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RNS
Sanne Group PLC   -  SNN   

Final Results

Released 07:00 19-Mar-2020

RNS Number : 7255G
Sanne Group PLC
19 March 2020
 

19 March 2020

 

 

Sanne Group plc

(the Group, SANNE or the Company)

 

Preliminary Results for the year ended 31 December 2019

 

 

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

 


 

 

2019

 

 

2018

 

 

Change

Constant currency change3

Underlying Total Group1





Total group revenues1

£165.4m

£143.0m

15.7%

14.7%

Operating profit

£46.7m

£44.4m

5.2%

2.9%

Profit before tax

£42.4m

£42.6m

-0.5%

-2.1%

Diluted earnings per share

23.6p

24.1p

-2.1%

-4.2%

Free cash flow attributable to equity holders4

£35.1m

£23.0m

52.6%

n.a.

Operating profit margin

28.2%

31.1%



Underlying Continuing Operations2





Operating profit

£44.3m

£41.4m

7.0%

4.7%

Profit before tax

£40.4m

£39.8m

1.5%

-0.5%

Diluted earnings per share

22.3p

22.4p

-0.4%

-2.5%

Statutory Continuing Operations





Continuing operations revenue

£159.7m

£136.2m

17.3%

16.2%

Operating profit

£14.3m

£21.5m

-33.5%

-36.3%

Profit before tax

£9.6m

£19.6m

-51.0%

-53.2%

Diluted earnings per share

3.8p

10.1p

-62.4%

-64.2%

Full year dividend per share

14.1p

13.8p

2.2%


 

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

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

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

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

 

Highlights:

-       Strong revenue momentum:

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

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

Strong new business wins, with annualised revenue of approximately £24.5 million secured in 2019 (2018: £24.5m) with momentum continuing into 2020

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

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

Underlying operating cashflow generation of 105%

-       Active strategic development programme for growth and focus:

Disposal of legacy Private Client business for up to £12 million to focus on core alternative and corporate markets

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

Acquisition of Inbhear establishing Cayman presence and strengthening Irish service offering

Investment in Colmore bringing new data analytics offering to our clients

-       Statutory profits reflect exceptional one-off costs largely related to earn out payments for LIS and AgenSynd (£6.3m) as well as intangible impairment in South Africa (£2.4m)

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

 

Outlook

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

-       Positive alternatives market backdrop with continued growth in addressable market

-       Healthy pipeline of acquisition opportunities

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

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

 

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

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

 

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

 

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

 

 

Enquiries:

 

Sanne Group plc

Martin Schnaier, Chief Executive Officer

James Ireland, Chief Financial Officer

 

+44 (0) 1534 722 787

 

Tulchan Communications LLP

Tom Murray

Tom Blundell

 

 

+44 (0) 20 7353 4200

 

 

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

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

 Dial-in numbers:

 

 UK: 0800 408 7373

International Access Numbers: http://www.speakservecloud.com/dial-in-numbers/

 Participant PIN: 

 4297

A PDF copy of the 2019 Full Year results presentation will be available to download on SANNE's Investor Relations results and presentation page after the live webcast has ended.

 

Notes:

 

SANNE is a leading global provider of alternative asset and corporate services. Established for over 30 years and listed on the Main Market of the London Stock Exchange and a member of the FTSE 250 index, SANNE employs more than 1,700 people worldwide and administers structures and funds that have in excess of £250 billion of assets.

 

Key clients include alternative asset managers, financial institutions, family offices, ultra-high net-worth individuals and corporates.

 

SANNE operates from a global network of offices located in leading financial jurisdictions, which are spread across the Americas, Europe, Africa and Asia-Pacific.

www.sannegroup.com

 

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

 

 

 

 

Chairman's Statement

 

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

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

Operational Update

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

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

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

Strategic developments

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

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

Our people

During my time as Chairman, SANNE has grown from 290 to over 1,700 employees. I am proud of the culture we have established, and proactive employee engagement remains a key focus for the Group. During 2019 SANNE established a Workforce Advisory Panel to bring employees from all areas of the business and geographies together to provide a forum for them to interact with each other and the non-executive directors from the Board.

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

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

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

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

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

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

Looking ahead

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

 

Rupert Robson

Chairman

 

 

 

 

Strategy Review

Vision

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

Client-driven

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

SANNE executes this strategy by offering "local excellence on a global platform". It has built a platform spanning 21 locations with over 1700 employees that is preeminent in its core markets and is relied upon by over 1,700 clients with AuA totalling in excess of £250bn. Clients choose SANNE not only because of its depth of resource, but also because of its client-centric approach which focuses relentlessly on delivering quality support.

This client-centric approach is predicated on a professional services philosophy and is backed-up by the assurance of its listing on the London Stock Exchange which provides a credible governance framework for a business with over £250 billion in assets under administration. Listing also means that SANNE can take a long-term approach with clients requiring stability of service over 10-year plus cycles in an industry where the competitive landscape is dominated by short-term propositions.

Structural market growth

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

Organic growth

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

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

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

3.    Roll out our services and product offerings at scale across the entire global footprint
This involves ensuring that we offer all product verticals in every location they are relevant to the same high standards and scale

4.    Add new geographic markets to the Group's footprint in line with client requirements
This involves opening offices across new locations to access new markets and clients

5.    Invest in resilient and scalable operating platforms and technology to support our client service offering
This involves continuing to build robust capability across Group Service areas such as risk, compliance, human resources and finance as well as investing technology and systems to improve efficiency and capability and develop processes to ensure scalability and efficiency in our processes

Inorganic growth

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

 

 

 

 

Chief Executive Officer's Statement

 

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

 

2019 performance

 

 


2019


2018



 £ 000's

Revenue

GP

Margin


Revenue

GP

Margin


C.C. rev. growth

EMEA

        60,561

        33,745

55.7%


        48,100

        29,643

61.6%


27.6%

APM

        34,268

        23,161

67.6%


        30,433

        22,103

72.6%


8.6%

NA

        26,925

        13,477

50.1%


        21,702

        10,808

49.8%


18.7%

CI (continuing)

        37,953

        22,454

59.2%


        36,007

        21,746

60.4%


5.4%

Total continuing revenue

      159,707

        92,837

58.1%


      136,242

        84,300

61.9%


16.2%

CI discontinuing

          5,736

          3,700

64.5%


          6,761

          4,048

59.9%


-15.2%

Total Group Revenue

      165,443

        96,537

58.4%


      143,003

        88,348

61.8%


14.7%

Note EMEA & CI continuing together grew at 18.2% constant currency.





 

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

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

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

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

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

The Group achieved another period of strong new business activity, with the projected annualised revenues from new business won in the year of approximately £24.5m equal to the record level seen in 2018. It is anticipated that the development of these annualised revenues will begin to benefit revenue in 2020 with the fully annualised effect being realised in the following years. The Group has seen this new business momentum continue into 2020.

Cash generation in the year has been very strong. Underlying operating cash conversion was 105% and this performance meant the underlying free cash flow attributable to equity holders was up 52.9% year on year at £35.1 million for 2019.

Expanding our footprint and enhancing our capabilities

 

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

 

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

 

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

 

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

 

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

 

Strengthening our operational platform

 

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

 

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

 

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

 

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

 

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

 

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

 

Senior Management

 

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

 

Outlook

 

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

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

 

 

Martin Schnaier                                                                                                                               

Chief Executive Officer                                                                                                                

 

 

 

 

Segmental Review

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

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

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

 

Europe, Middle East and Africa (EMEA)

 


2019

(£'000)

2018

(£'000)

% growth

Constant currency % growth

Revenue

60,561

48,100

25.9%

27.6%

- Alternatives

57,918

45,941



- CPC

2,643

2,159



Gross profit

33,745

29,643

13.8%

15.2%

Margin

55.7%

61.6%



 

SANNE's EMEA segment operates across Luxembourg, Ireland, the United Kingdom, Spain, France, the Netherlands, Malta and South Africa. This division provides services across all our closed-ended investment strategies (Private Debt & Capital Markets, Real Estate, Private Equity and Loan Agency, including Depositary) as well as the Group's open-ended Hedge and corporate clients.

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

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

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

 

 

Channel Islands (CI)

 


 2019

(£'000)

 2018

(£'000)

% growth

Constant currency % growth

Revenue

43,689

42,768

2.2%

2.4%

- Alternatives

26,993

25,784



- CPC

16,696

16,984



Gross profit

26,154

25,794

1.4%

0.2%

Margin

59.9%

60.3%



Revenue - discontinuing

5,736

6,761

-15.2%

-15.2%

Gross profit - discontinuing

3,700

4,048

-8.6%

-8.6%

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

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

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

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

 

Asia Pacific and Mauritius (APM)

 

APM (£'m)

 

2019

2018

% Change

% constant currency change

Revenue

 

34,268

30,433

12.6%

8.6%

Gross profit

 

23,161

22,103

4.8%

0.9%

Gross profit margin

 

67.6%

72.6%



 

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

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

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

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

 

North America (NA)

 

NA (£'m)

 

2019

2018

% Change

% constant currency change

Revenue

 

26,925

21,702

24.1%

18.7%

Gross profit

 

13,477

10,808

24.7%

18.9%

Gross profit margin

 

50.1%

49.8%



 

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

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

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

 

 

 

 

Chief Financial Officer's Review

Total Group revenue grew by 14.7% in 2019 to £165.4 million (2018: £143.0m) with continuing operations revenue growth of 16.2%, both at constant currency. Underlying total group operating profit has grown at 2.9% at constant currency to £46.7 million (2018: £44.4m) as the operational challenges seen in the first half diluted underlying total group operating profit margin to 28.2% from 31.1% in 2018. Statutory operating profit for the year was £14.3 million down from £21.5 million in 2018. This reflected exceptional one-off costs largely related to acquisition earn-out payments as well as intangible impairment in South Africa.

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

The Group delivered strong cash returns in the year generating underlying free cash flow attributable to equity holders of £35.1m in 2019, an increase of 52.9% on 2018. This performance represents an adjusted underlying operating cash conversion of 105% (2018: 82%).

Group Income Statement

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

Total Group Income Statement:


2019

2018



Constant currency growth


(£'000)

(£'000)


% growth

Total Group revenue

165,443

143,003


15.7%

14.7%

Revenue - Discontinued operations

5,736

6,761


-15.2%

-15.2%

Continuing revenues

159,707

136,242


17.2%

16.2%







Total group gross profit

96,537

88,348


9.3%

8.1%

Gross profit - Discontinued operations

3,700

4,048


-8.6%

-8.6%

Continuing operations gross profit

92,837

84,300


10.1%

8.9%







Total group underlying operating profit

46,688

44,447


5.0%

2.9%

Operating profit - Discontinued operations

3,700

4,048


-8.6%

-8.6%

Non-underlying cost

(28,707)

(18,882)


52.0%

33.0%

Operating profit

14,281

21,517


-33.6%

-36.3%







Finance cost1

(4,730)

(1,885)




Non underlying finance cost

(457)

-




Profit before tax

13,251

23,680




Taxation

(4,377)

(5,506)




Profit after tax

8,874

18,174










Underlying total group DEPS (pence)

23.60

24.11




Reported DEPS (pence)

6.08

12.58




 

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

 

Key performance measures for the underlying continuing business:


2019

2018




(£'000)

(£'000)

% change

% CC change

Continuing revenues

159,707

136,242

17.2%

16.2%






Underlying continuing operations operating profit

44,333

41,430

7.0%

4.7%

 - margin

27.8%

30.4%



Underlying continuing operations profit before tax

40,356

39,785

1.4%

-0.5%

Underlying continuing operations tax charge

7,761

7,455



Underlying continuing operations profit after tax

32,594

32,330

0.8%

-1.1%

Underlying continuing operations DEPS

22.3p

22.4p

-0.4%

-2.5%

 

Revenue

Total group revenue increased by 14.7% on a constant currency basis in the year to £165.4 million (2018: £143.0m). Organic revenue growth in the period was 12.1% on a constant currency basis for the whole group.

 

Revenue growth for the continuing operations, representing the Alternatives and Corporate businesses, was higher at 16.2% on a constant currency basis at £159.7 million (2018: £136.2m). Likewise, organic constant currency revenue growth was higher for the continuing operations at 13.5%.

 


2019

2018



Constant currency growth


(£'000)

(£'000)


% growth

Total Group revenue

165,443

143,003


15.7%

14.7%

LIS 1-month adjustment

1,548

-




AgenSynd 8 months adjustment

2,151

-




Total Group organic income

161,744

143,003


13.1%

12.1%

Discontinued revenue

5,736

6,761




Continuing operations organic revenue

156,008

136,242


14.5%

13.5%

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

 

Gross profit

 

Gross profit in 2019 including the results from both continuing and discontinued operations was £96.5m (2018: £88.3m), representing constant currency growth of 8.1% (9.3% at actual currency). Gross profit for continuing operations in 2019 was £92.8 million (2018: £84.3m). This reflected the strong revenue growth in the year, partially offset by a decline in gross profit margin. Gross profit margin for the total group including both continuing and discontinued operations was 58.4%, down 3.4 percentage points from the prior year. This reduction was predominantly the result of margin decline in the EMEA segment where the over-recruitment of staff ahead of anticipated growth had the most significant impact. The margin was also diluted slightly by mix effects in the APM segment where the higher growth Asia Pacific offices operate at gross profit margins in line with EMEA and CI rather than the higher margin Mauritius business. Further investment in growth initiatives such as the dedicated Business Development team and the teams supporting the product strategies described in the CEO's Statement also had an impact. The costs associated with these growth initiatives equated to c.2.5% of Group revenues compared with c.1.5% in 2018.

