)
Exchange loss on equity — — — — (45) (45)
At 31 December 2010 43 19,043 5,667 (144) (52) 24,557
21
143204 STM Group Annual Report_2_143204 STM Group Annual Report_2 01/04/2011 23:17 Page 22
STM Group Plc
Statement of Company Changes in Equity
for the year from 1 January 2010 to 31 December 2010
Retained
Share Capital Share premium earnings Total
£000 £000 £000 £000
Balance at 1 January 2009 43 18,896 390 19,329
Profit for the year — — 338 338
Shares issued in year — 115 — 115
Dividend paid — — (257) (257)
31 December 2009 43 19,011 471 19,525
Balance at 1 January 2010 43 19,011 471 19,525
Profit for the year — — 35 35
Shares issued in year — 32 — 32
Dividend paid — — (257) (257)
31 December 2010 43 19,043 249 19,335
During the year the Company paid a dividend of 0.6 pence per share being 0.4 pence proposed at last year’s annual general meeting and
0.2 pence per share interim dividend. A further 0.4 pence per share has been proposed by the Directors and will be put to the shareholders
at the Annual General Meeting.
22
143204 STM Group Annual Report_3_143204 STM Group Annual Report_3 01/04/2011 23:19 Page 23
Notes to the Consolidated Results
for the year from 1 January 2010 to 31 December 2010
Annual Report & Accounts 2010
1. REPORTING ENTITY
STM Group Plc (the “Company”) is a company incorporated and domiciled in the Isle of Man and was admitted to trading on the London
Stock Exchange AIM on 28 March 2007. The address of the Company’s registered office is 18 Athol Street, Douglas. Isle of Man, IM1 1JA. The
consolidated financial statements of the Group as at, and for the year ended, 31 December 2010 comprise the Company and its subsidiaries
(see note 26) (together referred to as the “Group” and individually as “Group entities”) and the Group’s interest in associates and jointly
controlled entities. The Group is primarily involved in financial services.
2. BASIS OF PREPARATION
The financial information has been prepared on the basis of the accounting policies set out in note 3.
(a) Statement of compliance
The consolidated financial statements 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.
(b) Functional and presentational currency
These consolidated financial statements are presented in Pounds Sterling (£) which is the Company’s functional currency.
(c) Use of estimates and judgments
The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in
which the estimate is revised and in any future periods affected.
The estimates and assumptions which have a significant risk of resulting in a material adjustment to the carrying value of assets and
liabilities are included in the following notes:
– Note 13 - Depreciation of property, plant and equipment
– Note 14 - Measurement of goodwill
– Note 21 - Provisions
– Note 22 - Lease classification
(d) Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis, except where investments and other financial
instruments are held at fair value.
(e) Employee benefit trusts
The Company contributes to two employee benefit trusts. It is deemed that these trusts are controlled by the Company and are therefore
included within the consolidated financial statements of the Group.
3. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.
(a) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable
are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that
control commences until the date that control ceases.
(ii) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions are eliminated in
preparing the consolidated financial statements.
(b) Foreign currency
(i)
Foreign currency transactions
Transactions in foreign currencies are translated to the functional currency of the Group at the exchange rate at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated at the exchange
rate at that date. The resulting gain or loss is recognised in the income statement.
23
143204 STM Group Annual Report_3_143204 STM Group Annual Report_3 01/04/2011 23:19 Page 24
STM Group Plc
Notes to the Consolidated Results
for the year from 1 January 2010 to 31 December 2010
3. SIGNIFICANT ACCOUNTING POLICIES continued
(ii) Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to
sterling at exchange rates at the reporting date.
(c) Revenue
Revenue is derived from the provision of services and is recognised in the income statement in proportion to the stage of completion of
the services at the reporting date on an accruals basis.
(d) Accrued income
Accrued income represents billable time spent on the provision of services to clients which has not been invoiced at the reporting date.
Accrued income is recorded at the staff charge-out rates in force at the reporting date, less any specific provisions against the value of
accrued income where recovery will not be made in full.
(e) Property, plant and equipment
(i) Recognition and measurement
Items of property and office equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes
expenditures that are directly attributable to the acquisition of the asset and bringing it into use.
Gains and losses on disposal of an item of property and office equipment are determined by comparing the proceeds from disposal
with the carrying amount of property and office equipment, and are recognised net within other income in profit or loss.
(ii) Depreciation
Depreciation is recognised in the income statement on a reducing balance basis over the estimated useful lives of each part of an item
of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term or the estimated useful life.
Depreciation commences once assets are in use.
The rates in use on a reducing balance basis are as follows:
Office equipment
Motor vehicles
Leasehold improvements
25%
25%
10%
Depreciation methods, useful lives and residual values are reassessed at the reporting date.
(f ) Financial instruments
Financial assets and liabilities are recognised on the Group’s Balance Sheet when the Group becomes party to the contractual provisions of
the instrument.
Some hybrid contracts contain both a derivative and a non-derivative component. In such cases, the derivative component is termed an
embedded derivative, with the non-derivative component representing the host contract. The carrying amount of an embedded derivative
is reported in the same consolidated balance sheet line item as the host contract. The Group has an interest rate embedded derivative as
fair value hedge of the interest rate risk associated with one of the Group’s bank loans. In accordance with its treasury policy, the Group does
not enter into derivatives for speculative purposes.
(i)
Loans and receivables
Loans and receivable are financial assets with fixed or determinable payments that are not quoted in an active market. Loans and
receivables comprise trade and other receivables and are recognised initially at fair value and subsequently at amortised cost.
Generally, this results in their recognition at nominal value less any allowance for any doubtful debts.
