TIDMSNN
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.
Constant
currency
2018 2017(1) Change change(3)
Revenue GBP143.0m GBP113.2m 26.4% 27.2%
---------- ---------- --------- -----------
Underlying(2)
---------- ---------- --------- -----------
Operating profit GBP44.4m GBP38.8m 14.4% 15.6%
---------- ---------- --------- -----------
Profit before tax GBP42.6m GBP38.1m 11.8% 12.6%
---------- ---------- --------- -----------
Diluted earnings per share(4) 24.1p 22.2p 8.6% 9.7%
---------- ---------- --------- -----------
Statutory
---------- ---------- --------- -----------
Operating profit GBP25.6m GBP23.1m 10.8% 11.0%
---------- ---------- --------- -----------
Profit before tax GBP23.7m GBP22.4m 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: GBP1.2m), share based
payments where linked to acquisitions (2018: GBP1.8m) and
amortisation of intangible assets (2018: GBP15.7m). 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 GBP24.5 million secured in 2018 (2017: GBP20.9
million)
- Strong performance for the year within the Group's
closed-ended Alternatives and Corporate Businesses (86% of Group
revenues):
o EMEA and North America Alternatives segments delivered organic
growth of 16.3%(3) and 16.1%(3) respectively
o 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 LIS(5) , CP(5) and AgenSynd are progressing well
- Successful refinancing of the Group's debt facilities
increasing total committed facility to GBP150 million with a GBP70
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 GBP240
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 GBP143.0 million
(2017: GBP113.2m), 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 GBP25.6 million (2017:
GBP23.1m) whilst underlying operating profit grew by 14.4% to
GBP44.4 million (2017: GBP38.8m). Underlying profit before tax
increased by 11.8 % to GBP42.6 million (2017: GBP38.1m). Profit
before tax was GBP23.7 million (2017: GBP22.4m). 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 16(th) 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
% constant
currency
GBP'm 2018 2017 % Change change(2)
----------------------------- ------- ------- --------- -----------
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
Profit(1) 44.5 38.8 14.5% 15.6%
Underlying Operating
Profit margin(1) 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 GBP24.5 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 EUR8.3
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
% constant
EMEA Alternatives currency
(GBP'm) 2018 2017 % Change 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
% constant
APM Alternatives currency
(GBP'm) 2018 2017 % Change 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
% constant
currency
NA Alts (GBP'm) 2018 2017 % Change 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
% constant
currency
CPC (GBP'm) 2018 2017 % Change 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 GBP143.0 million (2017: GBP113.2 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.
% constant
currency
GBP'm 2018 2017 % Change 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
% constant
currency
GBP'm 2018 2017 % Change 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 GBP88.3m (2017: GBP72.5m), 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 GBP44.1m (2017: GBP33.8m), 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
GBP18.9 million (2017: GBP15.7m). 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 GBP44.4 million, which
represented constant currency growth of 11.0% (11.5% at actual
currency) on GBP38.8 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 GBP1.8 million (2017: GBP1.0 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 GBP8.9
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 GBP1.6 million to GBP2.2 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 Revised calculation Variance
of APM of APM
GBP'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 GBP255.1 million (2017: GBP167.3
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 GBP34.9 million (2017:
GBP37.6 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
GBP43.7 million (2017: GBP74.3 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 GBP33 million (2017: GBP16.2
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 GBP34.5 million (2017: GBP8.5
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 GBP53.0 million at 31 December
2018 (2017: GBP13.5 million), GBP61.9 million (2017: GBP20.4
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 GBP32.4 million (2017: GBP50.8 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
GBP150 million revolving credit facility with an uncommitted
accordion facility of GBP70 million which replaces the existing
GBP90 million committed term loan and revolving credit facility and
GBP10 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
GBP0.9 million, GBP0.5 million and GBP0.4 million respectively.
At 31 December Annual average
----------------- -----------------
Per GBP 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.
