We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Sanne Group Plc | LSE:SNN | London | Ordinary Share | JE00BVRZ8S85 | ORD GBP0.01 |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 921.00 | 919.00 | 920.00 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
TIDMSNN
RNS Number : 7255G
Sanne Group PLC
19 March 2020
19 March 2020
Sanne Group plc
(the Group , SANNE or the Company )
Preliminary Results for the year ended 31 December 2019
SANNE, a leading global provider of alternative asset and corporate services, announces its results for the year ended 31 December 2019.
Constant currency 2019 2018 Change change(3) Underlying Total Group(1) ---------- ---------- --------- ----------- Total group revenues(1) GBP165.4m GBP143.0m 15.7% 14.7% ---------- ---------- --------- ----------- Operating profit GBP46.7m GBP44.4m 5.2% 2.9% ---------- ---------- --------- ----------- Profit before tax GBP42.4m GBP42.6m -0.5% -2.1% ---------- ---------- --------- ----------- Diluted earnings per share 23.6p 24.1p -2.1% -4.2% ---------- ---------- --------- ----------- Free cash flow attributable GBP35.1m GBP23.0m 52.6% n.a. to equity holders(4) ---------- ---------- --------- ----------- Operating profit margin 28.2% 31.1% ---------- ---------- --------- ----------- Underlying Continuing Operations(2) ---------- ---------- --------- ----------- Operating profit GBP44.3m GBP41.4m 7.0% 4.7% ---------- ---------- --------- ----------- Profit before tax GBP40.4m GBP39.8m 1.5% -0.5% ---------- ---------- --------- ----------- Diluted earnings per share 22.3p 22.4p -0.4% -2.5% ---------- ---------- --------- ----------- Statutory Continuing Operations ---------- ---------- --------- ----------- Continuing operations revenue GBP159.7m GBP136.2m 17.3% 16.2% ---------- ---------- --------- ----------- Operating profit GBP14.3m GBP21.5m -33.5% -36.3% ---------- ---------- --------- ----------- Profit before tax GBP9.6m GBP19.6m -51.0% -53.2% ---------- ---------- --------- ----------- Diluted earnings per share 3.8p 10.1p -62.4% -64.2% ---------- ---------- --------- ----------- Full year dividend per share 14.1p 13.8p 2.2% ---------- ---------- --------- -----------
(1.) Underlying Total Group results show the combined results for both continuing and discontinued operations presented after the exclusion of non-underlying items. Discontinued operations refers to the Jersey Private Client business.
(2.) Underlying continuing operations performance measures show the contribution from continuing operations only presented after the exclusion of both non-underlying items and a cost allocation in relation to the discontinued operations. A detailed reconciliation is presented later in the statement.
(3.) Constant currency represents the 2019 performance based on 2018 FX rates to eliminate movements due to FX.
(4.) Free cash flow attributable to equity holders is the total cash generated in the year before acquisitions, capital expenditure, financing activities and cash non-underlying costs
Highlights:
- Strong revenue momentum:
o Continuing operations revenue growth of 16.2%(3) with organic growth from continuing operations of 13.5%(3)
o Total Group revenue growth of 14.7%(3,1) with organic total sales growth of 12.1%(3,1)
o Strong new business wins, with annualised revenue of approximately GBP24.5 million secured in 2019 (2018: GBP24.5m) with momentum continuing into 2020
- Second half recovery, as anticipated, and strong cash flow:
o Material improvement in second half underlying operating profit margin to deliver 28.2% for the full year (H1: 26.4%), following decisive action addressing first half challenges
o Underlying operating cashflow generation of 105%
- Active strategic development programme for growth and focus:
o Disposal of legacy Private Client business for up to GBP12 million to focus on core alternative and corporate markets
o Extension of global network with office openings in Tokyo, San Diego and Mumbai
o Acquisition of Inbhear establishing Cayman presence and strengthening Irish service offering
o Investment in Colmore bringing new data analytics offering to our clients
- Statutory profits reflect exceptional one-off costs largely related to earn out payments for LIS and AgenSynd (GBP6.3m) as well as intangible impairment in South Africa (GBP2.4m)
- Final dividend of 9.4p (14.1p total), reflecting the Board's confidence in the prospects of the Group consistent with the Group's progressive dividend policy
Outlook
- Good momentum in Alternatives and Corporate businesses positions SANNE well for further growth in 2020
- Positive alternatives market backdrop with continued growth in addressable market - Healthy pipeline of acquisition opportunities
- Well prepared for potential operational impacts from the COVID-19 outbreak, as a result of the Group's resilient business model
- Board expects to deliver a resilient performance in 2020 and remains confident in the medium and long-term prospects for the Group
Martin Schnaier, Chief Executive Officer of Sanne Group plc, said:
"During 2019 we have continued to build on our strong market position and benefitted from the structural growth drivers within the alternative asset markets that we address. We have also worked successfully to address the challenges facing the business during the first half of the year. We made the decision to continue to invest in our platform to support our growth aspirations, expand our footprint and thereby continue to deliver the highest levels of client service. This investment for growth has been supported by a simplification of the Group through the sale of our legacy Jersey Private Client business.
As we continue into 2020, our core business remains resilient and is underpinned by a robust model. This resilience has been critical for us to have coped well to date with the COVID-19 outbreak from an operational perspective. Many of our offices have been operating under business continuity plans with minimal impact on service delivery to our clients and I would like to thank all our staff for their continued efforts during a difficult time.
We remain confident that SANNE is well positioned to capture the exciting opportunities that exist within our core markets in the years to come."
Enquiries:
Sanne Group plc Martin Schnaier, Chief Executive Officer James Ireland, Chief Financial Officer +44 (0) 1534 722 787 Tulchan Communications LLP Tom Murray Tom Blundell +44 (0) 20 7353 4200
The Company will be hosting a virtual investor and analyst presentation at 9.30am (GMT) this morning. A webcast will be provided and is available by registering at the following link: https://3xscreen.videosync.fi/20200319-sanne-fy19/register
A dial-in facility is also available, and the details are as follows:
Dial-in numbers: UK: 0800 408 7373 International Access Numbers: http://www.speakservecloud.com/dial-in-numbers/ Participant PIN: 4297 --------------------------------------------------
A PDF copy of the 2019 Full Year results presentation will be available to download on SANNE's Investor Relations results and presentation page after the live webcast has ended.
Notes:
SANNE is a leading global provider of alternative asset and corporate services. Established for over 30 years and listed on the Main Market of the London Stock Exchange and a member of the FTSE 250 index, SANNE employs more than 1,700 people worldwide and administers structures and funds that have in excess of GBP250 billion of assets.
Key clients include alternative asset managers, financial institutions, family offices, ultra-high net-worth individuals and corporates.
SANNE operates from a global network of offices located in leading financial jurisdictions, which are spread across the Americas, Europe, Africa and Asia-Pacific.
www.sannegroup.com
THE ANNOUNCEMENT MAY CONTAIN "FORWARD-LOOKING STATEMENTS". FORWARD-LOOKING STATEMENTS SOMETIMES USE WORDS SUCH AS "AIM", "ANTICIPATE", "TARGET", "EXPECT", "ESTIMATE", "INT", "PLAN", "GOAL", "BELIEVE", "SEEK", "MAY", "COULD", "OUTLOOK" OR OTHER WORDS OF SIMILAR MEANING. BY THEIR NATURE, ALL FORWARD-LOOKING STATEMENTS INVOLVE RISK AND UNCERTAINTY BECAUSE THEY RELATE TO FUTURE EVENTS AND CIRCUMSTANCES WHICH ARE BEYOND THE CONTROL OF THE COMPANY. AS A RESULT, THE ACTUAL FUTURE FINANCIAL CONDITION, PERFORMANCE AND RESULTS OF THE COMPANY MAY DIFFER MATERIALLY FROM THE PLANS, GOALS AND EXPECTATIONS SET FORTH IN ANY FORWARD-LOOKING STATEMENTS. ANY FORWARD-LOOKING STATEMENTS MADE HEREIN SPEAK ONLY AS OF THE DATE THEY ARE MADE AND THE COMPANY DOES NOT ASSUME OR UNDERTAKE ANY OBLIGATION OR RESPONSIBILITY TO UPDATE ANY OF THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS ANNOUNCEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT TO THE EXTENT LEGALLY REQUIRED.
Chairman's Statement
2019 has been an important year for SANNE, as the Group continued to build its global platform and capabilities in order to take advantage of the significant structural growth opportunity in our core markets. During the year, we have made a number of significant changes to the structure and operations of the Group to ensure that our expertise and resources are deployed as effectively as possible.
These changes have not been without their challenges, as evidenced by lower profit margins in the first half of the year, but I am pleased with the progress made in the second half to address these issues and restore the Group's margins. Importantly, SANNE continues to capture significant revenue growth across all our key markets as well as continuing to invest in our network and platform for profitable future growth.
Operational Update
We saw strong double-digit revenue growth across all regions during 2019, with the exception of the Channel Islands, where the declining Private Client business diluted the overall result. In particular, the Group's core Alternatives businesses, making up 88% of 2019's total revenues and 92% of continuing revenues, increased by 18% as demand for our services from existing and new clients continued to grow.
While revenue growth remained robust during 2019, underlying profit levels were flat as a result of operational challenges which affected margins during the first half of the year. The decisive actions taken to rectify these issues delivered a material improvement to profit margins during the second half. These actions, combined with the Group's strong cash conversion levels, make SANNE well placed to deliver both top line growth and increased levels of profitability in 2020 and beyond.
Reflecting our confidence in this growth potential, the Board is recommending a final dividend of 9.4 pence per ordinary share (2018: 9.2 pence), taking the total dividend for the year, including the interim dividend of 4.7 pence per share, to 14.1 pence per share (2018: 13.8 pence in total).
Strategic developments
During the year, we continued to invest for profitable growth, both organically and inorganically. We added three new offices to our global footprint in Tokyo, San Diego and Mumbai as well as entering into an agreement to acquire Inbhear which will add a new office in Cayman, a new strategic jurisdiction for SANNE with significant growth potential. We also established a strategic partnership with Colmore to deliver a new data analytics offering to our fund manager client base underscoring our commitment to client service and innovation.
Following the end of the period, SANNE announced that we had reached an agreement to divest our legacy Private Client operations in Jersey. This will simplify the Group's structure and enable management to focus on SANNE's attractive core Alternatives and Corporate businesses.
Our people
During my time as Chairman, SANNE has grown from 290 to over 1,700 employees. I am proud of the culture we have established, and proactive employee engagement remains a key focus for the Group. During 2019 SANNE established a Workforce Advisory Panel to bring employees from all areas of the business and geographies together to provide a forum for them to interact with each other and the non-executive directors from the Board.
During the first half of the year Martin Schnaier replaced Dean Godwin as Chief Executive Officer, following Dean's retirement. Martin has been one of the driving forces behind SANNE's growth since he joined the Group in 2011. I would like to take this opportunity to thank Dean for his immense contribution to transform the business during his seven years as Chief Executive.
The Board has a diverse range of skills and backgrounds. We have decided to appoint a third female director to the Board during the year, in line with best practice. With our continuing investment in, and focus on, technology to enhance our service offering, we are considering how to increase technology input to the Board's deliberations. We are also aware of the fact that Andy Pomfret, Nicola Palios and I will have served on the Board for six years by the time of the next full-year reporting cycle. As a result, while we all remain committed Board members, Board succession planning is actively on the Board's agenda for the coming year.
Environmental, Social and Governance (ESG) - Our role in society
We understand the expectations and commitments made by our investors with regard to Environmental Social & Governance (ESG) considerations. Sustainability is essential to delivering our business plan and growth profile, particularly within our increasingly global footprint. Environmental and social considerations are therefore embedded in our corporate values and commercial operations. Robust governance, transparency and accountability principles also underpin our approach across all areas of business.
With this in mind, our initial objective is to establish a robust baseline, quantifying our environmental and social impact across our operations using 2019 as our baseline year. Subsequently, during 2020 we will be finalising ESG and sustainability policy framework and setting ambitious long term environmental and social policy objectives, including carbon offsetting targets. Further detail is set out in our ESG section of this annual report.
As a professional services provider, our most material contributors to our environmental and carbon footprint are business travel and utilities consumption, both representing essential components of our business operations. For the first time, we have disclosed our 2019 carbon emissions in this annual report.
Looking ahead
The demand for alternative asset investments, increasing regulatory requirements and complexity and propensity for asset managers to seek an outsourced solution for administration are powerful long-term drivers for our market. We have a strong strategy and proposition that positions SANNE well in the sector to make the most of these opportunities. Notwithstanding the uncertain economic backdrop including the current impact being seen as a result of the global COVID-19 outbreak, the Board continues to look to the future with confidence.
Rupert Robson
Chairman
Strategy Review
Vision
The vision for the Group is to be one of the world's leading providers of outsourced alternative asset and corporate administration services.
Client-driven
The Group looks to partner with top tier alternative asset managers, financial institutions and global corporates who require a high-touch professional service due to the bespoke nature of their investment products and activities. These products and activities have become increasingly complex and cross-jurisdictional requiring co-ordinated support across a global platform supported by industry experts in private equity, debt, capital markets and real assets.
SANNE executes this strategy by offering "local excellence on a global platform". It has built a platform spanning 21 locations with over 1700 employees that is preeminent in its core markets and is relied upon by over 1,700 clients with AuA totalling in excess of GBP250bn. Clients choose SANNE not only because of its depth of resource, but also because of its client-centric approach which focuses relentlessly on delivering quality support.
This client-centric approach is predicated on a professional services philosophy and is backed-up by the assurance of its listing on the London Stock Exchange which provides a credible governance framework for a business with over GBP250 billion in assets under administration. Listing also means that SANNE can take a long-term approach with clients requiring stability of service over 10-year plus cycles in an industry where the competitive landscape is dominated by short-term propositions.
Structural market growth
SANNE's continuing growth has stemmed from the combined effects of investor demand for alternative investment strategies, ever increasing regulatory complexity and the rise in outsourcing by asset managers increasing the size of our addressable markets. The trend towards outsourcing is a result of increasing sophistication among clients in relation to outsourcing together with a desire to rationalise supply chains. In this environment, we believe that SANNE is uniquely placed to meet growing industry needs and is determined to develop a sustainable product that helps facilitate global investment in a responsible manner.
Organic growth
The Group's growth strategy is focussed on a series of core initiatives:
1. Drive differentiated, best-in-class client offering across high touch and technology enabled services
This involves investing in the best people and training programmes, developing efficient and best in class processes; investing in new technology-led services and propositions; rolling out new capabilities relevant to specific product groups and adding new services that are relevant to our client base
2. Increase our share of wallet within existing asset manager client groups as well as targeting new ones
This involves cross selling more services to each fund; capturing new fund launches by existing clients; servicing larger client groups across all their alternative investment product strategies and all their operating jurisdictions; displacing competitors as clients seek to rationalise their supply chain; and targeting "new-new" asset manager clients into the platform either through competitive process or encouraging first time outsourcing
3. Roll out our services and product offerings at scale across the entire global footprint
This involves ensuring that we offer all product verticals in every location they are relevant to the same high standards and scale
4. Add new geographic markets to the Group's footprint in line with client requirements
This involves opening offices across new locations to access new markets and clients
5. Invest in resilient and scalable operating platforms and technology to support our client service offering
This involves continuing to build robust capability across Group Service areas such as risk, compliance, human resources and finance as well as investing technology and systems to improve efficiency and capability and develop processes to ensure scalability and efficiency in our processes
Inorganic growth
6. SANNE has a proven track record of finding, acquiring and integrating specialist firms in the administration sector where this enhances the value proposition of the Group and its services. This activity is essentially relationship driven and uses SANNE's capital resources to fund acquisitions, strategic investments and partnerships to augment or accelerate growth across one or more organic growth initiatives. These transactions are always undertaken in a responsible manner after careful due diligence to ensure a shared vision and minimise any risks to the Group. SANNE does not specifically target inorganic growth for its own sake.
Chief Executive Officer's Statement
2019 was another year of strong growth for SANNE as we continued to benefit from our leading position in structural growth markets. The year has also seen us experience and address a number of operational issues as we came to the end of a period of accelerated investment in our global support functions and moved our client service teams across EMEA and CI from product-vertical reporting lines to jurisdictional-vertical reporting lines. I am pleased with the progress that we have made in the second half of the year in addressing these issues and building on our industry leading position.
2019 performance
2019 2018 ----------------------------------------- ----------------------------------------- C.C. rev. GBP 000's Revenue GP Margin Revenue GP Margin growth ---------------- --------------- --------------- ------- --------------- --------------- ------- ---------- EMEA 60,561 33,745 55.7% 48,100 29,643 61.6% 27.6% APM 34,268 23,161 67.6% 30,433 22,103 72.6% 8.6% NA 26,925 13,477 50.1% 21,702 10,808 49.8% 18.7% CI (continuing) 37,953 22,454 59.2% 36,007 21,746 60.4% 5.4% Total continuing revenue 159,707 92,837 58.1% 136,242 84,300 61.9% 16.2% CI discontinuing 5,736 3,700 64.5% 6,761 4,048 59.9% -15.2% Total Group Revenue 165,443 96,537 58.4% 143,003 88,348 61.8% 14.7% --------------- --------------- ------- --------------- --------------- ------- ---------- Note EMEA & CI continuing together grew at 18.2% constant currency.
The Group delivered a strong revenue performance in 2019 consistent with the substantial market opportunity that our business addresses. Total Group revenue grew by 14.7% on a constant currency basis and total organic revenues grew by 12.1% on a constant currency basis, in line with our "double digit" growth guidance. Excluding the Jersey Private Client operations, total continuing revenues grew by 16.2% on a constant currency basis and total continuing organic revenues by 13.5% at constant currency.
North America delivered another very strong year with organic revenue growth of 18.7 % at constant currency. EMEA and CI, excluding the Jersey Private Client operations, together saw organic revenue growth of 13.9% at constant currency with healthy activity across all alternative asset classes. APM grew organic revenues by 8.6% at constant currency, despite the anticipated higher-than-average attrition from end of life structures in Mauritius; these attrition levels are expected to normalise in 2020.
The total Group underlying operating profit margin of 28.2% (2018: 31.1%) was principally affected by two issues which arose in the first half of the year and have now been addressed. First, we incurred higher discretionary overhead expenditure, mostly relating to third party recruitment fees and premises costs, during the first half. Secondly, EMEA and CI over-recruited staff ahead of anticipated growth in these segments.
These issues were decisively addressed in the second half. With respect to overhead expenditure, we have brought together cost controls for the various Group Services functions under the control of the CFO and the finance function. These changes resulted in a rapid and significant improvement in overhead efficiency with overheads as a percentage of revenue reducing to 27.9% in the second half from 32.4% in the first half. Importantly, these improvements in costs and control have been achieved without reducing any investment spend either in the platform or within our growth initiatives.
As part of implementing our new jurisdictionally-based reporting model, we undertook a detailed exercise in the EMEA and CI segments to more closely align client revenues with the resources required to deliver the relevant client services. This will enable better resourcing decisions within these segments and generally improve their operational efficiency. The implementation phase of this exercise began later in the second half so the consequent improvement in gross margin will largely arise 2020.
The Group achieved another period of strong new business activity, with the projected annualised revenues from new business won in the year of approximately GBP24.5m equal to the record level seen in 2018. It is anticipated that the development of these annualised revenues will begin to benefit revenue in 2020 with the fully annualised effect being realised in the following years. The Group has seen this new business momentum continue into 2020.
Cash generation in the year has been very strong. Underlying operating cash conversion was 105% and this performance meant the underlying free cash flow attributable to equity holders was up 52.9% year on year at GBP35.1 million for 2019.
Expanding our footprint and enhancing our capabilities
SANNE continues to expand its global footprint and enhance its capabilities to create long-term value.
SANNE added Japan as a new jurisdiction in 2019 by opening a small office in Tokyo at the start of the year to support demand for our services in that market from existing clients. We have started to see exciting new business wins as well as build a good pipeline of opportunities in this large new market for SANNE. The Group also opened a new office on the West Coast of North America in San Diego. This office was opened to support the growing requirements from existing clients in the area, but also provides the opportunity to build a bigger client base of West Coast asset managers. Finally, the Group opened an office in Mumbai to improve connectivity for our Indian clients and intermediaries, as well to take advantage of new business opportunities that we see arising in India.
The acquisition of Inbhear, announced shortly after the year end, establishes a physical presence for the Group in the Cayman Islands. The Cayman business has a local accounting license and, with the full SANNE business behind it, has made good progress towards obtaining a trust licence. This presence will provide a significant revenue opportunity across the existing client base as well opening up a market for new clients that was difficult for Sanne to unlock on a cost effective basis. The acquisition also builds on our existing Irish presence by bringing a team of highly experienced professionals to augment our existing local offering.
During the year, SANNE also commenced work on a new technology-led data analytics service for our clients through a strategic partnership with Colmore, a leading technology solutions business. This partnership has brought new, leading technology solutions into our service offering that provides clients with real-time, dynamic access to insight reports, analysis and data. We anticipate the first version of this capability will go live with clients by the end of the first quarter of 2020. This is an important partnership for SANNE as we continue to envision technology taking an increasingly important role in the delivery of service to our clients.
We continue to see a large number of potential acquisition opportunities across our markets. SANNE has a track record of targeting and integrating high quality strategic acquisition opportunities to build out the client service offering and proposition as well as expanding our physical footprint.
Strengthening our operational platform
Over recent years, SANNE has been implementing the changes needed to support the Group's evolution from a Jersey-centric local specialist firm to a global platform capable of delivering scalable, sustainable growth.
During the year, as we moved the whole Group on to a model of jurisdiction-based reporting lines, we established dedicated strategies across each product vertical (Private Debt & Capital Markets, Real Estate, Private Equity and Loan Agency) to ensure we continue to go to market as an asset specialist and focus on delivering industry leading service and capability to all our clients. We have done this by taking a group of senior directors from across the Group and aligning them in industry specific teams. In 2019 we also continued to invest further in Business Development, a dedicated function that exclusively targets new asset manager clients drawing on the experience and expertise of the product teams.
Risk and Compliance remain a key focus with both areas undergoing management transition during 2019. We have also reinforced our focus on financial crime and on-boarding. I am pleased to note that these changes have driven a significant improvement in reporting and management of key risk indicators (KRI's) and compliance metrics, as well as enhanced policies, procedures and monitoring capability. Other critical support functions such as Human Resources, Finance and Legal continue to be strengthened and importantly, operate on fully integrated, single platforms to enhance Group-wide efficiency.
This operating platform together with our information technology function have been systematically strengthened and expanded to support the Group as it scales its global offering. Our information technology function has continued to bring together the Group's systems and infrastructure and has built a strong central capability, largely in Belgrade, with teams of developers, support and a threat protection and defence capability.
The resilience of the Group's operational platform has been demonstrated by our resilience during the recent period of civil disruption in Hong Kong and more recently, the Coronavirus outbreak in many of our APAC jurisdictions. We are yet to see any material impact on our business or end markets arising from the current Coronavirus outbreak, however, we continue to pay close attention to the evolving landscape. In the first instance, we could expect to see some elevated costs in the event any of our larger jurisdictions found themselves subject to restrictions that prevented employees from travelling to work for a prolonged period of time. We are also mindful that any sustained period of time with major economies working under remote or restricted travel arrangements could impact the global flow of investment and the demand for alternative investment strategies which fuels our growth.
