STMicroelectronics
Annual Report 2011

Plain-text annual report

S T M G r o u p P l c A n n u a l R e p o r t a n d A c c o u n t s 2 0 1 1 Annual Report & Accounts 2011 STM Group Plc strives to be the provider of choice for cross-border investors, entrepreneurs and expatriates by offering clear, innovative and impartial financial and commercial solutions which help clients protect and grow their investments. 01 Highlights 03 Our Offices 04 Chairman’s Statement 06 Chief Executive Officer’s Review 10 Directors’ Report 11 Board of Directors 12 Statement of Directors’ Responsibilities 13 Directors’ Remuneration Report 14 Corporate Governance 15 Independent Auditors’ Report 16 Consolidated Statement of Comprehensive Income 17 Consolidated Statement of Financial Position 18 Company Statement of Financial Position 19 Consolidated Statement of Cash Flows 20 Statement of Consolidated Changes in Equity 21 Statement of Company Changes in Equity 22 Notes to the Financial Statements 39 Notice of Annual General Meeting 40 Company Information STM Group Plc Revenue of £9.7 million 2010: £10.5 million Earnings before interest, taxation, depreciation and amortisation (“EBITDA”) £0.6 million 2010: £1.7 million Strong balance sheet with cash of £3.3 million at year end 2010: £3.7 million Market leading products The life and pensions business have developed a number of products which will provide a significant contribution to revenue and profits in 2012. Distribution The group has made distribution a priority, resulting in a number of agreements reached with established intermediary networks and IFAs resulting in enhanced distribution within the EU and rest of the world. New subsidiary companies performing well Our new Jersey business unit acquired in 2010 performed strongly and our recently opened Malta office has grown considerably to become a cornerstone for structuring of a number of our pensions products. 1 Annual Report & Accounts 2011 Offering solutions to complex post-crisis needs The financial crisis contributed to a global decline in developed economies, a downturn in international trade, a tightening of credit, and ultimately a decline in consumer wealth. National governments responded with measures to restore growth, but concerns remain amongst clients regarding the effect of the economy on their own financial goals, potential rises in tax, consequent reductions of income and net portfolio returns, and possibly inefficient and costly transfers of assets across jurisdictions. Addressing these concerns, and structuring wealth sensitively is STM Group Plc’s priority. Major Concerns of High Net Worth Clients CRITICAL HIGH Impact of Economy on Goals Possible Tax Increases Next Generation Not Adequately Managing Inheritance Ensuring Assets Last Their Lifetime Income Lagging Inflation Real Estate Market MEDIUM LOW Retirement Lifestyle Affordability Rising Healthcare Costs Rising Education Costs 1 Somewhat Agree 2 Agree 3 Strongly Agree Data taken from the Capgemini-Merrill Lynch World Wealth Report 2011, pages 27 and 28 Note: Percentages may not add up to totals due to rounding. 2 STM Group Plc Gibraltar Jersey Malta Spain Corporate and trustee service providers, insurance management, retirement benefits, life bonds Corporate and trustee service providers Wealth protection using tax treaties, corporate and trustee services, pension trustee, insurance management Legal and tax services for expatriates STM Group is international with a spread of offices strategically located around Europe According to the Capgemini-Merrill Lynch World Wealth Report 2011, nearly all HNWIs (97%) say capital preservation is important to them and a large number (42%) say it is extremely important. Similarly, effective portfolio management is deemed important by 94% of HNWIs and extremely important by 30%. The crisis has not only made these needs more acute, it has raised or created the priority for newer issues, including specialised advice (important to 93%) and transparency on statements and fees (93%). Top Six Priorities of HNW Clients Capital Preservation 8% 46% Effective Portfolio Management Specialised Advice Transparency on Statements and Fees Global Asset Allocation of Portfolios Independent Investment Advice 15% 19% 16% 26% 24% 49% 48% 42% 43% 42% 42% 30% 25% 34% 19% 21% 97% 94% 93% 93% 88% 88% Somewhat important Important Extremely Important Data taken from the Capgemini-Merrill Lynch World Wealth Report 2011, pages 27 and 28 Note: Percentages may not add up to totals due to rounding. 3 Annual Report & Accounts 2011 Chairman’s Statement “Whilst the outlook for 2012 remains challenging, the business is well positioned to improve upon the 2011 results.” Preserving wealth in changing times We continue to develop new financial products and services to keep pace with ever-changing financial and fiscal environments. Our independence allows us to remain impartial, offer the best advice and recommend or work closely with the most suitable advisers and service providers to implement tailor-made solutions which will help preserve and protect our clients’ wealth. STM Group Plc The Group’s life and pensions businesses have developed a number of market leading products which are now beginning to gain the traction required to meet revenue and in turn profit expectations. Julian Telling Chairman It is disappointing that in my first year as Chairman, the Group has experienced such a reduction in profitability compared with 2010. Issues in the Eurozone have been a major contributor to the fall in productivity, particularly in the later part of 2011. I am pleased to report that our Jersey business, acquired in 2010, remains robust and fully aligned with the Board’s expectations. However, our Gibraltar Corporate and Trustee Services business (CTS) has seen a significant increase in provisions against collectibles. These charges have arisen as a result of a combination of factors all of which have been addressed and therefore should not be repeated in coming years. In addition, the significant non-cash amortisation cost of the Group’s investments in its subsidiaries under IAS 38 has further masked the underlying profitability of the Group. Historically STM Group Plc has focused on bespoke solutions primarily in the CTS business but the Board recognises that market dynamics have changed dramatically over recent times. To that end the Board has implemented a number of significant changes to its business model. The Group’s life and pensions businesses have developed a number of market leading products which are now beginning to gain the traction required to meet revenue and in turn profit expectations. The Group has placed its strategic emphasis on distribution which is beginning to bear fruit, although the rate at which we see significant increases in revenue and therefore profits remains hard to predict albeit that initial indications are good. On behalf of the Board I would like to thank my predecessor Bernard Gallagher and former non executive director Matthew Wood for all their efforts over the years. STM Group Plc is a people business and its strength comes from the quality, dedication and professionalism of its management team and staff to whom I offer my sincere thanks on behalf of the Board. Whilst the outlook for 2012 remains challenging, with a tidier balance sheet together with a significant, already implemented reduction in overhead, the business is well positioned to improve upon the 2011 results. I look forward to updating the market during 2012 on the progress made in building our distribution channels, increasing revenues and the associated increase in profitability. Julian Telling Chairman 10 April 2012 5 Annual Report & Accounts 2011 Chief Executive Officer’s Review “We are seeing encouraging trends which support our view that the diversification of the STM business will ultimately be very rewarding.” Preserving wealth in changing times We understand how important personal service is to our clients from those administering what is often a significant proportion of their assets or business. A dedicated team of professionals will work with each of our clients to understand their needs and objectives and provide a high level of service. STM Group Plc STM Life has started the year reasonably well with uplift in business compared to the latter part of 2011. Pensions, particularly, with