GBP40m and liabilities to increase by c. GBP44.9m;
-- 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. GBP1m 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
2017(1)
2018 Restated
Notes GBP'000 GBP'000
------------------------------------------------ ------ --------- ----------
Revenue 6 143,003 113,168
Direct costs (54,655) (40,711)
------------------------------------------------ ------ --------- ----------
Gross profit 5 88,348 72,457
------------------------------------------------ ------ --------- ----------
Other operating income 158 179
Operating expenses (62,941) (49,494)
------------------------------------------------ ------ --------- ----------
Operating profit 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)
Finance income 8 156 111
------------------------------------------------ ------ --------- ----------
Profit before tax 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
------------------------------------------------ ------ --------- ----------
Tax 10 (5,506) (4,274)
------------------------------------------------ ------ --------- ----------
Profit for the year 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
2017(1)
2018 Restated
Notes GBP'000 GBP'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:
Exchange differences on translation of foreign
operations 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
2017(1)
2018 Restated
Notes GBP'000 GBP'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
Deferred tax asset 27 2,082 1,042
------------------------------- ------ --------- ----------
Total non-current assets 267,105 172,124
------------------------------- ------ --------- ----------
Current assets
Trade and other receivables 20 47,251 28,874
Cash and bank balances 32,411 50,803
Accrued income 21 6,637 3,096
------------------------------- ------ --------- ----------
Total current assets 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)
------------------------------- ------ --------- ----------
Total equity 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
Other liabilities 28 4,914 -
------------------------------- ------ --------- ----------
Total non-current liabilities 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
Deferred revenue 30 16,335 12,850
------------------------------- ------ --------- ----------
Total current liabilities 56,362 24,184
------------------------------- ------ --------- ----------
Total equity and liabilities 353,404 254,897
------------------------------- ------ --------- ----------
(1) Refer 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
Shares
Share Share Own to be Retranslation Retained Total
capital premium shares issued reserve losses(1) equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 error(1) - - - - 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
-------------------------- ------ --------- --------- --------- --------- -------------- ----------- ---------
(1) Refer to note 15 for details of the prior year
restatement.
Consolidated Cash Flow Statement
For the year ended 31 December 2018
2018 2017
Notes GBP'000 GBP'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
Lease incentives received 1,267 -
-------------------------------------------------- ------ --------- ---------
Operating cash flows before movements in working
capital 49,320 41,070
-------------------------------------------------- ------ --------- ---------
Increase in receivables (16,241) (4,262)
Decrease in deferred revenue 2,552 1,441
Decrease in payables (701) (698)
-------------------------------------------------- ------ --------- ---------
Cash generated by operations 34,930 37,551
Income taxes paid (7,312) (6,301)
-------------------------------------------------- ------ --------- ---------
Net cash from operating activities 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)
Acquisition of subsidiaries 31 (29,279) (68,543)
-------------------------------------------------- ------ --------- ---------
Net cash used in investing activities (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)
New bank loans raised 26 24,850 24,000
-------------------------------------------------- ------ --------- ---------
Net cash from/(used in) financing activities 413 (11,719)
-------------------------------------------------- ------ --------- ---------
Net decrease in cash and cash equivalents (19,720) (57,112)
-------------------------------------------------- ------ --------- ---------
Cash and cash equivalents at beginning of year 50,803 108,673
Effect of foreign exchange rate changes 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 GBP44.9 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 GBP16.5 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 GBP3.3 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 GBP1.6 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 GBP6.6 million, the irrecoverability of 15% of this balance
will result in an impairment charge of GBP990k.
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 GBP1.2 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 GBP185k 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.
Direct Gross
Revenue costs profit
For the year ended 31 December 2018 GBP'000 GBP'000 GBP'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
Corporate & Private Client 19,168 (7,235) 11,933
--------------------------------------- --------- --------- ---------
Total 143,003 (54,655) 88,348
--------------------------------------- --------- --------- ---------
Other operating income 158
Operating expenses (62,941)
--------------------------------------- --------- --------- ---------
Operating profit 25,565
--------------------------------------- --------- --------- ---------
Direct Gross
Revenue costs profit
For the year ended 31 December 2017 GBP'000 GBP'000 GBP'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
Corporate & Private Client 19,377 (7,078) 12,299
--------------------------------------- --------- --------- ---------
Total 113,168 (40,711) 72,457
--------------------------------------- --------- --------- ---------
Other operating income 179
Operating expenses (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 2017
GBP'000 GBP'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
2018 2017
Disaggregation of revenue from contracts with customers GBP'000 GBP'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
--------------------------------------------------------- --------- ---------
2018 2017
Timing of revenue recognition GBP'000 GBP'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 2017
GBP'000 GBP'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 2017
GBP'000 GBP'000
---------------------------------- --------- ---------
Interest income on bank deposits 156 111
---------------------------------- --------- ---------
Total finance income 156 111
---------------------------------- --------- ---------
9. Non-underlying items
2018 2017
Notes GBP'000 GBP'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 GBP1.4 million of acquisition and
integration expenditure during the current year and GBP1.4 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
2017(1)
2018 Restated
GBP'000 GBP'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 2017
GBP'000 GBP'000
------------------------------------------------------------ --------- ---------
Deferred tax: GBP'000 GBP'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:
2017(1)
2018 Restated
GBP'000 GBP'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 rate(2) 2,159 926
Deferred tax not recognised - taxable losses(3) 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.