The decision in the summer of 2019 to undertake a strategic review of the Group's Jersey-based Private Client business was consistent with our strategy of optimising the Group's focus on those markets where we have our core strengths. The Group's significant success in targeting the closed-ended alternatives asset market in recent years had resulted in the Jersey Private Client business representing only 3.5% of Group revenues in 2019. We received significant interest in the business from potential acquirers and were pleased to reach agreement with JTC Plc in March. We wish the team well under the new owners.
Senior Management
We have continued to strengthen the Executive Committee during 2019 with a number of changes and key appointments. James Bermingham joined the Group as our first ever General Counsel, having previously spent more than a decade building a leading Channel Islands and Luxembourg competitor to SANNE. Cindy Peters joined us as a new Group Head of Human Resources; she brings with her a wealth of experience from leading professional services firms and competitor fund administration firms. At the beginning of January 2020, Marie Measures joined the Group as SANNE's first ever Chief Technology Officer. Marie brings with her a depth of technology and management experience from highly regulated financial services firms and will be critical for us in driving further technology excellence into our own business as well as our client service offering.
Outlook
The decision during 2019 to continue investing for growth positions the Group well with momentum going into 2020, within our core Alternatives and Corporate markets. We continue to improve the operational efficiency of the Group and look to build on the hard work carried out during the second half of the year.
As we continue into 2020, we are seeing a healthy pipeline of acquisition opportunities to augment our growth strategy. We remain focussed on the current macro-economic environment, especially the evolving COVID-19 outbreak and potential effects thereof and we expect to deliver a resilient performance in 2020 and remain confident in the medium and long-term prospects for SANNE.
Martin Schnaier
Chief Executive Officer
Segmental Review
At the start of 2019, in response to the significant growth and expansion of the Group over recent years, SANNE adopted a jurisdictionally-based reporting model across our European and South African jurisdictions from the previous product-vertical reporting model. This better aligns our reporting with how SANNE actually manages its business. The Group's NA and APM reporting segments already operated on this basis. As a result, there is no change to the reportable segments in NA and APM, however the old segments of "EMEA Alternatives" and "Corporate and Private Client" across Europe and South Africa have been combined and then split into two new reporting segments of CI (covering the Jersey and Guernsey jurisdictions) and EMEA covering all other European and South African business.
The Group's four reporting segments are therefore now: Europe, Middle East and Africa (EMEA); Channel Islands (CI); North America (NA); and, Asia-Pacific & Mauritius (APM). For comparability, within EMEA and CI we will split out the corporate and private client revenues (making up the old CPC segment) for 2019 and for continuing operations disclose separately the Corporate revenues.
Unless otherwise stated all growth rates discussed in the segmental reviews are on a constant currency basis.
Europe, Middle East and Africa (EMEA)
2019 2018 % growth Constant currency % growth (GBP'000) (GBP'000) ----------- ----------- --------- ------------------ Revenue 60,561 48,100 25.9% 27.6% - Alternatives 57,918 45,941 - CPC 2,643 2,159 Gross profit 33,745 29,643 13.8% 15.2% Margin 55.7% 61.6%
SANNE's EMEA segment operates across Luxembourg, Ireland, the United Kingdom, Spain, France, the Netherlands, Malta and South Africa. This division provides services across all our closed-ended investment strategies (Private Debt & Capital Markets, Real Estate, Private Equity and Loan Agency, including Depositary) as well as the Group's open-ended Hedge and corporate clients.
Once again, 2019 was a year of strong growth in EMEA with revenue growth of 27.6% and organic revenue growth of 20.0%. Whilst the segment has seen gross margin decline in the year as a result of challenges that arose with the implementation of the new jurisdictional reporting model and increased investment in growth initiatives, gross profit grew by 15.2% and 5.4% on an organic basis. Whilst there were no acquisitions completed in the period, the inorganic growth in the segment in 2019 relates to the inclusion of both LIS/CP and AgenSynd for the full year in 2019 for the first time.
The main driver of growth in the year has been the continued strong demand for our services and new fund creations in the Group's core closed-ended alternatives markets of Private Debt & Capital Markets, Private Equity, Real Estate and Loan Agency. Meanwhile, the Group's open-ended hedge fund business, saw good progress through broadening the client base outside South Africa with wins in Dublin as well as further wins in South Africa offset by client losses in the second half. The overall result of which was to keep performance flat on the prior year.
2019 has also seen the completion of the integration of the AgenSynd and LIS acquisitions made in 2018. We have successfully moved AgenSynd's London team into our existing office and collocated the LIS, CP and legacy Sanne Luxembourg businesses. We also completed the integration of all systems, policies and processes as well as all areas of Group Services support such as finance, IT, HR, risk and compliance. The integration of the CP legal entity into our existing Sanne Luxembourg entity is subject only to final regulatory approval which is expected during 2020. Sanne's legacy Loan Agency book has also been migrated onto AgenSynd's industry leading client-facing technology platform and we have started cross selling service capability from the platform to other clients across the Group.
Channel Islands (CI)
2019 2018 % growth Constant currency % growth (GBP'000) (GBP'000) ------------ ------------ --------- ---------- Revenue 43,689 42,768 2.2% 2.4% - Alternatives 26,993 25,784 - CPC 16,696 16,984 Gross profit 26,154 25,794 1.4% 0.2% Margin 59.9% 60.3% Revenue - discontinuing 5,736 6,761 -15.2% -15.2% Gross profit - discontinuing 3,700 4,048 -8.6% -8.6%
Note: The Revenue and Gross profit shown above is for both continuing and discontinued operations unless otherwise stated
SANNE's CI segment operates in both Jersey and Guernsey. The segment provides services across all our closed-ended investment strategies (Private Debt & Capital Markets, Real Estate and Private Equity) albeit, not Loan Agency. The segment also includes the Group's Private Client business, and the majority of the services to corporate clients. Following the year end, SANNE has entered into an agreement for JTC Plc to acquire the Private Client business which is entirely reported within the CI Segment.
Revenues from the new CI segment saw organic growth in the period of 2.2% which reflects the flat year on year performance in the Jersey Corporate book and further reduction in the Jersey Private Client business. Despite the trend in the industry across Europe for new funds to locate in Luxembourg, the Channel Islands segment saw good organic growth across the closed ended alternatives products of Private Debt & Capital Markets, Real Estate and Private Equity at 7.0%.
Whilst the segment, like EMEA, was impacted by the shift at the start of the year to the jurisdiction-orientated reporting model, the gross margin was broadly flat at 59.9% in 2019.
Asia Pacific and Mauritius (APM)
% constant currency APM (GBP'm) 2019 2018 % Change change --------------------- ------- ------- --------- ----------- Revenue 34,268 30,433 12.6% 8.6% Gross profit 23,161 22,103 4.8% 0.9% Gross profit margin 67.6% 72.6%
SANNE's APM segment operates across Hong Kong, Singapore, Shanghai, Tokyo, Mumbai and Mauritius. This segment provides services across all core alternative closed-ended investment products.
The segment delivered organic revenue growth of 8.6% driven by another very strong year across the Asia Pacific offices. These offices alone saw constant currency growth of 36% in the year across the Private Equity and Real Assets fund client base, being SANNE's two main product groups in the region. 2019 saw the opening of the Group's new office in Japan and significant headcount growth across the other offices which are all of broadly similar size.
Mauritius saw a flat revenue result compared with the prior year. This was largely the result of higher than average levels of end of life client attrition seen across what is a mature book of funds. Mauritius has though seen a good level of new business wins in the year reflecting an acceleration in business development following investment in the business development team on the island and in the newly set up sales office in India. During the year the Group also established a dedicated centre of excellence for the preparation of financial statements. This service draws on the depth of accounting expertise in the Mauritian market and both supports the wider group as well as being sold to third parties.
The segment's gross profit margins declined in the year to 67.6%, primarily driven by mix effect as the fast-growing Asia Pacific offices become a larger proportion of the business. In 2019, the Asia Pacific offices represented approximately one third of the segment's overall revenues and the margins in the region are in line with those across our EMEA and CI businesses.
North America (NA)
% constant currency NA (GBP'm) 2019 2018 % Change change --------------------- ------- ------- --------- ----------- Revenue 26,925 21,702 24.1% 18.7% Gross profit 13,477 10,808 24.7% 18.9% Gross profit margin 50.1% 49.8%
SANNE's NA segment primarily services closed ended alternative fund clients in North America. The segment originated with the acquisition of FLSV Fund Administration Services LLC (FAS) in late 2016 and has experienced strong organic growth since.
2019 was another year of strong organic revenue growth for the NA segment at 18.7%. This revenue growth continued to be driven largely by a strong new fund launch environment across the existing client base. The segment's margin remained broadly flat on the prior year at 50.1% due to higher revenues and increased use of support from the Group's Belgrade office, offset by increased growth initiative costs.
During the year, the segment continued to be dominated by services across Private Equity. However we continued to build the segment's client base across the Real Assets and Debt & Private Capital markets. We continue to see growth opportunities from first time outsourcers and new asset managers in the market and an expansion in the types of products offered in the alternatives market. In addition, the business opened a new office on the west coast of North America. This office opened initially to support existing clients in the west coast time zone more closely, but has also afforded an opportunity to target other, new clients in the area.
Chief Financial Officer's Review
Total Group revenue grew by 14.7% in 2019 to GBP165.4 million (2018: GBP143.0m) with continuing operations revenue growth of 16.2%, both at constant currency. Underlying total group operating profit has grown at 2.9% at constant currency to GBP46.7 million (2018: GBP44.4m) as the operational challenges seen in the first half diluted underlying total group operating profit margin to 28.2% from 31.1% in 2018. Statutory operating profit for the year was GBP14.3 million down from GBP21.5 million in 2018. This reflected exceptional one-off costs largely related to acquisition earn-out payments as well as intangible impairment in South Africa.
Underlying total group diluted EPS was down by 4.2% on the prior year at constant currency at 23.6 pence (2018: 24.1p) as a result of increased interest costs under IFRS 16 and a higher underlying effective tax rate.
The Group delivered strong cash returns in the year generating underlying free cash flow attributable to equity holders of GBP35.1m in 2019, an increase of 52.9% on 2018. This performance represents an adjusted underlying operating cash conversion of 105% (2018: 82%).
Group Income Statement
The Group reports key items in the income statement such as revenue and operating profit as well as presenting certain alternative performance measures (APMs) such as organic revenue growth rates and underlying profit measures to allow an additional understanding of the results for the year. In order to provide a clear reconciliation of performance, the Group's statutory results and APMs are presented below on both a total group basis (including results from both continuing and discontinued operations) as well as on a continuing basis.
Total Group Income Statement:
2019 2018 Constant currency (GBP'000) (GBP'000) % growth growth Total Group revenue 165,443 143,003 15.7% 14.7% Revenue - Discontinued operations 5,736 6,761 -15.2% -15.2% Continuing revenues 159,707 136,242 17.2% 16.2% ---------------------------------------- ---------- ---------- --------- ---------- Total group gross profit 96,537 88,348 9.3% 8.1% Gross profit - Discontinued operations 3,700 4,048 -8.6% -8.6% Continuing operations gross profit 92,837 84,300 10.1% 8.9% ---------------------------------------- ---------- ---------- --------- ---------- Total group underlying operating profit 46,688 44,447 5.0% 2.9% Operating profit - Discontinued operations 3,700 4,048 -8.6% -8.6% Non-underlying cost (28,707) (18,882) 52.0% 33.0% Operating profit 14,281 21,517 -33.6% -36.3% ---------------------------------------- ---------- ---------- --------- ---------- Finance cost(1) (4,730) (1,885) Non underlying finance cost (457) - Profit before tax 13,251 23,680 Taxation (4,377) (5,506) Profit after tax 8,874 18,174 Underlying total group DEPS (pence) 23.60 24.11 Reported DEPS (pence) 6.08 12.58
(1) Is the total of other gains and losses, finance costs and finance income
Key performance measures for the underlying continuing business:
2019 2018 (GBP'000) (GBP'000) % change % CC change Continuing revenues 159,707 136,242 17.2% 16.2% Underlying continuing operations operating profit 44,333 41,430 7.0% 4.7% - margin 27.8% 30.4% Underlying continuing operations profit before tax 40,356 39,785 1.4% -0.5% Underlying continuing operations tax charge 7,761 7,455 Underlying continuing operations profit after tax 32,594 32,330 0.8% -1.1% Underlying continuing operations DEPS 22.3p 22.4p -0.4% -2.5%
Revenue
Total group revenue increased by 14.7% on a constant currency basis in the year to GBP165.4 million (2018: GBP143.0m). Organic revenue growth in the period was 12.1% on a constant currency basis for the whole group.
Revenue growth for the continuing operations, representing the Alternatives and Corporate businesses, was higher at 16.2% on a constant currency basis at GBP159.7 million (2018: GBP136.2m). Likewise, organic constant currency revenue growth was higher for the continuing operations at 13.5%.
2019 2018 Constant currency (GBP'000) (GBP'000) % growth growth Total Group revenue 165,443 143,003 15.7% 14.7% LIS 1-month adjustment 1,548 - AgenSynd 8 months adjustment 2,151 - Total Group organic income 161,744 143,003 13.1% 12.1% Discontinued revenue 5,736 6,761 Continuing operations organic revenue 156,008 136,242 14.5% 13.5% ---------- ---------- --------- ----------
Note: See the Alternative Profit Measures section for organic growth calculation methodology
Gross profit
Gross profit in 2019 including the results from both continuing and discontinued operations was GBP96.5m (2018: GBP88.3m), representing constant currency growth of 8.1% (9.3% at actual currency). Gross profit for continuing operations in 2019 was GBP92.8 million (2018: GBP84.3m). This reflected the strong revenue growth in the year, partially offset by a decline in gross profit margin. Gross profit margin for the total group including both continuing and discontinued operations was 58.4%, down 3.4 percentage points from the prior year. This reduction was predominantly the result of margin decline in the EMEA segment where the over-recruitment of staff ahead of anticipated growth had the most significant impact. The margin was also diluted slightly by mix effects in the APM segment where the higher growth Asia Pacific offices operate at gross profit margins in line with EMEA and CI rather than the higher margin Mauritius business. Further investment in growth initiatives such as the dedicated Business Development team and the teams supporting the product strategies described in the CEO's Statement also had an impact. The costs associated with these growth initiatives equated to c.2.5% of Group revenues compared with c.1.5% in 2018.
Disposal of the Jersey Private Client business
The table below shows the underlying financial performance of the Jersey Private Client business that is expected to be sold in 2020. The underlying profit measures for the discontinued business are alternative performance measures that differ from the disclosures made under IFRS 5 in note 11 in the financial statements. The difference is that the underlying measures also include costs that, whilst not directly transferring with the sale, will cease within the continuing Group as a consequence of the disposal or that the Group will be capable of reducing as a result of the disposal. This includes certain business systems licencing fees, office costs and some operating leverage in Group Services. These alternative performance measures allow an additional assessment of the impact of disposing of the operations as compared with the IFRS 5 presentation.
2019 2018 (GBP'000) (GBP'000) % growth Discontinued revenue (per IFRS 5) 5,736 6,761 -15.2% Discontinued gross profit (per IFRS 5) 3,700 4,048 -8.6% Discontinued operating profit (per IFRS 5) 3,700 4,048 -8.6% ------------------------------------------- --------- --------- -------- Allocation direct costs 343 336 2.1% Allocation of overhead costs 1,002 696 44.0% Underlying discontinued operating profit 2,355 3,017 -21.9% ------------------------------------------- --------- --------- -------- Tax charge (per IFRS 5) (370) (405) -8.6% Discontinued profit after tax (per IFRS 5) 3,330 3,643 -8.6% ------------------------------------------- --------- --------- -------- Adjusted discontinued interest costs (296) (240) 23.3% Adjustment to discontinued taxation charge 164 127 29.0% Underlying discontinued profit after tax 1,854 2,499 -25.8% ------------------------------------------- --------- --------- -------- Underlying discontinued DEPS 1.27p 1.73p -26.6%
Overheads
The Group's operating model involves client focused service teams being supported by centralised and integrated Group Services functions including information technology, risk and compliance, human resources, premises, finance and the Group's head office costs. All costs for these functions are included in the Group's overheads.
Total group overheads, excluding non-underlying costs, in 2019 were GBP49.8 million (2018: GBP43.9m), which represented 30.2% of total Group revenue for the year compared with 30.8% in 2018 and 32.4% in the first half of 2019.
Overheads associated with the underlying continuing operations represented 31.3% of the continuing revenues for the Group. This is higher than the total Group result reflecting that it is not possible to remove the entire overhead allocation from the Group immediately on disposing of the discontinued operations.
Non-underlying costs
Non-underlying items within profit measures include share-based payments where they relate to acquisitions; acquisition and integration costs; amortisation and impairment of intangible assets; one-off costs related to the refinancing of the Group's banking facilities undertaken in the year; and costs related to the regulatory settlement in Jersey in the year and other costs. Further detail on non-underlying items, please see note 9 in the financial statements.
Non-underlying costs in 2019 saw an increase to GBP29.2 million (2018: GBP18.9m). The main drivers behind this increase were acquisition earn-outs on LIS (GBP4.2m) and AgenSynd (GBP2.0m) charged to the income statement due to employment related clauses; impairment of contract intangibles in the South African acquisition made in 2016 (GBP2.4m); and costs relating to a regulatory settlement in the year and other non-trading related provisions (GBP1.0m).
Operating profit
Underlying total group operating profit and underlying continuing operations operating profit are key measures of the Group's performance for each of the total operations managed during the year as well as for the ongoing business. Underlying total group operating profit in 2019 was up 2.9% in constant currency on the prior year at GBP46.7 million (2018: GBP44.4 million). Underlying continuing operations operating profit, however, saw better growth of 4.7% on a constant currency basis which reflects the decline seen in the discontinued operations. Statutory operating profit fell in the year to GBP14.3 million (2018: 21.5m) as a result of the increase in non-underlying charges in the year.
Net finance expense
Total Group net finance expense was GBP4.5 million (2018: GBP1.8 million). The increase in 2019 largely reflects the Group's adoption of IFRS 16 for the treatment of operating leases. The interest charge in relation to operating leases in 2019 was GBP1.6 million. The charge before the adoption of IFRS 16 increased as a result of the higher average net debt in the year, as a result of acquisitions and related earn-out payments.
Taxation
The Group's reported effective tax rate for the total Group for the year was 33% (2018: 23.3%). The year on year increase was driven by the increasing proportion of Group profits being earned in jurisdictions with higher tax rates. As with prior years there has been significant non-underlying expenditure impacting on the effective tax rate and when adjusted for non-underlying items, the effective rate for the year for the total Group was 18.8 %
(2017: 18.2%).
Diluted underlying earnings per share
Total Group underlying diluted earnings per share were 23.6 pence (2018: 24.1p), underlying continuing operations diluted earnings per share were 22.3 pence (2018: 22.4p) and reported diluted earnings per share from continuing operations were 6.1 pence (2018: 12.6 pence).
Dividend
The Board continues to adopt a progressive dividend policy where it seeks to increase the absolute value of the dividend each year, subject always to maintaining a sufficient level of dividend cover. Accordingly, the Board is recommending a final dividend of 9.4 pence per ordinary share (2018: 9.2 pence). The final dividend will be payable on 20 May 2020 to Shareholders on the register at close of business on 24 April 2020.
Together with the interim dividend of 4.7 pence per share, this gives a total dividend for the year of 14.1 pence per share (2018: 13.8 pence in total).
Cash flow and working capital
In 2019 SANNE has seen strong cash generation with underlying operating cash conversion of 105% (2018: 82%). The main movements in the cash flow are summarised below:
2019 2018 GBP'000 GBP'000 Total Group underlying operating profit 46,688 44,447 Depreciation (equipment and IFRS16) 8,180 1,915 Other (includes share based payments and movements in provisions) 449 4,264 Change in working capital 3,151 (14,390) ------- -------- Total Group underlying operating cashflows 58,468 36,236 Total cash flows on leases recognised under IFRS 16 (6,364) - Non-cash non-underlying items (2,852) - Underlying operating cashflows 49,252 36,236 ------- -------- 105% 82% Capital exp. (Equipment and software) (4,190) (4,221) Tax (7,641) (7,312) Net finance cost (2,293) (1,732) Underlying free cashflow attributable to equity holders 35,128 22,971 ------- -------- Free cashflow attributable to discontinued operations 3,563 4,321 Free cashflow attributable to continuing operations 31,565 18,650
SANNE's high levels of cash conversion in the year were driven by improved processes and controls around working capital management. This has resulted in trade receivables growing at a much slower rate than revenue and an improvement in the proportionate size of working capital balances on the balance sheet reducing to 19.7% of the year's revenue from 22.6% in 2018. The table below pulls out the key trading working capital items included within the Group's balance sheet:
2019 2018 GBP'000 GBP'000 Contract assets 6,460 6,628 Trade receivables(1) 42,595 40,268 Contract liabilities (17,634) (16,085) Trading working capital 31,421 30,811 -------- -------- Trading working capital as % of continuing revenue 20% 23% Trading working capital as % of discontinued revenue 42% 33%
(1) Includes allowance for doubtful receivables
As highlighted in the table above, the Jersey Private Client business that is being sold has a much larger amount of working capital associated with it as a proportion of revenue than the continuing operations. The sale of this business will therefore result in an improvement in the Group's working capital.
Contract assets, referred to as accrued income in prior years, has remained flat year on year despite strong revenue growth. This reflects the continued focus within SANNE on prudent revenue recognition. Contract liabilities reflect revenue that has been invoiced in advance and have grown in line with the business. Write offs of trade receivables remained at exceptionally low levels during 2019 representing less than 0.1% of revenues.
Capital expenditure in the year largely comprised equipment and software purchases and software development costs. The purchase of equipment and software largely relates to office fit-out costs in the Group. The software development costs relate to the joint development project with Colmore, which will offer the Helios technology and data analytics platform to our global alternatives client base.
The payment of deferred consideration in the cash flow statement relates entirely to the earn-out payment on LIS and CP, which was made in the second half. Whilst we have accrued for the earn-out payment for AgenSynd, this is not due to be settled until March 2020.
Capital management and financing
At 31 December 2019, the Group's net debt was GBP78.1 million (2018: GBP53.0m), including gross cash balances of GBP51.5m (2018: GBP32.4m). This reflected the strong operating cash generation seen in the year and comes after the funding of the earn-out payment for LIS and CP, the minority investment in Colmore and dividends paid to shareholders. As a result, the Group's headline net debt to underlying earnings before interest, taxation, depreciation and amortisation calculated ignoring IFRS 16 (net debt to pre-IFRS 16 EBITDA) ratio was 1.6x at the year end.
As a result of operating a number of regulated subsidiaries within the Group SANNE ring fences certain cash balances to ensure the relevant regulated entities are funded in order to meet minimum capitalisation requirements imposed on them. At 31 December 2019 the cash ring fenced for regulatory capital requirements ("regulatory cash") was GBP10.1 million (2018: GBP8.9m). Excluding this regulatory cash from available cash, the Group's net debt to pre-IFRS 16 EBITDA ratio increases to 1.8x.