 

Disposal of the Jersey Private Client business

 

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

 


2019

2018




(£'000)

(£'000)


% growth

Discontinued revenue (per IFRS 5)

5,736

6,761


-15.2%

Discontinued gross profit (per IFRS 5)

3,700

4,048


-8.6%

Discontinued operating profit (per IFRS 5)

3,700

4,048


-8.6%

Allocation direct costs

343

336


2.1%

Allocation of overhead costs

1,002

696


44.0%

Underlying discontinued operating profit

2,355

3,017


-21.9%

Tax charge (per IFRS 5)

(370)

(405)


-8.6%

Discontinued profit after tax (per IFRS 5)

3,330

3,643


-8.6%

Adjusted discontinued interest costs

(296)

(240)


23.3%

Adjustment to discontinued taxation charge

164

127


29.0%






Underlying discontinued profit after tax

1,854

2,499


-25.8%

Underlying discontinued DEPS

1.27p

1.73p


-26.6%

 

Overheads

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

 

Total group overheads, excluding non-underlying costs, in 2019 were £49.8 million (2018: £43.9m), which represented 30.2% of total Group revenue for the year compared with 30.8% in 2018 and 32.4% in the first half of 2019.

 

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

 

Non-underlying costs

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

Non-underlying costs in 2019 saw an increase to £29.2 million (2018: £18.9m). The main drivers behind this increase were acquisition earn-outs on LIS (£4.2m) and AgenSynd (£2.0m) charged to the income statement due to employment related clauses; impairment of contract intangibles in the South African acquisition made in 2016 (£2.4m); and costs relating to a regulatory settlement in the year and other non-trading related provisions (£1.0m).

 

Operating profit

Underlying total group operating profit and underlying continuing operations operating profit are key measures of the Group's performance for each of the total operations managed during the year as well as for the ongoing business.  Underlying total group operating profit in 2019 was up 2.9% in constant currency on the prior year at £46.7 million (2018: £44.4 million). Underlying continuing operations operating profit, however, saw better growth of 4.7% on a constant currency basis which reflects the decline seen in the discontinued operations. Statutory operating profit fell in the year to £14.3 million (2018: 21.5m) as a result of the increase in non-underlying charges in the year.

 

Net finance expense

Total Group net finance expense was £4.5 million (2018: £1.8 million). The increase in 2019 largely reflects the Group's adoption of IFRS 16 for the treatment of operating leases. The interest charge in relation to operating leases in 2019 was £1.6 million. The charge before the adoption of IFRS 16 increased as a result of the higher average net debt in the year, as a result of acquisitions and related earn-out payments.

 

Taxation

The Group's reported effective tax rate for the total Group for the year was 33% (2018: 23.3%). The year on year increase was driven by the increasing proportion of Group profits being earned in jurisdictions with higher tax rates. As with prior years there has been significant non-underlying expenditure impacting on the effective tax rate and when adjusted for non-underlying items, the effective rate for the year for the total Group was 18.8% (2017: 18.2%).

 

Diluted underlying earnings per share

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

Dividend

The Board continues to adopt a progressive dividend policy where it seeks to increase the absolute value of the dividend each year, subject always to maintaining a sufficient level of dividend cover. Accordingly, the Board is recommending a final dividend of 9.4 pence per ordinary share (2018: 9.2 pence). The final dividend will be payable on 20 May 2020 to Shareholders on the register at close of business on 24 April 2020.

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

 

Cash flow and working capital

 

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


2019

2018


£'000

£'000

Total Group underlying operating profit

46,688

44,447

Depreciation (equipment and IFRS16)

8,180

1,915

Other (includes share based payments and movements in provisions)

449

4,264

Change in working capital

3,151

(14,390)

Total Group underlying operating cashflows

58,468

36,236

Total cash flows on leases recognised under IFRS 16

(6,364)

-

Non-cash non-underlying items

(2,852)

-

Underlying operating cashflows

49,252

36,236


105%

82%

Capital exp. (Equipment and software)

(4,190)

(4,221)

Tax

(7,641)

(7,312)

Net finance cost

(2,293)

(1,732)

Underlying free cashflow attributable to equity holders

35,128

22,971




Free cashflow attributable to discontinued operations

3,563

4,321

Free cashflow attributable to continuing operations

31,565

18,650

 

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

 


2019

2018


£'000

£'000

Contract assets

6,460

6,628

Trade receivables1

42,595

40,268

Contract liabilities

(17,634)

(16,085)

Trading working capital

31,421

30,811

Trading working capital as % of continuing revenue

20%

23%

Trading working capital as % of discontinued revenue

42%

33%

1 Includes allowance for doubtful receivables

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

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

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

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

 

Capital management and financing

At 31 December 2019, the Group's net debt was £78.1 million (2018: £53.0m), including gross cash balances of £51.5m (2018: £32.4m). This reflected the strong operating cash generation seen in the year and comes after the funding of the earn-out payment for LIS and CP, the minority investment in Colmore and dividends paid to shareholders. As a result, the Group's headline net debt to underlying earnings before interest, taxation, depreciation and amortisation calculated ignoring IFRS 16 (net debt to pre-IFRS 16 EBITDA) ratio was 1.6x at the year end.

As a result of operating a number of regulated subsidiaries within the Group SANNE ring fences certain cash balances to ensure the relevant regulated entities are funded in order to meet minimum capitalisation requirements imposed on them. At 31 December 2019 the cash ring fenced for regulatory capital requirements ("regulatory cash") was £10.1 million (2018: £8.9m). Excluding this regulatory cash from available cash, the Group's net debt to pre-IFRS 16 EBITDA ratio increases to 1.8x.

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

Cash generated

£'m

Free cashflow before capital expenditure

39

Net debt movement

23

Total

62



Cash used

£'m

Acquisition related

38

Dividends

20

Capital expenditure

4

Total

62

 

In the first half of the year, SANNE successfully refinanced its debt facilities. The new debt facility is a multicurrency committed £150 million revolving credit facility with an uncommitted accordion facility of £70 million. The facility has a maturity of February 2023 with extension options of up to two years. At the year end the facility was £131.2 million drawn with available cash balances (excluding regulatory cash) of £51.5 million. Pre-IFRS 16 EBITDA is used to calculate leverage ratio per the terms of our facilities agreement.

 

Foreign Exchange

 

The Group's results are exposed to translation risk from the movement in currencies. Overall, the average movement from currencies have increased reported total group revenue and underlying total group operating profit by £1.5 million and £1.0 million respectively. During 2019 key individual exchange rates have moved, as shown in the table below.

 



 


 

Per £ sterling

 

2019

2018

%

 

2019

2018

%

Euro

 

1.18

1.11

6.3%

 

1.14

1.13

0.9%

US Dollar

 

1.33

1.27

4.7%

 

1.28

1.33

-3.8%

 

 

 

 

 

ALTERNATIVE PERFORMANCE MEASURES

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

 

ORGANIC REVENUE GROWTH

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

 

CONSTANT CURRENCY GROWTH

To highlight our period on period performance, we discuss our results in terms of growth at constant currency. This represents growth calculated after translating both year's performance at the prior year's applicable exchange rates. Overall, the average movement from currencies have increased reported total group revenue and underlying total group operating profit by £1.5 million and £1.0 million respectively. Therefore constant currency metrics can be arrived at by removing these amounts.

 

UNDERLYING TOTAL GROUP AND UNDERLYING CONTINUING OPERATIONS APMS

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

 

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

 

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

 

Total Group revenue:



2019

2018



(£'000)

(£'000)

Continuing operations revenue


159,707

136,242

Discontinued operations revenue


5,736

6,761

Total Group Revenue


165,443

143,003

 

Underlying total group operating profit:



2019

2018



(£'000)

(£'000)

Underlying total group operating profit


46,688

44,447

Discontinued operations operating profit (note 11)


(3,700)

(4,048)

Non underlying cost (note 9)


(28,707)

(18,882)

Operating profit - continuing


14,281

21,517

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

 

Underlying total group profit before tax:



2019

2018



(£'000)

(£'000)

Underlying total profit before tax


42,415

42,562

Discontinued operations profit before tax (note 11)


(3,700)

(4,048)

Non underlying cost and tax


(29,164)

(18,882)

Profit before tax


9,551

19,632

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

 

Underlying total group diluted earnings per share:



2019

2018



(£'000)

(£'000)

Underlying total group DEPS


23.6

24.1

Weighted average number of ordinary shares for the purposes of diluted EPS

144,019,578

141,269,560

Underlying total group profit after tax


34,448

34,829

After tax impact of discontinued operations


(3,330)

(3,643)

After tax impact of non-underlying items


(25,574)

(16,655)

Profit after tax from continuing operations


5,544

14,531

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

 

Underlying continuing operations operating profit:



2019

2018



(£'000)

(£'000)

Underlying continuing operations operating profit


44,333

41,430

Discontinued operations overhead and direct cost allocation adjustment


(1,345)

(1,031)

Non - underlying items


(28,707)

(18,882)

Operating profit - continuing


14,281

21,517

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

 

Underlying continuing operations profit before tax:



2019

2018



(£'000)

(£'000)

Underlying continuing operations profit before tax


40,356

39,785

Discontinued operations overhead and direct cost allocation adjustment


(1,641)

(1,271)

Non underlying items


(29,164)

(18,882)

Profit before tax from continuing operations


9,551

19,632

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

 

Underlying continuing operations diluted earnings per share:



2019

2018



(£'000)

(£'000)

Underlying continuing DEPS


22.3

22.4

Weighted average number of ordinary shares for the purposes of diluted EPS

144,019,578

141,269,560

Underlying continuing profit after tax


32,594

32,330

After tax impact of non-underlying items


(25,574)

(16,655)

After tax impact of additional discontinued operation cost


(1,476)

(1,144)

Profit after tax from continuing operations


5,544

14,531

 

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

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

 

UNDERLYING OPERATING CASH FLOW

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

 

UNDERLYING OPERATING CASH CONVERSION

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



2019

2018



(£'000)

(£'000)

Underlying operating cashflows


49,252

36,236

Total Group underlying operating profit


46,688

44,447

Underlying operating cash conversion


105%

82%

 

 

UNDERLYING FREE CASH FLOW ATTRIBUTABLE TO EQUITY HOLDERS

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

 

 

UNDERLYING EFFECTIVE TAX RATE

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

 

 

NET DEBT

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

 

 

 

 

 

 

 

 

 

Consolidated Income Statement

For the year ended 31 December 2019


Note

20191

£'000

20181

£'000

Total sales including those from discontinued operations


165,443

143,003

Continuing operations




Revenue

6

159,707

136,242

Direct costs


(66,870)

(51,942)

Gross profit

5

92,837

84,300

Other operating income


185

158

Operating expenses


(78,741)

(62,941)

Operating profit


14,281

21,517





Comprising:




Underlying operating profit from continuing operations


42,988

40,399

Non-underlying items within operating profit from continuing operations

9

(28,707)

(18,882)



14,281

21,517





Other gains and losses


(216)

(132)

Finance costs

7

(4,672)

(1,909)

Finance income

8

158

156

Profit before tax


9,551

19,632





Comprising:




Underlying profit before tax from continuing operations


38,715

38,514

Non-underlying items within profit from continuing operations

9

(29,164)

(18,882)



9,551

19,632

Tax

10

(4,007)

(5,101)

Profit after tax from continuing operations


5,544

14,531

Discontinued operations

11

3,330

3,643

Profit for the year


8,874

18,174

Comprising:




Underlying operating profit from continuing operations


42,988

40,399

Underlying operating profit from discontinued operations


3,700

4,048

Total underlying operating profit


46,688

44,447

Non-underlying items within operating profit from continuing operations


(28,707)

(18,882)

Other gains and losses from continuing operations


(216)

(132)

Finance costs from continuing operations


(4,215)

(1,909)

Finance income from continuing operations


158

156

Non-underlying items


(457)

-

Total tax


(4,377)

(5,506)

Profit for the year


8,874

18,174

 

Earnings per ordinary share ("EPS") from continuing operations (expressed in pence per ordinary share)

Basic

12

3.8

10.3

Diluted

12

3.8

10.1





Underlying basic

12

21.6

22.1

Underlying diluted

12

21.3

21.6





Earnings per ordinary share ("EPS") from continuing and discontinued operations (expressed in pence per ordinary share)

Basic

12

6.2

12.9

Diluted

12

6.1

12.6





Underlying basic

12

23.9

24.7

Underlying diluted

12

23.6

24.1

 

1              Refer to note 11 for details relating to the discontinued operations.

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

 

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2019


Note

2019

£'000

2018

£'000

Profit for the year


8,874

18,174

Other comprehensive (expense)/income:




Items that will not be reclassified subsequently to profit and loss:




Actuarial (loss) / gain on defined benefit retirement obligation

33

(67)

70

Income tax relating to items not reclassified


10

(11)

Revaluation of minority equity investment

20

(715)

-

Items that may be reclassified subsequently to profit and loss:




Exchange differences on translation of foreign operations


(10,663)

8,756

Total other comprehensive (expenses)/income for the year


(11,435)

8,815

Total comprehensive (expenses)/income for the year


(2,561)

26,989





Comprising:




Total comprehensive (expenses)/income for the year from continuing operations


(5,891)

23,346

Total comprehensive income for the year from discontinued operations


3,330

3,643

Total comprehensive (expenses)/income for the year


(2,561)

