Sanne Group PLC Half-year Report

Data : 10/09/2019 @ 08:01
Fonte : UK Regulatory (RNS & others)
Titolo : Sanne Group Plc (SNN)
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Sanne Group PLC Half-year Report

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Sanne Group PLC

10 September 2019

10 September 2019

Sanne Group plc

("the Company") together with its subsidiaries ("the Group" or "SANNE")

Interim results for the six months ended 30 June 2019

Sanne Group plc is one of the leading providers of outsourced alternative asset and corporate business services to the world's leading fund managers and corporates.

 
                               6 months     6 months     Change    Constant 
                                to 30        to 30                  currency 
                                June 2019    June 2018              change(2) 
 Revenue                       GBP78.7m     GBP65.9m     19.5%     17.4% 
                              -----------  -----------  --------  ----------- 
 Underlying(1) 
                              -----------  -----------  --------  ----------- 
 Operating profit              GBP20.8m     GBP20.0m     3.7%      (3.1%) 
                              -----------  -----------  --------  ----------- 
 Profit before tax             GBP19.2m     GBP19.4m     (1.3%)    (9.4%) 
                              -----------  -----------  --------  ----------- 
 Diluted earnings per share    10.4p        11.2p        (7.1%)    (17.6%) 
                              -----------  -----------  --------  ----------- 
 Operating profit margin       26.4%        30.4% 
                              -----------  -----------  --------  ----------- 
 Statutory 
                              -----------  -----------  --------  ----------- 
 Operating profit              GBP7.5m      GBP11.5m     (34.9%)   (48.5%) 
                              -----------  -----------  --------  ----------- 
 Profit before tax             GBP5.4m      GBP10.9m     (50.3%)   (62.2%) 
                              -----------  -----------  --------  ----------- 
 Diluted earnings per share    2.4p         5.9p         (60.2%)   (74.0%) 
                              -----------  -----------  --------  ----------- 
 Interim dividend per share    4.7p         4.6p 
                              -----------  -----------  --------  ----------- 
 

1. Underlying results for the year have been presented after the exclusion of non--underlying items. Within operating profit and profit before tax, these items include, amongst other costs, acquisition and integration costs (2019: GBP0.3m), share based payments where linked to acquisitions (2019: GBP1.1m), amortisation of intangible assets (2019: GBP8.3m), earn-out accrual for AgenSynd (2019: GBP1.2m) and the impairment of intangible assets (2019: GBP1.9m). Further details can be found in note 4 of the consolidated financial statements

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

Highlights:

   --      H1 results (under IFRS 16): 

o Constant currency revenue growth of 17.4% (2018: 19.5%)

o Continued very strong Alternatives revenue growth of 25.2% (2018: 20.3%), especially in North America and Asia-Pacific

o Margin lower than previous expectations, as already announced in July trading update

o Cash generation improved with underlying operating cash conversion of 118% (2018: 67.9%)

o Statutory profits impacted by one-off costs in H1 of AgenSynd earn-out accrual and South Africa intangibles impairment

-- Record levels of new business wins from both new and existing customers with annualised fees of approximately GBP16.0 million won in the first six months (H1 2018: GBP11.5 million)

   --      Actions implemented to improve margin in H2 

-- Committed to continued investment to support the Group's growth ambitions in its core markets and products

   --      Successful refinancing of Group facilities provides additional flexibility 
   --      Recently acquired businesses successfully integrated and already adding value to the group 
   --      Martin Schnaier took over as CEO on 16 May 2019 

-- Interim dividend of 4.7p (2018: 4.6p) reaffirms the Board's confidence in the future prospects of the Group

Strategic partnership and minority investment agreed with Colmore AG ("Colmore"):

-- Minority shareholding in Colmore, with its award-winning technology platform will enable SANNE to provide fund management clients with real-time market leading analytics services

Outlook:

The continued outperformance from SANNE's core Alternatives businesses gives the Board confidence in the Group's full year revenue expectations, despite the challenges in the Corporate and Private Client business areas.

Whilst the actions we are taking are improving underlying operating margin, the items impacting profitability in the first half are unlikely to be fully compensated for in the second half. The Board therefore expects to report a full year underlying operating profit margin in the region of 28% to 30% and EPS in line with its revised expectations, as announced in the Group's trading statement on 27 July 2019.

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

"Our record new business wins demonstrate that SANNE's client proposition remains very attractive and our increasing focus on fast-growing Alternative asset classes is driving significant revenue momentum. However it is clearly disappointing that the first half profitability has come in materially below our original expectations.

Looking at our strengths and market opportunity, I am as excited about the future as I have ever been. As the new CEO, my responsibility is to ensure that SANNE fulfils its significant potential, and I am confident that the global platform we are investing in will be essential to the long-term success of the business. I have two immediate priorities: to focus on addressing the issues that have impacted the Group's margins, and to generate good returns from the Corporate and Private Client business. We are already working hard on each of these, with some positive results already coming through, and I look forward to reporting on our progress in the months ahead."

Enquiries:

 
 Sanne Group plc 
  Martin Schnaier, Chief Executive Officer 
  James Ireland, Chief Financial Officer      +44 (0) 1534 722 787 
 Investec Bank plc 
  Chris Baird / David Flin 
  Edward Thomas / Neil Coleman                +44 (0) 20 7597 5970 
 
   RBC Capital Markets 
   Darrell Uden 
   Daniel Werchola 
   Jonathan Hardy                               +44 (0) 20 7653 4000 
 
   Tulchan Communications LLP 
   Tom Murray / David Ison                      +44 (0) 20 7353 4200 
 

The Company will be hosting an investor and analyst presentation at 09:30am (BST) on 10(th) September 2019, at Haywood & Wren, The Clubhouse, Holborn Circus - 20 St Andrew Street, EC4A 3AG

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

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

08003589473 (Toll Free)

+44 3333000804 (Toll)

Access Code: 62085336#

International dial-in numbers: http://events.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf

A copy of the 2019 Half Year results presentation will be available on SANNE's Investor Relations pages at www.sannegroup.com after the live webcast has ended.

Notes:

SANNE is a leading global provider of outsourced alternative asset and corporate business services. Established for over 30 years and listed as a FTSE 250 company on the Main Market of the London Stock Exchange, SANNE employs more than 1,600 people worldwide and administers structures and funds that have in excess of GBP250 billion of assets.

Key clients include leading alternative asset managers, global financial institutions, family offices, UHNWIs and international 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.

sannegroup.com

INTERIM MANAGEMENT STATEMENT

Chief Executive Officer's Report

Revenue

We have seen continued strong revenue growth across all of SANNE's core alternatives businesses, as the Group improves market penetration as well as benefiting from structural growth trends in global alternatives markets. As a result of these growth drivers, the Group saw overall constant currency revenue growth of 17.4% (19.5% on an actual basis) compared to the same period in the prior year, despite the Corporate and Private Client (CPC) businesses performing below expectations.

The Group's performance was underpinned by good organic revenue growth of 12.8% in constant currency (14.9% on an actual basis) across the Group (organic revenue growth is reported revenue growth adjusted to remove the 2019 H1 contribution from AgenSynd as well as pro-rating the contribution from LIS down to five months, comparable to H1 2018's contribution).

SANNE's Alternative Asset focused client services now represent c.89% of SANNE's total revenues, compared to c.78% four years ago, as the Group continues to build on its leading market position. The Group's alternatives businesses saw constant currency growth in the first half of 22.8% and 17.3% on a comparable organic basis. The Group has also benefited from a full six months' contribution in H1 2019 from LIS in Luxembourg (H1 2018's result included only 5 months) as well as AgenSynd in Madrid, which was acquired during H2 2018. Both these acquisitions continue to perform well and in line with the Group's expectations.

The Group's European Corporate and Private Client businesses, previously the CPC segment (14.8% of 2018 Group revenues), delivered disappointing first half financial performances. The Corporate business was flat compared to the prior period whilst Private Client declined compared to the first half of 2018. Overall combined revenues for these businesses were down approximately 13.2% on the same period in 2018.

New business

In the first half of the year, the Group secured new business from both new and existing clients totalling approximately GBP16.0 million on a projected annualised fee basis (H1 2018: GBP11.5 million). This is another record half year result and demonstrates the attractiveness of our offering. Approximately 30% of this was business won from clients new to the Group, with the balance from SANNE's existing customer base. We are pleased to see clients from across the global business placing increasing trust in SANNE as their long term, strategic partner.