(ii)
Investments
Investments are carried at fair value, subject to provisions for impairment where the current value of the investment is considered to be
less than cost. Impairment losses are recognised in the income statement. Investments are reviewed for impairment at each year end.
(iii) Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at banks and in hand with an original maturity of three months or less.
(iv) Share capital
Ordinary shares are classified as equity. Costs directly attributable to the issue of the shares are recognised as a deduction from share
premium.
Treasury shares are those shares purchased by the STM Group Employee Benefit Trust (“EBT”) for distribution to executives under the
Long Term Incentive Plan arrangements, which have yet to be allotted to specific employees.
24
143204 STM Group Annual Report_3_143204 STM Group Annual Report_3 01/04/2011 23:19 Page 25
Annual Report & Accounts 2010
3. SIGNIFICANT ACCOUNTING POLICIES continued
(g) Operating leases
Payments under operating leases are charged directly to the income statement on a straight line basis over the term of the lease.
(h) Employee benefits
The Group operates a defined contribution pension plan. Obligations for contributions to defined contribution pension plans are
recognised as an expense in the income statement when they are due.
Certain executives, on achieving their performance and services criteria, will be awarded with shares in STM Group Plc which are held within
an employee benefit trust. The expense is released to the income statement over a period of three years on a straight line basis.
(i)
Finance income
Finance income comprises interest income on funds invested and dividend income. Interest income is recognised as it accrues using the
effective interest method.
Finance expense comprises interest on borrowings. Interest expense is charged to the income statement using the effective interest
method.
(j)
Income tax expense
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement.
Current tax is the expected tax payable on the taxable income for the year using enacted tax rates, updated for previous period
adjustments.
(k)
(l)
Deferred tax is recognised using the balance sheet method, providing for temporary differences between carrying amounts of assets and
liabilities for financial reporting purposes and for tax purposes. Deferred tax is not provided in respect of goodwill. Deferred tax is measured
at the tax rates expected to be enacted when they reverse.
Intangible assets – goodwill
Goodwill that arises on the acquisitions of subsidiaries is included in intangible assets. Goodwill represents the excess of the cost of the
acquisition over the Group’s interest in the net fair value of the identifiable assets and liabilities of the acquiree. Goodwill is measured at cost
less accumulated impairment losses. An annual impairment review is undertaken.
Impairment
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective
evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had
a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount,
and the present value of the estimated future cash flows discounted at the original effective interest rate. Losses are recognised in the
income statement.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed
collectively in groups that share similar credit risk characteristics.
Any impairment losses would be recognised in the income statement.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. The
decrease in impairment loss is reversed through the income statement.
The carrying amounts of the Group’s non-financial assets are reviewed at each reporting date to determine whether there is any indication
of impairment. If any such indication exists then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have
indefinite lives, the recoverable amount is estimated at each reporting date.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-
generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups.
Impairment losses are recognised in the income statement. Impairment losses recognised in respect of cash-generating units are allocated
first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the
unit (group of units) on a pro-rata basis.
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143204 STM Group Annual Report_3_143204 STM Group Annual Report_3 01/04/2011 23:19 Page 26
STM Group Plc
Notes to the Consolidated Results
for the year from 1 January 2010 to 31 December 2010
3. SIGNIFICANT ACCOUNTING POLICIES continued
(m) Earnings per share
The Group presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the profit or
loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the
period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of
ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise shares relating to deferred consideration,
and the effect of outstanding options.
(n) Deferred income
Deferred income relates to the element of fixed fee income that has been billed in advance which has not been earned as at the balance
sheet date and is released over the period to which it relates.
(o) Borrowing costs
Borrowings are recognised initially at fair value net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any
difference between proceeds net of transactions costs and the redemption value is recognised in the income statement over the period of
the borrowing using effective interest method.
(p) Provisions
Provisions are recognised when there is a present legal or constructive obligation as a result of a past event, for which it is probably 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.
(q) New standards and interpretations not yet adopted
During the year the Group has adopted IFRS 3 (Revised) “Business Combinations” which requires that all costs associated with business
combinations are expensed directly to the Income Statement.
The following new standards and interpretations are mandatory for the first time this year, however, these have no significant impact on the
Group:
– IFRS 2 (amendment) “Share-based Payment” (amendments for group cash-settled share based payment transactions)
– IAS 39 (amendment) “Financial Instruments”: Recognition and Measurement (amendments for embedded derivatives when reclassifying
financial instruments).
– Annual improvements to IFRSs (2008)
– Annual improvements to IFRSs (2009)
– IFRIC 16 “Hedges of a Net Investment in a Foreign Operation”
– IFRIC 17 “Distributions of Non-cash Assets to Owners”
– IFRIC 18 “Transfers of Assets from Customers”
In addition a number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December
2010, and have not been applied in preparing these consolidated financial statements. None of these are expected to have an effect on the
consolidated financial statements of the Group.
4. DETERMINATION OF FAIR VALUES
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial
assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When
applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or
liability.
(a)
Intangible assets – goodwill
The fair value of Goodwill acquired in a business combination is based on the excess of the fair value of the consideration over the fair value
of the underlying assets and liabilities acquired less any impairment considered necessary.
(b)
Investments
The fair value of investments is based on the carrying value of those investments less any impairment considered necessary.
(c) Property, plant and equipment
The fair value of property, plant and equipment recognised as a result of a business combination is based on carrying values. The carrying
value of items of plant and equipment has been assessed as equal to its fair value.