26,989

 

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

 

Consolidated Balance Sheet

As at 31 December 2019


Note

2019

£'000

2018

£'000

Assets




Non-current assets




Goodwill

16

180,414

 188,928

Other intangible assets

17

45,388

66,122

Equipment

18

9,984

9,973

Minority equity investment

20

8,632

-

Deferred tax asset

28

8,324

2,082

Right-of-use asset

21

32,733

-

Total non-current assets


285,475

267,105

Current assets




Trade and other receivables

22

47,941

44,772

Cash and bank balances


51,454

32,411

Contract assets

23

6,460

6,628

Disposal group held for sale

11

2,979

2,488

Total current assets


108,834

86,299

Total assets


394,309

353,404

Equity




Share capital

25

1,466

1,460

Share premium


203,423

200,270

Own shares

26

(1,166)

(1,470)

Shares to be issued

32

7,723

12,278

Retranslation reserve


(13,134)

(2,471)

Accumulated losses


(26,487)

(17,399)

Total equity


171,825

192,668

Non-current liabilities




Borrowings

27

129,572

85,364

Deferred tax liabilities

28

15,931

13,395

Defined benefit retirement obligation

33

684

701

Other liabilities

29

-

4,914

Provisions

30

2,024

1,198

Lease liability

21

33,549

-

Total non-current liabilities


181,760

105,572

Current liabilities




Trade and other payables

29

14,472

34,467

Current tax liabilities


3,301

3,910

Provisions

30

451

452

Contract liabilities

31

17,634

16,085

Lease liability

21

4,291

-

Disposal group held for sale

11

575

250

Total current liabilities


40,724

55,164

Total equity and liabilities


394,309

353,404

 

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

Martin Schnaier                                        James Ireland

Chief Executive Officer                         Chief Financial Officer

 

Consolidated Statement of Changes in Equity

For the year ended 31 December 2019


Note

Share capital

£'000

Share premium

£'000

Own shares

£'000

Shares to be issued

£'000

Retranslation reserve

£'000

Accumulated losses

£'000

Total equity

£'000

Balance at 1 January 2018


1,416

171,850

(1,141)

13,373

(11,227)

(17,583)

156,688

Profit for the year


-

-

-

-

-

18,174

18,174

Other comprehensive income for the year









Actuarial gain on the defined benefit retirement obligation


-

-

-

-

-

70

70

Income tax relating to items not reclassified


-

-

-

-

-

(11)

(11)

Exchange differences on translation of foreign operations


-

-

-

-

8,756

-

8,756

Total comprehensive income for the year


-

-

-

-

8,756

18,233

26,989

Issue of share capital - acquisitions

25

44

28,420

-

(4,043)

-

-

24,421

Dividend payments

15

-

-

-

-

-

(18,376)

(18,376)

Share-based payments

32

-

-

-

2,948

-

327

3,275

Net buyback of own shares

26

-

-

(329)

-

-

-

(329)

Balance at 31 December 2018


1,460

200,270

(1,470)

12,278

(2,471)

(17,399)

192,668

Change in accounting policy1


-

-

-

-

-

(556)

(556)

Restated balance at 1 January 2019


1,460

200,270

(1,470)

12,278

(2,471)

(17,955)

192,112

Profit for the year


-

-

-

-

-

8,874

8,874

Other comprehensive expense for the year









Actuarial loss on the defined benefit retirement obligation


-

-

-

-

-

(67)

(67)

Income tax relating to items not reclassified


-

-

-

-

-

10

10

Revaluation of equity investment


-

-

-

-

-

(715)

(715)

Exchange differences on translation of foreign operations


-

-

-

-

(10,663)

-

(10,663)

Total comprehensive expense for the year


-

-

-

-

(10,663)

8,102

(2,561)

Issue of share capital - acquisitions

25

6

3,153

-

(3,159)

-

-

-

Dividend payments

15

-

-

-

-

-

(20,029)

(20,029)

Share-based payments

32

-

-

-

2,337

-

-

2,337

Shares vesting


-

-

559

(3,733)

-

3,395

221

Net buyback of own shares

26

-

-

(255)

-

-

-

(255)

Balance at 31 December 2019


1,466

203,423

(1,166)

7,723

(13,134)

(26,487)

171,825

 

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

 

Consolidated Cash Flow Statement

For the year ended 31 December 2019


Note

2019

£'000

2018

£'000

Operating profit from:




Continuing operations


14,281

21,517

Discontinued operations


3,700

4,048

Operating profit including discontinued operations


17,981

25,565

Adjustments for:




Depreciation of equipment

18

2,867

1,915

Depreciation of right-of-use asset

21

5,313

-

Lease liability interest

21

(1,607)

-

Amortisation of other intangible assets

17

16,487

15,730

Impairment of other intangible assets

17

2,425

55

Share-based payment expense

32

2,377

3,376

Disposal of equipment

18

64

257

(Decrease) / increase in provisions

30

(147)

1,144

Defined benefit retirement obligation movement

33

(68)

11

Deferred consideration adjustment


4,242

-

Other liabilities


-

1,267

Operating cash flows before movements in working capital


49,934 

49,320

Increase in receivables


(3,492)

(16,241)

Increase in contract liabilities


1,874

2,552

Increase / (decrease) in payables


4,769

(701)

Cash generated by operations


53,085

34,930

Income taxes paid


(7,641)

(7,312)

Net cash from operating activities


45,444

27,618

Investing activities




Interest received


158

156

Purchases of equipment

18

(3,914)

(4,221)

Software development costs paid


(276)

-

Payment of deferred consideration


(28,638)

(14,407)

Acquisition of subsidiaries


-

(29,279)

Acquisition of minority equity investment

20

(9,347)

-

Net cash used in investing activities


(42,017)

(47,751)

Financing activities




Dividends paid

15

(20,029)

(18,376)

Interest on bank loan


(2,293)

(1,732)

Buyback of own shares


(255)

(329)

Capitalised loan costs

27

(1,711)

-

Redemption of bank loans

27

(85,850)

(4,000)

New bank loans raised

27

132,060

24,850

Lease liability payments


(4,757)

-

Net cash from financing activities


17,165

413

Net increase / (decrease) in cash and cash equivalents


20,592

(19,720)

Cash and cash equivalents at beginning of year


32,411

50,803

Effect of foreign exchange rate changes


(1,549)

1,328

Cash and cash equivalents at end of year


51,454

32,411

Cash flows from continuing operations


17,029 

(24,041)

Cash flows from discontinued operations

11

3,563

4,321

Net increase / (decrease) in cash and cash equivalents


20,592

(19,720)

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2019

1. General information

Sanne Group plc (the "Company"), incorporated in Jersey on 26 January 2015, is a registered public company limited by shares with a Premium Listing on the London Stock Exchange. The registered office and principal place of business is IFC 5, St. Helier, Jersey, JE1 1ST. The principal activity of the Company and its subsidiaries (collectively the "Group") is the provision of alternative asset and corporate administration services.

In the opinion of the Directors there is no ultimate controlling party.

These consolidated financial statements are presented in Pounds Sterling. Foreign operations are included in accordance with the policies set out in note 3.

The accounting policies have been applied consistently in the current and prior year, other than as set out below.

2. Adoption of new and revised Standards

Standards in issue not yet effective

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

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

 (b) IFRS 17 Insurance Contracts

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

New and revised standards effective for the year

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

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

In the current year, the Group applied a number of amendments to IFRSs and new interpretations issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2019. Their adoption has not had any material impact on the disclosures or on the amounts reported in these consolidated financial statements. The most significant of these standards are set out below.

(a) Annual improvements 2015-2017 Cycle

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

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

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

3. Significant accounting policies

Basis of accounting

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

The consolidated financial statements have been prepared on the historical cost basis, except for certain financial assets measured at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. The principal accounting policies adopted are set out below.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) during each year. Control is achieved where the Company:

•    has the power over the investee;

•    is exposed, or has rights, to variable return from its involvement with the investee; and

•    has the ability to use its power to affect its returns.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income when the Company obtains control over the subsidiary and ceases when the Company loses control over the subsidiary. Where necessary, adjustments are made to the financial results of the subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Under Article 105(11) of the Companies (Jersey) Law 1991, the Directors of a holding company need not prepare separate financial statements (i.e. Company only financial statements). Company only financial statements for the Company are not prepared unless required to so by the members of the Company by ordinary resolution. The members of the Company had not passed a resolution requiring separate financial statements and, in the Directors' opinion, the Company meets the definition of a Holding company. As permitted by law, the Directors have elected not to prepare separate financial statements.

Going concern

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least the next 12 months from the date of approval of these consolidated financial statements. The Directors have reviewed the Group's financial projections and cash flow forecasts and believe, based on those projections and forecasts, that it is appropriate to prepare the consolidated financial statements of the Group on the going concern basis. The Group has healthy cash inflow through a good pipeline of existing and new customers, the Group also has finance facilities available. Accordingly, they have adopted the going concern basis of accounting in preparing the consolidated financial statements. Further detail is contained in the viability statement included in the Audit Committee report in the Group's Annual Report and Accounts.

Business combinations

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred and as non-underlying items within operating expenses.

The acquiree's identifiable assets and liabilities that meet the conditions for recognition under IFRS 3 (2008) are recognised at their fair value at the acquisition date.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.

When the consideration transferred by the Group in a business combination includes an asset or liability resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement' period' (which cannot exceed one year from the acquisition date) concerning the facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates at fair value with the corresponding gain or loss being recognised in profit or loss, as non-underlying items within operating expenses.

Goodwill

Goodwill is initially recognised and measured as set out above.

Goodwill is not amortised but is reviewed for impairment at least annually or if indicators of impairment are identified. For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. Refer to note 16.

Intangible assets

Intangible assets acquired in a business combination are initially recognised at their fair value at the acquisition date (which is regarded as the cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and any impairment losses.

The Group performs assessments at the end of each reporting period, in order to identify any possible indicators of impairment, this is a separate assessment from the annual Goodwill impairment review. Should there be any indicators of impairment, the Group estimates the recoverable amount of the asset and if an impairment should be recognised.

Contract intangibles

Contract intangibles consist of the recognition of the legal relationships gained through acquisition. On initial recognition the values are determined by relevant factors such as business product life-cycles, length of notice, ease of movement and general attrition. These intangibles are amortised over their useful lives using the straight-line method, which is estimated at four to eight years, based on management's expectations and client experience. The amortisation charge for the year is included in the consolidated income statement under 'operating expenses'.

Customer intangibles

Customer intangibles consist of the recognition of value attributed to the customer lists through acquisition. On initial recognition the values are determined by relevant factors such as the Group's growth pattern and ability to cross-sell to existing clients. Subsequently, these intangibles are amortised over their useful lives using the straight-line method, which is estimated at four to ten years, based on management's expectations and client experience. The amortisation charge for the year is included in the consolidated income statement under 'operating expenses'.

Software

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

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

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

Interest income

Interest income is recognised using the effective interest method. This is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, unless the assets subsequently become credit impaired. In the latter case, the effective interest rate is applied to the amortised cost of the financial asset. Interest is recognised on an accruals basis.

Revenue recognition

Revenue is measured at transaction price. The transaction price is the amount of consideration that the Group expects to receive in exchange for the services rendered.

Rendering of services

Revenue is based on and charged on three principal elements per the contracts with customers, 1) Assets under management (open ended funds) where revenue is charged as a percentage of the assets under management, 2) Assets under management (closed ended funds) where fees are also charged as a percentage of assets under management, 3) Service based fees where the revenue is charged based on an agreed fee structure for various services being provided. All revenue is recognised over time as the services are rendered and clients benefit from these services.

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

Step 1 - Identify the contract;

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

Step 2 - Identify performance obligations

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

Step 3 - Determine transaction price

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

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

Step 4 - Allocate transaction price

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

Step 5 - Recognise revenue

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

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

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

Contract assets

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

Contract liabilities

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

Leases

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

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

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

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

The Group also made use of the 'low value asset' practical expedient and defines low value assets as those assets with a purchase price for a new and unused asset of £5,000 or lower.

Foreign currencies

The separate financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in Pounds Sterling, which is the functional currency of the company, and the presentation currency for the consolidated financial statements.

In preparing the separate financial statements of the subsidiary companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognised in the Consolidated Income Statement in the year in which they arise.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's operations with a functional currency other than Pounds Sterling are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the exchange rates at the date of the transactions. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity in the translation reserve.

On the disposal of a foreign operations (i.e. a disposal of the Group's entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, loss of joint control over a jointly controlled entity that includes a foreign operation, or loss of significant influence over an associate that includes a foreign operation), all of the accumulated exchange differences in respect of that operation attributable to the Group are reclassified to profit or loss.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income and accumulated in the translation reserve in the consolidated statement of changes in equity.

Defined contribution schemes

Payments to defined contribution retirement benefit schemes are recognised as an expense when employees have rendered services entitling them to contributions.

Defined benefit RETIREMENT OBLIGATION

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

The liability recognised in the consolidated balance sheet in respect of the defined benefit retirement obligation is the present value of the defined benefit retirement obligation at the end of the reporting period less the fair value of plan assets, however the Group has no plan assets.

The defined benefit retirement obligation is calculated at half year and year end by independent qualified actuaries using the projected unit credit method.

The present value of the defined benefit retirement obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related defined benefit retirement  obligation.

Defined benefit costs are categorised as follows:

•    service cost

•    net interest expense or income; and

•    re-measurement

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past-service costs are recognised immediately in profit or loss.

