Sanne Group PLC (LON:SNN)

Sanne Group PLC (LON:SNN)


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Sanne Group PLC RNS Release

Final Results


RNS Number : 6579T
Sanne Group PLC
22 March 2019
 

22 March 2019

 

 

Sanne Group plc

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

Preliminary Results for the year ended 31 December 2018

 

 

 

 

SANNE, a leading global provider of alternative asset and corporate services, announces its results for the year ended 31 December 2018.

 

 

 

 

2018

 

 

20171

 

 

Change

Constant currency change3

Revenue

£143.0m

£113.2m

26.4%

27.2%

Underlying2

 

 

 

 

Operating profit

£44.4m

£38.8m

14.4%

15.6%

Profit before tax

£42.6m

£38.1m

11.8%

12.6%

Diluted earnings per share4

24.1p

22.2p

8.6%

9.7%

Statutory

 

 

 

 

Operating profit

£25.6m

£23.1m

10.8%

11.0%

Profit before tax

£23.7m

£22.4m

5.8%

5.8%

Diluted earnings per share

12.6p

12.7p

(0.8%)

(1.2%)

Full year dividend per share

13.8p

12.6p

9.5%

 

 

1. Restated for prior year adjustments detailed in note 15 of the financial statements and note 4 below

2. Underlying results for the year have been presented after the exclusion of non‐underlying items. Within operating profit and profit before tax, these items include, amongst other costs, acquisition and integration costs (2018: £1.2m), share based payments where linked to acquisitions (2018: £1.8m) and amortisation of intangible assets (2018: £15.7m). Further details can be found in note 9 of the consolidated financial statements

3. Constant currency represents the 2018 performance based on 2017 FX rates to eliminate movements due to FX

4. Underlying diluted earnings per share is presented with an adjustment to the tax charge for non-underlying items which is different to prior years (see the CFO Report and note 11 to the financial statements)

5. Luxembourg Investment Solutions S.A. ("LIS") and Compliance Partners S.A. ("CP")

 

Operational Highlights:

-       Group revenue growth of 27.2%3 with organic revenue growth of 12.3%3

-       Record new business wins with annualised revenue of approximately £24.5 million secured in 2018 (2017: £20.9 million)

-       Strong performance for the year within the Group's closed-ended Alternatives and Corporate Businesses (86% of Group revenues):

EMEA and North America Alternatives segments delivered organic growth of 16.3%3 and 16.1%3 respectively

Momentum continues to build in the Group's Asia-Pac & Mauritius business with organic growth in the period of 12.2%3

-       Targeted investment across the Group's people, processes and systems strengthening the Group's scalable global platform

-       Underlying operating profit margin of 31.1% (2017: 34.3%) following the targeted investment, with the second half increasing by more than 100bps versus the first half

-       Increased jurisdictional footprint in the year with the addition of Spain and France as well as Japan shortly after the year end

-       Integration of the acquisitions of LIS5, CP5 and AgenSynd are progressing well

-       Successful refinancing of the Group's debt facilities increasing total committed facility to £150 million with a £70 million accordion facility

 

Outlook

-       Good momentum in Alternatives and Corporate businesses positions SANNE well for further growth in 2019

-       Strong market backdrop with continued addressable market growth

-       Expectation of improvement in underlying operating profit margin

-       We continue to review various potential acquisitions within a healthy pipeline of opportunities

-       Board expects to deliver a strong performance in 2019 and remains confident in the medium and long-term prospects for the Group

 

Dean Godwin, Chief Executive Officer of Sanne Group plc, said:

 

 "2018 was a significant year of growth and evolution for SANNE. Our core businesses continued to perform strongly, particularly in EMEA and the US, and we are encouraged to see the momentum building in Asia-Pacific Mauritius. Importantly, SANNE is now a business with a truly global platform and with a growing presence in the world's most attractive regions."

 

Martin Schnaier, Chief Executive Officer Designate of Sanne Group plc said:

 

"We are excited about the opportunities in our markets and are confident that the investments we have been making in our platform will further strengthen our competitive advantage and scale our business in the years ahead. These investments, and the strong momentum we are seeing in our business, give us confidence in our prospects and ambitious growth expectations."

 

 

Enquiries:

 

Sanne Group plc

Dean Godwin, Chief Executive Officer

Martin Schnaier, Chief Executive Officer Designate

James Ireland, Chief Financial Officer

 

+44 (0) 1534 722 787        

Investec Bank plc

Christopher Baird / David Flin

Edward Thomas / Neil Coleman

+44 (0) 20 7597 5970

 

RBC Capital Markets

Darrell Uden

Daniel Werchola

Jonathan Hardy

 

+44 (0) 20 7653 4000

 

Tulchan Communications LLP

Tom Murray

 

 

+44 (0) 20 7353 4200

 

 

The Company will be hosting an investor and analyst presentation at 09:30am (GMT) on 22 March 2019., at etc.venues, County Hall, 4th Floor, Riverside Building, Belvedere Road, London.

 

This presentation can be viewed live on the 'investor relations' section of the SANNE website:

 

https://www.sannegroup.com/investor-relations/full-year-results-2018/

Participants can also dial into the presentation in listen-only mode using the following details:

 

08003589473 (Toll Free)

 

+44 3333000804 (Toll)

 

Access Code:  53424179#

 

A copy of the 2018 Full Year results presentation will be available on SANNE's Investor Relations pages at www.sannegroup.com after the live webcast has ended.

 

 

Notes:

 

SANNE is a leading global provider of alternative asset and corporate services. Established for over 30 years and listed on the Main Market of the London Stock Exchange and a member of the FTSE 250 index, SANNE employs more than 1,400 people worldwide and administers structures and funds that have in excess of £240 billion of assets.

 

Key clients include alternative asset managers, financial institutions, family offices, ultra-high net-worth individuals and corporates.

 

SANNE operates from a global network of offices located in leading financial jurisdictions, which are spread across the Americas, Europe, Africa and Asia-Pacific.

www.sannegroup.com

 

 

Chairman's Statement

 

Performance

SANNE has delivered another strong set of results in 2018. We are benefiting from having a truly global platform focused on attractive, fast-growing asset classes and jurisdictions.

Revenues for the year increased by 26.4% to £143.0 million (2017: £113.2m), driven by strong new business wins and growth in the Group's core Alternatives and Corporate businesses, more than offsetting headwinds in Hedge and Private Client. The Group's operating profit increased by 10.8 % to £25.6 million (2017: £23.1m) whilst underlying operating profit grew by 14.4% to £44.4 million (2017: £38.8m). Underlying profit before tax increased by 11.8 % to £42.6 million (2017: £38.1m). Profit before tax was £23.7 million (2017: £22.4m). The Group's underlying operating profit margin for the full year was 31.1%, compared to 34.3% last year as a result of the investments made during the year. The margin in the second half of 31.6% was an improvement on the 30.3% reported for the first half of the year. Underlying diluted EPS was 24.1 pence (2017: 22.2 pence) and reported diluted EPS was 12.6 pence (2017: 12.7 pence).

Following the strong performance delivered in 2018, the Board is recommending a final dividend of 9.2 pence per ordinary share (2017: 8.4 pence) taking the total dividend for the year, including the interim dividend of 4.6 pence per share, to 13.8 pence per share (2017: 12.6 pence in total).

Building a sustainable, global platform

The continued growth in the alternative assets sector, increasing and changing regulations and the growing desire to outsource remain key drivers of the Group's performance and strong future prospects.

Clients are increasingly seeking an outsourcing provider with a well-invested and sustainable global platform across key jurisdictions, as well as specialist capabilities across asset classes. Our strategy in recent years has been centred on meeting these needs.

SANNE added two new jurisdictions to the Group's geographic footprint during 2018 as well as increasing scale in existing locations. This expansion has been both organic and inorganic, with the acquisitions of Luxembourg Investment Solutions S.A. ("LIS") and Compliance Partners S.A. ("CP") in Luxembourg and AgenSynd S.L. ("AgenSynd"), headquartered in Spain, completing during the year. These acquisitions have further strengthened our global offering as well as increasing our revenue diversification. The integration of both businesses into the Group is progressing well. After the year-end, SANNE opened a new office in Japan to further capitalise on the opportunities in the fast-growing Asia Pacific market.

SANNE has managed a targeted programme of investment through 2017 and 2018 to support a broad and sustainable platform capable of delivering long term growth. Investment has been focused on three main areas - our people, processes and business systems - and involved enhancing our sales function, compliance and risk infrastructure and technology capability.

Our people

SANNE's people are core to the success of the Group. 2018's strong performance is testament to the hard work and commitment of our employees throughout the organisation across all of our jurisdictions. I would like to take this opportunity to thank each one of them for their efforts in 2018.

SANNE's senior team continues to grow, with a number of key appointments made during the year. Today the Group has a team of experienced leaders driving growth in each of its global jurisdictions, in addition to the large team of asset specialists working closely with our clients.

Proactive employee engagement remains a key initiative for the Group. As part of this process, the Board have worked towards the creation of an employee engagement panel that from 2019 will bring employees from all areas of the business and geographies together to provide a forum for them to interact with each other and the non-executive directors from the Board.

Our culture

SANNE has a strong collegiate culture, which encourages entrepreneurial drive whilst focusing on both high levels of client service and a keen commitment to compliance. The investment during the year has included significant additional capability in the Group's three lines of defence model across the global platform to enable a joined-up risk culture across all its regions.

Corporate governance

Strong corporate governance has been a key priority for the Group since the listing of the business in April 2015 and this continues to evolve to support the Group's growth. Having created separate Audit and Risk Committees at the start of 2018 and having added a Governance remit to the Nomination and Governance Committee, these changes have all been embedded during 2018.

The Board continues to undertake annual internal effectiveness reviews which assist in the development of the Group's governance.

Board membership

At Board level, in 2018 we welcomed three new Non-Executive Directors - Mel Carvill, Julia Chapman and Yves Stein - together with the appointment of James Ireland as the Group's CFO. We also said farewell to Spencer Daley and I would like to extend my thanks to him for his work and efforts around the Board table since IPO.

Following the end of our 2018 financial year, we announced that our CEO, Dean Godwin, following a handover period, will step down from the Board and retire from SANNE at our AGM on 16th May 2019. We thank Dean for his immense contribution to the business over the last seven years having transformed SANNE from its origin as a Jersey based operation into a global business.

I am delighted to have welcomed Martin Schnaier to the Board and as CEO Designate. Martin has been with SANNE for over eight years and has played a crucial role throughout that time in the growth and development of the business. He joined SANNE to establish our London office, in which position he was key to building our leading debt administration division. At the time of the IPO, Martin was a key member of the senior leadership team helping form and execute our strategy. In recent years Martin has been responsible for all of the Group's client services activities. In this role, he has been instrumental in both building out our business lines and jurisdictions and also developing our strategic focus. He also played a significant role in the Group's two acquisitions in 2018.

Environmental, Social and Governance (ESG) - Our role in society

In 2018, SANNE's employees across its global office network contributed to various initiatives that focused on giving back to their local communities through charity focused activities. We also continued our drive to reduce SANNE's carbon footprint and consumption of single-use plastics.

Charitable activities

Employees have supported local community charitable initiatives as part of its ongoing Corporate Social Responsibility (CSR) programmes. SANNE's CSR strategy is orientated around three core themes:

§ Supporting initiatives that help to benefit and improve the lives of children;

§ Supporting initiatives that help in the fight against poverty; and

§ Supporting initiatives that give people a better education and start in life.

These themes were agreed by staff across the SANNE business following a dedicated staff survey. Examples of initiatives in which our staff have been involved in throughout 2018 can be found in the CSR section of our annual report.

Environmental activities

In 2018 SANNE continued to invest in the working environments across our office network. During the period, SANNE has moved into new office space in Jersey, Malta, Singapore, Cape Town, Belgrade and Amsterdam as well as preparing for moves immediately after the year end in Luxembourg, Japan and Guernsey. With each new office move, the business has selected premises based on a series of qualifying criteria that includes location, open-plan space, natural light, building design and modern staff break-out areas.

We have reduced our carbon footprint by actively committing to undertake a series of environmentally friendly focused actions. Examples of these can be found on pages in the CSR section of our annual report.

Outlook

 

SANNE has enjoyed a year of strong progress with good revenue growth across core markets and a step change in the scale of the global platform.

The Group's future prospects remain very positive, underpinned by long-term, sticky contracts and driven by the strong structural growth of the addressable global alternatives market. We expect to continue to build on our success as a high growth sustainable business whilst benefiting from the investment we have made, and continue to make, in our people and infrastructure. Against this background, we expect to deliver a good performance in 2019 and remain confident in the medium and long-term prospects for the Group.

 

 

Rupert Robson

Chairman

 

 

Chief Executive Officer's Statement

 

2018 performance

£'m

 

2018

2017

% Change

% constant currency change2

Revenue

 

143.0

113.2

26.4%

27.2%

Gross profit

 

88.3

72.5

21.9%

23.1%

Gross profit margin

 

61.8%

64.0%

 

 

 

 

 

 

 

 

Overhead (ex-non-underlying items)

(44.1)

(34)

 

 

Non-underlying items

 

(18.9)

(15.7)

 

 

Operating Profit

 

25.6

23.1

10.8%

11.0%

Operating Profit margin

 

17.9%

20.4%

 

 

 

 

 

 

 

 

Underlying Operating Profit1

 

44.5

38.8

14.5%

15.6%

Underlying Operating Profit margin1

 

31.1%

34.3%

 

 

 

1 Underlying results for the year have been presented after the exclusion of non‐underlying items. Further details can be found in note 9 of the consolidated financial statements

2 Constant currency represents the 2018 performance based on 2017 FX rates to eliminate movements due to FX

2018 saw strong revenue growth, driven by our closed ended Alternatives and Corporate businesses globally. This was delivered despite headwinds in our Hedge and Private Client businesses (9.3% of 2018 revenues) during the year. This result, combined with a part year contribution from the two acquisitions made in 2018, resulted in constant currency revenue growth of 27.2% (26.4% at actual currency). Organically, revenues saw constant currency growth of 12.3% (11.1% at actual currency). This encouraging performance was driven by our strong position in our core markets as well as global build out of our market-leading platform.

The Group continued to develop a good pipeline of new business opportunities, with the projected annualised revenues from new business won in the year of approximately £24.5 million (2017: 20.9 million). This record performance provides significant growth momentum moving forward into 2019 and beyond.

Our growth is underpinned by the continued expansion of our addressable markets. This is happening on multiple levels and the increasing amount of global capital allocated to closed ended investment strategies increases the number of funds for us to serve. In addition, regulation is increasing the number of services in which our clients need support as well as leading to more onerous requirements for asset management groups and therefore to a growing desire on their part to outsource more services. The breadth of our capabilities across jurisdictions and asset classes gives us a significant competitive advantage and enables us to further strengthen our market position.

SANNE continued to expand its local expertise and jurisdictional coverage in 2018, with the completion of two acquisitions: Luxembourg Investment Solutions (LIS), the AIFMD management company business (including Compliance Partners), and AgenSynd, the Madrid-based market leader of loan agency services. Both acquisitions are already performing better than expected with the integration for both businesses progressing well. Acquisitions remain a core part of our strategy and we continue to review various potential opportunities to enhance our service offering and jurisdictional reach.

SANNE has evolved from being a predominantly Jersey-based business at IPO, operating regionally, to becoming a truly global company. A global platform requires investment to ensure it remains effective and, crucially, scalable. During the year we have continued to focus on enhancing our platform for future growth through a programme of targeted investment, focused on people, processes and systems, which has increased the Group's overheads in 2018.

We have enhanced our Client Service teams, in the form of a dedicated new business sales function and the centralisation of certain non-client facing services. We have invested significantly in our risk and compliance infrastructure to scale both functions and bring consistency across our global presence. We have also invested in our technology, processes and physical infrastructure to ensure that we have the capacity in our business to support growth across our asset classes and jurisdictions. Our technology improvements included our preparations for GDPR as well as further investment into cyber security and threat protection.

We continue to invest in our three lines of defence model, ensuring that we have specialist personnel working with the business in conjunction with the checks and balances from the second line of defence in Risk and Compliance and, thereafter, Internal Audit as the third line. Details of our approach to controls can be found in the Risk Management Report and in the Report of the Audit and Risk Committee of the Group's Annual Report and Accounts.

