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RNS Number : 3977Y
Sanne Group PLC
09 September 2020
9 September 2020
Sanne Group plc
(the Group , SANNE or the Company )
Interim Results for the six months ended 30 June 2020
SANNE, a leading global provider of alternative asset and
corporate services, announces its results for the six months ended
30 June 2020.
Constant
6 months 6 months Change currency
to 30 June to 30 June change(3)
2020 2019
Underlying(1)
------------- ------------- --------- -----------
Net revenue(2) GBP83.9m GBP75.9m 10.7% 9.5%
------------- ------------- --------- -----------
Operating profit GBP23.0m GBP19.2m 20.0% 14.0%
------------- ------------- --------- -----------
Profit before tax GBP22.3m GBP17.5m 27% 12.1%
------------- ------------- --------- -----------
Diluted earnings per share 12.3p 9.4p 30.9% 12.9%
------------- ------------- --------- -----------
Free cash flow attributable GBP15.0m GBP12.9m 16.3% n.a.
to equity holders(4)
------------- ------------- --------- -----------
Operating profit margin 27.4% 25.3% 210bps n.a.
------------- ------------- --------- -----------
Statutory
------------- ------------- --------- -----------
Turnover(2) GBP86.5m GBP76.0m 13.8% 12.6%
------------- ------------- --------- -----------
Operating profit GBP12.3m GBP5.9m 108.5% 90.0%
------------- ------------- --------- -----------
Profit before tax GBP11.6m GBP3.8m 205.3% 141.9%
------------- ------------- --------- -----------
Diluted earnings per share 6.1p 1.4p 335.7% 229.4%
------------- ------------- --------- -----------
Interim dividend per share 4.8p 4.7p 2.1% n.a.
------------- ------------- --------- -----------
(1.) Underlying results for the year have been presented after
the exclusion of non--underlying items, third-party fund management
fees and discontinued activities. Further details of non-underlying
items can be found in note 3 of the consolidated financial
statements
(2.) Net revenue comprises turnover less third-party fund
management fees. More detail is provided in the Financial
Review
(3.) Constant currency represents the 2020 performance based on
applicable 2019 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:
o Robust financial performance:
o Net revenue growth of 9.5%(3) with organic growth of 8.9%(3)
reflecting the resilience of client book but Q2 COVID-19 related
slowdown in new fund activity
o Underlying operating profit growth of 14.0%(3)
o Underlying operating profit margin improvement of 210bps to
27.4% in the first half resulting from actions in H2 2019
o Strong cash generation with underlying operating cash
conversion in excess of 100%
o New business wins with annualised revenue of approximately
GBP11.1 million secured in the first half with an encouraging pick
up since June
o Fast adaptation to COVID-19 implications with no interruption to client service:
o Well invested platform allowed smooth and immediate shift in
working patterns under COVID-19 with no interruption to client
service
o Prioritised health, safety and wellbeing of our people across
all locations throughout the period
o Actively supported COVID-19 related charitable causes across
the globe with colleague volunteering and financial
contributions
o Progress on strategic goals:
o Continued innovation of technology solutions for improved
servicing of customers
o Organic initiatives to sharpen focus and fuel further
growth
o Acquisition of Inbhear to increase Dublin capability and open
new Cayman office
o Bolt on acquisitions agreed in Cayman and Tokyo to augment
presence and drive growth (expected to complete in the second
half)
o Completed the disposal of the Jersey Private Client business
on 1 July 2020
o Interim dividend of 4.8 p (2019: 4.7p), reflecting the Board's
confidence in the prospects for the Group
Outlook:
o The business has shown good resilience during H1 2020 during
unprecedented conditions, with the operational platform continuing
to deliver quality client service and remaining in a good position
to overcome any potential future lockdowns
o Whilst economic uncertainty remains around the medium and
longer term impact of COVID-19 and the Brexit process, the business
model is robust in that revenues are long term, margins are healthy
and the resulting cash flow generation is strong
o Signs of market progress have been seen during Q3 and pipeline
of new business continues to grow
o These observations give the Board confidence in delivering a
full year performance in line with its expectations, and we
continue to see the long-term strategic opportunity for the
Group
Martin Schnaier, Chief Executive Officer of Sanne Group plc,
said:
"The changes that we have made to the business over the past
fifteen months have enabled the Group to deliver a resilient
financial performance during the first half despite the backdrop of
the COVID-19 pandemic. Our ambition remains to provide high
quality, professional services to our clients and this year we have
particularly focused on technology across the Group which I see as
a really exciting development. Operationally we have prioritised
the health, safety and wellbeing of all our people and I would like
to thank everyone for their continued efforts in delivering
uninterrupted quality service to our clients. We remain excited
about the long-term opportunities for the business and committed to
our stated strategy."
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://www.sannegroup.com/investors/results-presentations/
A dial-in facility is also available, and the details are as
follows:
Dial-in numbers: UK: +44 33 0606 1122
ITFS: International Access
Numbers
Room number: 878505
----------------------------
Participant PIN: 4297
----------------------------
A PDF copy of the 2020 Interim 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 1,800 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 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.
Strategic Review
Chief Executive Officer's Statement
The Group has delivered a strong performance during the first
half despite the unprecedented COVID-19 conditions during the
period. This performance underlines the resilience of our business
during a period of considerable uncertainty within global markets
that has impacted on new alternative asset fund launches. In our
core closed-ended alternatives book, we continued to see healthy
revenue growth despite some delays to fundraisings and a lower
level of transactional activity during Q2. Overall, the Group
increased profitability and continued to benefit from the
structural changes that were made last year which continued to
yield material improvements in overhead cost control.
The business has continued to track the key strategic ambition
of providing best-in-class client service as we smoothly
transitioned from office working to remote working across all our
locations. Our focus throughout the period has been to prioritise
the health, safety and wellbeing of our people and I am incredibly
proud of how well they have performed, globally, under such
challenging conditions.
In addition to a robust organic performance, SANNE has
successfully negotiated two new acquisitions in 2020. In Cayman,
the Group signed an agreement to acquire Avalon Trust &
Corporate Services Limited and in Japan, we have signed an
agreement to lift-out Deutsche Bank's trust company operations.
Both transactions are expected to complete during the second half
and should help accelerate our growth ambitions in these attractive
jurisdictions. The Group also completed the disposal of the Jersey
Private Client business on 1 July.
As SANNE continues to build upon its reputation as a leader in
our industry, providing our clients with local service excellence
on a global, scalable platform, we have refreshed our branding to
reflect the tangible evolution of the business during the past
year. The new branding communicates a differentiated, technological
evolution of our service proposition, enhanced service quality and
further ambitions for the exciting opportunities that lie ahead for
all our stakeholders. Initial client feedback has been positive,
with many noting this better reflects SANNE's evolution to a
scaled, industry leading platform focused on high quality client
service.
Financial performance
Constant
currency
H1 2020 H1 2019 %
Underlying Group Income
Statement (GBP'000) (GBP'000) % change change
------------------------- ------------------ ------------------ --------- -----------
Net revenue 83,949 75,861 10.7% 9.5%
Gross profit 49,752 45,307 9.8% 7.8%
- Gross profit margin 59.3% 59.7%
Overhead costs (26,771) (26,150)
Underlying operating
profit 22,981 19,157 20.0% 14.0%
- Underlying operating
profit margin 27.4% 25.3%
The Group delivered revenue growth of 9.5% on a constant
currency basis which was nearer 11% on an actual basis. This is a
robust revenue performance for the Group given the backdrop of the
global COVID-19 pandemic and demonstrates the resilience of our
business and the non-discretionary nature of the majority of the
services we provide to clients.
While we are confident that the substantial, long term market
opportunity remains for alternative assets, we did see a temporary
impact from COVID-19 on our business in two main areas. Firstly,
across our core closed-ended business, we saw a shift in client
focus away from new fundraising activity and towards portfolio
management. While this shift in focus is expected to be temporary,
it has caused some delays to actual conversion of our pipeline for
new business and slowed transactional activity, particularly in
real estate, and therefore contributed to a softer revenue growth
rate overall. Secondly, our Hedge business saw a delay in AuM
ramp-up from large, new engagements that would have offset the
effect of previously reported client attrition in South Africa
during 2019. While we still expect these new funds to ramp up,
COVID-19 conditions have delayed this, resulting in a soft
performance from our principal AuM-based product line for H1 and
potentially most of 2020.
Despite this slowdown in new fundraising activity, new business
wins with expected annual revenue of over GBP11m demonstrate a
positive result for the Group given the market conditions in the
first half.
The Group gross profit has grown in line with revenues at a
consistent gross margin compared to the prior year. This result
reflects a small underlying gross margin improvement within three
of the four reporting segments whilst the EMEA segment margin has
been held back as a result of the reduced revenue in the Hedge
business and increased costs in Luxembourg following the revenue
realignment exercise that we discussed at the full year results. We
have also continued to invest in the Group's Product, Business
Development and Marketing teams, including work to refresh the
Group's branding during the period.
The first half underlying operating profit has materially
improved by 20.0% on an actual basis. This improvement reflects the
successful actions taken in the second half of 2019 to manage and
control overheads after a period of significant investment in our
people, processes and systems. It is especially pleasing to see
this performance despite our renewed focus and investment in
technology.
This performance has meant that the business has delivered a
good improvement in underlying operating profit margin from 25.3%
in 2019 to 27.4% for the first half. Whilst this has been helped by
some one-off cost savings driven by COVID-19, principally travel,
most of this improvement is as expected.
The Group has also delivered another period of strong cash
generation despite H1 traditionally being the slower period as a
result of the timing of invoicing in our Mauritian business. The
underlying operating cash conversion for H1 was 101% with free cash
flow attributable to equity holders up 16.3% on the first half of
2019 to GBP15.0 million. This has been driven by our continued
working capital discipline as well as the resilient nature of our
business model.
