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RNS Number : 7255G

Sanne Group PLC

19 March 2020

19 March 2020

Sanne Group plc

(the Group , SANNE or the Company )

Preliminary Results for the year ended 31 December 2019

SANNE, a leading global provider of alternative asset and corporate services, announces its results for the year ended 31 December 2019.

 
                                                                             Constant 
                                                                             currency 
                                             2019        2018     Change    change(3) 
 Underlying Total Group(1) 
                                       ----------  ----------  ---------  ----------- 
 Total group revenues(1)                GBP165.4m   GBP143.0m      15.7%        14.7% 
                                       ----------  ----------  ---------  ----------- 
 Operating profit                        GBP46.7m    GBP44.4m       5.2%         2.9% 
                                       ----------  ----------  ---------  ----------- 
 Profit before tax                       GBP42.4m    GBP42.6m      -0.5%        -2.1% 
                                       ----------  ----------  ---------  ----------- 
 Diluted earnings per share                 23.6p       24.1p      -2.1%        -4.2% 
                                       ----------  ----------  ---------  ----------- 
 Free cash flow attributable             GBP35.1m    GBP23.0m      52.6%         n.a. 
  to equity holders(4) 
                                       ----------  ----------  ---------  ----------- 
 Operating profit margin                    28.2%       31.1% 
                                       ----------  ----------  ---------  ----------- 
 Underlying Continuing Operations(2) 
                                       ----------  ----------  ---------  ----------- 
 Operating profit                        GBP44.3m    GBP41.4m       7.0%         4.7% 
                                       ----------  ----------  ---------  ----------- 
 Profit before tax                       GBP40.4m    GBP39.8m       1.5%        -0.5% 
                                       ----------  ----------  ---------  ----------- 
 Diluted earnings per share                 22.3p       22.4p      -0.4%        -2.5% 
                                       ----------  ----------  ---------  ----------- 
 Statutory Continuing Operations 
                                       ----------  ----------  ---------  ----------- 
 Continuing operations revenue          GBP159.7m   GBP136.2m      17.3%        16.2% 
                                       ----------  ----------  ---------  ----------- 
 Operating profit                        GBP14.3m    GBP21.5m     -33.5%       -36.3% 
                                       ----------  ----------  ---------  ----------- 
 Profit before tax                        GBP9.6m    GBP19.6m     -51.0%       -53.2% 
                                       ----------  ----------  ---------  ----------- 
 Diluted earnings per share                  3.8p       10.1p     -62.4%       -64.2% 
                                       ----------  ----------  ---------  ----------- 
 Full year dividend per share               14.1p       13.8p       2.2% 
                                       ----------  ----------  ---------  ----------- 
 

(1.) Underlying Total Group results show the combined results for both continuing and discontinued operations presented after the exclusion of non-underlying items. Discontinued operations refers to the Jersey Private Client business.

(2.) Underlying continuing operations performance measures show the contribution from continuing operations only presented after the exclusion of both non-underlying items and a cost allocation in relation to the discontinued operations. A detailed reconciliation is presented later in the statement.

(3.) Constant currency represents the 2019 performance based on 2018 FX rates to eliminate movements due to FX.

(4.) Free cash flow attributable to equity holders is the total cash generated in the year before acquisitions, capital expenditure, financing activities and cash non-underlying costs

Highlights:

   -       Strong revenue momentum: 

o Continuing operations revenue growth of 16.2%(3) with organic growth from continuing operations of 13.5%(3)

o Total Group revenue growth of 14.7%(3,1) with organic total sales growth of 12.1%(3,1)

o Strong new business wins, with annualised revenue of approximately GBP24.5 million secured in 2019 (2018: GBP24.5m) with momentum continuing into 2020

   -       Second half recovery, as anticipated, and strong cash flow: 

o Material improvement in second half underlying operating profit margin to deliver 28.2% for the full year (H1: 26.4%), following decisive action addressing first half challenges

o Underlying operating cashflow generation of 105%

   -       Active strategic development programme for growth and focus: 

o Disposal of legacy Private Client business for up to GBP12 million to focus on core alternative and corporate markets

o Extension of global network with office openings in Tokyo, San Diego and Mumbai

o Acquisition of Inbhear establishing Cayman presence and strengthening Irish service offering

o Investment in Colmore bringing new data analytics offering to our clients

- Statutory profits reflect exceptional one-off costs largely related to earn out payments for LIS and AgenSynd (GBP6.3m) as well as intangible impairment in South Africa (GBP2.4m)

- Final dividend of 9.4p (14.1p total), reflecting the Board's confidence in the prospects of the Group consistent with the Group's progressive dividend policy

Outlook

- Good momentum in Alternatives and Corporate businesses positions SANNE well for further growth in 2020

   -       Positive alternatives market backdrop with continued growth in addressable market 
   -       Healthy pipeline of acquisition opportunities 

- Well prepared for potential operational impacts from the COVID-19 outbreak, as a result of the Group's resilient business model

- Board expects to deliver a resilient performance in 2020 and remains confident in the medium and long-term prospects for the Group

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

"During 2019 we have continued to build on our strong market position and benefitted from the structural growth drivers within the alternative asset markets that we address. We have also worked successfully to address the challenges facing the business during the first half of the year. We made the decision to continue to invest in our platform to support our growth aspirations, expand our footprint and thereby continue to deliver the highest levels of client service. This investment for growth has been supported by a simplification of the Group through the sale of our legacy Jersey Private Client business.

As we continue into 2020, our core business remains resilient and is underpinned by a robust model. This resilience has been critical for us to have coped well to date with the COVID-19 outbreak from an operational perspective. Many of our offices have been operating under business continuity plans with minimal impact on service delivery to our clients and I would like to thank all our staff for their continued efforts during a difficult time.

We remain confident that SANNE is well positioned to capture the exciting opportunities that exist within our core markets in the years to come."

Enquiries:

 
 Sanne Group plc 
  Martin Schnaier, Chief Executive Officer 
  James Ireland, Chief Financial Officer      +44 (0) 1534 722 787 
 
   Tulchan Communications LLP 
   Tom Murray 
   Tom Blundell                                 +44 (0) 20 7353 4200 
 

The Company will be hosting a virtual investor and analyst presentation at 9.30am (GMT) this morning. A webcast will be provided and is available by registering at the following link: https://3xscreen.videosync.fi/20200319-sanne-fy19/register

A dial-in facility is also available, and the details are as follows:

 
  Dial-in numbers:     UK: 0800 408 7373 
                        International Access Numbers: 
                        http://www.speakservecloud.com/dial-in-numbers/ 
  Participant PIN:     4297 
                     -------------------------------------------------- 
 

A PDF copy of the 2019 Full Year results presentation will be available to download on SANNE's Investor Relations results and presentation page 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 1,700 people worldwide and administers structures and funds that have in excess of GBP250 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

THE ANNOUNCEMENT MAY CONTAIN "FORWARD-LOOKING STATEMENTS". FORWARD-LOOKING STATEMENTS SOMETIMES USE WORDS SUCH AS "AIM", "ANTICIPATE", "TARGET", "EXPECT", "ESTIMATE", "INT", "PLAN", "GOAL", "BELIEVE", "SEEK", "MAY", "COULD", "OUTLOOK" OR OTHER WORDS OF SIMILAR MEANING. BY THEIR NATURE, ALL FORWARD-LOOKING STATEMENTS INVOLVE RISK AND UNCERTAINTY BECAUSE THEY RELATE TO FUTURE EVENTS AND CIRCUMSTANCES WHICH ARE BEYOND THE CONTROL OF THE COMPANY. AS A RESULT, THE ACTUAL FUTURE FINANCIAL CONDITION, PERFORMANCE AND RESULTS OF THE COMPANY MAY DIFFER MATERIALLY FROM THE PLANS, GOALS AND EXPECTATIONS SET FORTH IN ANY FORWARD-LOOKING STATEMENTS. ANY FORWARD-LOOKING STATEMENTS MADE HEREIN SPEAK ONLY AS OF THE DATE THEY ARE MADE AND THE COMPANY DOES NOT ASSUME OR UNDERTAKE ANY OBLIGATION OR RESPONSIBILITY TO UPDATE ANY OF THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS ANNOUNCEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT TO THE EXTENT LEGALLY REQUIRED.

Chairman's Statement

2019 has been an important year for SANNE, as the Group continued to build its global platform and capabilities in order to take advantage of the significant structural growth opportunity in our core markets. During the year, we have made a number of significant changes to the structure and operations of the Group to ensure that our expertise and resources are deployed as effectively as possible.

These changes have not been without their challenges, as evidenced by lower profit margins in the first half of the year, but I am pleased with the progress made in the second half to address these issues and restore the Group's margins. Importantly, SANNE continues to capture significant revenue growth across all our key markets as well as continuing to invest in our network and platform for profitable future growth.

Operational Update

We saw strong double-digit revenue growth across all regions during 2019, with the exception of the Channel Islands, where the declining Private Client business diluted the overall result. In particular, the Group's core Alternatives businesses, making up 88% of 2019's total revenues and 92% of continuing revenues, increased by 18% as demand for our services from existing and new clients continued to grow.

While revenue growth remained robust during 2019, underlying profit levels were flat as a result of operational challenges which affected margins during the first half of the year. The decisive actions taken to rectify these issues delivered a material improvement to profit margins during the second half. These actions, combined with the Group's strong cash conversion levels, make SANNE well placed to deliver both top line growth and increased levels of profitability in 2020 and beyond.

Reflecting our confidence in this growth potential, the Board is recommending a final dividend of 9.4 pence per ordinary share (2018: 9.2 pence), taking the total dividend for the year, including the interim dividend of 4.7 pence per share, to 14.1 pence per share (2018: 13.8 pence in total).

Strategic developments

During the year, we continued to invest for profitable growth, both organically and inorganically. We added three new offices to our global footprint in Tokyo, San Diego and Mumbai as well as entering into an agreement to acquire Inbhear which will add a new office in Cayman, a new strategic jurisdiction for SANNE with significant growth potential. We also established a strategic partnership with Colmore to deliver a new data analytics offering to our fund manager client base underscoring our commitment to client service and innovation.

Following the end of the period, SANNE announced that we had reached an agreement to divest our legacy Private Client operations in Jersey. This will simplify the Group's structure and enable management to focus on SANNE's attractive core Alternatives and Corporate businesses.

Our people

During my time as Chairman, SANNE has grown from 290 to over 1,700 employees. I am proud of the culture we have established, and proactive employee engagement remains a key focus for the Group. During 2019 SANNE established a Workforce Advisory Panel to 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.

During the first half of the year Martin Schnaier replaced Dean Godwin as Chief Executive Officer, following Dean's retirement. Martin has been one of the driving forces behind SANNE's growth since he joined the Group in 2011. I would like to take this opportunity to thank Dean for his immense contribution to transform the business during his seven years as Chief Executive.

The Board has a diverse range of skills and backgrounds. We have decided to appoint a third female director to the Board during the year, in line with best practice. With our continuing investment in, and focus on, technology to enhance our service offering, we are considering how to increase technology input to the Board's deliberations. We are also aware of the fact that Andy Pomfret, Nicola Palios and I will have served on the Board for six years by the time of the next full-year reporting cycle. As a result, while we all remain committed Board members, Board succession planning is actively on the Board's agenda for the coming year.

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

We understand the expectations and commitments made by our investors with regard to Environmental Social & Governance (ESG) considerations. Sustainability is essential to delivering our business plan and growth profile, particularly within our increasingly global footprint. Environmental and social considerations are therefore embedded in our corporate values and commercial operations. Robust governance, transparency and accountability principles also underpin our approach across all areas of business.

With this in mind, our initial objective is to establish a robust baseline, quantifying our environmental and social impact across our operations using 2019 as our baseline year. Subsequently, during 2020 we will be finalising ESG and sustainability policy framework and setting ambitious long term environmental and social policy objectives, including carbon offsetting targets. Further detail is set out in our ESG section of this annual report.

As a professional services provider, our most material contributors to our environmental and carbon footprint are business travel and utilities consumption, both representing essential components of our business operations. For the first time, we have disclosed our 2019 carbon emissions in this annual report.

Looking ahead

The demand for alternative asset investments, increasing regulatory requirements and complexity and propensity for asset managers to seek an outsourced solution for administration are powerful long-term drivers for our market. We have a strong strategy and proposition that positions SANNE well in the sector to make the most of these opportunities. Notwithstanding the uncertain economic backdrop including the current impact being seen as a result of the global COVID-19 outbreak, the Board continues to look to the future with confidence.

Rupert Robson

Chairman

Strategy Review

Vision

The vision for the Group is to be one of the world's leading providers of outsourced alternative asset and corporate administration services.

Client-driven

The Group looks to partner with top tier alternative asset managers, financial institutions and global corporates who require a high-touch professional service due to the bespoke nature of their investment products and activities. These products and activities have become increasingly complex and cross-jurisdictional requiring co-ordinated support across a global platform supported by industry experts in private equity, debt, capital markets and real assets.

SANNE executes this strategy by offering "local excellence on a global platform". It has built a platform spanning 21 locations with over 1700 employees that is preeminent in its core markets and is relied upon by over 1,700 clients with AuA totalling in excess of GBP250bn. Clients choose SANNE not only because of its depth of resource, but also because of its client-centric approach which focuses relentlessly on delivering quality support.

This client-centric approach is predicated on a professional services philosophy and is backed-up by the assurance of its listing on the London Stock Exchange which provides a credible governance framework for a business with over GBP250 billion in assets under administration. Listing also means that SANNE can take a long-term approach with clients requiring stability of service over 10-year plus cycles in an industry where the competitive landscape is dominated by short-term propositions.

Structural market growth

SANNE's continuing growth has stemmed from the combined effects of investor demand for alternative investment strategies, ever increasing regulatory complexity and the rise in outsourcing by asset managers increasing the size of our addressable markets. The trend towards outsourcing is a result of increasing sophistication among clients in relation to outsourcing together with a desire to rationalise supply chains. In this environment, we believe that SANNE is uniquely placed to meet growing industry needs and is determined to develop a sustainable product that helps facilitate global investment in a responsible manner.

Organic growth

The Group's growth strategy is focussed on a series of core initiatives:

1. Drive differentiated, best-in-class client offering across high touch and technology enabled services

This involves investing in the best people and training programmes, developing efficient and best in class processes; investing in new technology-led services and propositions; rolling out new capabilities relevant to specific product groups and adding new services that are relevant to our client base

2. Increase our share of wallet within existing asset manager client groups as well as targeting new ones

This involves cross selling more services to each fund; capturing new fund launches by existing clients; servicing larger client groups across all their alternative investment product strategies and all their operating jurisdictions; displacing competitors as clients seek to rationalise their supply chain; and targeting "new-new" asset manager clients into the platform either through competitive process or encouraging first time outsourcing

   3.    Roll out our services and product offerings at scale across the entire global footprint 

This involves ensuring that we offer all product verticals in every location they are relevant to the same high standards and scale

   4.    Add new geographic markets to the Group's footprint in line with client requirements 

This involves opening offices across new locations to access new markets and clients

5. Invest in resilient and scalable operating platforms and technology to support our client service offering

This involves continuing to build robust capability across Group Service areas such as risk, compliance, human resources and finance as well as investing technology and systems to improve efficiency and capability and develop processes to ensure scalability and efficiency in our processes

Inorganic growth

   6.    SANNE has a proven track record of finding, acquiring and integrating specialist firms in the administration sector where this enhances the value proposition of the Group and its services. This activity is essentially relationship driven and uses SANNE's capital resources to fund acquisitions, strategic investments and partnerships to augment or accelerate growth across one or more organic growth initiatives. These transactions are always undertaken in a responsible manner after careful due diligence to ensure a shared vision and minimise any risks to the Group. SANNE does not specifically target inorganic growth for its own sake. 

Chief Executive Officer's Statement

2019 was another year of strong growth for SANNE as we continued to benefit from our leading position in structural growth markets. The year has also seen us experience and address a number of operational issues as we came to the end of a period of accelerated investment in our global support functions and moved our client service teams across EMEA and CI from product-vertical reporting lines to jurisdictional-vertical reporting lines. I am pleased with the progress that we have made in the second half of the year in addressing these issues and building on our industry leading position.

2019 performance

 
                                     2019                                       2018 
                  -----------------------------------------  ----------------------------------------- 
                                                                                                         C.C. rev. 
  GBP 000's        Revenue          GP               Margin   Revenue          GP               Margin    growth 
----------------  ---------------  ---------------  -------  ---------------  ---------------  -------  ---------- 
 EMEA                     60,561           33,745     55.7%          48,100           29,643     61.6%       27.6% 
 APM                      34,268           23,161     67.6%          30,433           22,103     72.6%        8.6% 
 NA                       26,925           13,477     50.1%          21,702           10,808     49.8%       18.7% 
 CI (continuing)          37,953           22,454     59.2%          36,007           21,746     60.4%        5.4% 
 Total 
  continuing 
  revenue               159,707            92,837     58.1%        136,242            84,300     61.9%       16.2% 
 CI 
  discontinuing             5,736            3,700    64.5%            6,761            4,048    59.9%      -15.2% 
 Total Group 
  Revenue               165,443            96,537     58.4%        143,003            88,348     61.8%       14.7% 
                  ---------------  ---------------  -------  ---------------  ---------------  -------  ---------- 
 Note EMEA & CI continuing together grew at 
  18.2% constant currency. 
 

The Group delivered a strong revenue performance in 2019 consistent with the substantial market opportunity that our business addresses. Total Group revenue grew by 14.7% on a constant currency basis and total organic revenues grew by 12.1% on a constant currency basis, in line with our "double digit" growth guidance. Excluding the Jersey Private Client operations, total continuing revenues grew by 16.2% on a constant currency basis and total continuing organic revenues by 13.5% at constant currency.

North America delivered another very strong year with organic revenue growth of 18.7 % at constant currency. EMEA and CI, excluding the Jersey Private Client operations, together saw organic revenue growth of 13.9% at constant currency with healthy activity across all alternative asset classes. APM grew organic revenues by 8.6% at constant currency, despite the anticipated higher-than-average attrition from end of life structures in Mauritius; these attrition levels are expected to normalise in 2020.

The total Group underlying operating profit margin of 28.2% (2018: 31.1%) was principally affected by two issues which arose in the first half of the year and have now been addressed. First, we incurred higher discretionary overhead expenditure, mostly relating to third party recruitment fees and premises costs, during the first half. Secondly, EMEA and CI over-recruited staff ahead of anticipated growth in these segments.

These issues were decisively addressed in the second half. With respect to overhead expenditure, we have brought together cost controls for the various Group Services functions under the control of the CFO and the finance function. These changes resulted in a rapid and significant improvement in overhead efficiency with overheads as a percentage of revenue reducing to 27.9% in the second half from 32.4% in the first half. Importantly, these improvements in costs and control have been achieved without reducing any investment spend either in the platform or within our growth initiatives.

As part of implementing our new jurisdictionally-based reporting model, we undertook a detailed exercise in the EMEA and CI segments to more closely align client revenues with the resources required to deliver the relevant client services. This will enable better resourcing decisions within these segments and generally improve their operational efficiency. The implementation phase of this exercise began later in the second half so the consequent improvement in gross margin will largely arise 2020.

The Group achieved another period of strong new business activity, with the projected annualised revenues from new business won in the year of approximately GBP24.5m equal to the record level seen in 2018. It is anticipated that the development of these annualised revenues will begin to benefit revenue in 2020 with the fully annualised effect being realised in the following years. The Group has seen this new business momentum continue into 2020.

Cash generation in the year has been very strong. Underlying operating cash conversion was 105% and this performance meant the underlying free cash flow attributable to equity holders was up 52.9% year on year at GBP35.1 million for 2019.

Expanding our footprint and enhancing our capabilities

SANNE continues to expand its global footprint and enhance its capabilities to create long-term value.

SANNE added Japan as a new jurisdiction in 2019 by opening a small office in Tokyo at the start of the year to support demand for our services in that market from existing clients. We have started to see exciting new business wins as well as build a good pipeline of opportunities in this large new market for SANNE. The Group also opened a new office on the West Coast of North America in San Diego. This office was opened to support the growing requirements from existing clients in the area, but also provides the opportunity to build a bigger client base of West Coast asset managers. Finally, the Group opened an office in Mumbai to improve connectivity for our Indian clients and intermediaries, as well to take advantage of new business opportunities that we see arising in India.

The acquisition of Inbhear, announced shortly after the year end, establishes a physical presence for the Group in the Cayman Islands. The Cayman business has a local accounting license and, with the full SANNE business behind it, has made good progress towards obtaining a trust licence. This presence will provide a significant revenue opportunity across the existing client base as well opening up a market for new clients that was difficult for Sanne to unlock on a cost effective basis. The acquisition also builds on our existing Irish presence by bringing a team of highly experienced professionals to augment our existing local offering.

During the year, SANNE also commenced work on a new technology-led data analytics service for our clients through a strategic partnership with Colmore, a leading technology solutions business. This partnership has brought new, leading technology solutions into our service offering that provides clients with real-time, dynamic access to insight reports, analysis and data. We anticipate the first version of this capability will go live with clients by the end of the first quarter of 2020. This is an important partnership for SANNE as we continue to envision technology taking an increasingly important role in the delivery of service to our clients.

