STM GROUP PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR FROM 1 JANUARY 2023 TO 31 DECEMBER 2023

 

1.    Reporting entity

 

STM Group PLC (the "Company") is a company incorporated and domiciled in the Isle of Man and is traded on AIM, a market operated by the London Stock Exchange. The address of the Company's registered office is 1^st Floor Viking House, St Paul's Square, Ramsey, Isle of Man, IM8 1GB. The consolidated financial statements of the Group as at, and for the year ended, 31^st December 2023 comprise the Company and its subsidiaries (together referred to as the "Group" and individually as "Group entities"). The Group is primarily involved in financial services.

 

2.    Basis of preparation

 

The financial information, which comprises the consolidated statement of comprehensive income, consolidated statement of financial position, the statement of consolidated changes in equity, the consolidated statement of cash flows and the related notes, is derived from the full Group consolidated financial statements for the year ended 31^st December 2023, which 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. The accounting policies applied in preparing the financial information are consistent with those used in preparing the consolidated financial statements for the year ended 31^st December 2023.

 

Going concern basis of accounting

 

The Directors have prepared the financial statements on a going concern basis, as in their opinion the Group is able to meet its obligations as they fall due for a period of at least 12 months from the date of this report. In considering this requirement, the Directors have considered budgets and rolling cashflow forecasts for the forthcoming 18-month period and the level of professional indemnity insurance held by the Group. In addition, the risks included on the Group's risk register that could impact on the Group's liquidity and solvency over the next 12 months. These show that the Group should continue to be cash generative, and have sufficient resources to meet its business objectives, both in the short-term and in relation to its strategic priorities.

 

Having due regard to these matters, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least 12 months from the date of approval and signing of the financial statements. As such, the Board continues to adopt the going concern basis in preparing the financial statements.

 

Functional and presentation currency

 

These consolidated financial statements are presented in Pounds Sterling (£), rounded to the nearest £'000, which is the Group's functional currency as this is the main currency in which it transacts business. Foreign operations are included in accordance with the policies set out in the financial statements.

 

3.    Disposal of subsidiaries

 

There were no disposals of subsidiaries in the two years ended 31^st December 2023 and 31^st December 2022. The loss on disposal reported in 2022 comprised a reduction in the final consideration received in that year in respect of the disposal of the Group's Gibraltar company and trustee services ("CTS") and tax compliance business, STM Fidecs Management Limited, and the Jersey based CTS business, STM Fiduciaire Limited, in 2021. The reduction arose from audited revenues for those businesses being lower than originally estimated.

 

4.    Acquisition of portfolios

 

There were no acquisitions in 2023.

 

On 31^st August 2022, the Group acquired the portfolios, net assets and trustee companies of the SIPP and SSAS businesses from Mercer Ltd ("the Portfolio"). The acquisition of the Portfolios was complementary to the Group's existing product offerings in the UK SIPP and SSAS markets and provided a solid platform for scalability, particularly for the Group's SSAS operations, and efficiencies going forward.  In addition, it provided the Group with access to an expanded network of intermediaries who previously introduced clients to Mercer Ltd. 

 

The Group paid a gross cash consideration of £3,340,000 to acquire the Portfolios. Such consideration included the purchase of the net assets of the business which primarily related to fees yet to be collected from clients.

 

The acquisition was accounted for using the acquisition method. Transaction costs incurred on the acquisition totalled £150,000 and were expensed within administrative expenses in the Consolidated Statement of Comprehensive Income for the year ended 31^st December 2022. 

 

Details of the fair value of the client portfolio, assets and liabilities acquired are set out as follows:

 

	Fair value recognised on acquisition	Fair value adjustments	Previous carrying value
	£'000	£'000	£'000
Client portfolios	2,757	2,757	-
Fixed assets	10	-	10
Accrued income	107	-	107
Debtors(1)	831	-	831
Prepaid assets	28	-	28
Liabilities	(66)	-	(66)
Total identifiable net assets acquired	3,667	2,757	910

Note 1: The fair value of debtors was approximately the gross contractual amount at the acquisition date.

At acquisition the Group performed a valuation on the client portfolios acquired using the market approach. As a result, client portfolio assets of £1,543,000 relating to the SIPP portfolio and £1,214,000 related to the SSAS portfolio were recognised.

 

A bargain purchase gain arose as a result of negotiations due to the previous revenue recognition policy being more aggressive than, and an adjustment being necessary to align that policy with, the Group's more conservative policy. This has resulted in the fair value of the identifiable net assets being higher than the cash consideration paid as noted below:

 

	£'000
Total consideration transferred	3,340
Fair value of identifiable net assets	(3,667)
Bargain purchase gain	(327)

 

The bargain purchase gain was attributable to the Portfolio acquired and was recognised in the consolidated statement of comprehensive income for the year ended 31 December 2022.