Continued strategic delivery
Notwithstanding the global conditions during the first half and
the priority to ensure the health and safety of our people in the
face of COVID-19, we have continued to make progress against our
core strategic goals.
As we reported previously, we have focused on innovation and our
use of technology to enhance client service and operational
efficiency across the global business. As such, following the
restructure of the management team in 2019, we created a new role
of Chief Technology Officer. Marie Measures was appointed on 1
January and has already had a significant impact on capability,
approach and delivery for the business. An example has been how
well the expedited roll out of remote access technology for the
entire business during Q1 was managed. This resulted in a smooth
transition to remote working when lockdown conditions required and
thereby allowed SANNE to continue delivering best-in-class services
to our clients. In addition, a thorough review of our legacy
systems, team capabilities and user experience has enabled us to
identify opportunities to become more efficient in how we work and
improve the use of technology internally and in a technology-led
client service proposition. In addition to this internal focus, the
Technology Team continue to work closely with the Group's Product
Development Team to generate significant revenue opportunities
through a data and technology led client offering.
Our Product Development Team continued to evolve following its
launch last year and we have seen real benefits of having credible,
market-leading figures interacting with our key clients,
prospective clients and market intermediaries. The Team has also
been built out to include enhanced, client-facing regulatory and
technology expertise. Together with the Technology Team, the
Product Development Team has been leading the development of the
Helios4GP data analytics product that was brought into the Group
following the investment in Colmore last summer. Our clients have
been eager to take up this new product and we believe that this
shows what an important service enhancement this will be,
especially as it is a unique offering at this time. This product
will be available on SANNE's new integrated client portal called
Sanne.Live, through which clients will be able to access direct
data, analytics and other services. This development launched this
year and again shows the progression we are making in delivering a
technology-led client proposition.
Despite remote working conditions in the first half, we have
continued to be active in delivering on our inorganic strategic
goal. We completed the Inbhear Fund Services deal in H1 which
provided the Group its first jurisdictional footprint in Cayman and
enhanced our existing Irish service offering in Dublin. We have
seen continued good performance from this business since
acquisition and a healthy amount of cross selling from other parts
of the business. Just after the period end, we agreed to enter into
two new acquisitions. In Cayman, the Group further expanded by
signing an agreement to acquire Avalon Trust & Corporate
Services Limited. In Japan, we have signed an agreement to lift-out
Deutsche Bank's trust company operations. Since opening our Tokyo
office in January 2019, we have seen good progress to date and some
encouraging new business wins. Both transactions are expected to
complete during the second half and should help accelerate our
growth ambitions in these jurisdictions by utilising the trust
licences that they have. Both these jurisdictions represent large
market opportunities for SANNE where the Group has historically
either not been present or been significantly under
represented.
The Group completed the disposal of the Jersey based Private
Client business on 1 July, and now has a tighter strategic focus on
our core markets. I would like to take the opportunity to thank our
former colleagues and clients, as well as wishing them all the best
for the future.
We continue to see many 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. We will continue to be
disciplined in our approach and assessment of acquisitions.
People, Diversity and ESG
Our people remain our core asset and we have worked hard to
ensure that they feel highly valued. The performance of our people
during unprecedented COVID-19 conditions in the first half is
testament to their quality and resilience and I would like to
extend my thanks to everybody for their efforts during the period.
We have always prioritised the health and safety of our people
during COVID-19 and we will continue to do so.
We have brought our people closer together during the first half
and our organisation feels more collaborative than ever. This
feeling is reflected by the number of CSR activities run by our
people across the globe, voluntarily, that have helped to improve
the lives of other people who are less fortunate than ourselves. We
have shared many initiatives over social media and these are also
shown on our website, but they have included a GBP40,000 donation
to the Mind Charity in Jersey, a EUR20,000 donation to the Irish
Red Cross, Focus and Basis Point Charities in Ireland, as well as
donating thousands of family food packs and care kits to NGO
partners in Mauritius through the SANNE Solidarity Fund.
During the period we launched an important new initiative and
established our first Diversity & Inclusion Committee. This
initiative was introduced to provide a channel for our business to
deliver enhanced capability through our people's diversity. The
Committee was formed by volunteers drawn from around our global
business and will be reporting directly to the Group's Executive
Committee. Together with the 2019 initiative to form a Workforce
Advisory Panel made up of a selection of colleagues from around the
Group and attended by several non-executive directors, we believe
that our people have valuable, open avenues to help drive ideas for
change across the business as well as the employee proposition at
SANNE.
As reported during the 2019 full year results, we continue to
make great progress in our ESG programme, both for the Group as
well as for our clients. As such, we have appointed our first
Global Head of ESG who will take responsibility for articulating
and delivering our approach internally and in relation to helping
our clients. Following the end of the period, SANNE has become a
proud signatory of the United Nations supported Principles for
Responsible Investment (PRI) Initiative, an international network
working together to put the six Principles for Responsible
Investment into practice.
Outlook
Whilst acknowledging the uncertainty around the medium and
longer-term economic impacts of the global COVID-19 pandemic and
the continuing lack of clarity around the Brexit process, the first
half performance of the Group demonstrates the resilience of its
business model that is predicated on diversified markets, long-term
recurring revenues, healthy margins and strong cash generation.
This, together with the performance to date and an encouraging
pipeline of new business opportunities, gives the Board confidence
in both delivering a full year performance in line with its
expectations, as well as the long-term strategic opportunity.
Martin Schnaier
Chief Executive Officer
Operational Review
The Group's four reporting segments are: Europe, Middle East and
Africa (EMEA); Channel Islands (CI); North America (NA); and,
Asia-Pacific & Mauritius (APM). As highlighted in the full year
result for 2019, a realignment of client revenues between EMEA and
CI was undertaken at the end of 2019 to better match client
revenues with the jurisdictions within which the client teams
operate. Whilst this exercise was largely done by the end of 2019
and therefore the full year segmental reporting reflected this, the
results below for the first half of 2019 have been re-presented to
reflect the new alignment.
Unless otherwise stated, all growth rates discussed in the
segmental reviews are on a constant currency basis.
Europe, Middle East and Africa (EMEA)
% constant
H1 2020 H1 2019 currency
EMEA GBP'000 GBP'000 % Change change
--------------------- --------- --------- --------- -----------
Revenue 30,981 28,379 9.2% 8.8%
- Alternatives 29,989 27,120
- Corporate 992 1,259
Gross Profit 17,332 17,434 (0.6%) (4.9%)
Gross profit margin 55.9% 61.4%
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.
Following a strong revenue performance and good momentum coming
out of 2019, the EMEA business saw a good start for revenue growth
in 2020 which was subsequently adversely impacted by the COVID-19
pandemic from mid-March. Despite this the segment saw robust
revenue growth of 8.8% versus the prior year.
The European jurisdictions saw solid performances across almost
all product lines. During the period we have successfully launched
our closed-ended fund administration capability in Spain with our
first Real Estate fund clients. Good growth was also seen across
the Loan Agency book which has benefited from a strong return to
activity towards the end of the period. The Group is also well
progressed in the process of applying for its AIFM Depositary
licence in Ireland which would add a significant additional service
offering for the jurisdiction at a time where few other third-party
administrators can offer the service.
The most severe effects of the COVID-19 pandemic were seen in
the first half across the Group's Hedge business in South Africa
and Malta. As highlighted last year, the business had seen
abnormally high one-off client losses in 2019 which were expected
to be offset by particularly strong new business wins. However,
whilst the new funds came on to the platform in Q1 of this year,
COVID-19 has significantly delayed the allocation of capital into
the new funds. Whilst this delay in allocation is expected to be
temporary, given the ad valorum fee structure in the Hedge
business, this has materially impacted the first half
performance.
The segment's margin in the period has been disproportionately
impacted by the delay in revenues in the Hedge business as this
product offering is highly operationally levered. This combined
with elevated costs in Luxembourg as we reorganise the operation
following the revenue reallocation exercise has led to a dilution
of the margin in the first half.
The first half of the year has also seen the acquisition of the
Inbhear in Dublin on 30 April 2020. During the first half the
Inbhear team relocated into SANNE's office and the integration
process in progressing well.
Channel Islands (CI)
% constant
H1 2020 H1 2019 currency
Channel Islands GBP'000 GBP'000 % Change change
--------------------- --------- --------- --------- -----------
Revenue 20,006 18,200 9.9% 9.8%
- Alternatives 14,616 13,489
- Corporate 5,390 4,711
Gross Profit 11,893 10,030 18.6% 21.8%
Gross profit margin 59.4% 55.1%
Note: The results above include only continuing operations
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). The segment also includes the majority of the Group's
services to corporate clients. The results exclude the contribution
from the Group's Jersey Private Client business in the first half
following agreement to dispose of the business. The disposal
completed on 1 July 2020.
Revenues from the CI segment saw growth in the period of 9.8%
which reflects a similar impact from COVID-19 as seen and discussed
above in EMEA. The segment saw a solid performance across all asset
classes with PE and Debt funds driving much of the growth whilst
Real Estate in particular saw subdued transaction activity as a
result of COVID-19. The period has seen us invest in the management
teams across both jurisdictions with new Heads of each appointed
and settling in well. Following 2019 the Group has sought to invest
in Guernsey in particular. SANNE has historically been underweight
on the island but there continue to be good growth opportunities
that we can target with the new team in place.
The realignment of client revenues at the start of the period
has allowed local management to start driving an improved margin
performance in the first half which is expected to continue to
improve.
