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| 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 |
From Apr 2019 to Apr 2024
TIDMSNN
RNS Number : 5334I
Sanne Group PLC
22 March 2018
22 March 2018
Sanne Group plc
("SANNE", "the Group" or "the Company")
Preliminary Results for the year ended 31 December 2017
SANNE, a leading global provider of alternative asset and corporate administration services, announces its results for the year ended 31 December 2017.
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2017 2016 Change
-------------------------------- ----------- ---------- -------
Revenue GBP113.2m GBP63.8m +77%
-------------------------------- ----------- ---------- -------
Underlying(1) operating profit GBP38.8m GBP22.0m +76%
-------------------------------- ----------- ---------- -------
Underlying(1) profit before
tax GBP38.1m GBP21.3m +79%
-------------------------------- ----------- ---------- -------
Operating profit GBP23.1m GBP14.7m +57%
-------------------------------- ----------- ---------- -------
Profit before tax GBP22.4m GBP15.0m +49%
-------------------------------- ----------- ---------- -------
(1) Underlying results for the year have been presented after the exclusion of non-underlying items. Within operating profit and profit before tax, these items include acquisition and integration costs (GBP1.4m), share based payments (GBP1.3m) and amortisation of intangible assets (GBP13.0m). Further details can be found in note 8 of the consolidated financial statements.
Financial highlights
- Group revenue increased 77% to GBP113.2m (2016: GBP63.8m) - Underlying operating profit increased 76% to GBP38.8m (2016: GBP22.0m) - Underlying profit before tax increased 79% to GBP38.1m (2016: GBP21.3m) - Operating profit increased 57% to GBP23.1m (2016: GBP14.7m) - Profit before tax increased 49% to GBP22.4m (2016: GBP15.0m)
- Diluted Earnings Per Share (EPS) at 12.7 pence (2016: 11.3 pence), underlying diluted EPS 23.7 pence (2016: 16.9 pence)
- Recommending final Dividend Per Share (DPS) of 8.4 pence, bringing total dividend for the year to 12.6 pence, inclusive of the previously paid 4.2 pence interim dividend (2016: 9.6 pence in total)
Operational highlights
- Strong pipeline of new business within SANNE's core alternatives business (Debt, Real Estate, Private Equity and Hedge) and its corporate and treasury business lines
- Projected annualised value of revenues for new business won in the year of approximately GBP20.9m (2016: GBP13.8m)
- Acquisitions completed in Mauritius (2017) and Luxembourg (2018), broadening capabilities and geographic footprint with integration of the Mauritian business
Dean Godwin, Chief Executive Officer of SANNE, said:
"SANNE has had a successful year and highlights include the acquisition of our new Mauritian business, International Financial Services limited and IFS Trustees (together IFS). After the year-end we also finalised the acquisition of Luxembourg Investment Solutions S.A. and Compliance Partners S.A. on 6 February 2018. These businesses have expanded our expertise and jurisdictional coverage.
Strategic recruitment of talent and increased jurisdictional presence have helped us to deliver high quality professional services."
Enquiries
Sanne Group plc Dean Godwin, Chief Executive Officer Spencer Daley, Chief Financial Officer +44 (0) 1534 722 787 Investec Bank plc Garry Levin / Edward Thomas / Neil Coleman +44 (0) 20 7597 5970 Tulchan Communications LLP Tom Murray +44 (0) 20 7353 4200
Investor and analyst webcast
The Company will be hosting an investor and analyst presentation at 09:30am (GMT) on 22 March 2018. This presentation can be viewed live on the 'investor relations' section of the SANNE website:
https://www.sannegroup.com/investor-relations/full-year-results-2017/
Participants can also dial into the presentation in listen-only mode using the following details:
Number: +44 (0)330 221 0088
Access code: 144-527-645
A replay of the presentation will be available on the SANNE website shortly after the conclusion of the webcast.
Notes for Editors
About SANNE
SANNE is a leading global provider of alternative asset and corporate administration services.
The Group employs more than 1,200 people. SANNE operates from 15 locations: Belgrade; Cape Town; Dubai; Dublin; Guernsey; Hong Kong; Jersey; London; Luxembourg; Malta; Mauritius; New York; Netherlands; Shanghai and Singapore.
www.sannegroup.com
Chairman's Statement
Performance
SANNE has delivered a strong set of financial results in 2017. Total revenues increased by 77% overall, with organic revenue growth of 14%. The Group's underlying operating profit increased by 76% to GBP38.8 million. Operating profit was GBP23.1 million. Underlying profit before tax increased by 79% to GBP38.1 million. Profit before tax was GBP22.4 million. The Group's underlying operating profit margin was 34.3%.
The underlying diluted EPS was 23.7 pence (2016: 16.9 pence).
Increased dividend
The Board continues to adopt a progressive dividend policy, subject always to maintaining a sufficient level of dividend cover. It still expects to retain sufficient capital to fund ongoing operating requirements and to invest in the Group's long-term growth.
The Board is recommending a final dividend of 8.4 pence per ordinary share (2016: 6.4 pence). The final dividend will be payable on 15 May 2018 to Shareholders on the register at close of business on 3 April 2018.
Together with the previously paid 2017 interim dividend of 4.2 pence per share, this gives a total dividend for the year of 12.6 pence per share (2016: 9.6 pence in total).
Business development
SANNE has continued to evolve as an organisation, integrating acquisitions and emerging with a regional and global business model. This places the Group in a strong position to address worldwide opportunities as it builds a sustainable global business. Further, the business continues to invest significantly in staff training and group services functions, strengthening its procedures.
The alternative fund administration market continues to expand, offering good prospects for the Group. Increasing and changing regulations are difficult to deal with in-house and outsourcing the administration of this to a specialist provider with a global footprint such as SANNE becomes an ever more attractive proposition.
2017 was a year of group-wide consolidation, and significant work has been undertaken to strengthen procedures and controls. SANNE's 2016 acquisitions have been largely integrated into the business, offering an expanded global reach. The Company re-invested in 2017 and into 2018, in internal support, within the control functions and in bolstering the first and second lines of defence. Additional investment has also been made in staff training and in standardising our processes and procedures. This underpins our strategy of a compliance culture.
SANNE completed the acquisition of the Mauritian business, International Financial Services Limited and IFS Trustees (together IFS) on 1 January 2017, and increased its Luxembourg presence with the acquisitions of Luxembourg Investment Solutions S.A. (LIS) and Compliance Partners S.A. (CP) on 6 February 2018.
Corporate governance
During the year the Board has further developed its corporate governance. The Nomination Committee was evolved into the Nomination and Governance Committee, and it was decided to split the Audit and Risk Committee into two separate committees. The corporate governance framework needs to support processes and create a strong tone from the top. The strengthening of our framework will help the Company build its business and support sustainable growth.
In 2017, the Board and the Committees had an external effectiveness review. The conclusions from the review were useful and its recommendations have been accepted.