2017(1)
2018 Restated
GBP'000 GBP'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
2017(1)
2018 Restated
GBP'000 GBP'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 2017
GBP'000 GBP'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 2017
GBP'000 GBP'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 2017
GBP'000 GBP'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 2017
Pence Pence
per share 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:
(Audited) (Restated)
12 Months 12 Months
to to
Increase/
31 Dec (Decrease) 31 Dec
Consolidated Income Statement (extract) 2017 GBP'000 GBP'000 2017 GBP'000
------------------------------------------------------- --------------- ------------ ---------------
Tax 4,277 (3) 4,274
Basic EPS 13.1 - 13.1
Diluted EPS 12.7 - 12.7
Underlying basic EPS(1) 24.4 (1.6) 22.8
Underlying diluted basic EPS(1) 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)
Retranslation reserve (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 GBP'000
--------------------------- --------
At 1 January 2017 55,094
IFS Group acquisition 61,343
Exchange differences (9,166)
--------------------------- --------
At 31 December 2017(1) 107,271
--------------------------- --------
LIS and CP acquisition(2) 67,572
AgenSynd acquisition(2) 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:
Carrying
Goodwill value GBP'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 Customer Total
GBP'000 GBP'000 GBP'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
GBP55k 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:
Carrying
Acquisition Amortisation amount
Acquisition date period end GBP'000
--------------------- ----------------- ----------------- ---------
Contract Intangible
Delorean 1 June 2013 31 May 2020 1,849
Ariel 1 May 2014 30 April 2021 526
28 February
CCS 1 March 2016 2023 543
IDS Group 1 June 2016 31 May 2024 4,071
FAS 1 November 2016 31 October 2022 6,494
30 November
Sorato 1 December 2016 2023 114
31 December
IFS Group 1 January 2017 2022 27,285
LIS and CP 6 February 2018 31 January 2025 11,692
3 September
AgenSynd 2018 31 August 2025 2,347
--------------------- ----------------- ----------------- ---------
Total 54,921
----------------------------------------------------------- ---------
Carrying
Acquisition Amortisation amount
Acquisition date period end GBP'000
--------------------- ----------------- ----------------- ---------
Customer Intangible
Delorean 1 June 2013 31 May 2023 525
Ariel 1 May 2014 30 April 2024 44
28 February
CCS 1 March 2016 2023 443
IDS Group 1 June 2016 31 May 2024 1,004
FAS 1 November 2016 31 October 2022 1,236
30 November
Sorato 1 December 2016 2023 43
31 December
IFS Group 1 January 2017 2022 5,184
LIS and CP 6 February 2018 31 January 2023 1,968
3 September
AgenSynd 2018 31 August 2025 754
--------------------- ----------------- ----------------- ---------
Total 11,201
----------------------------------------------------------- ---------
18. Equipment
Fixtures
Computer and
equipment equipment Total
GBP'000 GBP'000 GBP'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)
Exchange differences (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)
Exchange differences (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)
Exchange differences (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)
Exchange differences (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 GBP5.5 million (2017: GBP4.1 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) Peoples Republic
Co Ltd 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 Republic of Ireland
Limited
Sanne Group U.S. LLC(1) 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 2017
GBP'000 GBP'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.
(2017:
Institutional Clients 13.1% 7.6%)
----------------------- ------ -------
The Directors consider that the carrying value of trade and
other receivables is approximately equal to their fair value.