 

From the effective date of acquisition to 31^st December 2022, the SIPP and SSAS portfolios generated revenue of £821,000 and incurred a loss of £145,000. If the acquisition had occurred on 1^st January 2022, management estimates that the impact on the consolidated revenue and profit before tax for the year ended 31^st December 2022 would have been £2,243,000 and a loss of £99,000 respectively.

 

In addition, the Group paid deferred cash consideration of £217,000 during the year (2022: £114,000) relating to the final payment for the acquisition of the Berkeley Burke companies completed in 2020.  The consideration paid in 2023 was £161,000 higher than the amount provided as at 31^st December 2022 due to the collection and onward remittance of trade receivables due to the seller under the relevant share purchase agreements but not previously provided.

 

The Group also paid additional net consideration in 2023 of £11,000 in respect of the companies and SIPP and SSAS portfolios acquired from Mercer Limited in 2022.

 

As these acquisitions were completed more than twelve months prior to the dates of payment in the current reporting period, the aggregate amount of £172,000, net of the amount provided at 31^st December 2022, has been written off to administrative expenses in 2023.

 

5.    Acquisition of non-controlling interests

 

As part of the acquisition of Carey Administration Holdings Limited ("Options") in 2019, the Group entered into call option agreements to acquire the non‑controlling interests ("NCIs") in Options Corporate Pensions UK Limited ("OCPUK") and Options UK Personal Pensions LLP ("OSUK") from the current owner of the NCIs. The call options were exercisable in 2022 with the exercise prices based on the audited financial statements of these entities for the year ended 31^st December 2021.

On 9^th November 2022, the Group issued the Exercise Notices to the current owner of the NCIs for acquiring the additional interests in OCPUK and OSUK.

Options Corporate Pensions UK Limited

On 30^th November 2022, the Group completed the transaction to acquire an additional 20% interest in OCPUK, increasing its ownership from 80% to 100%. The carrying amount of OCPUK's net liabilities in the Group's consolidated financial statement on the date of acquisition was £1,870,000.

	£'000
Carrying amount of NCIs acquired (£1,870,000 x 20%)	374
Exercise of OCPUK's call option	881
Cash consideration paid to NCIs	120
A decrease in equity attributable to owners of the Company	1,375

 

The decrease in equity attributable to owners of the Company was recognised in the other reserve for the year ended 31^st December 2022.

Options Pensions UK LLP

On 12^th January 2023, the Group completed the transaction to acquire an additional 30% interest in OSUK, increasing its ownership from 70% to 100%. The carrying amount of OSUK's net liabilities in the Group's consolidated financial statement on the date of acquisition was £227,000.

 

	£'000
Carrying amount of NCIs acquired (£227,000 x 30%)	68
Exercise of OSUK's call option	-
Cash consideration paid to NCIs	400
A decrease in equity attributable to owners of the Company	468

 

The decrease in equity attributable to owners of the Company has been recognised in the other reserve for the year ended 31^st December 2023.

6.    Segmental Information

 

STM Group has three reportable segments: Pensions, Life Assurance 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").

 

The Board assesses the performance of the operating segments based on turnover generated. The performance of the operating segments is not measured using costs incurred as the costs of certain segments within the Group are predominantly centrally controlled and therefore the allocation of these is based on utilisation of internally calculated proportions. Management believes that this information and consequently profitability could potentially be misleading and would not enhance the disclosure above.

 

The following table presents the turnover information regarding the Group's operating segments:

 

	Turnover
Operating segment	2023	2022
	£000	£000
Pensions	23,474	18,421
Life Assurance	4,039	5,001
Other services	565	672
Total	28,078	24,094

 

Analysis of the Group's turnover information by geographical location is detailed below:

 

	Turnover
Geographical segment	2023	2022
	£000	£000
Gibraltar	6,112	7,324
Malta	7,146	7,178
United Kingdom	14,358	9,110
Other	462	482
Total	28,078	24,094

 

7.    Life Assurance Operating Segment

 

These consolidated financial statements include the results for STM Life Assurance PCC PLC and London & Colonial Assurance PLC, two 100% owned subsidiaries whose principal activities are that of the provision of life assurance services. These companies are licenced to carry on linked long-term insurance business under the Financial Services (Insurance Companies) Act by the Gibraltar Financial Services Commission.

 

For the purposes of these consolidated financial statements, only the shareholders' funds and surpluses that emerges on the long-term funds have been included. The assets invested by the Life Assurance clients are determined by either the clients or their advisers and are segregated from the assets and liabilities of other clients. Therefore, the Group considers that it does not control the investment decision nor does it bear any financial risk in respect of that decision and, therefore, the investment assets and associated liabilities to the customers should not be presented within the consolidated statement of financial position. The total revenue of the Group of £28,078,000 (2022: £24,094,000) included £4,039,000 (2022: £5,001,000) relating to revenues attributable to the life assurance businesses.