Despite the step up in investment in 2018, the Group saw good constant currency underlying operating profit growth of 15.6% (14.5% at actual currency). The additional investment resulted in the underlying operating profit margin declining to 31.1% in 2018 (34.3% in 2017) and the reported operating profit margin reducing to 17.9% (20.4% in 2017). However, we saw an improvement in margin during the second half compared to the first half as the benefits of these investments started to come through. This trend would have been stronger were it not for both additional costs incurred in the second half in relation to the stabilisation of the Private Client business and also costs incurred in 2018 relating to the acceleration of certain 2019 growth initiatives. The latter included the opening of a new jurisdictional office in Japan in January 2019 and the moving of all of our Luxembourg operations to a single location in February 2019, to support the exciting growth opportunities in these markets.

Our vision

SANNE's vision is to be one of the world's leading providers of alternative asset and corporate services. We strive to achieve this through building a sustainable global business and a relentless focus on the highest quality service, integrity, ambition, enthusiasm, professionalism, engagement and accountability.

Our approach is to build long term partnerships with our clients by offering a premium service offering and always putting the client at the centre of our objectives, whilst effectively managing risk and compliance across our business. We deliver solutions to a range of global asset managers, financial institutions, global corporates and family offices.

Our markets

Our business operates across EMEA, North America and Asia Pacific-Mauritius and our focus is to build scale and market leadership so that we can continue to deliver the highest quality service to our clients. The opportunities in these fast-growing markets are all underpinned by the trend towards the outsourcing of administration activity from institutions, asset managers and family offices to ease their administration burden and to ensure their stakeholders gain independent oversight. As a result of a changing regulatory environment in many markets around the globe, demand for our services continues to grow.

Acquisitions

Acquisitions have helped the group grow historically and remain an area of management focus in order to further strengthen and expand our offering to our clients. 

Brexit

Since the 2016 Referendum, we have continued to monitor the Brexit process closely and to explore the potential consequences thereof. The impact of Brexit itself in the global alternatives market is unlikely to damage overall demand for services. We have, however, seen that our offices located across the EU have benefited from an increase in demand, in particular Luxembourg. Our recent acquisitions of LIS, CP and AgenSynd have further expanded our EU footprint and the Group remains agnostic as to location in which we support our customers. We therefore believe we are well protected against uncertainty in this regard.

In the longer term, our business is largely aligned to the flow of capital, both on-shore and internationally. Therefore, any change in demand from ultimate investors in funds investing within the UK economy could have an impact in the growth rates of our jurisdictions such as the Channel Islands through which a large amount of international investment in the UK flows. However, the long term and committed capital nature of our client funds means we would expect any such change in demand to take some time to impact our financial performance. Our growing international diversification should also mitigate any negative change in demand.

Senior Management

There were a number of key appointments to our senior management team in 2018 and since the year end that have significantly strengthened SANNE. These build on the growth of the global team seen over the last four years:

-      Martin Schnaier was appointed CEO Designate in January 2019;

-      James Ireland was appointed as Chief Financial Officer;

-      Martin Pearson was appointed Chief Risk and Compliance Officer, having been Chief Risk Officer;

-      Jonathan Ferrara was appointed as the Managing Director for the Channel Islands;

-      Wendy Cooper was appointed the Head of Internal Audit;

-      Andrew Jones was appointed as Head of First Line of Defence; and

-      Peter Nagle was appointed as the Managing Director for Mauritius.

 

Training

As an organisation of professionals, we continue to promote a culture of learning and development of our staff. We are proud that there is continued investment in training with support for staff to complete professional qualifications. Focus on training, mentoring and staff development will continue to be an important theme in years to come.

 

 

 

Dean Godwin                                                                                                                   

Chief Executive Officer                                                                                                                

 

 

Strategy Review

The strategic focus of the Group is to be one of the world's leading providers of outsourced alternative asset and corporate services by continuing to build scale in established and emerging markets. The Group will continue to focus on developing its client base of alternative asset managers, financial institutions, global corporates and family offices. 

The Group continues to be successful in growing both organically and inorganically. New business is sourced from our strong relationships with market intermediaries, cross-selling to existing clients and from developing new client relationships.

Organic growth

The key drivers of the Group's organic growth strategy include:

-      Building out SANNE's presence in existing asset classes, with a particular focus on the alternative assets space;

-      Development of core bespoke asset-led offerings to drive increased revenue opportunities;

-      Market share development through the deepening of existing client relationships by offering the most comprehensive product and jurisdictional range;

-      Development of our technology platforms and solutions to both increase the efficiency of our processes as well as enhance our service levels to clients;

-      Cross-selling to existing clients between product offerings, geographies and delivering new client wins through direct referrals, intermediary referrals and direct targeting. This includes inter-product initiatives to sell ancillary corporate services to existing clients;

-      Expansion of the global network by building scale in key jurisdictions to support operational growth and diversification and to capitalise on high growth markets; and

-      Expansion of existing services to ensure that the Group can continue to provide a one-stop shop solution to clients in each asset class, as well as continuing to differentiate SANNE from its competitors across the globe.

 

Inorganic growth

The Group's acquisition strategy is underpinned by management's track record in sourcing, executing and integrating acquisitions. The Group has a highly selective and disciplined approach to acquisitions, seeking to add value to SANNE without an adverse impact on the existing business.

Assessments are made as to the long-term strategic rationale of acquisition opportunities based on a number of factors, including the ability to:

-      Build operational scale in existing and/or complementary jurisdictions;

-      Strengthen SANNE's existing service delivery platform and deliver operational capability to support SANNE's growth story;

-      Acquire a skilled workforce to support SANNE's people-led approach;

-      Benefit from cost synergies (rationalisation of systems and central functions) and cross-selling opportunities within the combined business;

-      Deliver an alternative, lower cost outsourced platform; and

-      Further strengthen client relationships in cases where there are common clients.

The Group continued to be active in the year, with the completion of two deals during 2018, LIS in February and AgenSynd in September. These acquisitions have delivered greater geographic diversity and a more comprehensive product offering in the Group's more established markets.

LIS and CP acquisition (together "LIS")

LIS is a leading third party Alternative Investment Fund Manager (AIFM) with assets under administration in excess of €8.3 billion. It is authorised to deliver management company services to both alternative investment funds and open-ended mutual funds within the EU. It provides alternative asset and corporate focused administration services to more than 60 clients and administers in excess of 100 fund structures. LIS is regulated under the supervision of Commission de Surveillance du Secteur Financier. Founded in 2011, together LIS and CP employ more than 80 people, the majority of whom are based in Luxembourg with a small operation in Dublin.

The acquisition completed on 6 February 2018. The integration of LIS and CP continues to progress

AgenSynd acquisition

AgenSynd is one of the leading loan agency businesses in Europe. It employs around 20 people across Madrid and London and in its representative sales office in Paris. The acquisition of AgenSynd has been a great opportunity for SANNE to augment our existing book of loan agency work and increase the strength and depth of the management team tackling the agency market. It has also allowed the Group to expand our Continental European footprint. The transaction completed on 1 September 2018.

 

 

 

Segmental review

SANNE operates across four segments. Three segments cover the performance of SANNE's Alternatives business across the Group's three regions (Europe, Middle East and Africa (EMEA), Asia-Pacific & Mauritius (APM) and North America (NA)) whilst the fourth segment covers the global reporting of Corporate and Private Client services (CPC).

 

EMEA Alternatives

EMEA Alternatives (£'m)

 

2018

2017

% Change

% constant currency change

Revenue

 

71.8

46.8

53.4%

52.4%

Gross profit

 

43.7

29.0

50.4%

43.8%

Gross profit margin

 

60.8%

62.0%

 

 

 

SANNE's EMEA Alternatives business includes our services across the Channel Islands, Luxembourg, Ireland, the United Kingdom, Spain, France, the Netherlands, Malta and South Africa to alternative asset managers and financial institutions and structures. This division provides services across all our closed-ended investment strategies (Private Debt & Capital Markets, Real Estate, Private Equity and Loan Agency, including Depositary) as well as the Group's open-ended Hedge business.

The division has seen strong performance in 2018 with constant currency revenue growth of 52.4% (53.4% at actual currency) and overall organic revenue growth at constant currency of 16.3% (16.6% at actual currency). There have been similar increases at the gross profit level, with constant currency growth of 43.8% (50.4% at actual currency) and overall organic growth at constant currency of 15.8% (16.4% at actual currency).

The organic revenue performance has been the result of continued buoyant markets and strong demand across all the closed ended investment strategies that SANNE supports. Having a large, scaled capability across all key jurisdictions, across all asset classes and with a focus on high quality, bespoke service continues to pay dividends. The organic growth was particularly pronounced across SANNE's closed ended alternatives businesses. The South African Hedge business experienced headwinds in the year as a result of high levels of redemptions seen across the South African hedge fund market.

When considered by themselves, the closed ended alternatives businesses (Private Debt & Capital Markets, Private Equity, Real Estate, Loan Agency, including Depositary) saw constant currency organic revenue growth of 20.1% (20.7% at constant currency). By contrast the revenues of the Hedge business, which represented 9.6% of the EMEA's 2018 revenues, declined by 4.0% at constant currency (5.9% at actual currency).

The gross margin for the division has improved slightly in the second half but remains down on the prior year. As indicated, part of the investment in people and processes in 2018 involved the creation of centralised teams across specific functions, in particular in sales, payments and on-boarding. This had a dilutive effect on gross margins as the cost was introduced while the efficiencies these teams bring in client service staff utilisation takes time to materialise. These teams in 2018 were largely focused on supporting EMEA Alternatives and CPC as they are embedded in the business. The second half improvement was a result of the efficiencies of these teams starting to be realised.

The two acquisitions completed during 2018 were within EMEA Alternatives. Both acquisitions performed well in the year and better than had been previously anticipated as they saw continued good demand for their services. The strong performance in Luxembourg has been in part a result of initial revenue synergies. These arose from the LIS AIFM Management Company service and SANNE's traditional fund administration offerings being sold together as a one-stop-shop solution for clients. Likewise, AgenSynd performed well. The integration of the business into SANNE's existing book of agency business has begun in early 2019 and is expected to be complete during the first half of 2019.

 

 

APM Alternatives

APM Alternatives (£'m)

 

2018

2017

% Change

% constant currency change

Revenue

 

30.4

27.9

9.2%

12.2%

Gross profit

 

22.2

21.5

3.3%

5%

Gross profit margin

 

72.8%

77.0%

 

 

 

SANNE's APM Alternatives business includes our services across Shanghai, Singapore, Hong Kong and Mauritius to alternative asset managers, financial institutions and structures. The Mauritius platform within the division was acquired at the start of 2017 whilst the other offices, forming the Asia-Pacific platform, have grown organically since SANNE was listed in 2015.

It has been pleasing to see investment in the region start to pay off with APM having a good performance in 2018. Full year constant currency organic revenue growth was 12.2% (9.2% at actual currency) which is significantly improved on the first half performance of 5.2% (-2.0% at actual currency). We saw a similar result at the gross profit level with constant currency organic gross profit growth of 5% (3.3% at actual currency). The improving growth rates within this division set it up well as we enter 2019.

Within the division, the Mauritian book of business showed constant currency organic revenue growth of 6.9% (3.2% at actual currency). This is a notable increase from the performance in the first half. Compared with the business's historic flat revenue profile, this result is testament to significant efforts made within the jurisdiction since the acquisition of IFS to start driving revenue growth. The business has achieved this through additional investment in growth initiatives and marketing efforts. 2018 also saw the appointment of Peter Nagle, who was previously Global Head of Trust & Fiduciary Services at Standard Chartered, as Country Head in Mauritius.

Supported by the additional scale provided by the Mauritian business, the book of business across Asia-Pacific saw exceptionally strong growth in 2018. The full year constant currency organic revenue growth rate in Asia-Pacific was 29.9% (29.7% at actual currency). Our Asia-Pacific business now has the scale and critical mass to compete across all key jurisdictions in the region which is having a corresponding effect in new business wins. The region has also been successful in winning several large new clients in the year. We continue to see significant growth in new funds across the region.

The period has seen the gross profit margin decline from 77.0% in 2017 to 72.8% in 2018. A large part of this decline is a result of the changing mix of gross profit in the segment between Mauritius and Asia-Pacific. The average margin for the region has reduced as the higher gross margin contribution from Mauritius becomes a relatively smaller part of the whole due to the faster growth of Asia-Pacific. Our Asia-Pacific business has also seen a decline in gross margin as it scales up the team to manage its high levels of growth. Our Asia-Pacific business has experienced gross margins in line with the EMEA Alternatives business in 2018 having benefited from higher historic gross margins in prior years.

The APM business anticipates continued growth in 2019 as it opens new offices in Japan and India to capture increased flows from alternative asset managers in the region.

 

 

NA Alternatives

NA Alts (£'m)

 

2018

2017

% Change

% constant currency change

Revenue

 

21.6

19.1

12.9%

16.1%

Gross profit

 

10.6

9.7

9.6%

9.8%

Gross profit margin

 

49.1%

50.6%

 

 

 

SANNE's NA Alternatives business primarily services Private Equity clients in North America. Further progress was made during 2018 in developing a local client base across debt and real estate investment strategies. The business originated with the acquisition of FLSV Fund Administration Services LLC (FAS) in late 2016.

NA experienced another year of double digit organic growth in 2018. Full year constant currency organic revenue growth was 16.1% (12.9% at actual currency) and constant currency organic gross profit growth was 9.8% (9.6% at actual currency). The increase in the full year growth rates versus those reported in the first half were largely as a result of the atypical H1 / H2 split seen in the comparator year, as mentioned in the interim results.

Growth in the year was driven by continued strong demand from the existing customer base as it expanded both domestically and internationally. The growth covered different asset products and also some new American clients outsourcing services to SANNE for the first time in 2018. We continue to see a lower rate of administration outsourcing in North America compared with other regions around the globe. However, there is an increasing trend from asset managers seeking a third-party administrator to increase internal efficiencies and service the funds from an independent standpoint. There is also very positive momentum in new funds coming to market across all asset classes.

Gross margins for the year have been broadly flat compared to the prior period. We have always seen lower margins in our NA business compared with other markets, largely reflecting structurally different market conditions in North America where the penetration of outsourcing of fund administration with closed ended fund managers is notably lower.

 

 

CPC

CPC (£'m)

 

2018

2017

% Change

% constant currency change

Revenue

 

19.2

19.4

-1.1%

-1.2%

Gross profit

 

11.9

12.3

-3.0%

-5.4%

Gross profit margin

 

62.3%

63.5%

 

 

 

SANNE's CPC business encompasses both our Corporate Services and our Private Client operations.

Overall, CPC has seen a small reduction in both revenues and gross profit versus the prior year, with constant currency revenue and gross profit declining -1.2% and -5.4% respectively (-1.1% and -3.0% respectively at actual currency).

Our Corporate services business, which represented two thirds of CPC's total 2018 revenue, had a positive year with constant currency organic revenue growth of 5.7% (5.9% at actual currency). The business benefited from good levels of new client wins and the development of new product and service lines across the tax compliance and regulatory reporting space. The full integration of the previous business lines of Corporate & Institutional, Executive Incentives and Treasury has also contributed to the performance with increased cross-selling opportunities across the common client base.

2018 was a difficult year for our Private Client business (4.5% of 2018 Group revenues). The division was impacted by the loss of a small number of large clients in the prior year creating a headwind coming into 2018. As a result, revenues in the business declined through the year with a full year decline of 12.6% (at both constant and actual currency). Following the outturn in the first half, we undertook a detailed review of performance across the team and client book which resulted in some changes to the senior team leading this business, as well as the augmentation of the overall team. The client book is now stable with no further material client losses expected. With the strengthened leadership team and increased business development activities, this should set the team up to return to growth during 2019.   

CPC saw a small decline in its gross margin, from 63.5% to 62.3%, driven by the increased costs brought into the business to support the centralised functions in sales, on-boarding and payments. There was also a small impact from a reduction in the Private Client gross margin as a result of the stabilisation exercise referred to above.

 

 

Chief Financial Officer's Review

We are focused on delivering on the large growth opportunity that we continue to see across our markets.

2018 has seen the business once again deliver strong growth across Alternatives and Corporate clients. The record level of annualised new business wins sets the Group up well to continue delivering on this growth into 2019.

The step-up in investment made in the Group's people, processes and systems that started in the second half of 2017 has reduced the Group's profit margins, albeit that the profit margin in the second half of the year improved on the first half as the business began to see the benefits of some efficiencies and some operating leverage come through.