Our people
I would like to thank everyone, on behalf of the Board, for their hard work and contribution to the Group's 2017 performance.
Our role in society
In this year's report there is included for the first time a section on Corporate Social Responsibility (CSR). SANNE supports the charitable efforts of staff around the Group and its strategy focusses on three core CSR themes, benefiting children, fighting poverty and supporting education. The Committees and the Board have discussed gender pay, diversity and inclusion. The Board has reviewed gender pay and is looking to ensure internal procedures are enhanced to ensure all staff are treated equally.
The Company is keen to ensure that its environmental impact is minimised and takes a number of steps to seek to reduce its carbon footprint, by encouraging the use of conference calls to reduce travel, recycling materials and selecting new offices that are built with the environment in mind.
Our culture
SANNE has a strong collegiate culture, which encourages entrepreneurial drive. In 2017 (and early 2018) the Company introduced further training to optimise its compliance and control processes at the centre of our business. SANNE has also built its assurance capability further in 2017 and early 2018 to maintain focus in this area.
Board membership
As separately announced today, Spencer Daley, Chief Financial Officer (CFO), is to take on the role of Head of M&A and Strategy, with responsibility for helping the Group explore and maximise strategic opportunities, both organic and inorganic. Spencer will be succeeded as CFO by James Ireland.
I am delighted that James is joining SANNE as CFO as Spencer's successor. He has worked very closely with both Dean Godwin, SANNE's Chief Executive Officer, and Spencer for a number of years, and engaged well with the broader management team and Board at SANNE. His background will be a great asset in helping the business to deliver its future development and global growth plans.
James joins SANNE from Investec, where he has been for over 10 years, advising public and private companies on mergers and acquisitions and equity capital markets transactions. James has acted as a board-level adviser to a broad range of businesses including internationally diverse groups with a significant emphasis on human capital for their service delivery. Most recently he has been the head of Investec's Support Services sector team which includes the fund and corporate administration services sector. He is expected to join the Board as CFO in June 2018, at which point Spencer will step down from the Board.
Mel Carvill was welcomed to the Board on 1 January 2018. Currently based in Guernsey, Mel brings global financial services and risk management experience accumulated from his time at Generali and more recently at PPF Group. He will serve as Chairman of the newly constituted Risk Committee.
Phil Godley stepped down from the Board on 1 January 2018. Phil's business leadership and valuable contribution to the Board have hugely supported SANNE through its launch on the stock market and in the period since.
Outlook
SANNE has had a year of progress with strong financial results. Our longer-term prospects are driven by the strong growth in the global alternatives market. The increase in workloads of asset managers creates additional administration that SANNE can manage as an outsourced solution with our international footprint. Looking forward we are building on our success as a high growth sustainable business whilst investing in our infrastructure. Against this background, the outlook for 2018 continues to look promising.
Rupert Robson
Chairman
Chief Executive Officer's Statement
Our vision
SANNE's vision is to be one of the world's leading providers of alternative asset and corporate administrative services. We have been driving to achieve this through building a sustainable global business based on best practice, professionalism, ambition, integrity and engagement.
The aim is to deliver services to a range of international, institutional and private client customers. SANNE seeks to ensure excellent client service, based on our organisational values of professionalism and integrity.
Our markets
Our focus is to continue to build scale in established and emerging markets in order that we can deliver global solutions to new and existing clients. We continue to see the trend towards the outsourcing of corporate and fund administration activity from institutions and asset managers to ease administration and to have independent oversight. We provide administration services for alternatives and due to greater outsourcing, partly as a result of a changing regulatory environment, demand is increasing.
Brexit
The impact of Brexit in the market is unlikely to damage global demand for services, however we anticipate that our offices in Dublin, Luxembourg, Malta and the Netherlands are likely to benefit from any potential increase in demand. Our recent acquisition of Luxembourg Investment Solutions S.A. and Compliance Partners S.A. has further strengthened our EU footprint.
2017
During the year we have focused on ensuring our business model is built for expansion. We have recruited new talent in client and group services and invested in infrastructure. At the same time we have consolidated our processes and boosted our back office functions.
We have further developed the three lines of defence, ensuring we have specialist compliance personnel working with the business in conjunction with the checks and balances from the second line of defence in Risk and Compliance and Internal Audit (the third line). In addition, we have internal financial controls in place to protect SANNE and our clients.
Senior Management
Further to the CFO announcement today, I am pleased to welcome James Ireland, who will join us in June, as the new CFO. It is recognised that Spencer is an important part of the SANNE's success story. He has been instrumental in helping IPO the Group in 2015 and has played a key role in the strong growth of the business over the past five years. His entrepreneurial spirit is ideally suited to his new role, Head of M&A and Strategy, as the business looks forward to capturing the opportunities that lie ahead.
On 1 January 2018 Phil Godley stepped down from the Board. I wish to thank Phil for his contribution to the Board.
There were a number of key internal promotions over the past year that strengthened the SANNE management team:
- Martin Schnaier was promoted into the role of Chief Commercial Officer.
- Sean Murray was appointed as the Managing Director for EMEA Alternatives, previously held by Martin Schnaier.
- Mark Law joined on 14 August 2017 to lead our Asia-Pacific & Mauritius business. He is based in Hong Kong.
- Eric Watson joined on 1 January 2017 as the new Chief Operating Officer. - Mark Shaw changed his role from Chief Risk Officer to be part of our First Line of Defence - Martin Pearson was appointed with effect from 1 January 2018 as the new Chief Risk Officer.
Our organisation
SANNE is structured around specialist divisions and its geographies. This enables clients to benefit from our knowledge and in-depth understanding of local jurisdictions. SANNE is investing in people and processes to continue to provide our clients with a quality service.
The business strategy adopted by the Board has allowed SANNE to enhance its value to clients and stakeholders. We will look to continue to capture the increased demand for our services, and maintain our position as a trusted and valued partner by our clients.
Training
As an organisation of professionals, we continue to promote a culture of learning and development of our staff. I am proud that there is continued investment in training with support for staff to complete professional qualifications.
Our culture
SANNE's culture is collegiate. Our values and behaviours are professionalism, integrity, ambition, enthusiasm and engagement. These behaviours support our vision to build a sustainable global business based on best practice. I am committed to driving the communication of our values, and will be ensuring that these are embedded in our business.
Dean Godwin
Chief Executive Officer
Strategy Review
Business Model
SANNE is a provider of alternative asset and corporate administration services. Revenue growth is generated by building long-term relationships and by cross-selling new services to our existing client base. The projected annualised value of revenues for new business won during the year was approximately GBP20.9 million (2016: GBP13.8 million).
Our business model delivers a one-stop shop solution to clients in each alternative asset class and our corporate and private clients. As we have expanded, our revenue has increased to GBP113.2 million in 2017 (2016: GBP63.8 million).