Asia Pacific and Mauritius (APM)
% constant
H1 2020 H1 2019 currency
Asia/Pacific & Mauritius GBP'000 GBP'000 % Change change
-------------------------- --------- --------- --------- -----------
Revenue 18,152 16,398 10.7% 8.3%
Gross Profit 12,762 11,260 13.3% 9.8%
Gross profit margin 70.3% 68.7%
SANNE's APM segment operates across Hong Kong, Singapore,
Shanghai, Tokyo, Mumbai and Mauritius. This segment provides
services across all core products areas.
The segment delivered revenue growth of 8.3% driven by another
strong year across the Asia Pacific offices as well as encouraging
growth in Mauritius.
The APAC offices delivered growth of 16.2% in the first half
despite the impact of COVID-19 affecting almost the entire period.
This was helped with the contribution of revenues from Japan
compared with none in the prior year as well as good levels of new
business, particularly across private equity. In addition to
COVID-19, the region continues to see a certain level of disruption
in Hong Kong due to on-going protests and unrest. However, given
the non-discretionary work SANNE undertakes, this disruption has
had minimal impact on existing structures.
Mauritius saw revenue growth of 4.5%. Again, the region has been
impacted by COVID-19, particularly in the region's largest end
market of India, but has also benefited from good levels of new
business wins and continues to perform very well against the local
competitors.
The segment's gross profit margins increased in the period to
70.3%. This was delivered despite the new and fast-growing office
in Japan dampening margins slightly and was largely driven by an
improved margin in Mauritius.
North America (NA)
% constant
H1 2020 H1 2019 currency
North America GBP'000 GBP'000 % Change change
--------------------- --------- --------- --------- -----------
Revenue 14,810 12,884 14.9% 12.4%
Gross Profit 7,765 6,583 18.0% 16.4%
Gross profit margin 52.4% 51.1%
SANNE's NA segment primarily services closed-ended alternative
fund clients in North America.
The first half of the year saw revenue growth of 12.4% whilst
slightly improved margins helped contribute to 16.4% gross profit
growth. The majority of the segment's operations are in New York
which was impacted particularly heavily from mid-March onwards by
COVID-19 related restrictions which have had a similar impact to
the rest of the Group, dampening growth particularly in the second
quarter.
This strong performance continued to be delivered from
opportunities across the region's traditionally strong presence in
the Private Equity sector. Travel restrictions have delayed the
launch of the Group's loan agency offering in the region, but this
is expected to launch later in the second half.
Financial Review
Group Income Statement
% constant
H1 2020 H1 2019 currency
GBP'000 GBP'000 % Change change
------------------------------------- -------------------- --------- --------- -----------
Turnover 86,475 75,994
Less: Third-party fund management
fees (2,526) (133)
------------------------------------- -------------------- --------- --------- -----------
Net Revenue 83,949 75,861 10.7% 9.5%
Gross profit 49,752 45,307 9.8% 7.8%
Margin 59.3% 59.7%
Overheads (26,771) (26,150)
Underlying operating profit 22,981 19,157 20.0% 14.0%
Margin 27.4% 25.3%
Non-underlying items (10,647) (13,309)
Operating profit 12,334 5,848 110.9% 90.0%
------------------------------------- -------------------- --------- --------- -----------
Net finance cost and other
gains and losses (708) (2,078)
Non-underlying finance cost - (457)
Profit before tax 11,626 3,313
Taxation for the period (2,665) (1,783)
Profit after tax from continuing
operations 8,961 1,530
Discontinued operations 930 1,474
Total group profit after tax 9,891 3,004
Underlying diluted EPS - continuing
operations 12.3p 9.4p
Reported diluted EPS - total
group 6.7p 2.4p
Turnover and Net Revenue
In these interim results, we have sought to separate out third
party fund management fees for the first time. These relate to
asset management fees for a small number of funds that are clients
of the Group's AIFM Management Company in Luxembourg. These
revenues are the management fees for the asset manager in each
funds case, but contractually are paid by the fund entity to
SANNE's management company before being dispersed to the relevant
asset manager. This has started occurring as a result of new
engagement structures through the management company that result in
these fees being recognised as turnover for SANNE under IFRS 15.
Given these revenues are not economically SANNE's we have sought to
separate these out. Historically, these amounts have not been
material, but given strong growth of management fees in H1 2020, it
is deemed appropriate to split these out and refer to Net Revenue
as the relevant income for SANNE. Turnover for the period grew by
12.6% on a constant currency basis and 13.8% on an actual basis in
the first half when the third-party asset manager fees are
included.
Net revenue increased by 9.5% on a constant currency basis in
the period to GBP83.9 million (2019: GBP75.9m). Organic revenue
growth in the period was up 8.9% on a constant currency basis for
the whole group. This ignores the revenues earned in the period
from discontinued operations.
H1 2020 H1 2019
Constant
currency
(GBP'000) (GBP'000) % growth growth
Net revenue 83,949 75,861 10.7% 9.5%
Inbhear H1 revenues (462) -
Net organic revenue 83,487 75,861 10.1% 8.9%
---------- ---------- --------- ----------
Note: See the Alternative Profit Measures section for organic
growth calculation methodology
Gross profit
Gross profit for the period was GBP49.8 million (2019:
GBP45.3m). The gross profit margin was 59.3%, broadly flat on the
prior period result of 59.7%. This result reflects both the
negative margin impact that arises as a result of issues in the
South African Hedge business, where the direct cost base is largely
fixed, so the drop in revenues has a notable impact on gross margin
and the continued increase in investment in the Group's Product and
Business Development teams. These have been offset by improvements
to resourcing controls in the EMEA and CI divisions following the
reallocation of client revenues at the end of 2019.
Underlying operating profit and overheads
Underlying operating profit grew by 14.0% on a constant currency
basis to GBP23.0m (2019: 19.2m). This reflected the robust net
revenue and gross profit growth as well as an improvement in the
overheads cost as a proportion of net revenues.
Group overheads, excluding non-underlying items, were broadly
flat on the prior year despite the growth in the business. These
costs represented 31.9% of net revenue for the first half compared
with 34.5% for the first half of 2019. These overhead costs
continue to contain the costs to support the discontinued
activities which are not separated as they were not part of the
disposal perimeter.
Non-underlying costs and reported operating profit
Non-underlying costs in 2019 saw a decrease to GBP10.6 million
(2019: GBP13.8m). Non-underlying items within profit measures
include share-based payments and earn-out costs where they relate
to acquisitions (GBP1.2m); acquisition and integration costs
(GBP1.2m); amortisation of intangible assets (GBP8.1m) and other
costs. For further detail on non-underlying items, please see note
4 in the financial statements.
Reported operating profit for the period has increased
significantly in the first half of 2020, up 90.0% on a constant
currency basis and 109% on an actual basis. This is a result of
both the growth in underlying profits as well as the drop in
non-underlying items, most notably the lack of any impairments
recognised compared with last year.
Net finance expense and other gains and losses
Net finance expense was broadly flat on the prior year at GBP2.2
million (2019: GBP2.3m). However, the Group benefited from GBP1.5m
of foreign exchange gains (2019: GBP0.2m). The foreign exchange
gains arose largely as a result of the Group holding funds to
settle the Inbhear acquisition which saw some delays in completion
at a time sterling devalued materially against the Euro.
Taxation
The Group's underlying effective tax rate for the first half was
18.4% (2019: 21.0%). When adjusted for non-underlying items, the
reported effective rate for the half year for the Group was 21.0%
(2019: 36.0%).
Diluted earnings per share
Underlying diluted earnings per share grew significantly to 12.3
pence (2019: 9.4p). Reported diluted earnings per share, which
includes the post-tax contribution from discontinued operations,
also grew significantly to 6.7 pence (2019: 2.4p).
Dividend
Despite the backdrop of the current global COVID-19 crisis,
SANNE continues to be a highly resilient and cash generative
business. This enables the Board to continue 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 an
interim dividend of 4.8 pence per ordinary share (2019: 4.7 pence).
The interim dividend will be payable on 16 October 2020 to
Shareholders on the register at close of business on 18 September
2020.
Cash flow and working capital
The first half of 2020 has seen another strong period of cash
generation with underlying operating cash conversion of 101% (2019:
111%). The main movements in the cash flow are summarised
below:
H1 2020 H1 2019
(GBP'000) (GBP'000)
--------------------------------------------- ----------------------- ---------------------
Total Group Underlying operating profit 24,014 20,795
Depreciation (equipment and IFRS16) 4,536 3,962
Other (includes share based payments and
movements in provisions) (2,222) (73)
Change in working capital (3,541) (51)
Total cash flows on leases recognised under
IFRS16 (3,337) (2,882)
Non-cash non-underlying items 3,668 (458)
Underlying operating cash flows 23,118 21,293
----------------------- ---------------------
Underlying operating cash conversion 100.6% 111.1%
Capital Exp. (Equipment and Software) (1,898) (2,891)
Tax (3,993) (4,563)
Loan to minority investments (820) -
Net finance cost (1,390) (945)
Underlying free cash flow attributable to
equity holders 15,017 12,894
----------------------- ---------------------
Following the development of improved processes during 2019,
SANNE has continued to manage working capital well resulting in
high levels of cash conversion.
Capital expenditure in the year 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 of GBP3.3 million shown in
the Group cash flow statement and included in the above table in
the cash flow statement within "Non cash non-underlying items"
relates entirely to the final settlement of the earn-out payment
for AgenSynd which has been accruing as a non-underlying item since
the acquisition.
Capital management and financing
At 30 June 2020, the Group's net debt was GBP87.3 million (2019:
GBP55.0m), including gross cash balances of GBP51.5m (2019:
GBP44.2m). This reflected the strong operating cash generation seen
in the year and comes after the funding of the earn-out payment for
AgenSynd, the acquisition of Inbhear 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 1.7x at the period end (2019: 1.2x). At 30 June
2020 the cash ring fenced for regulatory capital requirements
("regulatory cash") was GBP13.3 million (2019: GBP9.0m). Excluding
this regulatory cash from available cash, the Group's net debt to
pre-IFRS 16 EBITDA ratio increases to 1.9x (2019: 1.4x).