The table below sets out how capital has been generated and used in 2019. The Group's approach to capital allocation is to seek to invest the cash generated by the business to earn the best return for the Group's principal stakeholders. Given the low capital requirements to fund organic growth, the principal use of capital has been to fund acquisitions and shareholder dividends. Management aims to do this whilst maintaining a Group net debt to pre-IFRS16 EBITDA ratio of not more than 2.0x. However, the Group's banking covenants are set materially higher with the option to increase this for a period of time so that the Group has additional funding headroom were it to be appropriate to use it.
Cash generated GBP'm Free cashflow before capital expenditure 39 Net debt movement 23 Total 62 ----------------------------------------- ----- Cash used GBP'm Acquisition related 38 Dividends 20 Capital expenditure 4 Total 62 ----------------------------------------- -----
In the first half of the year, SANNE successfully refinanced its debt facilities. The new debt facility is a multicurrency committed GBP150 million revolving credit facility with an uncommitted accordion facility of GBP70 million. The facility has a maturity of February 2023 with extension options of up to two years. At the year end the facility was GBP131.2 million drawn with available cash balances (excluding regulatory cash) of GBP51.5 million. Pre-IFRS 16 EBITDA is used to calculate leverage ratio per the terms of our facilities agreement.
Foreign Exchange
The Group's results are exposed to translation risk from the movement in currencies. Overall, the average movement from currencies have increased reported total group revenue and underlying total group operating profit by GBP1.5 million and GBP1.0 million respectively. During 2019 key individual exchange rates have moved, as shown in the table below.
At 31 December Annual average ----------------- ----------------- Per GBP sterling 2019 2018 % 2019 2018 % ------------------ -------- ------- ----- -------- ------- ------ Euro 1.18 1.11 6.3% 1.14 1.13 0.9% US Dollar 1.33 1.27 4.7% 1.28 1.33 -3.8%
ALTERNATIVE PERFORMANCE MEASURES
The Group uses alternative performance measures (APMs) to provide additional information on the underlying performance of the business. Management use these key measures to assess the underlying performance of the Group's business and the adjusted performance enables further comparability between reporting periods. The APMs used to manage the Group are as follows:
ORGANIC REVENUE GROWTH
Organic revenue growth is quoted for both continuing operations as well as total Group revenue. In the case of continuing operations, it is reported revenue growth adjusted for acquisitions on a like-for-like basis. In the case of total Group revenue, again this shows income from both continuing and discontinued operations on a like-for-like basis for 2019 and 2018 adjusted for acquisitions. To arrive at a like-for-like basis, revenue from any acquisition made in the year is excluded. Where an acquisition was made part way through the prior year, the current year contribution will be reduced to include only the same period as had been included in the prior year. A reconciliation is included in the CFO Review. Organic revenue growth measures are a key performance indicator for the growth of the business excluding the impacts of any acquisitions undertaken. The calculation methodology for both continuing operations and total Group revenue is set out in the CFO's Report.
CONSTANT CURRENCY GROWTH
To highlight our period on period performance, we discuss our results in terms of growth at constant currency. This represents growth calculated after translating both year's performance at the prior year's applicable exchange rates. Overall, the average movement from currencies have increased reported total group revenue and underlying total group operating profit by GBP1.5 million and GBP1.0 million respectively. Therefore constant currency metrics can be arrived at by removing these amounts.
UNDERLYING TOTAL GROUP AND UNDERLYING CONTINUING OPERATIONS APMS
Post the year end the Group has announced that it has entered into an agreement to dispose of its Jersey Private Client business. As such, the statutory results for the Group are presented for continuing operations. To help provide users of these accounts with a view of performance during the year ended 31 December 2019, we present several alternative profit measures aimed at showing both the full Group's performance (including both continuing and discontinued operations) as well as the representative performance for the ongoing business only (continuing operations). In both sets of alternative performance measures, they are adjusted to exclude non-underlying costs. Non-underlying charges are defined as expense items, which if included, would otherwise obscure the understanding of the underlying performance of the Group. These items represent material restructuring, acquisition, integration and costs that are transformational in nature or costs that do not relate to the operating of the Group's business. Further explanation of why non-underlying charges are excluded from APMs is included in note 3 and note 9 of the financial statements.
Underlying total group alternative performance measures are reconciled below but include all results from both continuing and discontinuing operations whilst excluding non-underlying items.
Underlying continuing operations alternative performance measures are also reconciled below. These present results from the continuing operations only, also exclude non-underlying items but are also adjusted to remove certain direct and overhead cost allocations that, whilst not directly transferring with the sale, will cease within the continuing Group as a consequence of the disposal or that the Group will be capable of reducing as a result of the disposal. These alternative performance measures differ to the IFRS 5 definition of continuing and discontinued operations.
Total Group revenue:
2019 2018 (GBP'000) (GBP'000) Continuing operations revenue 159,707 136,242 Discontinued operations revenue 5,736 6,761 Total Group Revenue 165,443 143,003 ---------------------------------- ---------- ----------
Underlying total group operating profit:
2019 2018 (GBP'000) (GBP'000) Underlying total group operating profit 46,688 44,447 Discontinued operations operating profit (note 11) (3,700) (4,048) Non underlying cost (note 9) (28,707) (18,882) Operating profit - continuing 14,281 21,517 ------------------------------------------- ---------- ----------
Underlying total group operating profit is used to explain the operating performance of the total Group in the year including both continuing and discontinued operations on a like for like basis compared with the prior year.
Underlying total group profit before tax:
2019 2018 (GBP'000) (GBP'000) Underlying total profit before tax 42,415 42,562 Discontinued operations profit before tax (note 11) (3,700) (4,048) Non underlying cost and tax (29,164) (18,882) Profit before tax 9,551 19,632 -------------------------------------------- ---------- ----------
Underlying total group profit before tax is a key measure of Group profitability and assesses the Group's combined organic and inorganic profitability after funding costs have been considered.
Underlying total group diluted earnings per share:
2019 2018 (GBP'000) (GBP'000) Underlying total group DEPS 23.6 24.1 Weighted average number of ordinary shares for the purposes of diluted EPS 144,019,578 141,269,560 Underlying total group profit after tax 34,448 34,829 After tax impact of discontinued operations (3,330) (3,643) After tax impact of non-underlying items (25,574) (16,655) Profit after tax from continuing operations 5,544 14,531 ---------------------------------------------------------------------------- ----------- -----------
Underlying total group diluted earnings per share represents underlying total group profit before tax less the underlying effective tax charge for both continuing and discontinued operations in the period divided by the weighted average number of shares in issue for the period. This is a key measure of total underlying profitability for shareholders from all operations owned in the year.
Underlying continuing operations operating profit:
2019 2018 (GBP'000) (GBP'000) Underlying continuing operations operating profit 44,333 41,430 Discontinued operations overhead and direct cost allocation adjustment (1,345) (1,031) Non - underlying items (28,707) (18,882) Operating profit - continuing 14,281 21,517 ---------------------------------------------- ---------- ----------
Underlying continuing operations operating profit is used to explain the operating performance of the ongoing portion of the Group reflecting the disposal and exclusion of the Jersey Private Client business. This is a key profit measure to consider the operating profitability on an ongoing basis.
Underlying continuing operations profit before tax:
2019 2018 (GBP'000) (GBP'000) Underlying continuing operations profit before tax 40,356 39,785 Discontinued operations overhead and direct cost allocation adjustment (1,641) (1,271) Non underlying items (29,164) (18,882) Profit before tax from continuing operations 9,551 19,632 ----------------------------------------------- ---------- ----------
Underlying continuing operations profit before tax is a key measure of Group profitability for the ongoing business and assesses the Group's combined organic and inorganic profitability after funding costs have been considered but excluding those operations being sold.
Underlying continuing operations diluted earnings per share:
2019 2018 (GBP'000) (GBP'000) Underlying continuing DEPS 22.3 22.4 Weighted average number of ordinary shares for the purposes of diluted EPS 144,019,578 141,269,560 Underlying continuing profit after tax 32,594 32,330 After tax impact of non-underlying items (25,574) (16,655) After tax impact of additional discontinued operation cost (1,476) (1,144) Profit after tax from continuing operations 5,544 14,531 ---------------------------------------------------------------------------- ----------- -----------
Underlying total group operating profit margin and underlying continuing operations operating profit margin
Underlying total group operating profit margin is the underlying total group operating profit as a percentage of total Group revenue. This is a key measure of total Group profitability during the year and demonstrates the efficiency of the Group. Underlying continuing operations operating profit margin is the underlying continuing operations operating profit as a percentage of continuing operations revenue. This is a key measure of the ongoing Group's profitability after the disposal of the Jersey Private Client business.
UNDERLYING OPERATING CASH FLOW
Underlying operating cash flow represents the cash generated by total operations in the year, adding back the cash charges within non-underlying items and reducing for the total cash out flow in relation to the Group's leases that have been accounted for under IFRS 16. A reconciliation is included in the CFO Review.
UNDERLYING OPERATING CASH CONVERSION
Underlying operating cash conversion is the underlying operating cash flow as a percentage of underlying operating profit. This measures the Group's cash-generative characteristics from its underlying operations and is used to evaluate the Group's management of working capital.
2019 2018 (GBP'000) (GBP'000) Underlying operating cashflows 49,252 36,236 Total Group underlying operating profit 46,688 44,447 Underlying operating cash conversion 105% 82% ------------------------------------------ ---------- ----------
UNDERLYING FREE CASH FLOW ATTRIBUTABLE TO EQUITY HOLDERS
Free cash flow attributable to equity holders represents our underlying free cash flow prior to any acquisitions, refinancing or share capital cash flows. It is a key measure of cash earned for the shareholders of the Group that can be used to generate cash returns or be invested in the future growth of the business.
2019 2018 (GBP'000) (GBP'000) Underlying free cashflow attributable to equity holders 35,128 22,971 Capital exp. (Equipment and software) 4,190 4,221 Net finance cost 2,293 1,732 Lease liability payments 4,757 - Non underlying cashflow items (924) (1,306) Net cash from operating activities 45,444 27,618 ------------------------------------------- ---------- ----------
UNDERLYING EFFECTIVE TAX RATE
The underlying effective tax rate is determined as the reported tax rate for the Group adjusted for the tax effects of non-underlying costs. We consider the underlying effective tax rate to be an appropriate measure, as it best reflects the applicable tax payable in relation to the underlying performance of the Group. A reconciliation is provided in note 10 to the financial statements for the reported and total group underlying effective tax rate. The table below reconciles the underlying tax charge for underlying continuing operations and the underlying effective tax rate is this charge divided by the underlying continuing operations profit before tax:
2019 2018 (GBP'000) (GBP'000) Underlying tax charge (per note 9 of the financial statements) 7,967 7,733 Income tax expense from discontinued operations (per note 9) (370) (405) Underlying continuing tax charge adjustment (per CFO Review) 164 127 Underlying continuing tax charge 7,761 7,455 -------------------------------------------------- ---------- ----------
NET DEBT
This refers to the Group's net indebtedness that is calculated by taking the Group's gross debt balance and reducing it by gross cash balances.
Consolidated Income Statement
For the year ended 31 December 2019
2019(1) 2018(1) Note GBP'000 GBP'000 --------------------------------------------------------- ---- -------- -------- Total sales including those from discontinued operations 165,443 143,003 Continuing operations Revenue 6 159,707 136,242 Direct costs (66,870) (51,942) --------------------------------------------------------- ---- -------- -------- Gross profit 5 92,837 84,300 --------------------------------------------------------- ---- -------- -------- Other operating income 185 158 Operating expenses (78,741) (62,941) --------------------------------------------------------- ---- -------- -------- Operating profit 14,281 21,517 --------------------------------------------------------- ---- -------- -------- Comprising: Underlying operating profit from continuing operations 42,988 40,399 Non-underlying items within operating profit from continuing operations 9 (28,707) (18,882) --------------------------------------------------------- ---- -------- -------- 14,281 21,517 --------------------------------------------------------- ---- -------- -------- Other gains and losses (216) (132) Finance costs 7 (4,672) (1,909) Finance income 8 158 156 --------------------------------------------------------- ---- -------- -------- Profit before tax 9,551 19,632 --------------------------------------------------------- ---- -------- -------- Comprising: Underlying profit before tax from continuing operations 38,715 38,514 Non-underlying items within profit from continuing operations 9 (29,164) (18,882) --------------------------------------------------------- ---- -------- -------- 9,551 19,632 --------------------------------------------------------- ---- -------- ======== Tax 10 (4,007) (5,101) --------------------------------------------------------- ---- -------- -------- Profit after tax from continuing operations 5,544 14,531 --------------------------------------------------------- ---- -------- -------- Discontinued operations 11 3,330 3,643 --------------------------------------------------------- ---- -------- -------- Profit for the year 8,874 18,174 --------------------------------------------------------- ---- -------- -------- Comprising: Underlying operating profit from continuing operations 42,988 40,399 Underlying operating profit from discontinued operations 3,700 4,048 --------------------------------------------------------- ---- -------- -------- Total underlying operating profit 46,688 44,447 Non-underlying items within operating profit from continuing operations (28,707) (18,882) Other gains and losses from continuing operations (216) (132) Finance costs from continuing operations (4,215) (1,909) Finance income from continuing operations 158 156 Non-underlying items (457) - Total tax (4,377) (5,506) --------------------------------------------------------- ---- -------- -------- Profit for the year 8,874 18,174 --------------------------------------------------------- ---- -------- -------- Earnings per ordinary share ("EPS") from continuing operations (expressed in pence per ordinary share) Basic 12 3.8 10.3 Diluted 12 3.8 10.1 ---------------------------------------------------- ------ ----------- ----------- Underlying basic 12 21.6 22.1 Underlying diluted 12 21.3 21.6 ---------------------------------------------------- ------ ----------- ----------- Earnings per ordinary share ("EPS") from continuing and discontinued operations (expressed in pence per ordinary share) Basic 12 6.2 12.9 Diluted 12 6.1 12.6 ---------------------------------------------------- ------ ----------- ----------- Underlying basic 12 23.9 24.7 Underlying diluted 12 23.6 24.1 ---------------------------------------------------- ------ ----------- ----------- 1 Refer to note 11 for details relating to the discontinued operations.
The notes are an integral part of these Consolidated Financial Statements.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2019
2019 2018 Note GBP'000 GBP'000 ------------------------------------------------- ---- -------- -------- Profit for the year 8,874 18,174 ------------------------------------------------- ---- -------- -------- Other comprehensive (expense)/income: Items that will not be reclassified subsequently to profit and loss: Actuarial (loss) / gain on defined benefit retirement obligation 33 (67) 70 Income tax relating to items not reclassified 10 (11) Revaluation of minority equity investment 20 (715) - Items that may be reclassified subsequently to profit and loss: Exchange differences on translation of foreign operations (10,663) 8,756 ------------------------------------------------- ---- -------- -------- Total other comprehensive (expenses)/income for the year (11,435) 8,815 ------------------------------------------------- ---- -------- -------- Total comprehensive (expenses)/income for the year (2,561) 26,989 ------------------------------------------------- ---- -------- -------- Comprising: Total comprehensive (expenses)/income for the year from continuing operations (5,891) 23,346 Total comprehensive income for the year from discontinued operations 3,330 3,643 ------------------------------------------------- ---- -------- -------- Total comprehensive (expenses)/income for the year (2,561) 26,989 ------------------------------------------------- ---- -------- --------
The notes are an integral part of these Consolidated Financial Statements.
Consolidated Balance Sheet
As at 31 December 2019
2019 2018 Note GBP'000 GBP'000 -------------------------------------- ---- -------- -------- Assets Non-current assets Goodwill 16 180,414 188,928 Other intangible assets 17 45,388 66,122 Equipment 18 9,984 9,973 Minority equity investment 20 8,632 - Deferred tax asset 28 8,324 2,082 Right-of-use asset 21 32,733 - -------------------------------------- ---- -------- -------- Total non-current assets 285,475 267,105 -------------------------------------- ---- -------- -------- Current assets Trade and other receivables 22 47,941 44,772 Cash and bank balances 51,454 32,411 Contract assets 23 6,460 6,628 Disposal group held for sale 11 2,979 2,488 -------------------------------------- ---- -------- -------- Total current assets 108,834 86,299 -------------------------------------- ---- -------- -------- Total assets 394,309 353,404 -------------------------------------- ---- -------- -------- Equity Share capital 25 1,466 1,460 Share premium 203,423 200,270 Own shares 26 (1,166) (1,470) Shares to be issued 32 7,723 12,278 Retranslation reserve (13,134) (2,471) Accumulated losses (26,487) (17,399) -------------------------------------- ---- -------- -------- Total equity 171,825 192,668 -------------------------------------- ---- -------- -------- Non-current liabilities Borrowings 27 129,572 85,364 Deferred tax liabilities 28 15,931 13,395 Defined benefit retirement obligation 33 684 701 Other liabilities 29 - 4,914 Provisions 30 2,024 1,198 Lease liability 21 33,549 - -------------------------------------- ---- -------- -------- Total non-current liabilities 181,760 105,572 -------------------------------------- ---- -------- -------- Current liabilities Trade and other payables 29 14,472 34,467 Current tax liabilities 3,301 3,910 Provisions 30 451 452 Contract liabilities 31 17,634 16,085 Lease liability 21 4,291 - Disposal group held for sale 11 575 250 -------------------------------------- ---- -------- -------- Total current liabilities 40,724 55,164 -------------------------------------- ---- -------- -------- Total equity and liabilities 394,309 353,404 -------------------------------------- ---- -------- --------
The consolidated financial statements were approved by the Board of Directors on 18 March 2020 and signed on its behalf by:
Martin Schnaier James Ireland Chief Executive Officer Chief Financial Officer
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
Shares Share Share to be Retranslation Accumulated Total capital premium Own shares issued reserve losses equity Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ---------------------------- ---- -------- -------- ---------- -------- ------------- ----------- -------- Balance at 1 January 2018 1,416 171,850 (1,141) 13,373 (11,227) (17,583) 156,688 ---------------------------- ---- -------- -------- ---------- -------- ------------- ----------- -------- Profit for the year - - - - - 18,174 18,174 Other comprehensive income for the year Actuarial gain on the defined benefit retirement obligation - - - - - 70 70 Income tax relating to items not reclassified - - - - - (11) (11) Exchange differences on translation of foreign operations - - - - 8,756 - 8,756 ---------------------------- ---- -------- -------- ---------- -------- ------------- ----------- -------- Total comprehensive income for the year - - - - 8,756 18,233 26,989 ---------------------------- ---- -------- -------- ---------- -------- ------------- ----------- -------- Issue of share capital - acquisitions 25 44 28,420 - (4,043) - - 24,421 Dividend payments 15 - - - - - (18,376) (18,376) Share-based payments 32 - - - 2,948 - 327 3,275 Net buyback of own shares 26 - - (329) - - - (329) ---------------------------- ---- -------- -------- ---------- -------- ------------- ----------- -------- Balance at 31 December 2018 1,460 200,270 (1,470) 12,278 (2,471) (17,399) 192,668 ---------------------------- ---- -------- -------- ---------- -------- ------------- ----------- -------- Change in accounting policy(1) - - - - - (556) (556) ---------------------------- ---- -------- -------- ---------- -------- ------------- ----------- -------- Restated balance at 1 January 2019 1,460 200,270 (1,470) 12,278 (2,471) (17,955) 192,112 ---------------------------- ---- -------- -------- ---------- -------- ------------- ----------- -------- Profit for the year - - - - - 8,874 8,874 Other comprehensive expense for the year Actuarial loss on the defined benefit retirement obligation - - - - - (67) (67) Income tax relating to items not reclassified - - - - - 10 10 Revaluation of equity investment - - - - - (715) (715) Exchange differences on translation of foreign operations - - - - (10,663) - (10,663) ---------------------------- ---- -------- -------- ---------- -------- ------------- ----------- -------- Total comprehensive expense for the year - - - - (10,663) 8,102 (2,561)
---------------------------- ---- -------- -------- ---------- -------- ------------- ----------- -------- Issue of share capital - acquisitions 25 6 3,153 - (3,159) - - - Dividend payments 15 - - - - - (20,029) (20,029) Share-based payments 32 - - - 2,337 - - 2,337 Shares vesting - - 559 (3,733) - 3,395 221 Net buyback of own shares 26 - - (255) - - - (255) ---------------------------- ---- -------- -------- ---------- -------- ------------- ----------- -------- Balance at 31 December 2019 1,466 203,423 (1,166) 7,723 (13,134) (26,487) 171,825 ---------------------------- ---- -------- -------- ---------- -------- ------------- ----------- --------
(1) Refer to note 36 for details relating to changes in accounting policy, transitioning in the new IFRS 16 accounting standard.
Consolidated Cash Flow Statement
For the year ended 31 December 2019
2019 2018 Note GBP'000 GBP'000 --------------------------------------------------- ---- -------- -------- Operating profit from: Continuing operations 14,281 21,517 Discontinued operations 3,700 4,048 --------------------------------------------------- ---- -------- -------- Operating profit including discontinued operations 17,981 25,565 Adjustments for: Depreciation of equipment 18 2,867 1,915 Depreciation of right-of-use asset 21 5,313 - Lease liability interest 21 (1,607) - Amortisation of other intangible assets 17 16,487 15,730 Impairment of other intangible assets 17 2,425 55 Share-based payment expense 32 2,377 3,376 Disposal of equipment 18 64 257 (Decrease) / increase in provisions 30 (147) 1,144 Defined benefit retirement obligation movement 33 (68) 11 Deferred consideration adjustment 4,242 - Other liabilities - 1,267 --------------------------------------------------- ---- -------- -------- Operating cash flows before movements in working capital 49,934 49,320 --------------------------------------------------- ---- -------- -------- Increase in receivables (3,492) (16,241) Increase in contract liabilities 1,874 2,552 Increase / (decrease) in payables 4,769 (701) --------------------------------------------------- ---- -------- -------- Cash generated by operations 53,085 34,930 --------------------------------------------------- ---- -------- -------- Income taxes paid (7,641) (7,312) --------------------------------------------------- ---- -------- -------- Net cash from operating activities 45,444 27,618 --------------------------------------------------- ---- -------- -------- Investing activities Interest received 158 156 Purchases of equipment 18 (3,914) (4,221) Software development costs paid (276) - Payment of deferred consideration (28,638) (14,407) Acquisition of subsidiaries - (29,279) Acquisition of minority equity investment 20 (9,347) - --------------------------------------------------- ---- -------- -------- Net cash used in investing activities (42,017) (47,751) --------------------------------------------------- ---- -------- -------- Financing activities Dividends paid 15 (20,029) (18,376) Interest on bank loan (2,293) (1,732) Buyback of own shares (255) (329) Capitalised loan costs 27 (1,711) - Redemption of bank loans 27 (85,850) (4,000) New bank loans raised 27 132,060 24,850 Lease liability payments (4,757) - --------------------------------------------------- ---- -------- -------- Net cash from financing activities 17,165 413 --------------------------------------------------- ---- -------- -------- Net increase / (decrease) in cash and cash equivalents 20,592 (19,720) --------------------------------------------------- ---- -------- -------- Cash and cash equivalents at beginning of year 32,411 50,803 Effect of foreign exchange rate changes (1,549) 1,328 --------------------------------------------------- ---- -------- -------- Cash and cash equivalents at end of year 51,454 32,411 --------------------------------------------------- ---- -------- -------- Cash flows from continuing operations 17,029 (24,041) Cash flows from discontinued operations 11 3,563 4,321 --------------------------------------------------- ---- -------- -------- Net increase / (decrease) in cash and cash equivalents 20,592 (19,720) --------------------------------------------------- ---- -------- --------
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
1. General information
Sanne Group plc (the "Company"), incorporated in Jersey on 26 January 2015, is a registered public company limited by shares with a Premium Listing on the London Stock Exchange. The registered office and principal place of business is IFC 5, St. Helier, Jersey, JE1 1ST. The principal activity of the Company and its subsidiaries (collectively the "Group") is the provision of alternative asset and corporate administration services.