SANNE is a global business that operates in a highly fragmented industry and serves a number of end markets with significant opportunities for growth, including alternatives (debt, real estate, private equity and hedge), corporates and private clients.
Strategy
The Group has successfully grown in recent years both organically and inorganically. New business is sourced both from cross-selling to existing clients and from developing new client relationships.
The strategic focus of the Group is to be recognised as one of the world's leading providers of alternative asset and corporate administration services by continuing to build scale in established and emerging markets. The Group will continue to focus on developing its client base of alternative asset managers, family offices, financial institutions and corporates.
Organic growth
The key drivers of the Group's organic growth strategy include:
- Building out SANNE's presence in existing asset classes, with a particular focus on the alternatives space;
- Development of core asset led offerings to drive increased revenue opportunities;
- Market share development through the deepening of existing client relationships by offering the most comprehensive product and jurisdictional range;
- Cross-selling to existing clients between divisions and geographies and delivering new client wins through direct referrals, intermediary referrals and direct targeting. This includes inter-divisional initiatives to sell ancillary corporate products and services to existing fund clients;
- Expansion of global network and platforms by building scale in key jurisdictions to support operational growth and diversification and to capitalise on high growth markets; and
- Expansion of existing services available to clients to ensure that the Group can continue to provide a one-stop shop solution to clients in each asset class, as well as differentiating SANNE from its competitors. Examples include the further development of AIFMD depositary and third party AIFM services.
Acquisition growth
The Group's acquisition strategy is demonstrated by management's post-listing track record in sourcing, executing and integrating acquisitions. The Group has a highly selective and disciplined approach to acquisitions, seeking to add capital value to SANNE without an adverse impact on the existing business.
Assessments are made as to the long-term strategic rationale of acquisition opportunities based on a number of factors, including the ability to:
- Build operational scale in existing and/or complementary jurisdictions;
- Strengthen SANNE's existing service delivery platform and to deliver operational capability to support SANNE's growth story;
- Acquire a skilled workforce to support SANNE's people-led approach;
- Make synergies (rationalisation of systems and central functions) and cross-selling opportunities within the combined business;
- Deliver an alternative, lower cost outsourced platform; and - Further strengthen client relationships in cases where there are common clients.
The Group has been active in the acquisition space, completing on IFS in Mauritius on 1 January 2017 and LIS and CP in Luxembourg on 6 February 2018. These acquisitions have delivered greater geographic diversity and a more comprehensive product offering in the Group's more established markets.
Mauritius
IFS is a Mauritian-based provider of offshore fiduciary management services, specifically the incorporation of offshore companies and trusts, general management administration and accounting and the provision of corporate secretaries. The IFS Group's clients include private equity funds, hedge funds, venture capital funds, mutual funds and corporates looking to set up investment holding, investment management, trading or service entities. IFS has over 260 employees, provides services to more than 1,000 entities and has in excess of $82 billion in assets under administration. The acquisition signed on 30 November 2016, and completed on 1 January 2017.
IFS provided SANNE with a footprint in Mauritius, additional qualified staff, a low cost location and an alternatives portfolio with developed long-term relationships.
Luxembourg
LIS is a leading third party alternative investment fund manager with assets under administration in excess of EUR8.3 billion, is authorised to deliver management company services to both alternative investment funds and open ended mutual funds within the EU. CP primarily provides corporate services to its clients. LIS is regulated under the supervision of Commission de Surveillance du Secteur Financier. Founded in 2011, together LIS and CP employ more than 80 people, the majority of whom are based in Luxembourg with a small operation in Dublin.
LIS provides alternative asset and corporate focused administration services to more than 60 clients and administers in excess of 100 fund structures. The acquisition was signed on 29 September 2017, and completed on 6 February 2018.
Segmental review
Prior to 2017, SANNE reported by asset class and specialisms across the markets in which it operated. Following our growth internationally, we have now adopted regional reporting of Alternatives and global reporting of Corporate & Private Client services. Our Alternatives regions are: Europe, Middle East and Africa (EMEA), Asia-Pacific & Mauritius (APM) and North America (NA).
The new reporting model supports our strategy of building our international reach by recognising revenue by region. SANNE now operates from 15 locations spread across North America, EMEA and Asia-Pacific and Mauritius. Our reporting model allows us to improve our efficiency and effectiveness by aligning operations and business development across each of the regions and markets where we operate.
EMEA Alternatives
- Revenue: GBP46.8m (2016: GBP38.7m) - Gross Profit: GBP29.0m (2016: GBP24.6m)
SANNE's EMEA Alternatives business includes four key alternative asset strategies (Debt, Real Estate, Private Equity and Hedge).
EMEA Alternatives saw positive growth in business wins from new clients, as well as from existing clients. Fund related work contributed to the majority of that growth.
SANNE are one of the leading providers of debt administration services in the EMEA market and have seen some good traction within the capital markets space for structured finance.
The Real Estate business division continues to grow across the range of core international jurisdictions with a good mix of new and existing clients.
The Hedge business division had a challenging year given the backdrop of a relatively depressed local market in South Africa and local funds' performance. The division successfully completed a highly intensive, long running project to migrate a large portfolio of clients on to a new regulated management company platform, in accordance with regulatory changes in South Africa.
During the first half of 2017, the Private Equity business division continued to grow its offering to institutional private equity houses. In particular, the division has seen a number of opportunities arising through relationships introduced by the Americas Alternative business.
Asia-Pacific & Mauritius Alternatives
- Revenue: GBP27.9m (2016: GBP4.2m) - Gross Profit: GBP21.5m (2016: GBP2.7m)
In the period, SANNE's existing business operations in Hong Kong, Singapore and Shanghai were bolstered following the completed acquisition of IFS.
During the period, strong growth has been delivered within the real estate and private equity asset classes in Hong Kong, Shanghai and Singapore, with advantage being taken of good cross-selling opportunities from EMEA Alternatives' and North American Alternatives' clients.
Within the business, operational capability has been expanded in Shanghai, Hong Kong and Singapore in line with client requirements and Mark Law has been appointed to head up the regional business.
In Mauritius the integration of IFS has provided additional flow of work into the pipeline which continues to be healthy. The Group is also seeing an increase in cross-selling opportunities to and from the region, expanding the client offering across the whole Asia-Pacific & Mauritius region. The region displays good growth potential within the existing jurisdictional offering.
North America Alternatives
- Revenue: GBP19.1m (2016: GBP3.1m) - Gross Profit: GBP9.7m (2016: GBP1.7m)
SANNE's North American Alternatives business consists solely of the acquired business of FLSV Fund Administration Services LLC (FAS) for the reporting year. The acquisition completed on 1 November 2016
During the year results were delivered from a number of new funds established by existing clients, and through the on-boarding of new clients in the region. The business has also contributed additional business to SANNE EMEA through cross-selling existing client needs for offshore (non US) services.