the QROPS products and its slowly increasing distribution network, has seen more applications in the last two months than in the whole of 2011. Colin Porter Chief Executive Officer 2011 has been a difficult year for STM. Expectations for 2011 were that we would continue to build on the success of 2010 in pursuit of our strategy of creating a product and distribution driven business to complement our traditional professional fees based operation. That was the case for the first half of 2011, however the second half has seen a deterioration of profitability in certain areas and our pensions and life businesses are yet to reach critical mass. In addition, we have taken steps to strengthen our provisions against potentially unrecoverable debtors and work-in- progress as a result of concerns over the economic climate. A further £0.1 million provision was made between our preliminary results announcement and the audited financial statements against accrued income in relation to a specific project in our Spanish office. As a result of the above STM has turned in a disappointing result for the year. The year has seen revenues of £9.7 million, which is slightly down on the 2010 figure of £10.5 million, however EBITDA before adjustments to carrying value of investments has fallen from £1.7 million in 2010 to £0.6 million in 2011. It is pleasing to note that the 2010 acquisition of Zenith Trust Company Limited (“Zenith”) has performed in line with expectations and has been a solid and predictable contributor to profitability. Additionally, we are seeing encouraging trends in the global product sales and distribution market which support our view that the diversification of the STM business will ultimately be very rewarding. STM’s business model – a changing environment Currently, the Group’s income continues to be mainly derived from fixed and time- based administration fees in relation to the administration services for trusts and companies under management. Management believes that the significant future growth area for the Group is in its pensions and life assurance (“life wrappers”) business, and a key part to this development will be increasing its distribution networks both within the EU and the rest of the world. These product lines are in themselves a differentiating factor as most Corporate and Trustee Service Providers (“CTS”) businesses do not have any similar product offerings. Both STM’s pension and life wrapper products are licensed from within EU jurisdictions and this will become a significant benefit in gaining the credibility required to grow these businesses through established intermediary networks. Operational Overview Core CTS division CTS income currently accounts for 75% of the Group’s revenue amounting to £7.5 million in 2011 (2010: £7.6 million) and is split evenly between Jersey and Gibraltar. STM Jersey’s revenue amounted to £3.7 million (2010: £3.3 million) and is typically derived from non-domiciled individuals investing into the UK market. This revenue stream has held up well during the year and performed in line with management’s expectations. The Board is confident that the Jersey operation, headed by a strong management team, will continue to perform as predicted going into 2012. Gibraltar’s CTS revenue stream has seen a decline in income for 2011 down to £3.8 million, from £4.3 million in 2010. This company’s customer base is significantly 7 Annual Report & Accounts 2011 Chief Executive Officer’s Review “The cross border and pensions transfer market is in its infancy, with STM being seen as a market leader and innovator.” more focussed on the UK expatriate that has moved or invested into the European marketplace, and management has seen a significant downturn in transactional business as a result of the Eurozone crisis. The financial crisis has also resulted in a number of customers challenging the need for their structures given the reduced profitability of their portfolios and business operations. This has had a double impact on the Gibraltar CTS business with both a reduction of chargeable time and a number of clients closing their structures in the second half of 2011. As a result of the changes in some of our clients’ circumstances, management has taken a more conservative approach to the Group’s recognition of work-in-progress and decided to significantly increase the provision against bad debts, resulting in a further reduction of £0.2 million in profitability. Management does not expect these charges to be repeated in future years. Additionally, management has taken, and is continuing to take, measures to reduce costs in this area, so as to restore a healthier profit margin in the business. It remains management’s intention over time to reduce reliance on the UK market for generating new clients for its CTS business. Since its incorporation in 2009, despite various initiatives by management, STM Swiss has struggled to attract new business and has therefore suffered from lack of critical mass. The decision was taken in the latter part of 2011 to retrench STM Swiss to an 8 out-sourced office in Zurich. This will save the Group some £0.4 million in 2012. STM Pensions The Board has previously noted the difficulty in forecasting the revenue streams for this business. Frustratingly, the anticipated increase in revenue is yet to be seen however the business has the hallmarks of being a substantial revenue and profit contributor to the Group going forward. The cross border and pensions transfer market is in its infancy, with STM being seen as a market leader and innovator in this area. This, coupled with the fact that Malta, in which STM has a presence and a number of HMRC-approved pension schemes, is increasingly becoming the jurisdiction of choice for the exporting of a UK, or indeed EU, pension scheme, has resulted in STM starting to build business relationships with some very significant worldwide distribution networks. STM’s pension division has yet to benefit, in revenue terms, from this business development, with the division contributing only £0.6 million of revenue for 2011 across Malta and Gibraltar. However, given the scalability of the traditional Qualifying Recognised Overseas Pension Scheme (QROPS) product, and the recent launch of some new pensions products in Malta and Gibraltar, it is anticipated that 2012 will be the year that STM’s pension division changes the revenue mix of the STM Group. STM Life Generation of linked long term policies (Life Bonds) from the UK market remains slow, and further initiatives to strengthen IFA distribution have been undertaken in the latter part of 2011 and into 2012. In addition, STM Life recently started offering the UK market an alternative pension product aimed at the High Net Worth Individual, which, it is believed, will derive an alternative revenue stream for STM Life from the UK market. On the positive side, STM Life is now receiving regular business from Sweden and Norway, and is dealing with a number of enquiries from other EU member states. Whilst it is very early days, it does demonstrate the pan-European nature of STM Life’s products. Other trading divisions and new initiatives Trading in the other divisions, being insurance management, advisory and the Spanish office remain broadly in line with management’s expectations, and contributed circa £1.5 million during 2011 (2010: £1.5 million). A further £0.1 million provision was made between our preliminary results announcement and the audited financial statements against accrued income in relation to a specific project in our Spanish office. Management is confident that these divisions will make a comparable contribution to next year’s performance. Financial position The second half performance in 2011, coupled with the increase in the provisions STM Group Plc has had an unprecedented detrimental impact on the 2011 underlying profit. For the year to 31 December 2011, the Group recorded turnover of £9.7 million (2010: £10.5 million) and an EBITDA before adjustments to carrying value of investments of £0.6 million (2010: £1.7 million). As noted above, the Gibraltar CTS business saw a reduction of some £0.5 million of revenue, and administrative expense costs have increased by £0.2 million due to management’s decision to increase one-off provisions against debtors and work-in-progress. These are the primary differentiators in the overall Group’s EBITDA result between the two years. The depreciation and amortisation charge, a non cash expense to the income statement, has increased from £0.2 million in 2010 to £0.8 million for 2011. The increase relates to the adoption of IAS 38 which requires the identification and valuation of intangible assets as part of an acquisition to be written off over their deemed useful economic life, rather than performing an impairment review. Such amortisation costs have resulted in an additional charge of £0.5 million. This non-cash charge will continue to occur on acquisitions post 1 January 2010 for the remainder of their deemed economic life. Interest and financing costs have increased to £0.4 million (2010: £0.2 million) as a result of the full year costs of the convertible loan note. STM’s taxation charge for the year was on budget at £0.1 million (2010: £0.2 million). 