Costs and operating margin

Whilst the Group saw a good revenue performance for H1 2019, the underlying operating profit margin was adversely affected by a combination of items, as announced in July 2019. The underlying operating profit margin in the first half fell to 26.4% from 30.4% in H1 2018 and underlying operating profit for the period was broadly flat on the prior year at GBP20.8 million.

There were a number of reasons for this margin decline. The principal one was a fall in gross profit margins in the new Europe, Middle East & Africa (EMEA) and Channel Islands (CI) reporting segments, as investment in people in our client service teams, was made ahead of being able to recognise revenues from new clients.

Gross profit margins were also impacted by increased spend on the dedicated Business Development team and the creation of the Product Development team. In addition, the Group failed to deliver operating efficiencies in the central operations teams that were established in 2018, which would have largely mitigated this increased spend. The total spend on the Business Development, Product Development and centralised teams has grown to around 2.6% of total revenues in the first half of 2019. Changes have been made to the reporting and operating structure of the centralised teams towards the end of the period and we are confident that these will realise efficiencies in the second half and beyond.

The final item that has impacted the first half margin was elevated overhead spend in relation to increased activity, particularly in relation to recruitment spend and new office moves. The first half has seen significant office moves in Luxembourg, Hong Kong and Shanghai to support the future growth in headcount. In addition, new offices have been established in Amsterdam, Tokyo, Mumbai and San Diego as a direct result of client demand. These small operations enable us to add more value to existing clients on the ground and an ability to enhance our already strong client relationship management.

The majority of office moves for 2019 have taken place in the first half and actions have been taken, including changes to reporting lines and oversight, to focus on managing cost control in areas where spend has been unexpectedly elevated in the first half. As such, overheads are expected to grow more slowly than revenues in the second half.

Strategy for growth

SANNE's strategic focus remains to be one of the world's leading providers of outsourced alternative asset and corporate business services, supporting clients in fast growing markets through local market knowledge and a deep understanding of the asset classes and markets in which they operate.

We continue to see a trend towards clients requiring their service provider to be able to support them across the spectrum of administrative services and throughout all key international finance centres. The Group remains focused on investing to build out its platform capability and jurisdictional footprint to ensure SANNE provides a quality one-stop-shop for local and international alternative asset managers. The opening of four new offices and locations during 2019 aligns with this strategic focus.

In addition to capability and jurisdictional footprint, industry-leading client service is at the heart of SANNE's strategy. Clients in the closed-ended alternatives sector demand bespoke and high-touch services, underpinned by a deep understanding of local markets that meet their ongoing needs. This close partnership approach to client service has always been a differentiator for SANNE and it remains critical to the continued success of the business. The creation of the Product Development team in 2019 provides the Group with experienced senior people who are focused on the continuous development of our client service offering, as well as ensuring that clients continue to benefit from engagement with SANNE as a product and service specialist.

Over the last two years, SANNE has also stepped up its investment in its people, processes and systems to ensure that the Group's global platform is well invested to support long-term growth. Areas of focus include information technology, risk and compliance, management bandwidth and governance, as well as the creation of the dedicated Business Development team to focus on new clients wins and help the Group take advantage of more cross-sell opportunities.

Group structure and management changes

The first half of 2019 saw a material change in the reporting and operating structure of the Group as it shifted from a divisional business reporting structure to a jurisdiction-oriented structure. This change brings with it a number of significant benefits. These include a more robust governance and control framework at local levels, fostering local accountability, as well as bringing an improved focus on local employee engagement across our expanding jurisdictional footprint. The impact of these changes is also outlined in the Operational Review below.

Following the AGM on 16(th) May 2019, and as previously announced, Martin Schnaier became Chief Executive Officer, succeeding Dean Godwin.

As a result of the CEO succession plan, Mark Law, previously Managing Director of the Group's Asia-Pacific & Mauritius business, was promoted to the Chief Commercial Officer role, replacing Martin Schnaier, with responsibility for SANNE's Client Service teams. Jing Jing Qian has been promoted to the Managing Director position for Asia-Pacific, whilst Peter Nagle joined the Group in 2018 as Managing Director for Mauritius. Michael Riley joined the business as Head of Mergers and Acquisitions during April 2019 and Malcolm Hassan joined as Managing Director for Business Development and Marketing in May 2019.

Our people

As a people business, SANNE's employees are central to the Group's success. The strong top line growth we continue to see across our Group is testament to the hard work and commitment of our employees across the globe and I would take this opportunity to thank them for their efforts. Keeping our people at the centre of our business and our client proposition is key and since the CEO change there has been a renewed focus on our Group culture, and ongoing investment in our people across the global business.

Operational Review

This is the first time SANNE has reported under its new segmental structure. The new structure reflects the change made at the start of the period to move to jurisdictional management and reporting across all parts of the Group. The Group's four reporting segments are now Europe, Middle East and Africa (EMEA); Channel Islands (CI); North America (NA); and Asia-Pacific & Mauritius (APM). The NA and APM segments remain unchanged from prior years. The former EMEA Alternatives and Corporate & Private Client (CPC) segments have been combined and then split between operations in the Channel Islands and outside the Channel Islands. For continuity we will continue to report the old CPC revenues separately within EMEA and CI.

Europe, Middle East & Africa (EMEA)

SANNE's EMEA business includes our services to alternative asset managers and financial institutions across Luxembourg, Dublin, London, Madrid, Paris, Amsterdam, Malta and Cape Town. This segment provides services across all core alternative closed-ended investment strategies as well as the Group's open-ended Hedge business and a small element of Corporate business located in Ireland.

Under the new reporting structure, EMEA delivered constant currency revenue growth of 21.6% on an organic basis and 34.6% on an actual basis, factoring in the full 6 months of LIS and AgenSynd. Separating out the CPC portion of this reporting segment (approximately 3.2% of the segment's first half revenues) the EMEA Alternatives business delivered 22.8% organic growth and 36.5% actual in the period on a constant currency basis. EMEA has seen very little impact from foreign exchange, albeit there has been a very small headwind from the Sterling-Euro exchange rate.

 
                      H1 2019      H1 2018   % growth    Constant       31 Dec 
                                                         currency         2018 
                                                         % growth    (GBP'000) 
                    (GBP'000)    (GBP'000) 
                  -----------  -----------  ---------  ----------  ----------- 
 Revenue               31,341       23,420      33.8%       34.6%       53,427 
 - Alternatives        30,352       22,383 
 - CPC                    989        1,037 
 Gross profit          17,404       13,921      25.0%       25.1%       31,846 
 Margin                 55.5%        59.4%                               59.6% 
 

The organic revenue performance for EMEA has been the result of continued buoyant markets, increased market penetration and strong demand for SANNE's closed-ended alternative asset business services. The strong trend in the domiciliation of funds and managers to Luxembourg driven by a number of macro factors including Brexit and the Anti-Tax Avoidance Directive (ATAD) in Europe. Having a large, scaled capability across all key jurisdictions (especially Luxembourg which provides a one-stop-shop service across AIFMD mandates), SANNE is well placed to benefit from this trend.

The Group's Hedge offering, which has traditionally been exclusively focused on the South African market, has seen a subdued performance in the period due to ongoing challenging market conditions in South Africa. We are starting to see progress in expanding the product offering internationally, with European clients won and serviced on the platform during the period. The business has also seen some legacy South African clients serve notice in the period although positive new client wins already signed are expected to mitigate this loss in both the second half and in future periods.

The gross margin for the region has declined by 3.9% in the first half which was partly a result of the business bearing a larger proportional cost of the Business Development, Product Development and centralised teams. Additionally, whilst the changes from the new reporting structure, which are most significant across EMEA, have been bedding in, the region has invested ahead of the curve in resourcing levels. The division also suffered some delays in recognising certain revenues, thus resulting in the cumulative impact of diluting margins. Significant additional work has been undertaken towards the end of the first half and into the second half to manage capacity across regions to prevent this issue recurring in the second half. SANNE continues to invest in the capacity of the business to take on the growth in new structures.

Channel Islands (CI)

SANNE's CI business consists of offices located in both Jersey and Guernsey, servicing alternative asset managers, financial institutions and structures for global corporates and high-net-worth individuals.

Revenues from the new CI segment were slightly lower than the prior year, reflecting the majority of the old CPC segment being included, which materially diluted the overall growth rate. The CI Alternatives business saw organic constant currency growth in the period of 4.4% which reflects the industry backdrop driving much new business to Luxembourg. The old CPC business however represents approximately 41.2% of CI and was down circa 14.3% on the first half of 2018. This was a result of a flat period on period performance from Corporate whilst the Private Client business was significantly down.