The business has a well-established fund administration technology platform which continues to be core to the services provided to clients. The Group has added senior management capacity in the New York office to support expansion both locally, and in the wider North American market.
Underlying market conditions for alternative asset management continues to be positive with an increased trend toward outsourcing back and middle office functions by investment managers driven by demand for increasingly sophisticated reporting requirements and demand amongst institutional investors for independent oversight.
Corporate & Private Client
- Revenue: GBP19.4m (2016: GBP17.9m) - Gross Profit: GBP12.3m (2016: GBP11.4m)
CPC comprises four businesses, all focused primarily on two client segments namely corporates and private clients around the world.
The C&I division showed revenue and gross profit growth resulting from a good level of new business wins and execution of cross selling opportunities (including CRS/FATCA regulatory reporting services across most divisions), along with disciplined cost management. Global trends around increased corporate outsourcing, particularly in the regulatory and compliance space, position C&I well for continued longer term growth.
The Executive Incentives division showed growth in revenue despite some new larger engagements won in late 2016/early 2017 taking longer to implement. Disciplined cost management enabled improvement in gross profit. Global trends in regard to executive compensation, including toward equity based plans, deferred compensation and carried interest structures, bode well for the sustained growth of the Executive Incentives division over the longer term.
C&I and Executive Incentives share a very similar (corporate) client base and we plan for increased collaboration with anticipated synergies.
The Private Client division showed growth and continues its strategic focus on institutionally minded ultra-high-net-worth families and their family offices, with a continued focus on outsourcing of their fiduciary and administrative needs.
The Treasury division, whilst the smallest of the CPC divisions, showed very good revenue growth resulting from cash management and foreign exchange transactions wins and a strong pipeline has been developed through cross selling initiatives across the global business. The potentially global and scalable nature of this division positions it well for further strong growth.
Financial Review
The Group delivered another strong year of growth, with revenues rising 77% to GBP113.2 million (2016: GBP63.8 million). Organic revenue growth remained strong at 14%.
Group results
Underlying operating profit was GBP38.8 million, up 76% (2016: GBP22.0 million) during the year, with a margin of 34% (2016: 34%). Operating profit was GBP23.1 million (2016: GBP14.7 million).
Non-underlying items within operating profit include share based payments, acquisition and integrations costs and amortisation of intangible assets totalling GBP15.7 million. Share based payments relating to acquisitions are identified as non-underlying whilst share based payments used as part of ongoing remuneration of employees are now recognised as underlying and reported in operating expenses. For further detail on non-underlying items see note 8 in the Notes to the Consolidated Financial Statements.
Net finance expense
Even with the acquisition activity undertaken over the last two years the Group maintains a low gearing ratio. In conjunction with ongoing low interest rates this enables the Group to keep finance costs low at GBP1.0 million for the year (2016: GBP0.6 million).
Other Comprehensive Income
The non-sterling acquisitions made during the prior year and at the start of the current year have seen a significant increase to the Group's exposure to unrealised exchange differences on translation of foreign operations. An unrealised loss in Other Comprehensive Income of GBP14.4 million for the year relates mostly to a 10% strengthening of sterling against the US dollar.
Taxation
The Group's effective tax rate for the year was 19.1% (2016: 13.5%). 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 was 16.0% (2016: 16.5%). The Group is pending a tax ruling from the Mauritian tax authorities with regards to the tax deductibility of the intangible assets acquired in the IFS acquisition. The outcome of which may see an increase in deferred tax liabilities of GBP7.4 million.
Earnings per share
Underlying diluted earnings per share were 23.7 pence (2016: 16.9 pence) and diluted earnings per share were 12.7 pence (2016: 11.3 pence).
Statement of financial position and net funds
The IFS acquisition that completed on 1 January 2017 has seen the carrying value of goodwill and other intangible assets increase to GBP160.4 million (2016: GBP82.7 million). This value represents the assets of the acquired companies that are not separately identifiable and the value attributed to the acquired customer relationships and underlying contracts. The Board have established key controls for monitoring the carrying value of these assets.
The cash position of the Group remains strong with cash generated by operations of GBP37.6 million (2016: GBP18.7 million), enabling the Board to continue with its progressive dividend policy as the Group continues to grow. The IFS Group acquisition was funded in part by a GBP34.2 million share issue and in part by GBP74.6 million of cash which was raised at the end of the prior financial year. Ahead of the year end the Group drew an additional GBP19.0 million on the existing financing facility in preparation for the completion of the LIS acquisition on 6 February 2018. The financing activity in conjunction with the operations has resulted in net debt at the year-end of GBP20.4 million (2016: net cash of GBP46.1 million). It should be noted that the year-end position is inclusive of GBP21.5 million held in readiness and paid for the completion of the acquisition of the LIS Group effective on 6 February 2018.
Working capital relating to customer invoicing continues to be well managed. Working capital as a percentage of annualised revenue sits at 14% (2016: 17%). Trade and other payables were GBP8.5 million (2016: GBP13.7 million), the decrease relates in large to the payment of the deferred consideration during the year relating to the FAS acquisition.
Dividend
The Board continues to adopt a progressive dividend policy, subject always to maintaining a sufficient level of dividend cover. It still expects to retain sufficient capital to fund ongoing operating requirements and to invest in the Group's long-term growth.
The Board is recommending a final dividend of 8.4 pence per ordinary share (2016: 6.4 pence). The final dividend will be payable on 15 May 2018 to Shareholders on the register at close of business on 3 April 2018.
Together with the previously paid 2017 interim dividend of 4.2 pence per share, this gives a total dividend for the year of 12.6 pence per share (2016: 9.6 pence in total).
Consolidated Income Statement
For the year ended 31 December 2017
2017 2016
Notes GBP'000 GBP'000
------------------------------------------------------------ ----- -------- --------
Revenue 113,168 63,847
Direct costs (40,711) (23,412)
------------------------------------------------------------ ----- -------- --------
Gross profit 5 72,457 40,435
------------------------------------------------------------ ----- -------- --------
Other operating income 179 122
Operating expenses (49,494) (25,893)
------------------------------------------------------------ ----- -------- --------
Operating profit 23,142 14,664
------------------------------------------------------------ ----- -------- --------
Comprising:
Underlying operating profit 38,812 21,976
Non-underlying items within operating expenses 8 (15,670) (7,312)
------------------------------------------------------------ ----- -------- --------
23,142 14,664
------------------------------------------------------------ ----- -------- --------
Other gains and losses 348 1,096
Finance costs 6 (1,194) (914)
Finance income 7 111 115
------------------------------------------------------------ ----- -------- --------
Profit before tax 22,407 14,961
------------------------------------------------------------ ----- -------- --------
Comprising:
Underlying profit before tax 38,077 21,318
Non-underlying items 8 (15,670) (6,357)
22,407 14,961
------------------------------------------------------------ ----- -------- --------
Tax 9 (4,277) (2,013)
------------------------------------------------------------ ----- -------- --------
Profit for the year 18,130 12,948
------------------------------------------------------------ ----- -------- --------
Earnings per ordinary share ("EPS") (expressed in pence per
ordinary share)
Basic 10 13.1 11.4
Diluted 10 12.7 11.3
Underlying basic 10 24.4 17.0
Underlying diluted 10 23.7 16.9
------------------------------------------------------------ ----- -------- --------
All profits in the current and preceding year are derived from continuing operations.