In the opinion of the Directors there is no ultimate controlling party.
These consolidated financial statements are presented in Pounds Sterling. Foreign operations are included in accordance with the policies set out in note 3.
The accounting policies have been applied consistently in the current and prior year, other than as set out below.
2. Adoption of new and revised Standards
Standards in issue not yet effective
Certain new accounting standards and interpretations have been published, which are not effective for 31 December 2019 reporting periods and have not been early adopted by the Group. These standards, listed below, are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.
(a) Definition of Material - Amendments to IAS 1 and IAS 8
(b) IFRS 17 Insurance Contracts
(c) Revised Conceptual Framework for Financial Reporting. The Group does not rely on the Framework in determining its accounting policies for transactions. The IFRS standards sufficiently cover all transactions.
New and revised standards effective for the year
The Group adopted the new IFRS 16 'Leases' accounting standard on 1 January 2019, replacing IAS 17. The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. It introduced a single lessee accounting model whereby a lessee is required to recognise a right-of-use asset and a lease liability for all leases with a lease term exceeding 12 months. The Group assessed the impact of the new standard to be significant. Please refer to note 36 for further details relating to the adoption of the new standard. The depreciation on the right-of-use asset will be accounted for separately from the interest expense incurred on the lease liability in the consolidated income statement. The Group elected to make use of the modified retrospective approach for transition and have not restated comparative amounts. The lease liability is measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate at transition date. Right-of-use assets will be measured as if the standard has always been applied. There is no significant impact on the net profit after implementing the new standard.
The Group adopted IFRIC 23 'Uncertainty over Income Tax Treatments' on 1 January 2019. The Group's historic approach to 'Uncertainty over Income Tax Treatments' is in line with the new IFRIC 23. Thus, there was no material impact on the amounts reported in the financial statements. Additional disclosure had been made in note 10 to address the disclosure requirements of the new IFRIC.
In the current year, the Group applied a number of amendments to IFRSs and new interpretations issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2019. Their adoption has not had any material impact on the disclosures or on the amounts reported in these consolidated financial statements. The most significant of these standards are set out below.
(a) Annual improvements 2015-2017 Cycle
(b) Prepayment Features with Negative Compensation - Amendments to IFRS 9
(c) Long-term Interests in Associates and Joint Ventures - Amendments to IAS 28, and
(d) Plan Amendment, Curtailment or Settlement - Amendments to IAS 19
3. Significant accounting policies
Basis of accounting
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The consolidated financial statements have also been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB") to the extent that such standards have been endorsed by the European Union.
The consolidated financial statements have been prepared on the historical cost basis, except for certain financial assets measured at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. The principal accounting policies adopted are set out below.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) during each year. Control is achieved where the Company:
-- has the power over the investee; -- is exposed, or has rights, to variable return from its involvement with the investee; and -- has the ability to use its power to affect its returns.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income when the Company obtains control over the subsidiary and ceases when the Company loses control over the subsidiary. Where necessary, adjustments are made to the financial results of the subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Under Article 105(11) of the Companies (Jersey) Law 1991, the Directors of a holding company need not prepare separate financial statements (i.e. Company only financial statements). Company only financial statements for the Company are not prepared unless required to so by the members of the Company by ordinary resolution. The members of the Company had not passed a resolution requiring separate financial statements and, in the Directors' opinion, the Company meets the definition of a Holding company. As permitted by law, the Directors have elected not to prepare separate financial statements.
Going concern
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least the next 12 months from the date of approval of these consolidated financial statements. The Directors have reviewed the Group's financial projections and cash flow forecasts and believe, based on those projections and forecasts, that it is appropriate to prepare the consolidated financial statements of the Group on the going concern basis. The Group has healthy cash inflow through a good pipeline of existing and new customers, the Group also has finance facilities available. Accordingly, they have adopted the going concern basis of accounting in preparing the consolidated financial statements. Further detail is contained in the viability statement included in the Audit Committee report in the Group's Annual Report and Accounts.
Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred and as non-underlying items within operating expenses.
The acquiree's identifiable assets and liabilities that meet the conditions for recognition under IFRS 3 (2008) are recognised at their fair value at the acquisition date.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
When the consideration transferred by the Group in a business combination includes an asset or liability resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement' period' (which cannot exceed one year from the acquisition date) concerning the facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates at fair value with the corresponding gain or loss being recognised in profit or loss, as non-underlying items within operating expenses.
Goodwill
Goodwill is initially recognised and measured as set out above.
Goodwill is not amortised but is reviewed for impairment at least annually or if indicators of impairment are identified. For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. Refer to note 16.
Intangible assets
Intangible assets acquired in a business combination are initially recognised at their fair value at the acquisition date (which is regarded as the cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and any impairment losses.
The Group performs assessments at the end of each reporting period, in order to identify any possible indicators of impairment, this is a separate assessment from the annual Goodwill impairment review. Should there be any indicators of impairment, the Group estimates the recoverable amount of the asset and if an impairment should be recognised.
Contract intangibles
Contract intangibles consist of the recognition of the legal relationships gained through acquisition. On initial recognition the values are determined by relevant factors such as business product life-cycles, length of notice, ease of movement and general attrition. These intangibles are amortised over their useful lives using the straight-line method, which is estimated at four to eight years, based on management's expectations and client experience. The amortisation charge for the year is included in the consolidated income statement under 'operating expenses'.
Customer intangibles
Customer intangibles consist of the recognition of value attributed to the customer lists through acquisition. On initial recognition the values are determined by relevant factors such as the Group's growth pattern and ability to cross-sell to existing clients. Subsequently, these intangibles are amortised over their useful lives using the straight-line method, which is estimated at four to ten years, based on management's expectations and client experience. The amortisation charge for the year is included in the consolidated income statement under 'operating expenses'.
Software
Costs associated with maintaining software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the recognition criteria is met.
The costs related to software under development are categorised between research and development expenditure. Research expenditure and development expenditure that do not meet the recognition criteria are recognised as expenses when incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.
Amortisation will commence once the asset is ready for use, as intended by management.
Interest income
Interest income is recognised using the effective interest method. This is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, unless the assets subsequently become credit impaired. In the latter case, the effective interest rate is applied to the amortised cost of the financial asset. Interest is recognised on an accruals basis.
Revenue recognition
Revenue is measured at transaction price. The transaction price is the amount of consideration that the Group expects to receive in exchange for the services rendered.
Rendering of services
Revenue is based on and charged on three principal elements per the contracts with customers, 1) Assets under management (open ended funds) where revenue is charged as a percentage of the assets under management, 2) Assets under management (closed ended funds) where fees are also charged as a percentage of assets under management, 3) Service based fees where the revenue is charged based on an agreed fee structure for various services being provided. All revenue is recognised over time as the services are rendered and clients benefit from these services.
The Group provides a number of services to its customers, ranging from trust / fiduciary services, accounting and administrative activities. As the revenue recognition under IFRS 15's "five step model" is identical for all Sanne's services, the five step approach is applied as follows:
Step 1 - Identify the contract;
Contractual agreements exist between SANNE and all clients which creates enforceable rights and obligations.
Step 2 - Identify performance obligations
The services to the customer set out in the agreement are separately identifiable. Each service set out in the contract is distinct as each component can be performed and delivered separately. The different services have been identified as separate and distinct services, thus being separate performance obligations.
Step 3 - Determine transaction price
Service based fees are based on either pre-set (fixed) fees which are based on the expected amount of work (time spent at the relevant charge-out rates) to be performed or on a variable agreement where it is based on the actual amount of work (time spent at the relevant charge-out rates) but only to be determined once the work is finalised.
Determining the transaction price for these fees will vary with the amount of time spent which is supported by time sheets.
Step 4 - Allocate transaction price
The transaction prices are allocated to the performance obligations (the provision of the services) based on the stand-alone selling prices. Sanne uses the best available data to determine a price for the services rendered which is based on time spent at a specific charge out rate.
Step 5 - Recognise revenue
Sanne concluded that the obligations are satisfied over time. We recognise the revenue for these services on a time spent basis as the performance obligations are satisfied over time.
Contracts with customers do make provision for annual transaction price increases, generally in line with a relevant local inflation measures. These increases do not change the performance obligations, and the increased prices are applied prospectively when revenue is recognised.
Revenue is recognised in the subsidiary where the contract with customers is based. The segmental reporting is presented based on the jurisdiction in which the specific client relationships are owned and managed. Therefore, the revenue stated in the segmental reporting is presented based on the jurisdiction where revenue is generated but may not be the same as the contracted jurisdiction.
Contract assets
Contract assets represent the billable provision of services which have been rendered and where performance obligations have been met but clients have not been invoiced at the reporting date. These were previously called "accrued income" in SANNE's consolidated financial statements. Contract assets are recorded based on agreed fees to be billed in arrears and time spent as performance obligations are met, based on charge-out rates in force at the work date, less any specific provisions against the value of contract assets where recovery may not be made in full.
Contract liabilities
Contract liabilities represent fees billed in advance in respect of services under contract and give rise to a trade receivable. Contract liabilities are released to revenue on a time apportioned basis in the appropriate accounting period. These were previously called "deferred income" in SANNE's consolidated financial statements.
Leases
Up to 31 December 2018, all leases were classified as operating leases. Rentals payable under operating leases were charged to expenses on a straight-line basis over the term of the relevant lease except where another more systematic basis was more representative of the time pattern in which economic benefits from the lease asset were consumed.
On 1 January 2019 the Group adopted IFRS 16 'Leases'. The Group assesses its contracts to determine if a contract is or contains a lease. A contract contains a lease if it conveys the right to control the use of an identified asset for a period, in exchange for consideration. At initial recognition of a new lease, the lease liability is recognised as the present value of future payments, discounted using the incremental local borrowing rate (unless the interest implicit to the lease is available for use). A corresponding right-of-use asset is recognised on initial recognition and is measured at an amount equal to the lease liability, less any lease incentives and lease payments made before the commencement date, plus any initial direct costs and dilapidation costs.
Subsequently the Group accounts for lease payments by allocating them between finance costs and the lease liability. The finance cost is charged to profit or loss over the lease period. The right-of-use asset is depreciated over the shorter of the asset's useful life or the lease term on a straight-line basis.
The Group made use of the practical expedient whereby leases with a lease term of 12 months or less are accounted for as a short-term lease. Consequently, no lease liability or right-of-use asset is recognised thereon and the lease payments will be accounted for in the consolidated income statement on a straight-line basis.
The Group also made use of the 'low value asset' practical expedient and defines low value assets as those assets with a purchase price for a new and unused asset of GBP5,000 or lower.
Foreign currencies
The separate financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in Pounds Sterling, which is the functional currency of the company, and the presentation currency for the consolidated financial statements.
In preparing the separate financial statements of the subsidiary companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognised in the Consolidated Income Statement in the year in which they arise.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's operations with a functional currency other than Pounds Sterling are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the exchange rates at the date of the transactions. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity in the translation reserve.
On the disposal of a foreign operations (i.e. a disposal of the Group's entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, loss of joint control over a jointly controlled entity that includes a foreign operation, or loss of significant influence over an associate that includes a foreign operation), all of the accumulated exchange differences in respect of that operation attributable to the Group are reclassified to profit or loss.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income and accumulated in the translation reserve in the consolidated statement of changes in equity.
Defined contribution schemes
Payments to defined contribution retirement benefit schemes are recognised as an expense when employees have rendered services entitling them to contributions.
Defined benefit RETIREMENT OBLIGATION
The Group has a defined benefit retirement obligation in Mauritius due to a regulatory requirement. The defined benefit retirement obligation is recognised in line with IAS 19.
The liability recognised in the consolidated balance sheet in respect of the defined benefit retirement obligation is the present value of the defined benefit retirement obligation at the end of the reporting period less the fair value of plan assets, however the Group has no plan assets.
The defined benefit retirement obligation is calculated at half year and year end by independent qualified actuaries using the projected unit credit method.
The present value of the defined benefit retirement obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related defined benefit retirement obligation.
Defined benefit costs are categorised as follows:
-- service cost -- net interest expense or income; and -- re-measurement
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past-service costs are recognised immediately in profit or loss.
Earnings per share
The Group presents basic and diluted earnings per share. In calculating the weighted average number of shares outstanding during the period any share restructuring is adjusted by a factor to make it comparable with the other periods. For diluted EPS, the weighted average number of ordinary shares is adjusted to assume conversion of all dilutive potential ordinary shares.
Both basic and diluted EPS measures are shown for the statutory profit position. The Group has also presented an alternative version with profit adjusted for non-underlying items to provide an additional understanding of the financial performance of the Group (note 12).
Taxation
Tax on the profit or loss for the period comprises current and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the consolidated statement of comprehensive income as it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
The carrying amount of the deferred tax asset is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been enacted or substantively enacted at the balance sheet date.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Current tax and deferred tax for the year
Current and deferred tax are recognised in the consolidated income statement, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.
Equipment
Equipment is stated at cost less accumulated depreciation and any recognised impairment loss. Software that forms an integral part of the related hardware, where the hardware cannot be operated without the specific software is treated as equipment.
Depreciation is recognised so as to write off the cost of assets less their residual values over their useful lives, using the straight-line method, on the following bases:
Computer equipment 3 to 5 years Computer software 3 years
Fixtures and equipment 5 to 24 years
The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period with the effect of any changes in estimate accounted for on a prospective basis.
The gain or loss arising on the disposal or scrappage of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in profit or loss.
Impairment of tangible and intangible assets (excluding goodwill)
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
The recoverable amount of an asset is the higher of its fair value less costs to sell or the value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.
Financial instruments
Financial assets and financial liabilities are recognised in the Group's consolidated balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Financial assets
All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value.
Cash and cash equivalents
Cash and cash equivalents include cash on hand and deposits held at call with banks.
Call deposits held with the bank are redeemable to the group within 24 hours' notice, without early payment penalties or interest forfeits. These call deposits have a maturity of three months or less from the date of acquisition.
Trapped cash represents the minimum cash balance to be held to meet regulatory capital requirements, as set out by relevant laws and regulations in the different jurisdictions. The trapped cash is determined based on certain rules that are different in each jurisdiction. Trapped cash is recognised as cash and cash equivalents.
Financial assets at amortised costs
The Group's business model is to collect the contractual cash flows from its assets. The cash flows consist solely of interest and principal payments. Therefore, the financial assets are classified as carried at amortised cost. The assets are measured at amortised cost using the effective interest method, less the expected credit losses. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Refer to note 34 disclosing the financial assets categorised as financial assets at amortised costs.
Financial assets at fair value through other comprehensive income
The Group has made an equity investment, that is not held for trading purposes. The Group has made the irrevocable election to carry the investment at fair value through other comprehensive income. On initial recognition the investment was measured at fair value, plus transaction costs. Subsequently, this investment will be measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the investment revaluation reserve. Dividends on the investment in equity instrument are recognised in profit or loss. On disposal of the equity investments the cumulative gain or loss will not be reclassified to the consolidated statement of comprehensive income, instead, it is transferred to retained earnings.
Impairment of financial assets
The Group recognises a loss allowance, for expected credit losses on its financial assets. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the financial asset. When the expected credit loss for trade receivables is determined, the Group makes use of the simplified approach, whereby the loss recognised is equal to the lifetime expected credit losses. Lifetime expected credit losses represent the expected losses that may result from possible default events, and the probability of such an event occurring, over the life time of the financial asset. The expected lifetime credit losses of the trade receivables, are estimated using a provision matrix. The matrix is based on the Group's historical credit loss experience, the most significant factor being the days past due. It is then adjusted for forward-looking factors, that are specific to the trade receivables.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.
Repurchase of the Company's own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company's own equity instruments.
Financial liabilities
All financial liabilities are classified as measured at amortised cost. These liabilities are initially measured at fair value less transaction costs and subsequently using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant year. The effective interest rate is the rate that discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the amortised cost of a financial liability. Where financial liabilities are short term and immaterial, no interest is levied.
Accrued interest is recorded separately from the associated borrowings within current liabilities.
Employee share trust/Own shares
Own shares represent the shares of the Company that are held in treasury and by the Group's employee share ownership trust (which is consolidated in the Group consolidated financial statements). Own shares are recorded at cost and deducted from equity. When shares vest unconditionally, are cancelled or are reissued they are transferred from the own shares reserve at their weighted average cost. Any consideration paid or received by the Trust for the purchase or sale of the Company's own shares is shown as a movement in shareholders' equity.
Provisions
Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are determined by the expected future cash flows at a pre-tax rate that reflects current market assessments of the risks specific to the liability. Onerous lease provisions are measured at the lower of the net cost to fulfil, or to exit the contract, discounted as appropriate.
Fiduciary activities
The assets and liabilities of trusts and companies under administration and held in a fiduciary capacity are not included in these consolidated financial statements.
Share-based payments
Employees of the Group receive bonus allocations in the form of share-based payments under Performance Share Plan, Restrictive Stock Awards and Annual Performance Bonuses, whereby eligible employees render services as consideration for equity instruments (shares).
Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market-based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 32.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.
The grant date fair value is estimated with reference to the market price of the company's shares. For share plans containing market-based vesting conditions, the fair value was determined using a valuation model that takes into account the share price at grant date, expected price volatility and a risk free rate.
Operating profit
The operating profit reflects the profit earned from the Group's business operations. It includes revenue and other operating income less direct and indirect cost. Furthermore, the operating profit comprises of underlying and non-underlying items. Operating profit excludes finance costs, finance income and foreign exchange gains and losses.
Non-underlying items
Non-underlying items are disclosed and described separately in the consolidated financial statements where in the opinion of the directors it is appropriate to do so to provide further information of the financial performance of the Group.
The Group's core business is the administration, reporting and fiduciary services it provides in various jurisdictions. All acquisition and integration related costs are disclosed as non-underlying as these fall outside the core business of the Group. Restricted Share Awards form part of the non-underlying items as they are used as a tool to retain key personnel relating to the acquisitions and recruit senior management to support the acquisitions. Amortisation of contract and customer intangible assets recognised through the acquisitions is also included as non-underlying. These charges are based on judgements about the value and economic life of assets that, in the case of items such as customer relationships, would not be capitalised in normal operating practice. Therefore excluding the amortisation of intangible assets from underlying earnings allows the income and costs of both organically generated and acquired contracts to be presented on a like-for-like basis. Any impairment losses attributable to these intangible assets are also deemed to be outside of the course of ordinary business. Regulatory fines and the fees associated with these fines are also deemed to be one off in nature and are classified as being non-underlying items.
All the non-underlying items are regarded as expense items outside the normal course of business and disclosed separately to assist Shareholders to better analyse the performance of the core business. Changes to the subsequent contingent consideration arising from prior and current period business combinations are included in non-underlying items.
Further details of the nature of non-underlying items are given in note 9.
Direct costs
Direct costs are defined by management as the costs of the income generating divisions including staff payroll, marketing and travel attributable to the division in relation to the delivery of services and supporting growth.
Disposal groups held for sale and discontinued operations
Disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell.
An impairment loss is recognised for any initial or subsequent write-down of the disposal group to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of the disposal group, but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the disposal group is recognised at the date of derecognition.
The disposal group includes trade receivables, contract assets and contract liabilities and consequently does not attract depreciation, amortisation or interest payable.
Assets that are part of the disposal group classified as held for sale are presented separately from the other assets in the consolidated balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the consolidated balance sheet.
A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the consolidated income statement.
PREPAYMENTS
Prepayments are treated as a current asset, and represents goods or services that the Group has paid fore before the delivery there of. The prepayment will be released to the relevant expense in the period to which the delivery of goods or services relate to.
4. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, which are described in note 3, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years.
Critical judgements in applying the group's accounting policies
The following are the critical judgements at the balance sheet date that the directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements.
Classification of equity investment
The Group obtained an equity investment in Colmore A.G. The group does not hold controlling voting rights in Colmore A.G. The group tested the requirements for significant influence. Sanne has representation on the board of directors, however, due to a single board member holding the outright majority shares, Sanne is not able to direct the daily operations or participate in policy-making processes. Even though Sanne has entered into an agreement with Colmore A.G. to develop new software, Sanne does not deem this to be a material transaction. Sanne will also not be in a position to make changes to the managerial personnel of Colmore A.G. nor will it be providing essential technical information. Sanne cannot demonstrate significant influence. Subsequently the group will carry the investment as an investment in equity rather than an investment in associate. Therefore equity accounting will not be applied, instead the investment is measured at fair value through other comprehensive income. Refer to note 20 for related disclosure on the fair value measurement methodology applied.
Disposal group held for sale
During the year Sanne made a strategic decision to try and dispose of the private client business in Jersey. Judgement was applied to determine if the planned disposal falls within the scope of held for sale. In making the judgement Sanne considered the requirements set out in IFRS 5 Non-current assets held for sale and Discontinued Operations. It was concluded that the client agreements and employee group disposed of would make up a disposal group - the rationale being that the contracts, if externally acquired in a business combination, would've been recognised as an intangible asset. As these customer relationships were internally generated, the standard prohibited the recognition as assets. Subsequently the trade receivables, contract assets and contract liabilities recognised on these clients in the prior year have been reclassified on the consolidated balance sheet as a "Disposal group held for sale".
Key sources of estimation uncertainty
FAIR VALUE MEASUREMENT OF INVESTMENT IN EQUITY
The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. The key inputs in the fair value assessment is the weighted average growth rate, terminal growth rate and the WACC rate. Refer to note 20 for further disclosure relating to the fair value assessment.
Impairment testing
Goodwill
In the assessment of the annual impairment tests on Goodwill, the following assumptions are deemed to be key sources of estimation: the revenue growth rate and the discount rate. Management has assessed that, except for Sanne South Africa, no other CGU's reasonably possible changes would cause the aggregate carrying amount to materially exceed the recoverable amount of the CGU. Note 16 sets out these rates and sensitivities.
Contract assets
The Group recognises contract assets within revenue and as a receivable for amounts that remain unbilled at the year end, recorded at the recoverable amount. The recoverable amount of contract assets is assessed on an individual basis using the judgement of management, and takes into account an assessment of the client's financial position, the aged profile of the contract assets and an assessment of historical recovery rates. The balance at year end is GBP6.5 million (GBP6.6 million), the failure to recover 15% (based on an extreme worst case scenario) of this balance would result in an impairment of GBP970k (2018: GBP994k).