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 £2.9 million (2010: £3.1 million). This also provides some immediate visibility of billable fees in the early part of 2012. 2011 has seen a number of initiatives in relation to reducing the Group’s debtor days and overall trade debt; these initiatives will continue during 2012. Trade receivables as at 31 December 2011 amounted to £3.4 million, down from £4.0 million as at 31 December 2010. Deferred income, representing fees billed in advance, yet to be credited to the statement of total comprehensive income were more or less comparable year on year at £0.7 million (2010: £0.9 million) reflecting the loss of a small number of clients during the course of the year. STM Jersey’s fixed fees are billed annually in advance in January which will result in a significant cash influx during early 2012. The Group ended the year with cash of £3.3 million (2010: £3.7 million), having paid out further consider- ation on acquisitions amounting to £0.7 million and bank loan repayments of £0.6 million. In addition, dividends relating to the final 2010 declaration of £0.18 million were paid during 2011. Group financing At 31 December 2011, the Group had bank borrowings of £1.97 million (2010: £2.6 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 addition to bank financing, there remains Convertible Loan Notes (“CLN”) to the value of £3.5 million. There was an option for 50% of the CLN to be converted into new ordinary shares in STM at the holders’ discretion at a price of 33 pence per share in March 2012. No loan notes were converted to equity, nor redeemed at that date and therefore the CLN will run to term and be repayable in March 2014. Board changes during the year During the year, Julian Telling was appointed Chairman of the Board of STM, replacing Ber- nard Gallagher who retired after four years. Julian’s connections in the Financial Services industry are starting to bring benefits to the Group, and our expectations are that this will continue to build our distribution both in the UK and elsewhere around the world. In addition, during 2011, Matthew Wood resigned as a non-executive director to follow other business opportunities. Dividends In recognition of the difficult 2011 year for the Group, the Board recommends that no final dividend be paid for the year ended 31 December 2011 (2010: 0.4 pence per share). It is the Board’s intention to review the policy of dividend payments during 2012 and, dependent on the Group’s performance, will seek to return to a progressive and formulated dividend policy as soon as it is prudent to do so. Executive long term incentive plan The Board has agreed a long term incentive plan for 2012 and 2013 with the executive directors based on certain targets being achieved in the next two financial years. Target hurdles relate to a fully diluted earnings per share target of 4 pence per share for 2012, and 8 pence for 2013, and an average three month share price target of between 40 pence to 80 pence. The maximum share allocation to the two executive directors is 1.3 million shares per director. Current trading and outlook Measures have been taken during the latter part of 2011 to reduce headcount, particularly in Gibraltar which has seen a reduced level of chargeable time in its CTS business, which will in turn increase profitability in this business unit. Whilst the Eurozone crisis and potential double-dip recession remain such a concern for our client base, we can expect the level of transactional activities to be suppressed, and this has been factored into 2012 management expectations for the CTS business. In this regard, 2012 CTS activity has started in a similar manner to the close of 2011 but with fewer costs associated with servicing this business. The Group believes that the 2011 increase in provisions across debtors and work-in-progress was a one-off and will not be repeated in 2012. On the positive side, both our pensions division and STM Life have started the year reasonably well with uplift in business compared to the latter part of 2011. Pensions, particularly, with the Qualifying Recognised Overseas Pensions Scheme products and its slowly increasing distribution network, has seen more applications in the last two months than in the whole of 2011. In addition, the scaling down of STM Swiss will be complete by March 2012, further saving Group resources and management time. The successful cash generation in the period and the subsequent reduction in debt is a credit to the management team and a trend which we expect to continue. This achievement is particularly notable given the broader economic environment. Enhanced profitability in 2012 will only come about as a result of STM continuing to grow its distribution network across the various intermediary introducers. This is a key area of focus for management, with the additional financial resources intended to accelerate distribution sign-up. The Board is aware that 2012 will be a very important year in delivering a new look STM, in which both STM Life and the STM Pensions divisions start to fulfill the revenue potential of which management know their product range is capable. We look forward to updating the market on the Group’s progress. Colin Porter Chief Executive Officer 10 April 2012 9 Annual Report & Accounts 2011 Director’s Report The Directors of STM Group plc present their Report for the year to 31 December 2011 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 17 May 2012. 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 loss for the year of £429,000 (31 December 2010: Profit after dividends £1,047,000) has been transferred to reserves. The Board recommends that no dividends be paid for the year ended 31 December 2011 (31 December 2010: 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: Bernard Gallagher (Resigned 9 May 2011), Alan Roy Kentish, Colin Douglas Porter Michael Ross Riddell, Julian Philip Telling (Appointed 9 May 2011), Matthew Graham Wood (Resigned 26 September 2011). 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 10 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 537,613 ordinary shares. Julian Telling has an interest in 85,000 ordinary shares. more of the issued ordinary share capital of the Company as at 29 March 2012 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 29 March 2012 % Julian Philip Telling 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. All remaining directors offer themselves for re-election. Political and charitable donations The Group’s charitable donations for the period amounted to £5,101 (31 December 2010:Nil). 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”). 17.65 Hearth Investments Limited Southern Rock Insurance Company Limited, Rock Holdings Limited, Arron Banks and Paul Chase-Gardener SBS Nominees Limited Nightingale Equities Inc Clifton Participation Inc KAS Bank NV Bernard Nominees Limited Quest Traders Limited 13.31 7.96 6.77 6.68 6.03 4.45 3.19 Independent auditors KPMG Audit LLC were appointed as auditors to the company during the year and being eligible, have expressed their willingness to continue in office. A resolution to re-appoint KPMG Audit LLC as independent auditors of the Company will be proposed at the Annual General Meeting. 