The notes are an integral part of these Consolidated Financial Statements.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2017
2017 2016
Notes GBP'000 GBP'000
---------------------------------------------- ----- -------- --------
Profit for the year 18,130 12,948
---------------------------------------------- ----- -------- --------
Other comprehensive income:
Items that will not be reclassified
subsequently to profit and loss:
Actuarial loss on pension scheme 28 (83) -
Income tax relating to items not reclassified 12 -
Items that may be reclassified subsequently
to profit and loss:
Exchange differences on translation
of foreign operations (14,377) 3,317
---------------------------------------------- ----- -------- --------
Total comprehensive income for the year 3,682 16,265
---------------------------------------------- ----- -------- --------
The notes are an integral part of these Consolidated Financial Statements
Consolidated Balance Sheet
As at 31 December 2017
2017 2016
Notes GBP'000 GBP'000
------------------------------ ----- -------- --------
Assets
Non-current assets
Goodwill 13 100,387 55,094
Other intangible assets 14 59,998 27,587
Equipment 15 3,813 2,832
Deferred tax asset 23 1,042 -
------------------------------ ----- -------- --------
Total non-current assets 165,240 85,513
------------------------------ ----- -------- --------
Current assets
Trade and other receivables 17 28,874 22,746
Cash and bank balances 50,803 108,673
Accrued income 3,096 1,535
------------------------------ ----- -------- --------
Total current assets 82,773 132,954
------------------------------ ----- -------- --------
Total assets 248,013 218,467
------------------------------ ----- -------- --------
Equity
Share capital 20 1,416 1,353
Share premium 171,850 135,354
Own shares 21 (1,141) (562)
Shares to be issued 27 13,373 13,867
Retranslation reserve (11,280) 3,097
Retained losses (17,586) (21,745)
------------------------------ ----- -------- --------
Total equity 156,632 131,364
------------------------------ ----- -------- --------
Non-current liabilities
Borrowings 22 64,335 59,518
Deferred tax liabilities 23 2,144 2,288
Retirement gratuity liability 28 718 -
------------------------------ ----- -------- --------
Total non-current liabilities 67,197 61,806
------------------------------ ----- -------- --------
Current liabilities
Trade and other payables 24 8,522 13,695
Current tax liabilities 2,306 2,609 Provisions 25 506 353 Deferred revenue 12,850 8,640 ------------------------------ ----- -------- -------- Total current liabilities 24,184 25,297 ------------------------------ ----- -------- -------- Total equity and liabilities 248,013 218,467 ------------------------------ ----- -------- --------
The notes are an integral part of these Consolidated Financial Statements.
The Financial Statements were approved by the Board of Directors and authorised for issue on 21 March 2018. They were signed on its behalf by:
Dean Godwin Spencer Daley Chief Executive Officer Chief Financial Officer
Consolidated Statement of Changes in Equity
As at 31 December 2017
Shares
Share Share to be Retrans-lation Retained Total
capital premium Own shares issued reserve losses equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ----- -------- -------- ---------- -------- -------------- -------- --------
Balance at 1 January
2016 1,130 44,770 (122) - (220) (26,573) 18,985
------------------------ ----- -------- -------- ---------- -------- -------------- -------- --------
Profit for the
year - - - - - 12,948 12,948
Other comprehensive
income for the
year - - - - 3,317 - 3,317
------------------------ ----- -------- -------- ---------- -------- -------------- -------- --------
Total comprehensive
income for the
year - - - - 3,317 12,948 16,265
------------------------ ----- -------- -------- ---------- -------- -------------- -------- --------
Issue of share
capital 20 193 94,313 - - - - 94,506
Cost of share
issuance 20 - (3,704) - - - - (3,704)
Dividend payments 12 - - - - - (9,953) (9,953)
Share-based payment
- employees 27 - - - 1,107 - 276 1,383
Share-based payment
- acquisitions 27 - - - 12,760 - - 12,760
Net buyback of
own shares 21 30 (25) (457) - - - (452)
Net sale of own
shares 21 - - 9 - - 620 629
Reissue of own
shares 21 - - 8 - - 937 945
------------------------ ----- -------- -------- ---------- -------- -------------- -------- --------
Balance at 31
December 2016 1,353 135,354 (562) 13,867 3,097 (21,745) 131,364
------------------------ ----- -------- -------- ---------- -------- -------------- -------- --------
Profit for the
year - - - - - 18,130 18,130
Other comprehensive
income for the
year - - - - (14,377) (71) (14,448)
------------------------ ----- -------- -------- ---------- -------- -------------- -------- --------
Total comprehensive
income for the
year - - - - (14,377) 18,059 3,682
------------------------ ----- -------- -------- ---------- -------- -------------- -------- --------
Issue of share
capital - acquisitions 20 63 36,590 - (2,463) - - 34,190
Cost of share
issuance 20 - (94) - - - - (94)
Dividend payments 12 - - - - - (14,669) (14,669)
Share-based payment 27 - - - 1,969 - 769 2,738
Net buyback of
own shares 21 - - (579) - - - (579)
------------------------ ----- -------- -------- ---------- -------- -------------- -------- --------
Balance at 31
December 2017 1,416 171,850 (1,141) 13,373 (11,280) (17,586) 156,632
------------------------ ----- -------- -------- ---------- -------- -------------- -------- --------
The notes are an integral part of these Consolidated Financial Statements.