 
                      H1 2019      H1 2018   % growth    Constant       31 Dec 
                                                         currency         2018 
                                                         % growth    (GBP'000) 
                    (GBP'000)    (GBP'000) 
                  -----------  -----------  ---------  ----------  ----------- 
 Revenue               18,101       18,894      -4.2%       -4.2%       37,510 
 - Alternatives        10,650       10,202 
 - CPC                  7,451        8,692 
 Gross profit          11,089       11,882      -6.7%       -6.6%       23,630 
 Margin                 61.3%        62.9%                               63.0% 
 

Within CI Alternatives, growth has been weighted towards Private Equity, where our high quality services and expertise continues to attract new clients, along with new funds for existing clients. Our Real Estate services business has also seen some growth in clients, supported by a knowledgeable and experienced team providing good practical and technical support to our clients. It is worth noting that the performance of the Real Estate team would have been even greater had it not been for Brexit concerns impacting some of the transaction volume levels within the business. Our Debt business performed in line with budget and growth expectations.

Shortly after the period end, SANNE announced that it had reached a settlement with the Group's regulator in Jersey, the Jersey Financial Services Commission (JFSC), in relation to one of SANNE's local entities and a historical failure to remediate certain issues in the Jersey business within an agreed timeframe. Full details about this are available on the JFSC's website at www.jerseyfsc.org .

The lack of growth in our Corporate Business in H1 2019 was largely attributable to the loss of one large client in late 2018 and occurred due to a domiciliation requirement in a jurisdiction in which we were not able to continue to support the service offering. Efforts continue to replace this lost business with both new clients and cross-selling our broader product offering across the existing client base.

Our Private Client business performed particularly poorly during the period, with revenue falling below 2018 H1 levels. We are well advanced with a strategic review of this business line.

The gross margin for Channel Islands has declined by 1.6% in the first half. As in the EMEA Segment, this has been partly due to CI bearing a larger proportion of cost for the Business Development, Product Development and centralised teams. EMEA and CI together account for 62.8% of overall Group revenues. CI has also suffered from the same issues resulting from the change to jurisdictional reporting structure across the legacy EMEA Alternatives business which has resulted in the segment diluting margins in H1.

Asia-Pacific & Mauritius (APM)

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

The segment saw strong growth in the period of 18.5%. This result benefited from a currency tailwind in the period with much of the revenue recognised in US dollars. Excluding this benefit the constant currency growth was 12.7%.

 
                    H1 2019      H1 2018   % growth    Constant       31 Dec 
                                                       currency         2018 
                                                       % growth    (GBP'000) 
                  (GBP'000)    (GBP'000) 
                -----------  -----------  ---------  ----------  ----------- 
 Revenue             16,382       13,829      18.5%       12.7%       30,457 
 Gross profit        11,314        9,894      14.4%        5.4%       22,102 
 Margin               69.1%        71.5%                               72.6% 
 

The performance reflects two differing market dynamics as between Asia-Pacific and Mauritius. Across Asia-Pacific, we have a smaller but very high growth platform benefiting from positive market dynamics and strong client wins. This performance is driven by a high win rate of business from new, high profile asset management clients as well as significant large wins from longer-term clients of the Group.

Our Mauritius business is a market leader in the more mature Mauritian administration industry and prior to SANNE's ownership had not been a growth platform. Whilst we have successfully started generating growth in the Mauritian business compared with the pre-acquisition revenue levels, the local Mauritian market due to its maturity is inherently lower growth than Asia-Pacific. As such the first half of 2019 has seen a broadly flat performance on the first half of 2018 before currency tailwinds are accounted for as the business works through expected end-of-life attrition from the legacy book.

APM also expanded its regional footprint into Tokyo following the office opening in January 2019. This is in direct response to client demand and will serve to further add to our already well-established Asian office network and market expertise. In June 2019, the region obtained its new book-keeping license in China, complementing SANNE's existing fund service offering into the local Chinese registered entity level. The licence allows SANNE to offer a full suite of fund solutions to cater for institutional managers, positioning us well as we seek to further grow our fund servicing business in Asia. The period also saw the opening of a new representative sales office in Mumbai. The majority of the market opportunity through Mauritius today is investment flowing into the Indian market and we see a lot of exciting opportunities to grow in line with the investment flows into the Indian funds industry. Our new sales capability onshore will be critical in capturing more of this opportunity.

During the first half of 2019, we have also created Centre of Excellence in Mauritius focusing on the preparation of financial statements for the wider Group and for external clients. To date we have recruited 27 staff into this outsourcing hub and expect to increase the number of people substantially during the second half of the year, as this initiative is already making a positive contribution to the Group.

Gross margin in the period has remained broadly in line with the prior year. We have seen a small amount of dilution from the increased spend on growth initiatives. However, the main driver for the reported drop has been mix effect as the faster growing Asia-Pacific region becomes a larger proportion of the segment and averages down the margin percentage.

North America (NA)

SANNE's NA Alternatives business primarily services Private Equity and Real Estate clients in North America. We continued making progress during the first half of 2019 in expanding our coverage of our local client base across various closed-ended fund strategies.

NA experienced strong organic growth for the first half of 2019. The constant currency organic revenue growth was 24.9%, increasing to 32.9% when the beneficial currency tailwind is factored in. The increase in the half-year growth rates reflect the aforementioned expansion across our client base, including the introduction of new clients locally through other jurisdictional relationships.

 
                    H1 2019      H1 2018   % growth    Constant       31 Dec 
                                                       currency         2018 
                                                       % growth    (GBP'000) 
                  (GBP'000)    (GBP'000) 
                -----------  -----------  ---------  ----------  ----------- 
 Revenue             12,896        9,707      32.9%       24.9%       21,609 
 Gross profit         6,455        4,712      37.0%       38.8%       10,770 
 Margin               50.1%        48.5%                               49.8% 
 

The majority of growth in the first half of the year was driven by continued strong demand from the existing client base that continued expanding both domestically and internationally across different asset products. We continue to see a lower level of administration outsourcing in North America compared with other regions around the globe. However, we do see an increasing trend from asset managers seeking a third-party administrator to increase internal efficiencies and demonstrating receipt of independent servicing to their investor base. There also continues to be positive momentum in new funds coming to market across all asset classes.

Gross margins for the first half of the year are broadly flat compared to the prior period. Margins in our NA segment have always been lower than other regions in the Group largely reflecting structurally different market conditions in North America where the penetration of outsourcing of fund administration with closed-ended fund managers is notably lower.

Strategic partnership with, and minority investment in Colmore

SANNE has entered into a strategic partnership with Colmore, a leading technology solutions business during Q3 2019. This has involved Sanne making a minority investment in Colmore. This partnership will bring leading new technology solutions into our service offering that provides fund management clients with real-time dynamic access to insight reports, analysis and data. This is an important partnership for SANNE as we continue to see technology taking an increasingly important role in how we deliver our services to clients.

M&A

SANNE continues to review various M&A opportunities across a number of the Group's fastest growing jurisdictions in North America, EMEA and Asia-Pacific and our new head of M&A has now been in place for four months. We are currently presented with a very strong pipeline of high quality opportunities. We will continue to be highly selective and undertake a disciplined approach to M&A.

Financial review

Group Income Statement

 
                                    H1 2019      H1 2018     % change   Constant 
                                                 (GBP'000)               currency 
                                                                         % change 
                                    (GBP'000) 
                                 ------------  -----------  ---------  ---------- 
 Revenue                            78,720        65,850      19.5%       17.4% 
 Direct cost                       (32,458)      (25,441) 
 Gross profit                       46,262        40,409      14.5%       11.2% 
 Underlying operating expenses     (25,467)      (20,364) 
 Underlying operating profit        20,795        20,045       3.7%      (3.1%) 
 Non underlying operating 
  expenses                         (13,309)      (8,547) 
 Operating profit                    7,486        11,498     (34.9%)     (48.5%) 
 Underlying interest cost 
  and other gains and losses        (1,621)       (615) 
 Underlying profit before 
  tax                               19,174        19,430      (1.3%)     (9.4%) 
 Non-underlying interest 
  cost and other gains and 
  losses                             (457)          - 
 Profit before tax                   5,408        10,883     (50.3%)     (62.2%) 
 Underlying tax                     (4,023)      (3,314) 
 Underlying profit after 
  tax                               15,151        16,116 
 Non-underlying tax                  2,076         997 
 Profit for the half year            3,461        8,566 
 Earnings per ordinary share 
  ("EPS") (expressed in pence 
  per ordinary share) 
 Basic                                2.4           6.1 
 Diluted                              2.4           5.9      (60.2%)     (74.0%) 
 Underlying basic                     10.5         11.5 
 Underlying diluted                   10.4         11.2       (7.1%)     (17.6%) 
 