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 Annual General Meeting The Notice of the Annual General Meeting to be held on 17 May 2012 is set out on page 39. By order of the Board Elizabeth A Plummer Company Secretary 18 Athol Street Douglas Isle of Man IM1 1JA 10 April 2012 STM Group Plc Board of Directors Clockwise from top left: Colin Douglas Porter Alan Roy Kentish Michael Ross Riddell Julian Philip Telling Executive Directors Colin Douglas Porter Chief Executive Officer Alan Roy Kentish ACA ACII AIRM Chief Financial 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. 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 managers in Gibraltar. Non-Executive Directors Julian Philip Telling Non-Executive Chairman Following a brief spell in the Fleet Air Arm of the Royal Navy, Julian trained for a career in retail financial services. In 1983 he established Falcon Group, which grew into one of the largest independent financial services groups in the UK. After being admitted to AIM in 2005 under the name Sumus plc, the business merged with Lighthouse plc in 2008 and Julian chose to leave to pursue other ventures. He now holds various directorships in both public and private companies, as well as a variety of pro bono positions. He is this year’s president of the Grateful Society, one of Bristol’s oldest charities. Julian also has a professional pilot’s licence and flies part- time for a small airline as well as acting as a CAA examiner. 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 GreystoneTrust 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. 11 Annual Report & Accounts 2011 Statement of Directors’ Responsibilities 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. In addition, the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards. The financial statements are required to give a true and fair view of the state of affairs of the Group and Parent Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether they have been prepared in accordance with International Financial Reporting Standards; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Parent Company will continue in business. The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Parent Company’s transactions and disclose with reasonable accuracy at any time its financial position. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation governing the preparation and dissemination of financial statements may differ from one jurisdiction to another. 12 STM Group Plc Director’s Remuneration Report Directors’ Remuneration Report Director Remuneration Notes Executive Directors Alan Kentish Colin Porter Non-Executive Directors Bernard Gallagher Julian Telling Matthew Wood Michael Riddell £130,000 £130,000 £10,000 £25,853 £40,000 £12,000 a,b a,b c b,d b,e Notes a. b. c. d. e. The Executive Directors are also each entitled to a bonus of £nil as at 31 December 2011. No Directors received any benefits in the form of either pension contributions or share based incentives. Bernard Gallagher opted to take the majority of his remuneration in the form of new shares in STM. ABT Associates Consulting Limited invoices the Company for the Director services provided by Matthew Wood. Greystone Trust Company Limited invoices the Company for the Director services provided by Michael Riddell. 13 Annual Report & Accounts 2011 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 Michael Riddell, as the Chairman, and Julian Telling, and the remuneration committee comprises Julian Telling, as the Chairman, and Michael Riddell. 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. The terms of reference for the remuneration committee provide that it will review the scale and structure of the Executive Directors’ 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 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 Directors do not consider that, given the size of the Board, it is appropriate at this stage to have a nomination committee. 14 STM Group Plc Report of the Independent Auditors, KPMG Audit LLC, to the members of STM Group PLC We have audited the financial statements of STM Group PLC for the year ended 31 December 2011 which comprise the Group Statement of Comprehensive Income, the Group and Company Statements of Financial Position, the Group Statement of Cash Flows and the Group Statement of Changes in Equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs). This report is made solely to the Company’s members, as a body. Our audit work has been undertaken so that we might state to the Company’s members 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 members 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 12, the Directors are responsible for the preparation of financial statements that give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with ap- plicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. 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 the financial statements In our opinion the financial statements: • give a true and fair view of the state of the Group’s and Parent Company’s affairs as at 31 December 2011 and of the Group’s loss for the year then ended; and • have been properly prepared in accordance with IFRSs. 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 KPMG Audit LLC Chartered Accountants Heritage Court 41 Athol Street Douglas Isle of Man IM99 1HN 10 April 2012 15 Annual Report & Accounts 2011 Consolidated Statement of Comprehensive Income For the year from 1 January 2011 to 31 December 2011 Revenue Administrative expenses Profit before other items Other items Finance Costs Depreciation and amortisation Adjustments to carrying value of investments (Loss)/profit before taxation Taxation (Loss)/profit after taxation Other comprehensive income Foreign currency translation differences for foreign operations Total comprehensive (loss)/profit for the year Earnings per share basic (pence) Earnings per share diluted (pence) Year ended 31 December 2011 £000 Year ended 31 December 2010 £000 9,729 (9,101) 628 (361) (765) 88 (410) 10 (400) (29) (429) (0.93) (0.93) 10,454 (8,778) 1,676 (211) (157) 131 1,439 (192) 1,247 57 1,304 2.90 2.59 Notes 8 10 12 18 18 There have been no discontinued activities in the year. Accordingly, the above results relate solely to continuing activities. 16 STM Group Plc Consolidated Statement of Financial Position As at 31 December 2011 Notes 31 December 2011 £000 31 December 2010 £000 ASSETS Non-current assets Property, plant and equipment Intangible assets Other investments Total non-current assets Current assets Accrued income Trade and other receivables Cash and cash equivalents Total current assets Total assets EQUITY Called up share capital Share premium account Reserves Total equity attributable to equity shareholders LIABILITIES Current liabilities Liabilities for current tax Trade and other payables Total current liabilities Non current liabilities Other payables Total non-current liabilities Total liabilities and equity CD Porter Chief Executive Officer AR Kentish Chief Financial Officer 10 April 2012 13 14 15 16 17 17 19 20 1,480 21,109 64 22,653 2,918 4,924 3,307 11,149 33,802 43 19,051 4,842 23,936 338 5,273 5,611 4,255 4,255 33,802 1,460 21,812 54 23,326 3,052 5,688 3,696 12,436 35,762 43 19,043 5,471 24,557 494 5,559 6,053 5,152 5,152 35,762 17 Annual Report & Accounts 2011 Company Statement of Financial Position As at 31 December 2011 Notes 31 December 2011 £000 31 December 2010 £000 13 7 14 15 16 17 17 19 20 1,093 16,052 4,382 21,527 25 6,571 2 6,598 28,125 43 19,051 (910) 18,184 5,581 5,581 4,360 4,360 28,125 1,003 20,956 — 21,959 25 8,371 101 8,497 30,456 43 19,043 249 19,335 6,328 6,328 4,793 4,793 30,456 ASSETS Non-current assets Property, plant and equipment Investments in subsidiaries Intangible assets Total non-current assets Current assets Accrued income Trade and other receivables Cash and cash equivalents Total current assets Total assets EQUITY Called up share capital Share premium account Reserves Total equity attributable to equity shareholders LIABILITIES Current liabilities Trade and other payables Total current liabilities Non-current liabilities Other payables Total non-current liabilities Total liabilities and equity CD Porter Chief Executive Officer AR Kentish Chief Financial Officer 10 April 2012 18 STM Group Plc Consolidated Statement of Cash Flows For the year from 1 January 2011 to 31 December 2011 Year ended 31 December 2011 £000 Year ended 31 December 2010 £000 Reconciliation of profit to net cash flow from operating activities (Loss)/profit for the year