Consolidated Cash Flow Statement
For the year ended 31 December 2017
2017 2016
Notes GBP'000 GBP'000
--------------------------------------------------------- ----- -------- --------
Operating profit 23,142 14,664
Adjustments for:
Depreciation of equipment 15 1,742 1,085
Amortisation of intangible assets 14 12,972 2,707
Impairment of intangible assets 14 20 -
Share-based payment expense 27 2,927 1,383
Disposal of equipment 15 15 14
Increase in provisions 25 153 219
Retirement gratuity reserve movement 28 99 -
--------------------------------------------------------- ----- -------- --------
Operating cash flows before movements in working capital 41,070 20,072
--------------------------------------------------------- ----- -------- --------
Increase in receivables (4,262) (3,207)
Decrease/(increase) in deferred revenue 1,441 (1,434)
(Decrease)/increase in payables (698) 3,234
--------------------------------------------------------- ----- -------- --------
Cash generated by operations 37,551 18,665
--------------------------------------------------------- ----- -------- --------
Income taxes paid (6,301) (985)
--------------------------------------------------------- ----- -------- --------
Net cash from operating activities 31,250 17,680
--------------------------------------------------------- ----- -------- --------
Investing activities
Interest received 111 115
Purchases of equipment 15 (2,454) (1,515)
Decrease in deferred consideration (5,757) -
Acquisition of subsidiaries 26 (68,543) (50,114)
--------------------------------------------------------- ----- -------- --------
Net cash used in investing activities (76,643) (51,514)
--------------------------------------------------------- ----- -------- --------
Financing activities
Dividends paid 12 (14,669) (9,953)
Interest on bank loan (1,069) (585)
Proceeds on issue of shares 20 - 94,506
Costs of share issuance (94) (3,217)
Buyback of own shares (579) (462)
Capitalised loan costs (308) (482)
Net proceeds on ordinary shares by EBT - 629
Redemption of bank loans 22 (19,000) (18,000)
New bank loans raised 22 24,000 60,000
--------------------------------------------------------- ----- -------- --------
Net cash (used in)/from financing activities (11,719) 122,436
--------------------------------------------------------- ----- -------- --------
Net (decrease)/increase in cash and cash equivalents (57,112) 88,602
--------------------------------------------------------- ----- -------- --------
Cash and cash equivalents at beginning of year 108,673 19,445
Effect of foreign exchange rate changes (758) 626
--------------------------------------------------------- ----- -------- --------
Cash and cash equivalents at end of year 50,803 108,673
--------------------------------------------------------- ----- -------- --------
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
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 Listing on the London Stock Exchange. The registered office and principal place of business is 13 Castle Street, St Helier, Jersey. The principal activity of the Company and its subsidiaries (collectively the "Group") is fund, company and trust administration.
In the opinion of the Directors, there is no ultimate controlling party.
These 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
The following standards, amendments and interpretations are relevant to the Group, but were not yet effective. These standards have not been early adopted by the Group.
-- IFRS 9 Financial Instruments (effective for periods beginning on or after 1 January 2018). This is a new standard which enhances the ability of investors and other users of financial information to understand the accounting for financial assets and reduces complexity. IFRS 9 changes the classification and measurement of financial assets and the timing and extent of credit provisioning. The Group has not adopted the standard early. The Group has performed a preliminary assessment of the impact on the current reporting of financial instruments, although the possible impact has not been quantified yet.
Under IFRS 9, the financial assets will be categorised as amortised cost, fair value through profit and loss or fair value through other comprehensive income. The held to maturity, loans and receivables and available for sale categories per IAS 39 have been removed.
The new categories per IFRS 9 are not expected to have a material impact on the financial assets as trade receivables will continue to be carried at amortised cost.
An expected credit loss model replaces the incurred loss model; under IFRS 9 a provision must be recorded for the amount of any loss expected to arise over the life of the financial asset where under IAS 39 credit losses were recognised when they were incurred.
A dual measurement approach applies under the new expected credit loss model, where a financial asset will attract a loss allowance to either 12 month expected credit losses or lifetime expected losses. This requires an assessment of the likelihood of default and any potential loss that may arise in the event of default.
The Group does not believe that the new standard would cause a material change in the provision for bad debts on trade receivables or any other financial assets because of the short-term nature of the trade receivables and the specific provisions currently being raised for them.
-- IFRS 15 Revenue from contracts with customers (effective for periods beginning on or after 1 January 2018). This standard establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 Revenue and IAS 11 Construction Contracts and related interpretations. The Group performed an analysis of the new five-step approach to recognise revenue and the impact on the reporting of revenue for the Group. Based on the analysis performed, the Group found that IFRS 15 will have no significant impact on the recognition and reporting of revenue.
-- IFRS 16 Leases (effective for periods beginning on or after 1 January 2019). This is a new standard which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. The standard eliminates the classification of leases as either operating or finance leases as required by IAS 17 and instead introduces a single lessee accounting model. A lessee will be required to recognise assets and liabilities for all leases with a term of more than 12 months and depreciated lease assets separately from interest in the income statement. The standard replaces IAS 17 Leases. The Group currently recognises operating lease payments as an expense on the straight-line basis with a corresponding asset or liability in the Consolidated Balance Sheet for the straight-line effect. The asset or liability is released over the lifetime of the lease and this will change with the new standard, grossing up the Group's assets and liabilities. The Group has not performed a full assessment of the impact of the new standard on the reported results from 1 January 2019.
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 2017. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements.
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 financial statements have also been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB").
The financial statements have been prepared on the historical cost basis with fair value being applied to derivative financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. 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). Standalone financial statements for the Company are not prepared unless required 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 at least for the next 12 months. 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 flow and a good pipeline of existing and new customers. 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 and Risk Committee Report.
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 and 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 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) about 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.
Goodwill
Goodwill is initially recognised and measured as set out above.
Goodwill is not amortised but is reviewed for impairment at least annually. 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.
Intangible assets
Intangible assets acquired in a business combination are initially recognised at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, separately intangible assets acquired in a business combination are reported at cost less accumulated amortisation and any impairment losses.
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. This class of intangibles are amortised over their useful lives using the straight-line method, which is estimated at six 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" and further identified as non-underlying.
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 Company's growth pattern and ability to cross-sell to existing clients. Subsequently, this class of intangibles is amortised over the intangibles" useful lives using the straight-line method, which is estimated at six 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" and further identified as non-underlying.
Interest income
Interest income is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.
Rendering of services
Revenue is recognised in the Consolidated Statement of Comprehensive Income at the point in time when the Group has the right to receive payment for its services, on an accruals basis.
Accrued income
Accrued income represents the billable provision of services to clients which has not been invoiced at the reporting date.
Accrued income is recorded based on agreed fees billed in arrears and time-based charges at the agreed charge-out rates in force at the work date, less any specific provisions against the value of accrued income where recovery will not be made in full.
Deferred revenue
Fees in advance and upfront fees in respect of services due under contract are time apportioned to the respective accounting periods, and those billed but not yet earned are included in deferred revenue in the Consolidated Balance Sheet.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed.
In the event that lease incentives are received on entering into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of the rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contractual rental increases are straight-lined over the lease term.
Foreign currencies
The individual 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 financial statements of the individual 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 profit or loss 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 operation (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.
Retirement benefit costs
Payments to defined contribution retirement benefit schemes are recognised as an expense when employees have rendered services entitling them to contributions.
The Group has a defined benefit retirement obligation in Mauritius due to a regulatory requirement. The defined benefit obligation is recognised in line with IAS 19.
The liability recognised in the statement of financial position in respect of the defined benefit retirement obligation is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The Group has no plan assets.
The defined benefit obligation is calculated at half year and year end by qualified actuaries using the projected unit credit method.
The present value of the defined 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 pension obligation.