We continue to see a large number of potential acquisition opportunities across our markets. SANNE has a track record of targeting and integrating high quality strategic acquisition opportunities to build out the client service offering and proposition as well as expanding our physical footprint.

Strengthening our operational platform

Over recent years, SANNE has been implementing the changes needed to support the Group's evolution from a Jersey-centric local specialist firm to a global platform capable of delivering scalable, sustainable growth.

During the year, as we moved the whole Group on to a model of jurisdiction-based reporting lines, we established dedicated strategies across each product vertical (Private Debt & Capital Markets, Real Estate, Private Equity and Loan Agency) to ensure we continue to go to market as an asset specialist and focus on delivering industry leading service and capability to all our clients. We have done this by taking a group of senior directors from across the Group and aligning them in industry specific teams. In 2019 we also continued to invest further in Business Development, a dedicated function that exclusively targets new asset manager clients drawing on the experience and expertise of the product teams.

Risk and Compliance remain a key focus with both areas undergoing management transition during 2019. We have also reinforced our focus on financial crime and on-boarding. I am pleased to note that these changes have driven a significant improvement in reporting and management of key risk indicators (KRI's) and compliance metrics, as well as enhanced policies, procedures and monitoring capability. Other critical support functions such as Human Resources, Finance and Legal continue to be strengthened and importantly, operate on fully integrated, single platforms to enhance Group-wide efficiency.

This operating platform together with our information technology function have been systematically strengthened and expanded to support the Group as it scales its global offering. Our information technology function has continued to bring together the Group's systems and infrastructure and has built a strong central capability, largely in Belgrade, with teams of developers, support and a threat protection and defence capability.

The resilience of the Group's operational platform has been demonstrated by our resilience during the recent period of civil disruption in Hong Kong and more recently, the Coronavirus outbreak in many of our APAC jurisdictions. We are yet to see any material impact on our business or end markets arising from the current Coronavirus outbreak, however, we continue to pay close attention to the evolving landscape. In the first instance, we could expect to see some elevated costs in the event any of our larger jurisdictions found themselves subject to restrictions that prevented employees from travelling to work for a prolonged period of time. We are also mindful that any sustained period of time with major economies working under remote or restricted travel arrangements could impact the global flow of investment and the demand for alternative investment strategies which fuels our growth.

The decision in the summer of 2019 to undertake a strategic review of the Group's Jersey-based Private Client business was consistent with our strategy of optimising the Group's focus on those markets where we have our core strengths. The Group's significant success in targeting the closed-ended alternatives asset market in recent years had resulted in the Jersey Private Client business representing only 3.5% of Group revenues in 2019. We received significant interest in the business from potential acquirers and were pleased to reach agreement with JTC Plc in March. We wish the team well under the new owners.

Senior Management

We have continued to strengthen the Executive Committee during 2019 with a number of changes and key appointments. James Bermingham joined the Group as our first ever General Counsel, having previously spent more than a decade building a leading Channel Islands and Luxembourg competitor to SANNE. Cindy Peters joined us as a new Group Head of Human Resources; she brings with her a wealth of experience from leading professional services firms and competitor fund administration firms. At the beginning of January 2020, Marie Measures joined the Group as SANNE's first ever Chief Technology Officer. Marie brings with her a depth of technology and management experience from highly regulated financial services firms and will be critical for us in driving further technology excellence into our own business as well as our client service offering.

Outlook

The decision during 2019 to continue investing for growth positions the Group well with momentum going into 2020, within our core Alternatives and Corporate markets. We continue to improve the operational efficiency of the Group and look to build on the hard work carried out during the second half of the year.

As we continue into 2020, we are seeing a healthy pipeline of acquisition opportunities to augment our growth strategy. We remain focussed on the current macro-economic environment, especially the evolving COVID-19 outbreak and potential effects thereof and we expect to deliver a resilient performance in 2020 and remain confident in the medium and long-term prospects for SANNE.

Martin Schnaier

Chief Executive Officer

Segmental Review

At the start of 2019, in response to the significant growth and expansion of the Group over recent years, SANNE adopted a jurisdictionally-based reporting model across our European and South African jurisdictions from the previous product-vertical reporting model. This better aligns our reporting with how SANNE actually manages its business. The Group's NA and APM reporting segments already operated on this basis. As a result, there is no change to the reportable segments in NA and APM, however the old segments of "EMEA Alternatives" and "Corporate and Private Client" across Europe and South Africa have been combined and then split into two new reporting segments of CI (covering the Jersey and Guernsey jurisdictions) and EMEA covering all other European and South African business.

The Group's four reporting segments are therefore now: Europe, Middle East and Africa (EMEA); Channel Islands (CI); North America (NA); and, Asia-Pacific & Mauritius (APM). For comparability, within EMEA and CI we will split out the corporate and private client revenues (making up the old CPC segment) for 2019 and for continuing operations disclose separately the Corporate revenues.

Unless otherwise stated all growth rates discussed in the segmental reviews are on a constant currency basis.

Europe, Middle East and Africa (EMEA)

 
                         2019         2018   % growth   Constant currency 
                                                                 % growth 
                    (GBP'000)    (GBP'000) 
                  -----------  -----------  ---------  ------------------ 
 Revenue               60,561       48,100      25.9%               27.6% 
 - Alternatives        57,918       45,941 
 - CPC                  2,643        2,159 
 Gross profit          33,745       29,643      13.8%               15.2% 
 Margin                 55.7%        61.6% 
 

SANNE's EMEA segment operates across Luxembourg, Ireland, the United Kingdom, Spain, France, the Netherlands, Malta and South Africa. 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 and corporate clients.

Once again, 2019 was a year of strong growth in EMEA with revenue growth of 27.6% and organic revenue growth of 20.0%. Whilst the segment has seen gross margin decline in the year as a result of challenges that arose with the implementation of the new jurisdictional reporting model and increased investment in growth initiatives, gross profit grew by 15.2% and 5.4% on an organic basis. Whilst there were no acquisitions completed in the period, the inorganic growth in the segment in 2019 relates to the inclusion of both LIS/CP and AgenSynd for the full year in 2019 for the first time.

The main driver of growth in the year has been the continued strong demand for our services and new fund creations in the Group's core closed-ended alternatives markets of Private Debt & Capital Markets, Private Equity, Real Estate and Loan Agency. Meanwhile, the Group's open-ended hedge fund business, saw good progress through broadening the client base outside South Africa with wins in Dublin as well as further wins in South Africa offset by client losses in the second half. The overall result of which was to keep performance flat on the prior year.

2019 has also seen the completion of the integration of the AgenSynd and LIS acquisitions made in 2018. We have successfully moved AgenSynd's London team into our existing office and collocated the LIS, CP and legacy Sanne Luxembourg businesses. We also completed the integration of all systems, policies and processes as well as all areas of Group Services support such as finance, IT, HR, risk and compliance. The integration of the CP legal entity into our existing Sanne Luxembourg entity is subject only to final regulatory approval which is expected during 2020. Sanne's legacy Loan Agency book has also been migrated onto AgenSynd's industry leading client-facing technology platform and we have started cross selling service capability from the platform to other clients across the Group.

Channel Islands (CI)

 
                                        2019          2018   % growth    Constant 
                                                                         currency 
                                                                         % growth 
                                   (GBP'000)     (GBP'000) 
                                ------------  ------------  ---------  ---------- 
 Revenue                              43,689        42,768       2.2%        2.4% 
 - Alternatives                       26,993        25,784 
 - CPC                                16,696        16,984 
 Gross profit                         26,154        25,794       1.4%        0.2% 
 Margin                                59.9%         60.3% 
 Revenue - discontinuing               5,736         6,761     -15.2%      -15.2% 
 Gross profit - discontinuing          3,700         4,048      -8.6%       -8.6% 
 

Note: The Revenue and Gross profit shown above is for both continuing and discontinued operations unless otherwise stated

SANNE's CI segment operates in both Jersey and Guernsey. The segment provides services across all our closed-ended investment strategies (Private Debt & Capital Markets, Real Estate and Private Equity) albeit, not Loan Agency. The segment also includes the Group's Private Client business, and the majority of the services to corporate clients. Following the year end, SANNE has entered into an agreement for JTC Plc to acquire the Private Client business which is entirely reported within the CI Segment.

Revenues from the new CI segment saw organic growth in the period of 2.2% which reflects the flat year on year performance in the Jersey Corporate book and further reduction in the Jersey Private Client business. Despite the trend in the industry across Europe for new funds to locate in Luxembourg, the Channel Islands segment saw good organic growth across the closed ended alternatives products of Private Debt & Capital Markets, Real Estate and Private Equity at 7.0%.

Whilst the segment, like EMEA, was impacted by the shift at the start of the year to the jurisdiction-orientated reporting model, the gross margin was broadly flat at 59.9% in 2019.

Asia Pacific and Mauritius (APM)

 
                                                      % constant 
                                                       currency 
 APM (GBP'm)             2019     2018     % Change    change 
---------------------   -------  -------  ---------  ----------- 
 Revenue                 34,268   30,433   12.6%      8.6% 
 Gross profit            23,161   22,103   4.8%       0.9% 
 Gross profit margin     67.6%    72.6% 
 

SANNE's APM segment operates across Hong Kong, Singapore, Shanghai, Tokyo, Mumbai and Mauritius. This segment provides services across all core alternative closed-ended investment products.

The segment delivered organic revenue growth of 8.6% driven by another very strong year across the Asia Pacific offices. These offices alone saw constant currency growth of 36% in the year across the Private Equity and Real Assets fund client base, being SANNE's two main product groups in the region. 2019 saw the opening of the Group's new office in Japan and significant headcount growth across the other offices which are all of broadly similar size.

Mauritius saw a flat revenue result compared with the prior year. This was largely the result of higher than average levels of end of life client attrition seen across what is a mature book of funds. Mauritius has though seen a good level of new business wins in the year reflecting an acceleration in business development following investment in the business development team on the island and in the newly set up sales office in India. During the year the Group also established a dedicated centre of excellence for the preparation of financial statements. This service draws on the depth of accounting expertise in the Mauritian market and both supports the wider group as well as being sold to third parties.

The segment's gross profit margins declined in the year to 67.6%, primarily driven by mix effect as the fast-growing Asia Pacific offices become a larger proportion of the business. In 2019, the Asia Pacific offices represented approximately one third of the segment's overall revenues and the margins in the region are in line with those across our EMEA and CI businesses.

North America (NA)

 
                                                      % constant 
                                                       currency 
 NA (GBP'm)              2019     2018     % Change    change 
---------------------   -------  -------  ---------  ----------- 
 Revenue                 26,925   21,702   24.1%      18.7% 
 Gross profit            13,477   10,808   24.7%      18.9% 
 Gross profit margin     50.1%    49.8% 
 

SANNE's NA segment primarily services closed ended alternative fund clients in North America. The segment originated with the acquisition of FLSV Fund Administration Services LLC (FAS) in late 2016 and has experienced strong organic growth since.

2019 was another year of strong organic revenue growth for the NA segment at 18.7%. This revenue growth continued to be driven largely by a strong new fund launch environment across the existing client base. The segment's margin remained broadly flat on the prior year at 50.1% due to higher revenues and increased use of support from the Group's Belgrade office, offset by increased growth initiative costs.

During the year, the segment continued to be dominated by services across Private Equity. However we continued to build the segment's client base across the Real Assets and Debt & Private Capital markets. We continue to see growth opportunities from first time outsourcers and new asset managers in the market and an expansion in the types of products offered in the alternatives market. In addition, the business opened a new office on the west coast of North America. This office opened initially to support existing clients in the west coast time zone more closely, but has also afforded an opportunity to target other, new clients in the area.

Chief Financial Officer's Review

Total Group revenue grew by 14.7% in 2019 to GBP165.4 million (2018: GBP143.0m) with continuing operations revenue growth of 16.2%, both at constant currency. Underlying total group operating profit has grown at 2.9% at constant currency to GBP46.7 million (2018: GBP44.4m) as the operational challenges seen in the first half diluted underlying total group operating profit margin to 28.2% from 31.1% in 2018. Statutory operating profit for the year was GBP14.3 million down from GBP21.5 million in 2018. This reflected exceptional one-off costs largely related to acquisition earn-out payments as well as intangible impairment in South Africa.

Underlying total group diluted EPS was down by 4.2% on the prior year at constant currency at 23.6 pence (2018: 24.1p) as a result of increased interest costs under IFRS 16 and a higher underlying effective tax rate.

The Group delivered strong cash returns in the year generating underlying free cash flow attributable to equity holders of GBP35.1m in 2019, an increase of 52.9% on 2018. This performance represents an adjusted underlying operating cash conversion of 105% (2018: 82%).

Group Income Statement

The Group reports key items in the income statement such as revenue and operating profit as well as presenting certain alternative performance measures (APMs) such as organic revenue growth rates and underlying profit measures to allow an additional understanding of the results for the year. In order to provide a clear reconciliation of performance, the Group's statutory results and APMs are presented below on both a total group basis (including results from both continuing and discontinued operations) as well as on a continuing basis.

Total Group Income Statement:

 
                                             2019        2018 
                                                                              Constant 
                                                                               currency 
                                           (GBP'000)   (GBP'000)   % growth     growth 
 Total Group revenue                        165,443     143,003       15.7%       14.7% 
 Revenue - Discontinued operations           5,736       6,761       -15.2%      -15.2% 
 Continuing revenues                        159,707     136,242       17.2%       16.2% 
----------------------------------------  ----------  ----------  ---------  ---------- 
 
 Total group gross profit                   96,537      88,348         9.3%        8.1% 
 Gross profit - Discontinued operations      3,700       4,048        -8.6%       -8.6% 
 Continuing operations gross profit         92,837      84,300        10.1%        8.9% 
----------------------------------------  ----------  ----------  ---------  ---------- 
 
 Total group underlying operating 
  profit                                    46,688      44,447         5.0%        2.9% 
 Operating profit - Discontinued 
  operations                                 3,700       4,048        -8.6%       -8.6% 
 Non-underlying cost                       (28,707)    (18,882)       52.0%       33.0% 
 Operating profit                           14,281      21,517       -33.6%      -36.3% 
----------------------------------------  ----------  ----------  ---------  ---------- 
 
 Finance cost(1)                            (4,730)     (1,885) 
 Non underlying finance cost                 (457)         - 
 Profit before tax                          13,251      23,680 
 Taxation                                   (4,377)     (5,506) 
 Profit after tax                            8,874      18,174 
 
 Underlying total group DEPS (pence)         23.60       24.11 
 Reported DEPS (pence)                       6.08        12.58 
 

(1) Is the total of other gains and losses, finance costs and finance income

Key performance measures for the underlying continuing business:

 
                                       2019        2018 
                                     (GBP'000)   (GBP'000)   % change   % CC change 
 Continuing revenues                  159,707     136,242       17.2%         16.2% 
 
 Underlying continuing operations 
  operating profit                    44,333      41,430         7.0%          4.7% 
  - margin                             27.8%       30.4% 
 Underlying continuing operations 
  profit before tax                   40,356      39,785         1.4%         -0.5% 
 Underlying continuing operations 
  tax charge                           7,761       7,455 
 Underlying continuing operations 
  profit after tax                    32,594      32,330         0.8%         -1.1% 
 Underlying continuing operations 
  DEPS                                 22.3p       22.4p        -0.4%         -2.5% 
 

Revenue

Total group revenue increased by 14.7% on a constant currency basis in the year to GBP165.4 million (2018: GBP143.0m). Organic revenue growth in the period was 12.1% on a constant currency basis for the whole group.

Revenue growth for the continuing operations, representing the Alternatives and Corporate businesses, was higher at 16.2% on a constant currency basis at GBP159.7 million (2018: GBP136.2m). Likewise, organic constant currency revenue growth was higher for the continuing operations at 13.5%.

 
                                    2019        2018 
                                                                     Constant 
                                                                      currency 
                                  (GBP'000)   (GBP'000)   % growth     growth 
 Total Group revenue               165,443     143,003     15.7%       14.7% 
 LIS 1-month adjustment             1,548         - 
 AgenSynd 8 months adjustment       2,151         - 
 Total Group organic income        161,744     143,003     13.1%       12.1% 
 Discontinued revenue               5,736       6,761 
 Continuing operations organic 
  revenue                          156,008     136,242     14.5%       13.5% 
                                 ----------  ----------  ---------  ---------- 
 

Note: See the Alternative Profit Measures section for organic growth calculation methodology

Gross profit

Gross profit in 2019 including the results from both continuing and discontinued operations was GBP96.5m (2018: GBP88.3m), representing constant currency growth of 8.1% (9.3% at actual currency). Gross profit for continuing operations in 2019 was GBP92.8 million (2018: GBP84.3m). This reflected the strong revenue growth in the year, partially offset by a decline in gross profit margin. Gross profit margin for the total group including both continuing and discontinued operations was 58.4%, down 3.4 percentage points from the prior year. This reduction was predominantly the result of margin decline in the EMEA segment where the over-recruitment of staff ahead of anticipated growth had the most significant impact. The margin was also diluted slightly by mix effects in the APM segment where the higher growth Asia Pacific offices operate at gross profit margins in line with EMEA and CI rather than the higher margin Mauritius business. Further investment in growth initiatives such as the dedicated Business Development team and the teams supporting the product strategies described in the CEO's Statement also had an impact. The costs associated with these growth initiatives equated to c.2.5% of Group revenues compared with c.1.5% in 2018.

Disposal of the Jersey Private Client business

The table below shows the underlying financial performance of the Jersey Private Client business that is expected to be sold in 2020. The underlying profit measures for the discontinued business are alternative performance measures that differ from the disclosures made under IFRS 5 in note 11 in the financial statements. The difference is that the underlying measures also include costs that, whilst not directly transferring with the sale, will cease within the continuing Group as a consequence of the disposal or that the Group will be capable of reducing as a result of the disposal. This includes certain business systems licencing fees, office costs and some operating leverage in Group Services. These alternative performance measures allow an additional assessment of the impact of disposing of the operations as compared with the IFRS 5 presentation.

 
                                               2019       2018 
                                             (GBP'000)  (GBP'000)  % growth 
Discontinued revenue (per IFRS 5)              5,736      6,761     -15.2% 
Discontinued gross profit (per IFRS 5)         3,700      4,048     -8.6% 
Discontinued operating profit (per IFRS 5)     3,700      4,048     -8.6% 
-------------------------------------------  ---------  ---------  -------- 
Allocation direct costs                         343        336       2.1% 
Allocation of overhead costs                   1,002       696      44.0% 
Underlying discontinued operating profit       2,355      3,017     -21.9% 
-------------------------------------------  ---------  ---------  -------- 
Tax charge (per IFRS 5)                        (370)      (405)     -8.6% 
Discontinued profit after tax (per IFRS 5)     3,330      3,643     -8.6% 
-------------------------------------------  ---------  ---------  -------- 
Adjusted discontinued interest costs           (296)      (240)     23.3% 
Adjustment to discontinued taxation charge      164        127      29.0% 
 
Underlying discontinued profit after tax       1,854      2,499     -25.8% 
-------------------------------------------  ---------  ---------  -------- 
Underlying discontinued DEPS                   1.27p      1.73p     -26.6% 
 

Overheads

The Group's operating model involves client focused service teams being supported by centralised and integrated Group Services functions including information technology, risk and compliance, human resources, premises, finance and the Group's head office costs. All costs for these functions are included in the Group's overheads.

Total group overheads, excluding non-underlying costs, in 2019 were GBP49.8 million (2018: GBP43.9m), which represented 30.2% of total Group revenue for the year compared with 30.8% in 2018 and 32.4% in the first half of 2019.

Overheads associated with the underlying continuing operations represented 31.3% of the continuing revenues for the Group. This is higher than the total Group result reflecting that it is not possible to remove the entire overhead allocation from the Group immediately on disposing of the discontinued operations.

Non-underlying costs

Non-underlying items within profit measures include share-based payments where they relate to acquisitions; acquisition and integration costs; amortisation and impairment of intangible assets; one-off costs related to the refinancing of the Group's banking facilities undertaken in the year; and costs related to the regulatory settlement in Jersey in the year and other costs. Further detail on non-underlying items, please see note 9 in the financial statements.

Non-underlying costs in 2019 saw an increase to GBP29.2 million (2018: GBP18.9m). The main drivers behind this increase were acquisition earn-outs on LIS (GBP4.2m) and AgenSynd (GBP2.0m) charged to the income statement due to employment related clauses; impairment of contract intangibles in the South African acquisition made in 2016 (GBP2.4m); and costs relating to a regulatory settlement in the year and other non-trading related provisions (GBP1.0m).

Operating profit

Underlying total group operating profit and underlying continuing operations operating profit are key measures of the Group's performance for each of the total operations managed during the year as well as for the ongoing business. Underlying total group operating profit in 2019 was up 2.9% in constant currency on the prior year at GBP46.7 million (2018: GBP44.4 million). Underlying continuing operations operating profit, however, saw better growth of 4.7% on a constant currency basis which reflects the decline seen in the discontinued operations. Statutory operating profit fell in the year to GBP14.3 million (2018: 21.5m) as a result of the increase in non-underlying charges in the year.