Revenue

Group revenue increased by 19.5% in the year to GBP78.7 million (H1 2018: GBP65.8m) which reflected a constant currency growth rate of 17.4%. Organic revenue growth in the period was 14.9% on an actual basis and 12.8% on a constant currency basis. Organic revenue growth is reported revenue growth adjusted for acquisitions on a like-for-like basis. In order to calculate this growth rate, we have stripped out the 2019 H1 contribution from AgenSynd as well as pro-rating the contribution from LIS down to 5 months, comparable to H1 2018's contribution. The impact of these adjustments is shown below:

 
                   H1 2019      H1 2018   % growth   Constant currency 
                 (GBP'000)    (GBP'000)                       % growth 
               -----------  -----------  ---------  ------------------ 
 Revenue            78,720       65,850      19.5%               17.4% 
 - Inorganic         3,060            - 
 - Organic          75,660       65,850      14.9%               12.8% 
 

Foreign Exchange

The Group's results are exposed to translation risk from the movement in currencies. The Group's major exposure is to Euro and US dollar being translated back into Sterling. These currencies have moved as shown in the table below:

 
                         Average            At 30 June 
Per GBP Sterling    2019    2018    %    2019  2018    % 
-----------------  ------  ------  ----  ----  ----  ----- 
Euro               1.1228  1.1367  1.2%  1.12  1.13  0.09% 
US Dollar          1.2672  1.3755  7.9%  1.27  1.32  3.8% 
 

Operating profit

Underlying operating profit for the period was marginally ahead by 3.7% on the prior year at GBP20.8 million (H1 2018: GBP20.0m) reflecting the balance of strong top line growth as well as the decline in first half underlying operating profit margins. Statutory operating profit in the period was GBP7.5m, down from GBP11.5m in 2018. This is largely a result in significantly higher non-underlying items in H1. In particular the one-off accrual for the AgenSynd earn-out that is linked to on-going employment and therefore recognised through the Group's Income Statement as well as the intangible impairment in South Africa.

Underlying net finance cost

Underlying group net finance costs increased to GBP1.6 million in the period (H1 2018: GBP0.6m). Of this increase, GBP0.4 million was driven by higher interest costs on the Group's loan facilities as a result of the higher debt balance. The remaining GBP0.6 million related to the recognition of lease interest under IFRS 16 (see below for more detail on IFRS 16).

Non-underlying items

Non-underlying items within operating profit include share-based payments where they relate to acquisitions, acquisition and integration costs, amortisation and impairment of intangible assets and one-off costs related to the refinancing of the Group's banking facilities undertaken in the year and the regulatory fine the Group settled shortly after the period end. Non-underlying costs in the first half were GBP13.3 million (H1 2018: GBP8.5m). Included within this amount was GBP1.9 million related to the impairment of intangible assets recognised with the acquisition in South Africa (see Note 10). Also included was a provision for GBP0.4m relating to the settlement reached with the JFSC shortly after the period end and associated fees (see Note 4). Further details on non-underlying items is given in Note 4 in the Notes to the Consolidated Results. There is also a non-underlying interest expense in the period of GBP0.5 million that is the write-off of previously capitalised arrangement fees in relation to the Group's old banking facilities.

Taxation

The Group's underlying effective tax rate for the period was 21% (H1 2018: 17.1%). The increase in the underlying effective tax rate in the period is a result of a greater proportion of the Group's profits being made in higher corporate tax rate jurisdictions.

Earnings per share

Diluted underlying earnings per share were 10.36 pence (H1 2018: 11.18p) and reported diluted earnings per share were 2.37 pence (H1 2018: 5.94p).

IFRS 16

The Group has applied IFRS 16 for the first time to the period beginning 1 January 2019 and has transitioned by adopting the modified retrospective approach which does not require restatement of the comparatives. In order to provide like-for-like comparators, the table below shows the 2019 financials had IFRS 16 not been adopted:

 
                                  Current       IAS17     Difference 
                                   H1 2019      H1 2019     (GBP'000) 
                                  (GBP'000)    (GBP'000) 
------------------------------  -----------  -----------  ----------- 
Gross profit                      46,262       46,262          - 
Underlying operating expense     (25,467)     (25,872)        405 
 - Rental cost                       -         (3,014)       3,014 
 - IFRS16 Depreciation            (2,609)         -         (2,609) 
 - Other underlying operating 
  expenses                       (22,858)     (22,858)         - 
Underlying operating profit       20,795       20,390         405 
Net underlying finance 
 and other cost                   (1,621)       (941)        (680) 
 - IFRS16 Interest cost            (680)          -          (680) 
 - Other net finance cost          (941)        (941)          - 
Underlying profit before 
 tax                              19,174       19,449          (275) 
 

Working capital and cash flow

Working capital at 30 June 2019 as a percentage of annualised revenue was 22.6% (H1 2018: 20.4%). Underlying operating cash flow conversion for the first half was 118% (H1 2018: 68%). The business continues to enjoy an attractive cash flow profile. The strong cash conversion performance in the first half is, in part, a result of normalisation in working capital following a lower conversion rate in the prior year.

Capital expenditure in the first half of the year was GBP2.9 million (H1 2018: GBP0.6m). This reflected a large number of office moves that took place in the first half due to continued expansion. Most notable was the consolidation of all the Group's Luxembourg operations into a single location, a doubling of office space in Shanghai, a new, larger premises for the Group's Hong Kong operation, a relocation of the Group's Netherlands office from Rotterdam to Amsterdam as well as new office space in Tokyo and Mumbai.

Indebtedness and refinancing

The Group's net debt position at 30 June 2019 was GBP64.0 million (H1 2018: GBP49.3m) reflecting the acquisition of AgenSynd in the second half of 2018 and the capital expenditure seen in the first half. The Group also successfully refinanced its debt facilities in the first half. The new debt facility is a multi-currency committed GBP150 million revolving credit facility with an uncommitted accordion facility of GBP70 million. The Group's net debt position includes cash and bank balances held for regulatory capital. Cash held for regulatory capital is GBP9.1 million (30 June 2018: GBP11.1m) which would increase the Group's net debt position if excluded.

Dividend

The Board has declared an interim dividend of 4.7 pence per share (H1 2018: 4.6p). The dividend will be paid on 18 October 2019 to shareholders on the register as at the close of business on the record date of 20 September 2019.

Risk

The principal risks facing the Group are reviewed regularly and represented by those set out in the Annual Report 2018. These are categorised as Acquisition Due Diligence Risk; Strategy Risk; Competitor Risk; Business Change Risk; Cyber Security Risk; Process Risk; Staff Resourcing Risk; Data Management Risk; Regulatory Change Risk; Compliance Risk; Financial Crime Risk and Impairment Risk.

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE INTERIM STATEMENT

We confirm to the best of our knowledge that:

- The condensed set of financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; and

   -      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 2019

Independent review report to Sanne Group plc

Report on the condensed consolidated financial statements

Our conclusion

We have reviewed Sanne Group plc's condensed consolidated financial statements (the "interim financial statements") in the Half-year report of Sanne Group plc for the 6 month period ended 30 June 2019. 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 2019; 

-- 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 Half-year report 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 Half-year report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half-year report 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 Half-year report 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 Half-year report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

9 September 2019

 
 Sanne Group plc 
 Consolidated Income Statement 
 For the period from 1 January 
  2019 to 30 June 2019 
 
                                            Unaudited   Unaudited(1)     Audited 
                                             6 Months       6 Months   12 Months 
                                                   to             to          to 
                                               30 Jun         30 Jun      31 Dec 
                                                 2019           2018        2018 
                                    Notes     GBP'000        GBP'000     GBP'000 
 
  Revenue                                      78,720         65,850     143,003 
  Direct costs                               (32,458)       (25,441)    (54,655) 
 
 
  Gross profit                        3        46,262         40,409      88,348 
 --------------------------------  ------  ----------  -------------  ---------- 
 
  Other operating income                          121             94         158 
  Operating expenses                         (38,897)       (29,005)    (62,941) 
 
 
  Operating profit                              7,486         11,498      25,565 
 --------------------------------  ------  ----------  -------------  ---------- 
 
  Comprising: 
    Underlying operating profit       4        20,795         20,045      44,447 
    Non-underlying items within 
     operating expenses               4      (13,309)        (8,547)    (18,882) 
                                                7,486         11,498      25,565 
 --------------------------------  ------  ----------  ------------- 
 