Defined benefit costs are categorised as follows:
-- Service cost -- Net interest expense or income; and -- Remeasurement
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 statutory profit position; the Group has also presented an alternative version with profit adjusted for non-underlying items to provide better understanding of the financial performance of the Group (note 8).
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 income statement 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 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. 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 deferred tax assets 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. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.
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 profit or loss, 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.
Depreciation is recognised so as to write off the cost or valuation 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 Fixtures and equipment 5 to 16 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.
Recoverable amount is the higher of fair value less costs to sell or 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 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.
All financial assets, other than cash and cash equivalents and derivatives, are classified as "loans and receivables".
Loans and receivables
Trade and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as "loans and receivables". Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held at call with banks.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.
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
Financial liabilities are classified as either financial liabilities at Fair Value Through Profit and Loss ("FVTPL") or "other financial liabilities". The Group does not hold any financial liabilities at FVTPL.
Other financial liabilities
Borrowings are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.
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 exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter year, to the net carrying amount on initial recognition.
Accrued interest is recorded separately from the associated borrowings within current liabilities.
Derivative financial instruments and embedded derivatives
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately.
Derivatives embedded in other financial instruments are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL. An embedded derivative is presented as a non-current asset or non-current liability if the remaining maturity of the hybrid instrument to which the embedded derivative relates is more than 12 months and is not expected to be realised or settled within 12 months.
Employee share trust/own shares
Own shares represent the shares of the Company that are held in treasury and by employee share ownership trusts (which is consolidated in the Group 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 employee share 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 and others providing similar services 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 27.
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.
Non-underlying items
Non-underlying items are disclosed and described separately in the Consolidated Financial Statements where it is necessary to do so to provide a better understanding 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 intangible assets recognised through the acquisitions is also included as non-underlying due to their direct link with the acquisitions. All the non-underlying items are regarded as expense items outside the normal course of business and disclosed separately to assist users of the financial statements to better analyse the performance of the core business. In the 2016 year all share-based payments were deemed to be non-underlying. This was changed in the current year as the PSP and Annual Bonus Plan were deemed to be part of management's normal remuneration and do not form part of non-underlying costs. The 2016 numbers have been adjusted for this approach.
Further details of the nature of non-underlying items are given in note 8.
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.
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 financial statements.
Interpretation of tax legislation
The Group has to comply with tax laws and legislation in all jurisdictions in which it operates. Various tax laws are open for interpretation and management use their best judgement to interpret the tax legislation of the various jurisdictions to comply with the regulations. The Group consults with tax authorities to clarify the interpretation of tax law, as required. Where uncertainty exists, the Directors will seek the opinion of professional advisers and apply judgement.
Initial recognition of intangible assets
On 1 January 2017, the Group acquired IFS Group. The business combination gave rise to the recognition of customer and contract intangibles. The valuation of these intangible assets requires various judgements of which the most significant is the number of years the customer base acquired would generate revenue for the Group. The valuation was performed using four to six years which is based on management's best judgement and historical evidence. The intangible assets recognised through the business acquisition amounts to GBP50.3 million.
Key sources of estimation uncertainty
Probability of vesting of equity instruments granted in terms of share-based 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. Based on current performance, management estimates the future performance of the Group will have an annual growth rate of 12%. The current year share-based payment charge for the performance share plan is GBP912k; should the performance of the Group exceed the 12% growth assumption and have 20% growth, then the 2018 financial statements will have an additional charge of GBP420k in respect of share-based payment catch-up with regards to 2017.
5. Segmental reporting
The reporting units engage in corporate, fund and private client administration, reporting and fiduciary services. Declared revenue is generated from external customers.
The Group's Consolidated Financial Statements for the year ended 31 December 2016 had nine reportable segments under IFRS 8: Debt, Real Estate, Private Equity, Corporate and Institutional, Executive Incentives, Private Client, Treasury, Hedge and North American Alternatives. Given the continuing growth of the Group, these nine segments have been reorganised into four segments from 1 January 2017. The four new segments are EMEA Alternatives (EMEA), Asia - Pacific & Mauritius Alternatives (APM), North American Alternatives (NA) and Corporate & Private Client (CPC). No customer represents more than 10% of 2017 revenue.
The comparative numbers for the segmental reporting have been restated to reflect the four new segments created in the current reporting period.
The chief operating decision-maker is considered to be the Board of Directors of Sanne Group plc. Each segment is defined as a set of business activities generating a revenue stream determined by segmental responsibility and the management information reviewed by the Board of Directors. The Board evaluates segmental performance on the basis of gross profit, after the deduction of the direct costs of staff, marketing and travel.
No inter-segment sales are made.
Revenue Direct costs Gross profit
For the year ended 31 December 2017 GBP'000 GBP'000 GBP'000
---------------------------------------- -------- ------------ ------------
Segments
EMEA Alternatives 46,822 (17,795) 29,027
Asia - Pacific & Mauritius Alternatives 27,857 (6,398) 21,459
North America Alternatives 19,112 (9,440) 9,672
Corporate & Private Client 19,377 (7,078) 12,299
---------------------------------------- -------- ------------ ------------
Total 113,168 (40,711) 72,457
---------------------------------------- -------- ------------ ------------
Other operating income 179
Operating expenses (49,494)
---------------------------------------- -------- ------------ ------------
Operating profit 23,142
---------------------------------------- -------- ------------ ------------
Revenue Direct costs Gross profit
For the year ended 31 December 2016 GBP'000 GBP'000 GBP'000
---------------------------------------- -------- ------------ ------------
Segments
EMEA Alternatives 38,668 (14,040) 24,628
Asia - Pacific & Mauritius Alternatives 4,196 (1,511) 2,685
North America Alternatives 3,092 (1,396) 1,696
Corporate & Private Client 17,891 (6,465) 11,426
---------------------------------------- -------- ------------ ------------
Total 63,847 (23,412) 40,435
Other operating income 122
Operating expenses (25,893)
---------------------------------------- -------- ------------ ------------
Operating profit 14,664
---------------------------------------- -------- ------------ ------------
Geographical information
The Group's revenue from external customers by geographical location of contracting Group entity is detailed below:
2017 2016
GBP'000 GBP'000
--------------- -------- --------
Jersey 38,882 36,747
Rest of Europe 25,005 19,475
Mauritius 21,503 -
Americas 19,140 3,092
South Africa 6,110 3,341
Asia - Pacific 2,528 1,192
--------------- -------- --------
Total revenue 113,168 63,847
--------------- -------- --------
6. Finance costs
2017 2016
GBP'000 GBP'000
------------------------------------- -------- --------
HSBC interest 1,069 592
HSBC amortised loan fees 125 77
HSBC accelerated amortised loan fees - 245
------------------------------------- -------- --------
Total finance costs 1,194 914
------------------------------------- -------- --------
During the prior year, the initial loan facility with HSBC Bank plc was repaid and refinancing was undertaken with HSBC. Details can be found in note 22.