Net finance expense

Total Group net finance expense was GBP4.5 million (2018: GBP1.8 million). The increase in 2019 largely reflects the Group's adoption of IFRS 16 for the treatment of operating leases. The interest charge in relation to operating leases in 2019 was GBP1.6 million. The charge before the adoption of IFRS 16 increased as a result of the higher average net debt in the year, as a result of acquisitions and related earn-out payments.

Taxation

The Group's reported effective tax rate for the total Group for the year was 33% (2018: 23.3%). The year on year increase was driven by the increasing proportion of Group profits being earned in jurisdictions with higher tax rates. 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 for the total Group was 18.8 %

(2017:   18.2%). 

Diluted underlying earnings per share

Total Group underlying diluted earnings per share were 23.6 pence (2018: 24.1p), underlying continuing operations diluted earnings per share were 22.3 pence (2018: 22.4p) and reported diluted earnings per share from continuing operations were 6.1 pence (2018: 12.6 pence).

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. Accordingly, the Board is recommending a final dividend of 9.4 pence per ordinary share (2018: 9.2 pence). The final dividend will be payable on 20 May 2020 to Shareholders on the register at close of business on 24 April 2020.

Together with the interim dividend of 4.7 pence per share, this gives a total dividend for the year of 14.1 pence per share (2018: 13.8 pence in total).

Cash flow and working capital

In 2019 SANNE has seen strong cash generation with underlying operating cash conversion of 105% (2018: 82%). The main movements in the cash flow are summarised below:

 
                                                                     2019      2018 
                                                                    GBP'000  GBP'000 
Total Group underlying operating profit                             46,688    44,447 
Depreciation (equipment and IFRS16)                                  8,180    1,915 
Other (includes share based payments and movements in provisions)     449     4,264 
Change in working capital                                            3,151   (14,390) 
                                                                    -------  -------- 
Total Group underlying operating cashflows                          58,468    36,236 
Total cash flows on leases recognised under IFRS 16                 (6,364)     - 
Non-cash non-underlying items                                       (2,852)     - 
Underlying operating cashflows                                      49,252    36,236 
                                                                    -------  -------- 
                                                                     105%      82% 
Capital exp. (Equipment and software)                               (4,190)  (4,221) 
Tax                                                                 (7,641)  (7,312) 
Net finance cost                                                    (2,293)  (1,732) 
Underlying free cashflow attributable to equity holders             35,128    22,971 
                                                                    -------  -------- 
 
Free cashflow attributable to discontinued operations                3,563    4,321 
Free cashflow attributable to continuing operations                 31,565    18,650 
 

SANNE's high levels of cash conversion in the year were driven by improved processes and controls around working capital management. This has resulted in trade receivables growing at a much slower rate than revenue and an improvement in the proportionate size of working capital balances on the balance sheet reducing to 19.7% of the year's revenue from 22.6% in 2018. The table below pulls out the key trading working capital items included within the Group's balance sheet:

 
                                                         2019      2018 
                                                       GBP'000   GBP'000 
Contract assets                                         6,460     6,628 
Trade receivables(1)                                    42,595    40,268 
Contract liabilities                                   (17,634)  (16,085) 
Trading working capital                                 31,421    30,811 
                                                       --------  -------- 
Trading working capital as % of continuing revenue       20%       23% 
Trading working capital as % of discontinued revenue     42%       33% 
 

(1) Includes allowance for doubtful receivables

As highlighted in the table above, the Jersey Private Client business that is being sold has a much larger amount of working capital associated with it as a proportion of revenue than the continuing operations. The sale of this business will therefore result in an improvement in the Group's working capital.

Contract assets, referred to as accrued income in prior years, has remained flat year on year despite strong revenue growth. This reflects the continued focus within SANNE on prudent revenue recognition. Contract liabilities reflect revenue that has been invoiced in advance and have grown in line with the business. Write offs of trade receivables remained at exceptionally low levels during 2019 representing less than 0.1% of revenues.

Capital expenditure in the year largely comprised equipment and software purchases and software development costs. The purchase of equipment and software largely relates to office fit-out costs in the Group. The software development costs relate to the joint development project with Colmore, which will offer the Helios technology and data analytics platform to our global alternatives client base.

The payment of deferred consideration in the cash flow statement relates entirely to the earn-out payment on LIS and CP, which was made in the second half. Whilst we have accrued for the earn-out payment for AgenSynd, this is not due to be settled until March 2020.

Capital management and financing

At 31 December 2019, the Group's net debt was GBP78.1 million (2018: GBP53.0m), including gross cash balances of GBP51.5m (2018: GBP32.4m). This reflected the strong operating cash generation seen in the year and comes after the funding of the earn-out payment for LIS and CP, the minority investment in Colmore and dividends paid to shareholders. As a result, the Group's headline net debt to underlying earnings before interest, taxation, depreciation and amortisation calculated ignoring IFRS 16 (net debt to pre-IFRS 16 EBITDA) ratio was 1.6x at the year end.

As a result of operating a number of regulated subsidiaries within the Group SANNE ring fences certain cash balances to ensure the relevant regulated entities are funded in order to meet minimum capitalisation requirements imposed on them. At 31 December 2019 the cash ring fenced for regulatory capital requirements ("regulatory cash") was GBP10.1 million (2018: GBP8.9m). Excluding this regulatory cash from available cash, the Group's net debt to pre-IFRS 16 EBITDA ratio increases to 1.8x.

The table below sets out how capital has been generated and used in 2019. The Group's approach to capital allocation is to seek to invest the cash generated by the business to earn the best return for the Group's principal stakeholders. Given the low capital requirements to fund organic growth, the principal use of capital has been to fund acquisitions and shareholder dividends. Management aims to do this whilst maintaining a Group net debt to pre-IFRS16 EBITDA ratio of not more than 2.0x. However, the Group's banking covenants are set materially higher with the option to increase this for a period of time so that the Group has additional funding headroom were it to be appropriate to use it.

 
Cash generated                             GBP'm 
Free cashflow before capital expenditure    39 
Net debt movement                           23 
Total                                       62 
-----------------------------------------  ----- 
 
Cash used                                  GBP'm 
Acquisition related                         38 
Dividends                                   20 
Capital expenditure                          4 
Total                                       62 
-----------------------------------------  ----- 
 

In the first half of the year, 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. The facility has a maturity of February 2023 with extension options of up to two years. At the year end the facility was GBP131.2 million drawn with available cash balances (excluding regulatory cash) of GBP51.5 million. Pre-IFRS 16 EBITDA is used to calculate leverage ratio per the terms of our facilities agreement.

Foreign Exchange

The Group's results are exposed to translation risk from the movement in currencies. Overall, the average movement from currencies have increased reported total group revenue and underlying total group operating profit by GBP1.5 million and GBP1.0 million respectively. During 2019 key individual exchange rates have moved, as shown in the table below.

 
                      At 31 December            Annual average 
                     -----------------         ----------------- 
 Per GBP sterling     2019      2018     %      2019      2018     % 
------------------   --------  -------  -----  --------  -------  ------ 
 Euro                 1.18      1.11     6.3%   1.14      1.13     0.9% 
 US Dollar            1.33      1.27     4.7%   1.28      1.33     -3.8% 
 

ALTERNATIVE PERFORMANCE MEASURES

The Group uses alternative performance measures (APMs) to provide additional information on the underlying performance of the business. Management use these key measures to assess the underlying performance of the Group's business and the adjusted performance enables further comparability between reporting periods. The APMs used to manage the Group are as follows:

ORGANIC REVENUE GROWTH

Organic revenue growth is quoted for both continuing operations as well as total Group revenue. In the case of continuing operations, it is reported revenue growth adjusted for acquisitions on a like-for-like basis. In the case of total Group revenue, again this shows income from both continuing and discontinued operations on a like-for-like basis for 2019 and 2018 adjusted for acquisitions. To arrive at a like-for-like basis, revenue from any acquisition made in the year is excluded. Where an acquisition was made part way through the prior year, the current year contribution will be reduced to include only the same period as had been included in the prior year. A reconciliation is included in the CFO Review. Organic revenue growth measures are a key performance indicator for the growth of the business excluding the impacts of any acquisitions undertaken. The calculation methodology for both continuing operations and total Group revenue is set out in the CFO's Report.

CONSTANT CURRENCY GROWTH

To highlight our period on period performance, we discuss our results in terms of growth at constant currency. This represents growth calculated after translating both year's performance at the prior year's applicable exchange rates. Overall, the average movement from currencies have increased reported total group revenue and underlying total group operating profit by GBP1.5 million and GBP1.0 million respectively. Therefore constant currency metrics can be arrived at by removing these amounts.

UNDERLYING TOTAL GROUP AND UNDERLYING CONTINUING OPERATIONS APMS

Post the year end the Group has announced that it has entered into an agreement to dispose of its Jersey Private Client business. As such, the statutory results for the Group are presented for continuing operations. To help provide users of these accounts with a view of performance during the year ended 31 December 2019, we present several alternative profit measures aimed at showing both the full Group's performance (including both continuing and discontinued operations) as well as the representative performance for the ongoing business only (continuing operations). In both sets of alternative performance measures, they are adjusted to exclude non-underlying costs. Non-underlying charges are defined as expense items, which if included, would otherwise obscure the understanding of the underlying performance of the Group. These items represent material restructuring, acquisition, integration and costs that are transformational in nature or costs that do not relate to the operating of the Group's business. Further explanation of why non-underlying charges are excluded from APMs is included in note 3 and note 9 of the financial statements.

Underlying total group alternative performance measures are reconciled below but include all results from both continuing and discontinuing operations whilst excluding non-underlying items.

Underlying continuing operations alternative performance measures are also reconciled below. These present results from the continuing operations only, also exclude non-underlying items but are also adjusted to remove certain direct and overhead cost allocations that, whilst not directly transferring with the sale, will cease within the continuing Group as a consequence of the disposal or that the Group will be capable of reducing as a result of the disposal. These alternative performance measures differ to the IFRS 5 definition of continuing and discontinued operations.

Total Group revenue:

 
                                       2019        2018 
                                     (GBP'000)   (GBP'000) 
 Continuing operations revenue        159,707     136,242 
 Discontinued operations revenue       5,736       6,761 
 Total Group Revenue                  165,443     143,003 
----------------------------------  ----------  ---------- 
 

Underlying total group operating profit:

 
                                                2019        2018 
                                              (GBP'000)   (GBP'000) 
 Underlying total group operating profit       46,688      44,447 
 Discontinued operations operating profit 
  (note 11)                                    (3,700)     (4,048) 
 Non underlying cost (note 9)                 (28,707)    (18,882) 
 Operating profit - continuing                 14,281      21,517 
-------------------------------------------  ----------  ---------- 
 

Underlying total group operating profit is used to explain the operating performance of the total Group in the year including both continuing and discontinued operations on a like for like basis compared with the prior year.

Underlying total group profit before tax:

 
                                                 2019        2018 
                                               (GBP'000)   (GBP'000) 
 Underlying total profit before tax             42,415      42,562 
 Discontinued operations profit before tax 
  (note 11)                                     (3,700)     (4,048) 
 Non underlying cost and tax                   (29,164)    (18,882) 
 Profit before tax                               9,551      19,632 
--------------------------------------------  ----------  ---------- 
 

Underlying total group profit before tax is a key measure of Group profitability and assesses the Group's combined organic and inorganic profitability after funding costs have been considered.

Underlying total group diluted earnings per share:

 
                                                                                 2019         2018 
                                                                               (GBP'000)    (GBP'000) 
Underlying total group DEPS                                                      23.6         24.1 
Weighted average number of ordinary shares for the purposes of diluted EPS    144,019,578  141,269,560 
Underlying total group profit after tax                                         34,448       34,829 
After tax impact of discontinued operations                                     (3,330)      (3,643) 
After tax impact of non-underlying items                                       (25,574)     (16,655) 
Profit after tax from continuing operations                                      5,544       14,531 
----------------------------------------------------------------------------  -----------  ----------- 
 

Underlying total group diluted earnings per share represents underlying total group profit before tax less the underlying effective tax charge for both continuing and discontinued operations in the period divided by the weighted average number of shares in issue for the period. This is a key measure of total underlying profitability for shareholders from all operations owned in the year.

Underlying continuing operations operating profit:

 
                                                   2019        2018 
                                                 (GBP'000)   (GBP'000) 
 Underlying continuing operations operating 
  profit                                          44,333      41,430 
 Discontinued operations overhead and direct 
  cost allocation adjustment                      (1,345)     (1,031) 
 Non - underlying items                          (28,707)    (18,882) 
 Operating profit - continuing                    14,281      21,517 
----------------------------------------------  ----------  ---------- 
 

Underlying continuing operations operating profit is used to explain the operating performance of the ongoing portion of the Group reflecting the disposal and exclusion of the Jersey Private Client business. This is a key profit measure to consider the operating profitability on an ongoing basis.

Underlying continuing operations profit before tax:

 
                                                    2019        2018 
                                                  (GBP'000)   (GBP'000) 
 Underlying continuing operations profit 
  before tax                                       40,356      39,785 
 Discontinued operations overhead and direct 
  cost allocation adjustment                       (1,641)     (1,271) 
 Non underlying items                             (29,164)    (18,882) 
 Profit before tax from continuing operations       9,551      19,632 
-----------------------------------------------  ----------  ---------- 
 

Underlying continuing operations profit before tax is a key measure of Group profitability for the ongoing business and assesses the Group's combined organic and inorganic profitability after funding costs have been considered but excluding those operations being sold.

Underlying continuing operations diluted earnings per share:

 
                                                                                 2019         2018 
                                                                               (GBP'000)    (GBP'000) 
Underlying continuing DEPS                                                       22.3         22.4 
Weighted average number of ordinary shares for the purposes of diluted EPS    144,019,578  141,269,560 
Underlying continuing profit after tax                                          32,594       32,330 
After tax impact of non-underlying items                                       (25,574)     (16,655) 
After tax impact of additional discontinued operation cost                      (1,476)      (1,144) 
Profit after tax from continuing operations                                      5,544       14,531 
----------------------------------------------------------------------------  -----------  ----------- 
 

Underlying total group operating profit margin and underlying continuing operations operating profit margin

Underlying total group operating profit margin is the underlying total group operating profit as a percentage of total Group revenue. This is a key measure of total Group profitability during the year and demonstrates the efficiency of the Group. Underlying continuing operations operating profit margin is the underlying continuing operations operating profit as a percentage of continuing operations revenue. This is a key measure of the ongoing Group's profitability after the disposal of the Jersey Private Client business.

UNDERLYING OPERATING CASH FLOW

Underlying operating cash flow represents the cash generated by total operations in the year, adding back the cash charges within non-underlying items and reducing for the total cash out flow in relation to the Group's leases that have been accounted for under IFRS 16. A reconciliation is included in the CFO Review.

UNDERLYING OPERATING CASH CONVERSION

Underlying operating cash conversion is the underlying operating cash flow as a percentage of underlying operating profit. This measures the Group's cash-generative characteristics from its underlying operations and is used to evaluate the Group's management of working capital.

 
                                               2019        2018 
                                             (GBP'000)   (GBP'000) 
 Underlying operating cashflows               49,252      36,236 
 Total Group underlying operating profit      46,688      44,447 
 Underlying operating cash conversion          105%         82% 
------------------------------------------  ----------  ---------- 
 

UNDERLYING FREE CASH FLOW ATTRIBUTABLE TO EQUITY HOLDERS

Free cash flow attributable to equity holders represents our underlying free cash flow prior to any acquisitions, refinancing or share capital cash flows. It is a key measure of cash earned for the shareholders of the Group that can be used to generate cash returns or be invested in the future growth of the business.

 
                                                2019        2018 
                                              (GBP'000)   (GBP'000) 
 Underlying free cashflow attributable to 
  equity holders                               35,128      22,971 
 Capital exp. (Equipment and software)          4,190       4,221 
 Net finance cost                               2,293       1,732 
 Lease liability payments                       4,757         - 
 Non underlying cashflow items                  (924)      (1,306) 
 Net cash from operating activities            45,444      27,618 
-------------------------------------------  ----------  ---------- 
 

UNDERLYING EFFECTIVE TAX RATE

The underlying effective tax rate is determined as the reported tax rate for the Group adjusted for the tax effects of non-underlying costs. We consider the underlying effective tax rate to be an appropriate measure, as it best reflects the applicable tax payable in relation to the underlying performance of the Group. A reconciliation is provided in note 10 to the financial statements for the reported and total group underlying effective tax rate. The table below reconciles the underlying tax charge for underlying continuing operations and the underlying effective tax rate is this charge divided by the underlying continuing operations profit before tax:

 
                                                       2019        2018 
                                                     (GBP'000)   (GBP'000) 
 Underlying tax charge (per note 9 of the 
  financial statements)                                7,967       7,733 
 Income tax expense from discontinued operations 
  (per note 9)                                         (370)       (405) 
 Underlying continuing tax charge adjustment 
  (per CFO Review)                                      164         127 
 Underlying continuing tax charge                      7,761       7,455 
--------------------------------------------------  ----------  ---------- 
 

NET DEBT

This refers to the Group's net indebtedness that is calculated by taking the Group's gross debt balance and reducing it by gross cash balances.

Consolidated Income Statement

For the year ended 31 December 2019

 
                                                                  2019(1)   2018(1) 
                                                           Note   GBP'000   GBP'000 
---------------------------------------------------------  ----  --------  -------- 
Total sales including those from discontinued operations          165,443   143,003 
Continuing operations 
Revenue                                                       6   159,707   136,242 
Direct costs                                                     (66,870)  (51,942) 
---------------------------------------------------------  ----  --------  -------- 
Gross profit                                                  5    92,837    84,300 
---------------------------------------------------------  ----  --------  -------- 
Other operating income                                                185       158 
Operating expenses                                               (78,741)  (62,941) 
---------------------------------------------------------  ----  --------  -------- 
Operating profit                                                   14,281    21,517 
---------------------------------------------------------  ----  --------  -------- 
 
Comprising: 
Underlying operating profit from continuing operations             42,988    40,399 
Non-underlying items within operating profit from 
 continuing operations                                        9  (28,707)  (18,882) 
---------------------------------------------------------  ----  --------  -------- 
                                                                   14,281    21,517 
---------------------------------------------------------  ----  --------  -------- 
 
Other gains and losses                                              (216)     (132) 
Finance costs                                                 7   (4,672)   (1,909) 
Finance income                                                8       158       156 
---------------------------------------------------------  ----  --------  -------- 
Profit before tax                                                   9,551    19,632 
---------------------------------------------------------  ----  --------  -------- 
 
Comprising: 
Underlying profit before tax from continuing operations            38,715    38,514 
Non-underlying items within profit from continuing 
 operations                                                   9  (29,164)  (18,882) 
---------------------------------------------------------  ----  --------  -------- 
                                                                    9,551    19,632 
---------------------------------------------------------  ----  --------  ======== 
Tax                                                          10   (4,007)   (5,101) 
---------------------------------------------------------  ----  --------  -------- 
Profit after tax from continuing operations                         5,544    14,531 
---------------------------------------------------------  ----  --------  -------- 
Discontinued operations                                      11     3,330     3,643 
---------------------------------------------------------  ----  --------  -------- 
Profit for the year                                                 8,874    18,174 
---------------------------------------------------------  ----  --------  -------- 
Comprising: 
Underlying operating profit from continuing operations             42,988    40,399 
Underlying operating profit from discontinued operations            3,700     4,048 
---------------------------------------------------------  ----  --------  -------- 
Total underlying operating profit                                  46,688    44,447 
Non-underlying items within operating profit from 
 continuing operations                                           (28,707)  (18,882) 
Other gains and losses from continuing operations                   (216)     (132) 
Finance costs from continuing operations                          (4,215)   (1,909) 
Finance income from continuing operations                             158       156 
Non-underlying items                                                (457)         - 
Total tax                                                         (4,377)   (5,506) 
---------------------------------------------------------  ----  --------  -------- 
Profit for the year                                                 8,874    18,174 
---------------------------------------------------------  ----  --------  -------- 
 
 
Earnings per ordinary share ("EPS") from continuing operations (expressed 
 in pence per ordinary share) 
Basic                                                     12          3.8         10.3 
Diluted                                                   12          3.8         10.1 
----------------------------------------------------  ------  -----------  ----------- 
 
Underlying basic                                          12         21.6         22.1 
Underlying diluted                                        12         21.3         21.6 
----------------------------------------------------  ------  -----------  ----------- 
 
Earnings per ordinary share ("EPS") from continuing and discontinued operations 
 (expressed in pence per ordinary share) 
Basic                                                     12          6.2         12.9 
Diluted                                                   12          6.1         12.6 
----------------------------------------------------  ------  -----------  ----------- 
 
Underlying basic                                          12         23.9         24.7 
Underlying diluted                                        12         23.6         24.1 
----------------------------------------------------  ------  -----------  ----------- 
 
   1              Refer to note 11 for details relating to the discontinued operations. 

The notes are an integral part of these Consolidated Financial Statements.