before tax Adjustments for: Loss on sale of assets Depreciation and amortisation Shares issued for services performed Adjustments to investments Taxation paid Decrease/(increase) in trade and other receivables Decrease/(increase) in accrued income Increase/(decrease) in trade and other payables Net cash from operating activities Investing activities Acquisition of property, plant and equipment Acquisition of investments – cash consideration Cash acquired as part of acquisitions Net cash used in investing activities Cash flows from financing activities Bank loan (repayments) / advance Cash consideration from convertible bond issued Dividend paid Net cash from financing activities Decrease in cash and cash equivalents Reconciliation of net cash flow to movement in net funds Analysis of cash and cash equivalents during the year Decrease in cash and cash equivalents Translation of foreign operations Balance at start of year Balance at end of year (410) — 765 8 (88) (148) 764 134 358 1,383 (240) (656) — (896) (647) — (172) (819) (332) (332) (57) 3,696 3,307 1,439 3 157 40 (439) (19) (103) (375) (590) 113 (282) (3,759) 587 (3,454) 1,326 2,200 (257) 3,269 (72) (72) – 3,768 3,696 19 Annual Report & Accounts 2011 Statement of Consolidated Changes in Equity For the year from 1 January 2011 to 31 December 2011 Balance at 1 January 2010 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD Profit for the year Other comprehensive income Foreign currency translation differences Transactions with owners, recorded directly in equity Shares issued in the year Dividend paid Exchange loss on equity At 31 December 2010 Balance at 1 January 2011 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD Loss for the year Other comprehensive income Foreign currency translation differences Transactions with owners, recorded directly in equity Shares issued in the year Dividend paid Exchange loss on equity At 31 December 2011 Share Capital £000 43 — — — — — 43 43 — — — — — 43 Share premium £000 19,011 Retained earnings £000 4,620 Treasury Shares £000 (144) — — 32 — — 19,043 19,043 — — 8 — — 19,051 1,247 57 — (257) — 5,667 5,667 (400) (29) — (172) — 5,066 — — — — — (144) (144) — — — — — (144) Translation reserve £000 (7) — — — — (45) (52) (52) — — — — (28) (80) Total £000 23,523 1,247 57 32 (257) (45) 24,557 24,557 (400) (29) 8 (172) (28) 23,936 20 STM Group Plc Statement of Company Changes in Equity For the year from 1 January 2011 to 31 December 2011 Balance at 1 January 2010 Profit for the year Shares issued in year Dividend paid 31 December 2010 Balance at 1 January 2011 Loss for the year Shares issued in year Dividend paid 31 December 2011 Share Capital £000 43 — — — 43 43 — — — 43 Share premium £000 19,011 — 32 — 19,043 19,043 — 8 — 19,051 Retained earnings £000 471 35 — (257) 249 249 (987) — (172) (910) Total £000 19,525 35 32 (257) 19,335 19,335 (987) 8 (172) 18,184 During the year the Company paid a dividend of 0.4 pence per share proposed at last year’s annual general meeting. 21 Annual Report & Accounts 2011 Notes to the Financial Statements For the year from 1 January 2011 to 31 December 2011 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 2011 comprise the Company and its subsidiaries (see note 25) (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 presentation 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 for impairment 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) 3. (a) (b) 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. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. Basis of consolidation Subsidiaries (i) 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. 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 of comprehensive income. (ii) 22 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. STM Group Plc 3. (c) (d) (e) SIGNIFICANT ACCOUNTING POLICIES continued Revenue Revenue is derived from the provision of services and is recognised in the statement of comprehensive income in proportion to the stage of completion of the services at the reporting date on an accruals basis. 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. 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 statement of comprehensive income 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 Over the life of the leases 10% / 25% 25% 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. (i) (ii) (iii) (iv) (v) Loans and receivables Loans and receivables 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. Interest-bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost. The Group’s convertible loan has been recorded as a liability as the option to redeem or convert to equity was not taken up and therefore those will run to term. 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 statement of comprehensive income. Investments are reviewed for impairment at each year end. Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and in hand with an original maturity of three months or less. 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. (g) Operating leases Payments under operating leases are charged directly to the statement of comprehensive income on a straight line basis over the term of the lease. 23 Annual Report & Accounts 2011 Notes to the Financial Statements For the year from 1 January 2011 to 31 December 2011 3. (h) SIGNIFICANT ACCOUNTING POLICIES continued Finance Leases Assets held under finance leases are capitalised at their initial cost. Rentals are set against accounts payable on a straight line basis. (i) 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. (j) 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. (k) 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. 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. (l) Intangible assets (i) 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. (ii) Client Portfolio Client Portfolio acquired in a business combination is carried at cost less accumulated amortisation and any accumulated impairment losses. This is amortised on a straight-line basis over an estimated useful life which is assessed to be nine years. (m) 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 statement of comprehensive income. 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 statement of comprehensive income. 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. 24 STM Group Plc 3. (n) (o) SIGNIFICANT ACCOUNTING POLICIES continued Interest Rate Swap The Group has an interest rate swap in order to manage the interest rate associated with one of the Group’s bank loans. Whilst this is a derivative liability the cost of this is not significant and consequently it is included within other financial liabilities. In accordance with its treasury policy the Group does not enter into derivatives for speculative purposes. 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. The effects of potential ordinary shares are reflected in diluted EPS only when their inclusion in the calculation would decrease EPS or increase the loss per share. (p) 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. (q) 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. (r) (s) Provisions Provisions are recognised when there is a present legal or constructive obligation as a result of a past event, for which it is probable that an out- flow of economic benefits will be required to settle the obligation, and where a reliable estimate can be made of the amount of the obligation. New standards and interpretations The following new standards and interpretations are mandatory for the first time this year; however, following consideration and review they are believed to either not be relevant to the Group or do not have a significant impact on the Group’s financial statements apart from additional disclosures: • • • • • IFRS 1 IFRS 7 IAS 1 IAS 24 IAS 34 “First-time adoption of International Financial Reporting Standards” “Financial Instruments: Disclosures” “Presentation of Financial Statements” “Related party Disclosures” “Interim Financial Reporting” In addition a number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2011, 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 appli- cable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability. (a) Intangible assets 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. The fair value of the client portfolio acquired is based on the carrying value 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. 