The Board has also decided to amend how we present our alternative profit measure of diluted underlying earnings per share as a Group. The change has no impact on the Group's cash flow or cash position and applies to the underlying earnings per share presented for both years ended 31 December 2017 and 2018. Under the new presentation, the Group's underlying tax charge will be used in arriving at diluted underlying earnings per share whereas the previous presentation the Group's reported tax charge was used. The difference between the reported and underlying tax charge arises principally from the amortisation of acquired intangibles that are not deductible for tax purposes. In prior years, the difference between the reported and underlying tax charge was not considered to be material, however, following determination of the prior period error for the 2017 accounts, the difference between the Group's reported and underlying tax charges is now sufficiently large that the Board feels it appropriate to change the presentation. A reconciliation of the difference is provided below under the heading of "Diluted underlying earnings per share" and further detail is included in note 11 of the financial statements.

Revenue

The Group delivered another strong year of growth, with the traditional second half weighting resulting in revenues rising 27.2% on a constant currency basis (26.4% on an actual currency basis) to £143.0 million (2017: £113.2 million). Organic revenue growth also remained strong at 12.3% on a constant currency basis (11.1% at actual currency) driven by a strong performance across our closed ended alternative funds and corporate businesses.

 

£'m

 

2018

2017

% Change

% constant currency change

EMEA Alternatives

 

71.8

46.8

53.4%

52.4%

    Acquisitions

 

17.2

-

 

 

    Organic revenue

 

54.6

46.8

16.6%

16.3%

APM Alternatives

 

30.4

27.9

9.2%

12.2%

NA Alternatives

 

21.6

19.1

12.9%

16.1%

CPC

 

19.2

19.4

-1.1%

-1.2%

Total

 

143.0

113.2

26.4%

27.2%

    Organic revenue

 

125.8

113.2

11.1%

12.3%

 

We saw good double-digit constant currency revenue growth across all of our Alternatives businesses both on an organic and an actual basis. The Private Client business, which represents around a third of the CPC business and 4.5% of Group revenues, had a difficult year which resulted in CPC posting a marginal decline in year on year revenues, despite the Corporate business within the segment delivering constant currency growth of 5.7% (5.9% at actual currency). The first half/second half revenue weighting in 2018 was 46% : 54%, which is broadly in line with the traditional split for the Group. This weighting is driven by the period on period growth being delivered by the Group rather than by any seasonal trends.

 

In 2018, revenues from our Alternatives businesses increased to 86.6% of the Group's total (2017: 82.9%) as we saw stronger organic growth and contribution from acquisitions. Within this, our Hedge business, which is our open-ended alternatives platform, accounted for 4.8% of the Group's total. This was down from 6.5% in 2017 and results from the market headwinds seen in the South African Hedge industry. Revenues from our Corporate services client base represented 8.9% compared with 10.7% in 2017. This reduction in relative contribution was purely down to the business's lower growth rate than seen in Alternatives. Finally, revenues from Private Clients represented 4.5% of Group sales, down from 6.5% in 2017 with the reduction in overall revenues from Private Client causing this relative fall. Acquisitions accounted for 12.1% of the Group's revenues.

 

Gross Profit

£'m

 

2018

2017

% Change

% constant currency change

Revenue

 

143.0

113.2

26.4%

27.2%

Direct costs

 

(54.7)

(40.7)

34.3%

34.3%

Gross profit

 

88.3

72.5

21.8%

23.1%

Gross margin

 

61.8%

64.0%

 

 

 

Gross profit in 2018 was £88.3m (2017: £72.5m), representing constant currency organic growth of 23.1% (21.9% at actual currency). This reflected the strong organic and inorganic revenue growth and a small decline in the gross profit margin in the year. The full year gross profit margin was 61.8%, down 2 percentage points from the prior year. This reduction was a result of additional costs being introduced into the client services side of the Group in the form of centralised teams dedicated to processing payments and client on-boarding as well as a Group sales team. We have seen the efficiencies from centralising these functions start to come through. The second half gross margin was 62.1%, representing a 0.8 percentage point improvement of the margin seen in the first half.

 

Overheads performance

The Group's overhead represents all costs for supporting the business including information technology, risk and compliance, human resources, premises, finance and the Group's head office costs. Overheads in 2018 were £44.1m (2017: £33.8m), which represented 31.9% constant currency growth (30.5% at actual currency). The growth in overhead was a result of the increase in investment made in the Group's people, processes and systems in creating a global platform. Overheads represented 30.7% of Group revenues for the year, up from 29.5% in 2017.

 

Non-underlying costs

Non-underlying items within operating profit include share-based payments where they relate to acquisitions, acquisition and integrations costs and amortisation of intangible assets totalling £18.9 million (2017: £15.7m). For further detail on non-underlying items see note 9 in the Notes to the Consolidated Financial Statements.

 

Underlying Operating profit

Underlying operating profit for 2018 was £44.4 million, which represented constant currency growth of 11.0% (11.5% at actual currency) on £38.8 million in 2017. Underlying operating profit margin declined from 34.3% in 2017 to 31.1% in 2018. The full year underlying operating profit margin was an improvement on the first half result of 30.4% largely as a result of the slight improvement in operating efficiency as seen in the gross margin. Following the investment made over the last two years, we expect underlying operating profit margins reported in 2018 to be at the bottom of the range that the business is capable of producing going forward. In 2019 we expect to see underlying operating profit margins to continue to improve slightly on the prior year.

 

Net finance expense

Net finance expense was £1.8 million (2017: £1.0 million). The increase in the year was driven by the increase in leverage as a result of the acquisitions undertaken in the year. Despite these acquisitions, the Group continues to maintain a low gearing ratio.

 

Other Comprehensive Income

An unrealised gain in Other Comprehensive Income of £8.9 million for the year relates mostly to a strengthening of sterling against the US dollar given the non-sterling acquisitions made in recent years.

 

Taxation

The Group's reported effective tax rate for the year was 23.3% (2017: 19.1%). As with prior years there has been significant non-underlying expenditure impacting on the effective tax rate and when adjusted for non-underlying items the effective rate for the year was 18.2% (2017: 16.9%). The increase in effective tax rate in the year is a result of a greater proportion of the Group's profits being made in higher corporate tax jurisdictions such as North America and Luxembourg.

At the start of 2019 the Group has taken the decision to move the PLC's tax residency from Jersey to the United Kingdom. This move is not expected to have any material impact on the Group's effective tax rate going forward. This has been deemed appropriate given that the executive directors on the Board, following the CEO handover process, are both based in the UK.

 

Diluted underlying earnings per share

Underlying diluted earnings per share were 24.1 pence (2017: 22.2 pence) and reported diluted earnings per share were 12.6 pence (2017: 12.7 pence).

The Group has changed how it presents the alternative profit measure of underlying earnings per share for 2018 and restates the 2017 result on the new accounting treatment. Had the Group not changed the presentation of underlying diluted earnings per share, the result for 2018 would have been 25.7 pence (2017: 23.7 pence).

The change is presentational only and has no cash impact.

In prior years, the Group calculated underlying earnings per share using the reported tax charge, not adjusting for non-underlying costs, such as amortisation of intangibles. Historically, the difference between the reported and underlying tax charge was not considered to be material. However, the correction resulting from the prior period error increases the tax impact of non-underlying items. In 2017 the impact increases from approximately £1.6 million to £2.2 million.

The table below shows the tax charge used in arriving at diluted underlying earnings per share both under the old calculation and the revised calculation. The Board believes that this calculation of EPS is more relevant as it takes into account the tax impact of non-underlying items.

 

 

 

 

 

Previous calculation of APM

Revised calculation of APM

Variance

£'m

2018

2017

2018

2017

2018

2017

Underlying profit before tax

42,562

38,077

42,562

38,077

 

 

Reported tax charge

(5,506)

(4,274)

(5,506)

(4,274)

 

 

Adjustment for non underlying items

-

-

(2,227)

(2,173)

 

 

Underlying profit after tax

37,056

33,803

34,829

31,630

(2,227)

(2,173)

Implied effective tax rate

12.9%

11.2%

18.2%

16.9%

 

 

 

 

 

 

 

 

 

Underlying earnings per share (p)

25.7

23.7

24.1

22.2

(1.6)

(1.5)

 

 

 

 

 

 

 

 

 

Cash flow and funding

The acquisitions of LIS, CP and AgenSynd completed within the year have led to the carrying value of goodwill and other intangible assets rising to £255.1 million (2017: £167.3 million). This value represents the assets of the acquired companies that are not separately identifiable and the value attributed to the acquired customer relationships and underlying contracts. The Board have established key controls for monitoring the carrying value of these assets.

The cash position of the Group remains strong with cash generated by operations, before taxation, of £34.9 million (2017: £37.6 million). This enables the Board to maintain its progressive dividend policy as the Group continues to grow. The acquisitions in the year resulted in a total cash outflow of £43.7 million (2017: £74.3 million), which was funded through a combination of existing cash resources and a draw down on existing facilities.

 

SANNE's trading working capital (TWC) on the balance sheet at the year-end (defined as the aggregate of trade debtors and accrued income less deferred revenue) rose to £33 million (2017: £16.2 million). This increase was partly a result of the strong growth in revenues in the year. However, TWC as a proportion of the year's revenue also increased from 14.3% in 2017 to 22.5% as at 31 December 2018. Of this increase, around a third was attributable to LIS and CP. The billing cycle for the LIS AIFMD "ManCo" platform carries a higher level of accrued income at period ends compared with Sanne's traditional administration businesses. As such, the acquisition of LIS has increased both the amount of accrued income recognised at period ends and also the TWC balance. The remaining increase in the proportion of TWC was a result of growth in the trade debtors in the year as average cash collection times (trade debtor days) increased from historically very low levels. This increase was seen most acutely in the Group's highest growth jurisdictions such as Asia-Pacific and Luxembourg where exceptionally strong double-digit growth has resulted in a focus on the delivery of new clients at the expense of cash collection. Trade and other payables rose to £34.5 million (2017: £8.5 million). The increase relates in the main to the increase in deferred consideration payments for the LIS, CP and AgenSynd acquisitions.

Underlying operating cash conversion (calculated as cash generated from operations adjusted for non-underlying cash items compared with underlying operating profit) in the period was 81.7% (2017: 100.3%). Whilst we saw the reversal of the cash flow issue in Mauritius that was highlighted at the half year, the increase in the average trade debtor days across the Group and the mix effect of LIS's working capital cycle has driven the underlying cash conversion down for 2018. We expect this to improve in future years as the cash collection cycle is maintained or improved.

The Group's net debt stood at £53.0 million at 31 December 2018 (2017: £13.5 million), £61.9 million (2017: £20.4 million) when adjusting for trapped cash, representing leverage of 1.14 x EBITDA and 1.33 x EBITDA respectively. This included gross cash balances of £32.4 million (2017: £50.8 million).

 

Post year-end refinancing of debt facilities

After the year end, SANNE successfully refinanced its debt facilities. The new debt facility is a multicurrency committed £150 million revolving credit facility with an uncommitted accordion facility of £70 million which replaces the existing £90 million committed term loan and revolving credit facility and £10 million accordion. The new facility is on attractive terms and brings together Bank of Ireland, Lloyds, Royal Bank of Canada and Santander to join HSBC, SANNE's existing lender. The new facility has a maturity of February 2023 with extension options of up to two years.

The new facility provides SANNE with significant flexibility and increased capacity to support the continued growth of the Group, particularly in support of the Group's acquisition strategy, as well as extending the maturity of the Group's borrowings.

 

Foreign Exchange

 

The Group's results are exposed to translation risk from the movement in currencies. During 2018 key individual exchange rates have moved, as shown in the table below. Overall, the average headwinds from both our major non-Sterling currencies have reduced reported revenue, gross profit and underlying operating profit by £0.9 million, £0.5 million and £0.4 million respectively.

 

 

 

At 31 December

 

 

Annual average

 

Per £ sterling

 

2018

2017

%

 

2018

2017

%

Euro

 

1.113

1.125

-1.2%

 

1.130

1.142

-1.02%

US Dollar

 

1.275

1.352

-5.7%

 

1.334

1.289

3.5%

 

Prior period restatements

The Group has restated its financial statements for the year ended 31 December 2017 to correct prior period errors in recognising the value of intangible assets on the acquisition of IFS in Mauritius and deferred tax on goodwill for the FAS acquisition in the US. The correction results in an increase of goodwill and the creation of a deferred tax liability against the intangibles of IFS and the recognition of a deferred tax liability with the corresponding tax charge for FAS. Further details are provided in note 15.

 

Adoption of new accounting standards

The new leasing standard IFRS 16 is effective from 1 January 2019 and will be adopted from that date. The Group expects to adopt the modified retrospective approach and not restate prior year financial statements. This will result in the Group's property leases that were previously accounted for as operating leases (expensed as incurred) now being capitalised as Right of Use (ROU) Assets within fixed assets and depreciated over the lease term with a corresponding lease liability and interest charge.

The new standard is not expected to have any material impact on the underlying cash flows of the Group but will have a small, but not material, impact on the Underlying Profit before Tax. The standard is expected to change the presentation of the profit and loss account, the cash flow statement and the balance sheet as follows:

·     On transition, fixed assets are expected to increase by c. £40m and liabilities to increase by c. £44.9m;

·     The operating lease charge will be replaced with depreciation of the ROU Assets and an interest charge on the Lease liability. We currently estimate that this will result in a slightly higher operating profit offset by a higher interest charge with the net result being an expected c. £1m reduction in underlying profit before tax in 2019 with this impact reducing in future years as the mismatch on historic leases reduces each year; and

·     New operating leases will be treated as capital expenditure, which will impact the way depreciation, operating profit and capex are reported in the cash flow statement - underlying operating cash flow will be provided on both the old and new basis in 2019 to allow comparability.

 

The Group has also adopted the amendments and new interpretations of both IFRS 9 (accounting for financial instruments) and IFRS 15 (revenue recognition) from 1 January 2018. Neither has had any material impact on the disclosures or on amounts reported in the results for the year.

 

Dividend

The Board continues to adopt a progressive dividend policy where it seeks to increase the absolute value of the dividend each year, subject always to maintaining a sufficient level of dividend cover. It still expects to retain sufficient capital to fund ongoing operating requirements and to invest in the Group's long-term growth.

The Board is recommending a final dividend of 9.2 pence per ordinary share (2017: 8.4 pence). The final dividend will be payable on 21May 2019 to Shareholders on the register at close of business on 26 April 2019.

Together with the previously paid 2018 interim dividend of 4.6 pence per share, this gives a total dividend for the year of 13.8 pence per share (2017: 12.6 pence in total).

 


 

Consolidated Income Statement
For the year ended 31 December 2018

 

 

Notes

2018
£'000

20171

Restated

£'000

Revenue

6

143,003

113,168

 

(54,655)

(40,711)

5

88,348

72,457

Other operating income

 

158

179

 

(62,941)

(49,494)

 

25,565

23,142

 

 

 

 

Comprising:

 

 

 

Underlying operating profit

 

44,447

38,812

Non-underlying items within operating expenses

9

(18,882)

(15,670)

 

 

25,565

23,142

 

 

 

 

Other gains and losses

 

(132)

348

Finance costs

7

(1,909)

(1,194)

8

156

111

 

23,680

22,407

 

 

 

 

Comprising:

 

 

 

Underlying profit before tax

 

42,562

38,077

Non-underlying items

9

(18,882)

(15,670)

 

 

23,680

22,407

10

(5,506)

(4,274)

 

18,174

18,133

Earnings per ordinary share ("EPS") (expressed in pence per ordinary share)

 

 

 

Basic

11

12.9

13.1

Diluted

11

12.6

12.7

Underlying basic

11

24.7

22.8

Underlying diluted

11

24.1

22.2

All profits in the current and preceding year are derived from continuing operations.  