Foreign Exchange
The Group's results are exposed to translation risk from the
movement in currencies. Overall, the average movement from
currencies has increased net revenue and underlying operating
profit by GBP0.9 million and GBP1.1 million respectively. In
addition, this currency movement in the first half has resulted in
GBP13.3 million of other comprehensive income recognised in the
Consolidated Statement of Changes in Equity which relates to the
non-cash translation gain on the Group's goodwill balances where
they are created in non-sterling currencies. During the six months
ended 30 June 2020 the key individual exchange rates have moved, as
shown in the table below.
At 30 June Half year average
---------------- --------------------
Per GBP sterling 2020 2019 % 2020 2019 %
------------------ ------- ------- ----- --------- --------- -----
Euro 1.101 1.1175 1.5% 1.1217 1.1354 1.2%
US Dollar 1.2379 1.2695 2.5% 1.2586 1.2924 2.6%
Discontinued activities
SANNE entered into an agreement during the first half of 2020 to
sell its Jersey based private client business. The results for this
business are included in these financial statements as discontinued
operations under IFRS 5 with further details in note 6.
Principal risks facing the business
SANNE operates an embedded risk management framework which
ensures the principal risks facing the Group are reviewed regularly
by the Board. There are a number of potential risks that could have
a material impact on the Group's financial performance and position
which remain as set out in the 2019 Annual Report. These are
categorised as Acquisition Risk; Strategy Risk; Competitor &
Client Demand Risk; Data & Cyber Security Risk; Process Risk;
Staff Resources Risk; Compliance Risk; Financial Crime Risk;
Fiduciary Risk and Financial Performance Risk. In response to the
COVID-19 pandemic our Group-wide response programme was initiated
during January 2020 as our APAC offices started to be impacted. The
Group continued to service clients throughout the period and all of
our offices have re-opened with full COVID-control measures.
ALTERNATIVE PERFORMANCE MEASURE DEFINITIONS
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:
NET REVENUE
Net revenue comprises turnover less third-party fund management
fees. These third-party fund management fees relate to asset
management fees for a small number of funds that are clients of the
Group's AIFM Management Company in Luxembourg. These revenues are
the management fees for the asset manager in each funds case, but
contractually are paid by the fund entity to SANNE's management
company before being disbursed to the relevant asset manager. SANNE
has started recognising these third-party fees as turnover under
IFRS 15 because of new engagement structures through the management
company. Given these revenues are not economically SANNE's we have
sought to separate these out and believe that net revenues are a
more accurate reflection of the income that SANNE earns for its
services to the relevant fund entity.
ORGANIC REVENUE GROWTH
Organic revenue growth is net revenue growth adjusted for
acquisitions on a like-for-like basis. 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 Financial Review. Organic revenue growth measures
are a key performance indicator for the growth of the business
excluding the impacts of any acquisitions undertaken.
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.
UNDERLYING PROFIT MEASURES
Underlying profit measures are used to present the period on
period performance of the Group excluding one-off or non-trading
related income and costs. These are arrived at by adjusting
reported profit measures for non-underlying items as disclosed in
note 4 of these financial statements.
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 Financial Review.
UNDERLYING OPERATING CASH CONVERSION
Underlying operating cash conversion is the underlying operating
cash flow as a percentage of continuing 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.
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. A
reconciliation is included in the Financial Review.
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. The underlying effective tax rate best
reflects the applicable tax payable in relation to the underlying
performance of the Group. A reconciliation is provided in note 5 to
these financial statements for the underlying effective tax
rate.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE
INTERIM STATEMENT
We confirm to the best of our knowledge that:
o The unaudited condensed set of financial statements have been
prepared in accordance with IAS 34 Interim Financial Reporting as
adopted by the EU and give a true and fair view of the assets,
liabilities, financial position and profit for the Group; and
o The interim management report includes a fair review of the
information required by:
A. DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
B. DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
The interim statement contains certain forward-looking
statements which are made by the directors in good faith based on
the information available to them at the time of their approval of
this interim statement. Forward looking statements contained within
the interim statement should be treated with some caution due to
the inherent uncertainties, including economic, regulatory and
business risk factors, underlying any such forward looking
statements.
We undertake no obligation to update any forward-looking
statements whether as a result of new information, future events or
otherwise. The interim statement has been prepared by Sanne Group
plc to provide information to its shareholders and should not be
relied upon by any other party or for any other purpose.
Martin Schnaier
Chief Executive Officer
9 September 2020
Independent review report to Sanne Group plc
Report on the consolidated financial statements
Our conclusion
We have reviewed Sanne Group plc's consolidated financial
statements (the "interim financial statements") in the Interim
Results of Sanne Group plc for the 6 month period ended 30 June
2020. Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the Consolidated Balance Sheet as at 30 June 2020;
-- the Consolidated Income Statement and Consolidated Statement
of Comprehensive Income for the period then ended;
-- the Consolidated Cash Flow Statement for the period then ended;
-- the Consolidated Statement of Changes in Equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Results
have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Interim Results, including the interim financial statements,
is the responsibility of, and has been approved by, the directors.
The directors are responsible for preparing the Interim Results in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Results based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
8 September 2020
Sanne Group plc
Consolidated Income Statement
For the period 1 January 2020
to 30 June 2020
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
to to to
30 Jun 30 Jun 31 Dec
2020 2019 (1) 2019 (1)
Note GBP'000 GBP'000 GBP'000
Turnover 86,475 75,994 159,707
Third-party fund management
fees (2,526) (133) (2,190)
Net Revenue (2) 83,949 75,861 157,517
----- ---------- ---------- ---
Direct costs (2) (34,197) (30,554) (63,505)
Gross profit 49,752 45,307 94,012
----------------------------------------- ----- ---------- ---------- --- ------------
Other operating income 14 121 185
Operating expenses (37,432) (39,580) (79,916)
Operating profit 12,334 5,848 14,281
----------------------------------------- ----- ---------- ---------- --- ------------
Comprising:
Underlying operating profit
from continuing operations 4 22,981 19,157 42,988
Non-underlying items within
operating profit from continuing
operations 4 (10,647) (13,309) (28,707)
12,334 5,848 14,281
----------------------------------------- ----- ---------- ---------- --- ------------
Other gains and losses 1,463 186 (216)
Finance costs (2,241) (2,340) (4,672)
Finance income 70 76 158
Profit before tax 11,626 3,770 9,551
----------------------------------------- ----- ---------- ---------- --- ------------
Comprising:
Underlying profit before
tax from continuing operations 4 22,273 17,536 38,715
Non-underlying items within
profit from continuing operations 4 (10,647) (13,766) (29,164)
11,626 3,770 9,551
----------------------------------------- ----- ---------- ---------- --- ------------
Tax 5 (2,665) (1,783) (4,007)
Profit after tax from continuing
operations 8,961 1,987 5,544
----------------------------------------- ----- ---------- ---------- --- ------------
Discontinued operations 6 930 1,474 3,330
Profit for the period 9,891 3,461 8,874
----------------------------------------- ----- ---------- ---------- --- ------------
Earnings per ordinary share ("EPS") from continuing
operations (expressed in pence per ordinary share)
Basic 7 6.2 1.4 3.8
Diluted 7 6.1 1.4 3.8
Underlying basic 7 12.4 9.5 21.6
Underlying diluted 7 12.3 9.4 21.3
Earnings per ordinary share ("EPS") from continuing and discontinued
operations (expressed in pence per ordinary share)
Basic 7 6.8 2.4 6.2
Diluted 7 6.7 2.4 6.1
Underlying basic 7 13.0 10.5 23.9
Underlying diluted 7 12.9 10.4 23.6
(1) Certain expenses amounting GBP683k for June 2019 and
GBP1,175k for December 2019 were reclassified between direct
costs and operating expenses. This change did not affect the
profit for the period. Please see note 3 for more detail.
(2) Net Revenue comprises revenue less third-party fund management
fees. Direct costs comprise direct costs of GBP36,723k less
third-party fund management fees of GBP2,526k.
Sanne Group plc
Consolidated Statement of Comprehensive
Income
For the period 1 January 2020
to 30 June 2020
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
to to to
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBP'000 GBP'000 GBP'000
Profit for the period 9,891 3,461 8,874
---------------------------------------------- ---------- ---------- ----------
Other comprehensive income/(expense):
Items that will not be reclassified
subsequently to profit and loss:
Actuarial (loss) / gain
on defined benefit retirement
obligation (2) (558) 44 (67)
Deferred tax relating to
items not reclassified 107 (6) 10
Revaluation of minority
equity investment 595 - (715)
Items that may be reclassified
subsequently to profit and loss:
Exchange differences on
translation of foreign operations
(1) 13,301 270 (10,663)
Total other comprehensive income/(expenses)
for the period 13,445 308 (11,435)
---------------------------------------------- ---------- ---------- ----------
Total comprehensive income/(expenses)
for the period 23,336 3,769 (2,561)
---------------------------------------------- ---------- ---------- ----------
Comprising:
Total comprehensive income/(expenses)
for the period from continuing
operations 22,406 2,295 (5,891)
Total comprehensive income
for the period from discontinued
operations 930 1,474 3,330
Total comprehensive income/(expense)
for the period 23,336 3,769 (2,561)
---------------------------------------------- ---------- ---------- ----------
(1) Refer to the "Financial review" section for further
information relating to the movement in the exchange differences
on translation of foreign operations.
(2) The actuarial loss in the period relates to the Group's
retirement gratuity obligations in Mauritius under the Mauritian
Employments Rights Act which is recognised on the Group balance
sheet as a defined benefit pension obligation.