 

8.    Revenue

 

	31 December 2023 £000	31 December 2022 £000
Revenue from provision of retirement and life assurance solutions and related administrative services	24,338	23,563
Interest and investment income	3,740	531
Total revenue	28,078	24,094

 

9.    Administrative expenses

 

Included within administrative expenses are personnel costs as follows:

 

	31 December 2023 £000	31 December 2022 £000
Wages and salaries	12,263	11,633
Social insurance costs	1,045	484
Pension contributions	398	104
Total personnel expenses	13,706	12,221

 

Average number of employees

 

Group	31 December 2023 Number	31 December 2022 Number
Average number of people employed (including executive directors)	293	285

 

10.   Profit before other items

 

Profit before other items of £3,200,000 (2022: £3,321,000), was arrived at after charging the following to the income statement:

 

	31 December 2023 £000	31 December 2022 £000
(Loss)/profit on disposal of property and office equipment	(96)	4
Directors' remuneration	588	663
Auditors' remuneration for audit services	450	472

 

11.   Reconciliation of reported to adjusted measures

 

	Revenue		Profit before other items		Profit before tax
	2023 £000	2022 £000	2023 £000	2022 £000	2023 £000	2022 £000
Reported measure	28,078	24,094	3,200	3,321	442	1,578
Add: adjustment due to revenue recognition policy change on acquisition	-	505	-	505	-	505
Add: integration and acquisition cost	-	-	-	390	-	390
Add: Professional advisory costs incurred in relation to the proposed acquisition of the Company	-	-	1,202	-	1,202	-
Add: write-off of debtors related to prior year disposals	-	-	761	-	761	-
Less: bargain purchase gain on acquisition	-	-	-	-	-	(327)
Less: loss on disposal of companies and trust management	-	-	-	-		162
Add: costs of strategic reviews	-	-	135	-	135	-
Add: senior management exit costs, non-recurring professional costs and other non-recurring costs	-	-	526	470	526	470
Adjusted measure	28,078	24,599	5,824	4,686	3,066	2,778

 

Adjusted measures exclude non-recurring costs and other exceptional items including bargain purchase gains that do not form part of the normal course of business.

 

12.   Taxation

 

	31 December 2023 £000	31 December 2022 £000
Current tax expense	91	766
Deferred tax expenses/(income)
Release of deferred tax assets on leases as per IFRS 16	19	18
Release of deferred tax liabilities on intangible assets	(85)	(60)
Total tax expense	25	724

 

 

Reconciliation of existing tax rate	2023 %	31 December 2023 £000	2022 %	31 December 2022 £000
Profit before tax for the year	-	442	-	1,578
Income tax using the Company's domestic rate	0.00%	-	0.00%	-
Effect of tax rates in other jurisdictions	20.59%	91	48.54%	766
Release of deferred tax assets on leases as per IFRS 16	4.30%	19	1.14%	18
Release of deferred tax liabilities on intangible assets	(19.23%)	(85)	(3.80%)	(60)
Total tax expense	-	25	-	724
Effective tax rate (%)	-	5.66%	-	45.88%

 

The effective tax rate for UK increased to 25% from 1 April 2023. The effective tax rates in Malta and Gibraltar are 5% and 12.5% respectively. The Group effective tax rate is lower in the year ended 31st December 2023 than the jurisdictional effective tax rate due to the writeback of tax over provided for in prior years. However, in the year ended 31st December 2022, the Group effective tax rate was higher than the jurisdictional effective tax rate because tax losses brought forward or incurred in that year in some jurisdictions could not be utilised by the profitable subsidiaries in other jurisdictions and dividends remitted to the holding company by overseas jurisdictions were higher than in the prior year thus resulting in a higher tax charge on these.

 

13.   Property and office equipment

 

Group	Note	Motor Vehicles £000	Office Equipment £000	Leasehold Improvements £000	Right-of-use Assets £000	Total £000
Costs
At 1st January 2022		15	1,916	490	5,585	8,006
Additions		-	163	2	-	165
Acquired through business combination	4	-	10	-	-	10
Disposals		-	(6)	-	-	(6)
At 31st December 2022 and                 1st January 2023		15	2,083	492	5,585	8,175
Additions		-	170	-	689	859
Disposals		(15)	(1,189)	(15)	(4,705)	(5,924)
At 31st December 2023		-	1,064	477	1,569	3,110
Depreciation
At 1st January 2022		12	1,346	380	4,605	6,343
Charge for the year		1	165	20	487	673
Disposals		-	(2)	-	-	(2)
At 31st December 2022 and           1st January 2023		13	1,509	400	5,092	7,014
Charge for the year		2	143	20	455	620
Disposals		(15)	(1,104)	(4)	(4,705)	(5,828)
At 31st December 2023		-	548	416	842	1,806
Net Book Value
At 31st December 2022		2	574	92	493	1,161
At 31st December 2023		-	516	61	727	1,304