Earnings per share

The Group presents basic and diluted earnings per share. In calculating the weighted average number of shares outstanding during the period any share restructuring is adjusted by a factor to make it comparable with the other periods. For diluted EPS, the weighted average number of ordinary shares is adjusted to assume conversion of all dilutive potential ordinary shares.

Both basic and diluted EPS measures are shown for the statutory profit position. The Group has also presented an alternative version with profit adjusted for non-underlying items to provide an additional understanding of the financial performance of the Group (note 12).

Taxation

Tax on the profit or loss for the period comprises current and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the consolidated statement of comprehensive income as it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of the deferred tax asset is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been enacted or substantively enacted at the balance sheet date.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Current tax and deferred tax for the year

Current and deferred tax are recognised in the consolidated income statement, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

Equipment

Equipment is stated at cost less accumulated depreciation and any recognised impairment loss. Software that forms an integral part of the related hardware, where the hardware cannot be operated without the specific software is treated as equipment.

Depreciation is recognised so as to write off the cost of assets less their residual values over their useful lives, using the straight-line method, on the following bases:

Computer equipment      3 to 5 years

Computer software          3 years

Fixtures and equipment 5 to 24 years

The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period with the effect of any changes in estimate accounted for on a prospective basis.

The gain or loss arising on the disposal or scrappage of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in profit or loss.

Impairment of tangible and intangible assets (excluding goodwill)

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

The recoverable amount of an asset is the higher of its fair value less costs to sell or the value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

Financial instruments

Financial assets and financial liabilities are recognised in the Group's consolidated balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Financial assets

All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value.

Cash and cash equivalents

Cash and cash equivalents include cash on hand and deposits held at call with banks.

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

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

Financial assets at amortised costs

The Group's business model is to collect the contractual cash flows from its assets. The cash flows consist solely of interest and principal payments. Therefore, the financial assets are classified as carried at amortised cost. The assets are measured at amortised cost using the effective interest method, less the expected credit losses. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Refer to note 34 disclosing the financial assets categorised as financial assets at amortised costs.

Financial assets at fair value through other comprehensive income

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

Impairment of financial assets

The Group recognises a loss allowance, for expected credit losses on its financial assets. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the financial asset. When the expected credit loss for trade receivables is determined, the Group makes use of the simplified approach, whereby the loss recognised is equal to the lifetime expected credit losses. Lifetime expected credit losses represent the expected losses that may result from possible default events, and the probability of such an event occurring, over the life time of the financial asset. The expected lifetime credit losses of the trade receivables, are estimated using a provision matrix. The matrix is based on the Group's historical credit loss experience, the most significant factor being the days past due. It is then adjusted for forward-looking factors, that are specific to the trade receivables.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

Financial liabilities and equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

Repurchase of the Company's own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company's own equity instruments.

Financial liabilities

All financial liabilities are classified as measured at amortised cost. These liabilities are initially measured at fair value less transaction costs and subsequently using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant year. The effective interest rate is the rate that discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the amortised cost of a financial liability.  Where financial liabilities are short term and immaterial, no interest is levied.

Accrued interest is recorded separately from the associated borrowings within current liabilities.

Employee share trust/Own shares

Own shares represent the shares of the Company that are held in treasury and by the Group's employee share ownership trust (which is consolidated in the Group consolidated financial statements). Own shares are recorded at cost and deducted from equity. When shares vest unconditionally, are cancelled or are reissued they are transferred from the own shares reserve at their weighted average cost. Any consideration paid or received by the Trust for the purchase or sale of the Company's own shares is shown as a movement in shareholders' equity.

Provisions

Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are determined by the expected future cash flows at a pre-tax rate that reflects current market assessments of the risks specific to the liability. Onerous lease provisions are measured at the lower of the net cost to fulfil, or to exit the contract, discounted as appropriate.

Fiduciary activities

The assets and liabilities of trusts and companies under administration and held in a fiduciary capacity are not included in these consolidated financial statements.

Share-based payments

Employees of the Group receive bonus allocations in the form of share-based payments under Performance Share Plan, Restrictive Stock Awards and Annual Performance Bonuses, whereby eligible employees render services as consideration for equity instruments (shares).

Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market-based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 32.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

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

Operating profit

The operating profit reflects the profit earned from the Group's business operations. It includes revenue and other operating income less direct and indirect cost. Furthermore, the operating profit comprises of underlying and non-underlying items. Operating profit excludes finance costs, finance income and foreign exchange gains and losses.

Non-underlying items

Non-underlying items are disclosed and described separately in the consolidated financial statements where in the opinion of the directors it is appropriate to do so to provide further information of the financial performance of the Group.

The Group's core business is the administration, reporting and fiduciary services it provides in various jurisdictions. All acquisition and integration related costs are disclosed as non-underlying as these fall outside the core business of the Group. Restricted Share Awards form part of the non-underlying items as they are used as a tool to retain key personnel relating to the acquisitions and recruit senior management to support the acquisitions. Amortisation of contract and customer intangible assets recognised through the acquisitions is also included as non-underlying. These charges are based on judgements about the value and economic life of assets that, in the case of items such as customer relationships, would not be capitalised in normal operating practice. Therefore excluding the amortisation of intangible assets from underlying earnings allows the income and costs of both organically generated and acquired contracts to be presented on a like-for-like basis. Any impairment losses attributable to these intangible assets are also deemed to be outside of the course of ordinary business. Regulatory fines and the fees associated with these fines are also deemed to be one off in nature and are classified as being non-underlying items.

All the non-underlying items are regarded as expense items outside the normal course of business and disclosed separately to assist Shareholders to better analyse the performance of the core business. Changes to the subsequent contingent consideration arising from prior and current period business combinations are included in non-underlying items.

Further details of the nature of non-underlying items are given in note 9.

Direct costs

Direct costs are defined by management as the costs of the income generating divisions including staff payroll, marketing and travel attributable to the division in relation to the delivery of services and supporting growth.

Disposal groups held for sale and discontinued operations

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

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

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

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

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

PREPAYMENTS

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

4. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in note 3, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years.

Critical judgements in applying the group's accounting policies

The following are the critical judgements at the balance sheet date that the directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements.

Classification of equity investment

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

Disposal group held for sale

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

 

Key sources of estimation uncertainty

FAIR VALUE MEASUREMENT OF INVESTMENT IN EQUITY

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

Impairment testing

Goodwill

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

Contract assets

The Group recognises contract assets within revenue and as a receivable for amounts that remain unbilled at the year end, recorded at the recoverable amount. The recoverable amount of contract assets is assessed on an individual basis using the judgement of management, and takes into account an assessment of the client's financial position, the aged profile of the contract assets and an assessment of historical recovery rates. The balance at year end is £6.5 million (£6.6 million), the failure to recover 15% (based on an extreme worst case scenario) of this balance would result in an impairment of £970k (2018: £994k).

Other estimates

Probability of vesting of equity instruments granted in terms of share based payment schemes

The cumulative expense recognised in terms of the Group's share based payment schemes reflects, in the opinion of the Directors, the number of equity instruments granted that will ultimately vest. At each reporting date, management adjusts the unvested equity instruments with the forfeited instruments. Management is of the opinion that this number, adjusted for future attrition rates, represents the most accurate estimate of the number of instruments that will ultimately vest.

Impairment testing

Intangible assets

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

Lease term

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

5. Segmental reporting

The reporting segments engage in corporate, fund and private client administration, reporting and fiduciary services. Declared revenue is generated from external customers.

The chief operating decision-maker is considered to be the Executive Directors of Sanne. Each segment is defined as a set of business activities generating a revenue stream determined by segmental responsibility and the management information reviewed by the Executive Directors. The Executive Directors evaluate segmental performance on the basis of gross profit, after the deduction of the direct costs of staff, marketing and travel. No inter-segment sales are made.

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

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

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

For the year ended 31 December 2019

Revenue

£'000

Direct costs

£'000

Gross profit

£'000

Segments




EMEA

60,561

(26,816)

33,745

Asia-Pacific & Mauritius

34,268

(11,107)

23,161

North America

26,925

(13,448)

13,477

Channel Islands1

43,689

(17,535)

26,154

Total from continuing and discontinued operations

165,443

(68,906)

96,537

Other operating income



185

Operating expenses



(78,741)

Operating profit from continuing and discontinued operations



17,981

 

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

For the year ended 31 December 2018

Revenue

£'000

Direct costs

£'000

Gross profit

£'000

Segments




EMEA

48,100

(18,457)

29,643

Asia-Pacific & Mauritius

30,433

(8,330)

22,103

North America

21,702

(10,894)

10,808

Channel Islands

42,768

(16,974)

25,794

Total from continuing and discontinued operations

143,003

(54,655)

88,348

Other operating income



158

Operating expenses



(62,941)

Operating profit from continuing and discontinued operations



25,565

 

Geographical information

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


2019

£'000

2018

£'000

Jersey and Guernsey

42,187

42,629

Rest of Europe

61,857

47,016

Mauritius

22,984

22,198

Americas

26,376

21,374

South Africa

4,852

5,461

Asia-Pacific

7,187

4,325

Total revenue from continuing and discontinued operations

165,443

143,003

 

The geographical revenue is disclosed based on the jurisdiction in which the contracting legal entity is based and is not based on the location of the client or where the work is performed. The geographic revenue split is therefore very different to the segmental reporting split.

6. Revenue

Disaggregation of revenue from contracts with customers

2019

£'000

2018

£'000

Basis for fees charged



EMEA



- Assets under management - open ended funds

 6,350

 6,880

- Assets under management - closed ended funds

 19,734

 13,484

- Service based fees

 34,477

 27,736




Asia - Pacific & Mauritius



- Service based fees

 34,268

30,433




North America



- Service based fees

 26,925

21,702




Channel Islands



- Service based fees

37,953

36,007

Total revenue from continuing operations

159,707

136,242

 

Timing of revenue recognition

2019

£'000

2018

£'000

Over time



- EMEA

60,561

48,100

- Asia - Pacific & Mauritius

34,268

30,433

- North America

26,925

21,702

- Channel Islands

37,953

36,007

Total revenue over time

159,707

136,242

Total revenue from continuing operations

159,707

136,242

 

7. Finance costs


2019

£'000

2018

£'000

Bank loan interest

2,434

1,732

Amortised loan fees

174

177

Loan fees written off

457

-

Interest on lease liabilities

1,607

-

Total finance costs

4,672

1,909

 

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

8. Finance income


2019

£'000

2018

£'000

Interest income on bank deposits

158

156

Total finance income

158

156

 

9. Non-underlying items



2019

£'000

2018

£'000

Operating profit1


 17,981

25,565

Non-underlying items within operating profit:




Share based payment

(i)

1,777

1,791

Amortisation of intangible assets

(ii)

16,487

15,730

Acquisition cost earn-out charges

(iii)

6,317

564

Acquisition and integration cost

(iii)

62

629

Impairment of intangible assets

(iv)

2,425

-

Regulatory fine and fees

(v)

1,039

-

Other items


600

168

Total non-underlying items included in operating profit


28,707

18,882

Underlying operating profit1


46,688

44,447





Profit before tax1


13,251

23,680

Non-underlying items within other costs:


28,707

18,882

Refinancing cost

(vi)

457

-

Total non-underlying items


29,164

18,882

Underlying profit before tax1


42,415

42,562

 

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

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

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

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

iii. During the year ended 31 December 2018, the Group completed the acquisition of the LIS and CP and Sanne AgenSynd. The Group expensed £62k of acquisition and integration expenditure during the current year and £629k in the prior year. The group spent £6.3million relating to earn-out payouts for the year. £4.2 million related to LIS and CP and £2.1 million to AgenSynd. These expenses include the crystallisation of earn-out payments in the period. With acquisition activities not being the core ongoing business of the Group, these costs are disclosed as non-underlying to enable Shareholders to assess the core ongoing performance of the business. The majority of acquisition and integration costs will be incurred in the first 2 years after acquisition, however this could be longer depending on the nature of the costs.

iv. The Group's South African hedge fund business, acquired in 2016, suffered a one-off loss of clients in the period. The Sorato business has also incurred an impairment. The source of the impairment relates to customer contracts that were entered into before the acquisition and that have terminated sooner than anticipated. As a result, the contract intangibles were impaired by £2,4 million in total. Refer to note 17 for further information. As with the amortisation of intangible assets this cost was excluded from underlying cost as it does not form part of the core business of the Group.

v.   Regulatory fine (of £381k) and related fees relates to a settlement and related costs with the Jersey Financial Services Commission. Also included are the legal fees for a case brought against former directors of a subsidiary which date back to pre IPO.

vi. Refinancing cost - on 1 March a new loan facility for £150 million was entered into with a consortium of 5 banks. The previous facility was paid off and the remaining capitalized facility fees were written off. The facility is mainly used to fund acquisitions. The write off cost was recognised as non-underlying - £457k.