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2019

 
                                                             2019      2018 
                                                   Note   GBP'000   GBP'000 
-------------------------------------------------  ----  --------  -------- 
Profit for the year                                         8,874    18,174 
-------------------------------------------------  ----  --------  -------- 
Other comprehensive (expense)/income: 
Items that will not be reclassified subsequently 
 to profit and loss: 
Actuarial (loss) / gain on defined benefit 
 retirement obligation                               33      (67)        70 
Income tax relating to items not reclassified                  10      (11) 
Revaluation of minority equity investment            20     (715)         - 
Items that may be reclassified subsequently 
 to profit and loss: 
Exchange differences on translation of foreign 
 operations                                              (10,663)     8,756 
-------------------------------------------------  ----  --------  -------- 
Total other comprehensive (expenses)/income 
 for the year                                            (11,435)     8,815 
-------------------------------------------------  ----  --------  -------- 
Total comprehensive (expenses)/income for the 
 year                                                     (2,561)    26,989 
-------------------------------------------------  ----  --------  -------- 
 
Comprising: 
Total comprehensive (expenses)/income for the 
 year from continuing operations                          (5,891)    23,346 
Total comprehensive income for the year from 
 discontinued operations                                    3,330     3,643 
-------------------------------------------------  ----  --------  -------- 
Total comprehensive (expenses)/income for the 
 year                                                     (2,561)    26,989 
-------------------------------------------------  ----  --------  -------- 
 

The notes are an integral part of these Consolidated Financial Statements.

Consolidated Balance Sheet

As at 31 December 2019

 
                                                  2019      2018 
                                        Note   GBP'000   GBP'000 
--------------------------------------  ----  --------  -------- 
Assets 
Non-current assets 
Goodwill                                  16   180,414   188,928 
Other intangible assets                   17    45,388    66,122 
Equipment                                 18     9,984     9,973 
Minority equity investment                20     8,632         - 
Deferred tax asset                        28     8,324     2,082 
Right-of-use asset                        21    32,733         - 
--------------------------------------  ----  --------  -------- 
Total non-current assets                       285,475   267,105 
--------------------------------------  ----  --------  -------- 
Current assets 
Trade and other receivables               22    47,941    44,772 
Cash and bank balances                          51,454    32,411 
Contract assets                           23     6,460     6,628 
Disposal group held for sale              11     2,979     2,488 
--------------------------------------  ----  --------  -------- 
Total current assets                           108,834    86,299 
--------------------------------------  ----  --------  -------- 
Total assets                                   394,309   353,404 
--------------------------------------  ----  --------  -------- 
Equity 
Share capital                             25     1,466     1,460 
Share premium                                  203,423   200,270 
Own shares                                26   (1,166)   (1,470) 
Shares to be issued                       32     7,723    12,278 
Retranslation reserve                         (13,134)   (2,471) 
Accumulated losses                            (26,487)  (17,399) 
--------------------------------------  ----  --------  -------- 
Total equity                                   171,825   192,668 
--------------------------------------  ----  --------  -------- 
Non-current liabilities 
Borrowings                                27   129,572    85,364 
Deferred tax liabilities                  28    15,931    13,395 
Defined benefit retirement obligation     33       684       701 
Other liabilities                         29         -     4,914 
Provisions                                30     2,024     1,198 
Lease liability                           21    33,549         - 
--------------------------------------  ----  --------  -------- 
Total non-current liabilities                  181,760   105,572 
--------------------------------------  ----  --------  -------- 
Current liabilities 
Trade and other payables                  29    14,472    34,467 
Current tax liabilities                          3,301     3,910 
Provisions                                30       451       452 
Contract liabilities                      31    17,634    16,085 
Lease liability                           21     4,291         - 
Disposal group held for sale              11       575       250 
--------------------------------------  ----  --------  -------- 
Total current liabilities                       40,724    55,164 
--------------------------------------  ----  --------  -------- 
Total equity and liabilities                   394,309   353,404 
--------------------------------------  ----  --------  -------- 
 

The consolidated financial statements were approved by the Board of Directors on 18 March 2020 and signed on its behalf by:

   Martin Schnaier                                        James Ireland 
   Chief Executive Officer                         Chief Financial Officer 

Consolidated Statement of Changes in Equity

For the year ended 31 December 2019

 
                                                                      Shares 
                                       Share     Share                 to be  Retranslation  Accumulated     Total 
                                     capital   premium  Own shares    issued        reserve       losses    equity 
                              Note   GBP'000   GBP'000     GBP'000   GBP'000        GBP'000      GBP'000   GBP'000 
----------------------------  ----  --------  --------  ----------  --------  -------------  -----------  -------- 
Balance at 1 January 
 2018                                  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 the 
 defined benefit retirement 
 obligation                                -         -           -         -              -           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                 25        44    28,420           -   (4,043)              -            -    24,421 
Dividend payments               15         -         -           -         -              -     (18,376)  (18,376) 
Share-based payments            32         -         -           -     2,948              -          327     3,275 
Net buyback of own 
 shares                         26         -         -       (329)         -              -            -     (329) 
----------------------------  ----  --------  --------  ----------  --------  -------------  -----------  -------- 
Balance at 31 December 
 2018                                  1,460   200,270     (1,470)    12,278        (2,471)     (17,399)   192,668 
----------------------------  ----  --------  --------  ----------  --------  -------------  -----------  -------- 
Change in accounting 
 policy(1)                                 -         -           -         -              -        (556)     (556) 
----------------------------  ----  --------  --------  ----------  --------  -------------  -----------  -------- 
Restated balance at 
 1 January 2019                        1,460   200,270     (1,470)    12,278        (2,471)     (17,955)   192,112 
----------------------------  ----  --------  --------  ----------  --------  -------------  -----------  -------- 
Profit for the year                        -         -           -         -              -        8,874     8,874 
Other comprehensive 
 expense for the year 
Actuarial loss on the 
 defined benefit retirement 
 obligation                                -         -           -         -              -         (67)      (67) 
Income tax relating 
 to items not reclassified                 -         -           -         -              -           10        10 
Revaluation of equity 
 investment                                -         -           -         -              -        (715)     (715) 
Exchange differences 
 on translation of foreign 
 operations                                -         -           -         -       (10,663)            -  (10,663) 
----------------------------  ----  --------  --------  ----------  --------  -------------  -----------  -------- 
Total comprehensive 
 expense for the year                      -         -           -         -       (10,663)        8,102   (2,561) 
----------------------------  ----  --------  --------  ----------  --------  -------------  -----------  -------- 
Issue of share capital 
 - acquisitions                 25         6     3,153           -   (3,159)              -            -         - 
Dividend payments               15         -         -           -         -              -     (20,029)  (20,029) 
Share-based payments            32         -         -           -     2,337              -            -     2,337 
Shares vesting                             -         -         559   (3,733)              -        3,395       221 
Net buyback of own 
 shares                         26         -         -       (255)         -              -            -     (255) 
----------------------------  ----  --------  --------  ----------  --------  -------------  -----------  -------- 
Balance at 31 December 
 2019                                  1,466   203,423     (1,166)     7,723       (13,134)     (26,487)   171,825 
----------------------------  ----  --------  --------  ----------  --------  -------------  -----------  -------- 
 

(1) Refer to note 36 for details relating to changes in accounting policy, transitioning in the new IFRS 16 accounting standard.

Consolidated Cash Flow Statement

For the year ended 31 December 2019

 
                                                               2019      2018 
                                                     Note   GBP'000   GBP'000 
---------------------------------------------------  ----  --------  -------- 
Operating profit from: 
Continuing operations                                        14,281    21,517 
Discontinued operations                                       3,700     4,048 
---------------------------------------------------  ----  --------  -------- 
Operating profit including discontinued operations           17,981    25,565 
Adjustments for: 
Depreciation of equipment                              18     2,867     1,915 
Depreciation of right-of-use asset                     21     5,313         - 
Lease liability interest                               21   (1,607)         - 
Amortisation of other intangible assets                17    16,487    15,730 
Impairment of other intangible assets                  17     2,425        55 
Share-based payment expense                            32     2,377     3,376 
Disposal of equipment                                  18        64       257 
(Decrease) / increase in provisions                    30     (147)     1,144 
Defined benefit retirement obligation movement         33      (68)        11 
Deferred consideration adjustment                             4,242         - 
Other liabilities                                                 -     1,267 
---------------------------------------------------  ----  --------  -------- 
Operating cash flows before movements in working 
 capital                                                     49,934    49,320 
---------------------------------------------------  ----  --------  -------- 
Increase in receivables                                     (3,492)  (16,241) 
Increase in contract liabilities                              1,874     2,552 
Increase / (decrease) in payables                             4,769     (701) 
---------------------------------------------------  ----  --------  -------- 
Cash generated by operations                                 53,085    34,930 
---------------------------------------------------  ----  --------  -------- 
Income taxes paid                                           (7,641)   (7,312) 
---------------------------------------------------  ----  --------  -------- 
Net cash from operating activities                           45,444    27,618 
---------------------------------------------------  ----  --------  -------- 
Investing activities 
Interest received                                               158       156 
Purchases of equipment                                 18   (3,914)   (4,221) 
Software development costs paid                               (276)         - 
Payment of deferred consideration                          (28,638)  (14,407) 
Acquisition of subsidiaries                                       -  (29,279) 
Acquisition of minority equity investment              20   (9,347)         - 
---------------------------------------------------  ----  --------  -------- 
Net cash used in investing activities                      (42,017)  (47,751) 
---------------------------------------------------  ----  --------  -------- 
Financing activities 
Dividends paid                                         15  (20,029)  (18,376) 
Interest on bank loan                                       (2,293)   (1,732) 
Buyback of own shares                                         (255)     (329) 
Capitalised loan costs                                 27   (1,711)         - 
Redemption of bank loans                               27  (85,850)   (4,000) 
New bank loans raised                                  27   132,060    24,850 
Lease liability payments                                    (4,757)         - 
---------------------------------------------------  ----  --------  -------- 
Net cash from financing activities                           17,165       413 
---------------------------------------------------  ----  --------  -------- 
Net increase / (decrease) in cash and cash 
 equivalents                                                 20,592  (19,720) 
---------------------------------------------------  ----  --------  -------- 
Cash and cash equivalents at beginning of year               32,411    50,803 
Effect of foreign exchange rate changes                     (1,549)     1,328 
---------------------------------------------------  ----  --------  -------- 
Cash and cash equivalents at end of year                     51,454    32,411 
---------------------------------------------------  ----  --------  -------- 
Cash flows from continuing operations                        17,029  (24,041) 
Cash flows from discontinued operations                11     3,563     4,321 
---------------------------------------------------  ----  --------  -------- 
Net increase / (decrease) in cash and cash 
 equivalents                                                 20,592  (19,720) 
---------------------------------------------------  ----  --------  -------- 
 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2019

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 consolidated 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

Certain new accounting standards and interpretations have been published, which are not effective for 31 December 2019 reporting periods and have not been early adopted by the Group. These standards, listed below, are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

(a) Definition of Material - Amendments to IAS 1 and IAS 8

(b) IFRS 17 Insurance Contracts

(c) Revised Conceptual Framework for Financial Reporting. The Group does not rely on the Framework in determining its accounting policies for transactions. The IFRS standards sufficiently cover all transactions.

New and revised standards effective for the year

The Group adopted the new IFRS 16 'Leases' accounting standard on 1 January 2019, replacing IAS 17. The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. It introduced a single lessee accounting model whereby a lessee is required to recognise a right-of-use asset and a lease liability for all leases with a lease term exceeding 12 months. The Group assessed the impact of the new standard to be significant. Please refer to note 36 for further details relating to the adoption of the new standard. The depreciation on the right-of-use asset will be accounted for separately from the interest expense incurred on the lease liability in the consolidated income statement. The Group elected to make use of the modified retrospective approach for transition and have not restated comparative amounts. The lease liability is measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate at transition date. Right-of-use assets will be measured as if the standard has always been applied. There is no significant impact on the net profit after implementing the new standard.

The Group adopted IFRIC 23 'Uncertainty over Income Tax Treatments' on 1 January 2019. The Group's historic approach to 'Uncertainty over Income Tax Treatments' is in line with the new IFRIC 23. Thus, there was no material impact on the amounts reported in the financial statements. Additional disclosure had been made in note 10 to address the disclosure requirements of the new IFRIC.

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 2019. Their adoption has not had any material impact on the disclosures or on the amounts reported in these consolidated financial statements. The most significant of these standards are set out below.

(a) Annual improvements 2015-2017 Cycle

(b) Prepayment Features with Negative Compensation - Amendments to IFRS 9

(c) Long-term Interests in Associates and Joint Ventures - Amendments to IAS 28, and

(d) Plan Amendment, Curtailment or Settlement - Amendments to IAS 19

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 consolidated financial statements have also been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB") to the extent that such standards have been endorsed by the European Union.

The consolidated financial statements have been prepared on the historical cost basis, except for certain financial assets measured at fair value. 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 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 for at least the next 12 months from the date of approval of these consolidated 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 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 in the Group's Annual Report and Accounts.

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) concerning the 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. Refer to note 16.

Intangible assets

Intangible assets acquired in a business combination are initially recognised at their fair value at the acquisition date (which is regarded as the cost). Subsequent to initial recognition, 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, this is a separate assessment from the annual Goodwill impairment review. 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'.

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'.

Software

Costs associated with maintaining software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the recognition criteria is met.

The costs related to software under development are categorised between research and development expenditure. Research expenditure and development expenditure that do not meet the recognition criteria are recognised as expenses when incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Amortisation will commence once the asset is ready for use, as intended by management.

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 become 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

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 on three principal elements per the contracts with customers, 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.

The Group provides a number of services to its customers, ranging from trust / fiduciary services, accounting and administrative activities. As the revenue recognition under IFRS 15's "five step model" is identical for all Sanne's services, the five step approach is applied as follows:

Step 1 - Identify the contract;

Contractual agreements exist between SANNE and all clients which creates enforceable rights and obligations.

Step 2 - Identify performance obligations

The services to the customer set out in the agreement are separately identifiable. Each service set out in the contract is distinct as each component can be performed and delivered separately. The different services have been identified as separate and distinct services, thus being separate performance obligations.

Step 3 - Determine transaction price

Service based fees are based on either pre-set (fixed) fees which are based on the expected amount of work (time spent at the relevant charge-out rates) to be performed or on a variable agreement where it is based on the actual amount of work (time spent at the relevant charge-out rates) but only to be determined once the work is finalised.

Determining the transaction price for these fees will vary with the amount of time spent which is supported by time sheets.

Step 4 - Allocate transaction price

The transaction prices are allocated to the performance obligations (the provision of the services) based on the stand-alone selling prices. Sanne uses the best available data to determine a price for the services rendered which is based on time spent at a specific charge out rate.

Step 5 - Recognise revenue

Sanne concluded that the obligations are satisfied over time. We recognise the revenue for these services on a time spent basis as the performance obligations are satisfied over time.

Contracts with customers do make provision for annual transaction price increases, generally in line with a relevant local inflation measures. These increases do not change the performance obligations, and the increased prices are applied prospectively when revenue is recognised.

Revenue is recognised in the subsidiary where the contract with customers is based. The segmental reporting is presented based on the jurisdiction in which the specific client relationships are owned and managed. Therefore, the revenue stated in the segmental reporting is presented based on the jurisdiction where revenue is generated but may not be the same as the contracted jurisdiction.

Contract assets

Contract assets represent the billable provision of services which have been rendered and where performance obligations have been met but clients have not been invoiced at the reporting date. These were previously called "accrued income" in SANNE's consolidated financial statements. Contract assets are recorded based on agreed fees to be billed in arrears and time spent as performance obligations are met, based on charge-out rates in force at the work date, less any specific provisions against the value of contract assets where recovery may not be made in full.

Contract liabilities

Contract liabilities represent fees billed in advance in respect of services under contract and give rise to a trade receivable. Contract liabilities are released to revenue on a time apportioned basis in the appropriate accounting period. These were previously called "deferred income" in SANNE's consolidated financial statements.

Leases

Up to 31 December 2018, all leases were classified as operating leases. Rentals payable under operating leases were charged to expenses on a straight-line basis over the term of the relevant lease except where another more systematic basis was more representative of the time pattern in which economic benefits from the lease asset were consumed.

On 1 January 2019 the Group adopted IFRS 16 'Leases'. The Group assesses its contracts to determine if a contract is or contains a lease. A contract contains a lease if it conveys the right to control the use of an identified asset for a period, in exchange for consideration. At initial recognition of a new lease, the lease liability is recognised as the present value of future payments, discounted using the incremental local borrowing rate (unless the interest implicit to the lease is available for use). A corresponding right-of-use asset is recognised on initial recognition and is measured at an amount equal to the lease liability, less any lease incentives and lease payments made before the commencement date, plus any initial direct costs and dilapidation costs.

Subsequently the Group accounts for lease payments by allocating them between finance costs and the lease liability. The finance cost is charged to profit or loss over the lease period. The right-of-use asset is depreciated over the shorter of the asset's useful life or the lease term on a straight-line basis.

The Group made use of the practical expedient whereby leases with a lease term of 12 months or less are accounted for as a short-term lease. Consequently, no lease liability or right-of-use asset is recognised thereon and the lease payments will be accounted for in the consolidated income statement on a straight-line basis.

The Group also made use of the 'low value asset' practical expedient and defines low value assets as those assets with a purchase price for a new and unused asset of GBP5,000 or lower.

Foreign currencies

The separate 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 separate financial statements of the subsidiary 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 the Consolidated Income Statement 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 and accumulated in the translation reserve in the consolidated statement of changes in equity.

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 RETIREMENT OBLIGATION

The Group has a defined benefit retirement obligation in Mauritius due to a regulatory requirement. The defined benefit retirement obligation is recognised in line with IAS 19.

The liability recognised in the consolidated balance sheet in respect of the defined benefit retirement obligation is the present value of the defined benefit retirement 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 retirement obligation is calculated at half year and year end by independent qualified actuaries using the projected unit credit method.

The present value of the defined benefit retirement 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 defined benefit retirement 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 an additional understanding of the financial performance of the Group (note 12).

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 consolidated statement of comprehensive income 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 consolidated 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 the deferred tax asset 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 the consolidated income statement, 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. Software that forms an integral part of the related hardware, where the hardware cannot be operated without the specific software is treated as equipment.

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 
   Computer software          3 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 consolidated 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 on hand and deposits held at call with banks.

Call deposits held with the bank are redeemable to the group within 24 hours' notice, without early payment penalties or interest forfeits. These call deposits have a maturity of three months or less from the date of acquisition.

Trapped cash represents the minimum cash balance to be held to meet regulatory capital requirements, as set out by relevant laws and regulations in the different jurisdictions. The trapped cash is determined based on certain rules that are different in each jurisdiction. Trapped cash is recognised as cash and cash equivalents.

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. Refer to note 34 disclosing the financial assets categorised as financial assets at amortised costs.

Financial assets at fair value through other comprehensive income

The Group has made an equity investment, that is not held for trading purposes. The Group has made the irrevocable election to carry the investment at fair value through other comprehensive income. On initial recognition the investment was measured at fair value, plus transaction costs. Subsequently, this investment will be measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the investment revaluation reserve. Dividends on the investment in equity instrument are recognised in profit or loss. On disposal of the equity investments the cumulative gain or loss will not be reclassified to the consolidated statement of comprehensive income, instead, it is transferred to retained earnings.

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 the trade receivables.

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 consolidated 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 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.

The grant date fair value is estimated with reference to the market price of the company's shares. For share plans containing market-based vesting conditions, the fair value was determined using a valuation model that takes into account the share price at grant date, expected price volatility and a risk free rate.

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 cost. 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 in the opinion of the directors it is appropriate to do so to provide further information 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 form part of the non-underlying items as they are used as a tool to retain key personnel relating to the acquisitions and recruit senior management to support the acquisitions. Amortisation of contract and customer 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. Therefore excluding the amortisation of intangible assets from underlying earnings allows the income and costs of both organically generated and acquired contracts to be presented on a like-for-like basis. Any impairment losses attributable to these intangible assets are also deemed to be outside of the course of ordinary business. Regulatory fines and the fees associated with these fines are also deemed to be one off in nature and are classified as being non-underlying items.

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.

Disposal groups held for sale and discontinued operations

Disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell.

An impairment loss is recognised for any initial or subsequent write-down of the disposal group to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of the disposal group, but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the disposal group is recognised at the date of derecognition.

The disposal group includes trade receivables, contract assets and contract liabilities and consequently does not attract depreciation, amortisation or interest payable.

Assets that are part of the disposal group classified as held for sale are presented separately from the other assets in the consolidated balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the consolidated balance sheet.

A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the consolidated income statement.

PREPAYMENTS

Prepayments are treated as a current asset, and represents goods or services that the Group has paid fore before the delivery there of. The prepayment will be released to the relevant expense in the period to which the delivery of goods or services relate to.

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 the consolidated financial statements.

Classification of equity investment

The Group obtained an equity investment in Colmore A.G. The group does not hold controlling voting rights in Colmore A.G. The group tested the requirements for significant influence. Sanne has representation on the board of directors, however, due to a single board member holding the outright majority shares, Sanne is not able to direct the daily operations or participate in policy-making processes. Even though Sanne has entered into an agreement with Colmore A.G. to develop new software, Sanne does not deem this to be a material transaction. Sanne will also not be in a position to make changes to the managerial personnel of Colmore A.G. nor will it be providing essential technical information. Sanne cannot demonstrate significant influence. Subsequently the group will carry the investment as an investment in equity rather than an investment in associate. Therefore equity accounting will not be applied, instead the investment is measured at fair value through other comprehensive income. Refer to note 20 for related disclosure on the fair value measurement methodology applied.