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143204 STM Group Annual Report_3_143204 STM Group Annual Report_3 01/04/2011 23:19 Page 27
Annual Report & Accounts 2010
5. 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
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 established the Risk Management Committee, which is responsible for developing and monitoring the Group’s risk management
policies. The committee reports regularly to the Board of Directors on its activities.
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.
(i) 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 Group establishes a provision for impairment that represents its estimate of incurred losses in respect of trade and other
receivables. Further detail in respect of credit risk is provided in note 21 to these financial statements.
(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. Further details in respect of liquidity risk is provided in note 21 to these financial statements.
(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 market place is robust in that the target market is the “mid-tier millionaires” who are more resilient to adverse changes in the economy.
The Board of Directors believe that this mitigates a significant element of the Group’s market risk.
(d)
Interest rate risk
The Company has bank borrowings that incur interest and significant exposure to interest rate movements have been covered by interest
rate hedging arrangements required by the bank.
(e) Currency risk
The Group has a small exposure to currency risk in relation to the investment in STM Nummos and STM Swiss. This is considered to be long
term in nature and net assets retained in a foreign currency are minimal.
The Company has minimised exposure to foreign exchange rates, with the majority of all transactions being carried out in its functional
currency of Pounds Sterling (£).
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STM Group Plc
Notes to the Consolidated Results
for the year from 1 January 2010 to 31 December 2010
5. FINANCIAL RISK MANAGEMENT continued
(f ) 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. This also allows the Group to continue on its stated “buy
and build” strategy. The Group has complied with all Regulatory capital requirements.
6. SEGMENTAL INFORMATION
STM Group has five reportable segments: Corporate Trustee Services (“CTS”) in Gibraltar, CTS in Jersey, Insurance Management, Start-up
operations 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 assesses the operating segments based on turnover and allocated group resources. Profitability of segments can vary depending
on the allocation of central resources across each segment. Central resources include executive time, which is apportioned based on the
time devoted to each operating segment and therefore segment performance can be misinterpreted. Information relating to assets and
liabilities are reviewed by the Board for the Group as a whole and no separate information is reported to the CEO on individual segments.
Segment information includes revenue directly attributable to a segment. Other items such as treasury management and revenue accrued
to the Group are not included in the measure of segment turnover as they are not considered part of the core operations of any segment.
The following table presents the turnover information regarding the Group’s operating segments:
Operating segment
Turnover
2010 2009
£000 £000
CTS – Gibraltar 4,576 4,461
CTS – Jersey 3,271 839
Insurance Management 799 1,022
Start-up operations 249 64
Other Services 1,542 2,092
Total segment information 10,437 8,478
Unallocated income 17 43
10,454 8,521
Analysis of the Group’s turnover information by geographical location is detailed below:
Operating segment
Turnover
2010 2009
£000 £000
Gibraltar 6,070 6,061
International 4,367 2,417
Total segment information 10,437 8,478
7. ACQUISITION OF SUBSIDIARIES
Acquisitions of the Company
31 December 2010 31 December 2009
£000 £000
Shares in group undertakings
Balance at start of year 15,231 14,907
Adjustments to prior year — 324
Acquisitions 5,725 —
Balance at end of year 20,956 15,231
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Annual Report & Accounts 2010
7. ACQUISITION OF SUBSIDIARIES continued
Zenith Trust Company Limited
On 7 April 2010 STM Group Plc acquired 100% of the issued equity of Zenith Trust Company Limited. The balance sheet as at that date is
included within the consolidated results.
Pre-acquisition Fair value Recognised value
carrying value adjustments on acquisition
£000 £000 £000
Intangible assets 4,925 — 4,925
Property, plant & equipment 20 — 20
Accrued income 391 — 391
Trade and other receivables 459 — 459
Cash and cash equivalents 587 — 587
Trade and other payable (781) — (781)
Net identifiable assets 5,601 — 5,601
Gain on bargain purchase — — (451)
Consideration paid and deferred — — 5,150
Cash acquired — — (587)
Net cash outflow 5,601 — 4,563
STM Malta Trust & Company Limited
During the year, this company was incorporated and was successfully awarded its trust and management licence by the Malta Financial
Services Authority. It has an ordinary share equity of £125,000.
Subsequent performance of acquisitions
As a result of the fact that the Group has materially changed the composition of the acquired companies’ cost structure by fully integrating
them into the existing major trading operations of the Group, the Board of Directors consider it to be impractical to disclose the underlying
profitability of the acquired companies after the date of acquisition.
8. REVENUE
31 December 2010 31 December 2009
£000 £000
Revenue from administration of assets 10,454 8,521
Total revenues 10,454 8,521
9. STM LIFE ASSURANCE PCC PLC
These consolidated financial statements include the results for STM Life Assurance PCC Plc (“STM Life”), a 100% owned subsidiary. STM Life’s
principal activity is that of the provision of life assurance services. The Company has a licence under the Insurance Companies Act by the
Gibraltar Financial Services Commission to carry on linked long term insurance business.
The financial statements for STM Life include the financial performance of both the long term fund and shareholders funds. For the
purposes of these consolidated financial statements, however, only the shareholders funds and surplus on the long term fund have been
included as reflecting the movement and balances in the long term fund would distort the Group’s results.