Sanne Group plc
Consolidated Balance Sheet
As at 30 June 2020
Unaudited Unaudited Audited
30 Jun 30 Jun 31 Dec
2020 2019 2019
Note GBP'000 GBP'000 GBP'000
Assets
Non-current assets
Goodwill 9 196,160 189,226 180,414
Other intangible assets 10 43,122 56,019 45,388
Equipment 9,473 10,537 9,984
Minority equity investment 9,227 - 8,632
Contract assets 63 - -
Deferred tax asset 9,316 8,787 8,324
Right-of-use asset 34,234 34,491 32,733
Financial asset at amortised 822 - -
cost
Total non-current assets 302,417 299,060 285,475
------------------------------- ----- ---------- ---------- ---------
Current assets
Trade and other receivables 49,065 44,546 47,941
Cash and bank balances 51,501 44,228 51,454
Contract assets 9,916 8,330 6,460
Disposal group held for
sale 6 1,220 2,324 2,979
Total current assets 111,702 99,428 108,834
------------------------------- ----- ---------- ---------- ---------
Total assets 414,119 398,488 394,309
------------------------------- ----- ---------- ---------- ---------
Equity
Share capital 11 1,466 1,460 1,466
Share premium 203,423 200,270 203,423
Own shares (1,064) (1,102) (1,166)
Shares to be issued 8,415 10,178 7,723
Retranslation reserve 167 (2,201) (13,134)
Accumulated losses (29,052) (24,549) (26,487)
Total equity 183,355 184,056 171,825
------------------------------- ----- ---------- ---------- ---------
Non-current liabilities
Borrowings 13 138,786 99,275 129,572
Deferred tax liabilities 16,457 18,219 15,931
Defined benefit retirement
obligation 1,272 568 684
Provisions 2,084 2,108 2,024
Lease liability 35,373 35,104 33,549
Total non-current liabilities 193,972 155,274 181,760
------------------------------- ----- ---------- ---------- ---------
Current liabilities
Trade and other payables 13,061 37,412 14,472
Current tax liabilities 3,359 2,666 3,301
Provisions 472 2 451
Contract liabilities 15,355 13,964 17,634
Lease liability 4,343 4,832 4,291
Disposal group held for
sale 6 202 282 575
Total current liabilities 36,792 59,158 40,724
------------------------------- ----- ---------- ---------- ---------
Total equity and liabilities 414,119 398,488 394,309
------------------------------- ----- ---------- ---------- ---------
Sanne Group plc
Consolidated Statement of Changes in
Equity
For the period 1 January 2020
to 30 June 2020
Share Share Own Shares Retrans-lation Accumu-lated Total
Capital Premium shares to reserve Losses Equity
be
issued
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January 2019 1,460 200,270 (1,470) 12,278 (2,471) (17,955) 192,112
----------------------------- --------- --------- -------- -------- --------------- ------------- ---------
Profit for the period
as previously reported - - - - - 3,461 3,461
Other comprehensive income
for the period - - - - 270 38 308
Total comprehensive income
for the period - - - - 270 3,499 3,769
----------------------------- --------- --------- -------- -------- --------------- ------------- ---------
Dividend payments - - - - - (13,254) (13,254)
Share-based payments - - - 1,391 - - 1,391
Shares vesting - - 559 (3,491) - 3,161 229
Net buyback of own shares - - (191) - - - (191)
Balance at 30 June 2019 1,460 200,270 (1,102) 10,178 (2,201) (24,549) 184,056
----------------------------- --------- --------- -------- -------- --------------- ------------- ---------
Profit for the period - - - - - 5,413 5,413
Other comprehensive expense
for the period - - - - (10,933) (810) (11,743)
Total comprehensive
income/(expense)
for the period - - - - (10,933) 4,603 (6,330)
----------------------------- --------- --------- -------- -------- --------------- ------------- ---------
Issue of share capital
- acquisitions 6 3,153 - (3,159) - - -
Dividend payments - - - - - (6,775) (6,775)
Share-based payments - - - 946 - - 946
Shares vesting - - - (242) - 234 (8)
Net buyback of own shares - - (64) - - - (64)
Balance at 31 December 2019 1,466 203,423 (1,166) 7,723 (13,134) (26,487) 171,825
----------------------------- --------- --------- -------- -------- --------------- ------------- ---------
Profit for the period - - - - - 9,891 9,891
Other comprehensive income
for the period - - - - 13,301 144 13,445
Total comprehensive income
for the period - - - - 13,301 10,035 23,336
----------------------------- --------- --------- -------- -------- --------------- ------------- ---------
Dividend payments - - - - - (13,624) (13,624)
Share-based payments - - - 1,789 - - 1,789
Shares vesting - - 122 (1,097) - 1,024 49
Net buyback of own shares - - (20) - - - (20)
Balance at 30 June 2020 1,466 203,423 (1,064) 8,415 167 (29,052) 183,355
----------------------------- --------- --------- -------- -------- --------------- ------------- ---------
Sanne Group plc
Consolidated Cash Flow Statement
For the period 1 January 2020
to 30 June 2020
Unaudited Unaudited Audited
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBP'000 GBP'000 GBP'000
Operating profit from:
Continuing operations 12,334 5,848 14,281
Discontinued operations 1,033 1,638 3,700
Operating profit including
discontinued operations 13,367 7,486 17,981
Adjustments for:
Depreciation of equipment 1,466 1,353 2,867
Depreciation of right-of-use
asset 3,027 2,609 5,313
Lease liability interest (773) (680) (1,607)
Amortisation of other intangible
assets 8,070 8,266 16,487
Amortisation of contract 3 - -
assets
Impairment of other intangible
assets - 1,879 2,425
Share-based payments expense 1,789 1,475 2,377
Disposal of equipment 43 - 64
Increase in provisions - (400) (147)
Defined benefit retirement
obligation (19) (100) (68)
Deferred consideration and
remuneration (3,153) - 4,242
Operating cash flows before
movements in working capital 23,820 21,888 49,934
------------------------------------ ---------- ---------- ---------
Increase in receivables (2,555) (1,312) (3,492)
(Decrease)/Increase in contract
liabilities (2,652) (2,089) 1,874
Increase in payables 1,666 3,350 4,769
Cash generated by operations 20,279 21,837 53,085
------------------------------------ ---------- ---------- ---------
Income taxes paid (3,993) (4,563) (7,641)
Net cash from operating
activities 16,286 17,274 45,444
------------------------------------ ---------- ---------- ---------
Investing activities
Interest received 68 76 158
Purchases of equipment (949) (2,891) (3,914)
Software development costs
paid (949) - (276)
Payment of deferred consideration - - (28,638)
Acquisition of subsidiaries (6,409) - -
Acquisition of minority
equity investment - - (9,347)
Loan granted (820) - -
Net cash used in investing
activities (9,059) (2,815) (42,017)
------------------------------------ ---------- ---------- ---------
Financing activities
Dividends paid (13,624) (13,254) (20,029)
Interest on bank loan (1,390) (945) (2,293)
Buyback of own shares (20) (191) (255)
Shares vested (8) - -
Capitalised loan cost (28) (1,255) (1,711)
Redemption of bank loans (7,302) (85,850) (85,850)
New bank loans raised 14,821 100,800 132,060
Lease liability payments (2,564) (2,202) (4,757)
Net cash used in financing
activities (10,115) (2,897) 17,165
------------------------------------ ---------- ---------- ---------
Net (decrease)/increase
in cash and cash equivalents (2,888) 11,562 20,592
------------------------------------ ---------- ---------- ---------
Cash and cash equivalents
at the beginning of the
period 51,454 32,411 32,411
Effect of foreign exchange
rate changes 2,935 255 (1,549)
Cash and cash equivalents
at the end of the period 51,501 44,228 51,454
------------------------------------ ---------- ---------- ---------
Cash flows from continuing
operations (5,309) 10,034 17,029
Cash flows from discontinued
operations 2,421 1,528 3,563
------------------------------------ ---------- ---------- ---------
Net (decrease)/increase
in cash and cash equivalents (2,888) 11,562 20,592
------------------------------------ ---------- ---------- ---------
Sanne Group plc
Notes to the condensed financial statements
For the period from 1 January 2020 to 30 June 2020
1. Basis of preparation
Sanne Group plc ("the Company") is a company incorporated in
Jersey, Channel Islands. The unaudited, condensed and consolidated
financial statements for the six months ended 30 June 2020 comprise
of the Company and its subsidiaries (collectively the "Group").
The consolidated results have been prepared in accordance with
International Accounting Standard 34 'Interim Financial Reporting',
as adopted by the European Union ("EU"). The financial statements
are therefore presented on a condensed basis as permitted and do
not include all disclosures that would otherwise be required in a
full set of financial statements. These financial statements should
be read in conjunction with the Annual Report for the year ended 31
December 2019, available at www.sannegroup.com.
Going concern
The Directors have considered the potential impact that COVID-19
may have on its ability to continue as a going concern. They
assessed the Group's current financial position, principal risks
facing the Group and the effectiveness of its strategies to
mitigate the impact. An assessment was performed to determine the
potential impact of COVID-19 on the Group's ability to trade. The
Directors reasonably expect that the Group has adequate resources
to continue to operate for the foreseeable future. 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 these condensed interim
consolidated financial statements on a going concern basis.
Accordingly, the Directors have adopted the going concern basis of
accounting in preparing these condensed interim consolidated
financial statements.
Accounting policies
The financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union. The accounting policies
adopted in the preparation of the condensed consolidated financial
statements are consistent with those followed in the preparation of
the Group's financial statements for the year ended 31 December
2019, except as disclosed below.
The following changes to accounting standards have been issued
and applied from 1 January 2020, however none of these standards
had an effect on the preparation of the financial statements.