2018 2017
Movement in the allowance for doubtful receivables: GBP'000 GBP'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 2018
loss rate GBP'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
-------------------------------------- ----------- ---------
2018 2017
Ageing of past due but not impaired receivables: GBP'000 GBP'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
-------------------------------------------------- --------- ---------
2018 2017
Ageing of impaired receivables: GBP'000 GBP'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 2017
GBP'000 GBP'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 2017
GBP'000 GBP'000
--------------------------------- ----- --------- ---------
Bank loan (see note 26) (85,364) (64,335)
Trapped cash (i) (8,936) (6,867)
Less: Cash and cash equivalents 32,411 50,803
---------------------------------------- --------- ---------
Total net (debt)/cash (61,889) (20,399)
---------------------------------------- --------- ---------
The Group had undrawn borrowings at 31 December 2018 of GBP14.2
million (2017: GBP35 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 2017
GBP'000 GBP'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 2017
GBP'000 GBP'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 2017
GBP'000 GBP'000
------------------------------------------------------------ --------- ---------
Authorised
500,000,000 ordinary shares of GBP0.01 each 5,000 5,000
Called up, issued and fully paid
145,996,512 (2017: 141,608,934) ordinary shares of GBP0.01
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 GBP'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 GBP'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 GBP2.
26. Borrowings
At the year end the Group had a loan facility of GBP100m 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 2017
GBP'000 GBP'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 2017
GBP'000 GBP'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 GBP19.85m relating to
acquisitions and GBP5.0m relating to operating cash flows and also
made repayments totalling GBP4.0m.
GBP524k of capitalised loan costs were being amortised over the
term from 1 November 2016 until the repayment date of 30 September
2021, whilst GBP283k 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:
2017(1)
2018 Restated
GBP'000 GBP'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:
2017(1)
2018 Restated
GBP'000 GBP'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:
2017(1)
2018 Restated
GBP'000 GBP'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 2017
GBP'000 GBP'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
Deferred consideration (i) 24,328 159
--------------------------------- ------ --------- ---------
Total trade and other payables 34,467 8,522
----------------------------------------- --------- ---------
Other liabilities (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 2017
GBP'000 GBP'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
Foreign exchange (gain) / loss (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 2017
GBP'000 GBP'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 GBP60.2 million (EUR67 million) in
cash during 2018 and 2019, and the issuance of 3,022,841
shares.
EUR GBP
'000 '000
------------------------------------------------- ----------------- -------- --------
Recognised amounts of identifiable net
assets (at fair value):
Useful economic
Non-current assets 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 GBP24.3 million (EUR27 million). The contingent
consideration is payable in 2019 and based on a multiple 2018
EBITDA for the acquired entities.
Transaction costs
The Group incurred GBP117k 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 GBP1.88 million. The
gross amount receivable is GBP1.6 million of which GBP0.02 million
is expected to be uncollectible.
Effect on the results
Luxembourg Investment Solutions and Compliance Partners
contributed GBP16.1 million of revenue and a net profit for the
year of GBP5.2 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 GBP144.5 million (GBP1.5
million higher) and net profit for the year GBP19.8 million (GBP0.4
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 GBP6.7 million (EUR 7.4 million) in cash,
and the issuance of 568,986 consideration shares.
EUR GBP
'000 '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 GBP971k 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 GBP3.2 million which are treated
as ongoing remuneration of key management personnel and being
expensed over this and future accounting periods, GBP564k 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 GBP119k. The gross
amount receivable is GBP170k of which GBP130k 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 GBP1.1 million of revenue and a profit for
the year of GBP0.4 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 GBP145.3 million (GBP2.3 million higher) and net
profit for the year of GBP20.2 million (GBP0.8 million higher, if
non-underlying acquisition costs are excluded).
32. Share based payments
2018 2017
GBP'000 GBP'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 Number
of shares of shares
2018 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 2017
GBP'000 GBP'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 GBP451k
(2017: GBP240k).
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 GBP701k
(2017: GBP718k) 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 2017
GBP'000 GBP'000
------------------------------------------------------------ --------- ---------
Present value of defined benefit at the beginning of the 718 -
year
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 2017
GBP'000 GBP'000
-------------------------- --------- ---------
Discount rate(1) 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 2017
GBP'000 GBP'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 16.3 years 17.3
(years) 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.
2018 2017
Categories of financial instruments Level GBP'000 GBP'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 GBP229k
(2017: GBP172k).
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 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
---------------------- --------- --------- --------- ---------
Euro(1) 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 GBP21.2
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) 2018 2017
of Sterling GBP'000 GBP'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 3-12 months 1-5 years > 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 2017
GBP'000 GBP'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 2017
GBP'000 GBP'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 GBP150m 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, GBP88m 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR PGURPWUPBPPG
(END) Dow Jones Newswires
March 22, 2019 03:01 ET (07:01 GMT)
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