  Other gains and losses                          186            126       (132) 
  Finance costs                               (2,340)          (816)     (1,909) 
  Finance income                                   76             75         156 
 
 
  Profit before tax                             5,408         10,883      23,680 
 --------------------------------  ------  ----------  -------------  ---------- 
 
  Comprising: 
    Underlying profit before tax      4        19,174         19,430      42,562 
    Non-underlying items              4      (13,766)        (8,547)    (18,882) 
                                                5,408         10,883      23,680 
 --------------------------------  ------  ----------  ------------- 
 
  Tax                                 5       (1,947)        (2,317)     (5,506) 
 
 
  Profit for the period/year                    3,461          8,566      18,174 
 --------------------------------  ------  ----------  -------------  ---------- 
 
 Earnings per ordinary share ("EPS") (expressed 
  in pence per ordinary share) 
 
  Basic                               6           2.4            6.1        12.9 
  Diluted                             6           2.4            5.9        12.6 
 
  Underlying basic                    6          10.5           11.5        24.7 
  Underlying diluted                  6          10.4           11.2        24.1 
 
 All profits in the current and preceding periods and 
  year are derived from continuing operations. 
 (1.) Refer to note 8 for details 
  of prior year restatement. 
 
 
 Sanne Group plc 
 Consolidated Statement of Comprehensive 
  Income 
 For the period from 1 January 
  2019 to 30 June 2019 
 
                                              Unaudited   Unaudited(1)     Audited 
                                               6 Months       6 Months   12 Months 
                                                     to             to          to 
                                                 30 Jun         30 Jun      31 Dec 
                                                   2019           2018        2018 
                                                GBP'000        GBP'000     GBP'000 
 
 
  Profit for the period/year                      3,461          8,566      18,174 
 ------------------------------------------  ----------  -------------  ---------- 
 
  Other comprehensive income 
  Items that will not be reclassified 
   subsequently to the profit and loss: 
     Actuarial gain / (loss) on 
      retirement benefit 
      Obligation                                     44           (44)          70 
     Income tax relating to items 
      not reclassified                              (6)              6        (11) 
 
  Items that may be reclassified 
   subsequently to the profit and 
   loss: 
     Correction of prior period 
      error(1)                                        -           (46)           - 
     Exchange differences on translation 
      of foreign 
      Operations                                    270          2,315       8,756 
 
 
  Total comprehensive income for 
   the period/year                                3,769         10,797      26,989 
 ------------------------------------------  ----------  -------------  ---------- 
 (1.) Refer to note 8 for details 
  of prior year restatement. 
 
 
 Sanne Group plc 
 Consolidated Balance Sheet 
 As at 30 June 2019 
                                           Unaudited   Unaudited(1)    Audited 
                                              30 Jun         30 Jun     31 Dec 
                                                2019           2018       2018 
                                   Notes     GBP'000        GBP'000    GBP'000 
 Assets 
  Non-current assets 
  Goodwill                           9       189,226        157,905    188,928 
  Other intangible assets           10        56,019         69,720     66,122 
  Equipment                                   10,537          3,831      9,973 
  Deferred tax asset                           8,787          1,549      2,082 
  Right-of-use asset                14        34,491              -          - 
 
  Total non-current assets                   299,060        233,005    267,105 
 -------------------------------  ------  ----------  -------------  --------- 
 
  Current assets 
  Trade and other receivables                 46,846         33,959     47,251 
  Cash and bank balances                      44,228         32,527     32,411 
  Contract assets                              8,354          7,964      6,637 
 
  Total current assets                        99,428         74,450     86,299 
 -------------------------------  ------  ----------  -------------  --------- 
 
  Total assets                               398,488        307,455    353,404 
 -------------------------------  ------  ----------  -------------  --------- 
 
 Equity 
  Share capital                     11         1,460          1,436      1,460 
  Share premium                              200,270        185,012    200,270 
  Own shares                                 (1,102)        (1,307)    (1,470) 
  Shares to be issued                         10,178         22,731     12,278 
  Retranslation reserve                      (2,201)        (8,958)    (2,471) 
  Retained losses                           (24,549)       (20,871)   (17,399) 
 
  Total equity                               184,056        178,043    192,668 
 -------------------------------  ------  ----------  -------------  --------- 
 
  Non-current liabilities 
  Borrowings                        13        99,275         70,720     85,364 
  Deferred tax liabilities                    18,219         12,911     13,395 
  Retirement gratuity liability                  568            721        701 
  Other liabilities                                -              -      4,914 
  Lease liability                   14        35,104              -          - 
 
  Total non-current liabilities              153,166         84,352    104,374 
 -------------------------------  ------  ----------  -------------  --------- 
 
  Current liabilities 
  Trade and other payables                    37,412         29,374     34,467 
  Current tax liabilities                      2,666          4,265      3,910 
  Provisions                                   2,110            503      1,650 
  Contract liabilities                        14,246         10,918     16,335 
  Lease liability                   14         4,832              -          - 
 
  Total current liabilities                   61,266         45,060     56,362 
 -------------------------------  ------  ----------  -------------  --------- 
 
  Total equity and liabilities               398,488        307,455    353,404 
 -------------------------------  ------  ----------  -------------  --------- 
 (1.) Refer to note 8 for details of 
  prior year restatement. 
 
 
 Sanne Group plc 
 Consolidated Statement of Changes in 
  Equity 
 For the period from 1 January 2019 
  to 30 June 2019 
 
                                                                   Shares 
                                    Share      Share       Own      to be   Retrans-lation   Retained      Total 
                                  Capital    Premium    shares     issued          reserve     Losses     Equity 
                                  GBP'000    GBP'000   GBP'000    GBP'000          GBP'000    GBP'000    GBP'000 
 
 
 Balance at 1 January 2018 
  (as previously reported)          1,416    171,850   (1,141)     13,373         (11,280)   (16,437)    157,781 
------------------------------  ---------  ---------  --------  ---------  ---------------  ---------  --------- 
 
  Correction of prior period 
   error(1)                             -          -         -          -               53    (1,146)    (1,093) 
 
 Balance at 1 January 2018 
  as restated                       1,416    171,850   (1,141)     13,373         (11,227)   (17,583)    156,688 
------------------------------  ---------  ---------  --------  ---------  ---------------  ---------  --------- 
 
  Profit for the period 
   as previously reported               -          -         -          -                -      9,026      9,026 
  Correction of prior period 
   error(1)                             -          -         -          -             (46)      (460)      (506) 
  Other comprehensive income 
   for the period                       -          -         -          -            2,315       (38)      2,277 
 
 
 Total comprehensive income 
  for the period                        -          -         -          -            2,269      8,528     10,797 
------------------------------  ---------  ---------  --------  ---------  ---------------  ---------  --------- 
 
  Issue of share capital               18     12,344         -          -                -          -     12,362 
  Net buyback of own shares             -          -     (166)          -                -          -      (166) 
  Dividend payments                     -          -         -          -                -   (11,816)   (11,816) 
  Share based payment - 
   acquisitions                         -          -         -      8,558                -          -      8,558 
  Share based payment - 
   employees                            -          -         -      1,620                -          -      1,620 
  Deferred consideration 
   - acquisitions                       2        818         -      (820)                -          -          - 
 
 
 Balance at 30 June 2018 
  as restated                       1,436    185,012   (1,307)     22,731          (8,958)   (20,871)    178,043 
------------------------------  ---------  ---------  --------  ---------  ---------------  ---------  --------- 
 
  Profit for the period                 -          -         -          -                -      9,608      9,608 
  Other comprehensive income 
   for the period                       -          -         -          -            6,487         97      6,584 
 
 
 Total comprehensive income 
  for the period                        -          -         -          -            6,487      9,705     16,192 
------------------------------  ---------  ---------  --------  ---------  ---------------  ---------  --------- 
 
  Issue of share capital               18     12,042         -          -                -          -     12,060 
  Dividend payments                     -          -         -          -                -    (6,560)    (6,560) 
  Share based payment - 
   employees                            -          -         -      1,328                -        327      1,655 
  Net buyback of own shares             -          -     (163)          -                -          -      (163) 
  Deferred consideration 
   - acquisitions                       6      3,216         -   (11,781)                -          -    (8,559) 
 
 
 Balance at 31 December 2018        1,460    200,270   (1,470)     12,278          (2,471)   (17,399)    192,668 
------------------------------  ---------  ---------  --------  ---------  ---------------  ---------  --------- 
 