Disposal group held for sale

During the year Sanne made a strategic decision to try and dispose of the private client business in Jersey. Judgement was applied to determine if the planned disposal falls within the scope of held for sale. In making the judgement Sanne considered the requirements set out in IFRS 5 Non-current assets held for sale and Discontinued Operations. It was concluded that the client agreements and employee group disposed of would make up a disposal group - the rationale being that the contracts, if externally acquired in a business combination, would've been recognised as an intangible asset. As these customer relationships were internally generated, the standard prohibited the recognition as assets. Subsequently the trade receivables, contract assets and contract liabilities recognised on these clients in the prior year have been reclassified on the consolidated balance sheet as a "Disposal group held for sale".

Key sources of estimation uncertainty

FAIR VALUE MEASUREMENT OF INVESTMENT IN EQUITY

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. The key inputs in the fair value assessment is the weighted average growth rate, terminal growth rate and the WACC rate. Refer to note 20 for further disclosure relating to the fair value assessment.

Impairment testing

Goodwill

In the assessment of the annual impairment tests on Goodwill, the following assumptions are deemed to be key sources of estimation: the revenue growth rate and the discount rate. Management has assessed that, except for Sanne South Africa, no other CGU's reasonably possible changes would cause the aggregate carrying amount to materially exceed the recoverable amount of the CGU. Note 16 sets out these rates and sensitivities.

Contract assets

The Group recognises contract assets within revenue and as a receivable for amounts that remain unbilled at the year end, recorded at the recoverable amount. The recoverable amount of contract assets 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 the contract assets and an assessment of historical recovery rates. The balance at year end is GBP6.5 million (GBP6.6 million), the failure to recover 15% (based on an extreme worst case scenario) of this balance would result in an impairment of GBP970k (2018: GBP994k).

Other estimates

Probability of vesting of equity instruments granted in terms of share based payment 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 adjusts 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.

Impairment testing

Intangible assets

During the financial year an impairment was recognised on Sanne's South African contract intangibles. The recoverable amount was calculated using a Multi-Period Excess Earnings Method (MEEM) model, requiring the following inputs: post-tax weighted average cost of capital to discount the cash flows, a general attrition rate, a direct cost and an overhead cost margin and lastly the corporate tax rate. The discount rate was identified as being the most sensitive to change, however, Sanne does not consider that a change in the discount rate to result in material changes. Refer to note 17 relating for additional information on the assumptions used.

Lease term

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended. Exercising either the extension or termination options are case dependent and is an ongoing assessment. Therefore, should the Group apply the extension option, the lease liability and right-of-use asset will be increased. Should the Group terminate an agreement both the lease liability and right-of-use asset will be derecognised.

5. Segmental reporting

The reporting segments 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 Executive Directors of Sanne. Each segment is defined as a set of business activities generating a revenue stream determined by segmental responsibility and the management information reviewed by the Executive Directors. The Executive Directors evaluate 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.

The Group classified its private client contracts and employee group held in Jersey as a discontinued operation due to significant contracts having been designated as held for sale. This was regarded to as major business line in the past and forms part of the Channel Islands segment. Please refer to note 11 for additional details relating to the sale.

The Group's consolidated financial statements for the year ended 31 December 2018 had four reportable segments under IFRS 8, namely EMEA Alternatives, Asia-Pacific & Mauritius Alternatives, North American Alternatives and Corporate & Private Client. Given the continuing growth of the Group, these segments have been reorganised from 1 January 2019. The new segments are EMEA, Asia-Pacific & Mauritius, Channel Islands and North America. This change has been effective outside of the European regions in the Group for some time, however the scale of operations across the old EMEA Alternatives and CPC businesses meant it was necessary to change and split the European business between the Channel Islands (CI) and the rest of EMEA. This change brings with it a number of significant benefits, including a more robust governance and control framework at local levels, fostering local accountability, as well as bringing an improved focus on local employee requirements across our expanding jurisdictional footprint.

The comparative numbers for the segmental reporting have been restated to reflect the four segments created in the current reporting period, with effect from 1 January 2019.

 
                                                                Direct 
                                                     Revenue     costs  Gross profit 
For the year ended 31 December 2019                  GBP'000   GBP'000       GBP'000 
--------------------------------------------------  --------  --------  ------------ 
Segments 
EMEA                                                  60,561  (26,816)        33,745 
Asia-Pacific & Mauritius                              34,268  (11,107)        23,161 
North America                                         26,925  (13,448)        13,477 
Channel Islands(1)                                    43,689  (17,535)        26,154 
--------------------------------------------------  --------  --------  ------------ 
Total from continuing and discontinued operations    165,443  (68,906)        96,537 
--------------------------------------------------  --------  --------  ------------ 
Other operating income                                                           185 
Operating expenses                                                          (78,741) 
--------------------------------------------------  --------  --------  ------------ 
Operating profit from continuing and discontinued 
 operations                                                                   17,981 
--------------------------------------------------  --------  --------  ------------ 
 

(1) Refer to note 11 for the total revenue and direct costs attributable to discontinued operations.

 
                                                                Direct 
                                                     Revenue     costs  Gross profit 
For the year ended 31 December 2018                  GBP'000   GBP'000       GBP'000 
--------------------------------------------------  --------  --------  ------------ 
Segments 
EMEA                                                  48,100  (18,457)        29,643 
Asia-Pacific & Mauritius                              30,433   (8,330)        22,103 
North America                                         21,702  (10,894)        10,808 
Channel Islands                                       42,768  (16,974)        25,794 
--------------------------------------------------  --------  --------  ------------ 
Total from continuing and discontinued operations    143,003  (54,655)        88,348 
--------------------------------------------------  --------  --------  ------------ 
Other operating income                                                           158 
Operating expenses                                                          (62,941) 
--------------------------------------------------  --------  --------  ------------ 
Operating profit from continuing and discontinued 
 operations                                                                   25,565 
--------------------------------------------------  --------  --------  ------------ 
 

Geographical information

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

 
                                                                2019      2018 
                                                             GBP'000   GBP'000 
----------------------------------------------------------  --------  -------- 
Jersey and Guernsey                                           42,187    42,629 
Rest of Europe                                                61,857    47,016 
Mauritius                                                     22,984    22,198 
Americas                                                      26,376    21,374 
South Africa                                                   4,852     5,461 
Asia-Pacific                                                   7,187     4,325 
----------------------------------------------------------  --------  -------- 
Total revenue from continuing and discontinued operations    165,443   143,003 
----------------------------------------------------------  --------  -------- 
 

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. The geographic revenue split is therefore very different to the segmental reporting split.

6. Revenue

 
                                                              2019      2018 
Disaggregation of revenue from contracts with customers    GBP'000   GBP'000 
--------------------------------------------------------  --------  -------- 
Basis for fees charged 
EMEA 
- Assets under management - open ended funds                 6,350     6,880 
- Assets under management - closed ended funds              19,734    13,484 
- Service based fees                                        34,477    27,736 
 
Asia - Pacific & Mauritius 
- Service based fees                                        34,268    30,433 
 
North America 
- Service based fees                                        26,925    21,702 
 
Channel Islands 
- Service based fees                                        37,953    36,007 
--------------------------------------------------------  --------  -------- 
Total revenue from continuing operations                   159,707   136,242 
--------------------------------------------------------  --------  -------- 
 
 
                                               2019      2018 
Timing of revenue recognition               GBP'000   GBP'000 
-----------------------------------------  --------  -------- 
Over time 
- EMEA                                       60,561    48,100 
- Asia - Pacific & Mauritius                 34,268    30,433 
- North America                              26,925    21,702 
- Channel Islands                            37,953    36,007 
-----------------------------------------  --------  -------- 
Total revenue over time                     159,707   136,242 
-----------------------------------------  --------  -------- 
Total revenue from continuing operations    159,707   136,242 
-----------------------------------------  --------  -------- 
 

7. Finance costs

 
                                    2019      2018 
                                 GBP'000   GBP'000 
------------------------------  --------  -------- 
Bank loan interest                 2,434     1,732 
Amortised loan fees                  174       177 
Loan fees written off                457         - 
Interest on lease liabilities      1,607         - 
------------------------------  --------  -------- 
Total finance costs                4,672     1,909 
------------------------------  --------  -------- 
 

Details regarding the bank borrowings can be found in note 27.

8. Finance income

 
                                       2019      2018 
                                    GBP'000   GBP'000 
---------------------------------  --------  -------- 
Interest income on bank deposits        158       156 
---------------------------------  --------  -------- 
Total finance income                    158       156 
---------------------------------  --------  -------- 
 

9. Non-underlying items

 
                                                               2019      2018 
                                                            GBP'000   GBP'000 
-------------------------------------------------  ------  --------  -------- 
Operating profit(1)                                          17,981    25,565 
Non-underlying items within operating profit: 
Share based payment                                   (i)     1,777     1,791 
Amortisation of intangible assets                    (ii)    16,487    15,730 
Acquisition cost earn-out charges                   (iii)     6,317       564 
Acquisition and integration cost                    (iii)        62       629 
Impairment of intangible assets                      (iv)     2,425         - 
Regulatory fine and fees                              (v)     1,039         - 
Other items                                                     600       168 
---------------------------------------------------------  --------  -------- 
Total non-underlying items included in operating 
 profit                                                      28,707    18,882 
---------------------------------------------------------  --------  -------- 
Underlying operating profit(1)                               46,688    44,447 
---------------------------------------------------------  --------  -------- 
 
Profit before tax (1)                                        13,251    23,680 
Non-underlying items within other costs:                     28,707    18,882 
Refinancing cost                                     (vi)       457         - 
-------------------------------------------------  ------  --------  -------- 
Total non-underlying items                                   29,164    18,882 
---------------------------------------------------------  --------  -------- 
Underlying profit before tax (1)                             42,415    42,562 
---------------------------------------------------------  --------  -------- 
 

(1) These amounts include the profits from both continuing and discontinued operations.

The above disclosure reflects expenses which are not representative of underlying performance and strategy of the Group in the opinion of the directors as explained below.

i. Share based payments are detailed in note 32. All acquisition related share based payments ("RSA" plan) are awards granted as part of the mechanics of acquisitions to act as a retention tool for key management and to recruit senior management to support the various acquisitions. These grants are thus not in the normal course of business and will be disclosed separately.

ii. The amortisation charges relate to the amortisation of intangible assets acquired through acquisitions. The amortisation of intangibles is directly linked to the acquisitions and excluded from underlying cost because these charges are based on judgements about the value and economic life of assets that, in the case of items, for example customer relationships, would not be capitalised in normal operating practice.

iii. During the year ended 31 December 2018, the Group completed the acquisition of the LIS and CP and Sanne AgenSynd. The Group expensed GBP62k of acquisition and integration expenditure during the current year and GBP629k in the prior year. The group spent GBP6.3million relating to earn-out payouts for the year. GBP4.2 million related to LIS and CP and GBP2.1 million to AgenSynd. These expenses include the crystallisation of earn-out payments in the period. With acquisition activities not being the core ongoing business of the Group, 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 costs will be incurred in the first 2 years after acquisition, however this could be longer depending on the nature of the costs.

iv. The Group's South African hedge fund business, acquired in 2016, suffered a one-off loss of clients in the period. The Sorato business has also incurred an impairment. The source of the impairment relates to customer contracts that were entered into before the acquisition and that have terminated sooner than anticipated. As a result, the contract intangibles were impaired by GBP2,4 million in total. Refer to note 17 for further information. As with the amortisation of intangible assets this cost was excluded from underlying cost as it does not form part of the core business of the Group.

v. Regulatory fine (of GBP381k) and related fees relates to a settlement and related costs with the Jersey Financial Services Commission. Also included are the legal fees for a case brought against former directors of a subsidiary which date back to pre IPO.

vi. Refinancing cost - on 1 March a new loan facility for GBP150 million was entered into with a consortium of 5 banks. The previous facility was paid off and the remaining capitalized facility fees were written off. The facility is mainly used to fund acquisitions. The write off cost was recognised as non-underlying - GBP457k.

10. Tax

 
                                                 2019      2018 
                                              GBP'000   GBP'000 
-------------------------------------------  --------  -------- 
The tax charge comprises: 
Current period                                  7,184     7,398 
Adjustments in respect of prior periods          (32)       153 
-------------------------------------------  --------  -------- 
Total current tax expense                       7,152     7,551 
 
Deferred tax (note 28) 
Increase in deferred tax assets               (1,065)   (1,040) 
Increase in deferred tax liabilities          (1,710)   (1,005) 
-------------------------------------------  --------  -------- 
Total deferred tax credit                     (2,775)   (2,045) 
-------------------------------------------  --------  -------- 
Total tax charge for the year                   4,377     5,506 
-------------------------------------------  --------  -------- 
 
The income tax expense is attributable to: 
Profit from continuing operations               4,007     5,101 
Profit from discontinued operations               370       405 
-------------------------------------------  --------  -------- 
                                                4,377     5,506 
-------------------------------------------  --------  -------- 
 

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

 
                                                                 2019      2018 
                                                              GBP'000   GBP'000 
-----------------------------------------------------------  --------  -------- 
Deferred tax: 
Items that will not be reclassified subsequently to 
 profit or loss: 
Actuarial (loss)/gain on defined benefit retirement 
 obligation                                                      (10)        11 
-----------------------------------------------------------  --------  -------- 
Total income tax (credited)/charged in other comprehensive 
 (expenses)/income                                               (10)        11 
-----------------------------------------------------------  --------  -------- 
 

The difference between the total current tax shown above and the amount calculated by applying the UK (2018: Jersey) standard income tax rate to the profit before tax is as follows:

 
                                                                2019      2018 
                                                             GBP'000   GBP'000 
----------------------------------------------------------  --------  -------- 
Profit from continuing operations before tax                   9,551    19,632 
Profit from discontinued operations before tax                 3,700     4,048 
----------------------------------------------------------  --------  -------- 
Profit on ordinary activities before tax                      13,251    23,680 
----------------------------------------------------------  --------  -------- 
Tax on profit on ordinary activities at standard UK 
 income tax rate of 19% (2018: Jersey income tax rate 
 of 10%) (1)                                                   2,518     2,368 
Effects of amounts that are not deductible in calculating 
 income tax: 
Expenses not deductible for tax purposes                         531       266 
Non-deductible amortisation                                      153       153 
Depreciation in excess of capital allowances                     173       143 
Net foreign exchange income                                       10        14 
Foreign taxes not at UK (2018: Jersey) rate(2)                   771     2,159 
Deferred tax not recognised - taxable losses(3)                  253       250 
 Prior year tax adjustments                                     (32)       153 
----------------------------------------------------------  --------  -------- 
Total tax                                                      4,377     5,506 
----------------------------------------------------------  --------  -------- 
 

(1) At the start of the financial year, the Company engaged with the tax authorities of the UK and Jersey. Sanne Group Plc moved its tax residency from Jersey to the UK with effect from 1 January 2019. Consequently the income tax rate applied in 2019 is 19% (the UK standard income tax rate). This is an increase from the prior year's Jersey income tax rate of 10%.

(2) With the UK tax rate at 19% (2018: Jersey rate of 10%) the impact of the 2017 and 2018 acquisitions on the tax expense is significant as all the acquired jurisdictions have higher tax rates than 19% (2018: 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 UK standard income tax rate is 19% (2018: Jersey rate of 10%), management have chosen to reconcile to this rate as the Company is a UK tax resident.

 
                                                                2019      2018 
                                                             GBP'000   GBP'000 
----------------------------------------------------------  --------  -------- 
Reconciliation of effective tax rates 
Tax charge                                                     4,377     5,506 
Profit before tax                                             13,251    23,680 
----------------------------------------------------------  --------  -------- 
Effective tax rate continuing and discontinued operations      33.0%     23.3% 
Effective tax rate continuing operations                       42.0%     26.0% 
Effective tax rate discontinued operations                     10.0%     10.0% 
Tax charge                                                     4,377     5,506 
Adjusted for: 
Prior period adjustments                                          32     (153) 
Tax effect of non-underlying items                             4,512     3,328 
Deferred tax on US Goodwill amortisation                       (954)     (948) 
----------------------------------------------------------  --------  -------- 
Total underlying tax charge                                    7,967     7,733 
----------------------------------------------------------  --------  -------- 
Profit before tax                                             13,251    23,680 
Non-underlying items                                          29,164    18,882 
----------------------------------------------------------  --------  -------- 
Profit before tax and non-underlying items                    42,415    42,562 
----------------------------------------------------------  --------  -------- 
Underlying effective tax rate continuing and discontinued 
 operations                                                    18.8%     18.2% 
----------------------------------------------------------  --------  -------- 
Underlying effective tax rate continuing operations            19.6%     19.0% 
----------------------------------------------------------  --------  -------- 
Underlying effective tax rate discontinued operations          10.0%     10.0% 
----------------------------------------------------------  --------  -------- 
 

The effective tax rate of 33.0% (2018: 23.3%) 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 18.8% (2018: 18.2%) 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. The reduction in tax rates in Luxembourg to 24.93% (2018: 26.01%) mitigated the tax on profits generated in higher taxing jurisdictions.

 
                                                            2019      2018 
                                                         GBP'000   GBP'000 
------------------------------------------------------  --------  -------- 
Tax losses 
Unused tax losses for which no deferred tax asset has 
 been recognised                                           2,647     2,500 
Potential tax benefit @ 19% (2018 @ 10%)                     503       250 
------------------------------------------------------  --------  -------- 
 

The unused tax losses were incurred by loss making subsidiaries. These subsidiaries are not likely to generate taxable income in the foreseeable future, but can be carried forward indefinitely.

11. Discontinued operations

During the year Sanne made a strategic decision to sell the private client business in Jersey, within the next twelve months after Balance Sheet date for a cash consideration. The Group classified its private client book in Jersey as a discontinued operation, due to significant contracts having been designated as held for sale. This was regarded to be a major business line in the past. The disposal group consists of the trade receivables relating to the contracts. Due to the fact that internally generated customer relationships are prohibited from being recognised as assets, the group did not account for these customer contracts as assets. Sanne deemed it necessary to reclassify the trade receivables stemming from these clients into a disposal group held for sales as these balances give a reasonable representation of the value that these customer contracts hold. The revenue and direct costs are included in the Channel Islands operating segment.

The financial information relating to the discontinued operations is set out below:

 
                                                         2019      2018 
                                                      GBP'000   GBP'000 
---------------------------------------------------  --------  -------- 
Revenue                                                 5,736     6,761 
Expenses                                              (2,036)   (2,713) 
---------------------------------------------------  --------  -------- 
Profit before income tax                                3,700     4,048 
Income tax expense                                      (370)     (405) 
---------------------------------------------------  --------  -------- 
Profit from discontinued operations                     3,330     3,643 
---------------------------------------------------  --------  -------- 
The following disclosure relates to the cash flows 
 from the discontinued operations: 
Net cash inflow from operating activities               3,563     4,321 
---------------------------------------------------  --------  -------- 
Net increase in cash generated by the subsidiary        3,563     4,321 
---------------------------------------------------  --------  -------- 
 
 
                                                           2019      2018 
Assets of disposal group classified as held for sale    GBP'000   GBP'000 
-----------------------------------------------------  --------  -------- 
Assets classified as held for sale 
Contract assets                                             334         9 
Trade receivables                                         2,645     2,479 
-----------------------------------------------------  --------  -------- 
Total assets of disposal group held for sale              2,979     2,488 
 
Liabilities of disposal group classified as held for 
 sale 
Liabilities classified as held for sale 
Contract liabilities                                      (575)     (250) 
-----------------------------------------------------  --------  -------- 
Total liabilities of disposal group held for sale         (575)     (250) 
-----------------------------------------------------  --------  -------- 
 

12. Earnings per share

 
                                         2019      2018 
                                      GBP'000   GBP'000 
-----------------------------------  --------  -------- 
Profit for the year                     8,874    18,174 
-----------------------------------  --------  -------- 
Non-underlying items: 
Non-underlying expenses                29,164    18,882 
Tax effect of non-underlying items    (3,590)   (2,227) 
-----------------------------------  --------  -------- 
Underlying profit                      34,448    34,829 
-----------------------------------  --------  -------- 
 
 
                                                             Shares        Shares 
-----------------------------------------------------  ------------  ------------ 
Weighted average numbers of ordinary shares in issue    144,019,578   141,269,560 
Effect of dilutive potential ordinary shares: 
Deferred consideration shares                               636,652     1,273,308 
Restricted stock awards                                   1,280,821     1,288,585 
Performance share plan                                       49,501       619,862 
-----------------------------------------------------  ------------  ------------ 
Weighted average number of ordinary shares for the 
 purposes of diluted EPS                                145,986,552   144,451,315 
-----------------------------------------------------  ------------  ------------ 
 
 
Earnings per share based on total operations   2019  2018 
---------------------------------------------  ----  ---- 
Basic EPS (pence)                               6.2  12.9 
Diluted EPS (pence)                             6.1  12.6 
Underlying basic EPS (pence)                   23.9  24.7 
Underlying diluted EPS (pence)                 23.6  24.1 
---------------------------------------------  ----  ---- 
 
 
Earnings per share based on continuing operations     2019  2018 
----------------------------------------------------  ----  ---- 
Basic EPS (pence)                                      3.8  10.3 
Diluted EPS (pence)                                    3.8  10.1 
Underlying basic EPS (pence)                          21.6  22.1 
Underlying diluted EPS (pence)                        21.3  21.6 
----------------------------------------------------  ----  ---- 
 
Earnings per share based on discontinued operations   2019  2018 
----------------------------------------------------  ----  ---- 
Basic EPS (pence)                                      2.3   2.6 
Diluted EPS (pence)                                    2.3   2.5 
Underlying basic EPS (pence)                           2.3   2.6 
Underlying diluted EPS (pence)                         2.3   2.5 
----------------------------------------------------  ----  ---- 
 

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 2019.