 

14.   Intangible assets

 

Group	Note	Goodwill £000	Client Portfolio £000	Product Development £000	IT Development £000	Total £000
Costs
At 1st January 2022		14,109	5,742	701	2,242	22,794
Additions		-	-	30	907	937
Acquired through business combination	4	-	2,757	-	-	2,757
At 31st December 2022 and            1st January 2023		14,109	8,499	731	3,149	26,488
Additions		-	-	-	672	672
At 31st December 2023		14,109	8,499	731	3,821	27,160
Amortisation and impairment
At 1st January 2022		824	1,717	445	453	3,439
Charge for the year		-	574	30	320	924
At 31st December 2022 and 1st January 2023		824	2,291	475	773	4,363
Charge for the year		-	850	57	446	1,353
At 31st December 2023		824	3,141	532	1,219	5,716
Carrying amounts
At 31st December 2022		13,285	6,208	256	2,376	22,125
At 31st December 2023		13,285	5,358	199	2,602	21,444

 

Impairment testing for cash-generating units containing goodwill

 

All goodwill relates to acquisitions made and reflects the difference between the fair value of the identifiable net asset value of those acquisitions and the fair value of the consideration paid for those acquisitions.

 

Goodwill represents the excess of the cost of the acquisition, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the Group's interest in the net fair value of the identifiable assets and liabilities of the acquire. Goodwill is not amortised but is measured at cost less accumulated impairment losses.  Additionally, on disposal of a cash-generating unit ("CGU"), the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

 

Goodwill is allocated to the smallest identifiable group of assets that generate largely independent inflows. Management have assessed the number of CGUs and determined that there are four identifiable CGUs, which are also operating and reportable segments. CGUs are determined based on whether the entity is a separate and distinct entity and/or whether that entity is management as a standalone business unit.

 

Impairment testing for cash-generating units containing goodwill (continued)

 

The carrying amount of goodwill allocated to each of the CGUs is as follows:

 

	2023	2022
	£000	£000
STM Life	1,256	1,256
LCA	7,735	7,735
FLHP	3,698	3,698
Options - Berkeley Burke acquisition	596	596
Total	13,285	13,285

 

The Group tests goodwill annually for impairment or more frequently if there is an indication that a CGU or group of CGUs may be impaired. The annual impairment assessment is made by comparing the carrying amount of the CGU or group of CGUs to which goodwill has been allocated with the recoverable amount of the CGU or group of CGUs.

 

The recoverable amount of each CGU or group of CGUs as at 31^st December 2023 has been determined based on a value in use calculation using cash flow projections from financial budgets prepared for the subsequent three years and which have been approved by the Board. The subsequent two years' cashflows have been calculated based on the following assumptions thereby providing a five-year estimate of prospective net cashflows:

 

	2023	2022
Percentage ranged from:	%	%
Revenue growth rates and attrition	-1.5% - 2%	-1.5% - 4%
Expense increases and inflation rates	-2% - 3%	-3% - 4%

 

The range of revenue growth and attrition rates, and those for expense increases and inflation, has narrowed in comparison with 2022,to bring the assumptions for certain business units in line with those used elsewhere in the Group. As goodwill is considered to have an indefinite life the year 5 net cashflow has been extrapolated to perpetuity. A post- tax discount rate of 13.5% (2022: 14%) has been used in discounting the projected cashflows.  It was concluded that the fair value less costs of disposal did not exceed the value in use.

 

As a result of this analysis, no impairment charge has been recognised in either of the two years ended 31^st December 2023 or 31^st December 2022.

 

Key assumptions used in value in use calculations and sensitivity to changes in assumptions

 

The calculation of the value in use for the CGUs is most sensitive to the following assumptions:

 

·       Revenue growth rates and customer attrition rates

·       Expense increases and inflation rates

·       Discount rates

 

Revenue growth rates and attrition - a higher decline in revenue growth rates and/or an increase in attrition rates would result in a further impairment charge being required. A 1% reduction in both revenue growth and attrition rates would result in a potential impairment charge of approximately £199,000 (2022: £185,000).

 

Key assumptions used in value in use calculations and sensitivity to changes in assumptions (continued)

 

Expense increases and inflation rates - management has considered the possibility of increased inflation resulting in higher than anticipated costs and an increase in expenses growth rates would result in potential impairment. A 1% increase in the expense growth rates would result in a potential impairment charge being required of £50k (2022: £nil).

 

Discount rates - discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Group and its operating segments and is derived from its weighted average cost of capital ("WACC"). The WACC considers both debt and equity. The cost of equity is derived from the expected return on investment by the Group's investors. The cost of debt is based on the interest-bearing borrowings the Group is obliged to service. Segment-specific risk is incorporated by applying individual beta factors. The beta factors are evaluated annually based on publicly available market data. Adjustments to the discount rate is made to factor in the specific amount and timing of the future tax flows in order to reflect a pre-tax discount rate. A 1% increase in the WACC would result in a potential impairment charge of approximately £173,000 (2022: £229,000).