1 Refer to note 15 for details of the prior year restatement. 

 

Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018

 

Notes

2018
£'000

20171

Restated

£'000

Profit for the year

 

18,174

18,133

Other comprehensive income:

 

 

 

Items that will not be reclassified subsequently to profit and loss:

 

 

 

 Actuarial loss on pension scheme

33

70

(83)

 Income tax relating to items not reclassified

 

(11)

12

Items that may be reclassified subsequently to profit and loss:

 

 

 

 

8,756

(14,324)

Total comprehensive income for the year

 

26,989

3,738

1 Refer to note 15 for details of the prior year restatement. 

 

 

Consolidated Balance Sheet
As at 31 December 2018

 

Notes

2018
£'000

20171

Restated

£'000

Assets

 

 

 

Non-current assets

 

 

 

Goodwill

16

188,928

 107,271

Other intangible assets

17

66,122

59,998

Equipment

18

9,973

3,813

27

2,082

1,042

 

267,105

172,124

Current assets

 

 

 

Trade and other receivables

20

47,251

28,874

Cash and bank balances

 

32,411

50,803

21

6,637

3,096

 

86,299

82,773

Total assets

 

353,404

254,897

Equity

 

 

 

Share capital

24

1,460

1,416

Share premium

 

200,270

171,850

Own shares

25

(1,470)

(1,141)

Shares to be issued

32

12,278

13,373

Retranslation reserve

 

(2,471)

(11,227)

Retained losses

 

(17,399)

(17,583)

 

192,668

156,688

Non-current liabilities

 

 

 

Borrowings

26

85,364

64,335

Deferred tax liabilities

27

13,395

8,972

Retirement gratuity liability

33

701

718

28

4,914

-

 

104,374

74,025

Current liabilities

 

 

 

Trade and other payables

28

34,467

8,522

Current tax liabilities

 

3,910

2,306

Provisions

29

1,650

506

30

16,335

12,850

 

56,362

24,184

Total equity and liabilities

 

353,404

254,897

1Refer to note 15 for details of the prior year restatement.

 

The financial statements were approved by the board of directors and authorised for issue on 21 March 2019. They were signed on its behalf by:               

 

Dean Godwin                                    James Ireland

Chief Executive Officer                 Chief Financial Officer

21 March 2019

 

 

Consolidated Statement of Changes in Equity
As at 31 December 2018

 

 

Notes

Share capital

£'000

Share premium

£'000

Own shares

£'000

Shares to be issued

£'000

Retranslation reserve

£'000

Retained

losses1

£'000

Total equity

£'000

Balance at 1 January 2017

 

1,353

135,354

(562)

13,867

3,097

(21,745)

131,364

Profit for the year as previously presented

 

-

-

-

-

-

18,130

18,130

Correction of prior period error1

 

-

-

-

-

53

3

56

Other comprehensive income for the year

 

-

-

-

-

-

-

-

Actuarial loss on pension scheme

 

-

-

-

-

-

(83)

(83)

Income tax relating to items not reclassified

 

-

-

-

-

-

12

12

Exchange differences on translation of foreign operations

 

-

-

-

-

(14,377)

-

(14,377)

Total comprehensive income for the year

 

-

-

-

-

(14,324)

18,062

3,738

Issue of share capital - acquisitions

24

63

36,590

-

(2,463)

-

-

34,190

Cost of share issuance

24

-

(94)

-

-

-

-

(94)

Dividend payments

14

-

-

-

-

-

(14,669)

(14,669)

Share-based payment

32

-

-

-

1,969

-

769

2,738

Net buyback of own shares

25

-

-

(579)

-

-

-

(579)

Balance at 31 December 2017

 

1,416

171,850

(1,141)

13,373

(11,227)

(17,583)

156,688

Profit for the year

 

-

-

-

-

-

18,174

18,174

Other comprehensive income for the year

 

-

-

-

-

-

-

-

Actuarial gain on pension scheme

 

-

-

-

-

-

70

70

Income tax relating to items not reclassified

 

-

-

-

-

-

(11)

(11)

Exchange differences on translation of
foreign operations

 

-

-

-

-

8,756

-

8,756

Total comprehensive income for the year

 

-

-

-

-

8,756

18,233

26,989

Issue of share capital - acquisitions

24

 44

 28,420

-

(4,043)

-

-

24,421

Dividend payments

14

-

-

-

-

-

(18,376)

(18,376)

Share-based payment

32

-

-

-

2,948

-

327

3,275

Net buyback of own shares

25

-

-

(329)

-

-

-

(329)

Balance at 31 December 2018

 

1,460

200,270

(1,470)

12,278

(2,471)

(17,399)

192,668

1Refer to note 15 for details of the prior year restatement.                                                                                                  

 

 

Consolidated Cash Flow Statement
For the year ended 31 December 2018

 

Notes

2018
£'000

2017

£'000

Operating profit

 

25,565

23,142

Adjustments for:

 

 

 

Depreciation of equipment

18

1,915

1,742

Amortisation of intangible assets

17

15,730

12,972

Impairment of intangible assets

17

55

20

Share-based payment expense

32

3,376

2,927

Disposal of equipment

18

257

15

Increase in provisions

29

1,144

153

Retirement gratuity reserve movement

33

11

99

 

1,267

-

 

49,320

41,070

Increase in receivables

 

(16,241)

(4,262)

Decrease in deferred revenue

 

2,552

1,441

 

(701)

(698)

Cash generated by operations

 

34,930

37,551

 

(7,312)

(6,301)

 

27,618

31,250

Investing activities

 

 

 

Interest received

 

156

111

Purchases of equipment

18

(4,221)

(2,454)

Decrease in deferred consideration

 

(14,407)

(5,757)

31

(29,279)

(68,543)

 

(47,751)

(76,643)

Financing activities

 

 

 

Dividends paid

14

(18,376)

(14,669)

Interest on bank loan

 

(1,732)

(1,069)

Costs of share issuance

 

-

(94)

Buyback of own shares

 

(329)

(579)

Capitalised loan costs

26

-

(308)

Redemption of bank loans

26

(4,000)

(19,000)

26

24,850

24,000

 

413

(11,719)

 

(19,720)

(57,112)

Cash and cash equivalents at beginning of year

 

50,803

108,673

 

1,328

(758)

Cash and cash equivalents at end of year

 

32,411

50,803

 

 

Notes to the Consolidated Financial Statements
For the year ended 31 December 2018

1. General information

Sanne Group plc (the "Company"), incorporated in Jersey on 26 January 2015, is a registered public company limited by shares with a Premium Listing on the London Stock Exchange. The registered office and principal place of business is IFC 5, St. Helier, Jersey, JE1 1ST. The principal activity of the Company and its subsidiaries (collectively the "Group") is the provision of alternative asset and corporate administration services.

In the opinion of the Directors there is no ultimate controlling party.

These financial statements are presented in pounds sterling. Foreign operations are included in accordance with the policies set out in note 3.

The accounting policies have been applied consistently in the current and prior year, other than as set out below.

2. Adoption of new and revised Standards


Standards in issue not yet effective
 

The following standard, amendment and interpretation is relevant to the Group, but was not yet effective. This standard has not been early adopted by the Group.

IFRS 16 'Leases' (effective for periods beginning on or after 1 January 2019). This is a new standard which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. The standard eliminates the classification of leases as either operating or finance leases as required by IAS 17 and instead introduces a single lessee accounting model. A lessee will be required to recognise a right-of-use asset and a lease liability for all leases with a term of more than 12 months. The depreciation on the right of use asset will be accounted for separately from the interest expense incurred on the lease liability in the income statement. The standard replaces IAS 17 'Leases'. The Group currently recognises operating lease payments as an expense on the straight line basis with a corresponding asset or liability in the Consolidated Balance Sheet for the straight line effect, this asset or liability is released over the lifetime of the lease. This will change with the new standard and the group has performed an assessment of the impact. It will apply the modified retrospective approach for transition and will not restate comparative amounts. The right of use assets will be measured as if the standard has always been applied. On the transition date, the lease liability is £44.9 million. This is equal to the remaining discounted lease commitments. Under IFRS 16 the full rental expense which was included as operating expense under IAS 17 will be split between depreciation and interest expense, there is no significant impact on the net profit due to the new standard.                                                                                                                                              

New and revised standards effective for the year

In the current year, the Group applied a number of amendments to IFRSs and new interpretations issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2018. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements. The most significant of these standards are set out below.

IFRS 9 makes changes to accounting for financial instruments in the areas of classification and measurement, impairment and hedge accounting. There is no significant impact on the classification for the Group as a result of IFRS 9. IFRS 9 replaces the incurred credit loss impairment model for financial assets in IAS 39 with an expected credit loss model (ECL). Other than disclosure changes this has no significant impact on the Group financial statements due to the short term nature of the receivables on the Group's balance sheet. Refer to the financial instruments accounting policy for the new IFRS 9 policy (note 3).

IFRS 15 establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The Group assessed the different revenue streams and grouped their recognition as either based on assets under management or service based fees, the timing of the revenue recognition was also assessed as point of time or over time and based on the delivering of service obligations, this resulted in no significant difference from how the Group recognised revenue under IAS 18 but additional disclosures were added. Refer to the revenue accounting policy for the new IFRS 15 policy (note 3).

3. Significant accounting policies

Basis of accounting                                                                                                                                        

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The financial statements have also been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").

The financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. The principal accounting policies adopted are set out below.

Basis of consolidation                                                                                                                                  

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) during each year. Control is achieved where the Company:

·   has the power over the investee;

·   is exposed, or has rights, to variable return from its involvement with the investee; and

·   has the ability to use its power to affect its returns.
 

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income when the Company obtains control over the subsidiary and ceases when the Company loses control over the subsidiary. Where necessary, adjustments are made to the financial results of the subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

Under Article 105(11) of the Companies (Jersey) Law 1991, the Directors of a holding company need not prepare separate financial statements (i.e. Company only financial statements). Company only financial statements for the Company are not prepared unless required to do so by the members of the Company by ordinary resolution. The members of the Company had not passed a resolution requiring separate financial statements and, in the Directors' opinion, the Company meets the definition of a holding company. As permitted by law, the Directors have elected not to prepare separate financial statements.

Going concern                                                                                                                                 

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence at least for the next 12 months from the date of approval of these financial statements. The Directors have reviewed the Group's financial projections and cash flow forecasts and believe, based on those projections and forecasts, that it is appropriate to prepare the consolidated financial statements of the Group on the going concern basis. The Group has healthy cash flow inflow through a good pipeline of existing and new customers, the Group also has finance facilities available. Accordingly, they have adopted the going concern basis of accounting in preparing the consolidated financial statements. Further detail is contained in the viability statement included in the Audit Committee report.

Business combinations                                                                                                                                                

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred and as non-underlying items within operating expenses.

The acquiree's identifiable assets and liabilities that meet the conditions for recognition under IFRS 3 (2008) are recognised at their fair value at the acquisition date.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.

When the consideration transferred by the Group in a business combination includes an asset or liability resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement' period' (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates at fair value with the corresponding gain or loss being recognised in profit or loss, as non-underlying items within operating expenses.

Goodwill                                                                                                                                            

Goodwill is initially recognised and measured as set out above.

Goodwill is not amortised but is reviewed for impairment at least annually or if indicators of impairment are identified. For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

Intangible assets                                                                                                                                            

Intangible assets acquired in a business combination are initially recognised at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, separately intangible assets acquired in a business combination are reported at cost less accumulated amortisation and any impairment losses.

The Group performs assessments at the end of each reporting period, in order to identify any possible indicators of impairment. Should there be any indicators of impairment, the group estimates the recoverable amount of the asset and if an impairment should be recognised.

Contract intangibles                                                                      

Contract intangibles consist of the recognition of the legal relationships gained through acquisition. On initial recognition the values are determined by relevant factors such as business product life-cycles, length of notice, ease of movement and general attrition. These intangibles are amortised over their useful lives using the straight-line method, which is estimated at four to eight years, based on management's expectations and client experience. The amortisation charge for the year is included in the consolidated income statement under 'operating expenses' and further identified as non-underlying.

Customer intangibles                                                                                                                                   

Customer intangibles consist of the recognition of value attributed to the customer lists through acquisition. On initial recognition the values are determined by relevant factors such as the Group's growth pattern and ability to cross-sell to existing clients. Subsequently, these intangibles are amortised over their useful lives using the straight-line method, which is estimated at four to ten years, based on management's expectations and client experience. The amortisation charge for the year is included in the consolidated income statement under 'operating expenses' and further identified as non-underlying.

Interest income                                                                                                                                              

Interest income is recognised using the effective interest method. This is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, unless the assets subsequently became credit impaired. In the latter case, the effective interest rate is applied to the amortised cost of the financial asset. Interest is recognised on an accruals basis.

Revenue recognition                                                                                                                                    

The revenue is measured at transaction price. The transaction price is the amount of consideration that the Group expects to receive in exchange for the services rendered.

Rendering of services                                                                                                                                   

Revenue is based on and charged through three different categories, 1) Assets under management - open ended funds where revenue is charged as a percentage of the assets under management, 2) Assets under management - closed ended funds where fees are also charged as a percentage of assets under management, 3) Service based fees where the revenue is charged based on an agreed fee structure for various services being provided. All revenue is recognised over time as the services are rendered and clients benefit from these services.

Accrued income                                                                                                                                              

Accrued income represents the billable provision of services which are rendered and where performance obligations have been met but clients have not been invoiced at the reporting date. Accrued income is recorded based on agreed fees billed in arrears and time-based charge-out rates in force at the work date, less any specific provisions against the value of accrued income where recovery will not be made in full.

Deferred revenue                                                                                                                                          

Deferred revenue represents fees in advance and upfront fees in respect of services due under contract and are time apportioned to the respective accounting periods, and those fees billed but not yet earned. These are included in deferred revenue in the Consolidated Balance Sheet.

The new standard, IFRS 15 came into effect on 1 January 2018. For the transition process, the Group elected to apply the practical expedient consistently to all contracts. The Group found that during the transition phase, there was little to no difference in the revenue recognition from the previous standard. The most significant effect is the disclosure format of the prior period figures. There was no change in the amounts for each financial line item.

Leases                                                                                                                                 

All leases are classified as operating leases.

Rentals payable under operating leases are charged to expenses on a straight-line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed.

In the event that lease incentives are received on entering into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of the rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contractual rental increases are straight-lined over the lease term.

Foreign currencies                                                                                                                                         

The individual financial statements of each group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group company are expressed in pounds sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognised in profit or loss in the year in which they arise.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's operations with a functional currency other than pounds sterling are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the exchange rates at the date of the transactions. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity in the translation reserve.

On the disposal of a foreign operations (i.e. a disposal of the Group's entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, loss of joint control over a jointly controlled entity that includes a foreign operation, or loss of significant influence over an associate that includes a foreign operation), all of the accumulated exchange differences in respect of that operation attributable to the Group are reclassified to profit or loss.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income.

Defined contribution schemes                                                                                                                                 

Payments to defined contribution retirement benefit schemes are recognised as an expense when employees have rendered services entitling them to contributions.

Defined benefit schemes                                                                                                                                           

The Group has a defined benefit retirement obligation in Mauritius due to a regulatory requirement. The defined benefit obligation is recognised in line with IAS19.

The liability recognised in the statement of financial position in respect of the defined benefit retirement obligation is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets, however the Group has no plan assets.

The defined benefit obligation is calculated at half year and year end by qualified actuaries using the projected unit credit method.

The present value of the defined obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation.

Defined benefit costs are categorised as follows:

·   service cost                                                                                                                                 

·   net interest expense or income; and                                                                                                                                              

·   re-measurement

 

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past-service costs are recognised immediately in profit or loss.

Earnings per share                                                                                                                                         

The Group presents basic and diluted earnings per share. In calculating the weighted average number of shares outstanding during the period any share restructuring is adjusted by a factor to make it comparable with the other periods. For diluted EPS, the weighted average number of ordinary shares is adjusted to assume conversion of all dilutive potential ordinary shares.

Both basic and diluted EPS measures are shown for the statutory profit position, the Group has also presented an alternative version with profit adjusted for non-underlying items to provide better understanding of the financial performance of the Group (note 11).

 

Taxation                                                                                                                                             

Tax on the profit or loss for the period comprises current and deferred tax.

Current tax                                                                                                                                        

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement as it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax                                                                                                                                     

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been enacted or substantively enacted at the balance sheet date.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Current tax and deferred tax for the year                                                                                                                                            

Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

Equipment                                                                                                                                        

Equipment is stated at cost less accumulated depreciation and any recognised impairment loss.

Depreciation is recognised so as to write off the cost of assets less their residual values over their useful lives, using the straight-line method, on the following bases:

Computer equipment                   3 to 5 years        

Fixtures and equipment                               5 to 24 years      

The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period with the effect of any changes in estimate accounted for on a prospective basis.

The gain or loss arising on the disposal or scrappage of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in profit or loss.