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 and the tax impact of non-underlying items. This is a change in approach from the prior year where the profit for the year was just adjusted for non-underlying items. The comparative numbers were also updated to reflect this approach.

13. Profit for the year

 
                                                                          2019      2018 
                                                                       GBP'000   GBP'000 
--------------------------------------------------------------------  --------  -------- 
Profit for the year has been arrived at after charging/(crediting): 
Net foreign exchange losses                                                216       132 
Depreciation of equipment                                                2,867     1,915 
Depreciation of right-of-use asset (see note 21)                         5,313         - 
Gain on disposal of equipment                                               36         - 
Auditors' remuneration for audit services (2019: PwC GBP695k, 
 Deloitte GBP165k and 2018: Deloitte)                                      860       587 
Auditors' remuneration for other services, pre-appointment 
 of new auditors(1) (2019: PwC, 2018: Deloitte): 
- FATCA                                                                      -        14 
- ISAE 3402                                                                 33         - 
- Software licence                                                           3       167 
- Other services                                                           180         - 
Auditors' remuneration for other services, post-appointment 
 of new auditors(1) : 
- ISAE 3402                                                                  5         - 
Amortisation of intangible assets (see note 17)                         16,487    15,730 
Staff costs (see note 14)                                               84,463    70,713 
Impairment loss recognised on trade receivables (see note 
 22)                                                                        82       575 
Impairment loss recognised on intangible assets (see note 
 17)                                                                     2,425        55 
Facilities expense                                                       2,726     7,339 
--------------------------------------------------------------------  --------  -------- 
 

(1) Deloitte LLP resigned as the Group auditor on 5 August 2018. The Group has engaged the services of PricewaterhouseCoopers LLP as Group auditors, with their first engagement being the independent review of the interim financial statements 2019. The other services principally represented internal audit which ceased at PricewaterhouseCoopers LLP's appointment.

14. Staff cost

 
                                                   2019      2018 
The aggregate payroll costs were as follows:    GBP'000   GBP'000 
---------------------------------------------  --------  -------- 
Salaries and bonuses                             72,805    60,753 
Social security                                   5,148     3,815 
Pension cost                                        620       547 
Other benefits                                    3,513     2,222 
Share based payments                              2,377     3,376 
---------------------------------------------  --------  -------- 
                                                 84,463    70,713 
---------------------------------------------  --------  -------- 
 
 
The average number of full time employees analysed by category 
 and segment:                                                     2019   2018 
---------------------------------------------------------------  -----  ----- 
Client services 
- EMEA                                                             495    374 
- Asia - Pacific & Mauritius                                       351    266 
- North America                                                    154    122 
- Channel Islands                                                  269    268 
Group services                                                     317    254 
---------------------------------------------------------------  -----  ----- 
                                                                 1,586  1,284 
---------------------------------------------------------------  -----  ----- 
 

Information in relation to aggregate directors' remuneration is contained in the Directors' Remuneration Report of the Group's Annual Report and Accounts for the year which detail the Remuneration payable to each director for service in 2019.

15. Dividends

 
                                                            2019      2018 
                                                         GBP'000   GBP'000 
------------------------------------------------------  --------  -------- 
Amounts recognised as distributions to equity holders 
 in the year: 
Final dividend for the prior year                         13,254    11,816 
Interim for the current year                               6,775     6,560 
------------------------------------------------------  --------  -------- 
Total dividends                                           20,029    18,376 
------------------------------------------------------  --------  -------- 
Proposed final dividend                                   13,784    13,432 
------------------------------------------------------  --------  -------- 
 

The proposed final dividend is subject to approval at the forthcoming AGM and has not been included as a liability in these consolidated financial statements. Dividends are declared in accordance with Jersey laws and can be distributed from all reserves.

 
                                            2019        2018 
                                           Pence       Pence 
                                       per share   per share 
------------------------------------  ----------  ---------- 
Dividend per share ("DPS"): 
Interim for the current year                 4.7         4.6 
Final proposed for the current year          9.4         9.2 
------------------------------------  ----------  ---------- 
Total dividend per share                    14.1        13.8 
------------------------------------  ----------  ---------- 
 
 
                                                              2019          2018 
----------------------------------------------------  ------------  ------------ 
Weighted average number of ordinary shares in issue    144,019,578   141,269,560 
----------------------------------------------------  ------------  ------------ 
 

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 2018            107,271 
LIS and CP acquisition        67,572 
Sanne AgenSynd acquisition     8,404 
Exchange differences           5,681 
---------------------------  ------- 
At 31 December 2018          188,928 
---------------------------  ------- 
Exchange differences         (8,514) 
---------------------------  ------- 
At 31 December 2019          180,414 
---------------------------  ------- 
 

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:

 
                                                  2019       2018 
                                              Carrying   Carrying 
                                                 value      value 
                                               GBP'000    GBP'000 
-------------------------------------  ----  ---------  --------- 
Sanne South Africa                               8,177      8,272 
Sanne Netherlands                                1,649      1,649 
Sanne North Americas                            41,400     43,079 
Sanne Mauritius                                 57,076     59,391 
Sanne Luxembourg                        (i)          -     68,165 
Luxembourg Investment Solutions S.A.    (i)     58,307          - 
Compliance Partners S.A.                (i)      5,917          - 
Sanne Spain                                      7,888      8,372 
-------------------------------------------  ---------  --------- 
                                               180,414    188,928 
 ------------------------------------------  ---------  --------- 
 

i. In the prior year the LIS and CP operations were managed as a single CGU. During the current year the CP and Sanne Group Luxembourg operations were merged. Therefore, the Group assessed the previous Sanne Luxembourg CGU to be two separate CGU's in the current year. Goodwill acquired in a business combination is allocated to each of the CGUs that is expected to benefit from the synergies of the combination. Thus when it was assessed that LIS and CP form two separate CGUs it was evident that the allocation of goodwill must be reallocated to the two new CGUs. The allocation was done based on the weighting of the purchase consideration between the two legal entities as at acquisition date. The combined total for LIS and CP in 2019 is GBP64.2 million (2018: GBP68.2 million), with the difference being a change due to FX.

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. The result of the goodwill impairment assessment undertaken is that the headroom on the total carrying value of the goodwill, across all CGUs, more than doubled compared with the same assessment performed in the prior year.

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

The discount rate used to assess goodwill is a pre-tax WACC, as required by the accounting standards. The discount rate used in the assessment of the recoverable amount of intangible assets is a post-tax WACC, as per the Multi-Period Excess Earnings Method (MEEM), which is the method applied to determine the fair value less cost to sell. Refer to note 17 for details relating to the assessment performed on contract and customer intangible assets.

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. Cash flows are projected over five years and a final terminal value is applied.

Projected revenue and costs are calculated using the prior period actual result and compounding these results by the budgeted numbers. The terminal growth rate is applied after five years. The rate used is unique to each jurisdiction and is based on the GDP and/or inflation rate.

Material movements have been seen in the weighted average revenue growth rates for Sanne Netherlands, Sanne Mauritius, Sanne Spain and LIS. For Sanne Netherlands the business has seen strong growth with continued new client wins from a small base. In the case of Mauritius, the revised growth rate reflects the recent increase in client attrition. For both Sanne Spain and LIS a conservative approach has been adopted with growth rates significantly below historic rates. Refer to the key assumptions.

Key assumptions

The following discount rates (pre-tax WACC rates), weighted average revenue growth rates and terminal growth rates, have been used in the assessments. No material movements were identified in the WACC rates used between 2019 and 2018. The only material movements identified in the terminal growth rates, between 2019 and 2018, is the rate for Sanne South Africa and Sanne Mauritius. In 2018 the Group used long-term market consensus for terminal growth on all CGUs. In the current year the Group used the average between long-term inflation and GDP for each specific jurisdiction. This resulted in a material change in terminal growth for the South Africa and Mauritius CGUs. Where the terminal growth exceeds the weighted average revenue growth rate, the Group made use of a conservative approach to the mid-term growth rate, whereas the terminal growth rate was based on external observable sources.

 
                                                                2019          2018 
                                                            Weighted      Weighted 
                                       2019       2018       average       average          2019          2018 
                                   Discount   Discount       revenue       revenue      Terminal      Terminal 
                                       rate       rate   growth rate   growth rate   growth rate   growth rate 
--------------------------------  ---------  ---------  ------------  ------------  ------------  ------------ 
Sanne South Africa                      19%        21%            4%            4%            6%            2% 
Sanne Netherlands                        9%         9%           19%            6%            3%            2% 
Sanne North Americas                    10%        12%           12%           11%            3%            2% 
Sanne Mauritius                         11%        13%            3%            6%            5%            2% 
Luxembourg Investment Solutions 
 S.A.                                    6%         8%            7%           14%            3%            2% 
Compliance Partners S.A.                 6%         8%           14%           14%            3%            2% 
Sanne Spain                              9%        10%            7%           14%            3%            2% 
--------------------------------  ---------  ---------  ------------  ------------  ------------  ------------ 
 

Based on the value-in-use calculations none of the CGUs require impairment.

Sensitivity to changes in assumptions

Management believes that any reasonably possible change in the key assumptions, on which the recoverable amount per CGU is based, would not cause the aggregate carrying amount to materially exceed the recoverable amount of the CGUs, except for Sanne South Africa. If the expected terminal growth used in the value-in-use calculation had been 1% lower than management's estimate made at 31 December 2019 (5.4% instead of 6.4%) and if the discount rate increased from 18.82% to 20.56% the goodwill would be impaired by GBP1.2 million. Management does not expect an increase in the discount rate. Part of the acquisition rationale was to create a "rightshoring centre" for talent and expertise which has proven to have significant value for the wider group. Refer to note 17 for the outcome of the intangible assets' impairment assessments and the key assumptions made.

17. Other intangible assets

 
                                                                      Software 
                                        Contract  Customer   under development     Total 
                                         GBP'000   GBP'000             GBP'000   GBP'000 
--------------------------------------  --------  --------  ------------------  -------- 
Cost 
At 1 January 2018                         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 
Additions due to software development          -         -                 276       276 
Impairments                              (2,425)         -                   -   (2,425) 
Exchange difference                      (3,110)     (635)                   -   (3,745) 
--------------------------------------  --------  --------  ------------------  -------- 
At 31 December 2019                       80,167    15,837                 276    96,280 
--------------------------------------  --------  --------  ------------------  -------- 
 
 
                                                         Software 
                           Contract  Customer   under development     Total 
                            GBP'000   GBP'000             GBP'000   GBP'000 
-------------------------  --------  --------  ------------------  -------- 
Accumulated amortisation 
At 1 January 2018            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 
Charge for the year          13,870     2,617                   -    16,487 
Exchange difference         (1,378)     (269)                   -   (1,647) 
-------------------------  --------  --------  ------------------  -------- 
At 31 December 2019          43,273     7,619                   -    50,892 
-------------------------  --------  --------  ------------------  -------- 
Carrying amount 
-------------------------  --------  --------  ------------------  -------- 
At 31 December 2019          36,894     8,218                 276    45,388 
-------------------------  --------  --------  ------------------  -------- 
At 31 December 2018          54,921    11,201                   -    66,122 
-------------------------  --------  --------  ------------------  -------- 
 

Due to a once off loss of clients in Sanne South Africa, an indicator for impairment was triggered. Sanne's South African contract intangibles were impaired by GBP2,3 million. This was included in the operating expenses line item on the consolidated income statement. The recoverable amount was determined using a Multi-Period Excess Earnings Method (MEEM) model, requiring the following inputs: post-tax weighted average cost of capital to discount the cash flows, a general attrition rate, a direct cost and an overhead cost margin and lastly the corporate tax rate. The discount rate was identified as being the most sensitive to change. Should the discount rate increase by 1%, the impairment would have been GBP52k higher. Sanne does not consider this to be a material increase.

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 impairment assessments performed for the intangible assets relating to the Delorean, Ariel, CCS, IDS Group, Sorato and IFS Group acquisitions. A GBP84k impairment was recognised in operating expenses for the Sorato intangibles. The source of the impairment relates to customer contracts that were entered into before the acquisition and that have terminated sooner than anticipated. The Netherlands acquired a large client during the year and have exceeded expectations in the 2019 financial year showing a healthy growth with promising client relationships. The group determined the recoverable amount with reference to the fair value less cost to sell per asset. The multi-period-excess-earnings method (MEEM) model was used to determine the fair value less cost to sell of each asset. This model requires the use of a post-tax discount rate. The WACC rates used to discount the post-tax cash flows are a post-tax WACC rates. The recoverable amounts for all other assets with indicators of impairment exceeded their current carrying value.

The post-tax weighted average cost of capital was used to discount the cash flows. The rates and remaining useful lives used in the assessment of the recoverable amounts for assets with indicators were:

 
                                                               2019 
                                        2019       2018   Remaining          2018 
                                    Discount   Discount      useful     Remaining 
                                        rate       rate        life   useful life 
---------------------------------  ---------  ---------  ----------  ------------ 
Ariel (Various jurisdictions)             7%         7%      1 year       2 years 
Delorean (Various jurisdictions)          7%         7%      1 year       2 years 
CCS (Sanne Ireland)                       7%         7%     3 years       4 years 
IDS Group (Sanne South Africa)           13%        15%     4 years       5 years 
Sorato (Sanne Netherlands)                7%         7%     0 years       5 years 
IFS Group (Sanne Mauritius)              10%        11%     4 years       4 years 
AgenSynd Group (Sanne Spain)              7%         8%     6 years       7 years 
---------------------------------  ---------  ---------  ----------  ------------ 
 

Annual amortisation on the contract and customer intangibles is recognised in operating expenses and are regarded to be non-underlying items.

Sanne has entered into an agreement with Colmore A.G., whereby Colmore A.G. will be developing new software for Sanne's exclusive use. This agreement is classified as "software under development".

Sanne has applied its judgement to determine that the software under development is an intangible asset and that the development costs can be capitalised. The software is identifiable, as it is separable from the entity due to the willingness of the investee to grant Sanne exclusive usage of the software. Furthermore, Sanne's exclusive rights to usage are legally enforceable. Due to the exclusive right to use the asset, Sanne has control over it and will be receiving the future economic benefits from the asset in the form of improved production processes by applying the intellectual property. The software is still under development at year end, and is not yet ready for its intended use. The development costs will be capitalised until the software is ready for use.

Costs incurred during the planning phase of the project have been assessed to be research costs and have consequently been expensed. The total research costs amounted to GBP78k (2018: GBPnil).

Once the software under development is ready for use, as intended by management, cost capitalisation will cease and amortisation will commence.

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

 
                                                                              2019       2018 
                                                                          Carrying   Carrying 
                                                    Amortisation period     amount     amount 
                   Acquisition   Acquisition date                   end    GBP'000    GBP'000 
------------------------------  -----------------  --------------------  ---------  --------- 
Contract intangible 
Delorean (Various 
 jurisdictions)                       1 June 2013           31 May 2020        540      1,849 
Ariel (Various jurisdictions)          1 May 2014         30 April 2021        301        526 
CCS (Sanne Ireland)                  1 March 2016      28 February 2023        388        543 
IDS Group (Sanne 
 South Africa)                        1 June 2016           31 May 2024      1,188      4,071 
FAS (Sanne North 
 America)                         1 November 2016       31 October 2022      4,614      6,494 
Sorato (Sanne Netherlands)        1 December 2016      30 November 2023          -        114 
IFS Group (Sanne 
 Mauritius)                        1 January 2017      31 December 2022     19,666     27,285 
LIS Group (Sanne 
 Luxembourg)                      6 February 2018       31 January 2025      8,318     11,692 
AgenSynd Group (Sanne 
 Spain)                          3 September 2018        31 August 2025      1,879      2,347 
------------------------------  -----------------  --------------------  ---------  --------- 
Total                                                                       36,894     54,921 
-----------------------------------------------------------------------  ---------  --------- 
 

The IDS Group and Sorato are shown after impairment, at their recoverable amount.

 
                                                                              2019       2018 
                                                                          Carrying   Carrying 
                                                    Amortisation period     amount     amount 
                   Acquisition   Acquisition date                   end    GBP'000    GBP'000 
------------------------------  -----------------  --------------------  ---------  --------- 
Customer intangible 
Delorean (Various 
 jurisdictions)                       1 June 2013           31 May 2023        409        525 
Ariel (Various jurisdictions)          1 May 2014         30 April 2024         29         44 
CCS (Sanne Ireland)                  1 March 2016      28 February 2023        317        443 
IDS Group (Sanne 
 South Africa)                        1 June 2016           31 May 2024        809      1,004 
FAS (Sanne North 
 America)                         1 November 2016       31 October 2022        880      1,236 
Sorato (Sanne Netherlands)        1 December 2016      30 November 2023         34         43 
IFS Group (Sanne 
 Mauritius)                        1 January 2017      31 December 2022      3,736      5,184 
LIS Group (Sanne 
 Luxembourg)                      6 February 2018       31 January 2023      1,400      1,968 
AgenSynd Group (Sanne 
 Spain)                          3 September 2018        31 August 2025        604        754 
------------------------------  -----------------  --------------------  ---------  --------- 
Total                                                                        8,218     11,201 
-----------------------------------------------------------------------  ---------  --------- 
 

18. Equipment

 
                                   Computer   Computer        Fixtures 
                                  equipment   software   and equipment     Total 
                                    GBP'000    GBP'000         GBP'000   GBP'000 
-------------------------------  ----------  ---------  --------------  -------- 
Cost 
At 1 January 2018                     4,181      2,586           4,715    11,482 
Additions                             1,555        143           6,170     7,868 
Additions through acquisitions           67        306             818     1,191 
Disposals                             (881)       (26)         (1,331)   (2,238) 
Exchange differences                   (44)         25              57        38 
-------------------------------  ----------  ---------  --------------  -------- 
At 31 December 2018                   4,878      3,034          10,429    18,341 
Additions                             1,428        395           2,091     3,914 
Change in accounting policy               -          -           (924)     (924) 
Disposals                             (212)      (359)           (291)     (862) 
Exchange differences                   (89)       (35)           (164)     (288) 
-------------------------------  ----------  ---------  --------------  -------- 
At 31 December 2019                   6,005      3,035          11,141    20,181 
-------------------------------  ----------  ---------  --------------  -------- 
 
 
                                          Computer   Computer        Fixtures 
                                         equipment   software   and equipment     Total 
                                           GBP'000    GBP'000         GBP'000   GBP'000 
--------------------------------------  ----------  ---------  --------------  -------- 
Accumulated depreciation 
At 1 January 2018                            2,512      2,436           2,721     7,669 
Charge for the year                            406        110           1,399     1,915 
Reclassification within equipment (1)          660          -           (660)         - 
Additions through acquisitions                  38        203             468       709 
Disposals                                    (724)       (26)         (1,231)   (1,981) 
Exchange differences                            47       (49)              58        56 
--------------------------------------  ----------  ---------  --------------  -------- 
At 31 December 2018                          2,939      2,674           2,755     8,368 
Charge for the year                          1,383        239           1,245     2,867 
Disposals                                    (204)      (359)           (233)     (796) 
Exchange differences                          (84)       (34)           (124)     (242) 
--------------------------------------  ----------  ---------  --------------  -------- 
At 31 December 2019                          4,034      2,520           3,643    10,197 
--------------------------------------  ----------  ---------  --------------  -------- 
Carrying amount: 
--------------------------------------  ----------  ---------  --------------  -------- 
At 31 December 2019                          1,921        515           7,498     9,984 
--------------------------------------  ----------  ---------  --------------  -------- 
At 31 December 2018                          1,939        360           7,674     9,973 
--------------------------------------  ----------  ---------  --------------  -------- 
 

As at 31 December 2019 GBP5.8 million (2018: GBP5.5 million) of fixed assets are fully depreciated and still in use.

In 2018 Sanne reported equipment additions of GBP7,9 million. Sanne funded GBP4,2million of these additions. The remaining GBP3,6 million was for fit out works in new rented premises. These additions were funded by the landlord as part of the rental agreement and have been included in the right-of-use asset balance.

(1) The Group reclassified accumulated depreciation between the asset classes in the prior year between computer equipment and fixtures and equipment to the value of GBP660k, this had no impact on the profit and loss. In the prior year this was classified in the incorrect asset class.

19. Subsidiaries

Detailed below is a list of subsidiaries of the Company as at 31 December 2019 which, in the opinion of the Directors, principally affect the profit and / 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 and fiduciary services. Each subsidiary only has ordinary shares.