Within total revenue of the Group of £10,454,000 there is an amount of £107,000 relating to revenue attributable to STM Life. The financial
performance and balance on the long term fund is as follows:
Technical Account – Long term business
Year ended Year ended
31 December 2010 31 December 2009
£000 £000
Gross premiums written 5,920 13
Policy withdrawals (107) —
Net operating expenses (53) (2)
Increase in linked long term reserves (5,730) (9)
Surplus on long term fund 30 2
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STM Group Plc
Notes to the Consolidated Results
for the year from 1 January 2010 to 31 December 2010
9. STM LIFE ASSURANCE PCC PLC continued
Assets held to cover linked liabilities
31 December 2010 31 December 2009
£000 £000
Open Market Value 5,739 9
Cost 5,933 9
Technical provision for linked liabilities
31 December 2010 31 December 2009
£000 £000
Balance at start of year 9 —
Change in technical provision for linked liabilities 5,730 9
Balance at end of year 5,739 9
The provision for linked liabilities is equal to the open market value of the specified assets attached to all outstanding policies on the
valuation date.
10. ADMINISTRATIVE EXPENSES
Included within administrative expenses are personnel costs as follows:
31 December 2010 31 December 2009
£000 £000
Wages and salaries 4,281 3,920
Social insurance costs 338 243
Pension contributions 87 121
Equity settled share based payments 40 40
Total personnel expenses 4,746 4,324
Average number of employees
31 December 2010 31 December 2009
GROUP Number Number
Average number of people employed (including executive directors) 125 111
Company
The average number of staff employed by the company during the year including directors was 12 (2009: 6)
11. OPERATING PROFIT
Operating profit of £1,650,000 (31 December 2009: £795,000), was arrived at after charging/(crediting) the following to the income
statement:
31 December 2010 31 December 2009
£000 £000
Depreciation 157 139
Directors’ remuneration 390 470
Auditors’ remuneration 103 80
Loss on sale of assets 3 —
Shares issued for services rendered 40 30
Operating lease rentals 514 433
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Annual Report & Accounts 2010
12. TAXATION
31 December 2010 31 December 2009
£000 £000
Current tax expense 192 36
Total tax expense 192 36
Reconciliation of existing tax rate
31 December 2010 31 December 2009
Tax rate £000 Tax rate £000
Profit for the year 1,247 639
Total income tax expense 192 36
Profit excluding income tax 1,439 675
Income tax using the company’s domestic rate 0% — 0% —
Effect of tax rates in other jurisdictions 20% 192 22% 36
Total tax expense 192 36
13. PROPERTY, PLANT AND EQUIPMENT
Leasehold
Motor Vehicles Office Equipment Improvements Total
GROUP £000 £000 £000 £000
Costs
As at 1 January 2009 18 389 302 709
Additions at cost 3 406 551 960
Disposals (9) — — (9)
As at 31 December 2009 12 795 853 1,660
As at 1 January 2010 12 795 853 1,660
Additions at cost — 280 4 284
Acquisition of subsidiary — 20 — 20
Disposals — (4) — (4)
As at 31 December 2010 12 1,091 857 1,960
Depreciation
As at 1 January 2009 3 126 76 205
Charge for the year 2 79 58 139
As at 31 December 2009 5 205 134 344
As at 1 January 2010 5 205 134 344
Charge for the year 2 109 46 157
Disposals — (1) — (1)
As at 31 December 2010 7 313 180 500
As at 31 December 2010 5 778 677 1,460
As at 31 December 2009 7 590 719 1,316
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STM Group Plc
Notes to the Consolidated Results
for the year from 1 January 2010 to 31 December 2010
13. PROPERTY, PLANT AND EQUIPMENT continued
Office Leasehold
Equipment Improvements Total
COMPANY £000 £000 £000
Costs
As at 1 January 2009 3 — 3
Additions at cost 297 551 848
As at 31 December 2009 300 551 851
As at 1 January 2010 300 551 851
Additions at cost 148 4 152
As at 31 December 2010 448 555 1,003
Depreciation
As at 1 January 2009 — — —
Charge for the year — — —
As at 31 December 2009 — — —
As at 1 January 2010 — — —
Charge for the year — — —
As at 31 December 2010 — — —
Net book value
As at 31 December 2010 448 555 1,003
As at 31 December 2009 300 551 851
14. INTANGIBLE ASSETS
Goodwill
GROUP £000
Costs
Balance as at 1 January 2009 16,562
Adjustments to prior year 324
Acquisitions through business combinations —
Balance at 31 December 2009 16,886
Balance as at 1 January 2010 16,886
Acquisitions through business combinations 4,926
Balance at 31 December 2010 21,812
Amortisation and impairment
Balance as at 1 January 2009 —
Acquisitions through business combinations —
Balance at 31 December 2009 —
Balance as at 1 January 2010 —
Acquisitions through business combinations —
Balance at 31 December 2010 —
Carrying amounts
At 1 January 2009 16,562
At 31 December 2009 16,886
At 1 January 2010 16,886
At 31 December 2010 21,812
Impairment testing for cash-generating units containing goodwill
All goodwill relates to the acquisitions made during the period from 28 March 2007 to 31 December 2010, and reflects the difference
between identifiable net asset value of those acquisitions and total consideration incurred for those acquisitions (see note 7 for Goodwill on
acquisitions during 2010).
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Annual Report & Accounts 2010
14. INTANGIBLE ASSETS continued
For the purposes of impairment testing, goodwill is allocated to the Group’s operating entities. These operating entities form the smallest
group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or group of
assets (the “cash-generating units” “CGU”). The Group’s largest CGU relates to the operations of the Fidecs Group for which the carrying
amount of goodwill is £15,380,000. All other acquisitions are classified as one CGU with the carrying amount of goodwill being £6,433,000.
The Group tests goodwill annually for impairment with the recoverable amount being determined from value in use calculations. The key
assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes in income and costs.
Changes in income and costs are based on past practices and expectations of future changes in the market.