Other estimates
Probability of vesting of equity instruments granted in terms of share based payment schemes
The cumulative expense recognised in terms of the Group's share based payment schemes reflects, in the opinion of the Directors, the number of equity instruments granted that will ultimately vest. At each reporting date, management adjusts the unvested equity instruments with the forfeited instruments. Management is of the opinion that this number, adjusted for future attrition rates, represents the most accurate estimate of the number of instruments that will ultimately vest.
Impairment testing
Intangible assets
During the financial year an impairment was recognised on Sanne's South African contract intangibles. The recoverable amount was calculated using a Multi-Period Excess Earnings Method (MEEM) model, requiring the following inputs: post-tax weighted average cost of capital to discount the cash flows, a general attrition rate, a direct cost and an overhead cost margin and lastly the corporate tax rate. The discount rate was identified as being the most sensitive to change, however, Sanne does not consider that a change in the discount rate to result in material changes. Refer to note 17 relating for additional information on the assumptions used.
Lease term
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended. Exercising either the extension or termination options are case dependent and is an ongoing assessment. Therefore, should the Group apply the extension option, the lease liability and right-of-use asset will be increased. Should the Group terminate an agreement both the lease liability and right-of-use asset will be derecognised.
5. Segmental reporting
The reporting segments engage in corporate, fund and private client administration, reporting and fiduciary services. Declared revenue is generated from external customers.
The chief operating decision-maker is considered to be the Executive Directors of Sanne. Each segment is defined as a set of business activities generating a revenue stream determined by segmental responsibility and the management information reviewed by the Executive Directors. The Executive Directors evaluate segmental performance on the basis of gross profit, after the deduction of the direct costs of staff, marketing and travel. No inter-segment sales are made.
The Group classified its private client contracts and employee group held in Jersey as a discontinued operation due to significant contracts having been designated as held for sale. This was regarded to as major business line in the past and forms part of the Channel Islands segment. Please refer to note 11 for additional details relating to the sale.
The Group's consolidated financial statements for the year ended 31 December 2018 had four reportable segments under IFRS 8, namely EMEA Alternatives, Asia-Pacific & Mauritius Alternatives, North American Alternatives and Corporate & Private Client. Given the continuing growth of the Group, these segments have been reorganised from 1 January 2019. The new segments are EMEA, Asia-Pacific & Mauritius, Channel Islands and North America. This change has been effective outside of the European regions in the Group for some time, however the scale of operations across the old EMEA Alternatives and CPC businesses meant it was necessary to change and split the European business between the Channel Islands (CI) and the rest of EMEA. This change brings with it a number of significant benefits, including a more robust governance and control framework at local levels, fostering local accountability, as well as bringing an improved focus on local employee requirements across our expanding jurisdictional footprint.
The comparative numbers for the segmental reporting have been restated to reflect the four segments created in the current reporting period, with effect from 1 January 2019.
Direct Revenue costs Gross profit For the year ended 31 December 2019 GBP'000 GBP'000 GBP'000 -------------------------------------------------- -------- -------- ------------ Segments EMEA 60,561 (26,816) 33,745 Asia-Pacific & Mauritius 34,268 (11,107) 23,161 North America 26,925 (13,448) 13,477 Channel Islands(1) 43,689 (17,535) 26,154 -------------------------------------------------- -------- -------- ------------ Total from continuing and discontinued operations 165,443 (68,906) 96,537 -------------------------------------------------- -------- -------- ------------ Other operating income 185 Operating expenses (78,741) -------------------------------------------------- -------- -------- ------------ Operating profit from continuing and discontinued operations 17,981 -------------------------------------------------- -------- -------- ------------
(1) Refer to note 11 for the total revenue and direct costs attributable to discontinued operations.
Direct Revenue costs Gross profit For the year ended 31 December 2018 GBP'000 GBP'000 GBP'000 -------------------------------------------------- -------- -------- ------------ Segments EMEA 48,100 (18,457) 29,643 Asia-Pacific & Mauritius 30,433 (8,330) 22,103 North America 21,702 (10,894) 10,808 Channel Islands 42,768 (16,974) 25,794 -------------------------------------------------- -------- -------- ------------ Total from continuing and discontinued operations 143,003 (54,655) 88,348 -------------------------------------------------- -------- -------- ------------ Other operating income 158 Operating expenses (62,941) -------------------------------------------------- -------- -------- ------------ Operating profit from continuing and discontinued operations 25,565 -------------------------------------------------- -------- -------- ------------
Geographical information
The Group's revenue from external customers by the geographical location of contracting the Group entity is detailed below:
2019 2018 GBP'000 GBP'000 ---------------------------------------------------------- -------- -------- Jersey and Guernsey 42,187 42,629 Rest of Europe 61,857 47,016 Mauritius 22,984 22,198 Americas 26,376 21,374 South Africa 4,852 5,461 Asia-Pacific 7,187 4,325 ---------------------------------------------------------- -------- -------- Total revenue from continuing and discontinued operations 165,443 143,003 ---------------------------------------------------------- -------- --------
The geographical revenue is disclosed based on the jurisdiction in which the contracting legal entity is based and is not based on the location of the client or where the work is performed. The geographic revenue split is therefore very different to the segmental reporting split.
6. Revenue
2019 2018 Disaggregation of revenue from contracts with customers GBP'000 GBP'000 -------------------------------------------------------- -------- -------- Basis for fees charged EMEA - Assets under management - open ended funds 6,350 6,880 - Assets under management - closed ended funds 19,734 13,484 - Service based fees 34,477 27,736 Asia - Pacific & Mauritius - Service based fees 34,268 30,433 North America - Service based fees 26,925 21,702 Channel Islands - Service based fees 37,953 36,007 -------------------------------------------------------- -------- -------- Total revenue from continuing operations 159,707 136,242 -------------------------------------------------------- -------- -------- 2019 2018 Timing of revenue recognition GBP'000 GBP'000 ----------------------------------------- -------- -------- Over time - EMEA 60,561 48,100 - Asia - Pacific & Mauritius 34,268 30,433 - North America 26,925 21,702 - Channel Islands 37,953 36,007 ----------------------------------------- -------- -------- Total revenue over time 159,707 136,242 ----------------------------------------- -------- -------- Total revenue from continuing operations 159,707 136,242 ----------------------------------------- -------- --------
7. Finance costs
2019 2018 GBP'000 GBP'000 ------------------------------ -------- -------- Bank loan interest 2,434 1,732 Amortised loan fees 174 177 Loan fees written off 457 - Interest on lease liabilities 1,607 - ------------------------------ -------- -------- Total finance costs 4,672 1,909 ------------------------------ -------- --------
Details regarding the bank borrowings can be found in note 27.
8. Finance income
2019 2018 GBP'000 GBP'000 --------------------------------- -------- -------- Interest income on bank deposits 158 156 --------------------------------- -------- -------- Total finance income 158 156 --------------------------------- -------- --------
9. Non-underlying items
2019 2018 GBP'000 GBP'000 ------------------------------------------------- ------ -------- -------- Operating profit(1) 17,981 25,565 Non-underlying items within operating profit: Share based payment (i) 1,777 1,791 Amortisation of intangible assets (ii) 16,487 15,730 Acquisition cost earn-out charges (iii) 6,317 564 Acquisition and integration cost (iii) 62 629 Impairment of intangible assets (iv) 2,425 - Regulatory fine and fees (v) 1,039 - Other items 600 168 --------------------------------------------------------- -------- -------- Total non-underlying items included in operating profit 28,707 18,882 --------------------------------------------------------- -------- -------- Underlying operating profit(1) 46,688 44,447 --------------------------------------------------------- -------- -------- Profit before tax (1) 13,251 23,680 Non-underlying items within other costs: 28,707 18,882 Refinancing cost (vi) 457 - ------------------------------------------------- ------ -------- -------- Total non-underlying items 29,164 18,882 --------------------------------------------------------- -------- -------- Underlying profit before tax (1) 42,415 42,562 --------------------------------------------------------- -------- --------
(1) These amounts include the profits from both continuing and discontinued operations.
The above disclosure reflects expenses which are not representative of underlying performance and strategy of the Group in the opinion of the directors as explained below.
i. Share based payments are detailed in note 32. All acquisition related share based payments ("RSA" plan) are awards granted as part of the mechanics of acquisitions to act as a retention tool for key management and to recruit senior management to support the various acquisitions. These grants are thus not in the normal course of business and will be disclosed separately.
ii. The amortisation charges relate to the amortisation of intangible assets acquired through acquisitions. The amortisation of intangibles is directly linked to the acquisitions and excluded from underlying cost because these charges are based on judgements about the value and economic life of assets that, in the case of items, for example customer relationships, would not be capitalised in normal operating practice.
iii. During the year ended 31 December 2018, the Group completed the acquisition of the LIS and CP and Sanne AgenSynd. The Group expensed GBP62k of acquisition and integration expenditure during the current year and GBP629k in the prior year. The group spent GBP6.3million relating to earn-out payouts for the year. GBP4.2 million related to LIS and CP and GBP2.1 million to AgenSynd. These expenses include the crystallisation of earn-out payments in the period. With acquisition activities not being the core ongoing business of the Group, these costs are disclosed as non-underlying to enable Shareholders to assess the core ongoing performance of the business. The majority of acquisition and integration costs will be incurred in the first 2 years after acquisition, however this could be longer depending on the nature of the costs.
iv. The Group's South African hedge fund business, acquired in 2016, suffered a one-off loss of clients in the period. The Sorato business has also incurred an impairment. The source of the impairment relates to customer contracts that were entered into before the acquisition and that have terminated sooner than anticipated. As a result, the contract intangibles were impaired by GBP2,4 million in total. Refer to note 17 for further information. As with the amortisation of intangible assets this cost was excluded from underlying cost as it does not form part of the core business of the Group.
v. Regulatory fine (of GBP381k) and related fees relates to a settlement and related costs with the Jersey Financial Services Commission. Also included are the legal fees for a case brought against former directors of a subsidiary which date back to pre IPO.
vi. Refinancing cost - on 1 March a new loan facility for GBP150 million was entered into with a consortium of 5 banks. The previous facility was paid off and the remaining capitalized facility fees were written off. The facility is mainly used to fund acquisitions. The write off cost was recognised as non-underlying - GBP457k.
10. Tax
2019 2018 GBP'000 GBP'000 ------------------------------------------- -------- -------- The tax charge comprises: Current period 7,184 7,398 Adjustments in respect of prior periods (32) 153 ------------------------------------------- -------- -------- Total current tax expense 7,152 7,551 Deferred tax (note 28) Increase in deferred tax assets (1,065) (1,040) Increase in deferred tax liabilities (1,710) (1,005) ------------------------------------------- -------- -------- Total deferred tax credit (2,775) (2,045) ------------------------------------------- -------- -------- Total tax charge for the year 4,377 5,506 ------------------------------------------- -------- -------- The income tax expense is attributable to: Profit from continuing operations 4,007 5,101 Profit from discontinued operations 370 405 ------------------------------------------- -------- -------- 4,377 5,506 ------------------------------------------- -------- --------
In addition to the amount charged to the Consolidated Income Statement, the following amounts relating to tax have been recognised in other comprehensive income:
2019 2018 GBP'000 GBP'000 ----------------------------------------------------------- -------- -------- Deferred tax: Items that will not be reclassified subsequently to profit or loss: Actuarial (loss)/gain on defined benefit retirement obligation (10) 11 ----------------------------------------------------------- -------- -------- Total income tax (credited)/charged in other comprehensive (expenses)/income (10) 11 ----------------------------------------------------------- -------- --------
The difference between the total current tax shown above and the amount calculated by applying the UK (2018: Jersey) standard income tax rate to the profit before tax is as follows:
2019 2018 GBP'000 GBP'000 ---------------------------------------------------------- -------- -------- Profit from continuing operations before tax 9,551 19,632 Profit from discontinued operations before tax 3,700 4,048 ---------------------------------------------------------- -------- -------- Profit on ordinary activities before tax 13,251 23,680 ---------------------------------------------------------- -------- -------- Tax on profit on ordinary activities at standard UK income tax rate of 19% (2018: Jersey income tax rate of 10%) (1) 2,518 2,368 Effects of amounts that are not deductible in calculating income tax: Expenses not deductible for tax purposes 531 266 Non-deductible amortisation 153 153 Depreciation in excess of capital allowances 173 143 Net foreign exchange income 10 14 Foreign taxes not at UK (2018: Jersey) rate(2) 771 2,159 Deferred tax not recognised - taxable losses(3) 253 250 Prior year tax adjustments (32) 153 ---------------------------------------------------------- -------- -------- Total tax 4,377 5,506 ---------------------------------------------------------- -------- --------
(1) At the start of the financial year, the Company engaged with the tax authorities of the UK and Jersey. Sanne Group Plc moved its tax residency from Jersey to the UK with effect from 1 January 2019. Consequently the income tax rate applied in 2019 is 19% (the UK standard income tax rate). This is an increase from the prior year's Jersey income tax rate of 10%.
(2) With the UK tax rate at 19% (2018: Jersey rate of 10%) the impact of the 2017 and 2018 acquisitions on the tax expense is significant as all the acquired jurisdictions have higher tax rates than 19% (2018: 10%).
(3) Deferred tax not recognised refers to jurisdictions where management is doubtful that future deferred tax assets would be able to be utilised through taxable profits being recognised.
Income tax expense computations are based on the jurisdictions in which profits were earned at prevailing rates in the respective jurisdictions.
The UK standard income tax rate is 19% (2018: Jersey rate of 10%), management have chosen to reconcile to this rate as the Company is a UK tax resident.
2019 2018 GBP'000 GBP'000 ---------------------------------------------------------- -------- -------- Reconciliation of effective tax rates Tax charge 4,377 5,506 Profit before tax 13,251 23,680 ---------------------------------------------------------- -------- -------- Effective tax rate continuing and discontinued operations 33.0% 23.3% Effective tax rate continuing operations 42.0% 26.0% Effective tax rate discontinued operations 10.0% 10.0% Tax charge 4,377 5,506 Adjusted for: Prior period adjustments 32 (153) Tax effect of non-underlying items 4,512 3,328 Deferred tax on US Goodwill amortisation (954) (948) ---------------------------------------------------------- -------- -------- Total underlying tax charge 7,967 7,733 ---------------------------------------------------------- -------- -------- Profit before tax 13,251 23,680 Non-underlying items 29,164 18,882 ---------------------------------------------------------- -------- -------- Profit before tax and non-underlying items 42,415 42,562 ---------------------------------------------------------- -------- -------- Underlying effective tax rate continuing and discontinued operations 18.8% 18.2% ---------------------------------------------------------- -------- -------- Underlying effective tax rate continuing operations 19.6% 19.0% ---------------------------------------------------------- -------- -------- Underlying effective tax rate discontinued operations 10.0% 10.0% ---------------------------------------------------------- -------- --------
The effective tax rate of 33.0% (2018: 23.3%) has increased due to a larger proportion of taxable profits being earned in higher tax jurisdictions. The increase in the underlying effective tax rate of 18.8% (2018: 18.2%) is also due to proportionally higher profits being earned in higher tax jurisdictions. This was calculated against the underlying profit before tax after having excluded the tax effect of non-underlying expenses and the deferred tax in relation to the tax allowance for the amortisation of goodwill in the US. The reduction in tax rates in Luxembourg to 24.93% (2018: 26.01%) mitigated the tax on profits generated in higher taxing jurisdictions.
2019 2018 GBP'000 GBP'000 ------------------------------------------------------ -------- -------- Tax losses Unused tax losses for which no deferred tax asset has been recognised 2,647 2,500 Potential tax benefit @ 19% (2018 @ 10%) 503 250 ------------------------------------------------------ -------- --------
The unused tax losses were incurred by loss making subsidiaries. These subsidiaries are not likely to generate taxable income in the foreseeable future, but can be carried forward indefinitely.
11. Discontinued operations
During the year Sanne made a strategic decision to sell the private client business in Jersey, within the next twelve months after Balance Sheet date for a cash consideration. The Group classified its private client book in Jersey as a discontinued operation, due to significant contracts having been designated as held for sale. This was regarded to be a major business line in the past. The disposal group consists of the trade receivables relating to the contracts. Due to the fact that internally generated customer relationships are prohibited from being recognised as assets, the group did not account for these customer contracts as assets. Sanne deemed it necessary to reclassify the trade receivables stemming from these clients into a disposal group held for sales as these balances give a reasonable representation of the value that these customer contracts hold. The revenue and direct costs are included in the Channel Islands operating segment.
The financial information relating to the discontinued operations is set out below:
2019 2018 GBP'000 GBP'000 --------------------------------------------------- -------- -------- Revenue 5,736 6,761 Expenses (2,036) (2,713) --------------------------------------------------- -------- -------- Profit before income tax 3,700 4,048 Income tax expense (370) (405) --------------------------------------------------- -------- -------- Profit from discontinued operations 3,330 3,643 --------------------------------------------------- -------- -------- The following disclosure relates to the cash flows from the discontinued operations: Net cash inflow from operating activities 3,563 4,321 --------------------------------------------------- -------- -------- Net increase in cash generated by the subsidiary 3,563 4,321 --------------------------------------------------- -------- -------- 2019 2018 Assets of disposal group classified as held for sale GBP'000 GBP'000 ----------------------------------------------------- -------- -------- Assets classified as held for sale Contract assets 334 9 Trade receivables 2,645 2,479 ----------------------------------------------------- -------- -------- Total assets of disposal group held for sale 2,979 2,488 Liabilities of disposal group classified as held for sale Liabilities classified as held for sale Contract liabilities (575) (250) ----------------------------------------------------- -------- -------- Total liabilities of disposal group held for sale (575) (250) ----------------------------------------------------- -------- --------
12. Earnings per share
2019 2018 GBP'000 GBP'000 ----------------------------------- -------- -------- Profit for the year 8,874 18,174 ----------------------------------- -------- -------- Non-underlying items: Non-underlying expenses 29,164 18,882 Tax effect of non-underlying items (3,590) (2,227) ----------------------------------- -------- -------- Underlying profit 34,448 34,829 ----------------------------------- -------- -------- Shares Shares ----------------------------------------------------- ------------ ------------ Weighted average numbers of ordinary shares in issue 144,019,578 141,269,560 Effect of dilutive potential ordinary shares: Deferred consideration shares 636,652 1,273,308 Restricted stock awards 1,280,821 1,288,585 Performance share plan 49,501 619,862 ----------------------------------------------------- ------------ ------------ Weighted average number of ordinary shares for the purposes of diluted EPS 145,986,552 144,451,315 ----------------------------------------------------- ------------ ------------ Earnings per share based on total operations 2019 2018 --------------------------------------------- ---- ---- Basic EPS (pence) 6.2 12.9 Diluted EPS (pence) 6.1 12.6 Underlying basic EPS (pence) 23.9 24.7 Underlying diluted EPS (pence) 23.6 24.1 --------------------------------------------- ---- ---- Earnings per share based on continuing operations 2019 2018 ---------------------------------------------------- ---- ---- Basic EPS (pence) 3.8 10.3 Diluted EPS (pence) 3.8 10.1 Underlying basic EPS (pence) 21.6 22.1 Underlying diluted EPS (pence) 21.3 21.6 ---------------------------------------------------- ---- ---- Earnings per share based on discontinued operations 2019 2018 ---------------------------------------------------- ---- ---- Basic EPS (pence) 2.3 2.6 Diluted EPS (pence) 2.3 2.5 Underlying basic EPS (pence) 2.3 2.6 Underlying diluted EPS (pence) 2.3 2.5 ---------------------------------------------------- ---- ----
The Group presents basic and diluted earnings per share ("EPS") data for its ordinary shares.
Basic EPS is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period.
Diluted EPS takes into consideration the Company's dilutive contingently issuable shares as disclosed above. These arrangements have no impact on the earnings or underlying earnings figures used to calculate diluted EPS. The weighted average number of ordinary shares used in the diluted calculation is inclusive of the number of shares which are expected to be issued to satisfy the awards when they become due and where the performance criteria, if any, have been deemed to have been met as at 31 December 2019.
Underlying basic EPS and underlying diluted EPS are calculated in the same way as basic EPS and diluted EPS with the only exception being that the earnings used are the underlying earnings, being the profit for the year adjusted for non-underlying items and the tax impact of non-underlying items. This is a change in approach from the prior year where the profit for the year was just adjusted for non-underlying items. The comparative numbers were also updated to reflect this approach.
13. Profit for the year
2019 2018 GBP'000 GBP'000 -------------------------------------------------------------------- -------- -------- Profit for the year has been arrived at after charging/(crediting): Net foreign exchange losses 216 132 Depreciation of equipment 2,867 1,915 Depreciation of right-of-use asset (see note 21) 5,313 - Gain on disposal of equipment 36 - Auditors' remuneration for audit services (2019: PwC GBP695k, Deloitte GBP165k and 2018: Deloitte) 860 587 Auditors' remuneration for other services, pre-appointment of new auditors(1) (2019: PwC, 2018: Deloitte): - FATCA - 14 - ISAE 3402 33 - - Software licence 3 167 - Other services 180 - Auditors' remuneration for other services, post-appointment of new auditors(1) :
- ISAE 3402 5 - Amortisation of intangible assets (see note 17) 16,487 15,730 Staff costs (see note 14) 84,463 70,713 Impairment loss recognised on trade receivables (see note 22) 82 575 Impairment loss recognised on intangible assets (see note 17) 2,425 55 Facilities expense 2,726 7,339 -------------------------------------------------------------------- -------- --------
(1) Deloitte LLP resigned as the Group auditor on 5 August 2018. The Group has engaged the services of PricewaterhouseCoopers LLP as Group auditors, with their first engagement being the independent review of the interim financial statements 2019. The other services principally represented internal audit which ceased at PricewaterhouseCoopers LLP's appointment.
14. Staff cost
2019 2018 The aggregate payroll costs were as follows: GBP'000 GBP'000 --------------------------------------------- -------- -------- Salaries and bonuses 72,805 60,753 Social security 5,148 3,815 Pension cost 620 547 Other benefits 3,513 2,222 Share based payments 2,377 3,376 --------------------------------------------- -------- -------- 84,463 70,713 --------------------------------------------- -------- -------- The average number of full time employees analysed by category and segment: 2019 2018 --------------------------------------------------------------- ----- ----- Client services - EMEA 495 374 - Asia - Pacific & Mauritius 351 266 - North America 154 122 - Channel Islands 269 268 Group services 317 254 --------------------------------------------------------------- ----- ----- 1,586 1,284 --------------------------------------------------------------- ----- -----
Information in relation to aggregate directors' remuneration is contained in the Directors' Remuneration Report of the Group's Annual Report and Accounts for the year which detail the Remuneration payable to each director for service in 2019.
15. Dividends
2019 2018 GBP'000 GBP'000 ------------------------------------------------------ -------- -------- Amounts recognised as distributions to equity holders in the year: Final dividend for the prior year 13,254 11,816 Interim for the current year 6,775 6,560 ------------------------------------------------------ -------- -------- Total dividends 20,029 18,376 ------------------------------------------------------ -------- -------- Proposed final dividend 13,784 13,432 ------------------------------------------------------ -------- --------
The proposed final dividend is subject to approval at the forthcoming AGM and has not been included as a liability in these consolidated financial statements. Dividends are declared in accordance with Jersey laws and can be distributed from all reserves.