Impairment of tangible and intangible assets (excluding goodwill)

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

The recoverable amount of an asset is the higher of its fair value less costs to sell or the value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

Financial instruments                                                                                                                                   

Financial assets and financial liabilities are recognised in the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Financial assets                                                                                                                                               

All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value.

Cash and cash equivalents                                                                                                                                         

Cash and cash equivalents include cash in hand and deposits held at call with banks.

Financial assets at amortised costs                                                                                                                                         

The Group's business model is to collect the contractual cash flows from its assets. The cash flows consist solely of interest and principal payments. Therefore the financial assets are classified as carried at amortised cost. The assets are measured at amortised cost using the effective interest method, less the expected credit losses. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Impairment of financial assets                                                                                                                                 

The Group recognises a loss allowance, for expected credit losses on its financial assets. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the financial asset. When the expected credit loss for trade receivables is determined, the Group makes use of the simplified approach, whereby the loss recognised is equal to the lifetime expected credit losses. Lifetime expected credit losses represent the expected losses that may result from possible default events, and the probability of such an event occurring, over the life time of the financial asset. The expected lifetime credit losses of the trade receivables, are estimated using a provision matrix. The matrix is based on the Group's historical credit loss experience, the most significant factor being the days past due. It is then adjusted for forward-looking factors, that are specific to debtors.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

Financial liabilities and equity                                                                                                                                 

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Equity instruments                                                                                                                                        

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

Repurchase of the Company's own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company's own equity instruments.

Financial liabilities                                                                                                                                        

All financial liabilities are classified as measured at amortised cost. These liabilities are initially measured at fair value less transaction costs and subsequently using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant year. The effective interest rate is the rate that discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the amortised cost of a financial liability. Where financial liabilities are short term and immaterial, no interest is levied.

Accrued interest is recorded separately from the associated borrowings within current liabilities.

Employee share trust/Own shares                                                                                                                                         

Own shares represent the shares of the Company that are held in treasury and by the Group's employee share ownership trust (which is consolidated in the Group financial statements). Own shares are recorded at cost and deducted from equity. When shares vest unconditionally, are cancelled or are reissued they are transferred from the own shares reserve at their weighted average cost. Any consideration paid or received by the Trust for the purchase or sale of the Company's own shares is shown as a movement in shareholders' equity.

Provisions                                                                                                                                          

Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are determined by the expected future cash flows at a pre-tax rate that reflects current market assessments of the risks specific to the liability. Onerous lease provisions are measured at the lower of the net cost to fulfil, or to exit the contract, discounted as appropriate.

Fiduciary activities                                                                                                                                         

The assets and liabilities of trusts and companies under administration and held in a fiduciary capacity are not included in these consolidated financial statements.

Share-based payments                                                                                                                                

Employees of the Group receive bonus allocations in the form of share-based payments under Performance Share Plan, Restrictive Stock Awards and Annual Performance Bonuses, whereby eligible employees render services as consideration for equity instruments (shares).

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market-based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 32.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

Operating profit                                                                                                                                              

The operating profit reflects the profit earned from the Group's business operations. It includes revenue and other operating income less direct and indirect costs. Furthermore the operating profit comprises of underlying and non-underlying items. Operating profit excludes finance costs, finance income and foreign exchange gains and losses.

Non-underlying items                                                                                                                                  

Non-underlying items are disclosed and described separately in the consolidated financial statements where it is necessary to do so to provide a better understanding of the financial performance of the Group.

The Group's core business is the administration, reporting and fiduciary services it provides in various jurisdictions, all acquisition and integration related costs are disclosed as non-underlying as these fall outside the core business of the Group. Restricted Share Awards forms part of the non-underlying items as it is used as a tool to retain key personnel relating to the acquisitions and recruit senior management to support the acquisitions. Amortisation of intangible assets recognised through the acquisitions is also included as non-underlying, these charges are based on judgements about the value and economic life of assets that, in the case of items such as customer relationships, would not be capitalised in normal operating practice. All the non-underlying items are regarded as expense items outside the normal course of business and disclosed separately to assist Shareholders to better analyse the performance of the core business. Changes to the subsequent contingent consideration arising from prior and current period business combinations are included in non-underlying items.

Further details of the nature of non-underlying items are given in note 9.

Direct costs                                                                                                                                       

Direct costs are defined by management as the costs of the income generating divisions including staff payroll, marketing and travel attributable to the division in relation to the delivery of services and supporting growth.

4. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in note 3, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years.

Critical judgements in applying the group's accounting policies

The following are the critical judgements at the balance sheet date that the directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in financial statements.

Initial recognition of intangible assets                                                                                                                                 

On 6 February 2018, the Group acquired the LIS and CP. The business combination gave rise to the recognition of customer and contract intangibles. The valuation of these intangible assets requires various judgements of which the most significant is the number of years the customer base acquired would generate revenue for the Group. The valuation was performed using five years which is based on management's best judgement and historical evidence. The intangible assets recognised through the business acquisition amount to £16.5 million.

On 3 September 2018 the Group acquired AgenSynd S.L. The business combination gave rise to the recognition of customer and contract intangibles. The valuation of these intangible assets requires various judgements of which the most significant is the number of years the customer base acquired would generate revenue for the Group. The valuation was performed using seven years which is based on management's best judgement and historical evidence. The intangible assets recognised through the business acquisition amount to £3.3 million.

Brexit

The Group continues to appraise the potential of the United Kingdom's referendum on EU membership ("Brexit"). Based on management's judgement the impact of Brexit itself in the global alternatives market is unlikely to damage the overall demand for services. The Group's presence in the EU have benefited from an increase in demand, the Group therefore believe that we are well protected against any uncertainty with regards to Brexit.

Key sources of estimation uncertainty

Impairment testing

Following the assessment of the recoverable amount of goodwill allocated to Sanne Netherlands, to which goodwill of £1.6 million is allocated, the directors consider the recoverable amount of goodwill allocated to Sanne Netherlands to be most sensitive to the achievement of the 2019 budget. Budgets comprise of forecasts of revenue, staff cost and overheads based on current and anticipated market conditions that have been considered and approved by the Board. Whilst the Group is able to manage most of Sanne Netherlands costs, the model is most sensitive to cost increase where an 8% increase in cost base will result in nil headroom.

Accrued income

The Group recognises accrued income within revenue and as a receivable for amounts that remain unbilled at the year end, recorded at the recoverable amount. The recoverable amount of accrued income is assessed on an individual basis using the judgement of management, and takes into account an assessment of the client's financial position, the aged profile of accrued income and an assessment of historical recovery rates. The balance at year end is £6.6 million, the irrecoverability of 15% of this balance will result in an impairment charge of £990k.

 

Other estimates

Probability of vesting of equity instruments granted in terms of share based schemes

The cumulative expense recognised in terms of the Group's share based payment schemes reflects, in the opinion of the Directors, the number of equity instruments granted that will ultimately vest. At each reporting date, management adjust the unvested equity instruments with the forfeited instruments. Management is of the opinion that this number, adjusted for future attrition rates, represents the most accurate estimate of the number of instruments that will ultimately vest. Based on current performance, management estimates the future performance of the Group will have an annual growth rate of 12%. The current year share based payment charge for the performance share plan is £1.2 million, should the performance of the Group exceed the 12% growth assumption and have 20% growth, then the 2018 financial statements will have an additional charge of £185k in respect of share based payment catch-up with regards to 2018 and prior financial periods.

 

5. Segmental reporting

The reporting units engage in corporate, fund and private client administration, reporting and fiduciary services. Declared revenue is generated from external customers.

The chief operating decision maker is considered to be the Board of Directors of Sanne Group plc. Each segment is defined as a set of business activities generating a revenue stream determined by divisional responsibility and the management information reviewed by the Board of Directors. The board evaluates segmental performance on the basis of gross profit, after the deduction of the direct costs of staff, marketing and travel.                                                                                                    

No inter-segment sales are made.

For the year ended 31 December 2018

Revenue

£'000

Direct costs

£'000

Gross profit

£'000

Segments

 

 

 

EMEA Alternatives

71,821

(28,169)

43,652

Asia-Pacific & Mauritius Alternatives

30,430

(8,271)

22,159

North America Alternatives

21,584

(10,980)

10,604

19,168

(7,235)

11,933

Total

143,003

(54,655)

88,348

 

 

 

 

Other operating income

 

 

158

 

 

(62,941)

Operating profit

 

 

25,565

 

For the year ended 31 December 2017

Revenue

£'000

Direct costs

£'000

Gross profit

£'000

Segments

 

 

 

EMEA Alternatives

46,822

(17,795)

29,027

Asia-Pacific & Mauritius Alternatives

27,857

(6,398)

21,459

North America Alternatives

19,112

(9,440)

9,672

19,377

(7,078)

12,299

Total

113,168

(40,711)

72,457

 

 

 

 

Other operating income

 

 

179

 

 

(49,494)

Operating profit

 

 

23,142

Geographical information                                                                                                                                          

The Group's revenue from external customers by geographical location of contracting Group entity is detailed below:

 

2018
£'000

2017

£'000

Jersey

39,440

38,882

Rest of Europe

50,205

25,005

Mauritius

22,198

21,503

Americas

21,374

19,140

South Africa

5,461

6,110

Asia-Pacific

4,325

2,528

Total revenue

143,003

113,168

The geographical revenue is disclosed based on the jurisdiction in which the contracting legal entity is based and is not based on the location of the client or where the work is performed.

 

6. Revenue

Disaggregation of revenue from contracts with customers

2018
£'000

2017

£'000

Basis for fees charged

 

 

EMEA Alternatives

 

 

- Assets under management - open ended funds

 6,880

 7,312

- Assets under management - closed ended funds

 13,484

 -

- Service based fees

 51,457

 39,510

 

 

 

Asia - Pacific & Mauritius Alternatives

 

 

- Service based fees

 30,430

27,857

 

 

 

North America Alternatives

 

 

- Service based fees

 21,584

19,112

 

 

 

Corporate & Private Client

 

 

- Service based fees

19,168

19,377

Total revenue

143,003

113,168

 

Timing of revenue recognition

2018
£'000

2017

£'000

Over time

 

 

- EMEA Alternatives

71,821

46,822

- Asia - Pacific & Mauritius Alternatives

30,430

27,857

- North America Alternatives

21,584

19,112

- Corporate & Private Client

19,168

19,377

Total revenue over time

143,003

113,168

Total revenue

143,003

113,168

 

7. Finance costs

 

2018
£'000

2017

£'000

HSBC interest

1,732

1,069

HSBC amortised loan fees

177

125

Total finance costs

1,909

1,194

Details regarding the borrowings can be found in note 26.

8. Finance income

 

2018
£'000

2017

£'000

Interest income on bank deposits

156

111

Total finance income

156

111

 

9. Non-underlying items

 

Notes

2018
£'000

2017

£'000

Operating profit

 

 25,565

 23,142

 Non-underlying items within operating expenses:

 

 

 

 Share based payment

(i)

1,791

1,323

 Acquisition and integration cost:

 

 

 

   Chartered Corporate Services ("CCS")

(ii)

86

430

   IDS Fund Services ("IDS")

(ii)

-

16

   FLSV Fund Administration Services ("FAS")

(ii)

18

131

   Sorato Trust B.V ("Sorato")

(ii)

-

16

   International Financial Services Limited ("IFS Group")

(ii)

1

152

   Luxembourg Investment Solution S.A. & Compliance Partners ("LIS and CP")

(ii)

117

610

   AgenSynd S.L ("AgenSynd")

(ii)

971

-

  Amortisation of intangible assets

(iii)

15,730

12,972

  Other items

 

168

20

Total non-underlying items included in operating profit

 

18,882

15,670

Underlying operating profit

 

44,447

38,812

 

 

 

 

Profit before tax

 

23,680

22,407

Non-underlying items within other costs:

 

18,882

15,670

Total non-underlying items

 

18,882

15,670

Underlying profit before tax

 

42,562

38,077

The above reflect expenses which are not representative of underlying performance.

The Group makes acquisitions from time to time in order to continue to build scale in its chosen markets. In common with many other businesses which make acquisitions, which primarily involve acquiring staff and the intangible assets of client contracts and goodwill, the costs directly related to such acquisitions are treated as non-underlying as they are not part of the normal, ongoing cost of doing business.

(i) Share based payments are detailed in note 32, all acquisition related share based payments ("RSA" plan) are shares issued in the course of acquisition consideration that have retained employment conditions and are therefore required to be expensed through the profit and loss, these are all related to acquisition rather than the normal, ongoing cost of doing business.

(ii) During the year ended 31 December 2018, the Group completed the acquisitions of LIS, CP and AgenSynd. (refer to note 31), the Group also completed one acquisition during the year ending 31 December 2017. The Group expensed £1.4 million of acquisition and integration expenditure during the current year and £1.4 million in the prior year. With acquisition activities not being part of the normal, ongoing cost of doing business, these costs are disclosed as non-underlying to enable Shareholders to assess the core ongoing performance of the business. The majority of acquisition and integration cost will be incurred in the first 2 years after acquisition, however this could be longer depending on the nature of the cost.

(iii) The amortisation charges relates to the amortisation of intangible assets acquired through acquisitions. The amortisation of intangibles are directly linked to the acquisitions and excluded from underlying cost because these charges are based on judgements about the value and economic life of the asset that, in the case of items such as customer relationships, would not be capitalised in normal operating practice.

 

10. Tax

 

2018
£'000

20171

Restated

£'000

The tax charge comprises:

 

 

Current period:

 

 

Jersey income tax

1,165

1,912

Other foreign tax

6,233

3,681

 

7,398

5,593

Deferred tax (note 27)

(2,045)

(1,134)

Total tax charge for the year

5,353

4,459

 

 

 

Adjustments in respect of prior periods:

 

 

Jersey income tax

(29)

(442)

Other foreign tax

182

257

Tax on profit on ordinary activities

5,506

4,274

1 Refer to note 15 for details of the prior year restatement. 

In addition to the amount charged to the Consolidated Income statement, the following amounts relating to tax have been recognised in other comprehensive income:

 

2018
£'000

2017

£'000

Deferred tax:

£'000

£'000

 Items that will not be reclassified subsequently to profit or loss:

 

 

 Actuarial gain/(loss) on pension scheme

 11

 (12)

Total income tax recognised in other comprehensive income

 11

 (12)

The difference between the total current tax shown above and the amount calculated by applying the standard rate of Jersey income tax to the profit before tax is as follows:

 

2018
£'000

20171

Restated

£'000

Profit on ordinary activities before tax

23,680

22,407

Tax on profit on ordinary activities at standard Jersey income tax rate of 10% (2017: 10%)

2,368

2,241

Effects of:

 

 

 Expenses not deductible for tax purposes

266

51

 Non-deductible amortisation

153

209

 Depreciation in excess of capital allowances

143

130

 Net foreign exchange income

14

18

 Foreign taxes not at Jersey rate2

2,159

926

 Deferred tax not recognised - taxable losses3

250

884

 Prior year adjustments

153

(185)

Total tax

5,506

4,274

1 Refer to note 15 for details of the prior year restatement.

2 With the Jersey tax rate at 10% the impact of the 2017 and 2018 acquisitions is significant on the tax expense as all the acquired jurisdictions have higher tax rates than 10%.                                                                                                                                    

3 Deferred tax not recognised refers to jurisdictions where management is doubtful that future deferred tax assets would be able to be utilised through taxable profits being recognised.

Income tax expense computations are based on the jurisdictions in which profits were earned at prevailing rates in the respective jurisdictions.

The Jersey standard income tax rate is 10%, management reconcile to this rate as the Company is a Jersey registered entity.

 

2018
£'000

20171

Restated

£'000

Reconciliation of effective tax rates

 

 

As per Consolidated income statement:

 

 

Tax charge

5,506

4,274

Profit before tax

23,680

22,407

Effective tax rate

23.3%

19.1%

Tax charge

5,506

4,274

Adjusted for:

 

 

Prior period adjustments

(153)

185

Tax effect of non-underlying items

3,328

3,133

Deferred tax on US Goodwill amortisation

(948)

(1,145)

Underlying tax charge

7,733

6,447

Profit before tax

23,680

22,407

Non-underlying items

18,882

15,670

Profit before tax and non-underlying items

42,562

38,077

Underlying effective tax rate

18.2%

16.9%

1 Refer to note 15 for details of the prior year restatement.

The effective tax rate of 23.3% (2017: 19.1%) has increased due to a larger proportion of taxable profits being earned in higher tax jurisdictions. The increase in the underlying effective tax rate of 18.2% (2017: 16.9%) is also due to proportionally higher profits being earned in higher tax jurisdictions. This was calculated against the underlying profit before tax after having excluded the tax effect of non-underlying expenses and the deferred tax in relation to the tax allowance for the amortisation of goodwill in the US.