  Change in accounting policy 
   (2)                                  -          -         -          -                -      (556)      (556) 
 
 
 Restated total equity at 
  1 January 2019                    1,460    200,270   (1,470)     12,278          (2,471)   (17,955)    192,112 
------------------------------  ---------  ---------  --------  ---------  ---------------  ---------  --------- 
 
  Profit for the period                 -          -         -          -                -      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) 
  Shares vesting                        -          -       559    (3,491)                -      3,161        229 
  Share Based Transactions              -          -     (191)      1,391                -          -      1,200 
 
 
 Balance at 30 June 2019            1,460    200,270   (1,102)     10,178          (2,201)   (24,549)    184,056 
------------------------------  ---------  ---------  --------  ---------  ---------------  ---------  --------- 
 

(1.) Refer to note 8 for details of the prior year restatement

(2.) Refer to note 14 for details relating to the change in accounting policy

 
 Sanne Group plc 
 Consolidated Cash Flow Statement 
 For the period from 1 January 2019 
  to 30 June 2019 
                                             Unaudited   Unaudited    Audited 
                                                30 Jun      30 Jun     31 Dec 
                                                  2019        2018       2018 
                                               GBP'000     GBP'000    GBP'000 
 
  Operating profit                               7,486      11,498     25,565 
  Adjustments for: 
  Depreciation of equipment                      3,962         961      1,915 
  Amortisation of intangible assets              8,266       7,492     15,730 
  Impairment of intangible assets                1,879           -         55 
  Share-based payment expense                    1,475       1,678      3,376 
  Disposal of equipment                              -           -        257 
  Retirement gratuity reserve movement           (100)        (32)         11 
  Lease incentives received                          -           -      1,267 
  Increase/(Decrease) in provisions              (400)         (3)      1,144 
 
  Operating cash flows before movements 
   in working capital                           22,568      21,594     49,320 
 -----------------------------------------  ----------  ----------  --------- 
 
  Increase in receivables                      (1,312)     (4,396)   (16,241) 
  Decrease/(Increase) in deferred 
   revenue                                     (2,089)     (1,998)      2,552 
  Increase/(Decrease) in payables                3,350     (1,693)      (701) 
 
  Cash generated by operations                  22,517      13,507     34,930 
 -----------------------------------------  ----------  ----------  --------- 
 
  Income taxes paid                            (4,563)     (2,243)    (7,312) 
 
  Net cash from operating activities            17,954      11,264     27,618 
 -----------------------------------------  ----------  ----------  --------- 
 
  Investing activities 
  Interest received                                 76          75        156 
  Purchases of equipment                       (2,891)       (584)    (4,221) 
  Payment of deferred consideration                  -           -   (14,407) 
  Acquisition of subsidiaries                        -    (22,990)   (29,279) 
 
  Net cash used in investing activities        (2,815)    (23,499)   (47,751) 
 -----------------------------------------  ----------  ----------  --------- 
 
  Financing activities 
  Dividends paid                              (13,254)    (11,816)   (18,376) 
  Interest on bank loan                          (945)       (629)    (1,732) 
  Buyback of own shares                          (191)       (166)      (329) 
  Capitalised loan cost                        (1,255)           -          - 
  Redemption of bank loans                    (85,850)     (4,000)    (4,000) 
  New bank loans raised                        100,800      10,300     24,850 
  Lease liability interest                       (680)           -          - 
  Lease liability payments                     (2,202)           -          - 
 
  Net cash used in financing activities        (3,577)     (6,311)        413 
 -----------------------------------------  ----------  ----------  --------- 
 
  Net increase/(decrease) in cash 
   and cash equivalents                         11,562    (18,546)   (19,720) 
 -----------------------------------------  ----------  ----------  --------- 
 
  Cash and cash equivalents at beginning 
   of period/year                               32,411      50,803     50,803 
  Effect of foreign exchange rate 
   changes                                         255         270      1,328 
 
  Cash and cash equivalents at end 
   of period/year                               44,228      32,527     32,411 
 -----------------------------------------  ----------  ----------  --------- 
 

Sanne Group plc

Notes to the consolidated results

For the period from 1 January 2019 to 30 June 2019

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 2019 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 and should be read in conjunction with the Annual Report for the year ended 31 December 2018, available at www.sannegroup.com. Deloitte was the external auditors for the 2018 results. PwC has been appointed as auditors from 2019.

Going concern

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence 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 the consolidated financial statements of the Group on a going concern basis. Accordingly, they have adopted the going concern basis of accounting in preparing the consolidated financial statements.

Accounting policies

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 2018, except as disclosed below.

Impact of standards issued and applied from 1 January 2019

IFRS 16 'Leases' is effective for periods beginning on or after 1 January 2019, and is therefore applicable to the current period. This standard replaces accounting treatment for leases previously depicted in IAS 17. It introduced a single lessee accounting model whereby a lessee is required to recognise a right-of-use asset and a lease liability for all leases with a term of more than 12 months and the group assessed the impact of this recognition to have a significant disclosure impact. The depreciation on the right-of-use asset will be accounted for separately from the interest expense incurred on the lease liability in the income statement. The Group elected to make use of the modified retrospective approach for transition and have not restated comparative amounts. The lease liability is measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate at transition date. Right-of-use assets will be measured as if the standard has always been applied. There is no significant impact on the net profit after implementing the new standard. Please refer to note 14.

The following changes to accounting standards have been issued and applied from 1 January 2019, however none of these standards had an effect on the preparation of the financial statements.

(a) Annual improvements 2015-2017 Cycle

(b) IFRIC 23 Uncertainty over Income Tax Treatments

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

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

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

2. Estimates, critical accounting judgements and key sources of estimation uncertainty

In the application of 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 reviewed on an ongoing basis. 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 2018 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.

Seasonality

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

The comparative numbers for the segmental reporting have been restated to reflect the four segments created in the current reporting period.

The chief operating decision-maker is the Board of 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 Board of Directors. The Board evaluates segmental performance on the basis of gross profit, after the deduction of the direct costs of staff, marketing and travel. No inter-segment sales are made and, as such, no revenue disclosed within a segment needs removing on consolidation.

 
  Unaudited 6 Months to                        Direct      Gross 
   30 Jun 2019                     Revenue      costs     profit 
                                   GBP'000    GBP'000    GBP'000 
  Segments 
    EMEA                            31,341   (13,937)     17,404 
    Asia-Pacific & Mauritius        16,382    (5,068)     11,314 
    North America                   12,896    (6,441)      6,455 
    Channel Islands                 18,101    (7,012)     11,089 
  Total                             78,720   (32,458)     46,262 
 -------------------------------  --------  ---------  --------- 
 
  Other operating income                                     121 
  Operating expenses                                    (38,897) 
  Operating profit                                         7,486 
 -------------------------------  --------  ---------  --------- 
 
  Unaudited 6 Months to                        Direct      Gross 
   30 Jun 2018                     Revenue      costs     profit 
                                   GBP'000    GBP'000    GBP'000 
  Segments 
    EMEA                            23,420    (9,499)     13,921 
    Asia-Pacific & Mauritius        13,829    (3,935)      9,894 
    North America                    9,707    (4,995)      4,712 
    Channel Islands                 18,894    (7,012)     11,882 
  Total                             65,850   (25,441)     40,409 
 -------------------------------  --------  ---------  --------- 
 
  Other operating income                                      94 
  Operating expenses                                    (29,005) 
  Operating profit                                        11,498 
 -------------------------------  --------  ---------  --------- 
 
  Unaudited 12 Months to                       Direct      Gross 
   31 Dec 2018                     Revenue      costs     profit 
                                   GBP'000    GBP'000    GBP'000 
  Segments 
    EMEA                            53,427   (21,581)     31,846 
    Asia/Pacific & Mauritius        30,457    (8,355)     22,102 
    North America                   21,609   (10,839)     10,770 
    Channel Islands                 37,510   (13,880)     23,630 
  Total                            143,003   (54,655)     88,348 
 -------------------------------  --------  ---------  --------- 
 
  Other operating income                                     158 
  Operating expenses                                    (62,941) 
  Operating profit                                        25,565 
 -------------------------------  --------  ---------  --------- 
 

Geographical information

The Group's revenue from external customers by geographical location of the relevant contracting Group entity is detailed below. The jurisdiction of the contracting entity can differ from the jurisdiction for segmental reporting purposes.