2019 2018 Pence Pence per share per share ------------------------------------ ---------- ---------- Dividend per share ("DPS"): Interim for the current year 4.7 4.6 Final proposed for the current year 9.4 9.2 ------------------------------------ ---------- ---------- Total dividend per share 14.1 13.8 ------------------------------------ ---------- ---------- 2019 2018 ---------------------------------------------------- ------------ ------------ Weighted average number of ordinary shares in issue 144,019,578 141,269,560 ---------------------------------------------------- ------------ ------------
16. Goodwill
Goodwill represents the excess of the cost of the acquisition over fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition.
Goodwill movements GBP'000 --------------------------- ------- At 1 January 2018 107,271 LIS and CP acquisition 67,572 Sanne AgenSynd acquisition 8,404 Exchange differences 5,681 --------------------------- ------- At 31 December 2018 188,928 --------------------------- ------- Exchange differences (8,514) --------------------------- ------- At 31 December 2019 180,414 --------------------------- -------
In accordance with the Group's accounting policy, the carrying value of goodwill is not subject to systematic amortisation but is reviewed annually for impairment. The review assesses whether the carrying value of goodwill could be supported by the recoverable amount which is determined through value in use calculations of each cash-generating unit (CGU). The key assumptions applied in the value in use calculations are the discount rates and the projected cash flows.
The goodwill has been allocated to the CGUs as follows:
2019 2018 Carrying Carrying value value GBP'000 GBP'000 ------------------------------------- ---- --------- --------- Sanne South Africa 8,177 8,272 Sanne Netherlands 1,649 1,649 Sanne North Americas 41,400 43,079 Sanne Mauritius 57,076 59,391 Sanne Luxembourg (i) - 68,165 Luxembourg Investment Solutions S.A. (i) 58,307 - Compliance Partners S.A. (i) 5,917 - Sanne Spain 7,888 8,372 ------------------------------------------- --------- --------- 180,414 188,928 ------------------------------------------ --------- ---------
i. In the prior year the LIS and CP operations were managed as a single CGU. During the current year the CP and Sanne Group Luxembourg operations were merged. Therefore, the Group assessed the previous Sanne Luxembourg CGU to be two separate CGU's in the current year. Goodwill acquired in a business combination is allocated to each of the CGUs that is expected to benefit from the synergies of the combination. Thus when it was assessed that LIS and CP form two separate CGUs it was evident that the allocation of goodwill must be reallocated to the two new CGUs. The allocation was done based on the weighting of the purchase consideration between the two legal entities as at acquisition date. The combined total for LIS and CP in 2019 is GBP64.2 million (2018: GBP68.2 million), with the difference being a change due to FX.
The recoverable amounts of all CGUs are based on the same key assumptions and the values of those assumptions are specific to, and in some cases differ across, each CGU. The result of the goodwill impairment assessment undertaken is that the headroom on the total carrying value of the goodwill, across all CGUs, more than doubled compared with the same assessment performed in the prior year.
Discount rates
Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money. In assessing the discount rate applicable to the Group the following factors have been considered:
i. Long term treasury bond rate for the relevant jurisdiction
ii. The cost of equity based on an adjusted Beta for the relevant jurisdiction
iii. The risk premium to reflect the increased risk of investing in equities
The discount rate used to assess goodwill is a pre-tax WACC, as required by the accounting standards. The discount rate used in the assessment of the recoverable amount of intangible assets is a post-tax WACC, as per the Multi-Period Excess Earnings Method (MEEM), which is the method applied to determine the fair value less cost to sell. Refer to note 17 for details relating to the assessment performed on contract and customer intangible assets.
Projected revenue and costs
Projected revenue and costs are calculated with reference to each CGU's latest budget and business plan which are subject to a rigorous review and challenge process. Management prepare the budgets through an assessment of historic revenues from existing clients, the pipeline of new projects, historic pricing, and the required resource base needed to service new and existing clients, coupled with their knowledge of wider industry trends and the economic environment. Cash flows are projected over five years and a final terminal value is applied.
Projected revenue and costs are calculated using the prior period actual result and compounding these results by the budgeted numbers. The terminal growth rate is applied after five years. The rate used is unique to each jurisdiction and is based on the GDP and/or inflation rate.
Material movements have been seen in the weighted average revenue growth rates for Sanne Netherlands, Sanne Mauritius, Sanne Spain and LIS. For Sanne Netherlands the business has seen strong growth with continued new client wins from a small base. In the case of Mauritius, the revised growth rate reflects the recent increase in client attrition. For both Sanne Spain and LIS a conservative approach has been adopted with growth rates significantly below historic rates. Refer to the key assumptions.
Key assumptions
The following discount rates (pre-tax WACC rates), weighted average revenue growth rates and terminal growth rates, have been used in the assessments. No material movements were identified in the WACC rates used between 2019 and 2018. The only material movements identified in the terminal growth rates, between 2019 and 2018, is the rate for Sanne South Africa and Sanne Mauritius. In 2018 the Group used long-term market consensus for terminal growth on all CGUs. In the current year the Group used the average between long-term inflation and GDP for each specific jurisdiction. This resulted in a material change in terminal growth for the South Africa and Mauritius CGUs. Where the terminal growth exceeds the weighted average revenue growth rate, the Group made use of a conservative approach to the mid-term growth rate, whereas the terminal growth rate was based on external observable sources.
2019 2018 Weighted Weighted 2019 2018 average average 2019 2018 Discount Discount revenue revenue Terminal Terminal rate rate growth rate growth rate growth rate growth rate -------------------------------- --------- --------- ------------ ------------ ------------ ------------ Sanne South Africa 19% 21% 4% 4% 6% 2% Sanne Netherlands 9% 9% 19% 6% 3% 2% Sanne North Americas 10% 12% 12% 11% 3% 2% Sanne Mauritius 11% 13% 3% 6% 5% 2% Luxembourg Investment Solutions S.A. 6% 8% 7% 14% 3% 2% Compliance Partners S.A. 6% 8% 14% 14% 3% 2% Sanne Spain 9% 10% 7% 14% 3% 2% -------------------------------- --------- --------- ------------ ------------ ------------ ------------
Based on the value-in-use calculations none of the CGUs require impairment.
Sensitivity to changes in assumptions
Management believes that any reasonably possible change in the key assumptions, on which the recoverable amount per CGU is based, would not cause the aggregate carrying amount to materially exceed the recoverable amount of the CGUs, except for Sanne South Africa. If the expected terminal growth used in the value-in-use calculation had been 1% lower than management's estimate made at 31 December 2019 (5.4% instead of 6.4%) and if the discount rate increased from 18.82% to 20.56% the goodwill would be impaired by GBP1.2 million. Management does not expect an increase in the discount rate. Part of the acquisition rationale was to create a "rightshoring centre" for talent and expertise which has proven to have significant value for the wider group. Refer to note 17 for the outcome of the intangible assets' impairment assessments and the key assumptions made.
17. Other intangible assets
Software Contract Customer under development Total GBP'000 GBP'000 GBP'000 GBP'000 -------------------------------------- -------- -------- ------------------ -------- Cost At 1 January 2018 66,574 12,841 - 79,415 Acquired during the year 16,621 3,176 - 19,797 Impairments (55) - - (55) Exchange difference 2,562 455 - 3,017 -------------------------------------- -------- -------- ------------------ -------- At 31 December 2018 85,702 16,472 - 102,174 Additions due to software development - - 276 276 Impairments (2,425) - - (2,425) Exchange difference (3,110) (635) - (3,745) -------------------------------------- -------- -------- ------------------ -------- At 31 December 2019 80,167 15,837 276 96,280 -------------------------------------- -------- -------- ------------------ -------- Software Contract Customer under development Total GBP'000 GBP'000 GBP'000 GBP'000 ------------------------- -------- -------- ------------------ -------- Accumulated amortisation At 1 January 2018 16,732 2,685 - 19,417 Charge for the year 13,282 2,448 - 15,730 Exchange difference 767 138 - 905 ------------------------- -------- -------- ------------------ -------- At 31 December 2018 30,781 5,271 - 36,052 Charge for the year 13,870 2,617 - 16,487 Exchange difference (1,378) (269) - (1,647) ------------------------- -------- -------- ------------------ -------- At 31 December 2019 43,273 7,619 - 50,892 ------------------------- -------- -------- ------------------ -------- Carrying amount ------------------------- -------- -------- ------------------ -------- At 31 December 2019 36,894 8,218 276 45,388 ------------------------- -------- -------- ------------------ -------- At 31 December 2018 54,921 11,201 - 66,122 ------------------------- -------- -------- ------------------ --------
Due to a once off loss of clients in Sanne South Africa, an indicator for impairment was triggered. Sanne's South African contract intangibles were impaired by GBP2,3 million. This was included in the operating expenses line item on the consolidated income statement. The recoverable amount was determined using a Multi-Period Excess Earnings Method (MEEM) model, requiring the following inputs: post-tax weighted average cost of capital to discount the cash flows, a general attrition rate, a direct cost and an overhead cost margin and lastly the corporate tax rate. The discount rate was identified as being the most sensitive to change. Should the discount rate increase by 1%, the impairment would have been GBP52k higher. Sanne does not consider this to be a material increase.
The method of valuation and subsequent review of the carrying value of intangible assets is outlined in note 3. As part of that subsequent review, triggers for impairment were detected and impairment assessments performed for the intangible assets relating to the Delorean, Ariel, CCS, IDS Group, Sorato and IFS Group acquisitions. A GBP84k impairment was recognised in operating expenses for the Sorato intangibles. The source of the impairment relates to customer contracts that were entered into before the acquisition and that have terminated sooner than anticipated. The Netherlands acquired a large client during the year and have exceeded expectations in the 2019 financial year showing a healthy growth with promising client relationships. The group determined the recoverable amount with reference to the fair value less cost to sell per asset. The multi-period-excess-earnings method (MEEM) model was used to determine the fair value less cost to sell of each asset. This model requires the use of a post-tax discount rate. The WACC rates used to discount the post-tax cash flows are a post-tax WACC rates. The recoverable amounts for all other assets with indicators of impairment exceeded their current carrying value.
The post-tax weighted average cost of capital was used to discount the cash flows. The rates and remaining useful lives used in the assessment of the recoverable amounts for assets with indicators were:
2019 2019 2018 Remaining 2018 Discount Discount useful Remaining rate rate life useful life --------------------------------- --------- --------- ---------- ------------ Ariel (Various jurisdictions) 7% 7% 1 year 2 years Delorean (Various jurisdictions) 7% 7% 1 year 2 years CCS (Sanne Ireland) 7% 7% 3 years 4 years IDS Group (Sanne South Africa) 13% 15% 4 years 5 years Sorato (Sanne Netherlands) 7% 7% 0 years 5 years IFS Group (Sanne Mauritius) 10% 11% 4 years 4 years AgenSynd Group (Sanne Spain) 7% 8% 6 years 7 years --------------------------------- --------- --------- ---------- ------------
Annual amortisation on the contract and customer intangibles is recognised in operating expenses and are regarded to be non-underlying items.
Sanne has entered into an agreement with Colmore A.G., whereby Colmore A.G. will be developing new software for Sanne's exclusive use. This agreement is classified as "software under development".
Sanne has applied its judgement to determine that the software under development is an intangible asset and that the development costs can be capitalised. The software is identifiable, as it is separable from the entity due to the willingness of the investee to grant Sanne exclusive usage of the software. Furthermore, Sanne's exclusive rights to usage are legally enforceable. Due to the exclusive right to use the asset, Sanne has control over it and will be receiving the future economic benefits from the asset in the form of improved production processes by applying the intellectual property. The software is still under development at year end, and is not yet ready for its intended use. The development costs will be capitalised until the software is ready for use.
Costs incurred during the planning phase of the project have been assessed to be research costs and have consequently been expensed. The total research costs amounted to GBP78k (2018: GBPnil).
Once the software under development is ready for use, as intended by management, cost capitalisation will cease and amortisation will commence.
Analyses of the carrying amounts of the intangible assets acquired can be found below:
2019 2018 Carrying Carrying Amortisation period amount amount Acquisition Acquisition date end GBP'000 GBP'000 ------------------------------ ----------------- -------------------- --------- --------- Contract intangible Delorean (Various jurisdictions) 1 June 2013 31 May 2020 540 1,849 Ariel (Various jurisdictions) 1 May 2014 30 April 2021 301 526 CCS (Sanne Ireland) 1 March 2016 28 February 2023 388 543 IDS Group (Sanne South Africa) 1 June 2016 31 May 2024 1,188 4,071 FAS (Sanne North America) 1 November 2016 31 October 2022 4,614 6,494 Sorato (Sanne Netherlands) 1 December 2016 30 November 2023 - 114 IFS Group (Sanne Mauritius) 1 January 2017 31 December 2022 19,666 27,285 LIS Group (Sanne Luxembourg) 6 February 2018 31 January 2025 8,318 11,692 AgenSynd Group (Sanne Spain) 3 September 2018 31 August 2025 1,879 2,347 ------------------------------ ----------------- -------------------- --------- --------- Total 36,894 54,921 ----------------------------------------------------------------------- --------- ---------
The IDS Group and Sorato are shown after impairment, at their recoverable amount.
2019 2018 Carrying Carrying Amortisation period amount amount Acquisition Acquisition date end GBP'000 GBP'000 ------------------------------ ----------------- -------------------- --------- --------- Customer intangible Delorean (Various jurisdictions) 1 June 2013 31 May 2023 409 525 Ariel (Various jurisdictions) 1 May 2014 30 April 2024 29 44 CCS (Sanne Ireland) 1 March 2016 28 February 2023 317 443 IDS Group (Sanne South Africa) 1 June 2016 31 May 2024 809 1,004 FAS (Sanne North America) 1 November 2016 31 October 2022 880 1,236 Sorato (Sanne Netherlands) 1 December 2016 30 November 2023 34 43 IFS Group (Sanne Mauritius) 1 January 2017 31 December 2022 3,736 5,184 LIS Group (Sanne Luxembourg) 6 February 2018 31 January 2023 1,400 1,968 AgenSynd Group (Sanne Spain) 3 September 2018 31 August 2025 604 754 ------------------------------ ----------------- -------------------- --------- --------- Total 8,218 11,201 ----------------------------------------------------------------------- --------- ---------
18. Equipment
Computer Computer Fixtures equipment software and equipment Total GBP'000 GBP'000 GBP'000 GBP'000 ------------------------------- ---------- --------- -------------- -------- Cost At 1 January 2018 4,181 2,586 4,715 11,482 Additions 1,555 143 6,170 7,868 Additions through acquisitions 67 306 818 1,191 Disposals (881) (26) (1,331) (2,238) Exchange differences (44) 25 57 38 ------------------------------- ---------- --------- -------------- -------- At 31 December 2018 4,878 3,034 10,429 18,341 Additions 1,428 395 2,091 3,914 Change in accounting policy - - (924) (924) Disposals (212) (359) (291) (862) Exchange differences (89) (35) (164) (288) ------------------------------- ---------- --------- -------------- -------- At 31 December 2019 6,005 3,035 11,141 20,181 ------------------------------- ---------- --------- -------------- -------- Computer Computer Fixtures equipment software and equipment Total GBP'000 GBP'000 GBP'000 GBP'000 -------------------------------------- ---------- --------- -------------- -------- Accumulated depreciation At 1 January 2018 2,512 2,436 2,721 7,669 Charge for the year 406 110 1,399 1,915 Reclassification within equipment (1) 660 - (660) - Additions through acquisitions 38 203 468 709 Disposals (724) (26) (1,231) (1,981) Exchange differences 47 (49) 58 56 -------------------------------------- ---------- --------- -------------- -------- At 31 December 2018 2,939 2,674 2,755 8,368 Charge for the year 1,383 239 1,245 2,867 Disposals (204) (359) (233) (796) Exchange differences (84) (34) (124) (242) -------------------------------------- ---------- --------- -------------- -------- At 31 December 2019 4,034 2,520 3,643 10,197 -------------------------------------- ---------- --------- -------------- -------- Carrying amount: -------------------------------------- ---------- --------- -------------- -------- At 31 December 2019 1,921 515 7,498 9,984 -------------------------------------- ---------- --------- -------------- -------- At 31 December 2018 1,939 360 7,674 9,973 -------------------------------------- ---------- --------- -------------- --------
As at 31 December 2019 GBP5.8 million (2018: GBP5.5 million) of fixed assets are fully depreciated and still in use.
In 2018 Sanne reported equipment additions of GBP7,9 million. Sanne funded GBP4,2million of these additions. The remaining GBP3,6 million was for fit out works in new rented premises. These additions were funded by the landlord as part of the rental agreement and have been included in the right-of-use asset balance.
(1) The Group reclassified accumulated depreciation between the asset classes in the prior year between computer equipment and fixtures and equipment to the value of GBP660k, this had no impact on the profit and loss. In the prior year this was classified in the incorrect asset class.
19. Subsidiaries
Detailed below is a list of subsidiaries of the Company as at 31 December 2019 which, in the opinion of the Directors, principally affect the profit and / or the net assets of the Group. All of these subsidiaries are 100% owned by the Group, with 100% of voting power held. They all engage in the provision of alternative asset and corporate administration and fiduciary services. Each subsidiary only has ordinary shares.
Subsidiaries Country of incorporation --------------------------------------- -------------------------- Sanne Capital Markets Ireland Limited Republic of Ireland Sanne Fiduciary Services (UK) Limited England and Wales Sanne Fiduciary Services Limited Jersey Sanne Finance Limited Jersey Sanne Financial Management Consulting (Shanghai) Co Ltd People's Republic of China Sanne Fund Administration Limited Jersey Sanne Group (Guernsey) Limited Guernsey Sanne Group (Luxembourg) SA Luxembourg Sanne Group (UK) Limited England and Wales Sanne Group Administration Services (UK) Limited England and Wales Sanne Group Asia Limited Hong Kong Sanne Holdings Limited Jersey Sanne International Limited Jersey Sanne (Singapore) PTE. Limited Singapore Sanne Trustee Company UK Limited England and Wales Sanne Trustee Services Limited Jersey Sanne Corporate Administration Services Ireland Limited Republic of Ireland Sanne Group U.S. LLC United States of America Sanne Group d.o.o. Beograd Serbia Sanne Management Company RF (PTY) Limited Republic of South Africa Sanne Fund Services SA (PTY) Limited Republic of South Africa Sanne Fund Services Malta Limited Republic of Malta Sanne Group Delaware Inc. United States of America Sanne Group South Africa (PTY) Limited Republic of South Africa Sanne (Mauritius) Limited Mauritius Sanne Group (Netherlands) B.V. Netherlands SANNE Mauritius Mauritius SANNE Trustees (Mauritius) Mauritius Sanne (Luxembourg) Holdings Sarl Luxembourg Sanne Group Funding Limited Jersey Luxembourg Investment Solutions S.A Luxembourg Compliance Partners S.A. Luxembourg Sanne (Luxembourg) Holdings 2 Sarl Luxembourg Sanne AgenSynd S.L.U. Spain AgenSynd Limited England and Wales AgenSynd France SAS France Sanne Group Services (UK) Limited England and Wales Sanne Group Japan KK Japan --------------------------------------- --------------------------
On 22 November 2019 the group disposed of its Dubai operations. The Dubai operations are not considered as a separate major line of business and were immaterial.
20. Minority equity investment
During the year the Group acquired a minority interest in Colmore A.G. The shares are not held for trading and at initial measurement the Group made the irrevocable election to carry the investment at fair value through other comprehensive income. The Group regards the transaction to be a strategic investment and the classification to be the most relevant, based on the Group's business model.
2019 2018 Non-current assets GBP'000 GBP'000 -------------------- -------- -------- Unlisted securities Colmore A.G. 8,632 - -------------------- -------- --------
Reconciliation of Level 3 fair value measurements of financial instruments (other than trade and other receivables):
2019 2018 GBP'000 GBP'000 ------------------------ -------- -------- Balance at 1 January - - Additions 9,347 - Foreign exchange losses (715) - ------------------------ -------- -------- Balance at 31 December 8,632 - ------------------------ -------- --------
The fair value was based on a combination of the income approach (discounted cash flow model) and the market approach. The discounted cash flow provides an estimation of the fair value based on the cash flows that a business can be expected to generate in the future. The market approach provides an estimation of the fair value based on market prices on actual transactions and asking prices for businesses. The process is a comparison between the subject business and other similar businesses.
In the income approach, the revenue was forecasted over a ten year period. The following unobservable inputs were used: weighted average growth in revenue between 15% and 25%, terminal growth rate of 2% and WACC of 18% which was used to discount the cash flows. The discount rate and the terminal growth rate have been identified to be the assumptions that are the most sensitive to change.
In the market approach a list of broadly comparable listed companies was identified through public sources. Since there are a limited number of public companies offering technology solutions to fund administration businesses services, the group considered comparable companies offering technology and software services to companies engaged in the broader financial services industry. The valuation was based on revenue multiple. A revenue multiple of 7.5x was used in the estimate. The group performed a sensitivity analysis on the fair value. Because a combined approach is used for the valuation, the group assessed the combined impact of changes in key assumptions. Should the WACC increase to 19% and the long term growth rate only yield 1.5% in the income approach and on the market approach a multiple of 6.7 is used instead of 7.5, the value would be GBP866k lower.
21. Leases
This note provides information for leases where the Group is a lessee. The Group leases office space in various jurisdictions. The Group only applied the IFRS 16 lease accounting to its qualifying leases.
31 Dec 1 Jan 2019 2019(1) GBP'000 GBP'000 -------------------- -------- -------- Right-of-use assets 32,733 30,828 -------------------- -------- -------- Lease liabilities Current 4,291 3,902 Non-current 33,549 31,926 -------------------- -------- -------- Total 37,840 35,828 -------------------- -------- --------
(1) In the previous year, the Group recognised its operating leases in profit and loss on the straight-line basis, under IAS 17 Leases. For adjustments recognised on adoption of IFRS 16 on 1 January 2019, please refer to note 36.
During the 2019 financial year the group made GBP7.5 million in additions to the right-of-use assets.
The consolidated income statement included the following amounts relating to leases:
2019 2018 GBP'000 GBP'000 --------------------------------------------------- -------- -------- Depreciation on right-of-use assets 5,313 - Interest expense (included in finance costs) 1,607 - Expenses relating to short-term leases 706 - Expenses relating to premises rent recognised on a straight-line basis - 5,502 --------------------------------------------------- -------- --------
In the prior period the Group expensed GBP5.5 million for premises rent based on the previous IAS 17 straight-line accounting policy.
The total cash outflow for leases was GBP6.4 million.
Leases are negotiated for a variety of terms over which rentals are fixed with break clauses and options to extend for a further period at the then prevailing market rate. Rental agreements which qualify for IFRS 16 span from 13 months to 24 years. The Group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. Judgement was applied in assessing the lease term over which the lease liability should be recognised. The fixed duration per the rental agreement was used as a starting point. Thereafter the term is adjusted based on the contract clauses, should the Group assess it will make use of a break clause, the lease term is adjusted for the break clause and should the group consider it highly probable that it will extend the agreement per the extension clauses, the lease term is lengthened.
The Group is exposed to potential future increases in variable lease payments based on consumer price indexes, which are not included in the lease liability until they take effect. When adjustments to lease payments based on the consumer price index take effect, the lease liability is reassessed and adjusted against the right-of-use asset.