 

11. Earnings per share

 

2018
£'000

20171

Restated

£'000

Profit for the year

18,174

18,133

Non-underlying items:

 

 

      Non-underlying operating expenses

18,882

15,670

 Tax effect of non-underlying items and prior year adjustments

(2,227)

(2,173)

Underlying profit after tax

34,829

31,630

 

 

Shares

Shares

Weighted average numbers of ordinary shares in issue

141,269,560

 138,433,199

Effect of dilutive potential ordinary shares:

 

 

 Deferred consideration shares

 1,273,308

 2,387,219

 Restricted stock awards

 1,288,585

 1,102,475

 Performance share plan

 619,862

 484,130

Weighted average number of ordinary shares for the purposes of diluted EPS

144,451,315

 142,407,023

 

 

 

Basic EPS (pence)

12.9

13.1

Diluted EPS (pence)

12.6

12.7

Underlying basic EPS (pence)

24.7

22.8

Underlying diluted EPS (pence)

24.1

22.2

1 Refer to note 15 for details of the prior year restatement.

The Group presents basic and diluted earnings per share ("EPS") data for its ordinary shares.

Basic EPS is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period.

Diluted EPS takes into consideration the Company's dilutive contingently issuable shares as disclosed above. These arrangements have no impact on the earnings or underlying earnings figures used to calculate diluted EPS. The weighted average number of ordinary shares used in the diluted calculation is inclusive of the number of shares which are expected to be issued to satisfy the awards when they become due and where the performance criteria, if any, have been deemed to have been met as at 31 December 2018.

Underlying basic EPS and Underlying diluted EPS are calculated in the same way as Basic EPS and Diluted EPS with the only exception being that the earnings used are the underlying earnings, being the profit for the year adjusted for non-underlying items. In previous years profit for the year was adjusted for non-underlying items but the applicable tax charge was not. The Board have changed the presentation of this alternative profit measure in 2018 so that the applicable tax charge reflects the tax impact of non-underlying items. The tax impact of non-underlying items is principally the amortisation of acquired intangibles that are not deductible for tax purposes. The comparative numbers were also updated to reflect this approach. Further detail and a reconciliation of this change is provided in the Chief Financial Officers Review in the Annual Report and Accounts.

 

12. Profit for the year

 

2018
£'000

2017

£'000

Profit for the year has been arrived at after charging/(crediting):

 

 

Net foreign exchange losses/(gains)

132

(348)

Depreciation of equipment

1,915

1,742

Gain on disposal of equipment

-

(25)

Auditor's remuneration for audit services

587

493

Auditor's remuneration for other services:

 

 

 - FATCA

14

17

 - ISAE 3402

-

30

 - Software

167

195

 - Other assurance services

-

64

Amortisation of intangible assets (see note 17)

15,730

12,972

Staff costs

67,337

51,842

Impairment loss recognised on trade receivables (see note 20)

575

453

Facilities expense

7,339

5,424

 

13. Staff costs

 

2018
£'000

2017

£'000

The aggregate payroll costs were as follows

 

 

Salaries and bonuses

60,753

46,952

Social security

3,815

2,539

Pension cost

547

452

Other benefits

2,222

1,899

 

67,337

51,842

 

The average number of full time employees analysed by category and segment:

 

 
2018

 

2017

Client services

 

 

- EMEA Alternatives

527

360

- Asia - Pacific & Mauritius Alternatives

266

226

- North America Alternatives

122

103

- Corporate & Private Client

115

108

Group services

254

206

 

1,284

1,003

 

14. Dividends

Amounts recognised as distributions to equity holders in the year:       

 

2018
£'000

2017

£'000

Amounts recognised as distributions to equity holders in the year:

 

 

Final dividend for the prior year

11,816

8,858

Interim for the current year

6,560

5,811

Total dividends

18,376

14,669

Proposed final dividend

13,432

11,364

 

The proposed final dividend is subject to approval at the forthcoming AGM and has not been included as a liability in these financial statements.

 

2018
Pence per share

2017
Pence per share

Dividend per share ("DPS"):

 

 

Interim for the current year

 4.6

 4.2

Final proposed for the current year

 9.2

 8.4

Total dividend per share

13.8

12.6

Weighted average numbers of ordinary shares in issue

141,269,560

138,433,199

 

15. Correction of prior period error

On 1 January 2017 the Group acquired the IFS Group in Mauritius, and consolidated the business into the 2017 Group accounts. In consolidating IFS Group into the Group, an error was made in the interpretation and application of Mauritius tax legislation in respect of the deductibility of amortisation on intangible assets arising from a business combination. The impact of correcting this error is to recognise a deferred tax liability and a corresponding increase of goodwill on the balance sheet at the acquisition date. The deferred tax liability will release as a credit through the Group's reported tax charge as the acquired intangibles in IFS are amortised.

On 1 November 2016 the Group acquired FAS, in the US. Goodwill was recognised at acquisition and the business was consolidated into the 2016 Group accounts. Goodwill is amortised for tax purposes in the US and in line with IFRS the goodwill on the balance sheet is not amortised. This difference in tax and accounting treatment was incorrectly identified as a permanent difference and accordingly there was no deferred tax impact reflected in the periods following the acquisition. On subsequent review it was identified that under IAS 12 the difference must be classified as temporary and a deferred tax liability recognised over the 15 year period the Group benefits from the tax deductibility of the goodwill. The impact of correcting this error is to recognise a deferred tax liability, a corresponding increase of deferred tax charge through the Group's reported tax charge and exchange differences arising on translation of foreign operations.

 

The errors have been corrected by restating each of the affected financial statement line items for the prior period as follows:                                              

 

                                                                                               

Consolidated Income Statement (extract)

(Audited)

12 Months to

 31 Dec 2017 £'000

Increase/ (Decrease) £'000

(Restated)

12 Months to

31 Dec 2017 £'000

Tax

 4,277

 (3)

 4,274

Basic EPS

 13.1

 -

 13.1

Diluted EPS

 12.7

 -

 12.7

Underlying basic EPS1

 24.4

 (1.6)

 22.8

Underlying diluted basic EPS1

 23.7

 (1.5)

 22.2

Consolidated Balance Sheet (extract)

 

 

 

Goodwill

100,387

6,884

107,271

Deferred tax liabilities

(2,144)

(6,828)

(8,972)

 

 

 

 

Consolidated Statement of Changes in Equity (extract)

 

 

 

(14,377)

53

(14,324)

1  As the tax reported tax impact of the prior period errors largely net off there is nil effect on any of the EPS measures as a result of the prior period errors.  As a result of the change of approach with regards to the tax impact of non-underlying items, as highlighted in Note 11, the underlying basic EPS and underlying diluted basic EPS have decreased by 1.6 pence and 1.5 pence respectively.

16. Goodwill

Goodwill represents the excess of the cost of the acquisition over fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition.

Goodwill movements

£'000

At 1 January 2017

55,094

IFS Group acquisition

61,343

Exchange differences

(9,166)

At 31 December 20171

107,271

LIS and CP acquisition2

67,572

AgenSynd acquisition2

8,404

Exchange differences

5,681

At 31 December 2018

188,928

1 Refer to note 15 for the prior year restatement.                                                                                                                                

2 Refer to note 31 for further detail.

In accordance with the Group's accounting policy, the carrying value of goodwill is not subject to systematic amortisation but is reviewed annually for impairment. The review assesses whether the carrying value of goodwill could be supported by the recoverable amount which is determined through value in use calculations of each cash-generating unit (CGU). The key assumptions applied in the value in use calculations are the discount rates and the projected cash flows.

The goodwill has been allocated to the CGUs as follows:

Goodwill

Carrying value £'000

Sanne South Africa

 8,272

Sanne Netherlands

 1,649

Sanne North Americas

 43,079

Sanne Mauritius

59,391

Sanne Luxembourg

 68,165

Sanne Spain

8,372

 

 188,928

     

The recoverable amounts of all CGUs are based on the same key assumptions and the values of those assumptions are specific to, and in some cases differ across, each CGU.

Discount rates                                                                                                                                  

Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money. In assessing the discount rate applicable to the Group the following factors have been considered:

(i) Long term treasury bond rate for the relevant jurisdiction

(ii) The cost of equity based on an adjusted Beta for the relevant jurisdiction

(iii) The risk premium to reflect the increased risk of investing in equities

Using the above assumptions have resulted in weighted average cost of capital of 21% for Sanne South Africa, 8.6% for Sanne Netherlands, 11.7% for Sanne North America and 12.6% for Sanne Mauritius, 7.9% for Sanne Luxembourg and 10.3% for Sanne Spain.

Projected revenue and costs                                                                                                                                     

Projected revenue and costs are calculated with reference to each CGU's latest budget and business plan which are subject to a rigorous review and challenge process. Management prepare the budgets through an assessment of historic revenues from existing clients, the pipeline of new projects, historic pricing, and the required resource base needed to service new and existing clients, coupled with their knowledge of wider industry trends and the economic environment.                                                                                                               

Projected revenue and costs are calculated using the prior period actual result and compounding these results by the budgeted numbers. Growth rates used are specific to the cash generating units and varies between 3% to 36%. The terminal growth rate used is 2.1% and is applied after five years.

Based on the value in use calculations none of the CGUs show indicators of impairment.

Sensitivity to changes in assumptions                                                                                                                                  

Management believes that any reasonably possible change in the key assumptions, on which recoverable amount per CGU is based, would not cause the aggregate carrying amount to materially exceed the recoverable amount on the CGUs.

 

17. Intangible assets

 

Contract

£'000

Customer

£'000

Total

£'000

Cost

 

 

 

At 1 January 2017

28,765

5,632

34,397

Acquired during the year

42,275

8,031

50,306

Impairments

(20)

-

(20)

Exchange difference

(4,446)

(822)

(5,268)

At 31 December 2017

66,574

12,841

79,415

Acquired during the year

16,621

3,176

19,797

Impairments

(55)

-

(55)

Exchange difference

2,562

455

3,017

At 31 December 2018

85,702

16,472

102,174

Amortisation

 

 

 

At 1 January 2017

6,109

701

6,810

Charge for the year

10,931

2,041

12,972

Exchange difference

(308)

(57)

(365)

At 31 December 2017

16,732

2,685

19,417

Charge for the year

13,282

2,448

15,730

Exchange difference

767

138

905

At 31 December 2018

30,781

5,271

36,052

Carrying amount

 

 

 

At 31 December 2018

54,921

11,201

66,122

At 31 December 2017

49,842

10,156

59,998

 

The method of valuation and subsequent review of the carrying value of intangible assets is outlined in note 3. As part of that subsequent review, triggers for impairment were detected and value in use calculations were performed for the intangible assets relating to the Delorean, IDS Group and Sorato acquisitions. A £55k impairment was recognised in operating expenses, for the Sorato intangibles, stemming from the loss of a small number of existing contracts acquired in the Dutch acquisition. The Delorean and IDS Group intangibles had a value in use which is higher than the current carrying value. The value in use calculations were performed by using the weighted average cost of capital to discount the cash flows. The rates used were 6.7% (2017: 7.7%) for Sanne UK, 15.1% (2017: 14.28%) for Sanne South Africa, 6.9% (2017: 10.43%) for Sanne Netherlands, 7.7% (2017: 8%) for Sanne North America and 10.7% (2017: 13.3%) for Sanne Mauritius, 6.4% for Sanne Luxembourg and 8% for Sanne Spain.

Annual amortisation is recognised in operating expenses.

 

Analyses of the carrying amount of the intangible assets acquired can be found below:

Acquisition

Acquisition date

Amortisation

period end

Carrying

amount

£'000

Contract Intangible

 

 

 

Delorean

1 June 2013

31 May 2020

 1,849

Ariel

1 May 2014

30 April 2021

 526

CCS

1 March 2016

28 February 2023

 543

IDS Group

1 June 2016

31 May 2024

 4,071

FAS

1 November 2016

31 October 2022

 6,494

Sorato

1 December 2016

30 November 2023

 114

IFS Group

1 January 2017

31 December 2022

 27,285

LIS and CP

6 February 2018

31 January 2025

 11,692

AgenSynd

3 September 2018

31 August 2025

 2,347

Total

 

 

 54,921

 

Acquisition

Acquisition date

Amortisation

period end

Carrying

amount

£'000

Customer Intangible

 

 

 

Delorean

1 June 2013

31 May 2023

 525

Ariel

1 May 2014

30 April 2024

 44

CCS

1 March 2016

28 February 2023

 443

IDS Group

1 June 2016

31 May 2024

 1,004

FAS

1 November 2016

31 October 2022

 1,236

Sorato

1 December 2016

30 November 2023

 43

IFS Group

1 January 2017

31 December 2022

 5,184

LIS and CP

6 February 2018

31 January 2023

 1,968

AgenSynd

3 September 2018

31 August 2025

 754

Total

 

 

 11,201

 

18. Equipment                                                                                                                                 

 

Computer

equipment

£'000

Fixtures and

equipment

£'000

Total

£'000

Cost

 

 

 

At 1 January 2017

4,705

3,061

7,766

Additions

1,397

1,057

2,454

Additions through acquisitions

858

1,232

2,090

Disposals

(100)

(489)

(589)

(93)

(146)

(239)

At 31 December 2017

6,767

4,715

11,482

Additions

1,698

6,170

7,868

Additions through acquisitions

373

818

1,191

Disposals

(907)

(1,331)

(2,238)

(19)

57

38

At 31 December 2018

7,912

10,429

18,341

Accumulated depreciation

 

 

 

At 1 January 2017

3,400

1,534

4,934

Charge for the year

1,058

684

1,742

Additions through acquisitions

665

1,115

1,780

Disposals

(88)

(486)

(574)

(87)

(126)

(213)

At 31 December 2017

4,948

2,721

7,669

Charge for the year

516

1,399

1,915

Additions through acquisitions

241

468

709

Disposals

(750)

(1,231)

(1,981)

(2)

58

56

At 31 December 2018

4,953

3,415

8,368

Carrying amount:

 

 

 

At 31 December 2018

2,959

7,014

9,973

At 31 December 2017

1,819

1,994

3,813

As at 31 December 2018 £5.5 million (2017: £4.1 million) of fixed assets is fully depreciated and still in use.

 

19. Subsidiaries

Detailed below is a list of subsidiaries of the Company as at 31 December 2018 which, in the opinion of the Directors, principally affects the profit or the net assets of the Group. All of these subsidiaries are 100% owned by the Group, with 100% of voting power held. They all engage in the provision of alternative asset and corporate administration services. Each subsidiary only has ordinary shares.

Subsidiaries

Country of incorporation

Sanne Capital Markets Ireland Limited

Republic of Ireland

Sanne Fiduciary Services (UK) Limited

England and Wales

Sanne Fiduciary Services Limited

Jersey

Sanne Finance Limited

Jersey

Sanne Financial Management Consulting (Shanghai) Co Ltd

Peoples Republic of China

Sanne Fund Administration Limited

Jersey

Sanne Group (Guernsey) Limited

Guernsey

Sanne Group (Luxembourg) SA

Luxembourg

Sanne Group (UK) Limited

England and Wales

Sanne Group Administration Services (UK) Limited

England and Wales

Sanne Group Asia Limited

Hong Kong

Sanne Holdings Limited

Jersey

Sanne International Limited

Jersey

Sanne (Singapore) PTE. Limited

Singapore

Sanne Trustee Company UK Limited

England and Wales

Sanne Trustee Services Limited

Jersey

Sanne Corporate Administration Services Ireland Limited

Republic of Ireland

Sanne Group U.S. LLC1

United States of America

Sanne Group d.o.o. Beograd

Serbia

Sanne Management Company RF (PTY) Limited

Republic of South Africa

Sanne Fund Services SA (PTY) Limited

Republic of South Africa

Sanne Fund Services Malta Limited

Republic of Malta

Sanne Group Delaware Inc.

United States of America

Sanne Group South Africa (PTY) Limited

Republic of South Africa

Sanne (Mauritius) Limited

Mauritius

Sanne Group (Netherlands) B.V.

Netherlands

SANNE Mauritius

Mauritius

SANNE Trustees (Mauritius)

Mauritius

Sanne (Luxembourg) Holdings Sarl

Luxembourg

Sanne Group Funding Limited

Jersey

 

 

Acquired or incorporated during the year

 

Luxembourg Investment Solutions S.A

Luxembourg

Compliance Partners S.A.