 
Subsidiaries                             Country of incorporation 
---------------------------------------  -------------------------- 
Sanne Capital Markets Ireland Limited    Republic of Ireland 
Sanne Fiduciary Services (UK) Limited    England and Wales 
Sanne Fiduciary Services Limited         Jersey 
Sanne Finance Limited                    Jersey 
Sanne Financial Management Consulting 
 (Shanghai) Co Ltd                       People's Republic of China 
Sanne Fund Administration Limited        Jersey 
Sanne Group (Guernsey) Limited           Guernsey 
Sanne Group (Luxembourg) SA              Luxembourg 
Sanne Group (UK) Limited                 England and Wales 
Sanne Group Administration Services 
 (UK) Limited                            England and Wales 
Sanne Group Asia Limited                 Hong Kong 
Sanne Holdings Limited                   Jersey 
Sanne International Limited              Jersey 
Sanne (Singapore) PTE. Limited           Singapore 
Sanne Trustee Company UK Limited         England and Wales 
Sanne Trustee Services Limited           Jersey 
Sanne Corporate Administration Services 
 Ireland Limited                         Republic of Ireland 
Sanne Group U.S. LLC                     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 
Luxembourg Investment Solutions S.A      Luxembourg 
Compliance Partners S.A.                 Luxembourg 
Sanne (Luxembourg) Holdings 2 Sarl       Luxembourg 
Sanne AgenSynd S.L.U.                    Spain 
AgenSynd Limited                         England and Wales 
AgenSynd France SAS                      France 
Sanne Group Services (UK) Limited        England and Wales 
Sanne Group Japan KK                     Japan 
---------------------------------------  -------------------------- 
 

On 22 November 2019 the group disposed of its Dubai operations. The Dubai operations are not considered as a separate major line of business and were immaterial.

20. Minority equity investment

During the year the Group acquired a minority interest in Colmore A.G. The shares are not held for trading and at initial measurement the Group made the irrevocable election to carry the investment at fair value through other comprehensive income. The Group regards the transaction to be a strategic investment and the classification to be the most relevant, based on the Group's business model.

 
                          2019      2018 
Non-current assets     GBP'000   GBP'000 
--------------------  --------  -------- 
Unlisted securities 
Colmore A.G.             8,632         - 
--------------------  --------  -------- 
 

Reconciliation of Level 3 fair value measurements of financial instruments (other than trade and other receivables):

 
                              2019      2018 
                           GBP'000   GBP'000 
------------------------  --------  -------- 
Balance at 1 January             -         - 
Additions                    9,347         - 
Foreign exchange losses      (715)         - 
------------------------  --------  -------- 
Balance at 31 December       8,632         - 
------------------------  --------  -------- 
 

The fair value was based on a combination of the income approach (discounted cash flow model) and the market approach. The discounted cash flow provides an estimation of the fair value based on the cash flows that a business can be expected to generate in the future. The market approach provides an estimation of the fair value based on market prices on actual transactions and asking prices for businesses. The process is a comparison between the subject business and other similar businesses.

In the income approach, the revenue was forecasted over a ten year period. The following unobservable inputs were used: weighted average growth in revenue between 15% and 25%, terminal growth rate of 2% and WACC of 18% which was used to discount the cash flows. The discount rate and the terminal growth rate have been identified to be the assumptions that are the most sensitive to change.

In the market approach a list of broadly comparable listed companies was identified through public sources. Since there are a limited number of public companies offering technology solutions to fund administration businesses services, the group considered comparable companies offering technology and software services to companies engaged in the broader financial services industry. The valuation was based on revenue multiple. A revenue multiple of 7.5x was used in the estimate. The group performed a sensitivity analysis on the fair value. Because a combined approach is used for the valuation, the group assessed the combined impact of changes in key assumptions. Should the WACC increase to 19% and the long term growth rate only yield 1.5% in the income approach and on the market approach a multiple of 6.7 is used instead of 7.5, the value would be GBP866k lower.

21. Leases

This note provides information for leases where the Group is a lessee. The Group leases office space in various jurisdictions. The Group only applied the IFRS 16 lease accounting to its qualifying leases.

 
                        31 Dec     1 Jan 
                          2019   2019(1) 
                       GBP'000   GBP'000 
--------------------  --------  -------- 
Right-of-use assets     32,733    30,828 
--------------------  --------  -------- 
Lease liabilities 
Current                  4,291     3,902 
Non-current             33,549    31,926 
--------------------  --------  -------- 
Total                   37,840    35,828 
--------------------  --------  -------- 
 

(1) In the previous year, the Group recognised its operating leases in profit and loss on the straight-line basis, under IAS 17 Leases. For adjustments recognised on adoption of IFRS 16 on 1 January 2019, please refer to note 36.

During the 2019 financial year the group made GBP7.5 million in additions to the right-of-use assets.

The consolidated income statement included the following amounts relating to leases:

 
                                                         2019      2018 
                                                      GBP'000   GBP'000 
---------------------------------------------------  --------  -------- 
Depreciation on right-of-use assets                     5,313         - 
Interest expense (included in finance costs)            1,607         - 
Expenses relating to short-term leases                    706         - 
Expenses relating to premises rent recognised on a 
 straight-line basis                                        -     5,502 
---------------------------------------------------  --------  -------- 
 

In the prior period the Group expensed GBP5.5 million for premises rent based on the previous IAS 17 straight-line accounting policy.

The total cash outflow for leases was GBP6.4 million.

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. Rental agreements which qualify for IFRS 16 span from 13 months to 24 years. The Group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. Judgement was applied in assessing the lease term over which the lease liability should be recognised. The fixed duration per the rental agreement was used as a starting point. Thereafter the term is adjusted based on the contract clauses, should the Group assess it will make use of a break clause, the lease term is adjusted for the break clause and should the group consider it highly probable that it will extend the agreement per the extension clauses, the lease term is lengthened.

The Group is exposed to potential future increases in variable lease payments based on consumer price indexes, which are not included in the lease liability until they take effect. When adjustments to lease payments based on the consumer price index take effect, the lease liability is reassessed and adjusted against the right-of-use asset.

On initial recognition of a new lease, the lease liability is recognised as the present value of future payments, discounted using the incremental borrowing rate (unless the interest implicit to the lease is available for use). The incremental borrowing rate was determined by making reference to the operating jurisdiction's risk-free rate, adjusted for credit risk, using the interest rate premium as per group's current borrowings and the liquidity premium, by adjusting the interest rate up or down based on the remaining duration of the rental agreement. Judgment was applied to determine the point where the upward or downward adjustment is made to the interest rate. The Group applied a different incremental borrowing rate to each lease in each jurisdiction as stated here. The unique discount rate best represents the monetary environment, in which the subsidiary operates, at commencement (or transition date). This approach best reflects what the Group would have to pay to obtain a similar asset in the economic environment in which the subsidiary operates. The incremental borrowing rates ranged between 0.81% and 9.77%.

The right-of-use asset for lease agreements entered into after transition date is measured on initial recognition as the amount equal to the lease liability on initial measurement, less any lease incentives and lease payments made before the commencement date, plus any initial direct costs and dilapidation costs.

The Group accounts for lease payments by allocating them between finance costs and the lease liability. The finance cost is charged to profit or loss over the lease period. The right-of-use asset is depreciated over the shorter of the asset's useful life or the lease term on a straight-line basis.

22. Trade and other receivables

 
                                         2019      2018 
                                      GBP'000   GBP'000 
-----------------------------------  --------  -------- 
Trade receivables                      43,457    41,034 
Allowance for doubtful receivables      (862)     (766) 
-----------------------------------  --------  -------- 
                                       42,595    40,268 
-----------------------------------  --------  -------- 
Prepayments                             4,089     3,141 
Other debtors                           1,257     1,363 
-----------------------------------  --------  -------- 
Total trade and other receivables      47,941    44,772 
-----------------------------------  --------  -------- 
 

Trade receivables

Trade receivables disclosed above are amounts due to services rendered in the ordinary course of business. At initial measurement, they are 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.

In the year no customer represented more than five per cent of the total balance of trade receivables. In the prior year two customers, across multiple contracting entities, represented 13.1% of the 2018 debtors balance.

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

 
                                                           2019      2018 
Movement in the allowance for doubtful receivables:     GBP'000   GBP'000 
-----------------------------------------------------  --------  -------- 
Balance at the beginning of the year                        766       639 
Recognised through acquisitions                               -       138 
Impairment losses recognised                                656       468 
Amounts written off during the year as uncollectable       (52)     (261) 
Amounts recovered during the year                        (504)-     (229) 
FX losses                                                   (4)        11 
-----------------------------------------------------  --------  -------- 
Total allowance for doubtful receivables                    862       766 
-----------------------------------------------------  --------  -------- 
 

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. In assessing the payment profiles the Group considers the expected future economic changes in the operating jurisdiction, specific client relationships and the expected future client and fund liquidity. This is then adjusted for forward-looking evidence that the Group will not be able to collect the debts or bill the customer. All impairment losses are related to receivables arising from contracts with customers.

The following tables provides information about expected credit losses for trade receivables, from individual customers as at 31 December 2019 and 31 December 2018:

 
                         2019  Gross carrying  Loss allowance 
                     Expected          amount                  Net carrying 
31 December 2019    loss rate                                        amount 
-----------------  ----------  --------------  --------------  ------------ 
<31 days                   0%          31,313               -        31,313 
31-60 days                 0%           1,214               -         1,214 
61-90 days                 0%           1,441               1         1,440 
91-120 days                0%           4,129               -         4,129 
121-180 days               1%             805               7           798 
180+ days                 19%           4,555             854         3,701 
-----------------  ----------  --------------  --------------  ------------ 
Total                                  43,457             862        42,595 
-----------------  ----------  --------------  --------------  ------------ 
 
 
                         2018  Gross carrying  Loss allowance  Net carrying 
                     Expected          amount                        amount 
31 December 2018    loss rate 
-----------------  ----------  --------------  --------------  ------------ 
<31 days                   0%          27,740               -        27,740 
31-60 days                 0%           2,527               -         2,527 
61-90 days                 0%           2,423               -         2,423 
91-120 days                1%           5,399              32         5,367 
121-180 days               0%             470               -           470 
180+ days                 30%           2,475             734         1,741 
-----------------  ----------  --------------  --------------  ------------ 
Total                                  41,034             766        40,268 
-----------------  ----------  --------------  --------------  ------------ 
 

The age buckets disclosed above have expected credit losses applied. Where the expected credit loss rate is 0%, the buckets have immaterial expected credit losses.

23. Contract assets

 
                                  2019      2018 
                               GBP'000   GBP'000 
----------------------------  --------  -------- 
 EMEA                            2,856     2,942 
 Asia - Pacific & Mauritius      2,644     2,559 
 North America                     527       593 
 Channel Islands                   433       534 
----------------------------  --------  -------- 
Balance at 31 December           6,460     6,628 
----------------------------  --------  -------- 
 

The prior year comparative figures were restated, due to the change in segments. Please refer to note 5 for more information relating to the change.

 
                                                           2019      2018 
                                                        GBP'000   GBP'000 
-----------------------------------------------------  --------  -------- 
Contract assets relating to contracts with customers 
 1 January                                                6,628     3,096 
Increase in contract assets for the period                7,003     6,306 
Contract assets released                                (6,334)   (3,127) 
Disposal group held for sale                              (325)       (9) 
Exchange differences                                      (512)       362 
-----------------------------------------------------  --------  -------- 
Balance at 31 December                                    6,460     6,628 
-----------------------------------------------------  --------  -------- 
 

Contract assets are all classified as current based on expected recoverability. The contract assets are subject to the impairment requirements of IFRS 9. The contract assets relate to unbilled work recognised on time spend basis as performance obligations are met and substantially have the same risk characteristics as the trade receivables and the simplified approach was also applied to contract assets. The Group has therefore concluded that the expected loss rates applied to trade receivables <31 days, are an appropriate estimation of the expected credit losses.

Payments are due as soon as invoices are raised.

24. Net (debt)/cash

 
                                             2019      2018 
                                          GBP'000   GBP'000 
--------------------------------  ----  ---------  -------- 
Bank loan (see note 27)                 (129,572)  (85,364) 
Trapped cash                       (i)   (10,065)   (8,936) 
Less: Cash and cash equivalents            51,454    32,411 
--------------------------------------  ---------  -------- 
Total net (debt)/cash                    (88,183)  (61,889) 
--------------------------------------  ---------  -------- 
 

The Group had undrawn borrowings at 31 December 2019 of GBP88 million (2018: GBP14.2 million) and an accordion of GBP70 million. See note 27.

i. Trapped cash is the aggregate of the minimum amounts of cash our legal entities are required to hold in order to maintain compliance with any regulatory or legal capital or liquidity requirements that apply to them. The balance of trapped cash is somewhat fluid and will depend on the other assets of the respective entities, it is not specifically held in segregated accounts. Trapped cash can be used by the business, however, it could lead to a breach of the regulatory compliance requirements. Refer to note 34 for additional information on capital management.

25. Share capital

 
                                                                2019      2018 
                                                             GBP'000   GBP'000 
----------------------------------------------------------  --------  -------- 
Authorised 
500,000,000 (2018:500,000,000) ordinary shares of GBP0.01 
 each                                                          5,000     5,000 
----------------------------------------------------------  --------  -------- 
Called up, issued and fully paid 
146,633,168 (2018: 145,996,512) ordinary shares of 
 GBP0.01 each                                                  1,466     1,460 
----------------------------------------------------------  --------  -------- 
 

1,730,901 Ordinary shares (1.2% of the issued share capital) are held by Sanne Group Employees' Share Trust ("EBT") (2018: 2,622,846) and have been treated as treasury shares in accordance with IAS 32 Financial Instruments.

At 31 December 2019 the Company held 98,533 (2018: 98,533) treasury shares.

 
Movements in share capital during the year ended 31       2019      2018 
 December                                              GBP'000   GBP'000 
----------------------------------------------------  --------  -------- 
Balance at 1 January                                     1,460     1,416 
Issue of shares: 
FAS deferred consideration                                   6         8 
LIS acquisition                                              -        30 
Sanne AgenSynd acquisition                                   -         6 
----------------------------------------------------  --------  -------- 
Balance at 31 December                                   1,466     1,460 
----------------------------------------------------  --------  -------- 
 
 
Movements in share premium during the year ended 31       2019      2018 
 December                                              GBP'000   GBP'000 
----------------------------------------------------  --------  -------- 
Balance at 1 January                                   200,270   171,850 
Issue of shares: 
FAS deferred consideration                               3,153     4,036 
LIS acquisition                                              -    20,885 
Sanne AgenSynd acquisition                                   -     3,499 
----------------------------------------------------  --------  -------- 
Balance at 31 December                                 203,423   200,270 
----------------------------------------------------  --------  -------- 
 

Shares to the value of GBP3.2 million (2018: GBP4.0 million) were issued from the "shares to be issued" reserve rather than raised through the issuance of ordinary shares.

26. Own shares

 
                  Shares           GBP'000 
                2019       2018   2019   2018 
---------  ---------  ---------  -----  ----- 
EBT        1,730,901  2,622,846  1,166  1,470 
Treasury      98,533     98,533      -      - 
---------  ---------  ---------  -----  ----- 
Total      1,829,434  2,721,379  1,166  1,470 
---------  ---------  ---------  -----  ----- 
 

Sanne Group Employees' Share Trust ("EBT")

During the year, the EBT settled commitments under share based payments of 936,892 shares. The EBT also repurchased 44,947 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 (2018: 98,533) shares in treasury resulting from repurchases of shares which are held under restrictive sale agreements, at a total cost of GBP2.

27. Borrowings

On 1 March 2019, the Group refinanced its loan facility and repaid the existing loan in full. The facility has a maturity of February 2023 with extension options of up to two years. Interest is charged at LIBOR plus a variable margin. The balance of the unamortised loan costs was written off.

The new loan facility is for GBP150m plus an accordion facility of GBP70m with a consortium of five banks namely HSBC, Bank of Ireland, LIoyds, Royal Bank of Canada and Santander. 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. The loan and accordion have a maturity of February 2023 and pay commercial rates.

Covenants attached to the loan relate to interest cover and leverage. Undrawn funds in the revolving credit facility are charged at 40% of the interest margin whilst the accordion facility attracts no interest until drawn.

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

 
                                2019      2018 
                             GBP'000   GBP'000 
--------------------------  --------  -------- 
Available 
Term loan                          -    46,000 
Revolving credit facility    150,000    44,000 
Accordion facility            70,000    10,000 
--------------------------  --------  -------- 
                             220,000   100,000 
--------------------------  --------  -------- 
Drawn 
Term loan                          -    46,000 
Revolving credit facility    131,175    39,850 
--------------------------  --------  -------- 
                             131,175    85,850 
--------------------------  --------  -------- 
Capitalised loan fees        (1,603)     (486) 
--------------------------  --------  -------- 
Total borrowings             129,572    85,364 
--------------------------  --------  -------- 
 
 
                                     2019      2018 
Reconciliation of loan balance    GBP'000   GBP'000 
-------------------------------  --------  -------- 
Balance at 1 January               85,364    64,335 
Redemption of bank loans         (85,850)   (4,000) 
New bank loans raised             131,175    24,850 
Amortisation for the year             174       179 
Loan fees accrued                    (37)         - 
Loan fees paid                    (1,711)         - 
Loan fees written off                 457         - 
-------------------------------  --------  -------- 
Balance at 31 December            129,572    85,364 
-------------------------------  --------  -------- 
 

During the year to 31 December 2019, the Group drew down from the revolving credit facility a net total of GBP131.1 million with GBP85.9 million used to repay the previous facility.

28. Deferred taxation

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

 
                             2019      2018 
                          GBP'000   GBP'000 
-----------------------  --------  -------- 
Deferred tax asset          8,324     2,082 
Deferred tax liability   (15,931)  (13,395) 
-----------------------  --------  -------- 
                          (7,607)  (11,313) 
-----------------------  --------  -------- 
 

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

 
                               2019      2018 
                            GBP'000   GBP'000 
-------------------------  --------  -------- 
Intangible assets           (9,063)  (10,692) 
Other timing differences      1,456     (621) 
-------------------------  --------  -------- 
                            (7,607)  (11,313) 
-------------------------  --------  -------- 
 

The movement in the year is analysed as follows:

 
                                                  2019      2018 
                                               GBP'000   GBP'000 
--------------------------------------------  --------  -------- 
Balance at 1 January                          (11,313)   (7,930) 
Recognised through acquisitions                      -   (5,162) 
Other comprehensive income                          10      (11) 
Income statement movements 
Intangible assets                                1,629     (738) 
Leases - right of use assets                     5,370         - 
Leases - lease liabilities                     (4,822)         - 
Tangible assets                                  (122)     (169) 
Share based payments                               145     1,052 
Other timing differences - income statement      1,122     1,900 
Foreign exchange                                   374     (255) 
--------------------------------------------  --------  -------- 
Balance at 31 December                         (7,607)  (11,313) 
--------------------------------------------  --------  -------- 
 

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

The group expects the deferred tax asset to be recovered as follows:

 
                                                                2019      2018 
                                                             GBP'000   GBP'000 
----------------------------------------------------------  --------  -------- 
Deferred tax asset 
 recovered in no more than twelve months after the 
  reporting period                                             5,123       771 
 recovered in more than twelve months after the reporting 
  period                                                       3,201     1,311 
----------------------------------------------------------  --------  -------- 
Balance at 31 December                                         8,324     2,082 
----------------------------------------------------------  --------  -------- 
 
 
The group expects the deferred tax liability to be                2019       2018 
 settled as follows:                                           GBP'000    GBP'000 
-----------------------------------------------------------  ---------  --------- 
Deferred tax liability 
 settled in no more than twelve months after the reporting 
  period                                                      (10,856)    (9,303) 
 settled in more than twelve months after the reporting 
  period                                                       (5,075)    (4,092) 
-----------------------------------------------------------  ---------  --------- 
Balance at 31 December                                        (15,931)   (13,395) 
-----------------------------------------------------------  ---------  --------- 
 

29. Trade and other payables

 
                                             2019      2018 
                                          GBP'000   GBP'000 
--------------------------------  -----  --------  -------- 
Trade creditors                             1,320       287 
Other payables                              1,148     1,482 
Other taxes and social security             3,139     2,834 
Accruals                                    8,865     5,536 
Deferred consideration              (i)         -    24,328 
--------------------------------  -----  --------  -------- 
Total trade and other payables             14,472    34,467 
---------------------------------------  --------  -------- 
Other liabilities                  (ii)         -     4,914 
--------------------------------  -----  --------  -------- 
Total other liabilities                         -     4,914 
---------------------------------------  --------  -------- 
 

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

i. The prior year deferred consideration relates to the LIS acquisition and was settled in cash in the current year.

ii. In the prior year other liabilities relate to the non-current liability recognised for lease incentives received. In the current year the lease incentives decrease the right-of-use asset balances as set out in IFRS 16. Refer to note 21 for further information relating to the lease accounting.