 

Management also considered the potential impact of a scenario that combines adverse changes in all three key metrics, namely where the revenue growth rate reduces by 1%, expenses increase by 1% and the WACC increases by 1%. This would result in a potential impairment charge of approximately £510,000 (2022: £1,194,000).

 

Client portfolio

 

Client portfolio assets acquired in a business combination are recognised separately from goodwill and are recognised initially at fair value at the acquisition date and subsequently assessed annually for impairment. The Group's client portfolios are amortised over the useful lives which have been determined to be ten years. Client portfolios acquired through acquisitions are as follows:

 

Acquisition date		31 December 2023 £000	31 December 2022 £000
London & Colonial Services Ltd	October 2016	283	383
STM Nummos Life SL	January 2018	173	215
Harbour Pensions Ltd	February 2018	453	545
Options Corporate Pensions UK Limited	February 2019	359	429
Options UK Personal Pensions LLP	February 2019	615	735
Options SSAS Limited	August 2020	199	229
Options EBC Limited	August 2020	795	915
SIPP portfolio acquired from Mercer Ltd	August 2022	1,389	1,543
SSAS portfolio acquired from Mercer Ltd	August 2022	1,092	1,214
Total		5,358	6,208

 

15.   Financial assets

 

Group	31 December 2023 £000	31 December 2022 £000
Financial instrument designated at FVTPL	1,839	1,762
Total	1,839	1,762

 

The financial instrument designated at FVTPL represents UK sovereign debt instrument with a stated interest rate of 2% and is held for trading.

 

This investment has been classified as Level 1 as its value is derived from quoted prices in active market.

 

16.   Trade and other receivables

 

Group	31 December 2023 £000	31 December 2022 £000
Trade receivables	3,915	4,266
Prepayments	1,691	999
Other receivables	1,743	3,196
Total	7,349	8,461

 

Amounts due from related parties comprise intercompany balances which are unsecured, interest free and repayable on demand.

 

The Group's exposure to credit risks and impairment losses related to trade and other receivables (excluding accrued income) are described in Note 24.

 

17.   Cash and cash equivalents

 

Group	31 December 2023 £000	31 December 2022 £000
Bank balances	18,365	19,234

 

The Group has a secured bank loan liability of £4,813,000 (2022: £5,363,000) which is included within Trade and Other Payables in Notes 21 and 22. Details of the security held is set out in Note 21.

 

Within cash and cash equivalents held by the Group there is a balance of £4,209,000 (2022: £2,903,000) which is not available for use by the Group. This mainly represented the blocked accounts that form part of Options Corporate and Options SIPP regulatory requirements and the funds collected on behalf of clients but yet to be paid across to the respective clients or relevant authority bodies.

 

18.   Capital and reserves

 

Authorised, called up, issued and fully paid	31 December 2023 £000	31 December 2022 £000
59,408,088 ordinary shares of £0.001 each (2022: 59,408,088 ordinary shares of £0.001 each)	59	59

 

 

Ordinary Shares

Ordinary shares carry full voting rights; full dividend rights; full rights as respects capital, to participate in a distribution (including on winding up); no redemption rights.

 

Share premium

There were no new shares issued during either of the two years ended 31^st December 2023 and 31^st December 2022. The balance of the share premium account as at 31^st December 2023 amounted to £22,372,000 (2022: £22,372,000).

 

Other reserves

Other reserves are made up of:

	Note	31 December 2023 £000	31 December 2022 £000
Treasury reserves		549	549
Foreign Currency translation reserve		49	81
Share based payments reserve	19	(162)	(162)
Other reserve	5	1,843	1,375
Total other reserves		2,279	1,843

 

Treasury shares

The treasury shares relate to those shares purchased by the STM Group Employee Benefit Trust (EBT) for allocation to executives. The trustees of the Employee Benefit Trust held 1,089,780 ordinary shares of £0.001 each in the Company at 31st December 2023 and at 31st December 2022. The shares held may be used to satisfy awards made to employees and/or senior executives, such as conditional share awards granted under a long-term incentive plan. The balance held on the treasury shares account as at 31^st December 2023 amounted to £549,000 (2022: £549,000).

 

Translation reserve

The translation reserve comprises all cumulative foreign currency differences arising from the translation of the financial statements of foreign operations. The balance at 31^st December 2023 amounted to a negative £49,000 (2022: negative £81,000), with the movement of £32,000 in 2023 (2022: £12,000) representing the foreign currency differences arising from the translation of the financial statements of foreign operations during the year.

 

Dividends

 

The following dividends were declared and paid by the Group during the year:

 

	31 December 2023 £000	31 December 2022 £000
Nil pence per qualifying ordinary share (2022: 1.50 pence per qualifying ordinary share)	-	891

 

After the respective reporting dates the following dividends were proposed by the Directors. The dividends have not been provided for and there are no income tax consequences.