(a) Definition of Material - amendments to IAS 1 and IAS 8
(b) Definition of a Business - amendments to IFRS 3
(c) Revised Conceptual Framework for Financial Reporting
(d) Interest Rate Benchmark Reform - amendments to IFRS 9, IAS
39 and IFRS 7
2. Estimates, critical accounting judgements and key sources of
estimation uncertainty
When applying the Group's accounting policies, 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 continually
reviewed. Revisions to accounting estimates are recognised in the
period in which the estimate is revised, if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
The Annual Report for the year ended 31 December 2019 set out
the critical judgements and estimations of uncertainty, made by the
Directors during the application of the Group's accounting
policies, at the balance sheet date, that have the most significant
effect on the amounts recognised in the financial statements.
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. While
there can be no guarantees as to the future operations or
performance, the most significant immediate impact is on the
forward-looking assumptions made in the various impairment tests.
Given the impact COVID-19 had on global markets, the judgements
made at 31 December 2019 were assessed and no material changes have
been noted between the assessment made at 31 December and those
made at 30 June 2020. The group believes that the judgements and
estimates made at the end of 31 December 2019 are still relevant,
as the assumptions made were stretched to include potential impacts
from the Coronavirus outbreak. Management further stretched the
reasonable possible change scenario based on the current distressed
market conditions and while this could potentially change in the
future, there were no material differences from the sensitivities
disclosed in the 31 December 2019 annual report.
Seasonality
Given the composition of the Group's customers and contracts,
seasonality is not expected to have a significant bearing on the
financial performance of the Group.
3. 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 Group's Annual Report for the year ended 31 December 2019
had four reportable segments under IFRS 8, namely EMEA,
Asia-Pacific & Mauritius, North America and Channel
Islands.
The chief operating decision-makers are the Executive Directors
of Sanne Group plc. 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 evaluates segmental
performance on the basis of gross profit, after the deduction of
the direct costs of staff, marketing and travel. No inter-segment
sales are made.
The Group classified its private client contracts and employee
group held in Jersey as a discontinued operation due to significant
contracts being designated as held for sale. This was regarded as a
major business line in the past and forms part of the Channel
Islands segment. Please refer to note 6 for additional details
relating to the sale. The reporting of various client contracts and
their related costs moved between segments during the six months
ending 30 June 2020, the comparative numbers were also adjusted to
reflect this change. The change in the segmental allocation of the
contracts (and related costs) was driven by the reassessment of the
where the revenue is generated and the work performed. The most
significant of these moves was between EMEA and Channel Islands.
Staff costs incurred in two departments were previously included in
direct costs. These were reassessed and it was concluded that these
costs don't directly contribute to generating revenue and were
consequently reclassified to operating expenses. The reclassified
costs were GBP683k for June 2019 and GBP1,175k for December
2019.
Unaudited 6 Months Revenue Direct Gross
to 30 Jun 2020 costs profit
GBP'000 GBP'000 GBP'000
Segments
EMEA (1) 30,981 (13,649) 17,332
Third-party fund management fees 2,526 (2,526) -
Asia-Pacific & Mauritius 18,152 (5,390) 12,762
North America 14,810 (7,045) 7,765
Channel Islands (2)
Continuing operations 20,006 (8,113) 11,893
Discontinued operations 2,006 (973) 1,033
Total 88,481 (37,696) 50,785
------------------------------------------- -------- --------- ---------
Other operating income 14
Operating expenses (37,432)
Operating profit 13,367
------------------------------------------- -------- --------- ---------
Unaudited 6 Months Revenue Direct Gross
to 30 Jun 2019 costs profit
GBP'000 GBP'000 GBP'000
Segments
EMEA (1) 28,379 (10,945) 17,434
Third-party fund management fees 133 (133) -
Asia-Pacific & Mauritius 16,398 (5,138) 11,260
North America 12,884 (6,301) 6,583
Channel Islands (2)
Continuing operations 18,200 (8,170) 10,030
Discontinued operations 2,726 (1,088) 1,638
Total 78,720 (31,775) 46,945
------------------------------------------- -------- --------- ---------
Other operating income 121
Operating expenses (39,580)
Operating profit 7,486
------------------------------------------- -------- --------- ---------
Audited 12 Months to Revenue Direct Gross
31 Dec 2019 costs profit
GBP'000 GBP'000 GBP'000
Segments
EMEA (1) 58,659 (22,756) 35,903
Third-party fund management fees 2,190 (2,190) -
Asia/Pacific & Mauritius 34,302 (10,920) 23,382
North America 26,897 (13,211) 13,686
Channel Islands (2)
Continuing operations 37,659 (16,618) 21,041
Discontinued operations 5,736 (2,036) 3,700
Total 165,443 (67,731) 97,712
------------------------------------------- -------- --------- ---------
Other operating income 185
Operating expenses (79,916)
Operating profit 17,981
------------------------------------------- -------- --------- ---------
Geographical information
The Group's revenue from external customers by geographical
location of contracting Group entity is detailed below. The
jurisdiction of the contracting entity can differ from the
jurisdiction for segment reporting purposes.
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
to to to
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBP'000 GBP'000 GBP'000
Jersey and Guernsey
(2) 20,621 20,747 42,187
Rest of Europe (1) 33,569 28,238 59,667
Mauritius 11,938 11,096 22,984
Americas 14,051 12,726 26,376
South Africa 1,558 2,617 4,852
Asia-Pacific 4,218 3,163 7,187
-------------------------------------- ---------- ---------- ----------
Total Net Revenue from continuing
and discontinued operations 85,955 78,587 163,253
Third-party fund management
fees 2,526 133 2,190
Total Turnover from continuing
and discontinued operations 88,481 78,720 165,443
-------------------------------------- ---------- ---------- ----------
(1) The EMEA revenue and costs are shown as net revenue and net
direct costs. This is because net revenue and net direct costs
exclude the impact of third-party fund management fees, which are
not considered relevant in allocating resources to segments.
Third-party management fees relate to asset management fees for a
small number of funds that are clients of the Group's AIFM
Management Company in Luxembourg and are limited to the EMEA
operations. Given these revenues are not economically the Group's,
the Group sought to separate these and believe that net revenues
are a more accurate reflection of the income that the Group earned
for its services to the relevant fund entity.
(2) The above mentioned amounts for the Channel Islands include
the results from both the continuing and discontinued operations.
Refer to note 6 for the total revenue and direct costs attributable
to discontinued operations.
4. Non-underlying items
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
to to to
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBP'000 GBP'000 GBP'000
Operating profit (1) 13,367 7,486 17,981
Non-underlying items within operating
expenses:
Share based payments (i) 839 1,048 1,777
Amortisation of intangible
assets (ii) 8,070 8,266 16,487
Acquisition cost earn
out charges (iii) 485 1,610 6,317
Acquisition and integration
costs (iii) 1,206 73 662
Bargain purchase (iv) (38) - -
Impairment of intangible
assets (v) - 1,879 2,425
Regulatory fine and
fees (vi) 85 433 1,039
10,647 13,309 28,707
Underlying operating
profit (1) 24,014 20,795 46,688
Profit before tax (1) 12,659 5,408 13,251
Non-underlying items within other
costs:
Refinancing (vii) - 457 457
Total non-underlying
items 10,647 13,766 29,164
---------------------------------------------------- ---------- ---------- ----------
Underlying profit before
tax (1) 23,306 19,174 42,415
---------------------------------------------------- ---------- ---------- ----------
(1) These amounts include the profits from both continuing and
discontinued operations.
In the opinion of the directors, as explained below, the above
disclosures reflect expenses which are not representative of the
underlying performance and strategy of the Group.
(i) The share based payments expense above only relates to the
costs classified as non-underlying. For details on all the Share
based payments (for underlying and non-underlying in aggregate)
refer to note 12. All acquisition related share based payments
("RSA" plan) are awards granted as part of the mechanics of
acquisitions to act as retention tools 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 are
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) The Group has completed various acquisitions in the past
two years. Acquisition and integration costs included deal advisory
fees, one-off costs of integrating companies and accruals for cash
earn-out payments. Integration and deal costs relating to
acquisitions for the period ending 30 June 2020 were GBP0.5
million. Also included was GBP0.5 million relating to the AgenSynd
acquisition earn-out accrual which is expensed per IFRS 3 due to
settlement being linked to continued employment. With acquisitions
being outside the day-to-day activities of the ongoing business of
the Group, these costs are disclosed as non-underlying to enable
shareholders to assess the core ongoing performance of the Group.
The majority of acquisition and integration costs are incurred in
the first 2 years after acquisition. This could be longer depending
on the nature of the costs.
(iv) On 1 April 2020 the Group acquired all the shares in
Inbhear Management Services Limited. No consideration was paid for
the acquisition and consequently a gain on bargain purchase was
recognised. Refer to note 15 for further information.
(v) The Group's South African hedge fund business, acquired in
2016, suffered a one-off loss of clients during 2019. As a result,
the contract intangibles were impaired by GBP1.9 million at the end
of June 2019. The total impairments for the year ending 31 December
2019 on Intangible Assets amounted to GBP2.4 million. 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.
(vi) Regulatory fine and fees relates to a settlement and
related costs with the Jersey Financial Services Commission. This
expense is excluded from underlying cost as it is one-off in
nature. The fine amounted to GBP381k, with the additional costs of
GBP658k being the legal fees incurred during the settlement
process, for the year ending 31 December 2019. During the period
ended 30 June 2020 the Group incurred fees amounting to GBP85k for
on-going legal cases.
(vii) On 1 March 2019 the Group refinanced its loan facility.
The balance of the unamortised loan costs was written off and
classified as non-underlying because the refinancing was done to
support future acquisitions and is not part of the day to day
operations of the Group.