25 Annual Report & Accounts 2011 Notes to the Financial Statements For the year from 1 January 2011 to 31 December 2011 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 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. 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. A further detail in respect of liquidity risk is provided in note 21 to these financial statements. 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 objective of market risk management is to manage and control market risk expenses within acceptable parameters, while optimising the return. (b) (c) 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. This is mitigated by the fact that assets and liabilities held by STM Nummos are in its functional currency of euros (€). 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 (£). (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. 26 STM Group Plc 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 assess the performance of the operating segments based on turnover generated. The costs of certain segments within the Group are predominantly centrally controlled and therefore the allocation of these are based on utilisation of arbitrary proportions. Management believe that this information and consequently profitability could potentially be misleading and would not enhance the disclosure above. 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 CTS – Gibraltar CTS – Jersey Insurance Management Start-up operations Other Services Total segment information Unallocated income Analysis of the Group’s turnover information by geographical location is detailed below: Operating Segment Gibraltar International Total segment information 7. INVESTMENTS IN SUBSIDIARIES Acquisitions by the Company Shares in group undertakings Balance at start of year Reallocations and adjustments to goodwill Acquisitions Balance at end of year Turnover Turnover 2010 £000 4,576 3,271 799 249 1,542 10,437 17 10,454 2010 £000 6,070 4,367 10,437 2011 £000 3,770 3,705 649 — 1,653 9,777 (48) 9,729 2011 £000 4,910 4,867 9,777 31 December 2011 £000 31 December 2010 £000 20,956 (4,949) 45 16,052 15,231 — 5,725 20,956 During the year the prior years acquisitions were reassessed resulting in the reallocation of intangible assets of £4,927,000 (note 14) and adjustments to the cost of investments and goodwill of £22,000. STM Malta Insurance Management Limited During the year, this company was incorporated and was successfully awarded its insurance management licence by the Malta Financial Services Authority. It has an ordinary share equity of £45,000. 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. 27 Annual Report & Accounts 2011 Notes to the Financial Statements For the year from 1 January 2011 to 31 December 2011 8. REVENUE Revenue from administration of assets Total revenues 31 December 2011 £000 31 December 2010 £000 9,729 9,729 10,454 10,454 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 £9,829,000 there is an amount of £121,000 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 Gross premiums written Policy withdrawals Net operating expenses Increase in linked long term reserves Surplus on long term fund Assets held to cover linked liabilities Open Market Value Cost Technical provision for linked liabilities Balance at start of year Change in technical provision for linked liabilities Balance at end of year 10. ADMINISTRATIVE EXPENSES Included within administrative expenses are personnel costs as follows: Wages and salaries Social insurance costs Pension contributions Equity settled share based payments Total personnel expenses 28 Year ended 31 December 2011 £000 Year ended 31 December 2010 £000 15,653 (964) (126) (14,403) 160 5,920 (107) (53) (5,730) 30 31 December 2011 £000 31 December 2010 £000 20,142 20,879 5,739 5,933 31 December 2011 £000 31 December 2010 £000 5,739 14,403 20,142 9 5,730 5,739 31 December 2011 £000 31 December 2010 £000 5,148 302 85 8 5,543 4,281 338 87 40 4,746 STM Group Plc 10. ADMINISTRATIVE EXPENSES continued Average number of employees GROUP 31 December 2011 £000 31 December 2010 £000 Average number of people employed (including executive directors) 129 125 Company The average number of staff employed by the company during the year including directors was 15 (2010:- 12) 11. PROFIT BEFORE OTHER ITEMS Profit before other terms of £628,000 (31 December 2010 £1,676,000), was arrived at after charging the following to the income statement: Directors’ remuneration Auditors’ remuneration Loss on sale of assets Shares issued for services rendered Operating lease rentals 12. TAXATION Current tax expense Release from prior years Total tax expense Reconciliation of existing tax rate (Loss)/profit for the year Total income tax expense (Loss)/profit excluding income tax Income tax using the company’s domestic rate Effect of tax rates in other jurisdictions Effect of tax rates in other jurisdictions Total tax expense 31 December 2011 £000 31 December 2010 £000 348 113 — 8 514 390 103 3 40 514 31 December 2011 £000 31 December 2010 £000 159 (169) (10) 192 — 192 Tax rate 31 December 2011 £000 Tax rate 31 December 2011 £000 0% 10% 22% (410) (10) (400) — 138 21 159 0% 10% 22% During the year the Group has released the provision for taxation on subsidiaries which were previously tax exempt. 1,247 192 1,439 — 106 86 192 29 Annual Report & Accounts 2011 Notes to the Financial Statements For the year from 1 January 2011 to 31 December 2011 13. PROPERTY, PLANT AND EQUIPMENT Motor Vehicles £000 Office Equipment £000 Leasehold Improvements £000 12 — — — 12 12 — 12 5 2 — 7 7 2 9 3 5 795 280 20 (4) 1,091 1,091 228 1,319 205 109 (1) 313 313 104 417 902 778 853 4 — — 857 857 12 869 134 46 — 180 180 114 294 575 677 Office Equipment £000 Leasehold Improvements £000 300 148 448 448 191 639 — — — — 32 32 607 448 551 4 555 555 12 567 — — — — 81 81 486 555 Total £000 1,660 284 20 (4) 1,960 1,960 240 2,200 344 157 (1) 500 500 220 720 1,480 1,460 Total £000 851 152 1,003 1,003 203 1,206 — — — — 113 113 1,093 1,003 Group Costs As at 1 January 2010 Additions at cost Acquisition of subsidiary Disposals As at 31 December 2010 As at 1 January 2011 Additions at cost As at 31 December 2011 Depreciation As at 1 January 2010 Charge for the year Disposals As at 31 December 2010 As at 1 January 2011 Charge for the year As at 31 December 2011 Net Book Value As at 31 December 2011 As at 31 December 2010 Company Costs As at 1 January 2010 Additions at cost As at 31 December 2010 As at 1 January 2011 Additions at cost As at 31 December 2011 Depreciation As at 1 January 2010 Charge for the year As at 31 December 2010 As at 1 January 2011 Charge for the year As at 31 December 2011 Net book value As at 31 December 2011 As at 31 December 2010 30 STM Group Plc 14. INTANGIBLE ASSETS Group Costs Balance as at 1 January 2010 Acquisitions through business combinations Balance at 31 December 2010 Balance as at 1 January 2011 Reallocations Adjustment to carrying value of investments Balance at 31 December 2011 Amortisation and impairment Balance as at 1 January 2010 Charge for the year Balance at 31 December 2010 Balance as at 1 January 2011 Charge for the year Balance at 31 December 2011 Carrying amounts At 1 January 2010 At 31 December 2010 At 1 January 2011 At 31 December 2011 Goodwill £000 16,886 4,926 21,812 21,812 (4,927) (158) 16,727 — — — — — — 16,886 21,812 21,812 16,727 Client Portfolio £000 — — — — 4,927 — 4,927 — — — — 545 545 — — — 4,382 Total £000 16,886 4,926 21,812 21,812 — (158) 21,654 — — — — 545 545 16,886 21,812 21,812 21,109 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 2011, and reflects the difference between identifiable net asset value of those acquisitions and total consideration incurred for those acquisitions. Goodwill is allocated to the Group’s operating entities and consequently to the generating units comprising these acquired businesses. However, as subsequent to the acquisitions the acquired businesses have been integrated and are managed on a unified basis it is more appropriate to allocate goodwill to three cash-generating units (“CGU”) for the purposes of impairment testing, being the Fidecs Group with a carrying value of £15,380,000; the Nummos Group with a carrying value of £470,000 and the Fiduciaire Group with a carrying value of £980,000. The Group tests goodwill