10. Tax


2019

£'000

2018

£'000

The tax charge comprises:



Current period

7,184

7,398

Adjustments in respect of prior periods

(32)

153

Total current tax expense

7,152

7,551




Deferred tax (note 28)



Increase in deferred tax assets

(1,065)

(1,040)

Increase in deferred tax liabilities

(1,710)

(1,005)

Total deferred tax credit

(2,775)

(2,045)

Total tax charge for the year

4,377

5,506




The income tax expense is attributable to:



Profit from continuing operations

4,007

5,101

Profit from discontinued operations

370

405


4,377

5,506

 

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


2019

£'000

2018

£'000

Deferred tax:



Items that will not be reclassified subsequently to profit or loss:



Actuarial (loss)/gain on defined benefit retirement obligation

(10)

11

Total income tax (credited)/charged in other comprehensive (expenses)/income

 (10)

 11

 

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


2019

£'000

2018

£'000

Profit from continuing operations before tax

 9,551

 19,632

Profit from discontinued operations before tax

3,700

4,048

Profit on ordinary activities before tax

13,251

23,680

Tax on profit on ordinary activities at standard UK income tax rate of 19% (2018: Jersey income tax rate of 10%) 1

2,518

2,368

Effects of amounts that are not deductible in calculating income tax:



Expenses not deductible for tax purposes

531

266

Non-deductible amortisation

153

153

Depreciation in excess of capital allowances

173

143

Net foreign exchange income

10

14

Foreign taxes not at UK (2018: Jersey) rate2

771

2,159

Deferred tax not recognised - taxable losses3

253

250

 Prior year tax adjustments

(32)

153

Total tax

4,377

5,506

 

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

2               With the UK tax rate at 19% (2018: Jersey rate of 10%) the impact of the 2017 and 2018 acquisitions on the tax expense is significant as all the acquired jurisdictions have higher tax rates than 19% (2018: 10%).

3               Deferred tax not recognised refers to jurisdictions where management is doubtful that future deferred tax assets would be able to be utilised through taxable profits being recognised.

Income tax expense computations are based on the jurisdictions in which profits were earned at prevailing rates in the respective jurisdictions.

The UK standard income tax rate is 19% (2018: Jersey rate of 10%), management have chosen to reconcile to this rate as the Company is a UK tax resident.


2019

£'000

2018

£'000

Reconciliation of effective tax rates



Tax charge

4,377

5,506

Profit before tax

13,251

23,680

Effective tax rate continuing and discontinued operations

33.0%

23.3%

Effective tax rate continuing operations

42.0%

26.0%

Effective tax rate discontinued operations

10.0%

10.0%

Tax charge

4,377

5,506

Adjusted for:



Prior period adjustments

32

(153)

Tax effect of non-underlying items

4,512

3,328

Deferred tax on US Goodwill amortisation

(954)

(948)

Total underlying tax charge

7,967

7,733

Profit before tax

13,251

23,680

Non-underlying items

29,164

18,882

Profit before tax and non-underlying items

42,415

42,562

Underlying effective tax rate continuing and discontinued operations

18.8%

18.2%

Underlying effective tax rate continuing operations

19.6%

19.0%

Underlying effective tax rate discontinued operations

10.0%

10.0%

 

The effective tax rate of 33.0% (2018: 23.3%) has increased due to a larger proportion of taxable profits being earned in higher tax jurisdictions. The increase in the underlying effective tax rate of 18.8% (2018: 18.2%) is also due to proportionally higher profits being earned in higher tax jurisdictions. This was calculated against the underlying profit before tax after having excluded the tax effect of non-underlying expenses and the deferred tax in relation to the tax allowance for the amortisation of goodwill in the US. The reduction in tax rates in Luxembourg to 24.93% (2018: 26.01%) mitigated the tax on profits generated in higher taxing jurisdictions.


2019

£'000

2018

£'000

Tax losses



Unused tax losses for which no deferred tax asset has been recognised

2,647

2,500

Potential tax benefit @ 19% (2018 @ 10%)

503

250

 

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

11. Discontinued operations

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

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


2019

£'000

2018

£'000

Revenue

5,736

6,761

Expenses

(2,036)

(2,713)

Profit before income tax

3,700

4,048

Income tax expense

(370)

(405)

Profit from discontinued operations

3,330

3,643

The following disclosure relates to the cash flows from the discontinued operations:



Net cash inflow from operating activities

3,563

4,321

Net increase in cash generated by the subsidiary

3,563

4,321

 

Assets of disposal group classified as held for sale

2019

£'000

2018

£'000

Assets classified as held for sale



Contract assets

334

9

Trade receivables

2,645

2,479

Total assets of disposal group held for sale

2,979

2,488




Liabilities of disposal group classified as held for sale



Liabilities classified as held for sale



Contract liabilities

(575)

(250)

Total liabilities of disposal group held for sale

(575)

(250)

 

12. Earnings per share


2019

£'000

2018

£'000

Profit for the year

8,874

18,174

Non-underlying items:



Non-underlying expenses

29,164

18,882

Tax effect of non-underlying items

(3,590)

(2,227)

Underlying profit

34,448

34,829

 


Shares

Shares

Weighted average numbers of ordinary shares in issue

 144,019,578

 141,269,560

Effect of dilutive potential ordinary shares:



Deferred consideration shares

636,652

1,273,308

Restricted stock awards

1,280,821

1,288,585

Performance share plan

49,501

619,862

Weighted average number of ordinary shares for the purposes of diluted EPS

 145,986,552

 144,451,315

 

Earnings per share based on total operations

2019

2018

Basic EPS (pence)

6.2

12.9

Diluted EPS (pence)

6.1

12.6

Underlying basic EPS (pence)

23.9

24.7

Underlying diluted EPS (pence)

23.6

24.1

 

Earnings per share based on continuing operations

2019

2018

Basic EPS (pence)

3.8

10.3

Diluted EPS (pence)

3.8

10.1

Underlying basic EPS (pence)

21.6

22.1

Underlying diluted EPS (pence)

21.3

21.6

 

 

 

Earnings per share based on discontinued operations

2019

2018

Basic EPS (pence)

2.3

2.6

Diluted EPS (pence)

2.3

2.5

Underlying basic EPS (pence)

2.3

2.6

Underlying diluted EPS (pence)

2.3

2.5

 

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

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

Diluted EPS takes into consideration the Company's dilutive contingently issuable shares as disclosed above. These arrangements have no impact on the earnings or underlying earnings figures used to calculate diluted EPS. The weighted average number of ordinary shares used in the diluted calculation is inclusive of the number of shares which are expected to be issued to satisfy the awards when they become due and where the performance criteria, if any, have been deemed to have been met as at 31 December 2019.

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

13. Profit for the year


2019

£'000

2018

£'000

Profit for the year has been arrived at after charging/(crediting):

 

 

Net foreign exchange losses

216

132

Depreciation of equipment

2,867

1,915

Depreciation of right-of-use asset (see note 21)

5,313

-

Gain on disposal of equipment

36

-

Auditors' remuneration for audit services (2019: PwC £695k, Deloitte £165k  and 2018: Deloitte)

860

587

Auditors' remuneration for other services, pre-appointment of new auditors1 (2019: PwC, 2018: Deloitte):

 

 

- FATCA

-

14

- ISAE 3402

33

-

- Software licence

3

167

- Other services

180

-

Auditors' remuneration for other services, post-appointment of new auditors1:

 

 

- ISAE 3402

5

-

Amortisation of intangible assets (see note 17)

16,487

15,730

Staff costs  (see note 14)

84,463

70,713

Impairment loss recognised on trade receivables (see note 22)

82

575

Impairment loss recognised on intangible assets (see note 17)

2,425

55

Facilities expense

2,726

7,339

 

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

14. Staff cost

The aggregate payroll costs were as follows:

2019

£'000

2018

£'000

Salaries and bonuses

72,805

60,753

Social security

5,148

3,815

Pension cost

620

547

Other benefits

3,513

2,222

Share based payments

2,377

3,376


84,463

70,713

 

The average number of full time employees analysed by category and segment:

2019

2018

Client services



- EMEA

495

374

- Asia - Pacific & Mauritius

351

266

- North America

154

122

- Channel Islands

269

268

Group services

317

254


1,586

1,284

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

15. Dividends


2019

£'000

2018

£'000

Amounts recognised as distributions to equity holders in the year:



Final dividend for the prior year

13,254

11,816

Interim for the current year

6,775

6,560

Total dividends

20,029

18,376

Proposed final dividend

13,784

13,432

 

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


2019

Pence

per share

2018

Pence

per share

Dividend per share ("DPS"):



Interim for the current year

 4.7

 4.6

Final proposed for the current year

 9.4

 9.2

Total dividend per share

14.1

13.8

 


2019

2018

Weighted average number of ordinary shares in issue

 144,019,578

 141,269,560

 

16. Goodwill

Goodwill represents the excess of the cost of the acquisition over fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition.

Goodwill movements

£'000

At 1 January 2018

107,271

LIS and CP acquisition

67,572

Sanne AgenSynd acquisition

8,404

Exchange differences

5,681

At 31 December 2018

188,928

Exchange differences

(8,514)

At 31 December 2019

180,414

 

In accordance with the Group's accounting policy, the carrying value of goodwill is not subject to systematic amortisation but is reviewed annually for impairment. The review assesses whether the carrying value of goodwill could be supported by the recoverable amount which is determined through value in use calculations of each cash-generating unit (CGU). The key assumptions applied in the value in use calculations are the discount rates and the projected cash flows.

The goodwill has been allocated to the CGUs as follows:



2019

Carrying value

£'000

2018

Carrying value

£'000

Sanne South Africa


 8,177

 8,272

Sanne Netherlands


 1,649

 1,649

Sanne North Americas


 41,400

 43,079

Sanne Mauritius


 57,076

 59,391

Sanne Luxembourg

(i)

 -

 68,165

Luxembourg Investment Solutions S.A.

(i)

 58,307

 -

Compliance Partners S.A.

(i)

 5,917

 -

Sanne Spain


 7,888

 8,372



 180,414

 188,928

 

i.              In the prior year the LIS and CP operations were managed as a single CGU. During the current year the CP and Sanne Group Luxembourg operations were merged. Therefore, the Group assessed the previous Sanne Luxembourg CGU to be two separate CGU's in the current year. Goodwill acquired in a business combination is allocated to each of the CGUs that is expected to benefit from the synergies of the combination. Thus when it was assessed that LIS and CP form two separate CGUs it was evident that the allocation of goodwill must be reallocated to the two new CGUs. The allocation was done based on the weighting of the purchase consideration between the two legal entities as at acquisition date. The combined total for LIS and CP in 2019 is £64.2 million (2018: £68.2 million), with the difference being a change due to FX.

The recoverable amounts of all CGUs are based on the same key assumptions and the values of those assumptions are specific to, and in some cases differ across, each CGU. The result of the goodwill impairment assessment undertaken is that the headroom on the total carrying value of the goodwill, across all CGUs,  more than doubled compared with the same assessment performed in the prior year.

Discount rates

Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money. In assessing the discount rate applicable to the Group the following factors have been considered:

i.    Long term treasury bond rate for the relevant jurisdiction

ii.  The cost of equity based on an adjusted Beta for the relevant jurisdiction

iii. The risk premium to reflect the increased risk of investing in equities

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

Projected revenue and costs

Projected revenue and costs are calculated with reference to each CGU's latest budget and business plan which are subject to a rigorous review and challenge process. Management prepare the budgets through an assessment of historic revenues from existing clients, the pipeline of new projects, historic pricing, and the required resource base needed to service new and existing clients, coupled with their knowledge of wider industry trends and the economic environment. Cash flows are projected over five years and a final terminal value is applied.

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

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

Key assumptions

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


2019

Discount rate

2018

Discount rate

2019

Weighted average revenue growth rate

2018

Weighted average revenue growth rate

2019

Terminal growth rate

2018

Terminal growth rate

Sanne South Africa

19%

21%

4%

4%

6%

2%

Sanne Netherlands

9%

9%

19%

6%

3%

2%

Sanne North Americas

10%

12%

12%

11%

3%

2%

Sanne Mauritius

11%

13%

3%

6%

5%

2%

Luxembourg Investment Solutions S.A.

6%

8%

7%

14%

3%

2%

Compliance Partners S.A.

6%

8%

14%

14%

3%

2%

Sanne Spain

9%

10%

7%

14%

3%

2%

 

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

Sensitivity to changes in assumptions

Management believes that any reasonably possible change in the key assumptions, on which the recoverable amount per CGU is based, would not cause the aggregate carrying amount to materially exceed the recoverable amount of the CGUs, except for Sanne South Africa. If the expected terminal growth used in the value-in-use calculation had been 1% lower than management's estimate made at 31 December 2019 (5.4% instead of 6.4%) and if the discount rate increased from 18.82% to 20.56% the goodwill would be impaired by £1.2 million. Management does not expect an increase in the discount rate. Part of the acquisition rationale was to create a "rightshoring centre" for talent and expertise which has proven to have significant value for the wider group. Refer to note 17 for the outcome of the intangible assets' impairment assessments and the key assumptions made.

17. Other intangible assets


Contract

£'000

Customer

£'000

Software under development

£'000

Total

£'000

Cost





At 1 January 2018

66,574

12,841

-

79,415

Acquired during the year

16,621

3,176

-

19,797

Impairments

(55)

-

-

(55)

Exchange difference

2,562

455

-

3,017

At 31 December 2018

85,702

16,472

-

102,174

Additions due to software development

-

-

276

276

Impairments

(2,425)

-

-

(2,425)

Exchange difference

(3,110)

(635)

-

(3,745)

At 31 December 2019

80,167

15,837

276

96,280

 


Contract

£'000

Customer

£'000

Software under development

£'000

Total

£'000

Accumulated amortisation





At 1 January 2018

16,732

2,685

-

19,417

Charge for the year

13,282

2,448

-

15,730

Exchange difference

767

138

-

905

At 31 December 2018

30,781

5,271

-

36,052

Charge for the year

13,870

2,617

-

16,487

Exchange difference

(1,378)

(269)

-

(1,647)

At 31 December 2019

43,273

7,619

-

50,892

Carrying amount





At 31 December 2019

36,894

8,218

276

45,388

At 31 December 2018

54,921

11,201

-

66,122

 

Due to a once off loss of clients in Sanne South Africa, an indicator for impairment was triggered. Sanne's South African contract intangibles were impaired by £2,3 million. This was included in the operating expenses line item on the consolidated income statement. The recoverable amount was determined using a Multi-Period Excess Earnings Method (MEEM) model, requiring the following inputs: post-tax weighted average cost of capital to discount the cash flows, a general attrition rate, a direct cost and an overhead cost margin and lastly the corporate tax rate. The discount rate was identified as being the most sensitive to change. Should the discount rate increase by 1%, the impairment would have been £52k higher. Sanne does not consider this to be a material increase.