5. Tax
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
to to to
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBP'000 GBP'000 GBP'000
Current income tax
expense 3,870 3,293 7,152
Deferred income tax
expense (1,209) (1,340) (2,785)
Total income tax expense 2,661 1,953 4,367
--------------------------------------------------- ---------- ---------- ----------
The income tax expense is attributable
to profit from:
Continuing operations 2,665 1,783 4,007
Discontinued operations 103 164 370
Deferred tax from other comprehensive
income (107) 6 (10)
Total income tax expense 2,661 1,953 4,367
--------------------------------------------------- ---------- ---------- ----------
Income tax expense is calculated across the Group based on the
prevailing income tax rates in the jurisdictions in which profits
are earned.
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
to to to
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBP'000 GBP'000 GBP'000
Reconciliation of effective
tax rates
As per the consolidated income
statement:
Tax charge from continuing and
discontinued operations 2,661 1,953 4,367
Profit before tax from continuing
and discontinued operations 12,659 5,408 13,251
---------------------------------------------- ---------- ---------- ------------
Effective tax rate 21.0% 36.0% 33.0%
Tax charge from continuing and
discontinued operations 2,661 1,953 4,367
Adjusted for non-underlying tax
charge 1,629 2,076 3,590
Underlying tax charge 4,290 4,029 7,957
-------------------------------------------------- ---------- ---------- ----------
Profit before tax from continuing
and discontinued operations 12,659 5,408 13,251
Non-underlying items 10,647 13,766 29,164
Profit before tax and non-underlying
items 23,306 19,174 42,415
---------------------------------------------- ---------- ---------- ------------
Underlying effective
tax rate 18.4% 21.0% 18.8%
6. Discontinued operations
During the prior year, the Group 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,
contract assets and contract liabilities 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. The Group deemed it
necessary to reclassify the trade receivables relating to these
clients as a disposal group held for sale 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 acquisition, subject to the
relevant regulatory approvals, was signed on 13 March 2020 and saw
the designated clients and staff, transferring to JTC Plc. The
transaction concluded on 1 July 2020 and the agreed upon clients
and staff members were transferred to JTC for a consideration of
GBP9 million.
The financial information relating to the discontinued
operations is set out below:
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
to to to
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBP'000 GBP'000 GBP'000
Revenue 2,006 2,726 5,736
Expenses (973) (1,088) (2,036)
----------------------------- ---------- ---------- ----------
Profit before income
tax expense 1,033 1,638 3,700
Income tax expense (103) (164) (370)
Profit from discontinued
operations 930 1,474 3,330
----------------------------- ---------- ---------- ----------
The following disclosure relates to the cash flows from the
discontinued operations:
Net cash inflow from operating
activities 2,421 1,528 3,563
Net increase in cash generated
by the subsidiary 2,421 1,528 3,563
--------------------------------------- ---------- ---------- ----------
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
to to to
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBP'000 GBP'000 GBP'000
Assets of disposal group classified
as held for sale
Contract assets 784 24 334
Trade receivables 436 2,300 2,645
---------------------------------------- ---------- ---------- ----------
Total assets of disposal group
held for sale 1,220 2,324 2,979
Liabilities of disposal group
classified as held for sale
Contract liabilities (202) (282) (575)
---------------------------------------- ---------- ---------- ----------
Total liabilities of disposal
group held for sale (202) (282) (575)
7. Earnings per share
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
to to to
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBP'000 GBP'000 GBP'000
Profit for the period 9,891 3,461 8,874
Non-underlying items
within:
Non-underlying operating expenses 10,647 13,309 28,707
Non-underlying other
costs - 457 457
Tax effect of non-underlying
items (1,629) (2,076) (3,590)
Underlying earnings 18,909 15,151 34,448
--------------------------------------------- ------------ ------------------ ------------
Weighted average number of ordinary
shares in issue 144,907,974 143,677,970 144,019,578
Effect of dilutive potential
ordinary shares:
Deferred consideration
shares 636,652 1,273,308 636,652
Restricted Stock Awards 1,096,547 1,241,272 1,280,821
Performance Share Plan - 64,364 49,501
Weighted average number of ordinary
shares for the purposes of diluted
earnings per share 146,641,173 146,256,914 145,986,552
-------------------------------------------- ------------ ------------------ ------------
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
to to to
30 Jun 30 Jun 31 Dec
2020 2019 2019
Earnings per share based on total
operations
Basic earnings per
share (pence) 6.8 2.4 6.2
--------------------------------------------- ------------ ------------------ ------------
Diluted earnings per
share (pence) 6.7 2.4 6.1
--------------------------------------------- ------------ ------------------ ------------
Underlying basic earnings per
share (pence) 13.0 10.5 23.9
-------------------------------------------- ------------ ------------------ ------------
Underlying diluted earnings per
share (pence) 12.9 10.4 23.6
-------------------------------------------- ------------ ------------------ ------------
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
to to to
30 Jun 30 Jun 31 Dec
2020 2019 2019
Earnings per share based on continuing
operations
Basic earnings per
share (pence) 6.2 1.4 3.8
--------------------------------------------- ------------ ------------------ ------------
Diluted earnings per
share (pence) 6.1 1.4 3.8
--------------------------------------------- ------------ ------------------ ------------
Underlying basic earnings per
share (pence) 12.4 9.5 21.6
-------------------------------------------- ------------ ------------------ ------------
Underlying diluted earnings per
share (pence) 12.3 9.4 21.3
-------------------------------------------- ------------ ------------------ ------------
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
to to to
30 Jun 30 Jun 31 Dec
2020 2019 2019
Earnings per share based on discontinued
operations
Basic earnings per
share (pence) 0.6 1.0 2.3
--------------------------------------------- ------------ ------------------ ------------
Diluted earnings per
share (pence) 0.6 1.0 2.3
--------------------------------------------- ------------ ------------------ ------------
Underlying basic earnings per
share (pence) 0.6 1.0 2.3
-------------------------------------------- ------------ ------------------ ------------
Underlying diluted earnings per
share (pence) 0.6 1.0 2.3
-------------------------------------------- ------------ ------------------ ------------
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 the respective period
end.
8. Dividends
An interim dividend of 4.8 pence per ordinary share (2019: 4.7
pence) was declared by the Directors on 4 September 2020 and will
be payable on 16 October 2020 to shareholders on the record on 18
September 2020. The 2019 final dividend of 9.4 pence was paid on 20
May 2020.
9. Goodwill
Goodwill represents the excess of the cost of the acquisition
over the fair value of the Group's share of the net identifiable
assets of the acquired subsidiary at the date of acquisition.
Unaudited Unaudited Audited
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBP'000 GBP'000 GBP'000
Opening balance 180,414 188,928 188,928
Acquired during the 4,433 - -
period
Exchange difference 11,313 298 (8,514)
Closing balance 196,160 189,226 180,414
------------------------ ---------- ---------- --------
On 1 May 2020 it acquired Inbhear Fund Services Limited. Refer
to note 15 for further details on the acquisitions.
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 or when there is an indicator for
impairment as listed in IAS 36. The review assesses whether the
carrying value of goodwill could be supported by the recoverable
amount (which is determined to be the higher of the value in use or
fair value less cost of disposal) for each cash-generating unit
(CGU). Due to the impact the recent COVID-19 pandemic has had on
markets globally, the group assessed its goodwill for impairment.
Value-in-use calculations were performed. The result of the
goodwill impairment assessment undertaken is that each of the CGUs
maintained sufficient headroom. As a result none of the cash
generating units are impaired.
The value-in-use calculation is based on assumptions. The most
significant of which are revenue growth, the cost margin, discount
rate and the terminal growth rate. The expected cash flows are
based on a combination of the reforested budgets and historic data.
Projected revenue and costs are calculated using the prior period
actual result, excluding the lost client revenue and, compounding
these results by the budgeted numbers. Growth rates used are
specific to the cash generating units and vary between 1% to 13%.
The expected revenue growth was adjusted to incorporate a downturn
in future revenues due to the impact of COVID-19 on global markets
and was based on conservative cash flow projections. The terminal
growth rate applied after five years was based on the forecasted
nominal GDP and inflation of the operating jurisdiction, these were
also adjusted for the expected long term effect that COVID-19 may
have on global markets.
Management believes that any reasonably possible change in the
key assumptions, on which recoverable amount per Cash Generating
Unit ("CGU") is based, would not cause the aggregate carrying
amount to materially exceed the recoverable amount on the CGUs.
10. Other intangible assets
Unaudited Unaudited Audited
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBP'000 GBP'000 GBP'000
Opening balance 45,388 66,122 66,122
Acquired during the period through 2,207 - -
acquisitions
Software under development
costs 949 - 276
Amortisation charge for the period/year (8,070) (8,266) (16,487)
Impairments - (1,879) (2,425)
Exchange difference 2,648 42 (2,098)
Closing balance 43,122 56,019 45,388
-------------------------------------------- ---------- ---------- ---------
Refer to note 15 for further details relating to the acquisition
of Inbhear Fund Services Limited on 1 May 2020.
At 30 June 2020 all intangible assets were tested for indicators
of impairment. No indicators were noted. The group recognised
impairment losses at 30 June 2019 and 31 December 2019, due to one
off client losses in South Africa. This was a one-off occurrence
and did not reoccur as at 30 June 2020.
11. Share capital
Unaudited Unaudited Audited
6 Months 6 Months 12 Months
to to to
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBP'000 GBP'000 GBP'000
Opening balance 1,466 1,460 1,460
Issue of shares (i) - - 6
Closing balance 1,466 1,460 1,466
-------------------------- ---------- ---------- ----------
(i) The Company issued 636,656 shares on 1 November 2019 in
relation to the Company's acquisition of FLSV Fund Administration
Services LLC which completed on 1 November 2016. The shares issued
represent an element of the deferred share consideration.
