Stm Grp. Regulatory News (STM)

STM Group Plc

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

Carey Group bargain purchase gain

& Operational Update

STM Group Plc (AIM:STM), the cross border financial services provider, is pleased to update the market on the Carey acquisition and operational progress.

Carey Group Acquisition

Following the acquisition of the Carey Group in February 2019, the Board and its professional advisors have determined that this acquisition has resulted in a bargain purchase gain as defined by International Financial Accounting Standard ("IFRS") 3, Business Combinations. This is in effect negative goodwill as a result of the consideration paid plus the amount of the non-controlling interest being lower than the fair value of the net assets acquired, which comprise mainly the SIPP and the Corporate Pension client portfolios. The value of the bargain purchase gain has been calculated at £2.7 million and is recognised immediately in the profit and loss account. IFRS 3 allows for goodwill to be adjusted for up to a year following the date of acquisition and therefore this bargain purchase gain is provisional while the intricacies of the entities acquired are fully understood.

The Carey integration is progressing well, with a focus of Milton Keynes becoming STM's main UK hub and to move Carey's SIPP business onto STM's own proprietary administration platform. The UK workplace pensions market remains in a state of flux as Master Trusts consider whether to progress with The Pensions Regulator authorisation process, and this has benefitted Carey Corporate through increased new business. Notwithstanding the increase in member numbers, we expect Carey Corporate to remain loss making for 2019 at £0.6 million, but with an anticipated break-even from early 2020. In addition, short term one-off integration costs of £0.5 million for the SIPP business will be absorbed during 2019, but timings will mean that the full integration benefits, expected to amount to annualised cost savings of £0.7 million, will not be fully realised until 2020.

Operational Update

The Board, under the guidance of Pete Marr, the recently appointed COO, has now adopted an enhanced Target Operating Model which will introduce an improved governance and accountability framework. Costs of implementing this new operating model include recent and intended hires, partly strategic and partly operational, as well as additional Independent Non-Executive Directors to most of the subsidiary boards.

The above appointments and one off costs incurred in 2019 will add an additional £0.5 million of expenses in the short term, but it will allow the Group to accelerate its organic growth and acquisition strategy in a controlled manner, thus protecting shareholder value and benefitting the bottom line in the future.

As previously notified in the Group's 2018 results, the Group exited the insurance management business. Consequently, there will be a write-down of the goodwill on the discontinued insurance management division on the Company's 2019 interim balance sheet amounting to £0.7 million.

Alan Kentish, CEO of STM Group, commented:

"It is always pleasing to announce a bargain purchase, but more importantly the Carey acquisition has opened the door to product offerings and market sectors that were previously inaccessible to us. The bargain purchase gain does however generate a benefit in the first half of the year which is not reflected in the second half or in future comparative periods.

"The UK workplace pensions sector in particular is seeing significant change, and with the number of Master Trusts reducing as a result of the authorisation process, I see our UK corporate pension business becoming more valuable, and benefiting from a differentiated revenue stream that most of our SIPP competitors do not have.

"We have stated that we are keen to acquire portfolios of QROPs, SIPPs and SSASs, as well as auto-enrollment Master Trusts. The additional investment in infrastructure and resources under the new Target Operating Model will allow us to acquire, and integrate quickly and efficiently, without impinging on our ability to run the business day to day. All of the above makes for an exciting 12 to 18 months ahead where we expect to see solid revenue and profit growth."

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

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Notes to editors:

STM is a multi jurisdictional financial services group which is listed on the AIM Market of the London Stock Exchange. The Group specialises in the administration of client assets in relation to retirement, estate and succession planning and wealth structuring.

Today, the Group has operations in the UK, Gibraltar, Malta, Jersey and Spain. STM has developed a range of pension products for UK nationals and internationally domiciled clients and has two Gibraltar Life Assurance Companies which provide life insurance bonds - wrappers in which a variety of investments, including investment funds, can be held.

STM's growth strategy is focussed on both organic initiatives and strategic acquisitions.

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