To calculate the CGU’s value in use, Board approved cash flows for the following financial year are assumed to inflate at a steady growth rate
applicable to the relevant market. This rate does not exceed the long-term average growth rate for the relevant markets. The cashflows are
then extrapolated to perpetuity. Management estimates the discount rate using a pre-tax rate that reflects current market assessments of
the time value of money and the risks specific to the CGUs. A pre-tax discount rate of 5% has been used.
Based on the operating performance of the respective CGUs, no impairment loss was deemed necessary in the current financial year.
15. TRADE AND OTHER RECEIVABLES
31 December 2010 31 December 2009
GROUP £000 £000
Trade receivables 4,049 3,317
Other receivables 1,639 1,823
5,688 5,140
31 December 2010 31 December 2009
COMPANY £000 £000
Trade receivables due from related parties 8,042 5,554
Other receivables 329 477
8,371 6,031
Amounts due from related parties are unsecured, interest free and repayable on demand, except for receivables from STM Swiss AG
amounting to £671,000 which is subordinated in favour of other creditors.
The Group’s exposure to credit risks and impairment losses related to trade and other receivables (excluding accrued income) are described
in note 21.
16. CASH AND CASH EQUIVALENTS
31 December 2010 31 December 2009
GROUP £000 £000
Bank balances 3,696 3,768
Cash and cash equivalents in the statement of cash flow 3,696 3,768
31 December 2010 31 December 2009
COMPANY £000 £000
Bank balances 101 18
Cash and cash equivalents in the statement of cash flow 101 18
17. CAPITAL AND RESERVES
31 December 2010 31 December 2009
£000 £000
Authorised, called up, issued and fully paid
43,026,602 ordinary shares of £0.001 each (1 January 2010:
42,892,621 ordinary shares of £0.001 each) 43 43
Treasury shares
The treasury shares relate to those shares purchased by the STM Group EBT for allocation to executives under the terms of the Long Term
Incentive Plan. The trustees held 323,555 (1 January 2010: 323,555) shares at 31 December 2010, amounting to £144,000 (1 January 2010:
£205,000).
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STM Group Plc
Notes to the Consolidated Results
for the year from 1 January 2010 to 31 December 2010
17. CAPITAL AND RESERVES continued
Share premium
During the year 133,981 (2009: 211,859) shares were issued for a total share premium of £32,366 (2009: £114,788). During 2010, transaction
costs of £nil (2009: £nil) have been deducted from the share premium account.
Translation
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign
operations.
Dividends
The following dividends were declared and paid by the Group:
31 December 2010 31 December 2009
£000 £000
0.6 pence per qualifying ordinary share (2009: 0.6 pence) 257 257
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 2010 31 December 2009
£000 £000
0.4 pence per qualifying ordinary share (2009: 0.4 pence) 172 172
18. EARNINGS PER SHARE
Earnings per share for the year from 1 January 2010 to 31 December 2010 is based on the profit after taxation of £1,247,000 (2009: £639,000)
divided by the weighted average number of £0.001 ordinary shares during the year of 42,976,168 basic (2009: 42,776,649) and 48,203,441
dilutive (2009: 44,048,014) in issue.
A reconciliation of the basic and diluted number of shares used in the year ended 31 December 2010 is:
Weighted average number of shares 42,976,168
Dilutive share incentive plan, options, contingent consideration shares and convertible bond 5,227,273
Diluted 48,203,441
19. TRADE AND OTHER PAYABLES
31 December 2010 31 December 2009
GROUP £000 £000
Bank loans (see note 20) 912 450
Loans from related parties 105 1,363
Deferred income 866 977
Trade payables 358 549
Deferred and contingent consideration 1,553 91
Other creditors and accruals 1,765 1,284
5,559 4,714
31 December 2010 31 December 2009
COMPANY £000 £000
Bank loans 438 —
Owed to related parties 4,053 2,543
Deferred Consideration 1,462 —
Other creditors and accruals 375 88
6,328 2,631
Loans from related parties amount to £105,000 and relate to a loan by the founding shareholders of Fidecs, the loan is unsecured and
interest bearing at 7% per annum.
Deferred income consists of fixed fee revenues billed in advance to clients which have not yet been earned as at the balance sheet date.
These amounted to £866,000 as at 31 December 2010 (31 December 2009: £977,000).
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Annual Report & Accounts 2010
19. TRADE AND OTHER PAYABLES continued
Deferred and contingent consideration
Under the terms of the acquisition of STM Nummos SL a further £91,000 may be payable to the vendors depending on certain targets
being achieved.
Under the terms of the acquisition of Zenith Trust Company Limited a further £1,462,000 is payable during 2011.
The Group’s exposure to liquidity risk related to trade and other payables is described in note 21.
20. OTHER PAYABLES – AMOUNTS FALLING DUE IN MORE THAN ONE YEAR
31 December 2010 31 December 2009
GROUP £000 £000
Bank loan – repayable between year 2 and year 5 1,702 838
Convertible loan notes 3,450 —
5,152 838
31 December 2010 31 December 2009
COMPANY £000 £000
Bank loan – repayable between year 2 and year 5 1,343 —
Convertible loan notes 3,450 —
4,793 —
As at 31 December 2010 the Group had three bank loans from NatWest Bank Plc amounting to £2.6 million. The bank loans are repayable in
monthly and quarterly instalments at variable rates of interest currently ranging from 2% to 4.25% and are secured by capital guarantees
supplied by subsidiary companies.
As requested by Natwest Bank plc the Group is managing the interest rate risk of one of the bank loans with the purchase of an interest rate
swap. The economic characteristics and risks of the swap are closely related to the economic characteristics and risks of the bank loan and
as such has been accounted for as part of the hybrid instrument.