The method of valuation and subsequent review of the carrying value of intangible assets is outlined in note 3. As part of that subsequent review, triggers for impairment were detected and impairment assessments performed for the intangible assets relating to the Delorean, Ariel, CCS, IDS Group, Sorato and IFS Group acquisitions. A £84k impairment was recognised in operating expenses for the Sorato intangibles. The source of the impairment relates to customer contracts that were entered into before the acquisition and that have terminated sooner than anticipated. The Netherlands acquired a large client during the year and have exceeded expectations in the 2019 financial year showing a healthy growth with promising client relationships. The group determined the recoverable amount with reference to the fair value less cost to sell per asset. The multi-period-excess-earnings method (MEEM) model was used to determine the fair value less cost to sell of each asset. This model requires the use of a post-tax discount rate. The WACC rates used to discount the post-tax cash flows are a post-tax WACC rates. The recoverable amounts for all other assets with indicators of impairment exceeded their current carrying value.

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


2019

Discount rate

2018

Discount rate

2019

Remaining useful life

2018

Remaining useful life

Ariel (Various jurisdictions)

7%

7%

1 year

2 years

Delorean (Various jurisdictions)

7%

7%

1 year

2 years

CCS (Sanne Ireland)

7%

7%

3 years

4 years

IDS Group (Sanne South Africa)

13%

15%

4 years

5 years

Sorato (Sanne Netherlands)

7%

7%

0 years

5 years

IFS Group (Sanne Mauritius)

10%

11%

4 years

4 years

AgenSynd Group  (Sanne Spain)

7%

8%

6 years

7 years

 

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

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

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

Costs incurred during the planning phase of the project have been assessed to be research costs and have consequently been expensed. The total research costs amounted to £78k (2018: £nil).

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

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

Acquisition

Acquisition date

Amortisation period end

2019

Carrying amount

£'000

2018

Carrying
amount

£'000

Contract intangible





Delorean (Various jurisdictions)

1 June 2013

31 May 2020

 540

 1,849

Ariel (Various jurisdictions)

1 May 2014

30 April 2021

 301

 526

CCS (Sanne Ireland)

1 March 2016

28 February 2023

 388

 543

IDS Group (Sanne South Africa)

1 June 2016

31 May 2024

 1,188

 4,071

FAS (Sanne North America)

1 November 2016

31 October 2022

 4,614

 6,494

Sorato (Sanne Netherlands)

1 December 2016

30 November 2023

 -

 114

IFS Group (Sanne Mauritius)

1 January 2017

31 December 2022

 19,666

 27,285

LIS Group (Sanne Luxembourg)

6 February 2018

31 January 2025

 8,318

 11,692

AgenSynd Group (Sanne Spain)

3 September 2018

31 August 2025

 1,879

 2,347

Total



 36,894

 54,921

 

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

Acquisition

Acquisition date

Amortisation period end

2019

Carrying amount

£'000

2018

Carrying
amount

£'000

Customer intangible





Delorean (Various jurisdictions)

1 June 2013

31 May 2023

 409

 525

Ariel (Various jurisdictions)

1 May 2014

30 April 2024

 29

 44

CCS (Sanne Ireland)

1 March 2016

28 February 2023

 317

 443

IDS Group (Sanne South Africa)

1 June 2016

31 May 2024

 809

 1,004

FAS (Sanne North America)

1 November 2016

31 October 2022

 880

 1,236

Sorato (Sanne Netherlands)

1 December 2016

30 November 2023

 34

 43

IFS Group (Sanne Mauritius)

1 January 2017

31 December 2022

 3,736

 5,184

LIS Group (Sanne Luxembourg)

6 February 2018

31 January 2023

 1,400

 1,968

AgenSynd Group (Sanne Spain)

3 September 2018

31 August 2025

 604

 754

Total



 8,218

 11,201

 

18. Equipment


Computer

equipment

£'000

Computer software

£'000

Fixtures and equipment

£'000

Total

£'000

Cost


 



At 1 January 2018

4,181

2,586

4,715

11,482

Additions

1,555

143

6,170

7,868

Additions through acquisitions

67

306

818

1,191

Disposals

(881)

(26)

(1,331)

(2,238)

Exchange differences

(44)

25

57

38

At 31 December 2018

4,878

3,034

10,429

18,341

Additions

1,428

395

2,091

3,914

Change in accounting policy

-

-

(924)

(924)

Disposals

(212)

(359)

(291)

(862)

Exchange differences

(89)

(35)

(164)

(288)

At 31 December 2019

6,005

3,035

11,141

20,181

 


Computer

equipment

£'000

Computer software

£'000

Fixtures and equipment

£'000

Total

£'000

Accumulated depreciation


 



At 1 January 2018

2,512

2,436

2,721

7,669

Charge for the year

406

110

1,399

1,915

Reclassification within equipment 1

660

-

(660)

-

Additions through acquisitions

38

203

468

709

Disposals

(724)

(26)

(1,231)

(1,981)

Exchange differences

47

(49)

58

56

At 31 December 2018

2,939

2,674

2,755

8,368

Charge for the year

1,383

239

1,245

2,867

Disposals

(204)

(359)

(233)

(796)

Exchange differences

(84)

(34)

(124)

(242)

At 31 December 2019

4,034

2,520

3,643

10,197

Carrying amount:





At 31 December 2019

1,921

515

7,498

9,984

At 31 December 2018

1,939

360

7,674

9,973

 

As at 31 December 2019 £5.8 million (2018: £5.5 million) of fixed assets are fully depreciated and still in use.

In 2018 Sanne reported equipment additions of £7,9 million. Sanne funded £4,2million of these additions. The remaining £3,6 million was for fit out works in new rented premises. These additions were funded by the landlord as part of the rental agreement and have been included in the right-of-use asset balance.

1 The Group reclassified accumulated depreciation between the asset classes in the prior year between computer equipment and fixtures and equipment to the value of £660k, this had no impact on the profit and loss. In the prior year this was classified in the incorrect asset class.

19. Subsidiaries

Detailed below is a list of subsidiaries of the Company as at 31 December 2019 which, in the opinion of the Directors, principally affect the profit and / or the net assets of the Group. All of these subsidiaries are 100% owned by the Group, with 100% of voting power held. They all engage in the provision of alternative asset and corporate administration and fiduciary services. Each subsidiary only has ordinary shares.

Subsidiaries

Country of incorporation

Sanne Capital Markets Ireland Limited

Republic of Ireland

Sanne Fiduciary Services (UK) Limited

England and Wales

Sanne Fiduciary Services Limited

Jersey

Sanne Finance Limited

Jersey

Sanne Financial Management Consulting (Shanghai) Co Ltd

People's Republic of China

Sanne Fund Administration Limited

Jersey

Sanne Group (Guernsey) Limited

Guernsey

Sanne Group (Luxembourg) SA

Luxembourg

Sanne Group (UK) Limited

England and Wales

Sanne Group Administration Services (UK) Limited

England and Wales

Sanne Group Asia Limited

Hong Kong

Sanne Holdings Limited

Jersey

Sanne International Limited

Jersey

Sanne (Singapore) PTE. Limited

Singapore

Sanne Trustee Company UK Limited

England and Wales

Sanne Trustee Services Limited

Jersey

Sanne Corporate Administration Services Ireland Limited

Republic of Ireland

Sanne Group U.S. LLC

United States of America

Sanne Group d.o.o. Beograd

Serbia

Sanne Management Company RF (PTY) Limited

Republic of South Africa

Sanne Fund Services SA (PTY) Limited

Republic of South Africa

Sanne Fund Services Malta Limited

Republic of Malta

Sanne Group Delaware Inc.

United States of America

Sanne Group South Africa (PTY) Limited

Republic of South Africa

Sanne (Mauritius) Limited

Mauritius

Sanne Group (Netherlands) B.V.

Netherlands

SANNE Mauritius

Mauritius

SANNE Trustees (Mauritius)

Mauritius

Sanne (Luxembourg) Holdings Sarl

Luxembourg

Sanne Group Funding Limited

Jersey

Luxembourg Investment Solutions S.A

Luxembourg

Compliance Partners S.A.

Luxembourg

Sanne (Luxembourg) Holdings 2 Sarl

Luxembourg

Sanne AgenSynd S.L.U.

Spain

AgenSynd Limited

England and Wales

AgenSynd France SAS

France

Sanne Group Services (UK) Limited

England and Wales

Sanne Group Japan KK

Japan

 

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

20. Minority equity investment

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

Non-current assets

2019

£'000

2018

£'000

Unlisted securities



Colmore A.G.

8,632

-

 

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


2019

£'000

2018

£'000

Balance at 1 January

-

-

Additions

9,347

-

Foreign exchange losses

(715)

-

Balance at 31 December

8,632

-

 

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

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

In the market approach a list of broadly comparable listed companies was identified through public sources. Since there are a limited number of public companies offering technology solutions to fund administration businesses services, the group considered comparable companies offering technology and software services to companies engaged in the broader financial services industry. The valuation was based on revenue multiple. A revenue multiple of 7.5x was used in the estimate. The group performed a sensitivity analysis on the fair value. Because a combined approach is used for the valuation, the group assessed the combined impact of changes in key assumptions. Should the WACC increase to 19% and the long term growth rate only yield 1.5% in the income approach and on the market approach a multiple of 6.7 is used instead of 7.5, the value would be £866k lower.

21. Leases

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


31 Dec

2019

£'000

1 Jan

20191

£'000

Right-of-use assets

32,733

30,828

Lease liabilities



Current

4,291

3,902

Non-current

33,549

31,926

Total

37,840

35,828

 

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

During the 2019 financial year the group made £7.5 million in additions to the right-of-use assets.

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


2019

£'000

2018

£'000

Depreciation on right-of-use assets

5,313

-

Interest expense (included in finance costs)

1,607

-

Expenses relating to short-term leases

706

-

Expenses relating to premises rent recognised on a straight-line basis

-

5,502

 

In the prior period the Group expensed £5.5 million for premises rent based on the previous IAS 17 straight-line accounting policy.

The total cash outflow for leases was £6.4 million.

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

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

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

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

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

22. Trade and other receivables


2019

£'000

2018

£'000

Trade receivables

43,457

 41,034

Allowance for doubtful receivables

 (862)

 (766)


 42,595

 40,268

Prepayments

4,089

3,141

Other debtors

1,257

1,363

Total trade and other receivables

 47,941

 44,772

 

Trade receivables

Trade receivables disclosed above are amounts due to services rendered in the ordinary course of business. At initial measurement, they are recognised at fair value and subsequently at amortised cost, using the effective interest method.

The Group considers all receivables over 60 days to be past due.

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

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

Movement in the allowance for doubtful receivables:

2019

£'000

2018

£'000

Balance at the beginning of the year

 766

639

Recognised through acquisitions

-

138

Impairment losses recognised

656

468

Amounts written off during the year as uncollectable

(52)

(261)

Amounts recovered during the year

(504)-

(229)

FX losses

(4)

11

Total allowance for doubtful receivables

862

766

 

The expected credit losses were measured by grouping the trade receivables in a manner that reflects shared credit risk characteristics and days past due. The expected loss rates are based on the payment profiles of the respective trade receivable groups. In assessing the payment profiles the Group considers the expected future economic changes in the operating jurisdiction, specific client relationships and the expected future client and fund liquidity. This is then adjusted for forward-looking evidence that the Group will not be able to collect the debts or bill the customer. All impairment losses are related to receivables arising from contracts with customers.

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

31 December 2019

2019

Expected loss rate

Gross carrying amount

Loss allowance

 

Net carrying amount

 

<31 days

0%

31,313

-

31,313

31-60 days

0%

1,214

-

1,214

61-90 days

0%

1,441

1

1,440

91-120 days

0%

4,129

-

4,129

121-180 days

1%

805

7

798

180+ days

19%

4,555

854

3,701

Total


43,457

862

 42,595

 

31 December 2018

2018

Expected loss rate

Gross carrying amount

Loss allowance

 

Net carrying amount

 

<31 days

0%

27,740

-

27,740

31-60 days

0%

2,527

-

2,527

61-90 days

0%

2,423

-

2,423

91-120 days

1%

5,399

32

5,367

121-180 days

0%

470

-

470

180+ days

30%

2,475

 734

1,741

Total


41,034

766

 40,268

 

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

23. Contract assets


2019

£'000

2018

£'000

 EMEA

2,856

2,942

 Asia - Pacific & Mauritius

2,644

2,559

 North America

527

593

 Channel Islands

433

534

Balance at 31 December

6,460

6,628

 

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


2019

£'000

2018

£'000

Contract assets relating to contracts with customers 1 January

 6,628

3,096

Increase in contract assets for the period

7,003

6,306

Contract assets released

(6,334)

(3,127)

Disposal group held for sale

(325)

(9)

Exchange differences

(512)

362

Balance at 31 December

6,460

6,628

 

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

Payments are due as soon as invoices are raised.            