annually for impairment with the recoverable amount being determined from value in use calculations which are based on board approved cash flow projections. A pre-tax discount rate of 6% has been used in discounting the projected cash flows. The valuations indicate sufficient headroom such that a reasonable potential change to key assumptions is unlikely to result in an impairment of the related goodwill. Based on the operating performance of the respective CGUs, no impairment loss was deemed necessary in the current financial year. 31 Annual Report & Accounts 2011 Notes to the Financial Statements For the year from 1 January 2011 to 31 December 2011 14. INTANGIBLE ASSETS continued Company Costs Balance as at 1 January 2011 Reallocations Adjustment to carrying value of investments Balance at 31 December 2011 Amortisation and impairment Balance as at 1 January 2011 Charge for the year Balance at 31 December 2011 Carrying amounts At 1 January 2011 At 31 December 2011 Client Portfolio £000 — 4,927 — 4,927 — 545 545 — 4,382 Client portfolio represents the value assigned to the individual client portfolio acquired through the acquisition of Zenith Trust Company Limited and is amortised on a straight line basis over an estimated useful life of 9 years. This was previously classified as goodwill. 15. TRADE AND OTHER RECEIVABLES Group Trade receivables Other receivables Total Company Trade receivables due from related parties Other receivables Total 31 December 2011 £000 31 December 2010 £000 3,320 1,604 4,924 4,049 1,639 5,688 31 December 2011 £000 31 December 2010 £000 6,360 211 6,571 8,042 329 8,371 Within the Group’s other receivables is a balance of £447,000 which has been personally guaranteed by Alan Kentish. Amounts due from related parties are unsecured, interest free and repayable on demand, except for receivables from STM Swiss AG amounting to £1,057,000 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 Group Bank balances Cash and cash equivalents in the statement of cash flow Company Bank balances Cash and cash equivalents in the statement of cash flow 32 31 December 2011 £000 31 December 2010 £000 3,307 3,307 3,696 3,696 31 December 2011 £000 31 December 2010 £000 2 2 101 101 STM Group Plc 17. CAPITAL AND RESERVES Authorised, called up, issued and fully paid 43,061,649 ordinary shares of £0.001 each (1 January 2011: 43,026,602 ordinary shares of £0.001 each) 31 December 2011 £000 31 December 2010 £000 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 shares (1 January 2011: 323,555) at 31 December 2011, amounting to £205,000 (1 January 2011: £205,000). Share premium During the year 35,047 (2010:- 133,981) shares were issued for a total share premium of £7,465 (2010:- £32,366). During 2011, transaction costs of £nil (2010:- £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: 0.4 pence per qualifying ordinary share (2010: 0.6 pence) 31 December 2011 £000 31 December 2010 £000 172 257 18. EARNINGS PER SHARE Earnings per share for the year from 1 January 2011 to 31 December 2011 is based on the loss after taxation of £400,000 (2010:- profit £1,247,000) divided by the weighted average number of £0.001 ordinary shares during the year of 43,060,977 basic (2010:- 42,976,168) and 48,288,250 dilutive (2010:- 48,203,441) in issue. A reconciliation of the basic and diluted number of shares used in the year ended 31 December 2011 is: Weighted average number of shares Dilutive share incentive plan, options and contingent consideration shares Diluted 43,060,977 5,227,273 48,288,250 The dilutive shares have not been used to calculate the diluted earnings per share as they were anti-dilutive. 33 Annual Report & Accounts 2011 Notes to the Financial Statements For the year from 1 January 2011 to 31 December 2011 19. TRADE AND OTHER PAYABLES Group Bank loans (see note 20) Bank overdraft Loans from related parties Deferred income Trade payables Deferred and contingent consideration Other creditors and accruals Company Bank loans Bank overdraft Owed to related parties Deferred Consideration Other creditors and accruals 31 December 2011 £000 31 December 2010 £000 912 250 94 667 490 700 2,160 5,273 912 — 105 866 358 1,553 1,765 5,559 31 December 2011 £000 31 December 2010 £000 438 250 3,483 608 802 5,581 438 — 4,053 1,462 375 6,328 Loans from related parties amount to £94,000 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 £667,000 as at 31 December 2011 (31 December 2010: £866,000). As at 31 December 2011 the Company had a bank overdraft with NatWest Bank Plc of £250,000 at interest of 4% per annum and is secured by capital guarantees supplied by subsidiary companies. Deferred and contingent consideration Under the terms of the acquisition of STM Nummos SL a further £76,000 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 £624,000 is payable during 2012. 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 Group Bank loan – repayable between year 2 and year 5 Convertible loan notes Company Bank loan – repayable between year 2 and year 5 Convertible loan notes 31 December 2011 £000 31 December 2010 £000 805 3,450 4,255 1,702 3,450 5,152 31 December 2011 £000 31 December 2010 £000 910 3,450 4,360 1,343 3,450 4,793 34 STM Group Plc 20. OTHER PAYABLES - AMOUNTS FALLING DUE IN MORE THAN ONE YEAR continued As at 31 December 2011 the Group had three bank loans from NatWest Bank Plc amounting to £1.7 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 an interest rate swap. This swap is fixed at an interest rate of 1.78% per annum and is attached to a bank loan with a balance at 31 December 2011 of £1.2 million. The floating rate is currently in the region of 1% per annum and therefore whilst the swap is a derivative liability the cost is not significant and therefore not disclosed separately. In addition the Company has £3.5 million of convertible loan notes (“loan notes”). 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”). Subsequent to year end, no loan notes were converted to equity, nor redeemed at that date, and therefore the loan notes will run to term. The Loan Notes are secured against all the assets of the Group. 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 Trade and other receivables Cash and cash equivalents 31 December2011 £000 31 December 2010 £000 4,924 3,307 8,231 5,688 3,696 9,384 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 2011 and 31 December 2010. The credit risk of monies at bank is the net carrying amount of all the Group’s deposits, the majority of which are held at NatWest Bank Plc. Impairment losses on trade receivables The ageing of the Group’s trade receivables at the reporting date was: Not past due past due 0–30 days past due 31–120 days More than 120 days past due Gross receivables 31 December 2011 £000 Impairment 31 December 2011 £000 Gross receivables 31 December 2010 £000 Impairment 31 December 2010 £000 462 317 104 2,956 3,839 — — — (519) (519) 1,384 294 237 2,673 4,588 — — — (539) (539) Standard credit terms vary between presentation of the fee note and 30 days from the date of the fee note. The movement in the allowance for impairment in respect of trade receivables during the period was 31 December 2011 £000 31 December 2010 £000 Balance at start of period Impairment loss (released) / recognised Balance at end of period 539 (20) 519 212 327 539 35 Annual Report & Accounts 2011 Notes to the Financial Statements For the year from 1 January 2011 to 31 December 2011 21. FINANCIAL INSTRUMENTS continued 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. 31 December 2011 Non-derivative financial liabilities Bank loans Bank overdraft Trade payables Deferred consideration on acquisitions Loans from related parties Other creditors and accruals Corporation tax payable 31 December 2010 Non-derivative financial liabilities Bank loans Trade payables Deferred consideration on acquisitions Loans from related parties Other creditors and accruals Corporation tax payable Carrying amounts £000 Conditional cash flow £000 6 months or less £000 6-12 months £000 1-2 years £000 1,717 250 490 700 94 2,160 338 5,749 1,717 250 490 700 94 2,160 338 5,749 456 250 490 — 94 2,160 338 3,788 456 — — 700 — — — 1,156 805 — — — — — — 805 Carrying amounts £000 Conditional cash flow £000 6 months or less £000 6-12 months £000 1-2 years £000 2,614 326 1,553 105 1,765 494 6,857 2,614 326 1,553 105 1,765 494 6,857 456 326 1,362 105 1,765 494 4,508 456 — — — — — 456 1,702 — 191 — — — 1,893 Currency risk The Group has a small exposure to currency risk in its investment in STM Nummos. However, as all assets and liabilities are in the com- pany’s functional currency of Euros (€) this risk is minimal. Interest rate risk and market risk The company has minimal exposure to market risk. The net impact to the results on interest bearing assets and liabilities is also considered to be minimal. 