During the year the Company issued £2.2 million of new convertible loan notes (“loan notes”) for cash. The Loan Notes have a fixed term of
4 years and carry an annual coupon of 7%, payable half yearly. Up to 50% of each Loan Note can be converted into new ordinary shares of
£0.001 each in the Company (“Ordinary Shares”) at a price of 33p at the option of the holder in the month following the release of the
Company’s preliminary results for the year ending 31 December 2011 (“Convertible Notes”). Any Convertible Notes not converted into new
Ordinary Shares at that date can, at the option of the Company, be redeemed at par, together with any outstanding interest due thereon.
The balance of the Loan Notes will run to term. The Loan Notes are secured against all the assets of the Group.
In addition the Company also issued a further £1.3 million of Loan Notes in exchange for the £1.3 million of loans outstanding to the
founding shareholders of STM Fidecs, the Group’s first acquisition. These loans have been in place since the Group’s admission to AIM
in March 2007 and have earned the same rate of interest as the Loan Notes.
21. 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
31 December 2010 31 December 2009
£000 £000
Trade and other receivables 5,451 5,140
Cash and cash equivalents 3,696 3,768
9,147 8,908
The Group’s maximum exposure to credit risks relating to one entity or group of related entities amounts to less than 10% of the overall
trade receivable amount as at 31 December 2010 and 31 December 2009.
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STM Group Plc
Notes to the Consolidated Results
for the year from 1 January 2010 to 31 December 2010
21. FINANCIAL INSTRUMENTS continued
Impairment losses on trade receivables
The ageing of the Group’s trade receivables at the reporting date was:
Gross receivables Impairment Gross receivables Impairment
31 December 2010 31 December 2010 31 December 2009 31 December 2009
£000 £000 £000 £000
Not past due 1,384 — 1,103 —
past due 0–30 days 294 — 182 —
past due 31–120 days 237 — 108 —
More than 120 days past due 2,699 (539) 2,136 (212)
4,614 (539) 3,529 (212)
Standard credit terms are 30 days from the date of receiving the fee note.
The movement in the allowance for impairment in respect of trade receivables during the period was:
31 December 2010 31 December 2009
£000 £000
Balance at start of period 212 185
Impairment loss recognised/(released) 327 27
Balance at end of period 539 212
Based on historic default rates, the Group believes that no impairment allowance is necessary in respect of trade receivables that are not
more than one year old. This is because, invariably, the Group are administering clients’ assets and therefore have further recourses for the
recoverability of any debts outstanding.
Liquidity Risk
The following are the Group’s contractual maturity liabilities, including estimated interest payments where applicable, and excluding the
impact of netting arrangements.
Carrying Conditional 6 months
amounts cash flow or less 6-12 months 1-2 years
31 December 2010 £000 £000 £000 £000 £000
Non-derivative financial liabilities
Bank loans 2,614 2,614 456 456 1,702
Trade payables 326 326 326 — —
Deferred consideration on acquisitions 1,553 1,553 1,362 — 191
Loans from related parties 105 105 105 — —
Other creditors and accruals 1,765 1,765 1,765 — —
Corporation tax payable 494 494 494 — —
6,857 6,857 4,508 456 1,893
Carrying Conditional 6 months
amounts cash flow or less 6-12 months 1-2 years
31 December 2009 £000 £000 £000 £000 £000
Non-derivative financial liabilities
Bank loans 1,288 1,288 — 450 838
Trade payables 549 549 549 — —
Deferred consideration on acquisitions 91 91 — — 91
Loans from related parties 1,363 1,363 1,363 — —
Other creditors and accruals 1,284 1,284 1,284 — —
Corporation tax payable 321 321 321 — —
4,896 4,896 3,517 450 929
Currency, interest rate risk and market risk
The company has minimal exposure to currency risk and market risk. The net impact to the results on interest bearing assets and liabilities is
also considered to be minimal.
36
143204 STM Group Annual Report_3_143204 STM Group Annual Report_3 01/04/2011 23:19 Page 37
Annual Report & Accounts 2010
22. OPERATING LEASES
Leases as lessee
Non-cancellable operating leases are payable as follows:
31 December 2010 31 December 2009
£000 £000
Less than one year 514 514
Between one year and five years 1,974 2,056
More than five years 2,577 3,009
5,065 5,579
The Group leases a number of offices from which they operate, the largest of which is for Montagu Pavilion which runs for a further 13 years.
23. CAPITAL COMMITMENTS
The Group had £72,326 of capital commitments as at 31 December 2010 (31 December 2009: £104,269) for the installation of the new
IT system.
24. RELATED PARTIES
Transactions with key management personnel and Directors
Compensation
Key management compensation comprised:
31 December 2010 31 December 2009
£000 £000
Short-term employee benefits 340 260
Post-employment benefits — —
Share-based payments — —
340 260
Key management personnel and Director Transactions
Trusts and related parties connected to the Directors held 24.29% of the voting shares of the Company as at 31 December 2010.
Other related party transactions
As more fully explained in note 19, a loan of £105,000 has been provided to the Group by the founding shareholders of Fidecs (the
Company’s first acquisition) who are also shareholders.
The Group also leases its main premises from Fiander Properties Limited that is owned by three shareholders and two Directors of the
Company. Rental costs of such premises are £285,000 per annum of which £nil was outstanding at 31 December 2010.The rental cost is at
normal market rates.
The Group provided administration services to Gold Management Limited a company partly owned by Louise Kentish, spouse of Alan
Kentish a Director of the Company. These services amounted to £10,000 for the period to 31 December 2010, of which £3,000 was
outstanding at 31 December 2010.