24. Net (debt)/cash



2019

£'000

2018

£'000

Bank loan (see note 27)


(129,572)

(85,364)

Trapped cash

(i)

(10,065)

(8,936)

Less: Cash and cash equivalents


51,454

32,411

Total net (debt)/cash


(88,183)

(61,889)

 

The Group had undrawn borrowings at 31 December 2019 of £88 million (2018: £14.2 million) and an accordion of £70 million. See note 27.

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

25. Share capital


2019

£'000

2018

£'000

Authorised



500,000,000 (2018:500,000,000) ordinary shares of £0.01 each

5,000

5,000

Called up, issued and fully paid



146,633,168 (2018: 145,996,512) ordinary shares of £0.01 each

1,466

1,460

 

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

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

Movements in share capital during the year ended 31 December

2019

£'000

2018

£'000

Balance at 1 January

 1,460

 1,416

Issue of shares:



FAS deferred consideration

 6

 8

LIS acquisition

 -

 30

Sanne AgenSynd acquisition

 -

 6

Balance at 31 December

 1,466

 1,460

 

Movements in share premium during the year ended 31 December

2019

£'000

2018

£'000

Balance at 1 January

 200,270

 171,850

Issue of shares:



FAS deferred consideration

 3,153

 4,036

LIS acquisition

 -

 20,885

Sanne AgenSynd acquisition

 -

 3,499

Balance at 31 December

 203,423

 200,270

 

Shares to the value of £3.2 million (2018: £4.0 million) were issued from the "shares to be issued" reserve rather than raised through the issuance of ordinary shares.

26. Own shares


 Shares

£'000


2019

2018

2019

2018

EBT

1,730,901

2,622,846

1,166

1,470

Treasury

98,533

98,533

-

-

Total

1,829,434

2,721,379

1,166

1,470

 

Sanne Group Employees' Share Trust ("EBT")

During the year, the EBT settled commitments under share based payments of 936,892 shares. The EBT also repurchased 44,947 shares during the year from employees.

The remaining shares and cash are held by the Trust to fulfil the Group's future obligations under share plans.

Treasury shares

The Company held 98,533 (2018: 98,533) shares in treasury resulting from repurchases of shares which are held under restrictive sale agreements, at a total cost of £2.

27. Borrowings

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

The new loan facility is for £150m plus an accordion facility 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. The loan and accordion have a maturity of February 2023 and pay commercial rates.

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

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


2019

£'000

2018

£'000

Available



Term loan

-

46,000

Revolving credit facility

150,000

44,000

Accordion facility

70,000

10,000


220,000

100,000

Drawn



Term loan

-

46,000

Revolving credit facility

131,175

39,850


131,175

85,850

Capitalised loan fees

(1,603)

(486)

Total borrowings

129,572

85,364

 

Reconciliation of loan balance

2019

£'000

2018

£'000

Balance at 1 January

85,364

64,335

Redemption of bank loans

(85,850)

(4,000)

New bank loans raised

131,175

24,850

Amortisation for the year

174

179

Loan fees accrued

(37)

-

Loan fees paid

(1,711)

-

Loan fees written off

457

-

Balance at 31 December

129,572

85,364

 

During the year to 31 December 2019, the Group drew down from the revolving credit facility a net total of £131.1 million with £85.9 million used to repay the previous facility.

28. Deferred taxation

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


2019

£'000

2018

£'000

Deferred tax asset

8,324

2,082

Deferred tax liability

(15,931)

(13,395)


(7,607)

(11,313)

 

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


2019

£'000

2018

£'000

Intangible assets

(9,063)

(10,692)

Other timing differences

1,456

(621)


(7,607)

(11,313)

 

The movement in the year is analysed as follows:


2019

£'000

2018

£'000

Balance at 1 January

(11,313)

(7,930)

Recognised through acquisitions

-

(5,162)

Other comprehensive income

10

(11)

Income statement movements



Intangible assets

1,629

(738)

Leases - right of use assets

5,370

-

Leases - lease liabilities

(4,822)

-

Tangible assets

(122)

(169)

Share based payments

145

1,052

Other timing differences - income statement

1,122

1,900

Foreign exchange

374

(255)

Balance at 31 December

(7,607)

(11,313)

 

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

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


2019

£'000

2018

£'000

Deferred tax asset



 recovered in no more than twelve months after the reporting period

 5,123

 771

 recovered in more than twelve months after the reporting period

 3,201

 1,311

Balance at 31 December

 8,324

 2,082

 

The group expects the deferred tax liability to be settled as follows:

2019

£'000

2018

£'000

Deferred tax liability



 settled in no more than twelve months after the reporting period

 (10,856)

 (9,303)

 settled in more than twelve months after the reporting period

 (5,075)

 (4,092)

Balance at 31 December

 (15,931)

 (13,395)

 

29. Trade and other payables



2019

£'000

2018

£'000

Trade creditors


1,320

287

Other payables


1,148

1,482

Other taxes and social security


3,139

2,834

Accruals


8,865

5,536

Deferred consideration

(i)

-

24,328

Total trade and other payables


14,472

34,467

Other liabilities

(ii)

-

4,914

Total other liabilities


-

4,914

 

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

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

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

30. Provisions


2019

£'000

2018

£'000

Balance at 1 January

1,650

506

Provisions utilised during the year

(546)

(60)

Provisions recognised during the year

1,352

-

Recognised through acquisitions

-

180

Provisions grossed up

-

1,030

Foreign exchange loss/(gain)

19

(6)

Balance at 31 December

2,475

1,650

Of which are:



Current lease liabilities

451

452

Non-current lease liabilities

2,024

1,198

Balance at 31 December

2,475

1,650

 

The provision carried principally relates to dilapidations for property leases and will be utilised upon the dismantling of the fixtures in the properties leased, which is expected to occur at the end of rental agreements. The rental agreements span from 1 year to 24 years. A best estimate of the dismantling costs was made, however the final costs will be determined based on the state of the property and the work required. The Group expects the cash outflow to occur at the end of the lease term. In the prior year the Group incorrectly carried all of its provisions as current. This was split in the current year, as above, between current and non-current. The prior year balance moving from current liabilities to non-current liabilities is £1.2 million, because as at 31 December 2018 it was due after more than 12 months. There was no impact on the profit and loss.

31. Contract liabilities


2019

£'000

2018

£'000

 EMEA

7,479

5,910

 Asia - Pacific & Mauritius

4,302

4,475

 North America

71

119

 Channel Islands

5,782

5,581

Balance at 31 December

17,634

16,085

 

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

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


2019

£'000

2018

£'000

Contract liabilities at 1 January

16,085

12,850

Revenue recognised in the current period that was included in the contract liability balance at the beginning of the period

(16,195)

(12,855)

Contract liabilities recognised during the year

18,551

16,098

Disposal group held for sale

(325)

(250)

Exchange differences

(482)

242

Balance at 31 December

17,634

16,085

 

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

32. Share based payments


2019

£'000

2018

£'000

Sanne Group plc



Performance Share Plan

(40)

1,192

Restricted Stock Awards

2,482

2,184

Social security accrual

(65)

-

Total share based payments

2,377

3,376

 

Performance Share Plan

During the current and prior years the Group granted awards over its ordinary shares under the terms of its Performance Share Plan ("PSP"). The exercise of awards under the PSP is conditional upon the achievement of one or more challenging performance targets set at the time of the grant and measured over a three year performance period from grant date. All the awards were granted for nil consideration.

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

Management estimates the number of shares to be vested based on the performance targets set to be achieved and the current performance of the Group. This is then grown by 13% as per market expectation to determine the probable performance at vesting date.  The fair value of share awards granted during the period amounted to £ 5,4 million.

A summary of the rules for this scheme and the related performance conditions are set out in the Remuneration report.

Restricted Stock Awards

During the current and prior years the Group granted awards over its ordinary shares in the form of Restrictive Stock Awards ("RSA").  The awards are granted as part of the mechanics of an acquisition to act as retentions for staff. The vesting of the awards is subject to continued employment over an agreed period. All the awards were granted for nil consideration.

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


Number of shares

2019

Number of shares

2018

Performance share plan



Outstanding at 1 January

 1,413,030

 1,229,280

Granted during the year

 376,783

 326,289

Forfeited during the year

 (197,726)

 (142,539)

Vested during the year

 (575,539)

 -

Outstanding at 31 December

 1,016,548

 1,413,030

 

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


Number of shares

2019

Number of shares

2018

Restricted Stock Awards



Outstanding at 1 January

 1,546,998

 1,355,554

Granted during the year

 540,704

 386,138

Forfeited during the year

 (97,219)

 (151,413)

Vested during the year

 (311,419)

 (43,281)

Outstanding at 31 December

 1,679,064

 1,546,998

 

The fair value of services received in return for share awards granted are measured by reference to the fair value of the shares granted. The RSA scheme has vesting dates from 2019 to 2023. The PSP scheme has vesting dates between 2019 and 2021.

Shares to be issued comprise the following:

2019

£'000

2018

£'000

Balance at 1 January

 12,278

 13,373

New share plans for employees

 2,337

 2,948

FAS acquisition - deferred consideration settled

 (3,159)

(4,043)

Shares vested

 (3,733)

-

Balance at 31 December

 7,723

 12,278

 

33. Long term employee benefits

Defined contribution plan

The Group participates in various defined contribution pension plans, to which it makes monthly contributions in specific jurisdictions. The total contributions during the year were £560k (2018: £451k), paid in full by the employer.

Defined benefit RETIREMENT obligation

The Group has a defined benefit retirement obligation in respect of the Mauritius Employment Rights Act 2008 ("the Act"). In terms of the Act, an employer is obligated to pay a lump sum to the employee upon retirement in proportion to the years of service employed at the company.

The Group has no specific assets to cover the obligation as it is all self funded by the Group.

The Group recognised a net defined benefit retirement obligation of £684k (2018: £701k) on the consolidated balance sheet in respect of amounts that are expected to be paid out to employees under the Act. The group does not expect a significant change in contributions for the following year.

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

Defined benefit retirement obligation

2019

£'000

2018

£'000

Present value of defined benefit at the beginning of the year

701

718

Amounts recognised in the Consolidated Income Statement



 - Current service cost

 54

 48

 - Net interest expense

 42

 48

Amounts recognised in the Consolidated Statement of Other Comprehensive Income



 - Actuarial loss/(gain) on defined benefit obligation

 67

 (70)

Direct benefits paid

 (118)

(85)

FX gain

 (62)

 42

Present value of defined benefit retirement obligation at 31 December

684

701

 

The plan is exposed to actuarial risks such as interest rate risk and salary risk.

The cost of providing the benefits is determined using the Projected Unit Method. The principal assumptions used for the purpose of actuarial valuation were as follows:


2019

2018

Discount rate1

6.5%

6.6%

Future salary increases

3%

3%

Future pension increases

3%

3%

Withdrawal rate

17%

17%

Retirement age

65 years

65 years

 

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

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


2019

£'000

2018

£'000

- Increase due to 1% decrease in discount rate

 129

 115

- Decrease due to 1% increase in discount rate

 182

 89

- Increase due to 1% increase in future salary increases

 132

 157

- Decrease due to 1% decrease in future salary increases

 167

 123

Weighted average duration of the defined benefit obligation (years)

 22.7 years

 16.3 years

 

34. Financial instruments

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

Categories of financial instruments


Level

2019

£'000

2018

£'000

Financial assets





Financial assets recorded at amortised cost





Cash and bank balances



51,454

32,411

Trade and other receivables

(i)


49,055

46,896

Financial assets recorded at fair value





Investment in equity

(ii)

3

8,632

-

Financial liabilities





Financial liabilities recorded at amortised cost





Bank loan



129,572

85,364

Deferred consideration

(iii)

3

-

24,328

Trade and other payables

(iv)


11,333

7,305

 

i.    Includes contract assets but excludes other debtors and prepayments.

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

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

iv. Excludes other taxes and social security and deferred consideration but includes accrued interest payable.

The fair value measurement of the Group's financial and non-financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the 'fair value hierarchy'):

Level 1: Quoted prices in active markets for identical items;

Level 2: Observable direct or indirect inputs other than Level 1 inputs; and

Level 3: Unobservable inputs, thus not derived from market data.

The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognised in the period they occur.

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to shareholders through the optimisation of the debt and equity balance. The managed capital refers to the group's debt and equity balances. Refer to note 25 for the quantitative disclosure of the share capital.

As disclosed in note 27, the Group has a loan which requires it to meet cash flow, leverage and interest cover covenants. Refer to note 27 for the quantitative disclosure of the borrowings. In order to achieve the Group's capital risk management objective, the Group aims to ensure that it meets the financial covenants attached to the borrowings. Breaches in meeting the financial covenants would permit the lender to immediately call the loan.

In line with the loan agreement, the Group tests compliance with the financial covenants on a quarterly basis and considers the results in making decisions affecting dividend payments to shareholders or issue of new shares.

Individual regulated entities within the Group are subject to regulatory requirements to ensure adequate capital and liquidity to meet local requirements in Jersey, UK, Guernsey, Ireland, Netherlands, Luxembourg and South Africa, which are monitored monthly to ensure compliance. There have been no breaches of applicable regulatory requirements during the year or at year end. These regulatory requirements of adequate capital is referred to by Sanne as "trapped cash", the quantitative balance of which can be observed in note 24.