Luxembourg

Sanne (Luxembourg) Holdings 2 Sarl

Luxembourg

AgenSynd S.L.

Spain

AgenSynd Limited

England and Wales

AgenSynd France SAS

France

Sanne Group Services (UK) Limited

England and Wales

 

1 Sanne Group U.S. LLC was formerly known as FLSV Fund Administration Services LLC.

 

20. Trade and other receivables

 

2018
£'000

2017

£'000

Trade receivables

 44,155

 26,911

Allowance for doubtful receivables

 (1,408)

 (945)

 

 42,747

 25,966

Other debtors and prepayments

 4,504

 2,908

Total trade and other receivables

 47,251

 28,874

 

Trade receivables                                                                                                                                           

Trade receivables disclosed above are amounts due from services rendered in the ordinary course of business. At initial measurement, they recognised at fair value and subsequently at amortised cost, using the effective interest method.

The Group considers all receivables over 60 days to be past due.

Receivables as disclosed above include amounts which are past due at the reporting date but against which the Group has not recognised an allowance for doubtful receivables because there are no significant indicators of their irrecoverability.

Two customers across multiple contracting entities represents more than five per cent of the total balance of trade receivables.      

 

 

 

Institutional Clients

13.1%

(2017: 7.6%)

The Directors consider that the carrying value of trade and other receivables is approximately equal to their fair value.

Movement in the allowance for doubtful receivables:

2018
£'000

2017

£'000

Balance at the beginning of the year

 945

522

Recognised through acquisitions

 138

292

Impairment losses recognised

 901

453

Amounts written off during the year as uncollectable

 (261)

(193)

Amounts recovered during the year

 (326)

(129)

FX losses

 11

-

Total allowance for doubtful receivables

 1,408

945

 

The expected credit losses were measured by grouping the trade receivables in a manner that reflects shared credit risk characteristics and days past due. The expected loss rates are based on the payment profiles of the respective trade receivable groups. All impairment losses related to receivables arising from contracts with customers.

 

Expected

loss rate

2018
£'000

<31 days

 0%

 -

31-60 days

 0%

 -

61-90 days

 0%

 -

91-120 days

1%

 57

121-180 days

 0%

 -

180+ days

40%

 1,351

Estimated carrying amount at default

 

1,408

 

Ageing of past due but not impaired receivables:

2018
£'000

2017

£'000

61-90 days

 2,478

1,325

91-120 days

 5,717

2,529

121-180 days

 483

387

180+ days

 1,994

197

Total

 

 10,672

4,438

 

 

Ageing of impaired receivables:

2018
£'000

2017

£'000

<31 days

-

 4

31-60 days

-

 3

61-90 days

-

-

91-120 days

 57

 6

121-180 days

-

-

180+ days

 1,351

 932

Total

 1,408

 945

 

21. Accrued income

 

2018
£'000

2017

£'000

EMEA Alternatives

3,105

509

Asia - Pacific & Mauritius Alternatives

2,559

2,029

North America Alternatives

593

361

Corporate & Private Client

380

197

Balance at 31 December

6,637

3,096

 

22. Net (debt)/cash

 

 

2018
£'000

2017

£'000

Bank loan (see note 26)

 

(85,364)

(64,335)

Trapped cash

(i)

(8,936)

(6,867)

 

32,411

50,803

Total net (debt)/cash

 

(61,889)

(20,399)

The Group had undrawn borrowings at 31 December 2018 of £14.2 million (2017: £35 million). See note 26.

(i) Trapped cash represents the minimum cash balance to be held to meet regulatory capital requirements.

 

23. Operating lease arrangements

 

2018
£'000

2017

£'000

The Group as lessee:

 

 

Total lease payments under operating leases recognised as an expense

5,528

4,056

 

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

 

2018
£'000

2017

£'000

Within one year

5,642

4,050

In the second to fifth years inclusive

18,504

13,556

After five years

36,119

34,896

 

60,265

52,502

Operating lease payments represent rentals payable by the Group for office properties. Leases are negotiated for a variety of terms over which rentals are fixed with break clauses and options to extend for a further period at the then prevailing market rate. Any lease incentives are spread over the term of the lease. The break dates for the lease agreements vary.

 

24. Share capital

 

2018
£'000

2017

£'000

Authorised

 

 

500,000,000 ordinary shares of £0.01 each

5,000

5,000

Called up, issued and fully paid

 

 

145,996,512 (2017: 141,608,934) ordinary shares of £0.01 each

1,460

1,416

2,622,846 Ordinary shares (2% of the issued share capital) are held by Sanne Group Employees' Share Trust ("EBT") (2017: 2,610,246) and have been treated as treasury shares in accordance with IAS 32 Financial Instruments.

At 31 December 2018 the Company held 98,533 (2017: 98,533) treasury shares.

Movements in share capital during the year ended 31 December 2018

£'000

Balance at 1 January 2018

 1,416

Issue of shares:

 

FAS deferred consideration

8

LIS and CP acquisition

30

AgenSynd acquisition

 6

Balance at 31 December 2018

 1,460

(i) The Company issued 795,751 shares as part of the deferred consideration of the FAS acquisition. The Company issued 3,022,841 shares for the LIS and CP acquisition and 568,986 shares for the AgenSynd acquisition.

 

25. Own shares

 

Shares

£'000

 

2018

2017

2018 

2017

EBT

2,622,846

2,610,246

1,470

1,141

Treasury

98,533

98,533

-

-

Total

2,721,379

2,708,779

1,470

1,141

Sanne Group Employees' Share Trust ("EBT")

During the year, the EBT settled commitments under share based payments of 43,281 shares. The EBT also repurchased 55,881 shares during the year from employees.

The remaining shares and cash are held by the trust to fulfil the Group's future obligations under share plans.

Treasury shares                                                                                                                                               

The Company held 98,533 (2017: 98,533) shares in treasury resulting from the repurchases under Restrictive sale Agreements at a total cost of £2.

 

26. Borrowings

At the year end the Group had a loan facility of £100m with HSBC Bank Plc with a final repayment date for any drawn balances of 30 September 2021. This was sub-divided into three sections, a long term loan, a revolving credit facility, that could be drawn down and repaid by the Group at any time, and an accordion facility which was not immediately available but which could be reclassified into the revolving credit facility with the agreement of HSBC.                                                                                                                                 

Covenants, attached to the loan, related to interest cover and leverage. Undrawn funds in the revolving credit facility were charged at 40% of the interest margin whilst undrawn funds in the accordion facility attracted no interest.

Under the terms of the facility, HSBC held a charge against the shares of Sanne Fiduciary Services Limited, Sanne Group (Luxembourg) SA and Luxembourg Investment Solutions SA and in the event of default, may place charges against specific assets of other Group subsidiaries that are party to the facility by virtue of being deemed a Material Company.

 

The balances available and drawn at year end were as follows:                                                                                                                                               

 

2018
£'000

2017

£'000

Available

 

 

Term loan

46,000

46,000

Revolving credit facility

44,000

14,000

Accordion

10,000

40,000

 

100,000

100,000

Drawn

 

 

Term loan

46,000

46,000

Revolving credit facility

39,850

19,000

Accordion

-

-

 

85,850

65,000

Capitalised loan fees

(486)

(665)

Total borrowings

85,364

64,335

 

 

2018
£'000

2017

£'000

Balance at 1 January

64,335

59,518

Redemption of bank loans

(4,000)

(19,000)

New bank loans raised

24,850

24,000

Amortisation for the year

179

125

Capitalised loan fees

-

(308)

Balance at 31 December

85,364

64,335

 

During the year to 31 December 2018, the Group drew down from the revolving credit facility a total of £19.85m relating to acquisitions and £5.0m relating to operating cash flows and also made repayments totalling £4.0m.

£524k of capitalised loan costs were being amortised over the term from 1 November 2016 until the repayment date of 30 September 2021, whilst £283k of capitalised loan costs were being amortised from 28 September 2017 to the same repayment date. Subsequent to the year end the capitalised loan costs will be reassessed in accordance to IFRS 9, as the facility was settled in full as part of the refinancing disclosed in note 37, post balance sheet events.

 

27. Deferred taxation

The deferred taxation recognised in the financial statements is set out below:

 

2018
£'000

20171

Restated

£'000

Deferred tax asset

2,082

1,042

Deferred tax liability

(13,395)

(8,972)

 

(11,313)

(7,930)

 

The deferred tax at year end is made up as follows:      

 

2018
£'000

20171

Restated

£'000

Intangible assets

(10,692)

(2,642)

Other timing differences

(621)

(5,288)

 

(11,313)

(7,930)

 

 

The movement in the year is analysed as follows:          

 

2018
£'000

20171

Restated

£'000

Balance at 1 January

(7,930)

(2,288)

Recognised through acquisitions

(5,162)

(6,793)

Income statement

2,045

1,134

Other comprehensive income

(11)

12

Foreign exchange

(255)

5

Balance at 31 December

(11,313)

(7,930)

1 Refer to note 15 for details of the prior year restatement.

Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so.

 

28. Trade and other payables

 

 

2018
£'000

2017

£'000

Trade creditors

 

287

555

Other payables

 

1,482

1,320

Other taxes and social security

 

2,834

1,610

Accruals

 

5,536

4,878

(i)

24,328

159

Total trade and other payables

 

34,467

8,522

(ii)

4,914

-

Total other liabilities

 

4,914

-

Trade creditors, other payables and accruals principally comprise of amounts outstanding for trade purchases and ongoing costs. The Directors consider the carrying value of the trade and other payables to approximate to their fair value.

(i) Deferred consideration relates to the LIS acquisition.

(ii) Other liabilities relate to the non-current liability recognised for lease incentives received.

 

29. Provisions

 

 

2018
£'000

2017

£'000

Balance at 1 January

 

506

353

Provisions utilised during the year

 

(60)

-

Recognised through acquisitions

 

180

-

Provisions grossed up

(i)

1,030

-

Movement through profit and loss

 

-

153

 

(6)

-

Balance at 31 December

 

1,650

506

The provision carried relates to dilapidations for the property leases and will be utilised upon the dismantling of the fixtures in the properties leased, which is expected to occur at the end of a rental agreement. The rental agreements span anywhere from 1 year to 24 years. A best estimate of the dismantling costs was made, however the final costs will be determined based on the state of the property and the work required.

(i)The provision was previously raised over the life of the lease, this was changed in the current year to recognise the full provision at the start of the lease with a corresponding asset which is then released to the profit and loss during the life of the lease.

 

30. Deferred revenue

 

2018
£'000

2017

£'000

EMEA Alternatives

9,935

6,903

Asia - Pacific & Mauritius Alternatives

4,469

4,009

North America Alternatives

42

10

Corporate & Private Client

1,889

1,928

Balance at 31 December

16,335

12,850

 

31. Business combinations

Luxembourg Investment Solutions S.A and Compliance Partners S.A

On 6 February 2018 the Group acquired 100% of the issued share capital of Investment Solutions S.A. and Compliance Partners S.A., these entities are incorporated in Luxembourg.

This acquisition provides the Group with an opportunity to expand its platform in Luxembourg, enhance the Group's new funds proposition in Dublin and grow its existing EMEA operations.

The consideration for the acquisition is satisfied through a total payment of approximately £60.2 million (€67 million) in cash during 2018 and 2019, and the issuance of 3,022,841 shares.

 

 

EUR

'000

GBP

'000

Recognised amounts of identifiable net assets (at fair value):

 

 

 

Non-current assets

Useful economic life

 

 

Equipment

3 - 5 years

426

378

Customer & contract intangibles

5 years

18,616

16,527

 

 

19,042

16,905

Current assets

 

 

 

Trade and other receivables

 

2,117

1,879

Cash and cash equivalents

 

3,983

3,536

Accrued income

 

4,143

3,678

 

 

10,243

9,093

Current liabilities

 

 

 

Trade and other payables

 

2,425

2,153

Current tax liabilities

 

1,163

1,032

Deferred revenue

 

74

66

 

 

3,662

3,251

Non-current liabilities

 

 

 

Deferred tax liabilities

 

4,842

4,299

 

 

4,842

4,299

Identifiable net assets

 

20,781

18,448

 

 

 

 

Goodwill

 

75,868

67,572

Total consideration

 

96,649

86,020

 

 

 

 

Total consideration satisfied by:

 

 

 

Cash consideration - on acquisition

 

29,878

26,525

Equity instruments - ordinary shares (5,844,507 shares in Sanne Group plc)

 

13,923

12,361

Deferred consideration

 

52,848

47,134

Fair value of consideration payable at acquisition date

 

96,649

86,020

Net cash outflow arising on acquisition:

 

 

 

Cash consideration

 

29,878

26,525

Less: cash and cash equivalent balances acquired

 

(3,983)

(3,536)

Net cash outflow arising on acquisition:

 

25,895

22,989

 

Fair value of consideration                                                                                                                                        

The shares were valued based on the closing share price the day before reissuance with this amount appropriately allocated between share capital and share premium.

Included in the deferred consideration is contingent consideration of £24.3 million (€27 million). The contingent consideration is payable in 2019 and based on a multiple 2018 EBITDA for the acquired entities.

Transaction costs                                                                                                                                            

The Group incurred £117k of acquisition and integration expense in 2018, these costs have been expensed within operating expenses in this financial period and have further been identified as non-underlying as detailed in note 9.

Goodwill                                                                                                                                            

Goodwill is represented by assets that do not qualify for separate recognition or other factors. These include the opportunities for new business wins from new customers, the effects of an assembled workforce and synergies from combining operations of the acquiree and the acquirer. Goodwill is not tax deductible.

Trade and other receivables                                                                                                                                      

The fair value of the financial assets acquired includes trade and other receivables with a fair value of £1.88 million. The gross amount receivable is £1.6 million of which £0.02 million is expected to be uncollectible.

Effect on the results                                                                                                                                      

Luxembourg Investment Solutions and Compliance Partners contributed £16.1 million of revenue and a net profit for the year of £5.2 million to the Group's profit for the period between the date of acquisition and the balance sheet date. If the business had been acquired at 1 January 2018 on a pro rata basis the Group revenue for the period would have been £144.5 million (£1.5 million higher) and net profit for the year £19.8 million (£0.4 million higher).

AgenSynd S.L

On 14 August 2018, the Group entered into a conditional agreement to acquire 100% of the issued share capital of AgenSynd S.L. AgenSynd has entities in Spain, the United Kingdom and France. The acquisition provides the Group with an opportunity to expand its platform in Spain and its existing EMEA operations and completed on 3 September 2018.

The consideration for the acquisitions was satisfied through payments of approximately £6.7 million (EUR 7.4 million) in cash, and the issuance of 568,986 consideration shares.

 

 

 

EUR

'000

GBP

'000

Recognised amounts of identifiable net assets (at fair value):

 

 

 

Non-current assets

Useful economic life

 

 

Equipment

3 - 7 years

115

104

Customer & contract intangibles

7 years

3,625

3,269

 

 

3,740

3,373

Current assets

 

 

 

Trade and other receivables

 

133

119

Cash and cash equivalents

 

460

415

 

 

593

534

Current liabilities

 

 

 

Trade and other payables

 

247

223

Current tax liabilities

 

165

150

Deferred revenue

 

961

867

 

 

1,373

1,240

Non-current liabilities

 

 

 

Deferred tax liability

 

960

863

 

 

960

863

Identifiable net assets

 

2,000

1,804

 

 

 

 

Goodwill

 

9,318

8,404

Total consideration

 

11,318

10,208

 

 

 

 

Total consideration satisfied by:

 

 

 

 Cash consideration - on acquisition

 

7,434

6,705

 Equity instruments - ordinary shares (568,986 shares in Sanne Group plc)

 

3,884

3,503

Fair value of consideration payable at acquisition date

 

11,318

10,208

 

 

 

 

Net cash outflow arising on acquisition:

 

 

 

Cash consideration

 

7,434

6,705

Less: cash and cash equivalent balances acquired

 

(460)

(415)

Net cash outflow arising on acquisition:

 

6,974

6,290

 

Fair value of consideration                                                                                                                                        

The shares were valued based on the closing share price the day before issuance with this amount appropriately allocated between share capital and share premium.