The Group provides services to subsidiaries of Rock Holdings Limited, a shareholder of the Company. These services amounted to £176,000
during the period, of which £41,500 was outstanding at 31 December 2010.
SMP Partners Limited, of which Mark Denton and Martin Derbyshire are shareholders, charged the Company £22,600 for services rendered
during 2010, of which £6,100 was outstanding at 31 December 2010.
ABT Associates Limited, of which Matthew Wood is a shareholder, charged the Company £40,000 for services rendered during 2010, of
which £10.000 was outstanding at 31 December 2010.
All services relating to the above transactions were carried out by the Group on an arm’s length basis and are payable/receivable under the
standard credit terms.
25. SHARE BASED PAYMENTS
The Long Term Incentive Plan (“LTIP”) provides incentives for certain executives. The plan is administered by the trustees of the STM Group
Employee Benefit Trust. The nominated executive is entitled to receive fully paid shares in STM (“STM shares”) providing they achieve certain
predetermined performance targets and also satisfy a two year employment condition.
37
143204 STM Group Annual Report_3_143204 STM Group Annual Report_3 01/04/2011 23:19 Page 38
STM Group Plc
Notes to the Consolidated Results
for the year from 1 January 2010 to 31 December 2010
25. SHARE BASED PAYMENTS continued
The executive will receive the shares on the first day of dealing after the end of the two year employment condition. For 2010, relating to the
2010 performance, no shares (2009: nil) were appointed to specific individuals.
26. GROUP ENTITIES
Principal subsidiaries
As at 31 December 2010 the Company owned the following subsidiaries which are regarded as the principal trading operations of the
Group.
Ownership interest
STM Fidecs Limited
STM Fidecs Management Limited
STM Fidecs Insurance Management Limited
STM Fiscalis Limited (formerly STM Fidecs
Advisory Limited)
STM Fidecs Life, Health and Pensions Limited
STM Fidecs Trust Company Limited
STM Fidecs Central Services Limited
STM Fidecs Pension Trustees Limited
STM Fidecs Management (Gibraltar) Limited
Atlas Trust Company Limited
Parliament Corporate Services Limited
STM Fidecs Consumer Services Limited
STM Fiduciaire Trustees Limited
STM Fiduciaire Limited
STM Nummos SL
STM (Caribbean) Limited (formerly STM (BVI)
Limited)
Venture Media (Gibraltar) Limited
STM Life Assurance PCC plc
STM Swiss AG
Zenith Trust Company Limited
Country of incorporation 31 December 2010
31 December 2009
Activity
Isle of Man 100% directly
Gibraltar 100% indirectly
Gibraltar 100% indirectly
100% directly
100% indirectly
100% indirectly
Holding company
Administration of clients’ assets
Administration of clients’ assets
Gibraltar 100% indirectly
Gibraltar 100% indirectly
Gibraltar 100% indirectly
Gibraltar 100% indirectly
Gibraltar 100% indirectly
Gibraltar 100% indirectly
Gibraltar 100% indirectly
Gibraltar 100% indirectly
Jersey 100% indirectly
Jersey 100% indirectly
Jersey 100% indirectly
Spain 100% indirectly
BVI 100% directly
Gibraltar 100% indirectly
Gibraltar 100% indirectly
Switzerland 100% directly
Jersey 100% indirectly
100% indirectly
100% indirectly
100% indirectly
100% indirectly
100% indirectly
100% indirectly
100% indirectly
100% indirectly
100% indirectly
100% indirectly
100% indirectly
100% indirectly
100% directly
100% indirectly
100% indirectly
100% directly
—
Administration of clients’ assets
Administration of clients’ assets
Administration of clients’ assets
Services and Administration
Administration of clients’ assets
Administration of clients’ assets
Administration of clients’ assets
Administration of clients’ assets
Administration of clients’ assets
Administration of clients’ assets
Administration of clients’ assets
Administration of clients’ assets
Intellectual property holding company
Media agency
Insurance company
Administration of clients’ assets
Administration of clients’ assets
27. SUBSEQUENT EVENTS
On 7 January 2011 the Company issued 35,047 new ordinary shares of 0.1 pence each based on a value of 21.4 pence per ordinary share
giving a total consideration of £7,500 to one individual for services to the Company.
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143204 STM Group Annual Report_3_143204 STM Group Annual Report_3 01/04/2011 23:19 Page 39
Notice of Annual General Meeting
Annual Report & Accounts 2010
Notice is hereby given that the Annual General Meeting of the Company will be held on 6 May 2011 at 10 a.m. at 18 Athol Street, Douglas,
Isle of Man IM1 1JA for the purpose of considering and, if thought fit, passing the following resolutions:
Ordinary Resolutions
1. THAT the accounts for the year ended 31 December 2010 and the reports of the Directors and auditors thereon be received.
2. THAT the final dividend of 0.4p per share recommended by the Directors be declared to be payable on 10 June 2011 to shareholders
registered at the close of business on 13 May 2011. An interim dividend of 0.2p was paid in November 2010 making a total dividend payable
for the year of 0.6p.
3. As Michael Ross Riddell has been appointed during the period since the last AGM, to confirm his appointment as a Director of the Company.
4. THAT Alan Roy Kentish, who has retired from office by rotation in accordance with article 88 of the Company’s Articles of Association, be
reappointed as a Director of the Company.
5. As Moore Stephens have been appointed as auditors of the Company during the period, to confirm their appointment and to reappoint
them as auditors of the Company to hold office from the conclusion of the Annual General Meeting until the conclusion of the Annual
General Meeting held in 2012.