 

	31 December 2023 £000	31 December 2022 £000
Nil pence per qualifying ordinary share (2022: 0.60 pence per qualifying ordinary share)	-	356

 

19. Share based payments

 

There was no Long-Term Incentive Plan in place during the year. As such the charge for the year which has been recognised within the share-based payment reserve is £Nil (2022: £Nil). The share-based payments reserve at 31^st December 2023 amounted to £162,000 (2022: £162,000).

 

20.   Earnings per share

 

Earnings per share for the year from 1^st January 2023 to 31^st December 2023 is based on the profit attributable to owners of £417,000 (2022: £844,000) divided by the weighted average number of £0.001 ordinary shares outstanding during the year of 59,408,088 basic (2022: 59,408,088) and £59,408,088 dilutive (2022: 59,408,088) in issue.

 

21.   Trade and other payables

 

Group	31 December 2023 £000	31 December 2022 £000
Deferred income	3,664	3,842
Trade payables	1,970	882
Bank loan (secured)	550	552
Deferred consideration	-	56
Lease liabilities	304	570
Other creditors and accruals	6,783	6,615
Total	13,271	12,517

 

Amounts owed to related parties comprise intercompany balances which are unsecured, interest free and repayable on demand.

 

Deferred income consists of fixed fee revenues billed in advance to clients which have not yet been earned as at the year end.

 

The Company signed a credit facility with Royal Bank of Scotland (International) Ltd for £5.5 million in 2020, with drawn down being completed in September in 2022 to fund the acquisition of the Mercer portfolios (Note 4). The facility has a 5-year term from November 2020, with capital repayments structured over ten years and a final instalment to settle the outstanding balance in full at the end of the 5 years. The balance outstanding on this facility as at 31^st December 2023 was £4.8 million (2022: £5.4 million). Interest on the loan is charged at 3.5% per annum over the Sterling Relevant Reference Rate on the outstanding balance. Prior to fully drawing down the loan interest was paid on the undrawn balance at a rate of 1.75% per annum over the Sterling Relevant Reference Rate.

 

The facility is subject to customary cashflow to debt service liability ratios and EBITDA to debt service liability ratio covenants tested quarterly and is secured by a capital guarantee provided by a number of non-regulated holding subsidiary companies within the Group and debentures over these companies.

 

The Group's exposure to liquidity risk related to trade and other payables is described in Note 23.

 

22.   Other payables - amounts falling due in more than one year

 

Group	31 December 2023 £000	31 December 2022 £000
Lease liabilities	546	143
Bank loan (secured)	4,262	4,811
Other payables	-	96
Total	4,808	5,050

 

23.   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

•    Regulatory risk

•    Capital management

 

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 an Audit and Risk 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.

 

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 level of liquidity of customer investments determines the level of credit risk associated with each customer. The liquidity of customers is monitored at each anniversary date.

 

(b)   Liquidity risk

 

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.  The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions.  The Group believes its exposure to liquidity risk is minimal given its current cash balances and existing financial obligations.

 

(c)   Market risk

 

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The object of market risk management is to manage and control market risk expenses within acceptable parameters, while optimising the return. The Group does not have a significant exposure to market risk.

 

(d)   Interest rate risk

 

The Group has one bank borrowing at the year end, as detailed in Note 21. A change of 100 basis points in the relevant underlying interest rate would have increased or decreased equity and profit or loss by £51,000 before tax (2022: £34,000).

 

(e)   Currency risk

 

The Group has a small exposure to currency risk in relation to its investment in STM Nummos. This is mitigated by the fact that the assets and liabilities held by STM Nummos are in its functional currency of Euros (€). It has a further currency risk in relation to the expenses incurred in Malta as these are in Euros. A change of 100 basis points in the Euro to Sterling exchange rate would have increased or decreased equity and profit or loss by £27,000 after tax (2022: £28,000) This is mitigated by the fact that clients are invoiced in its and the Group's functional currency of Sterling (£).

 

The Company has minimised exposure to foreign exchange rates, with the majority of transactions being carried out in its functional currency of Pounds Sterling (£).

 

(f)    Regulatory risk

 

The Group is subject to laws, regulations, and specific solvency requirements in the various jurisdictions in which it operates. The Group has established policies and procedures aimed at compliance with local laws and regulations.

 

(g)   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. 

 

Furthermore, certain of the Company's subsidiaries are licensed by the respective jurisdictions regulators and as such all comply with the regulatory capital requirements set by each respective regulatory body.

 

The Group manages its capital to ensure that the entities in the Group will be able to continue as a going concern, while maximising the return to stakeholders through optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes a bank loan as per Notes 21 and 22, and equity attributable to shareholders, comprising share capital, reserves and retained earnings as disclosed. The Board reviews the capital structure and as part of this review, considers the cost of capital and the risks associated with each class of capital. In addition, the Board considers the liquidity and solvency of the Group on an ongoing basis.

