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RNS
Sanne Group PLC   -  SNN   

Half-year Report

Released 07:00 10-Sep-2019

RNS Number : 7332L
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 to 30

June 2019

6 months to 30

June 2018

Change

Constant currency change2

Revenue

£78.7m

£65.9m

19.5%

17.4%

Underlying1





Operating profit

£20.8m

£20.0m

3.7%

(3.1%)

Profit before tax

£19.2m

£19.4m

(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

£7.5m

£11.5m

(34.9%)

(48.5%)

Profit before tax

£5.4m

£10.9m

(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: £0.3m), share based payments where linked to acquisitions (2019: £1.1m), amortisation of intangible assets (2019: £8.3m), earn-out accrual for AgenSynd (2019: £1.2m) and the impairment of intangible assets (2019: £1.9m). 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):

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

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

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

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

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 £16.0 million won in the first six months (H1 2018: £11.5 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 10th 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 £250 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 £16.0 million on a projected annualised fee basis (H1 2018: £11.5 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 £20.8 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 16th 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

(£'000)

H1 2018

(£'000)

% growth

Constant currency % growth

31 Dec 2018 (£'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

(£'000)

H1 2018

(£'000)

% growth

Constant currency % growth

31 Dec 2018 (£'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

(£'000)

H1 2018

(£'000)

% growth

Constant currency % growth

31 Dec 2018 (£'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

(£'000)

H1 2018

(£'000)

% growth

Constant currency % growth

31 Dec 2018 (£'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
(£'000)

H1 2018 (£'000)

% change

Constant currency % change

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%)

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 £78.7 million (H1 2018: £65.8m) 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

(£'000)

H1 2018

(£'000)

% growth

Constant currency
% 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 £ 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 £20.8 million (H1 2018: £20.0m) 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 £7.5m, down from £11.5m 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 £1.6 million in the period (H1 2018: £0.6m). Of this increase, £0.4 million was driven by higher interest costs on the Group's loan facilities as a result of the higher debt balance. The remaining £0.6 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 £13.3 million (H1 2018: £8.5m). Included within this amount was £1.9 million related to the impairment of intangible assets recognised with the acquisition in South Africa (see Note 10). Also included was a provision for £0.4m 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 £0.5 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
H1 2019
(£'000)

IAS17
H1 2019
(£'000)

Difference
(£'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 £2.9 million (H1 2018: £0.6m). 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 £64.0 million (H1 2018: £49.3m) 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 £150 million revolving credit facility with an uncommitted accordion facility of £70 million. The Group's net debt position includes cash and bank balances held for regulatory capital. Cash held for regulatory capital is £9.1 million (30 June 2018: £11.1m) 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


Unaudited1


Audited




6 Months to


6 Months to


12 Months to




30 Jun


30 Jun


31 Dec




2019


2018


2018



Notes

£'000


£'000


£'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


Unaudited1


Audited




6 Months to


6 Months to


12 Months to




30 Jun


30 Jun


31 Dec




2019


2018


2018




£'000


£'000


£'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 error1


-


(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


Unaudited1


Audited




30 Jun


30 Jun


31 Dec




2019


2018


2018



Notes

£'000


£'000


£'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






 












Share Capital

Share Premium

Own shares

Shares to be issued

Retrans-lation reserve

Retained Losses

Total Equity



£'000

£'000

£'000

£'000

£'000

£'000

£'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 error1

-

-

-

-

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 error1

-

-

-

-

(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




£'000


£'000


£'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 30 Jun 2019




Revenue


Direct costs


Gross profit






£'000


£'000


£'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 30 Jun 2018




Revenue


Direct costs


Gross profit






£'000


£'000


£'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 31 Dec 2018




Revenue


Direct costs


Gross profit






£'000


£'000


£'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 to


6 Months to


12 Months to






30 Jun


30 Jun


31 Dec






2019


2018


2018






£'000


£'000


£'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
















Restated1








Unaudited


Unaudited


Audited






6 Months to


6 Months to


12 Months to






30 Jun


30 Jun


31 Dec






2019


2018


2018






£'000


£'000


£'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 assets



(iii)

8,266


7,492


15,730


  Impairment of intangible assets



(iv)

1,879


-


-


  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 £318k. Also included was £1,243k 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 £1,879k. 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 £381k, with the additional costs of £52k 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
















Restated1








Unaudited


Unaudited


Audited






6 Months to


6 Months to


12 Months to






30 Jun


30 Jun


31 Dec






2019


2018


2018






£'000


£'000


£'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 to


6 Months to


12 Months to






30 Jun


30 Jun


31 Dec






2019


2018


2018






£'000


£'000


£'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
















Restated1








Unaudited


Unaudited


Audited






6 Months to


6 Months to


12 Months to






30 Jun


30 Jun


31 Dec






2019


2018


2018






£'000


£'000


£'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


















Restated1








Unaudited


Unaudited


Audited






6 Months to


6 Months to


12 Months to






30 Jun


30 Jun


31 Dec






2019


2018


2018






£'000


£'000


£'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 to


Adjustment


6 Months to






30 Jun


Increase/


30 Jun






2018


(Decrease)


2018






£'000


£'000


£'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 EPS1




12.5


              (1.0)


11.5


Underlying basic diluted EPS1




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






£'000


£'000


£'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






£'000


£'000


£'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 £1,879k. 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 £39,000 higher. Sanne does not consider this to be a material increase.

 

11. Share capital














Unaudited


Unaudited


Audited






6 Months to


6 Months to


12 Months to






30 Jun


30 Jun


31 Dec






2019


2018


2018






£'000


£'000


£'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






£'000


£'000


£'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 £150m plus an accordion option of £70m 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






£'000


£'000


£'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 £100.8 million with £88 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 £5,000 or lower.

 

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

 










1 Jan










2019










£'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








£'000


£'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:












Right-of-use assets


Increase by

30,828






Lease liabilities


Increase by

35,828






Deferred tax liabilities


Increase by

4,426






Deferred tax assets


Increase by

4,976






Trade and other payables


Decrease by

5,403






Property, plant and equipment


Decrease by

1,109






Retained earnings


Decrease by

556






Provisions


Increase 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 £ 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






£'000


£'000


£'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 £9 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.
 
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