 
                                                      Unaudited     Unaudited     Audited 
                                                       6 Months      6 Months   12 Months 
                                                             to            to          to 
                                                         30 Jun        30 Jun      31 Dec 
                                                           2019          2018        2018 
                                                        GBP'000       GBP'000     GBP'000 
 
  Jersey and Guernsey                                    20,747        21,300      42,629 
  Rest of Europe                                         28,371        20,038      47,016 
  Mauritius                                              11,096        10,318      22,198 
  Americas                                               12,726         9,621      21,374 
  South Africa                                            2,617         2,889       5,461 
  Asia-Pacific                                            3,163         1,684       4,325 
  Total Revenue                                          78,720        65,850     143,003 
 --------------------------------------------------  ----------  ------------  ---------- 
 
 4. Non-underlying items 
                                                                  Restated(1) 
                                                      Unaudited     Unaudited     Audited 
                                                       6 Months      6 Months   12 Months 
                                                             to            to          to 
                                                         30 Jun        30 Jun      31 Dec 
                                                           2019          2018        2018 
                                                        GBP'000       GBP'000     GBP'000 
 
  Operating profit                                        7,486        11,498      25,565 
  Non-underlying items within operating 
   expenses: 
   Share based payments                        (i)        1,048           953       1,791 
   Acquisition and integration 
    expense                                    (ii)       1,561           102       1,193 
   Amortisation of intangible                  (ii 
    assets                                      i)        8,266         7,492      15,730 
   Impairment of intangible                               1,879             -           - 
    assets                                   (iv) 
   Regulatory fine and fees                  (v)            433             -           - 
   Other items                                              122             -         168 
                                                         13,309         8,547      18,882 
 
  Underlying operating profit                            20,795        20,045      44,447 
 
  Profit before tax                                       5,408        10,883      23,680 
  Non-underlying items within 
   other costs: 
   Refinancing                               (vi)           457             -           - 
  Total non-underlying items                             13,766         8,547      18,882 
 --------------------------------------------------  ----------  ------------  ---------- 
  Underlying profit before 
   tax                                                   19,174        19,430      42,562 
 --------------------------------------------------  ----------  ------------  ---------- 
 

(1.) Refer to note 8 for details of prior year restatement.

The above reflect expenses which management do not consider to be representative of underlying performance.

(i) Share based payments are detailed in note 12. All acquisition related share based payments are shares issued in the course of acquisition consideration that have retained employment conditions and are therefore required to be expensed through the Income Statement. These are all related to acquisitions rather than the normal, ongoing cost of doing business and as such are shown as non-underlying expenses.

(ii) The Group has completed various acquisitions in the past two years. Acquisition and integration costs included deal advisory fees, one off cost of integrating companies and accruals for cash earn-out payments. Integration and deal costs relating to acquisitions for the period ending 30 June 2019 were GBP318k. Also included was GBP1,243k relating to the AgendSynd acquisition earn-out accrual which is expensed per IFRS 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 cost will be incurred in the first 2 years after acquisition, however this could be longer depending on the nature of the costs.

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

(iv) The Group's South African hedge fund business, acquired in 2016, suffered a one-off loss of clients in the period. As a result the contract intangibles were impaired by GBP1,879k. As with the amortisation of intangible assets this cost was excluded from underlying cost as it does not form part of the core business of the Group.

(v) Regulatory fine 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 GBP52k being the legal fees incurred during the settlement process. The fine was fully settled after 30 June 2019.

(vi) On 1 March 2019 the Group refinanced its loan facility. The balance of the unamortised loan costs were 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 
                                        Restated(1) 
                            Unaudited     Unaudited     Audited 
                             6 Months      6 Months   12 Months 
                                   to            to          to 
                               30 Jun        30 Jun      31 Dec 
                                 2019          2018        2018 
                              GBP'000       GBP'000     GBP'000 
 
  Current income tax            3,293         3,260       7,540 
  Deferred income tax         (1,346)         (943)     (2,034) 
  Total income tax              1,947         2,317       5,506 
 ------------------------  ----------  ------------  ---------- 
 

(1.) Refer to note 8 for details of prior year restatement.

Income tax 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 
                                                    2019                   2018          2018 
                                                 GBP'000                GBP'000       GBP'000 
 
  Reconciliation of effective 
   tax rates 
  As per Consolidated income 
   statement: 
  Tax charge                                       1,947                  2,317         5,506 
  Profit before tax                                5,408                 10,883        23,680 
 -----------------------------------------  ------------  ---------------------  ------------ 
  Effective tax rate                               36.0%                  21.3%         23.3% 
 
 
  Tax charge                                       1,947                  2,317         5,506 
   Adjusted for: 
  Non-underlying tax                               2,076                    997         2,227 
  Underlying tax charge                            4,023                  3,314         7,733 
 -----------------------------------------  ------------  ---------------------  ------------ 
 
  Profit before tax                                5,408                 10,883        23,680 
  Non-underlying items                            13,766                  8,547        18,882 
  Profit before tax and non-underlying 
   items                                          19,174                 19,430        42,562 
 ----------------------------------------   ------------  ---------------------  ------------ 
  Underlying effective tax 
   rate                                            21.0%                  17.1%         18.2% 
 
 6. Earnings per share 
                                                                    Restated(1) 
                                               Unaudited              Unaudited       Audited 
                                                6 Months               6 Months     12 Months 
                                                      to                     to            to 
                                                  30 Jun                 30 Jun        31 Dec 
                                                    2019                   2018          2018 
                                                 GBP'000                GBP'000       GBP'000 
 
  Profit for the period/year                       3,461                  8,566        18,174 
  Non-underlying items within: 
    Operating expenses                            13,309                  8,547        18,882 
    Other costs                                      457                      -             - 
    Tax effect of non-underlying 
     items                                       (2,076)                  (997)       (2,227) 
  Underlying earnings                             15,151                 16,116        34,829 
 -----------------------------------------  ------------  ---------------------  ------------ 
 
    Weighted average number of ordinary 
     shares in issue                         143,677,970            140,333,180   141,269,560 
  Effect of dilutive potential 
   ordinary shares: 
    Deferred consideration 
     shares                                    1,273,308              1,909,964     1,273,308 
    Restricted Stock Awards                    1,241,272              1,307,550     1,288,585 
    Performance share plan                        64,364                627,264       619,862 
    Weighted average number of ordinary 
     shares for the purposes of diluted 
     earnings per share                      146,256,914            144,177,958   144,451,315 
 -----------------------------------------  ------------  ---------------------  ------------ 
 
                                                                    Restated(1) 
                                               Unaudited              Unaudited       Audited 
                                                6 Months               6 Months     12 Months 
                                                      to                     to            to 
                                                  30 Jun                 30 Jun        31 Dec 
                                                    2019                   2018          2018 
                                                 GBP'000                GBP'000       GBP'000 
 
  Basic earnings per share 
   (pence)                                           2.4                    6.1          12.9 
 -----------------------------------------  ------------  ---------------------  ------------ 
  Diluted earnings per share 
   (pence)                                           2.4                    5.9          12.6 
 -----------------------------------------  ------------  ---------------------  ------------ 
 
  Underlying basic earnings 
   per share (pence)                                10.5                   11.5          24.7 
 ----------------------------------------   ------------  ---------------------  ------------ 
  Underlying diluted earnings per 
   share (pence)                                    10.4                   11.2          24.1 
 -----------------------------------------  ------------  ---------------------  ------------ 
 

(1.) Refer to note 9 for details of prior year restatement.

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

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

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

Underlying basic EPS and Underlying diluted EPS are calculated in the same way as Basic EPS and Diluted EPS with the only exception being that the earnings used are the underlying earnings, being the profit for the year adjusted for non-underlying items and the tax impact of non-underlying items. This is a change in approach from the prior year where profit for the year was just adjusted for non-underlying items, the comparative numbers were also updated to reflect this approach.

7. Dividends

An interim dividend of 4.7p pence per ordinary share (2018: 4.6 pence) was declared by the Directors on 9 September 2019 and will be payable on 18 October 2019 to shareholders on the record on 20 September 2019. The 2018 final dividend of 9.2 pence was paid on 21 May 2019.

8. Correction of prior period error

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

The correction was made in the Annual Report ending 31 December 2018. This note addresses the restatement of the 30 June 2018 interim reporting figures.