22. LEASES Operating Leases Non-cancellable operating leases are payable as follows: Less than one year Between one year and five years More than five years 31 December 2011 £000 31 December 2010 £000 514 1,893 2,144 4,551 514 1,974 2,577 5,065 The Group leases a number of offices from which they operate, the largest of which is for Montagu Pavilion which runs for a further 12 years. 36 STM Group Plc 22. LEASES continued Finance Leases Non-cancellable finance leases are payable as follows: Less than one year Between one year and five years More than five years 23. RELATED PARTIES Transactions with key management personnel and Directors Compensation Key management compensation comprised: Short-term employee benefits Post-employment benefits Share-based payments 31 December 2011 £000 31 December 2010 £000 6 18 — 24 6 24 — 30 31 December 2011 £000 31 December 2010 £000 348 — — 348 390 — — 390 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 2011. Other related party transactions As more fully explained in note 19, a loan of £94,000 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 a Director of the Company. Rental costs of such premises are £285,000 per annum of which £nil was outstanding at 31 December 2011. 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 £5,400 for the period to 31 December 2011, of which £nil was outstanding at 31 December 2011. The Group provides services to subsidiaries of Rock Holdings Limited, a shareholder of the Company. These services amounted to £150,000 during the period, of which £12,500 was outstanding at 31 December 2011. Greystone Trust Company Limited, of which Michael Riddell is a director, charged the Company £21,500 for services rendered during 2011, of which £13,600 was outstanding at 31 December 2011. ABT Associates Consulting Limited, of which Matthew Wood is a shareholder, charged the Company £40,000 for services rendered during 2011, of which £10.000 was outstanding at 31 December 2011. 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. Ready Finance Ltd and Bespoke Finance Ltd, companies related to the Group by virtue of the fact that Alan Kentish is a director of both owe the Group a combined balance of £474,356 at 31 December 2011. 37 Annual Report & Accounts 2011 Notes to the Financial Statements For the year from 1 January 2011 to 31 December 2011 24. 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. The executive will receive the shares on the first day of dealing after the end of the two year employment condition. For 2011, relating to the 2011 performance, no shares (2010: nil) were appointed to specific individuals. 25. GROUP ENTITIES Principal subsidiaries As at 31 December 2011 the Company owned the following subsidiaries which are regarded as the principal trading operations of the Group. Country of incorporation 31 December 2011 31 December 2010 Activity Ownership interest Group STM Fidecs Limited STM Fidecs Management Limited STM Fidecs Insurance Management Limited STM Fiscalis 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 Venture Media (Gibraltar) Limited STM Life Assurance PCC plc STM Swiss AG Zenith Trust Company Limited STM Nummos Limited STM Nummos Life SL STM Malta Limited STM Malta Trust and Company Management Limited STM Malta Insurance Management Limited Isle of Man Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Gibraltar Jersey Jersey Jersey Spain BVI Gibraltar Gibraltar 100% directly 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 Holding company 100% indirectly Administration of clients’ assets 100% indirectly Administration of clients’ assets 100% indirectly Administration of clients’ assets 100% indirectly Administration of clients’ assets 100% indirectly Administration of clients’ assets 100% indirectly Services and Administration 100% indirectly Administration of clients’ assets 100% indirectly Administration of clients’ assets 100% indirectly Administration of clients’ assets 100% indirectly Administration of clients’ assets 100% indirectly Administration of clients’ assets 100% indirectly Administration of clients’ assets 100% indirectly 100% indirectly Administration of clients’ assets 100% indirectly 100% indirectly Administration of clients’ assets 100% directly 100% indirectly 100% indirectly 100% directly Intellectual property holding company 100% indirectly 100% indirectly Media agency Insurance company Switzerland 100% directly 100% indirectly Administration of clients’ assets Jersey England Spain Malta Malta Malta 100% indirectly 100% indirectly Administration of clients’ assets 100% directly 100% directly Holding company 100% indirectly 100% indirectly Administration of client assets 100% directly 100% indirectly 100% indirectly 100% directly Holding company 100% indirectly Administration of client assets – Administration of client assets 26. SUBSEQUENT EVENTS On 4 April 2012 the Company issued 8,960,000 new ordinary shares of 0.1 pence each based on a value of 17.5 pence per ordinary share giving a total consideration of £1,568,000. 38 STM Group Plc Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting of the Company will be held on 17 May 2012 at 11am 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 2011 and the reports of the Directors and auditors thereon be received. 2. As Julian Philip Telling has been appointed during the period since the last AGM, to confirm his appointment as a Director of the Company. 3. THAT Colin Douglas Porter, 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. 4. THAT Alan Roy Kentish and Michael Ross Riddell be reappointed as Directors of the Company. 5. As KPMG Audit LLC 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 2013. 6. THAT the authority granted to the Directors pursuant to article 7.5 of the Company’s Articles of Association, to allot and issue for cash Ordinary Shares with an aggregate nominal value of not more than 25 per cent of the aggregate nominal value of the share capital of the Company in issue as at 7 May 2010, be renewed and continue until the end of the annual general meeting of the Company in 2013. By order of the Board ………………………………………… Elizabeth A Plummer Company Secretary 18 Athol Street Douglas Isle of Man IM1 1JA 10 April 2012 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 am on 15 May 2012 (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 10:00am on 15 May 2012 (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 Annual Report & Accounts 2011 Company Information CORPORATE Directors Registered Office Advisers Julian P. Telling 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 Michael Ross Riddell CA Non-Executive Director Company Secretary Elizabeth Anne Plummer FCA TEP CTA Auditors KPMG Audit LLC Heritage Court 41 Athol Street Douglas Isle of Man IM99 1HN Registrars and CREST Service Provider Computershare Investor Services (Jersey) Limited Queensway House Hil- grove 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 FinnCap 60 New Broad Street London EC2M 1JJ 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 Malta Jersey Spain STM Fidecs Montagu Pavilion 8 – 10 Queensway Gibraltar T (+350) 200 42686 F (+350) 200 42701 www.stmfidecs.gi info@stmfidecs.gi STM Malta 62 Regent House Bisazza Street Sliema SLM 1641 Malta T (+356) 213 33210 F (+356) 213 33220 www.stmmalta.com info@malta.com STM Fiduciaire 3rd floor Windward House La Route de la Liberation St Helier JE2 3BQ STM Nummos S.L. Edif. Sotovila, Plaza Mayor P.N. de Guadiaro Sotogrande Cádiz (Spain) T (+44) (0)1534 837600 F (+44) (0)1534 837601 T (+34) 956 794 781 F (+34) 956 795 853 www.stmfiduciaire.je info@ stmfiduciaire.je www.stmnummos.com info@stmnummos.es STM Group Plc online www.stmgroupplc.com/html/ investor/annual_report.asp Annual Report & Accounts 2011 STM Group Plc 18 Athol Street Douglas Isle of Man IM1 1JA T +44 (0)1624 626 242 www.stmgroupplc.com 

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