30. Provisions

 
                                            2019      2018 
                                         GBP'000   GBP'000 
--------------------------------------  --------  -------- 
Balance at 1 January                       1,650       506 
Provisions utilised during the year        (546)      (60) 
Provisions recognised during the year      1,352         - 
Recognised through acquisitions                -       180 
Provisions grossed up                          -     1,030 
Foreign exchange loss/(gain)                  19       (6) 
--------------------------------------  --------  -------- 
Balance at 31 December                     2,475     1,650 
--------------------------------------  --------  -------- 
Of which are: 
Current lease liabilities                    451       452 
Non-current lease liabilities              2,024     1,198 
--------------------------------------  --------  -------- 
Balance at 31 December                     2,475     1,650 
--------------------------------------  --------  -------- 
 

The provision carried principally relates to dilapidations for 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 rental agreements. The rental agreements span 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. The Group expects the cash outflow to occur at the end of the lease term. In the prior year the Group incorrectly carried all of its provisions as current. This was split in the current year, as above, between current and non-current. The prior year balance moving from current liabilities to non-current liabilities is GBP1.2 million, because as at 31 December 2018 it was due after more than 12 months. There was no impact on the profit and loss.

31. Contract liabilities

 
                                  2019      2018 
                               GBP'000   GBP'000 
----------------------------  --------  -------- 
 EMEA                            7,479     5,910 
 Asia - Pacific & Mauritius      4,302     4,475 
 North America                      71       119 
 Channel Islands                 5,782     5,581 
----------------------------  --------  -------- 
Balance at 31 December          17,634    16,085 
----------------------------  --------  -------- 
 

The following disclosure indicates how much revenue, recognised in the current reporting period, relates to carried-forward contract liabilities and how much relates to performance obligations that were satisfied in a prior year.

The prior year comparative figures were restated, due to the change in segments (the cumulative balance remained unchanged). Please refer to note 5 for more information relating to the change.

 
                                                                 2019      2018 
                                                              GBP'000   GBP'000 
-----------------------------------------------------------  --------  -------- 
Contract liabilities at 1 January                              16,085    12,850 
Revenue recognised in the current period that was included 
 in the contract liability balance at the beginning 
 of the period                                               (16,195)  (12,855) 
Contract liabilities recognised during the year                18,551    16,098 
Disposal group held for sale                                    (325)     (250) 
Exchange differences                                            (482)       242 
-----------------------------------------------------------  --------  -------- 
Balance at 31 December                                         17,634    16,085 
-----------------------------------------------------------  --------  -------- 
 

Payments are due as soon as invoices are raised. Revenue is recognised over time, as the performance obligations are met.

32. Share based payments

 
                                 2019      2018 
                              GBP'000   GBP'000 
---------------------------  --------  -------- 
Sanne Group plc 
Performance Share Plan           (40)     1,192 
Restricted Stock Awards         2,482     2,184 
Social security accrual          (65)         - 
---------------------------  --------  -------- 
Total share based payments      2,377     3,376 
---------------------------  --------  -------- 
 

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.

The fair value for Performance Share Plans containing a market condition was valued on grant date using the Geometric Brownian Motion, which incorporated a Monte Carlo simulation. This was performed by determining the share price at grant date and applying the module under certain assumptions, for example the reinvesting of dividends and a risk free rate linked to a 3-year UK government bond.

Management estimates 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. The fair value of share awards granted during the period amounted to GBP 5,4 million.

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 
                              of shares      shares 
                                   2019        2018 
---------------------------  ----------  ---------- 
Performance share plan 
Outstanding at 1 January      1,413,030   1,229,280 
Granted during the year         376,783     326,289 
Forfeited during the year     (197,726)   (142,539) 
Vested during the year        (575,539)           - 
---------------------------  ----------  ---------- 
Outstanding at 31 December    1,016,548   1,413,030 
---------------------------  ----------  ---------- 
 

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

 
                                 Number   Number of 
                              of shares      shares 
                                   2019        2018 
---------------------------  ----------  ---------- 
Restricted Stock Awards 
Outstanding at 1 January      1,546,998   1,355,554 
Granted during the year         540,704     386,138 
Forfeited during the year      (97,219)   (151,413) 
Vested during the year        (311,419)    (43,281) 
---------------------------  ----------  ---------- 
Outstanding at 31 December    1,679,064   1,546,998 
---------------------------  ----------  ---------- 
 

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.

 
                                                       2019      2018 
Shares to be issued comprise the following:         GBP'000   GBP'000 
-------------------------------------------------  --------  -------- 
Balance at 1 January                                 12,278    13,373 
New share plans for employees                         2,337     2,948 
FAS acquisition - deferred consideration settled    (3,159)   (4,043) 
Shares vested                                       (3,733)         - 
-------------------------------------------------  --------  -------- 
Balance at 31 December                                7,723    12,278 
-------------------------------------------------  --------  -------- 
 

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 GBP560k (2018: GBP451k), paid in full by the employer.

Defined benefit RETIREMENT obligation

The Group has a defined benefit retirement obligation in respect of the Mauritius Employment Rights Act 2008 ("the Act"). In terms of the Act, 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 retirement obligation of GBP684k (2018: GBP701k) on the consolidated balance sheet in respect of amounts that are expected to be paid out to employees under the Act. The group does not expect a significant change in contributions for the following year.

The most recent actuarial valuation of the defined benefit retirement obligation was carried out at 31 December 2019 by the State Insurance Company of Mauritius.

 
                                                              2019      2018 
Defined benefit retirement obligation                      GBP'000   GBP'000 
--------------------------------------------------------  --------  -------- 
Present value of defined benefit at the beginning of 
 the year                                                      701       718 
Amounts recognised in the Consolidated Income Statement 
 - Current service cost                                         54        48 
 - Net interest expense                                         42        48 
Amounts recognised in the Consolidated Statement of 
 Other Comprehensive Income 
 - Actuarial loss/(gain) on defined benefit obligation          67      (70) 
Direct benefits paid                                         (118)      (85) 
FX gain                                                       (62)        42 
--------------------------------------------------------  --------  -------- 
Present value of defined benefit retirement obligation 
 at 31 December                                                684       701 
--------------------------------------------------------  --------  -------- 
 

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:

 
                               2019      2018 
-------------------------  --------  -------- 
Discount rate(1)               6.5%      6.6% 
Future salary increases          3%        3% 
Future pension increases         3%        3% 
Withdrawal rate                 17%       17% 
Retirement age             65 years  65 years 
-------------------------  --------  -------- 
 

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

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

 
                                                                     2019         2018 
                                                                  GBP'000      GBP'000 
------------------------------------------------------------  -----------  ----------- 
- Increase due to 1% decrease in discount rate                        129          115 
- Decrease due to 1% increase in discount rate                        182           89 
- Increase due to 1% increase in future salary increases              132          157 
- Decrease due to 1% decrease in future salary increases              167          123 
Weighted average duration of the defined benefit obligation 
 (years)                                                       22.7 years   16.3 years 
------------------------------------------------------------  -----------  ----------- 
 

34. Financial instruments

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

 
                                                                 2019      2018 
Categories of financial instruments                   Level   GBP'000   GBP'000 
--------------------------------------------  ------  -----  --------  -------- 
Financial assets 
Financial assets recorded at amortised 
 cost 
Cash and bank balances                                         51,454    32,411 
Trade and other receivables                      (i)           49,055    46,896 
Financial assets recorded at fair value 
Investment in equity                            (ii)      3     8,632         - 
Financial liabilities 
Financial liabilities recorded at amortised 
 cost 
Bank loan                                                     129,572    85,364 
Deferred consideration                         (iii)      3         -    24,328 
Trade and other payables                        (iv)           11,333     7,305 
--------------------------------------------  ------  -----  --------  -------- 
 
   i.    Includes contract assets but excludes other debtors and prepayments. 

ii Refer to note 20 for further information relating to the minority equity investment and the fair value thereof.

iii. The deferred consideration relate to the acquisition of LIS and CP. The consideration had a contingent element where it was based on the 2018 multiple and payment was deferred until the 2018 audit of LIS and CP was finalised.

iv. 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. Refer to note 25 for the quantitative disclosure of the share capital.

As disclosed in note 27, the Group has a loan which requires it to meet cash flow, leverage and interest cover covenants. Refer to note 27 for the quantitative disclosure of the borrowings. In order to achieve the Group's capital risk management objective, the Group aims to ensure that it meets the financial covenants attached to the 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. These regulatory requirements of adequate capital is referred to by Sanne as "trapped cash", the quantitative balance of which can be observed in note 24.

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.

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, whilst 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 is currently considering the proposed LIBOR reforms, but it does not expect a material impact on the financial results.

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 2019 would decrease/increase by GBP363k (2018: GBP229k).

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 monitor the potential impacts of the United Kingdom's leaving EU membership ("Brexit") The volatility of 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 
                           2019      2018      2019      2018 
                        GBP'000   GBP'000   GBP'000   GBP'000 
---------------------  --------  --------  --------  -------- 
Euro                     35,051    29,846       168       324 
United States Dollar     25,979    18,261       281         8 
South African Rand        1,258     2,410        71       (2) 
---------------------  --------  --------  --------  -------- 
                         62,288    50,517       520       330 
---------------------  --------  --------  --------  -------- 
 

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 of the foreign currency impact on the year-end consolidated balance sheet, the possible impact on the 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 the Sterling by 20% is considered an appropriate variable for the sensitivity analysis given the scale of foreign exchange fluctuations over the last two years. This is based on the most volatile currency namely, the South African Rand, for which it is not uncommon to see a 20% fluctuation.

 
                                           Effect on Group 
                                         comprehensive income 
                                            and net assets 
---------------------  -------------- 
                        Strengthening 
                        / (weakening)         2019        2018 
                          of Sterling      GBP'000     GBP'000 
---------------------  --------------  -----------  ---------- 
Euro                             +20%      (6,977)     (5,904) 
United States Dollar             +20%      (5,140)     (3,650) 
South African Rand               +20%        (237)       (482) 
Euro                            (20%)        5,814       4,920 
United States Dollar            (20%)        4,283       3,042 
South African Rand              (20%)          198         402 
---------------------  --------------  -----------  ---------- 
 

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.

Cash and cash equivalents are subject to the impairment requirements of IFRS 9. As balances are mainly held with reputable international banking institutions, they were assessed to have low credit risk and no loss allowance is recognised. Cash and cash equivalents are held mainly with banks which are rated 'A-' or higher, with the exception of a few BBB rated institutions, by Standard & Poor's Rating Services.

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.

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.

Subsequently, customer credit risk is managed by each of the Group entities subject to the Group's policies, procedures and controls relating to customer credit risk management. Outstanding customer receivables are monitored and followed up continuously. Provisions are made when there is objective, forward-looking, evidence that the Group will not be able to collect the debts or bill the customer. This evidence can include the following: indication that the customer is experiencing significant financial difficulty or default, probability of the fund being liquidated, or similar factors. Analysis is done on a case by case basis in line with the Group policy. The ageing of trade receivables and loss allowance at the reporting date is disclosed in note 22. Note 23 sets out the expected credit loss of contract assets.

The Group has rebutted the presumption that there have been significant increases in credit risk since initial recognition of trade receivables by considering the payment profiles of the trade receivables past due on a case by case basis. Historically the group has had immaterial debt write-offs, supporting the fact that the clients do not incur significant increases in their credit risk when becoming past due.

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 rates, 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 2019 
Bank loans (i)                       666        2,013    139,203          -   141,882 
Trade payables and accruals 
 (ii)                             14,331            -          -          -    14,331 
Provisions                             -          451        500      1,524     2,475 
Lease liability                    1,084        3,287     11,195     22,274    37,840 
----------------------------  ----------  -----------  ---------  ---------  -------- 
                                  16,081        5,751    150,898     23,798   196,528 
----------------------------  ----------  -----------  ---------  ---------  -------- 
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 
----------------------------  ----------  -----------  ---------  ---------  -------- 
 

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

For all the financial instruments, excluding the instruments classified as carried at fair value through other comprehensive income, the directors consider that the carrying amounts of financial assets and financial liabilities in the historical financial information approximate their fair values.

35. Related party transactions

The Group's 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.

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.

 
                                          2019      2018 
                                       GBP'000   GBP'000 
------------------------------------  --------  -------- 
Short-term employee benefits             2,289     2,789 
Share based payments (see note 32)         222       573 
Contracted through consultancy firm         60         - 
------------------------------------  --------  -------- 
Total short term payments                2,571     3,362 
------------------------------------  --------  -------- 
 

Balances and transactions between 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:

 
                                               2019      2018 
                                            GBP'000   GBP'000 
-----------------------------------------  --------  -------- 
Consulting services - Arema Risk Limited         70       185 
-----------------------------------------  --------  -------- 
 

Arema Risk Limited is a related party of the Group as a member of the key management personnel is a shareholder of the entity. The Group engaged the entity for consultancy services at an arm's length basis.

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

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

36. Changes in accounting policies

On adoption of IFRS 16 'Leases', the group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019. The incremental borrowing rate was determined on 1 January 2019 as set out in note 21. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 4.21%.

The Group made use of the practical expedient on transition whereby leases with a remaining lease term of less than 12 months, as at 1 January 2019, will be accounted for as a short-term lease. Consequently, no lease liability or right-of-use asset was calculated thereon. Initial direct costs were also excluded for the measurement of the right-of-use asset at initial application of the new standard.

The Group has also elected not to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, for contracts entered into before the transition date the Group relied on its assessment made applying IAS 17 'Leases' and IFRIC 4 Determining whether an arrangement contains a Lease.

The Group defines low value assets as those assets with a purchase price, for a new and unused asset, of GBP5,000 or lower.

The discounted remaining lease payments are reconciled to the lease liability recognised on initial application as follows:

 
                                                                         1 Jan 
                                                                          2019 
                                                                       GBP'000 
--------------------------------------------------------------------  -------- 
Operating lease commitments disclosed as at 31 December 2018            60,265 
Discounted using the average incremental borrowing rate                 40,243 
Less: short-term leases recognised as an expense on a straight-line 
 basis                                                                    (67) 
Less: low value assets recognised as an expense on a straight-line 
 basis                                                                    (15) 
Plus: adjustment due to jurisdictional incremental borrowing 
 rate used                                                                 327 
Leases committed to in 2018 with a 1 January 2019 commencement 
 date                                                                  (4,660) 
--------------------------------------------------------------------  -------- 
Lease liability recognised as at 1 January 2019                         35,828 
--------------------------------------------------------------------  -------- 
Of which are: 
Current lease liabilities                                                3,902 
Non-current lease liabilities                                           31,926 
--------------------------------------------------------------------  -------- 
                                                                        35,828 
--------------------------------------------------------------------  -------- 
 

The associated right-of-use assets for property leases were measured on a simplified retrospective basis, thereby recognising the right-of-use asset at the carrying value it would have been on 1 January, if the new standard was always in effect. Using the practical expedient, the group only recognised a right-of-use-asset on property. The impact on 1 January 2019 is set out below. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application. The cumulative effect of initially applying IFRS 16 'Leases' was accounted for as an adjustment to the opening balance of retained earnings.

Right-of-use assets were only recognised on the rental properties.

 
                        31 Dec     1 Jan 
                          2019      2019 
                       GBP'000   GBP'000 
--------------------  --------  -------- 
Right-of-use assets     32,733    30,828 
Lease liabilities     (37,840)  (35,828) 
--------------------  --------  -------- 
 

The change in accounting policy affected the following items in the balance sheet on 1 January 2019:

 
                                            GBP'000 
                                  Increase 
Right-of-use assets                     by   30,828 
                                  Increase 
Lease liabilities                       by   35,828 
                                  Increase 
Deferred tax liabilities                by    4,426 
                                  Increase 
Deferred tax assets                     by    4,976 
                                  Decrease 
Trade and other payables                by    5,403 
                                  Decrease 
Property, plant and equipment           by    1,109 
                                  Decrease 
Retained earnings                       by      556 
                                  Increase 
Provisions                              by      400 
 
                                  Decrease 
Basic EPS (pence)                       by     0.40 
                                  Decrease 
Diluted EPS (pence)                     by     0.39 
                                  Decrease 
Underlying basic EPS (pence)            by     0.40 
                                  Decrease 
Underlying diluted EPS (pence)          by     0.39 
-------------------------------  ---------  ------- 
 

The lease liability disclosed in the 31 December 2018 consolidated financial statements included two leases with a 1 January 2019 commencement date. The two leases amounted to GBP 4.7 million and were included in the consolidated financial statements to be prudent.

Refer to note 21 relating to the current year disclosure of the lease liabilities and right of use asset. Note 21 also details the Group's approach to the assessment of the lease terms, variable lease payments and the calculation of the incremental borrowing rates applied.

37. Business combinations

There have been no business combinations in the current year. In the prior year Sanne acquired 100% of the issued shares of Investment Solutions S.A., Compliance Partners S.A. and AgenSynd S.L. The below note sets out the impact of the prior year business combinations on the comparative period.

LUXEMBOURG INVESTMENT SOLUTIONS S.A. AND COMPLIANCE PARTNERS S.A

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

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 was satisfied by a total payment of approximately GBP60.2 million (EUR66.6 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): 
------------------------------------  ---------------------  -------  ------- 
Non-current assets                    Useful economic life 
Equipment                             3 - 5 years                426      378 
Customer & contract intangibles       5 years                 18,616   16,527 
------------------------------------  ---------------------  -------  ------- 
                                                              19,042   16,905 
 ----------------------------------------------------------  -------  ------- 
Current assets 
Trade and other receivables                                    2,117    1,879 
Cash and cash equivalents                                      3,983    3,536 
Accrued income                                                 4,143    3,678 
-----------------------------------------------------------  -------  ------- 
                                                              10,243    9,093 
 ----------------------------------------------------------  -------  ------- 
Current liabilities 
Trade and other payables                                       2,425    2,153 
Current tax liabilities                                        1,163    1,032 
Deferred revenue                                                  74       66 
-----------------------------------------------------------  -------  ------- 
                                                               3,662    3,251 
 ----------------------------------------------------------  -------  ------- 
Non-current liabilities 
Deferred tax liabilities                                       4,842    4,299 
-----------------------------------------------------------  -------  ------- 
                                                               4,842    4,299 
 ----------------------------------------------------------  -------  ------- 
Identifiable net assets                                       20,781   18,448 
-----------------------------------------------------------  -------  ------- 
Goodwill                                                      75,868   67,572 
-----------------------------------------------------------  -------  ------- 
Total consideration                                           96,649   86,020 
-----------------------------------------------------------  -------  ------- 
Total consideration satisfied 
 by: 
Cash consideration - on acquisition                           29,878   26,525 
Equity instruments - ordinary 
 shares (3,022,841 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 prior year was deferred consideration of GBP24.3 million (EUR27.1 million). The deferred consideration was paid in 2019 and based on a multiple 2018 EBITDA for the LIS Group.

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.

Trade and other receivables

The fair value of the financial assets acquired is GBP119k, included in the balance is an amount of GBP170k, relating to the gross balance of trade receivables, of which GBP130k was 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

During 2018 the LIS Group 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 (469k higher).

AgenSynd S.L ("Stream Group")

On 14 August 2018, the Group entered into a conditional agreement to acquire 100% of the issued share capital of AgenSynd S.L. The Group has entities in Spain, the United Kingdom and France. The acquisition provided 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 the 2018 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 was 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

During 2018 the AgenSynd Group contributed GBP1.1 million of revenue and a profit for the year of GBP428k, 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).

38. Contingent liabilities

In the ordinary course of business the Group could be subject to legal claims and/or proceedings. Should such an event arise, the Board would consider its best estimate of the amount required to settle the obligation and, where appropriate, establish a provision. While there can be no assurances that circumstances will not change, based upon information currently available, the Directors do not believe there is any such claim or proceeding that could have a material adverse effect on the Group's financial position.

39. Post balance sheet events

The Group has entered into an option agreement with Inbhear Management Services Limited and Inbhear Fund Services Limited whereby it will obtain control over the entities, subject to regulatory approvals the upfront consideration is EUR6.6million plus an earn-out over the next three years capped at EUR7.8million. Inbhear Management services Limited is incorporated in the Cayman Islands and Inbhear Fund Services Limited is incorporated in the Republic of Ireland. This acquisition provides the Group with the opportunity to expand and grow its platform in the Cayman Islands, enhance the Group's new funds proposition in Dublin and grow its existing EMEA operations. At year end Sanne had not yet obtained control over the entity, due to contractual requirements that have not yet been met at year end.

The Group The Group is in the process of terminating its premises lease agreement in its UK jurisdiction. The Group has undertaken to enter into a new lease agreement whereby it will rent a larger office space for the next five years, starting in March 2020.

The world is currently experiencing a global outbreak of Coronavirus (COVID-19) which is having an unprecedented impact on global markets. Management is actively monitoring the situation and has assessed the expected impact on the financial results. Whilst there can be no guarantees as to future operations or performance, the most significant immediate impact is on the forward looking assumptions made in the various impairment tests. The Sanne South Africa cash generating unit was found to be the most sensitive to the current downturn in the markets due the nature of its revenue being linked to asset values and the small headroom available. Management further stretched the reasonable possible change scenario based on the current distressed market conditions and, whilst this could potentially change in the future, there were no material differences between the current sensitivities disclosed in note 16 of the financial statements.

On 13 March 2020 Sanne reached an agreement to sell its Jersey based private client business to JTC Plc. The consideration to be paid for the business is capped at a maximum of GBP12m, to be paid in cash upon completion, and subject to the satisfactory migration of clients to JTC Plc. Refer to note 11 for the discontinued operations disclosures.

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

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March 19, 2020 03:00 ET (07:00 GMT)

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