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

 
                                                                                  (Unaudited) 
                                          (Unaudited)                              (Restated) 
                                             6 Months            Adjustment          6 Months 
                                                   to                                      to 
                                               30 Jun             Increase/            30 Jun 
                                                 2018            (Decrease)              2018 
                                              GBP'000               GBP'000           GBP'000 
  Consolidated Income Statement 
   (extract) 
  Tax                                           1,857                   460             2,317 
 
  Basic EPS                                       6.4                 (0.3)               6.1 
  Diluted EPS                                     6.3                 (0.4)               5.9 
  Underlying basic EPS(1)                        12.5                 (1.0)              11.5 
  Underlying basic diluted 
   EPS(1)                                        12.2                 (1.0)              11.2 
 
  Consolidated Balance Sheet 
   (extract) 
  Deferred tax liabilities                   (11,312)               (1,599)          (12,911) 
  Retranslation reserve                         8,965                   (7)             8,958 
  Retained Losses                              19,265                 1,606            20,871 
 

(1) The reported tax impact of the prior period error is 0.3 pence on basic EPS and 0.4 pence on Diluted EPS. As a result of the change of approach with regards to the tax impact of non-underlying items, as highlighted in Note 6, the underlying basic EPS and underlying diluted basic EPS have decreased by 1 penny. The prior period error had no impact on the underlying basic EPS and underlying diluted EPS because the prior period error solely relates to non-underlying deferred tax.

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 
                                             2019        2018      2018 
                                          GBP'000     GBP'000   GBP'000 
 
  Opening balance                         188,928     107,271   107,271 
  Acquired during the period/year               -      49,065    75,976 
  Exchange difference                         298       1,569     5,681 
  Closing balance                         189,226     157,905   188,928 
 ------------------------------------  ----------  ----------  -------- 
 

Shortly after 30 June 2019 Sanne South Africa experienced a loss of clients. This event was considered to be an indicator for impairment and a value in use calculation was performed to determine if an impairment loss should be recognised. Sanne South Africa serves a number of intergroup entities and has aided the group in its back office functions which contributed to no impairment charge identified on goodwill. Management estimated discount rates using pre-tax rates that reflect current market assessments of the time value of money. The same factors impacting the discount rate at the end of December 2018, were considered in the interim period. These assumptions resulted in a weighted average cost of capital of 21% for Sanne South Africa

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 varies between 3% to 10%. The terminal growth rate applied after five years was based on the forecasted nominal GDP of the operating jurisdiction.

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 
                                         2019        2018       2018 
                                      GBP'000     GBP'000    GBP'000 
 
  Opening balance                      66,122      59,998     59,998 
  Acquired during the period                -      16,751     19,797 
  Amortisation charge for 
   the period/year                    (8,266)     (7,492)   (15,730) 
  Impairments                         (1,879)           -       (55) 
  Exchange difference                      42         463      2,112 
  Closing balance                      56,019      69,720     66,122 
 --------------------------------  ----------  ----------  --------- 
 

At 30 June 2019 all intangible assets were tested for indicators of impairment. The Delorean intangibles are nearing the end of their useful life and had an indicator for impairment. The Delorean intangibles relate to the acquisition of a client book from State Street in 2013. A value in use assessment was performed to determine the recoverable amount. The recoverable amount on Delorean exceeded its carrying value and no impairment was recognised thereon. Due to a one off loss of clients in Sanne South Africa, an indicator for impairment was triggered. Sanne's South African contract intangibles were impaired by GBP1,879k. The value in use calculations were performed using a Multi-period Excess Earnings Method (MEEM) model, requiring the following inputs: post-tax weighted average cost of capital to discount the cash flows, a general attrition rate, a direct cost and an overhead cost margin and lastly the corporate tax rate. The discount rate was identified as being the most sensitive to change. Should the WACC rate increase by 1%, the impairment would have been GBP39,000 higher. Sanne does not consider this to be a material increase.

 
 11. Share capital 
                                Unaudited   Unaudited     Audited 
                                 6 Months    6 Months   12 Months 
                                       to          to          to 
                                   30 Jun      30 Jun      31 Dec 
                                     2019        2018        2018 
                                  GBP'000     GBP'000     GBP'000 
 
  Opening balance                   1,460       1,416       1,416 
  Issue of shares         (i)           -          20          44 
  Closing balance                   1,460       1,436       1,460 
 ----------------------------  ----------  ----------  ---------- 
 

(i) The Company issued 1,786,173 shares on 6 February 2018 as part consideration in the acquisition of LIS. The Company also issued 159,095 shares on 25 May 2018 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 
                                               2019        2018      2018 
                                            GBP'000     GBP'000   GBP'000 
  Sanne Group plc 
    Performance Share Plan          (i)         129         503     1,192 
    Restricted Stock Awards        (ii)       1,346       1,175     2,184 
  Total share based payments                  1,475       1,678     3,376 
 --------------------------------------  ----------  ----------  -------- 
 

(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. Further awards were made through 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 grown 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.

(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 of the business. RSA's granted in relation to acquisitions or the recruitment of senior management, are deemed to be non-underlying costs of the business.

13. Borrowings and contingencies

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

The new loan facility is for GBP150m plus an accordion option 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.

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.

The balances available and drawn are as follows:

 
                                  Unaudited   Unaudited   Audited 
                                      as at       as at     as at 
                                     30 Jun      30 Jun    31 Dec 
                                       2019        2018      2018 
                                    GBP'000     GBP'000   GBP'000 
  Available 
  Term loan                               -      46,000    46,000 
  Revolving credit facility         150,000      44,000    44,000 
  Accordion                          70,000      10,000    10,000 
                                    220,000     100,000   100,000 
                                 ----------  ----------  -------- 
  Drawn 
  Term loan                               -      46,000    46,000 
  Revolving credit facility         100,800      25,300    39,850 
  Accordion                               -           -         - 
                                    100,800      71,300    85,850 
                                 ----------  ----------  -------- 
  Capitalised loan fees               1,525         580       486 
  Total borrowings                   99,275      70,720    85,364 
                                 ----------  ----------  -------- 
 

During the 6 months ending 30 June 2019, the Group drew down from the revolving credit facility a net total of GBP100.8 million with GBP88 million used to repay the previous facility.

Please refer to the 2018 Annual Report for the details relating to the prior period facilities.

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

14. Changes in accounting policies

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

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

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

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

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

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

The associated right-of-use assets for property leases were measured on a retrospective basis as if the new rules had always been applied. Using the practical expedient, the group only recognised a right-of-use-asset on property. The impact on 1 January 2019 is set out below. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.

 
  Right-of-use assets were only recognised on 
   the rental properties. 
                                                                     30 Jun      1 Jan 
                                                                       2019       2019 
                                                                    GBP'000    GBP'000 
 
  Right-of-use assets                                                34,491     30,828 
  Lease liabilities                                                (39,936)   (35,828) 
                                                                  ---------  --------- 
 
  The change in accounting policy affected the following items in 
   the balance sheet on 1 January 2019: 
 
                                              Increase 
    Right-of-use assets                       by           30,828 
                                              Increase 
    Lease liabilities                         by           35,828 
                                              Increase 
    Deferred tax liabilities                  by            4,426 
                                              Increase 
    Deferred tax assets                       by            4,976 
                                              Decrease 
    Trade and other payables                  by            5,403 
                                              Decrease 
    Property, plant and equipment             by            1,109 
                                              Decrease 
    Retained earnings                         by              556 
                                              Increase 
    Provisions                                by              400 
 

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

The group leases office space in various jurisdictions. Leases are negotiated for a variety of terms over which rentals are fixed with break clauses and options to extend for a further period at the then prevailing market rate. Rental agreements to which IFRS 16 was applied, spans anywhere from 14 months to 24 years.

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

On initial recognition of a new lease, the lease liability is recognised as the present value of future payments, discounted using the incremental borrowing rate (unless the interest implicit to the lease is available for use).

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

15. 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 only other significant related parties are key management personnel, comprising all members of the plc Board of Directors 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 during the period is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.

 
                                       Unaudited   Unaudited   Audited 
                                           as at       as at     as at 
                                          30 Jun      30 Jun    31 Dec 
                                            2019        2018      2018 
                                         GBP'000     GBP'000   GBP'000 
  Short term payments 
    Short-term employee benefits           1,882       1,778     2,789 
    Share Based Payments (see 
     note 12)                                245         306       573 
  Total short term payments                2,127       2,084     3,362 
 -----------------------------------  ----------  ----------  -------- 
 

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

16. Post balance sheet events

On 31 July 2019, the Group entered into an agreement to purchase a minority shareholding in Colmore AG which is a leading technology and software enabled fund administration business focused on the Limited Partner Market. The new partnership will increase the key differentiating factors for the Group when responding to tenders for new client mandates. The GBP9 million consideration was paid in cash and will have a limited impact on the Group results.

The accounting for this transaction is incomplete at issuance of these financial statements.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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