On initial recognition of a new lease, the lease liability is recognised as the present value of future payments, discounted using the incremental borrowing rate (unless the interest implicit to the lease is available for use). The incremental borrowing rate was determined by making reference to the operating jurisdiction's risk-free rate, adjusted for credit risk, using the interest rate premium as per group's current borrowings and the liquidity premium, by adjusting the interest rate up or down based on the remaining duration of the rental agreement. Judgment was applied to determine the point where the upward or downward adjustment is made to the interest rate. The Group applied a different incremental borrowing rate to each lease in each jurisdiction as stated here. The unique discount rate best represents the monetary environment, in which the subsidiary operates, at commencement (or transition date). This approach best reflects what the Group would have to pay to obtain a similar asset in the economic environment in which the subsidiary operates. The incremental borrowing rates ranged between 0.81% and 9.77%.
The right-of-use asset for lease agreements entered into after transition date is measured on initial recognition as the amount equal to the lease liability on initial measurement, less any lease incentives and lease payments made before the commencement date, plus any initial direct costs and dilapidation costs.
The Group accounts for lease payments by allocating them between finance costs and the lease liability. The finance cost is charged to profit or loss over the lease period. The right-of-use asset is depreciated over the shorter of the asset's useful life or the lease term on a straight-line basis.
22. Trade and other receivables
2019 2018 GBP'000 GBP'000 ----------------------------------- -------- -------- Trade receivables 43,457 41,034 Allowance for doubtful receivables (862) (766) ----------------------------------- -------- -------- 42,595 40,268 ----------------------------------- -------- -------- Prepayments 4,089 3,141 Other debtors 1,257 1,363 ----------------------------------- -------- -------- Total trade and other receivables 47,941 44,772 ----------------------------------- -------- --------
Trade receivables
Trade receivables disclosed above are amounts due to services rendered in the ordinary course of business. At initial measurement, they are recognised at fair value and subsequently at amortised cost, using the effective interest method.
The Group considers all receivables over 60 days to be past due.
In the year no customer represented more than five per cent of the total balance of trade receivables. In the prior year two customers, across multiple contracting entities, represented 13.1% of the 2018 debtors balance.
The Directors consider the carrying value of trade and other receivables as approximately equal to their fair value.
2019 2018 Movement in the allowance for doubtful receivables: GBP'000 GBP'000 ----------------------------------------------------- -------- -------- Balance at the beginning of the year 766 639 Recognised through acquisitions - 138 Impairment losses recognised 656 468 Amounts written off during the year as uncollectable (52) (261) Amounts recovered during the year (504)- (229) FX losses (4) 11 ----------------------------------------------------- -------- -------- Total allowance for doubtful receivables 862 766 ----------------------------------------------------- -------- --------
The expected credit losses were measured by grouping the trade receivables in a manner that reflects shared credit risk characteristics and days past due. The expected loss rates are based on the payment profiles of the respective trade receivable groups. In assessing the payment profiles the Group considers the expected future economic changes in the operating jurisdiction, specific client relationships and the expected future client and fund liquidity. This is then adjusted for forward-looking evidence that the Group will not be able to collect the debts or bill the customer. All impairment losses are related to receivables arising from contracts with customers.
The following tables provides information about expected credit losses for trade receivables, from individual customers as at 31 December 2019 and 31 December 2018:
2019 Gross carrying Loss allowance Expected amount Net carrying 31 December 2019 loss rate amount ----------------- ---------- -------------- -------------- ------------ <31 days 0% 31,313 - 31,313 31-60 days 0% 1,214 - 1,214 61-90 days 0% 1,441 1 1,440 91-120 days 0% 4,129 - 4,129 121-180 days 1% 805 7 798 180+ days 19% 4,555 854 3,701 ----------------- ---------- -------------- -------------- ------------ Total 43,457 862 42,595 ----------------- ---------- -------------- -------------- ------------ 2018 Gross carrying Loss allowance Net carrying Expected amount amount 31 December 2018 loss rate ----------------- ---------- -------------- -------------- ------------ <31 days 0% 27,740 - 27,740 31-60 days 0% 2,527 - 2,527 61-90 days 0% 2,423 - 2,423 91-120 days 1% 5,399 32 5,367 121-180 days 0% 470 - 470 180+ days 30% 2,475 734 1,741 ----------------- ---------- -------------- -------------- ------------ Total 41,034 766 40,268 ----------------- ---------- -------------- -------------- ------------
The age buckets disclosed above have expected credit losses applied. Where the expected credit loss rate is 0%, the buckets have immaterial expected credit losses.
23. Contract assets
2019 2018 GBP'000 GBP'000 ---------------------------- -------- -------- EMEA 2,856 2,942 Asia - Pacific & Mauritius 2,644 2,559 North America 527 593 Channel Islands 433 534 ---------------------------- -------- -------- Balance at 31 December 6,460 6,628 ---------------------------- -------- --------
The prior year comparative figures were restated, due to the change in segments. Please refer to note 5 for more information relating to the change.
2019 2018 GBP'000 GBP'000 ----------------------------------------------------- -------- -------- Contract assets relating to contracts with customers 1 January 6,628 3,096 Increase in contract assets for the period 7,003 6,306 Contract assets released (6,334) (3,127) Disposal group held for sale (325) (9) Exchange differences (512) 362 ----------------------------------------------------- -------- -------- Balance at 31 December 6,460 6,628 ----------------------------------------------------- -------- --------
Contract assets are all classified as current based on expected recoverability. The contract assets are subject to the impairment requirements of IFRS 9. The contract assets relate to unbilled work recognised on time spend basis as performance obligations are met and substantially have the same risk characteristics as the trade receivables and the simplified approach was also applied to contract assets. The Group has therefore concluded that the expected loss rates applied to trade receivables <31 days, are an appropriate estimation of the expected credit losses.
Payments are due as soon as invoices are raised.
24. Net (debt)/cash
2019 2018 GBP'000 GBP'000 -------------------------------- ---- --------- -------- Bank loan (see note 27) (129,572) (85,364) Trapped cash (i) (10,065) (8,936) Less: Cash and cash equivalents 51,454 32,411 -------------------------------------- --------- -------- Total net (debt)/cash (88,183) (61,889) -------------------------------------- --------- --------
The Group had undrawn borrowings at 31 December 2019 of GBP88 million (2018: GBP14.2 million) and an accordion of GBP70 million. See note 27.
i. Trapped cash is the aggregate of the minimum amounts of cash our legal entities are required to hold in order to maintain compliance with any regulatory or legal capital or liquidity requirements that apply to them. The balance of trapped cash is somewhat fluid and will depend on the other assets of the respective entities, it is not specifically held in segregated accounts. Trapped cash can be used by the business, however, it could lead to a breach of the regulatory compliance requirements. Refer to note 34 for additional information on capital management.
25. Share capital
2019 2018 GBP'000 GBP'000 ---------------------------------------------------------- -------- -------- Authorised 500,000,000 (2018:500,000,000) ordinary shares of GBP0.01 each 5,000 5,000 ---------------------------------------------------------- -------- -------- Called up, issued and fully paid 146,633,168 (2018: 145,996,512) ordinary shares of GBP0.01 each 1,466 1,460 ---------------------------------------------------------- -------- --------
1,730,901 Ordinary shares (1.2% of the issued share capital) are held by Sanne Group Employees' Share Trust ("EBT") (2018: 2,622,846) and have been treated as treasury shares in accordance with IAS 32 Financial Instruments.
At 31 December 2019 the Company held 98,533 (2018: 98,533) treasury shares.
Movements in share capital during the year ended 31 2019 2018 December GBP'000 GBP'000 ---------------------------------------------------- -------- -------- Balance at 1 January 1,460 1,416 Issue of shares: FAS deferred consideration 6 8 LIS acquisition - 30 Sanne AgenSynd acquisition - 6 ---------------------------------------------------- -------- -------- Balance at 31 December 1,466 1,460 ---------------------------------------------------- -------- -------- Movements in share premium during the year ended 31 2019 2018 December GBP'000 GBP'000 ---------------------------------------------------- -------- -------- Balance at 1 January 200,270 171,850 Issue of shares: FAS deferred consideration 3,153 4,036 LIS acquisition - 20,885 Sanne AgenSynd acquisition - 3,499 ---------------------------------------------------- -------- -------- Balance at 31 December 203,423 200,270 ---------------------------------------------------- -------- --------
Shares to the value of GBP3.2 million (2018: GBP4.0 million) were issued from the "shares to be issued" reserve rather than raised through the issuance of ordinary shares.
26. Own shares
Shares GBP'000 2019 2018 2019 2018 --------- --------- --------- ----- ----- EBT 1,730,901 2,622,846 1,166 1,470 Treasury 98,533 98,533 - - --------- --------- --------- ----- ----- Total 1,829,434 2,721,379 1,166 1,470 --------- --------- --------- ----- -----
Sanne Group Employees' Share Trust ("EBT")
During the year, the EBT settled commitments under share based payments of 936,892 shares. The EBT also repurchased 44,947 shares during the year from employees.
The remaining shares and cash are held by the Trust to fulfil the Group's future obligations under share plans.
Treasury shares
The Company held 98,533 (2018: 98,533) shares in treasury resulting from repurchases of shares which are held under restrictive sale agreements, at a total cost of GBP2.
27. Borrowings
On 1 March 2019, the Group refinanced its loan facility and repaid the existing loan in full. The facility has a maturity of February 2023 with extension options of up to two years. Interest is charged at LIBOR plus a variable margin. The balance of the unamortised loan costs was written off.
The new loan facility is for GBP150m plus an accordion facility of GBP70m with a consortium of five banks namely HSBC, Bank of Ireland, LIoyds, Royal Bank of Canada and Santander. The new loan is now structured solely as a revolving credit facility that can be drawn down and repaid by the Group at any time. The loan and accordion have a maturity of February 2023 and pay commercial rates.
Covenants attached to the loan relate to interest cover and leverage. Undrawn funds in the revolving credit facility are charged at 40% of the interest margin whilst the accordion facility attracts no interest until drawn.
The balances available and drawn at the year-end were as follows:
2019 2018 GBP'000 GBP'000 -------------------------- -------- -------- Available Term loan - 46,000 Revolving credit facility 150,000 44,000 Accordion facility 70,000 10,000 -------------------------- -------- -------- 220,000 100,000 -------------------------- -------- -------- Drawn Term loan - 46,000 Revolving credit facility 131,175 39,850 -------------------------- -------- -------- 131,175 85,850 -------------------------- -------- -------- Capitalised loan fees (1,603) (486) -------------------------- -------- -------- Total borrowings 129,572 85,364 -------------------------- -------- -------- 2019 2018 Reconciliation of loan balance GBP'000 GBP'000 ------------------------------- -------- -------- Balance at 1 January 85,364 64,335 Redemption of bank loans (85,850) (4,000) New bank loans raised 131,175 24,850 Amortisation for the year 174 179 Loan fees accrued (37) - Loan fees paid (1,711) - Loan fees written off 457 - ------------------------------- -------- -------- Balance at 31 December 129,572 85,364 ------------------------------- -------- --------
During the year to 31 December 2019, the Group drew down from the revolving credit facility a net total of GBP131.1 million with GBP85.9 million used to repay the previous facility.
28. Deferred taxation
The deferred taxation recognised in the consolidated financial statements is set out below:
2019 2018 GBP'000 GBP'000 ----------------------- -------- -------- Deferred tax asset 8,324 2,082 Deferred tax liability (15,931) (13,395) ----------------------- -------- -------- (7,607) (11,313) ----------------------- -------- --------
The deferred tax at year end is made up as follows:
2019 2018 GBP'000 GBP'000 ------------------------- -------- -------- Intangible assets (9,063) (10,692) Other timing differences 1,456 (621) ------------------------- -------- -------- (7,607) (11,313) ------------------------- -------- --------
The movement in the year is analysed as follows:
2019 2018 GBP'000 GBP'000 -------------------------------------------- -------- -------- Balance at 1 January (11,313) (7,930) Recognised through acquisitions - (5,162) Other comprehensive income 10 (11) Income statement movements Intangible assets 1,629 (738) Leases - right of use assets 5,370 - Leases - lease liabilities (4,822) - Tangible assets (122) (169) Share based payments 145 1,052 Other timing differences - income statement 1,122 1,900 Foreign exchange 374 (255) -------------------------------------------- -------- -------- Balance at 31 December (7,607) (11,313) -------------------------------------------- -------- --------
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so.
The group expects the deferred tax asset to be recovered as follows:
2019 2018 GBP'000 GBP'000 ---------------------------------------------------------- -------- -------- Deferred tax asset recovered in no more than twelve months after the reporting period 5,123 771 recovered in more than twelve months after the reporting period 3,201 1,311 ---------------------------------------------------------- -------- -------- Balance at 31 December 8,324 2,082 ---------------------------------------------------------- -------- -------- The group expects the deferred tax liability to be 2019 2018 settled as follows: GBP'000 GBP'000
----------------------------------------------------------- --------- --------- Deferred tax liability settled in no more than twelve months after the reporting period (10,856) (9,303) settled in more than twelve months after the reporting period (5,075) (4,092) ----------------------------------------------------------- --------- --------- Balance at 31 December (15,931) (13,395) ----------------------------------------------------------- --------- ---------
29. Trade and other payables
2019 2018 GBP'000 GBP'000 -------------------------------- ----- -------- -------- Trade creditors 1,320 287 Other payables 1,148 1,482 Other taxes and social security 3,139 2,834 Accruals 8,865 5,536 Deferred consideration (i) - 24,328 -------------------------------- ----- -------- -------- Total trade and other payables 14,472 34,467 --------------------------------------- -------- -------- Other liabilities (ii) - 4,914 -------------------------------- ----- -------- -------- Total other liabilities - 4,914 --------------------------------------- -------- --------
Trade creditors, other payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider the carrying value of the trade and other payables to approximate their fair value.
i. The prior year deferred consideration relates to the LIS acquisition and was settled in cash in the current year.
ii. In the prior year other liabilities relate to the non-current liability recognised for lease incentives received. In the current year the lease incentives decrease the right-of-use asset balances as set out in IFRS 16. Refer to note 21 for further information relating to the lease accounting.
30. Provisions
2019 2018 GBP'000 GBP'000 -------------------------------------- -------- -------- Balance at 1 January 1,650 506 Provisions utilised during the year (546) (60) Provisions recognised during the year 1,352 - Recognised through acquisitions - 180 Provisions grossed up - 1,030 Foreign exchange loss/(gain) 19 (6) -------------------------------------- -------- -------- Balance at 31 December 2,475 1,650 -------------------------------------- -------- -------- Of which are: Current lease liabilities 451 452 Non-current lease liabilities 2,024 1,198 -------------------------------------- -------- -------- Balance at 31 December 2,475 1,650 -------------------------------------- -------- --------
The provision carried principally relates to dilapidations for property leases and will be utilised upon the dismantling of the fixtures in the properties leased, which is expected to occur at the end of rental agreements. The rental agreements span from 1 year to 24 years. A best estimate of the dismantling costs was made, however the final costs will be determined based on the state of the property and the work required. The Group expects the cash outflow to occur at the end of the lease term. In the prior year the Group incorrectly carried all of its provisions as current. This was split in the current year, as above, between current and non-current. The prior year balance moving from current liabilities to non-current liabilities is GBP1.2 million, because as at 31 December 2018 it was due after more than 12 months. There was no impact on the profit and loss.
31. Contract liabilities
2019 2018 GBP'000 GBP'000 ---------------------------- -------- -------- EMEA 7,479 5,910 Asia - Pacific & Mauritius 4,302 4,475 North America 71 119 Channel Islands 5,782 5,581 ---------------------------- -------- -------- Balance at 31 December 17,634 16,085 ---------------------------- -------- --------
The following disclosure indicates how much revenue, recognised in the current reporting period, relates to carried-forward contract liabilities and how much relates to performance obligations that were satisfied in a prior year.
The prior year comparative figures were restated, due to the change in segments (the cumulative balance remained unchanged). Please refer to note 5 for more information relating to the change.
2019 2018 GBP'000 GBP'000 ----------------------------------------------------------- -------- -------- Contract liabilities at 1 January 16,085 12,850 Revenue recognised in the current period that was included in the contract liability balance at the beginning of the period (16,195) (12,855) Contract liabilities recognised during the year 18,551 16,098 Disposal group held for sale (325) (250) Exchange differences (482) 242 ----------------------------------------------------------- -------- -------- Balance at 31 December 17,634 16,085 ----------------------------------------------------------- -------- --------
Payments are due as soon as invoices are raised. Revenue is recognised over time, as the performance obligations are met.
32. Share based payments
2019 2018 GBP'000 GBP'000 --------------------------- -------- -------- Sanne Group plc Performance Share Plan (40) 1,192 Restricted Stock Awards 2,482 2,184 Social security accrual (65) - --------------------------- -------- -------- Total share based payments 2,377 3,376 --------------------------- -------- --------
Performance Share Plan
During the current and prior years the Group granted awards over its ordinary shares under the terms of its Performance Share Plan ("PSP"). The exercise of awards under the PSP is conditional upon the achievement of one or more challenging performance targets set at the time of the grant and measured over a three year performance period from grant date. All the awards were granted for nil consideration.
The fair value for Performance Share Plans containing a market condition was valued on grant date using the Geometric Brownian Motion, which incorporated a Monte Carlo simulation. This was performed by determining the share price at grant date and applying the module under certain assumptions, for example the reinvesting of dividends and a risk free rate linked to a 3-year UK government bond.
Management estimates the number of shares to be vested based on the performance targets set to be achieved and the current performance of the Group. This is then grown by 13% as per market expectation to determine the probable performance at vesting date. The fair value of share awards granted during the period amounted to GBP 5,4 million.
A summary of the rules for this scheme and the related performance conditions are set out in the Remuneration report.
Restricted Stock Awards
During the current and prior years the Group granted awards over its ordinary shares in the form of Restrictive Stock Awards ("RSA"). The awards are granted as part of the mechanics of an acquisition to act as retentions for staff. The vesting of the awards is subject to continued employment over an agreed period. All the awards were granted for nil consideration.
The number and weighted average exercise prices of share based payment awards are as follows:
Number Number of of shares shares 2019 2018 --------------------------- ---------- ---------- Performance share plan Outstanding at 1 January 1,413,030 1,229,280 Granted during the year 376,783 326,289 Forfeited during the year (197,726) (142,539) Vested during the year (575,539) - --------------------------- ---------- ---------- Outstanding at 31 December 1,016,548 1,413,030 --------------------------- ---------- ----------
The number and weighted average exercise prices of share based payment awards are as follows:
Number Number of of shares shares 2019 2018 --------------------------- ---------- ---------- Restricted Stock Awards Outstanding at 1 January 1,546,998 1,355,554 Granted during the year 540,704 386,138 Forfeited during the year (97,219) (151,413) Vested during the year (311,419) (43,281) --------------------------- ---------- ---------- Outstanding at 31 December 1,679,064 1,546,998 --------------------------- ---------- ----------
The fair value of services received in return for share awards granted are measured by reference to the fair value of the shares granted. The RSA scheme has vesting dates from 2019 to 2023. The PSP scheme has vesting dates between 2019 and 2021.
2019 2018 Shares to be issued comprise the following: GBP'000 GBP'000 ------------------------------------------------- -------- -------- Balance at 1 January 12,278 13,373 New share plans for employees 2,337 2,948 FAS acquisition - deferred consideration settled (3,159) (4,043) Shares vested (3,733) - ------------------------------------------------- -------- -------- Balance at 31 December 7,723 12,278 ------------------------------------------------- -------- --------
33. Long term employee benefits
Defined contribution plan
The Group participates in various defined contribution pension plans, to which it makes monthly contributions in specific jurisdictions. The total contributions during the year were GBP560k (2018: GBP451k), paid in full by the employer.
Defined benefit RETIREMENT obligation
The Group has a defined benefit retirement obligation in respect of the Mauritius Employment Rights Act 2008 ("the Act"). In terms of the Act, an employer is obligated to pay a lump sum to the employee upon retirement in proportion to the years of service employed at the company.
The Group has no specific assets to cover the obligation as it is all self funded by the Group.
The Group recognised a net defined benefit retirement obligation of GBP684k (2018: GBP701k) on the consolidated balance sheet in respect of amounts that are expected to be paid out to employees under the Act. The group does not expect a significant change in contributions for the following year.
The most recent actuarial valuation of the defined benefit retirement obligation was carried out at 31 December 2019 by the State Insurance Company of Mauritius.
2019 2018 Defined benefit retirement obligation GBP'000 GBP'000 -------------------------------------------------------- -------- -------- Present value of defined benefit at the beginning of the year 701 718 Amounts recognised in the Consolidated Income Statement - Current service cost 54 48 - Net interest expense 42 48 Amounts recognised in the Consolidated Statement of Other Comprehensive Income - Actuarial loss/(gain) on defined benefit obligation 67 (70) Direct benefits paid (118) (85) FX gain (62) 42 -------------------------------------------------------- -------- -------- Present value of defined benefit retirement obligation at 31 December 684 701 -------------------------------------------------------- -------- --------
The plan is exposed to actuarial risks such as interest rate risk and salary risk.
The cost of providing the benefits is determined using the Projected Unit Method. The principal assumptions used for the purpose of actuarial valuation were as follows:
2019 2018 ------------------------- -------- -------- Discount rate(1) 6.5% 6.6% Future salary increases 3% 3% Future pension increases 3% 3% Withdrawal rate 17% 17% Retirement age 65 years 65 years ------------------------- -------- --------
(1) The discount rate is determined by reference to market yields on bonds.
Significant actuarial assumptions for the determination of the defined benefit retirement obligation are the discount rate and expected salary increase. The sensitivity analysis below have been determined based reasonably on possible changes of the assumptions occurring at the end of the reporting period.
2019 2018 GBP'000 GBP'000 ------------------------------------------------------------ ----------- ----------- - Increase due to 1% decrease in discount rate 129 115 - Decrease due to 1% increase in discount rate 182 89 - Increase due to 1% increase in future salary increases 132 157 - Decrease due to 1% decrease in future salary increases 167 123 Weighted average duration of the defined benefit obligation (years) 22.7 years 16.3 years ------------------------------------------------------------ ----------- -----------
34. Financial instruments
The Group's financial instruments comprise bank loans, investments in equity, cash and cash equivalents, trade payables, other payables, trade receivables and other receivables.
2019 2018 Categories of financial instruments Level GBP'000 GBP'000 -------------------------------------------- ------ ----- -------- -------- Financial assets Financial assets recorded at amortised cost Cash and bank balances 51,454 32,411 Trade and other receivables (i) 49,055 46,896 Financial assets recorded at fair value Investment in equity (ii) 3 8,632 - Financial liabilities Financial liabilities recorded at amortised cost Bank loan 129,572 85,364 Deferred consideration (iii) 3 - 24,328 Trade and other payables (iv) 11,333 7,305 -------------------------------------------- ------ ----- -------- -------- i. Includes contract assets but excludes other debtors and prepayments.
ii Refer to note 20 for further information relating to the minority equity investment and the fair value thereof.
iii. The deferred consideration relate to the acquisition of LIS and CP. The consideration had a contingent element where it was based on the 2018 multiple and payment was deferred until the 2018 audit of LIS and CP was finalised.
iv. Excludes other taxes and social security and deferred consideration but includes accrued interest payable.