Transaction costs                                                                                                                                            

The Group incurred £971k of acquisition and integration expense in 2018, these costs have been expensed within operating expenses in this financial period and have further been identified as non-underlying as detailed in note 9. Due to the legal form of the deferred consideration on this deal there are also additional payments to be made estimated at £3.2 million which are treated as ongoing remuneration of key management personnel and being expensed over this and future accounting periods, £564k has been expensed for this in this financial period, these have been shown in Operating expenses and further identified as non-underlying as detailed in note 9.

Trade and other receivables                                                                                                                                      

The fair value of the financial assets acquired includes trade and other receivables with a fair value of £119k. The gross amount receivable is £170k of which £130k is expected to be uncollectible.

Goodwill                                                                                                                                            

Goodwill is represented by assets that do not qualify for separate recognition or other factors. These include the opportunities for new business wins from new customers, the effects of an assembled workforce and synergies from combining operations of the acquiree and the acquirer. Goodwill is not tax deductible.

Effect on the results                                                                                                                                      

AgenSynd contributed £1.1 million of revenue and a profit for the year of £0.4 million, excluding acquisition costs regarded as non-underlying, for the period between the date of acquisition and the balance sheet date. If the business had been acquired at 1 January 2018 on a pro rata basis the Group revenue for the period would have been £145.3 million (£2.3 million higher) and net profit for the year of £20.2 million (£0.8 million higher, if non-underlying acquisition costs are excluded).

 

32. Share based payments

 

2018
£'000

2017

£'000

Sanne Group plc

 

 

 Employee Share Gift award

-

-

 Performance Share Plan

1,192

912

Restricted Stock Awards

2,184

2,015

Total share based payments

3,376

2,927

 Employee Shares settled from Employee Benefit Trust

(23)

(35)

Net share based payments

3,353

2,892

 

Sanne Group plc                                                                                                                                             

Performance Share Plan                                                                                                                                              

During the current and prior years the Group granted awards over its ordinary shares under the terms of its Performance Share Plan ("PSP"). The exercise of awards under the PSP is conditional upon the achievement of one or more challenging performance targets set at the time of the grant and measured over a three year performance period from grant date. All the awards were granted for nil consideration.

Management estimate the number of shares to be vested based on the performance targets set to be achieved and the current performance of the Group, this is then grown by 13% as per market expectation to determine the probable performance at vesting date.

A summary of the rules for this scheme and the related performance conditions are set out in the Remuneration report.

Restricted Stock Awards                                                                                                                                              

During the current and prior years the Group granted awards over its ordinary shares in the form of Restrictive Stock Awards ("RSA"). The awards are granted as part of the mechanics of an acquisition to act as retentions for staff. The vesting of the awards is subject to continued employment over an agreed period. All the awards were granted for nil consideration.

The number and weighted average exercise prices of share based payment awards are as follows:

 

 

 

Number of shares

 

2018

Number of shares

 

2017

Performance share plan

 

 

 

 

Outstanding at 1 January

 

 

1,229,280

 757,787

Granted during the year

 

 

 326,289

 535,413

Forfeited during the year

 

 

 (142,539)

 (63,920)

Outstanding at 31 December

 

 

 1,413,030

 1,229,280

Restricted Stock Awards

 

 

 

 

Outstanding at 1 January

 

 

1,355,554

 935,302

Granted during the year

 

 

 386,138

 544,210

Forfeited during the year

 

 

 (151,413)

 (32,862)

Vested during the year

 

 

 (43,281)

 (91,096)

Outstanding at 31 December

 

 

 1,546,998

 1,355,554

 

The fair value of services received in return for share awards granted are measured by reference to the fair value of the shares granted. The RSA scheme has vesting dates from 2019 to 2023, the PSP scheme has vesting dates between 2019 and 2021.

Shares to be issued comprised of the following:             

 

2018
£'000

2017

£'000

Balance at 1 January

 13,373

 13,867

New share plans for employees

 2,948

 1,969

FAS acquisition - deferred consideration settled

 (4,043)

(2,463)

Balance at 31 December

 12,278

 13,373

 

33. Long term employee benefits

Defined contribution plan                                                                                                                                          

The Group participates in various defined contribution pension plans, to which it makes monthly contributions in specific jurisdictions. The total contributions during the year were £451k (2017: £240k).

Defined benefit obligation                                                                                                                                        

The Group has a defined benefit obligation in respect of the Mauritius Employment Rights Act 2008 ("the Act"). In terms of the act in Mauritius, an employer is obligated to pay a lump sum to the employee upon retirement in proportion to the years of service employed at the company.

The Group has no specific assets to cover the obligation as it is all self-funded by the Group.

The Group recognised a net defined benefit liability of £701k (2017: £718k) on the Balance sheet in respect of amounts that are expected to be paid out to employees under the Act.

The most recent actuarial valuation of the defined benefit liability was carried out at 31 December 2018 by the State Insurance Company of Mauritius.

 

2018
£'000

2017

£'000

Present value of defined benefit at the beginning of the year

718

-

Liability at acquisition of IFS Group

-

560

Amounts recognised in Income Statement

 

 

- Current service cost

 48

 66

- Net interest expense

 48

 33

Amounts recognised as Other Comprehensive Income

 

 

- Actuarial (gain)/loss on defined benefit obligation

 (70)

 83

Direct benefits paid

 (85)

-

FX gain

 42

 (24)

Present value of defined benefit obligation at 31 December

701

718

 

The plan is exposed to actuarial risks such as interest rate risk and salary risk.

The cost of providing the benefits is determined using the Projected Unit Method. The principal assumptions used for the purpose of actuarial valuation were as follows:                                                                                                                                               

 

2018
£'000

2017

£'000

Discount rate1

6.6%

5.5%

Future salary increases

3%

3%

Future pension increases

3%

3%

Withdrawal rate

17%

15%

Retirement age

65 years

60 years

1 The discount rate is determined by reference to market yields on bonds.

 

Significant actuarial assumptions for determination of the defined benefit obligation are discount rate and expected salary increase. The sensitivity analyses below have been determined based reasonably on possible changes of the assumptions occurring at the end of the reporting period.         

 

 

2018
£'000

2017

£'000

Increase due to 1% decrease in discount rate

 115

 124

Decrease due to 1% increase in discount rate

 89

 99

Increase due to 1% increase in future salary increases

 157

 158

Decrease due to 1% decrease in future salary increases

 123

 127

Weighted average duration of the defined benefit obligation (years)

 16.3 years

 17.3 years

 

34. Financial instruments

The Group's financial instruments comprise of bank loans, cash and cash equivalents, trade payables, other payables, trade receivables and other receivables.

Categories of financial instruments

 

Level

2018
£'000

2017

£'000

Financial assets

 

 

 

 

Financial assets recorded at amortised cost

 

 

 

 

Cash and bank balances

 

1

32,411

50,803

Trade and other receivables

(i)

3

49,384

29,062

Financial liabilities

 

 

 

 

Financial liabilities recorded at amortised cost

 

 

 

 

Bank loan

 

1

85,364

64,335

Trade and other payables

(ii)

3

7,305

6,753

(i) Includes Accrued income but excludes Other debtors and prepayments.

(ii) Excludes Other taxes and social security and deferred consideration but includes accrued interest payable.

The fair value measurement of the Group's financial and non-financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the 'fair value hierarchy'):

Level 1: Quoted prices in active markets for identical items;

Level 2: Observable direct or indirect inputs other than Level 1 inputs; and

Level 3: Unobservable inputs, thus not derived from market data.

The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognised in the period they occur.

Capital risk management                                                                                                                                            

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to shareholders through the optimisation of the debt and equity balance. The managed capital refers to the group's debt and equity balances.

As disclosed in note 26, the Group has a loan which requires it to meet cash flow, leverage and interest cover covenants. In order to achieve the Group's capital risk management objective, the Group aims to ensure that it meets financial covenants attached to borrowings. Breaches in meeting the financial covenants would permit the lender to immediately call the loan.

In line with the loan agreement the Group tests compliance with the financial covenants on a quarterly basis and considers the results in making decisions affecting dividend payments to shareholders or issue of new shares.

Individual regulated entities within the Group are subject to regulatory requirements to ensure adequate capital and liquidity to meet local requirements in Jersey, UK, Guernsey, Ireland, Netherlands, Luxembourg and South Africa, which are monitored monthly to ensure compliance. There have been no breaches of applicable regulatory requirements during the year or at year end.

Financial risk management objectives                                                                                                                                  

The financial risk management policies are discussed by the management of the Group on a regular basis to ensure that these are in line with the overall business strategies and its risk management philosophy. Management sets policies which seek to minimise the potential adverse effects affecting the financial performance of the Group. Management provides necessary guidance and instructions to the employees covering specific areas, such as market risk (foreign exchange and interest rate risk), credit risk, liquidity risk, and in investing excess cash. The Group does not hold or issue derivative financial instruments for speculative purposes.

Market risk                                                                                                                                        

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, 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 exposures within acceptable parameters, while optimising the return.

Interest rate risk management                                                                                                                                 

The Group is exposed to interest rate risk as entities in the Group borrow funds at floating interest rates, the interest rates are directly linked to the LIBOR plus a margin based on the leverage ratio of the Group, the higher the leverage ratio the higher the margin on the LIBOR. The risk is managed by the Group maintaining an appropriate leverage ratio and through this ensuring that the interest rate is kept as low as possible.

The Group's exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.

Interest rate sensitivity analysis

The sensitivity analysis below has been determined based on the floating rate liabilities.

The Group considers a reasonable interest rate movement in LIBOR to be 25 basis points based on historical changes to interest rates. If interest rates had been higher/lower by 25 basis points and all other variables were held constant, the Group's profit for the year ended 31 December 2018 would decrease/increase by £229k (2017: £172k).

Foreign currency risk management                                                                                                                                        

The Group manages exposure to foreign exchange rates by carrying out the majority of its transactions in the functional currency of the Group company in the jurisdiction in which it operates. The Group entities maintain assets in foreign currencies sufficient for regulatory capital purposes in each jurisdiction. The Group continues to appraise the potential impacts of the United Kingdom's referendum on EU membership ("Brexit"), the volatility of the Sterling is due to the uncertainties around the effect it might have but the Group's strong momentum and diverse geographic presence, as well as the favourable underlying trends in the markets in which we operate, give the Directors confidence in the continued management of the possible Brexit effect. The carrying amounts of the Group's material foreign currency denominated monetary assets and monetary liabilities are as follows:

 

Assets

Liabilities

 

2018
£'000

2017

£'000

2018
£'000

2017

£'000

Euro1

29,846

30,931

324

256

United States Dollar

18,261

16,442

8

1,130

South African Rand

2,410

2,106

(2)

1,031

 

50,517

49,479

330

2,417

1 Included in the Euro exposure at 31 December 2017 is £21.2 million cash for the LIS Group acquisition which completed on 6 February 2018 (note 31).

Where considered necessary the Group will manage its foreign currency risk through hedging arrangements. A foreign currency contract was entered into during the prior year to buy Euro for the LIS acquisition, this contract was closed during the year.

Foreign currency risk management sensitivity analysis

The principal currency of the Group's financial assets and liabilities is Pounds Sterling. The Group, however, does own trading subsidiaries based in the United States of America, South Africa, Mauritius, Asia and Europe which are denominated in a currency other than the principal currency. The Group therefore faces currency exposures.

The following table illustrates management's assessment on the foreign currency impact on the year-end balance sheet and presents the possible impact on Group's total comprehensive income for the year and net assets arising from potential changes in the Euro, United States Dollar or South African Rand exchange rates, with all other variables remaining constant. A strengthening or weakening of Sterling by 20% is considered an appropriate variable for the sensitivity analysis given the scale of foreign exchange fluctuations over the last two years.

 

 

Effect on Group comprehensive income and net assets

 

 

Strengthening / (weakening) of Sterling

 

2018

£'000

2017

£'000

 

Euro

+20%

(5,904)

(6,135)

 

United States Dollar

+20%

(3,650)

(3,062)

 

South African Rand

+20%

(482)

(215)

 

Euro

(20%)

4,920

5,113

 

United States Dollar

(20%)

3,042

2,552

 

South African Rand

(20%)

402

179

 

 

Credit risk management                                                                                                                                              

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group's principal exposure to credit risk arises from the Group's receivables from clients.

Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. The carrying amount of financial assets recorded in the historical financial information, which is net of impairment losses, represents the Group's maximum exposure to credit risk as no collateral or other credit enhancements are held.

The group manages credit risk by review at take-on around:

 

·   Risk of insolvency or closure of the customer's business.

·   Customer liquidity issues; and

·   General creditworthiness, including past default experience of the customer, and customer types.

 

The credit risk on liquid funds and borrowings is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

Liquidity risk management                                                                                                                                        

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk to maintain adequate reserves by regular review around the working capital cycle using information on forecast and actual cash flows.

Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity management requirements. Regulation in most jurisdictions also requires the Group to maintain a level of liquidity so the Group does not become exposed.

The Group manages liquidity risk to maintain adequate reserves by regular reporting around the working capital cycle using information on forecast and actual cash.

Liquidity and interest risk tables                                                                                                                                             

The following tables detail the Group's remaining contractual maturity for its financial liabilities with agreed repayment years. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rates at the balance sheet date. The contractual maturity is based on the earliest date on which the Group may be required to pay.

 

< 3 months

£'000

3-12 months

£'000

1-5 years

£'000

> 5 years

£'000

Total

£'000

31 December 2018

 

 

 

 

 

Bank loans (i)

524

1,562

89,498

-

91,584

Trade payables and accruals (ii)

10,069

-

-

-

10,069

Provisions

506

-

-

-

506

 

 11,099

 1,562

 89,498

-

 102,159

31 December 2017

 

 

 

 

 

Bank loans (i)

325

969

68,553

-

69,847

Trade payables and accruals (ii)

8,251

-

-

-

8,251

Provisions

353

-

-

-

353

 

 8,929

 969

 68,553

-

 78,451

 For the purpose of the above liquidity risk analysis the amortised value has been adjusted for:

(i) The future interest payments not yet accrued and the repayment of capital upon maturity.

(ii) The accrued bank loan interest payable at the balance sheet date.

Fair value of financial instruments                                                                                                                                         

The directors consider that the carrying amounts of financial assets and financial liabilities in the historical financial information approximate their fair values.

 

35. Contingent liability

The Group operates in a number of jurisdictions and enjoys a close working relationship with all of its regulators. The Group is continuing in discussions with the regulator of one of its subsidiaries in relation to past events. With any such discussions there is inherent uncertainty in the ultimate outcome but the Board currently believe these discussions are unlikely to result in any outcome that would have a material impact on the Group.

 

36. Related party transactions

The Group's significant related parties are key management personnel, comprising all members of the plc Board and the Executive Committee who are responsible for planning and controlling the activities of the Group.

Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its associates are disclosed below:

 

2018
£'000

2017

£'000

Consulting services - 10PA Solutions Limited

 337

 -

Consulting services - 10PA Investments Limited

 100

 -

 

 437

 -

 

10PA Solutions Limited and 10PA Investments Limited are related parties of the Group as these entities are owned by one of the key management personnel. During the first quarter of the year the member of key management personnel was remunerated through 10PA Investments Limited for consultancy services provided and 10PA Solutions Limited was engaged with a Group company for the provision of temporary consultancy services at arm's length basis. The Group terminated its trading relationship with both companies on the individual ceasing to work with the Group as a consultant and becoming a full-time member of staff from April 2018.

The remuneration of any employee who met the definition of key management personnel of the Group at the end of the period is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures for the period they served as key management personnel.

 

2018
£'000

2017

£'000

Short-term employee benefits

2,789

2,278

Share based payments (see note 32)

573

549

Total short term payments

3,362

2,827

Key management personnel in their capacity as shareholders also receive dividends from the Group when declared, this is the same for all shareholders.

Other than the items listed above, the Group has not entered into any material transactions with related parties since the last annual report.

 

37. Post balance sheet events

On 1 March 2019, the Group refinanced the loan facility and repaid the existing loan in full. The balance of the unamortised loan costs were also written off.

The new loan facility is for £150m with a consortium of five banks, headed by HSBC Bank Plc as agent, and has a final repayment date of 28 February 2023. The new loan is now structured solely as a revolving credit facility that can be drawn down and repaid by the Group at any time. On 1 March 2019, £88m was drawn down against this new facility to repay the existing facility and the banks' fees.

There has been no change in the definitions of the covenants that monitor interest cover and leverage and no change to the charges held by HSBC against the shares of certain group companies as described in note 26.

                                                                                                                                               

 

 

 

 


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