12. Share based payments
Unaudited Unaudited Audited
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBP'000 GBP'000 GBP'000
Sanne Group plc
Performance Share Plan (i) 263 129 (40)
Restricted Stock Awards (ii) 1,674 1,346 2,482
Social security accrual 13 - (65)
Total share based payments 1,950 1,475 2,377
-------------------------------------- ---------- ---------- --------
(i) During the current and prior year periods, 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 a nil consideration. New awards were made
throughout the year. The Group 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 increased by an
assumed rate in line with Group forecast as per market expectation
to determine the probable performance at vesting date. The vesting
periods of the grants are not more than 3 years.
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.
(ii) During the current and prior periods, 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 a retention incentive for staff, they are
also used as Annual Performance Bonuses for senior management. The
vesting of the awards is subject to continued employment over an
agreed period. All the awards were granted for a nil consideration.
RSA's awarded as part of Annual Performance Bonuses are considered
to be an underlying cost for the Group. RSA's granted in relation
to acquisitions or the recruitment of senior management, are deemed
to be non-underlying costs.
13. Borrowings
On 1 March 2019, the Group refinanced its loan facility and
repaid the existing loan in full. The facility matures in 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 charge 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 are as follows:
Unaudited Unaudited Audited
as at as at as at
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBP'000 GBP'000 GBP'000
Available
Revolving credit facility 150,000 150,000 150,000
Accordion 70,000 70,000 70,000
220,000 220,000 220,000
---------- ---------- --------
Drawn
Revolving credit facility 140,234 100,800 131,175
140,234 100,800 131,175
---------- ---------- --------
Capitalised loan fees 1,448 1,525 1,603
Total borrowings 138,786 99,275 129,572
---------- ---------- --------
During the 6 months ending 30 June 2020, the Group repaid GBP7.3
million on the revolving credit facility and drew down a total of
GBP15.0 million from the revolving credit facility.
14. Fair value measurement of financial instruments
The following table presents the Group's financial assets and
liabilities measured at fair value as at 30 June 2020 and 31
December 2019. There were no financial assets or liabilities
carried at fair value at 30 June 2019.
Level Unaudited Unaudited Audited
as at as at as at
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBP'000 GBP'000 GBP'000
Categories of financial
instruments
Financial assets
Financial assets recorded
at fair value
Minority equity investment 3 9,227 - 8,632
------------------------------- ------ ---------- ---------- --------
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.
Fair value measurement of the minority equity investment
Reconciliation of Level 3 fair value measurements of financial
instruments:
Unaudited Unaudited Audited
as at as at as at
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBP'000 GBP'000 GBP'000
Balance at start of 8,632 - -
period
Additions - - 9,347
Foreign exchange gains/(losses) 595 - (715)
Balance at end of period 9,227 - 8,632
------------------------------------ ---------- ---------- --------
Fair value measurement of the minority equity investment
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 revenue growth between 15% and 25%, terminal growth rate of
2% and WACC 18% 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 unlisted shares are held in a company
trading in the same industry as the Group. The world-wide pandemic
known as COVID-19 has caused a downturn in a number of markets. The
market multiple used as an estimate remained unchanged from the
assumptions made in the 31 December 2019 annual report, as the
Group and the target entity trade in a reasonably stable market
segment. The segment saw a slight down turn at the start of the
reporting period, but has since then recovered to a near normal
state.
The group performed a sensitivity analysis on the fair value.
Because a combined approach is used, 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 GBP1.5 million lower.
15. Business combinations
Inbhear Management Services Limited and Inbhear Fund Services
Limited
On 1 April 2020 the Group acquired 100% of the issued share
capital of Inbhear Management Services Limited, incorporated in the
Cayman Islands. As part of the same acquisition, the Group acquired
100% of the issued share capital of Inbhear Fund Services Limited
on 1 May 2020.
The acquisition provides the Group with an opportunity to expand
its platform into the Cayman Islands and Ireland, growing its
existing North America and EMEA operations.
The consideration for the Inbhear Fund Services Limited
acquisition is satisfied through a payment of GBP8.2 million
(EUR9.4 million) in cash. A contingent payment will be made in
2022, estimated to be GBP1.2million (EUR1.4 million) and is linked
to the employment of key management.
The consideration for the Inbhear Management Services Limited
acquisition will be accounted for as a contingent payment and will
amount to the issuance of approximately 711,155 consideration
shares. At 30 June 2020 no issuance of shares has occurred. The
contingent consideration will be based on a multiple of the average
gross profit generated by the business operations over the next
three years.
EUR GBP
'000 '000
Recognised amounts of identifiable net assets (at
fair value) at acquisition:
Non-current assets Useful
economic
life
3 - 5
Equipment years 11 10
Customer & contract
intangibles 7 years 2,513 2,207
Deferred tax assets 3 3
2,527 2,220
--------------------------------------------- -------- --------
Current assets
Trade and other receivables 377 332
Cash and cash equivalents 2,130 1,870
2,507 2,202
--------------------------------------------- -------- --------
Current liabilities
Trade and other payables 268 235
Current tax liabilities 70 62
338 297
--------------------------------------------- -------- --------
Non-current liabilities
Deferred tax liabilities 314 276
314 276
--------------------------------------------- -------- --------
Identifiable net assets 4,382 3,849
-------------------------------------------------- -------- --------
Goodwill 5,048 4,433
Gain on bargain purchase (43) (39)
Total consideration 9,387 8,243
-------------------------------------------------- -------- --------
Total consideration
satisfied by:
Cash consideration
- on acquisition 9,387 8,243
Fair value of consideration payable
at acquisition date 9,387 8,243
------------------------------------------------ -------- --------
Net cash inflow arising
on acquisition:
Cash consideration 9,387 8,243
Less: cash and cash equivalent
balances acquired (2,130) (1,870)
Net cash outflow at
acquisition: 7,257 6,373
-------------------------------------------------- -------- --------
Fair value of consideration
The payment for the controlling interest in Inbhear Management
Services Limited will solely be made in the form of share-based
payments, to the value of GBP3.8 million ($4.8 million). The number
of shares that will be issued is based on the performance of
Inbhear Management Services Limited in 2020, 2021 and 2022. The
consideration will be accounted for as non-underlying share based
payments.
A cash consideration was paid for the controlling interest in
Inbhear Fund Services Limited on the date of acquisition to the
value of GBP8.2 million (EUR9.4 million). A contingent payment will
be made in 2022 to an estimated value of GBP1.2 million (EUR1.4
million), depending on the continued employment of the previous
owners.
Transaction costs
The Group incurred GBP0.2 million relating to acquisition and
integration expenses in 2020 during the first half of 2020. These
costs have been expensed within operating expenses and are
disclosed as non-underlying expenses in note 4.
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
and was recognised on the acquisition on Inbhear Fund Services
Limited.
Gain on bargain purchase
A gain on bargain purchase was recognised because the fair value
of the assets exceeded the consideration paid in terms of the
accounting standards. The group believes the new acquisition will
yield opportunities for new business wins, the effects of an
assembled workforce and synergies from combining operations of the
acquiree and the acquirer. A gain of bargain purchase is not
taxable and was recognised on the acquisition on Inbhear Management
Services Limited.
Trade and other receivables
The fair value of the financial assets acquired includes trade
and other receivables with a fair value of GBP332k. The gross
amount receivable is GBP332k of which all debt is expected to be
collected.
Effect on the results
Inbhear Management Services Limited and Inbhear Fund Services
Limited contributed GBP0.5 million of revenue and a profit of
GBP0.1 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 2020 on a pro rata basis the Group
revenue for the period would have been GBP89.1 million (GBP0.9
million higher) and net profit GBP9.6 million (GBP0.2 million
higher) for the period ended 30 June 2020.
16. Related party transactions
Balances and transactions between the Company and its
subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note.
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.
Unaudited Unaudited Audited
as at as at as at
30 Jun 30 Jun 31 Dec
2020 2019 2019
GBP'000 GBP'000 GBP'000
Short-term employee
benefits 1,493 1,882 2,289
Share based payments
(see note 12) 225 245 222
Contracted through consultancy
firm - - 60
Total short term payments 1,718 2,127 2,571
----------------------------------- ---------- ---------- --------
Other than the items listed above, the Group has not entered
into any material transactions with related parties since the last
annual report.
17. Contingent liabilities
In the ordinary course of business the Group could be subject to
legal claims and/or proceedings. Should such events 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.
18. Post balance sheet events
On 1 July 2020 the Group completed its sale of its private
client business line to the value of GBP9.0 million. The Group will
recognise a gain on disposal of GBP7.8 million after the reporting
period. Please refer to note 6 for further detail on the
discontinued operations.
On 13 July 2020, the Group entered into an agreement to purchase
100% of the ordinary shares of Avalon Trust & Corporate
Services Ltd, incorporated in the Cayman Islands. This acquisition
provides the Group with a opportunity to expand its platform in the
Cayman Islands and enhance the Group's proposition in its existing
North American operations. The total consideration is estimated to
be GBP7.5 million. The accounting for this transaction is
incomplete as at the date of issue of these condensed interim
consolidated financial statements.
On 15 July 2020, the Group entered into an agreement to purchase
100% of the ordinary shares of Deutsche Trust Company Limited,
incorporated in Japan. This acquisition provides the Group with an
opportunity to expand its platform in the Japan and enhance the
Group's proposition in its existing Asia-Pacific operations. The
accounting for this transaction is incomplete as at the date of
issue of these condensed interim consolidated financial statements.
The total consideration was not yet finalised at the date of
signing.
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END
IR UWUWRRVUKRAR
(END) Dow Jones Newswires
September 09, 2020 02:00 ET (06:00 GMT)
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