The fair value measurement of the Group's financial and non-financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the 'fair value hierarchy'):
Level 1: Quoted prices in active markets for identical items;
Level 2: Observable direct or indirect inputs other than Level 1 inputs; and
Level 3: Unobservable inputs, thus not derived from market data.
The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognised in the period they occur.
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to shareholders through the optimisation of the debt and equity balance. The managed capital refers to the group's debt and equity balances. Refer to note 25 for the quantitative disclosure of the share capital.
As disclosed in note 27, the Group has a loan which requires it to meet cash flow, leverage and interest cover covenants. Refer to note 27 for the quantitative disclosure of the borrowings. In order to achieve the Group's capital risk management objective, the Group aims to ensure that it meets the financial covenants attached to the borrowings. Breaches in meeting the financial covenants would permit the lender to immediately call the loan.
In line with the loan agreement, the Group tests compliance with the financial covenants on a quarterly basis and considers the results in making decisions affecting dividend payments to shareholders or issue of new shares.
Individual regulated entities within the Group are subject to regulatory requirements to ensure adequate capital and liquidity to meet local requirements in Jersey, UK, Guernsey, Ireland, Netherlands, Luxembourg and South Africa, which are monitored monthly to ensure compliance. There have been no breaches of applicable regulatory requirements during the year or at year end. These regulatory requirements of adequate capital is referred to by Sanne as "trapped cash", the quantitative balance of which can be observed in note 24.
Financial risk management objectives
The financial risk management policies are discussed by the management of the Group on a regular basis to ensure that these are in line with the overall business strategies and its risk management philosophy. Management sets policies which seek to minimise the potential adverse effects affecting the financial performance of the Group. Management provides necessary guidance and instructions to the employees covering specific areas, such as market risk (foreign exchange and interest rate risk), credit risk, liquidity risk, and in investing excess cash. The Group does not hold or issue derivative financial instruments.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, whilst optimising the return.
Interest rate risk management
The Group is exposed to interest rate risk as entities in the Group borrow funds at floating interest rates. The interest rates are directly linked to the LIBOR plus a margin based on the leverage ratio of the Group. The higher the leverage ratio, the higher the margin on the LIBOR. The risk is managed by the Group maintaining an appropriate leverage ratio and through this ensuring that the interest rate is kept as low as possible. The Group is currently considering the proposed LIBOR reforms, but it does not expect a material impact on the financial results.
The Group's exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.
Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the floating rate liabilities.
The Group considers a reasonable interest rate movement in LIBOR to be 25 basis points based on historical changes to interest rates. If interest rates had been higher/lower by 25 basis points and all other variables were held constant, the Group's profit for the year ended 31 December 2019 would decrease/increase by GBP363k (2018: GBP229k).
Foreign currency risk management
The Group manages exposure to foreign exchange rates by carrying out the majority of its transactions in the functional currency of the Group company in the jurisdiction in which it operates. The Group entities maintain assets in foreign currencies sufficient for regulatory capital purposes in each jurisdiction. The Group continues to monitor the potential impacts of the United Kingdom's leaving EU membership ("Brexit") The volatility of Sterling is due to the uncertainties around the effect it might have but the Group's strong momentum and diverse geographic presence, as well as the favourable underlying trends in the markets in which we operate, give the Directors confidence in the continued management of the possible Brexit effect. The carrying amounts of the Group's material foreign currency denominated monetary assets and monetary liabilities are as follows:
Assets Liabilities 2019 2018 2019 2018 GBP'000 GBP'000 GBP'000 GBP'000 --------------------- -------- -------- -------- -------- Euro 35,051 29,846 168 324 United States Dollar 25,979 18,261 281 8 South African Rand 1,258 2,410 71 (2) --------------------- -------- -------- -------- -------- 62,288 50,517 520 330 --------------------- -------- -------- -------- --------
Foreign currency risk management sensitivity analysis
The principal currency of the Group's financial assets and liabilities is Pounds Sterling. The Group, however, does own trading subsidiaries based in the United States of America, South Africa, Mauritius, Asia and Europe which are denominated in a currency other than the principal currency. The Group therefore faces currency exposures.
The following table illustrates management's assessment of the foreign currency impact on the year-end consolidated balance sheet, the possible impact on the Group's total comprehensive income for the year and net assets arising from potential changes in the Euro, United States Dollar or South African Rand exchange rates, with all other variables remaining constant. A strengthening or weakening of the Sterling by 20% is considered an appropriate variable for the sensitivity analysis given the scale of foreign exchange fluctuations over the last two years. This is based on the most volatile currency namely, the South African Rand, for which it is not uncommon to see a 20% fluctuation.
Effect on Group comprehensive income and net assets --------------------- -------------- Strengthening / (weakening) 2019 2018 of Sterling GBP'000 GBP'000 --------------------- -------------- ----------- ---------- Euro +20% (6,977) (5,904) United States Dollar +20% (5,140) (3,650) South African Rand +20% (237) (482) Euro (20%) 5,814 4,920 United States Dollar (20%) 4,283 3,042 South African Rand (20%) 198 402 --------------------- -------------- ----------- ----------
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group's principal exposure to credit risk arises from the Group's receivables from clients.
Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. The carrying amount of financial assets recorded in the historical financial information, which is net of impairment losses, represents the Group's maximum exposure to credit risk as no collateral or other credit enhancements are held.
Cash and cash equivalents are subject to the impairment requirements of IFRS 9. As balances are mainly held with reputable international banking institutions, they were assessed to have low credit risk and no loss allowance is recognised. Cash and cash equivalents are held mainly with banks which are rated 'A-' or higher, with the exception of a few BBB rated institutions, by Standard & Poor's Rating Services.
The credit risk on liquid funds and borrowings is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.
The Group manages credit risk by review at take-on around:
-- Risk of insolvency or closure of the customer's business; -- Customer liquidity issues; and
-- General creditworthiness, including past default experience of the customer, and customer types.
Subsequently, customer credit risk is managed by each of the Group entities subject to the Group's policies, procedures and controls relating to customer credit risk management. Outstanding customer receivables are monitored and followed up continuously. Provisions are made when there is objective, forward-looking, evidence that the Group will not be able to collect the debts or bill the customer. This evidence can include the following: indication that the customer is experiencing significant financial difficulty or default, probability of the fund being liquidated, or similar factors. Analysis is done on a case by case basis in line with the Group policy. The ageing of trade receivables and loss allowance at the reporting date is disclosed in note 22. Note 23 sets out the expected credit loss of contract assets.
The Group has rebutted the presumption that there have been significant increases in credit risk since initial recognition of trade receivables by considering the payment profiles of the trade receivables past due on a case by case basis. Historically the group has had immaterial debt write-offs, supporting the fact that the clients do not incur significant increases in their credit risk when becoming past due.
Liquidity risk management
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk to maintain adequate reserves by regular review around the working capital cycle using information on forecast and actual cash flows.
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity management requirements. Regulation in most jurisdictions also requires the Group to maintain a level of liquidity so the Group does not become exposed.
The Group manages liquidity risk to maintain adequate reserves by regular reporting around the working capital cycle using information on forecast and actual cash.
Liquidity and interest risk tables
The following tables detail the Group's remaining contractual maturity for its financial liabilities with agreed repayment years. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are floating rates, the undiscounted amount is derived from interest rates at the balance sheet date. The contractual maturity is based on the earliest date on which the Group may be required to pay.
< 3 months 3-12 months 1-5 years > 5 years Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 ---------------------------- ---------- ----------- --------- --------- -------- 31 December 2019 Bank loans (i) 666 2,013 139,203 - 141,882 Trade payables and accruals (ii) 14,331 - - - 14,331 Provisions - 451 500 1,524 2,475 Lease liability 1,084 3,287 11,195 22,274 37,840 ---------------------------- ---------- ----------- --------- --------- -------- 16,081 5,751 150,898 23,798 196,528
---------------------------- ---------- ----------- --------- --------- -------- 31 December 2018 Bank loans (i) 524 1,562 89,498 - 91,584 Trade payables and accruals (ii) 10,069 - - - 10,069 Provisions 506 - - - 506 ---------------------------- ---------- ----------- --------- --------- -------- 11,099 1,562 89,498 - 102,159 ---------------------------- ---------- ----------- --------- --------- --------
For the purpose of the above liquidity risk analysis the amortised value has been adjusted for:
i. The future interest payments not yet accrued and the repayment of capital upon maturity.
ii. The accrued bank loan interest payable at the balance sheet date.
Fair value of financial instruments
For all the financial instruments, excluding the instruments classified as carried at fair value through other comprehensive income, the directors consider that the carrying amounts of financial assets and financial liabilities in the historical financial information approximate their fair values.
35. Related party transactions
The Group's related parties are key management personnel, comprising all members of the plc Board and the Executive Committee who are responsible for planning and controlling the activities of the Group.
The remuneration of any employee who met the definition of key management personnel of the Group at the end of the period is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures for the period they served as key management personnel.
2019 2018 GBP'000 GBP'000 ------------------------------------ -------- -------- Short-term employee benefits 2,289 2,789 Share based payments (see note 32) 222 573 Contracted through consultancy firm 60 - ------------------------------------ -------- -------- Total short term payments 2,571 3,362 ------------------------------------ -------- --------
Balances and transactions between Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its associates are disclosed below:
2019 2018 GBP'000 GBP'000 ----------------------------------------- -------- -------- Consulting services - Arema Risk Limited 70 185 ----------------------------------------- -------- --------
Arema Risk Limited is a related party of the Group as a member of the key management personnel is a shareholder of the entity. The Group engaged the entity for consultancy services at an arm's length basis.
Key management personnel in their capacity as shareholders also receive dividends from the Group when declared. This is standard for all shareholders.
Other than the items listed above, the Group has not entered into any material transactions with related parties.
36. Changes in accounting policies
On adoption of IFRS 16 'Leases', the group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019. The incremental borrowing rate was determined on 1 January 2019 as set out in note 21. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 4.21%.
The Group made use of the practical expedient on transition whereby leases with a remaining lease term of less than 12 months, as at 1 January 2019, will be accounted for as a short-term lease. Consequently, no lease liability or right-of-use asset was calculated thereon. Initial direct costs were also excluded for the measurement of the right-of-use asset at initial application of the new standard.
The Group has also elected not to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, for contracts entered into before the transition date the Group relied on its assessment made applying IAS 17 'Leases' and IFRIC 4 Determining whether an arrangement contains a Lease.
The Group defines low value assets as those assets with a purchase price, for a new and unused asset, of GBP5,000 or lower.
The discounted remaining lease payments are reconciled to the lease liability recognised on initial application as follows:
1 Jan 2019 GBP'000 -------------------------------------------------------------------- -------- Operating lease commitments disclosed as at 31 December 2018 60,265 Discounted using the average incremental borrowing rate 40,243 Less: short-term leases recognised as an expense on a straight-line basis (67) Less: low value assets recognised as an expense on a straight-line basis (15) Plus: adjustment due to jurisdictional incremental borrowing rate used 327 Leases committed to in 2018 with a 1 January 2019 commencement date (4,660) -------------------------------------------------------------------- -------- Lease liability recognised as at 1 January 2019 35,828 -------------------------------------------------------------------- -------- Of which are: Current lease liabilities 3,902 Non-current lease liabilities 31,926 -------------------------------------------------------------------- -------- 35,828 -------------------------------------------------------------------- --------
The associated right-of-use assets for property leases were measured on a simplified retrospective basis, thereby recognising the right-of-use asset at the carrying value it would have been on 1 January, if the new standard was always in effect. Using the practical expedient, the group only recognised a right-of-use-asset on property. The impact on 1 January 2019 is set out below. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application. The cumulative effect of initially applying IFRS 16 'Leases' was accounted for as an adjustment to the opening balance of retained earnings.
Right-of-use assets were only recognised on the rental properties.
31 Dec 1 Jan 2019 2019 GBP'000 GBP'000 -------------------- -------- -------- Right-of-use assets 32,733 30,828 Lease liabilities (37,840) (35,828) -------------------- -------- --------
The change in accounting policy affected the following items in the balance sheet on 1 January 2019:
GBP'000 Increase Right-of-use assets by 30,828 Increase Lease liabilities by 35,828 Increase Deferred tax liabilities by 4,426 Increase Deferred tax assets by 4,976 Decrease Trade and other payables by 5,403 Decrease Property, plant and equipment by 1,109 Decrease Retained earnings by 556 Increase Provisions by 400 Decrease Basic EPS (pence) by 0.40 Decrease Diluted EPS (pence) by 0.39 Decrease Underlying basic EPS (pence) by 0.40 Decrease Underlying diluted EPS (pence) by 0.39 ------------------------------- --------- -------
The lease liability disclosed in the 31 December 2018 consolidated financial statements included two leases with a 1 January 2019 commencement date. The two leases amounted to GBP 4.7 million and were included in the consolidated financial statements to be prudent.
Refer to note 21 relating to the current year disclosure of the lease liabilities and right of use asset. Note 21 also details the Group's approach to the assessment of the lease terms, variable lease payments and the calculation of the incremental borrowing rates applied.
37. Business combinations
There have been no business combinations in the current year. In the prior year Sanne acquired 100% of the issued shares of Investment Solutions S.A., Compliance Partners S.A. and AgenSynd S.L. The below note sets out the impact of the prior year business combinations on the comparative period.
LUXEMBOURG INVESTMENT SOLUTIONS S.A. AND COMPLIANCE PARTNERS S.A
On 6 February 2018 the Group acquired 100% of the issued share capital of Luxembourg Investment Solutions S.A. and Compliance Partners S.A., these entities are incorporated in Luxembourg and together trade as LIS.
This acquisition provides the Group with an opportunity to expand its platform in Luxembourg, enhance the Group's new funds proposition in Dublin and grow its existing EMEA operations.
The consideration for the acquisition was satisfied by a total payment of approximately GBP60.2 million (EUR66.6 million) in cash during 2018 and 2019, and the issuance of 3,022,841 shares.
EUR GBP '000 '000 ------------------------------------ --------------------- ------- ------- Recognised amounts of identifiable net assets (at fair value): ------------------------------------ --------------------- ------- ------- Non-current assets Useful economic life Equipment 3 - 5 years 426 378 Customer & contract intangibles 5 years 18,616 16,527 ------------------------------------ --------------------- ------- ------- 19,042 16,905 ---------------------------------------------------------- ------- ------- Current assets Trade and other receivables 2,117 1,879 Cash and cash equivalents 3,983 3,536 Accrued income 4,143 3,678 ----------------------------------------------------------- ------- ------- 10,243 9,093 ---------------------------------------------------------- ------- ------- Current liabilities Trade and other payables 2,425 2,153 Current tax liabilities 1,163 1,032 Deferred revenue 74 66 ----------------------------------------------------------- ------- ------- 3,662 3,251 ---------------------------------------------------------- ------- ------- Non-current liabilities Deferred tax liabilities 4,842 4,299 ----------------------------------------------------------- ------- ------- 4,842 4,299 ---------------------------------------------------------- ------- ------- Identifiable net assets 20,781 18,448 ----------------------------------------------------------- ------- ------- Goodwill 75,868 67,572 ----------------------------------------------------------- ------- ------- Total consideration 96,649 86,020 ----------------------------------------------------------- ------- ------- Total consideration satisfied by: Cash consideration - on acquisition 29,878 26,525 Equity instruments - ordinary shares (3,022,841 shares in Sanne Group plc) 13,923 12,361 Deferred consideration 52,848 47,134 ----------------------------------------------------------- ------- ------- Fair value of consideration payable at acquisition date 96,649 86,020 ----------------------------------------------------------- ------- ------- Net cash outflow arising on acquisition: Cash consideration 29,878 26,525 Less: cash and cash equivalent balances acquired (3,983) (3,536) ----------------------------------------------------------- ------- ------- Net cash outflow arising on acquisition 25,895 22,989 ----------------------------------------------------------- ------- -------
Fair value of consideration
The shares were valued based on the closing share price the day before reissuance with this amount appropriately allocated between share capital and share premium.
Included in the prior year was deferred consideration of GBP24.3 million (EUR27.1 million). The deferred consideration was paid in 2019 and based on a multiple 2018 EBITDA for the LIS Group.
Transaction costs
The Group incurred GBP117k of acquisition and integration expense in 2018, these costs have been expensed within operating expenses in this financial period and have further been identified as non-underlying as detailed in note 9.
Trade and other receivables
The fair value of the financial assets acquired is GBP119k, included in the balance is an amount of GBP170k, relating to the gross balance of trade receivables, of which GBP130k was expected to be uncollectible.
Goodwill
Goodwill is represented by assets that do not qualify for separate recognition or other factors. These include the opportunities for new business wins from new customers, the effects of an assembled workforce and synergies from combining operations of the acquiree and the acquirer. Goodwill is not tax deductible.
Effect on the results
During 2018 the LIS Group contributed GBP16.1 million of revenue and a net profit for the year of GBP5.2 million to the Group's profit for the period between the date of acquisition and the balance sheet date. If the business had been acquired at 1 January 2018 on a pro rata basis the Group revenue for the period would have been GBP144.5 million (GBP1.5 million higher) and net profit for the year GBP19.8 million (469k higher).
AgenSynd S.L ("Stream Group")
On 14 August 2018, the Group entered into a conditional agreement to acquire 100% of the issued share capital of AgenSynd S.L. The Group has entities in Spain, the United Kingdom and France. The acquisition provided the Group with an opportunity to expand its platform in Spain and its existing EMEA operations and completed on 3 September 2018.
The consideration for the acquisitions was satisfied through payments of approximately GBP6.7 million (EUR 7.4 million) in cash, and the issuance of 568,986 consideration shares.
EUR GBP '000 '000 ------------------------------------ --------------------- ------ ------ Recognised amounts of identifiable net assets (at fair value): ------------------------------------ --------------------- ------ ------ Non-current assets Useful economic life Equipment 3 - 7 years 115 104 Customer & contract intangibles 7 years 3,625 3,269 ------------------------------------ --------------------- ------ ------ 3,740 3,373 ---------------------------------------------------------- ------ ------ Current assets Trade and other receivables 133 119 Cash and cash equivalents 460 415 ----------------------------------------------------------- ------ ------ 593 534 ---------------------------------------------------------- ------ ------ Current liabilities Trade and other payables 247 223 Current tax liabilities 165 150 Deferred revenue 961 867 ----------------------------------------------------------- ------ ------ 1,373 1,240 ---------------------------------------------------------- ------ ------ Non-current liabilities Deferred tax liability 960 863 ----------------------------------------------------------- ------ ------ 960 863 ---------------------------------------------------------- ------ ------ Identifiable net assets 2,000 1,804 ----------------------------------------------------------- ------ ------ Goodwill 9,318 8,404 ----------------------------------------------------------- ------ ------ Total consideration 11,318 10,208 ----------------------------------------------------------- ------ ------ Total consideration satisfied by: Cash consideration - on acquisition 7,434 6,705 Equity instruments - ordinary shares (568,986 shares in Sanne Group plc) 3,884 3,503 ----------------------------------------------------------- ------ ------ Fair value of consideration payable at acquisition date 11,318 10,208 ----------------------------------------------------------- ------ ------ Net cash outflow arising on acquisition: Cash consideration 7,434 6,705 Less: cash and cash equivalent balances acquired (460) (415) ----------------------------------------------------------- ------ ------ Net cash outflow arising on acquisition 6,974 6,290 ----------------------------------------------------------- ------ ------
Fair value of consideration
The shares were valued based on the closing share price the day before issuance with this amount appropriately allocated between share capital and share premium.
Transaction costs
The Group incurred GBP971k of acquisition and integration expense in 2018, these costs have been expensed within operating expenses in this financial period and have further been identified as non-underlying as detailed in note 9. Due to the legal form of the deferred consideration on this deal there are also additional payments to be made estimated at GBP3.2 million which are treated as ongoing remuneration of key management personnel and being expensed over this and future accounting periods, GBP564k has been expensed for this in the 2018 period, these have been shown in operating expenses and further identified as non-underlying as detailed in note 9.
Trade and other receivables
The fair value of the financial assets acquired includes trade and other receivables with a fair value of GBP119k. The gross amount receivable is GBP170k of which GBP130k was expected to be uncollectible.
Goodwill
Goodwill is represented by assets that do not qualify for separate recognition or other factors. These include the opportunities for new business wins from new customers, the effects of an assembled workforce and synergies from combining operations of the acquiree and the acquirer. Goodwill is not tax deductible.
Effect on the results
During 2018 the AgenSynd Group contributed GBP1.1 million of revenue and a profit for the year of GBP428k, excluding acquisition costs regarded as non-underlying, for the period between the date of acquisition and the balance sheet date. If the business had been acquired at 1 January 2018 on a pro rata basis the Group revenue for the period would have been GBP145.3 million (GBP2.3 million higher) and net profit for the year of GBP20.2 million (GBP0.8 million higher, if non-underlying acquisition costs are excluded).
38. Contingent liabilities
In the ordinary course of business the Group could be subject to legal claims and/or proceedings. Should such an event arise, the Board would consider its best estimate of the amount required to settle the obligation and, where appropriate, establish a provision. While there can be no assurances that circumstances will not change, based upon information currently available, the Directors do not believe there is any such claim or proceeding that could have a material adverse effect on the Group's financial position.
39. Post balance sheet events
The Group has entered into an option agreement with Inbhear Management Services Limited and Inbhear Fund Services Limited whereby it will obtain control over the entities, subject to regulatory approvals the upfront consideration is EUR6.6million plus an earn-out over the next three years capped at EUR7.8million. Inbhear Management services Limited is incorporated in the Cayman Islands and Inbhear Fund Services Limited is incorporated in the Republic of Ireland. This acquisition provides the Group with the opportunity to expand and grow its platform in the Cayman Islands, enhance the Group's new funds proposition in Dublin and grow its existing EMEA operations. At year end Sanne had not yet obtained control over the entity, due to contractual requirements that have not yet been met at year end.
The Group The Group is in the process of terminating its premises lease agreement in its UK jurisdiction. The Group has undertaken to enter into a new lease agreement whereby it will rent a larger office space for the next five years, starting in March 2020.
The world is currently experiencing a global outbreak of Coronavirus (COVID-19) which is having an unprecedented impact on global markets. Management is actively monitoring the situation and has assessed the expected impact on the financial results. Whilst there can be no guarantees as to future operations or performance, the most significant immediate impact is on the forward looking assumptions made in the various impairment tests. The Sanne South Africa cash generating unit was found to be the most sensitive to the current downturn in the markets due the nature of its revenue being linked to asset values and the small headroom available. Management further stretched the reasonable possible change scenario based on the current distressed market conditions and, whilst this could potentially change in the future, there were no material differences between the current sensitivities disclosed in note 16 of the financial statements.
On 13 March 2020 Sanne reached an agreement to sell its Jersey based private client business to JTC Plc. The consideration to be paid for the business is capped at a maximum of GBP12m, to be paid in cash upon completion, and subject to the satisfactory migration of clients to JTC Plc. Refer to note 11 for the discontinued operations disclosures.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR GPUCWWUPUUGB
(END) Dow Jones Newswires
March 19, 2020 03:00 ET (07:00 GMT)
1 Year Sanne Chart |
1 Month Sanne Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions