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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
FR GPUCWWUPUUGB
(END) Dow Jones Newswires
March 19, 2020 03:00 ET (07:00 GMT)
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