 

The Group monitors capital using a ratio of "adjusted net debt" to "adjusted equity". For this purpose, adjusted net debt is defined as total liabilities, comprising interest-bearing loans and borrowings less cash and cash equivalents net of the balances which are not available for use by the Group (Note 17). Adjusted equity comprises all components of equity.

 

The Group's adjusted net debt to equity ratio at 31^st December 2023 suggests that the Group has sufficient liquidity to meet its obligations as they fall due. Net debt compared to equity at 31^st December 2022 was as follows:

 

	31st December 2023 £000	31st December 2022 (restated) £000
Total liabilities	18,823	18,759
Less: net cash and cash equivalents available	(14,156)	(16,331)
Adjusted net debt	4,667	2,428
Total equity attributable to owners of the Company	34,595	34,970
Adjusted net debt to equity ratio	13%	7%

 

Total liabilities above are stated after excluding provisions for customer redress of £27,441,000 (2022: £488,000) as these are exactly matched buy amounts recoverable from the Group's insurers. The comparative for total liabilities has been adjusted accordingly as such provisions were not excluded in the financial statements of the Group for the year ended 31^st December 2022, as the amount involved was not material.

 

The net cash and cash equivalents available excludes the balances not available for use by the Group of £4,209,000 (2022: £2,903,000) as more fully explained in Note 17.  

 

24.  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
	31st December 2023 £000	31st December 2022 £000
Financial instrument designated as FVTPL	1,839	1,762
Trade and other receivables	7,349	8,461
Cash and cash equivalents	18,365	19,234
Total	27,553	29,457

 

The Group's maximum exposure to credit risk on trade and other receivables relating to one entity or group of related entities amounts to less than 10% of the overall trade receivables amount as at 31^st December 2023 and 31^st December 2022. Segmental disclosures are included in Note 6 reflecting the Group's operating segment and geographic concentration. 

 

The Group limits its exposure to credit risk by investing only in liquid debt securities issued by the UK government. The financial instrument designated at FVTPL held by the Group is rated as investment grade.

 

Impairment on trade and other receivables is determined applying an ECL model as discussed in the financial statements.

 

The ageing of the Group's trade receivables at the reporting date was:

 

	Gross receivables 31st December 2023 £000	Individual Impairment 31st December 2023 £000	Total £000	Gross receivables 31st December 2022 £000	Individual Impairment 31st December 2022 £000	Total £000
Not past due	1,398	-	1,398	933	-	933
Past due 0-30 days	350	-	350	464	-	464
Past due 31-120 days	198	-	198	333	-	333
More than 120 days past due	2,570	(601)	1,969	3,060	(524)	2,536
Total	4,516	(601)	3,915	4,790	(524)	4,266

 

Standard credit terms are 30 days from the date of issuing the fee note.

 

The movement in the allowance for impairment in respect of trade receivables during the period was:

 

	31st December 2023 £000	31st December 2022 £000
Balance at start of year	524	174
Movement in expected credit loss allowance	77	350
Balance at end of year	601	524

 

Based on historic default rates and knowledge of the customers, the Group believes that no impairment allowance is necessary in respect of the trade receivables.

 

Liquidity Risk

 

The Group holds sufficient liquid assets, including cash at bank, to enable it to meet its liabilities as they fall due. The following are the Group's contractual maturity liabilities. The amounts are gross and undiscounted and include contractual interest payments and exclude the impact of netting arrangements.

 

31st December 2023	Carrying amounts £000	Contractual cash flow £000	6 months or less £000	6-12 months £000	1-4 years £000
Non-derivative financial liabilities
Trade payables	1,970	1,970	1,970	-	-
Bank loan (secured)	4,812	5,013	330	327	4,356
Lease liabilities	850	844	194	110	540
Other creditors and accruals	6,783	6,783	6,783	-	-
Total	14,415	14,610	9,277	437	4,896

 

 

31st December 2022	Carrying amounts £000	Contractual cash flow £000	6 months or less £000	6-12 months £000	1-4 years £000
Non-derivative financial liabilities
Trade payables	882	882	882	-	-
Bank loan (secured)	5,363	5,682	336	333	5,013
Deferred consideration	56	56	56	-	-
Lease liabilities	713	736	363	226	147
Other creditors and accruals	6,615	6,615	6,615	-	-
Total	13,629	13,971	8,252	559	5,160

 

Fair value hierarchy

 

The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements in Level 3 of the fair value hierarchy.