Special Resolution
1. THAT the Directors of the Company be authorised to issue, free of pre-emption rights, up to a maximum of 60,000,000 ordinary shares of
£0.001 each in the capital of the Company, with such maximum number to be inclusive of any ordinary shares in issue at the date of the
Annual General Meeting.
By order of the Board
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Elizabeth A Plummer
Company Secretary
18 Athol Street
Douglas
Isle of Man IM1 1JA
4 April 2011
Notes:
A member entitled to attend and vote is entitled to appoint a proxy or proxies to attend and, on a poll, vote instead of that member. A proxy need not be a
member of the Company. A form of proxy is enclosed. Proxy forms must be returned by post or by hand to the office of the agent of the Company’s registrars,
Computershare Investor Services PLC, The Pavilions, Bridgwater Rd, Bristol BS99 6ZY not less than 48 hours before the time of holding of the meeting. The Company
specifies, pursuant to Regulation 22 of the Uncertificated Securities Regulations 2006 (SD No. 743/06), that only those members entered on the register of
members as at 10:00 a.m. on 4 May 2011 (or in the event that the meeting is adjourned, on the register of members 48 hours before the time of any adjourned
meeting) shall be entitled to attend or vote at the meeting in respect of the number of ordinary shares registered in their name at the time. Changes to the
register of members after 10:00 a.m. on 4 May 2011 (or, in the event that the meeting is adjourned, on the register of members less than 48 hours before the time
of any adjourned meeting) shall be disregarded in determining the rights of any person to attend or vote at the meeting.
39
143204 STM Group Annual Report_3_143204 STM Group Annual Report_3 01/04/2011 23:19 Page 40
STM Group Plc
Company Information
CORPORATE
Directors
Registered Office
Advisers
Bernard Gallagher FCMA
Non-Executive Chairman
Colin D Porter
Chief Executive Officer
18 Athol Street
Douglas
Isle of Man IM1 1JA
T +44 (0)1624 626 242
Alan Roy Kentish ACA ACII AIRM
Chief Financial Officer
Company Number
005398V
Matthew Graham Wood ACA
Non-Executive Director
Michael Ross Riddell CA
Non-Executive Director
Company Secretary
Elizabeth Anne Plummer
FCA TEP CTA
Auditors
Moore Stephens
PO Box 25
26-28 Athol Street
Douglas
Isle of Man IM99 1BD
Registrars and CREST
Service Provider
Computershare Investor
Services (Jersey)
Limited
Queensway House
Hilgrove Street
St Helier
Jersey JE1 1ES
Registered Agent
Greystone Trust
Company Limited
18 Athol Street
Douglas
Isle of Man IM1 1JA
Nominated Adviser
and Broker
Evolution Securities Ltd
100 Wood Street
London EC2V 7AN
Joint Broker
FinnCap
4 Coleman Street
London EC2R 5TA
Solicitors to the Company
as to English law
Memery Crystal LLP
44 Southampton Buildings
London WC2A 1AP
Solicitors to the Company
as to Isle of Man law
Appleby’s
– Advocates & Notaries
33 Athol Street,
Douglas, Isle of Man
IM1 1LB
OFFICES
Gibraltar
Spain
Jersey
Switzerland
STM Nummos SL
Avda.De los Cortijos nº8
Urb. Sotogrande
11310 San Roque
Cádiz (Spain)
T (+34) 956 794 781
F (+34) 956 795 853
STM Fiduciaire
3rd floor
Windward House
La Route de la Liberation
St Helier
JE2 3BQ
T (+44) (0)1534 837600
F (+44) (0)1534 837601
STM Swiss AG
P.O. Box
Dreikönigstrasse 45
8027 Zurich
Switzerland
T (+41) 44 206 6070
F (+41) 44 206 6071
www.stmnummos.com
info@stmnummos.es
www.stmfiduciaire.je
info@stmfiduciaire.je
www.stmswiss.com
info@stmswiss.com
STM Fidecs
Montagu Pavilion
8 – 10 Queensway
Gibraltar
T (+350) 200 42686
F (+350) 200 42701
www.stmfidecs.gi
info@stmfidecs.gi
Malta
STM Malta
62 Regent House
Bisazza Street
Sliema
SLM 1641
Malta
T (+356) 213 33210
F (+356) 213 33220
www.stmmalta.com
info@stmmalta.com
40
143204 STM Annual Report Cover 2010_143204 STM Annual Report Cover 2010 02/04/2011 00:02 Page 3
STM Group Plc
STM Group Plc continues to
build on its reputation as an
independent cross-border
financial services provider.
Its core business of providing
corporate and trustee services
(“CTS”) is complemented by
the other emerging businesses
of offshore pensions and
life assurance products.
01 Highlights
03 Our Offices
04 Chairman’s Statement
06 Chief Executive Officer’s Review
11 Directors’ Report
12 Board of Directors
13 Directors’ Remuneration Report and
Statement of Directors’ Responsibilities
14 Corporate Governance
15 Independent Auditors’ Report
16 Consolidated Income Statement
17 Consolidated Statement of Comprehensive Income
18 Consolidated Balance Sheet
19 Company Balance Sheet
20 Consolidated Cash Flow Statement
21 Statement of Consolidated Changes in Equity
22 Statement of Company Changes in Equity
23 Notes to the Consolidated Results
39 Notice of Annual General Meeting
40 Company Information
online
www.stmgroupplc.com/
html/investor/annual_report.asp
143204 STM Annual Report Cover 2010_143204 STM Annual Report Cover 2010 02/04/2011 00:02 Page 1
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Annual Report
& Accounts
2010
STM Group Plc
18 Athol Street
Douglas
Isle of Man IM1 1JA
T +44 (0)1624 626 242
www.stmgroupplc.com