Financial risk management objectives

The financial risk management policies are discussed by the management of the Group on a regular basis to ensure that these are in line with the overall business strategies and its risk management philosophy. Management sets policies which seek to minimise the potential adverse effects affecting the financial performance of the Group. Management provides necessary guidance and instructions to the employees covering specific areas, such as market risk (foreign exchange and interest rate risk), credit risk, liquidity risk, and in investing excess cash. The Group does not hold or issue derivative financial instruments.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, whilst optimising the return.

Interest rate risk management

The Group is exposed to interest rate risk as entities in the Group borrow funds at floating interest rates. The interest rates are directly linked to the LIBOR plus a margin based on the leverage ratio of the Group. The higher the leverage ratio, the higher the margin on the LIBOR. The risk is managed by the Group maintaining an appropriate leverage ratio and through this ensuring that the interest rate is kept as low as possible. The Group is currently considering the proposed LIBOR reforms, but it does not expect a material impact on the financial results.

The Group's exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.

Interest rate sensitivity analysis

The sensitivity analysis below has been determined based on the floating rate liabilities.

The Group considers a reasonable interest rate movement in LIBOR to be 25 basis points based on historical changes to interest rates. If interest rates had been higher/lower by 25 basis points and all other variables were held constant, the Group's profit for the year ended 31 December 2019 would decrease/increase by £363k (2018: £229k).

Foreign currency risk management

The Group manages exposure to foreign exchange rates by carrying out the majority of its transactions in the functional currency of the Group company in the jurisdiction in which it operates.  The Group entities maintain assets in foreign currencies sufficient for regulatory capital purposes in each jurisdiction. The Group continues to monitor the potential impacts of the United Kingdom's leaving EU membership ("Brexit") The volatility of Sterling is due to the uncertainties around the effect it might have but the Group's strong momentum and diverse geographic presence, as well as the favourable underlying trends in the markets in which we operate, give the Directors confidence in the continued management of the possible Brexit effect. The carrying amounts of the Group's material foreign currency denominated monetary assets and monetary liabilities are as follows:


 Assets

 Liabilities


2019

£'000

2018

£'000

2019

£'000

2018

£'000

Euro

35,051

29,846

168

324

United States Dollar

25,979

18,261

281

8

South African Rand

1,258

2,410

71

(2)


62,288

50,517

520

330

 

Foreign currency risk management sensitivity analysis

The principal currency of the Group's financial assets and liabilities is Pounds Sterling. The Group, however, does own trading subsidiaries based in the United States of America, South Africa, Mauritius, Asia and Europe which are denominated in a currency other than the principal currency. The Group therefore faces currency exposures.

The following table illustrates management's assessment of the foreign currency impact on the year-end consolidated balance sheet, the possible impact on the Group's total comprehensive income for the year and net assets arising from potential changes in the Euro, United States Dollar or South African Rand exchange rates, with all other variables remaining constant. A strengthening or weakening of the Sterling by 20% is considered an appropriate variable for the sensitivity analysis given the scale of foreign exchange fluctuations over the last two years. This is based on the most volatile currency namely, the South African Rand, for which it is not uncommon to see a 20% fluctuation.


Strengthening / (weakening) of Sterling

Effect on Group comprehensive income and net assets

2019

£'000

2018

£'000

Euro

+20%

(6,977)

(5,904)

United States Dollar

+20%

(5,140)

(3,650)

South African Rand

+20%

(237)

(482)

Euro

(20%)

5,814

4,920

United States Dollar

(20%)

4,283

3,042

South African Rand

(20%)

198

402

 

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group's principal exposure to credit risk arises from the Group's receivables from clients.

Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. The carrying amount of financial assets recorded in the historical financial information, which is net of impairment losses, represents the Group's maximum exposure to credit risk as no collateral or other credit enhancements are held.

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

The credit risk on liquid funds and borrowings is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

The Group manages credit risk by review at take-on around:

•    Risk of insolvency or closure of the customer's business;

•    Customer liquidity issues; and

•    General creditworthiness, including past default experience of the customer, and customer types.

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

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

Liquidity risk management

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk to maintain adequate reserves by regular review around the working capital cycle using information on forecast and actual cash flows.

Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity management requirements. Regulation in most jurisdictions also requires the Group to maintain a level of liquidity so the Group does not become exposed.

The Group manages liquidity risk to maintain adequate reserves by regular reporting around the working capital cycle using information on forecast and actual cash.

Liquidity and interest risk tables

The following tables detail the Group's remaining contractual maturity for its financial liabilities with agreed repayment years. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are floating rates, the undiscounted amount is derived from interest rates at the balance sheet date. The contractual maturity is based on the earliest date on which the Group may be required to pay.


< 3 months

£'000

3-12 months

£'000

1-5 years

£'000

> 5 years

£'000

Total

£'000

31 December 2019






Bank loans (i)

666

2,013

139,203

-

141,882

Trade payables and accruals (ii)

14,331

-

-

-

14,331

Provisions

-

451

500

1,524

2,475

Lease liability

1,084

3,287

11,195

22,274

37,840


16,081

5,751

150,898

23,798

196,528

31 December 2018

Bank loans (i)

524

1,562

89,498

-

91,584

Trade payables and accruals (ii)

10,069

-

-

-

10,069

Provisions

506

-

-

-

506


 11,099

 1,562

 89,498

-

 102,159

 

For the purpose of the above liquidity risk analysis the amortised value has been adjusted for:

i.    The future interest payments not yet accrued and the repayment of capital upon maturity.

ii.  The accrued bank loan interest payable at the balance sheet date.

Fair value of financial instruments

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

35. Related party transactions

The Group's related parties are key management personnel, comprising all members of the plc Board and the Executive Committee who are responsible for planning and controlling the activities of the Group.

The remuneration of any employee who met the definition of key management personnel of the Group at the end of the period is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures for the period they served as key management personnel.


2019

£'000

2018

£'000

Short-term employee benefits

2,289

2,789

Share based payments (see note 32)

222

573

Contracted through consultancy firm

60

-

Total short term payments

2,571

3,362

 

Balances and transactions between Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its associates are disclosed below:


2019

£'000

2018

£'000

Consulting services - Arema Risk Limited

70

185

 

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

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

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

36. Changes in accounting policies

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

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

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

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

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


31 Dec

2019

£'000

1 Jan

2019

£'000

Right-of-use assets

32,733

30,828

Lease liabilities

(37,840)

(35,828)

 

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



£'000

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




Basic EPS (pence)

Decrease by

0.40

Diluted EPS (pence)

Decrease by

0.39

Underlying basic EPS (pence)

Decrease by

0.40

Underlying diluted EPS (pence)

Decrease by

0.39

 

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

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

37. Business combinations

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

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

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

This acquisition provides the Group with an opportunity to expand its platform in Luxembourg, enhance the Group's new funds proposition in Dublin and grow its existing EMEA operations.

The consideration for the acquisition was satisfied by a total payment of approximately £60.2 million (€66.6 million) in cash during 2018 and 2019, and the issuance of 3,022,841 shares.



EUR

'000

GBP

'000

Recognised amounts of identifiable net assets (at fair value):




Non-current assets

Useful economic life



Equipment

3 - 5 years

426

378

Customer & contract intangibles

5 years

18,616

16,527



19,042

16,905

Current assets




Trade and other receivables


2,117

1,879

Cash and cash equivalents


3,983

3,536

Accrued income


4,143

3,678



10,243

9,093

Current liabilities




Trade and other payables


2,425

2,153

Current tax liabilities


1,163

1,032

Deferred revenue


74

66



3,662

3,251

Non-current liabilities




Deferred tax liabilities


4,842

4,299



4,842

4,299

Identifiable net assets


20,781

18,448

Goodwill


75,868

67,572

Total consideration


96,649

86,020

Total consideration satisfied by:




Cash consideration - on acquisition


29,878

26,525

Equity instruments - ordinary shares (3,022,841 shares in Sanne Group plc)


13,923

12,361

Deferred consideration


52,848

47,134

Fair value of consideration payable at acquisition date


96,649

86,020

Net cash outflow arising on acquisition:




Cash consideration


29,878

26,525

Less: cash and cash equivalent balances acquired


(3,983)

(3,536)

Net cash outflow arising on acquisition


25,895

22,989

 

Fair value of consideration

The shares were valued based on the closing share price the day before reissuance with this amount appropriately allocated between share capital and share premium.

Included in the prior year was deferred consideration of £24.3 million (€27.1 million). The deferred consideration was paid in 2019 and based on a multiple 2018 EBITDA for the LIS Group.

Transaction costs

The Group incurred £117k of acquisition and integration expense in 2018, these costs have been expensed within operating expenses in this financial period and have further been identified as non-underlying as detailed in note 9.

Trade and other receivables

The fair value of the financial assets acquired is £119k, included in the balance is an amount of £170k, relating to the gross balance of trade receivables, of which £130k was expected to be uncollectible.

Goodwill

Goodwill is represented by assets that do not qualify for separate recognition or other factors. These include the opportunities for new business wins from new customers, the effects of an assembled workforce and synergies from combining operations of the acquiree and the acquirer. Goodwill is not tax deductible.

Effect on the results

During 2018 the LIS Group contributed £16.1 million of revenue and a net profit for the year of £5.2 million to the Group's profit for the period between the date of acquisition and the balance sheet date. If the business had been acquired at 1 January 2018 on a pro rata basis the Group revenue for the period would have been £144.5 million (£1.5 million higher) and net profit for the year £19.8 million (469k higher).

AgenSynd S.L ("Stream Group")

On 14 August 2018, the Group entered into a conditional agreement to acquire 100% of the issued share capital of AgenSynd S.L. The Group has entities in Spain, the United Kingdom and France. The acquisition provided the Group with an opportunity to expand its platform in Spain and its existing EMEA operations and completed on 3 September 2018.

The consideration for the acquisitions was satisfied through payments of approximately £6.7 million (EUR 7.4 million) in cash, and the issuance of 568,986 consideration shares.



EUR

'000

GBP

'000

Recognised amounts of identifiable net assets (at fair value):




Non-current assets

Useful economic life



Equipment

3 - 7 years

115

104

Customer & contract intangibles

7 years

3,625

3,269



3,740

3,373

Current assets




Trade and other receivables


133

119

Cash and cash equivalents


460

415



593

534

Current liabilities




Trade and other payables


247

223

Current tax liabilities


165

150

Deferred revenue


961

867



1,373

1,240

Non-current liabilities




Deferred tax liability


960

863



960

863

Identifiable net assets


2,000

1,804

Goodwill


9,318

8,404

Total consideration


11,318

10,208

Total consideration satisfied by:




Cash consideration - on acquisition


7,434

6,705

Equity instruments - ordinary shares (568,986 shares in Sanne Group plc)


3,884

3,503

Fair value of consideration payable at acquisition date


11,318

10,208

Net cash outflow arising on acquisition:




Cash consideration


7,434

6,705

Less: cash and cash equivalent balances acquired


(460)

(415)

Net cash outflow arising on acquisition


6,974

6,290

 

Fair value of consideration

The shares were valued based on the closing share price the day before issuance with this amount appropriately allocated between share capital and share premium.

Transaction costs

The Group incurred £971k of acquisition and integration expense in 2018, these costs have been expensed within operating expenses in this financial period and have further been identified as non-underlying as detailed in note 9. Due to the legal form of the deferred consideration on this deal there are also additional payments to be made estimated at £3.2 million which are treated as ongoing remuneration of key management personnel and being expensed over this and future accounting periods, £564k has been expensed for this in the 2018 period, these have been shown in operating expenses and further identified as non-underlying as detailed in note 9.

Trade and other receivables

The fair value of the financial assets acquired includes trade and other receivables with a fair value of £119k. The gross amount receivable is £170k of which £130k was expected to be uncollectible.

Goodwill

Goodwill is represented by assets that do not qualify for separate recognition or other factors. These include the opportunities for new business wins from new customers, the effects of an assembled workforce and synergies from combining operations of the acquiree and the acquirer. Goodwill is not tax deductible.

Effect on the results

During 2018 the AgenSynd Group contributed £1.1 million of revenue and a profit for the year of £428k, excluding acquisition costs regarded as non-underlying, for the period between the date of acquisition and the balance sheet date. If the business had been acquired at 1 January 2018 on a pro rata basis the Group revenue for the period would have been £145.3 million (£2.3 million higher) and net profit for the year of £20.2 million (£0.8 million higher, if non-underlying acquisition costs are excluded).

38. Contingent liabilities

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

39. Post balance sheet events

The Group has entered into an option agreement with Inbhear Management Services Limited and Inbhear Fund Services Limited whereby it will obtain control over the entities, subject to regulatory approvals the upfront consideration is €6.6million plus an earn-out over the next three years capped at €7.8million. Inbhear Management services Limited is incorporated in the Cayman Islands and Inbhear Fund Services Limited is incorporated in the Republic of Ireland. This acquisition provides the Group with the opportunity to expand and grow its platform in the Cayman Islands, enhance the Group's new funds proposition in Dublin and grow its existing EMEA operations. At year end Sanne had not yet obtained control over the entity, due to contractual requirements that have not yet been met at year end.

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

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

 

On 13 March 2020 Sanne reached an agreement to sell its Jersey based private client business to JTC Plc. The consideration to be paid for the business is capped at a maximum of £12m, to be paid in cash upon completion, and subject to the satisfactory migration of clients to JTC Plc. Refer to note 11 for the discontinued operations disclosures.

 


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