 

Financial assets - call options	31st December 2023 £000	31st December 2022 £000
Balance at 1st January	-	881
Settlement (Note 5)	-	(881)
Balance at 31st December	-	-

 

25.  Leases

 

In relation to leases under IFRS 16, the Group has charged depreciation and interest expenses. The Group recognised £455,000 (2022: £487,000) of depreciation charges and £41,000 (2021: £53,000) of interest expenses from these leases during the year ended 31^st December 2023. The Group recognised £72,000 (2022: £61,000) of expenses relating to short-term leases or leases that can be cancelled with no penalties and £6,000 (2022: £6,000) of expenses for leases of low-value assets, excluding short-term leases, for the year ended 31^st December 2023.

 

The total cash outflow for leases for the year ended 31^st December 2023 was £660,000, including short-term lease cash outflows of £78,000 (2022: £791,000, including short-term lease cash outflows of £67,000).

 

Lease liabilities

 

Non-cancellable lease liabilities as per IFRS 16 are payable as follows:

 

	31st December 2023 £000	31st December 2022 £000
Less than one year	304	589
Between one year and five years	540	147
More than five years	-	-
Total	844	736

 

The maturity analysis of lease liabilities is disclosed in Note 24. Right-of-use assets are disclosed in Note 13.

 

The Group leases a number of offices from which they operate, the largest of which are the offices in Gibraltar, Cardiff and Milton Keynes with the leases terminating in 2028, 2025 and 2024 respectively.

 

26.   Provisions, receivables due from insurers and contingent liability

 

As required by IFRS, provisions are recorded when there is a present legal or constructive obligation as a result of a past event, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and where a reliable estimate can be made of the amount of the obligation.  This requires judgement and the use of assumptions about the likelihood and magnitude of any cash outflow. The Group analyses its exposure based on available information, including consultation with professional indemnity insurers and external legal advisors where appropriate, to assess any potential liability.

 

Provisions and receivables due from insurers	31st December 2023 £000	31st December 2022 £000
Customer redress in relation to UK SIPP claims	27,441	-
Other claims	-	488
Total	27,441	488

 

Customer redress in relation to UK SIPP claims

 

During the year ended 31^st December 2023, numerous claims from clients arising across various policy years and investments were settled and the cost covered in full by the professional indemnity insurance in place for the relevant policy years based on the relevant reserving held. In addition, a Judicial Review heard on 16 and 17 April 2024 that affected a further cohort of cases rejected the Group's appeal against the previous determination by the Financial Ombudsman Service and upheld the original ruling. These events have enabled a reasonably materially accurate assessment to be done of the potential liability relating to the remaining open cases and legal claims in similar circumstances. In accordance with IAS 37, a provision of £27,441,000 (2022: £nil) has been made in the financial statements for the year ended 31^st December 2023 with a corresponding receivable from insurers as these are fully covered by professional indemnity insurance.

 

With reference to the prejudicial exemption allowed under IAS 37, the Group will not disclose any further information about the contingent liability, including any details about current and potential claims as these claims are ongoing.

 

On the basis of present information, amounts already recognised and the availability of insurance coverage, it is the opinion of the Group that the ultimate determination of complaints received to date will not have a material adverse effect on the consolidated financial position of the Group. However, it is possible that future results of operations or cash flows for any annual period could be materially affected by an unfavourable resolution of these matters.

 

Other claims

 

As at 31^st December 2022 there were potential claims in respect of the historic trading of STM Malta Pensions Services Limited. These claims were estimated based on present information available at the time and a provision made. This was covered by professional indemnity insurance net of relevant insurance case excesses and thus was also reflected as a receivable due from insurers. Following progress made on these claims during the year ended 31^st December 2023, the provision (and corresponding receivable from insurers) has reduced to £Nil (2022: £488,000).

 

General

 

With reference to the prejudicial exemption allowed under IAS 37, the Group will not disclose any further information about the contingent liability, including any details about current and potential claims as these claims are ongoing.

 

27.   Non-adjusting subsequent events

 

On 14^th June 2024, the Company announced that the Group had signed a commercial agreement with Smart Pension Limited ("Smart") under which members transferring from of the Group's Options Workplace Master Trust would, subject to approval by the Trustees and the Pensions Regulator, transfer to Smart's Master Trust with Smart paying a consideration for such transfers to the Group. It is anticipated that, over a two-year period, this consideration is likely to amount to circa £4.7million. In addition, the Group also entered into an introducer's agreement with Smart at the same time, whereby any new members introduced to Smart by the Group's existing or new intermediary contacts would lead to introductory commission income for the Group. The agreement is in place for a maximum period of three years, and management estimates that the quantum of such additional introductory commission could lie in the range of £1.0 million to £5.0 million over the three-year period.

 

On 12th January 2023, the Group completed the acquisition of the remaining external 30% interest in Options UK Personal Pensions LLP, increasing its ownership from 70% to 100% (Note 5). A decrease in equity attributable to owners of the Company has been recognised in the other reserve amounted to £468,000. Subsequent to this acquisition, all subsidiaries are wholly owned.