7. Finance income
2017 2016
GBP'000 GBP'000
--------------------------------- -------- --------
Interest income on bank deposits 111 115
--------------------------------- -------- --------
8. Non-underlying items
2017 2016
GBP'000 GBP'000
----------------------------------------- ------ -------- --------
Operating profit 23,142 14,664
Non-underlying items within operating
expenses:
Share-based payment (i) 1,323 715
Acquisition and integration cost:
Chartered Corporate Services ("CCS") (ii) 430 998
IDS Fund Services ("IDS") (ii) 16 344
FLSV Fund Administration Services
("FAS") (ii) 131 658
Sorato Trust B.V ("Sorato") (ii) 16 66
International Financial Services Limited
("IFS Group") (ii) 152 1,804
Investment Solutions S.A. ("LIS Group") (ii) 610 -
Amortisation of intangible assets (iii) 12,972 2,707
Other items 20 20
------------------------------------------------- -------- --------
Total non-underlying items included
in Operating Profit 15,670 7,312
------------------------------------------------- -------- --------
Underlying operating profit 38,812 21,976
------------------------------------------------- -------- --------
Profit before tax 22,407 14,961
Non-underlying items within other
costs: 15,670 7,312
Loan restructuring (iv) - 245
FX gains and losses (v) - (1,200)
----------------------------------------- ------ -------- --------
Total non-underlying items 15,670 6,357
------------------------------------------------- -------- --------
Underlying profit before tax 38,077 21,318
------------------------------------------------- -------- --------
The above reflects expenses which are not representative of underlying performance.
(i) Share-based payments are detailed in note 27. All acquisition related share-based payments ("RSA" plan) are disclosed as non-underlying as these are not part of the normal cost of business; these are awarded to employees as part of the acquisitions to retain key workforce and to recruit key management to support the acquisitions. These costs are recorded as non-underlying to enable Shareholders to assess the core performance of the business. In the 2016 year all share-based payments were deemed to be non-underlying. This was changed in the current year as the PSP and Annual Bonus Plan ("ABP") were deemed to be part of management's normal remuneration and do not form part of non-underlying costs. The 2016 numbers have been adjusted for this approach.
(ii) During the year ended 31 December 2017. The Group completed the acquisition of the IFS Group as detailed in note 26 and signed a share purchase agreement with LIS Group which closed during early 2018. The Group also completed four acquisitions during the year ending 31 December 2016. The Group expensed GBP1.4 million of acquisition and integration expenditure during the current year and GBP3.9 million in the prior year. With acquisitions not being the core ongoing business of the Group, these costs are disclosed as non-underlying to enable Shareholders to assess the core performance of the business.
(iii) The amortisation charges relates to the amortisation of intangible assets acquired through acquisitions. As with the acquisition costs, the amortisation of intangibles is directly linked to the acquisitions which do not form part of the core ongoing business of the Group. These costs are disclosed as non-underlying to enable Shareholders to assess the core performance of the business.
(iv) During the prior year, as part of the loan restructuring, accelerated amortisation on issuance costs of GBP245k was expensed, see note 22.
(v) During the prior year, FX forward contracts were taken out to purchase United States dollars at a fixed price at a fixed date to fund the FAS and IFS Group acquisitions. A net gain of GBP1.2 million was recognised on these contracts.
9. Tax
2017 2016
GBP'000 GBP'000
----------------------------------------- -------- --------
The tax charge comprises:
Current period:
Jersey income tax 1,912 1,630
Other foreign tax 3,681 1,282
----------------------------------------- -------- --------
5,593 2,912
Deferred tax (note 23) (1,131) (276)
----------------------------------------- -------- --------
Total tax charge for the year 4,462 2,636
----------------------------------------- -------- --------
Adjustments in respect of prior periods:
Jersey income tax (442) (504)
Other foreign tax 257 (119)
----------------------------------------- -------- --------
Tax on profit on ordinary activities 4,277 2,013
----------------------------------------- -------- --------
In addition to the amount charged to the Consolidated Income Statement, the following amounts relating to tax have been recognised in other comprehensive income:
Deferred tax: Items that will not be reclassified subsequently to profit or loss: Actuarial loss on pension scheme (12) - ------------------------------------------------------------------- ----- Total income tax recognised in other comprehensive income (12) - ------------------------------------------------------------------- -----
The difference between the total current tax shown above and the amount calculated by applying the standard rate of Jersey income tax to the profit before tax is as follows:
2017 2016
GBP'000 GBP'000
------------------------------------------------ -------- --------
Profit on ordinary activities before tax 22,407 14,961
------------------------------------------------ -------- --------
Tax on profit on ordinary activities at
standard Jersey income tax rate of 10%
(2016: 10%) 2,241 1,496
------------------------------------------------ -------- --------
Effects of:
Expenses not deductible for tax purposes 51 466
Non-deductible amortisation 209 167
Depreciation in excess of capital allowances 130 45
Deferred tax not recognised - Goodwill(1) (290) (48)
Net foreign exchange income 17 (87)
Foreign taxes not at Jersey rate(2) 1,219 566
Deferred tax not recognised - Taxable losses(3) 884 32
Prior year adjustments (184) (624)
------------------------------------------------ -------- --------
Total tax 4,277 2,013
------------------------------------------------ -------- --------
(1) Deferred tax not recognised for the tax deductions received in the US on goodwill; during 2016 the US business had only been part of the Group for two months.
(2) With the Jersey tax rate at 10%, the impact of the 2016 and 2017 acquisitions is significant on the tax expense as all the acquired jurisdictions have higher tax rates than 10%.
(3) Deferred tax not recognised refers to jurisdictions where there is doubt that future deferred tax assets would be able to be utilised.
Income tax expense computations are based on the jurisdictions in which profits were earned at prevailing rates in the respective jurisdictions.
The Jersey standard income tax rate is 10%. With the Company being a Jersey registered entity and the majority of revenue generated in Jersey we reconciled the effective tax rate to 10%.
2017 2016
Reconciliation of effective tax rates GBP'000 GBP'000
------------------------------------------- ------------------ ------------------
As per Consolidated Income Statement:
Tax charge 4,277 2,013
Profit before tax 22,407 14,961
------------------------------------------- ------------------ ------------------
Effective tax rate 19.1% 13.5%
Adjusted for:
Tax charge 4,277 2,013
Prior period adjustments 184 624
Tax on non-underlying items 1,641 874
------------------------------------------- ------------------ ------------------
6,102 3,511
------------------------------------------- ------------------ ------------------
Profit before tax 22,407 14,961
Non-underlying items 15,670 6,357
------------------------------------------- ------------------ ------------------
Profit before tax and non-underlying items 38,077 21,318
------------------------------------------- ------------------ ------------------
Normalised effective tax rate 16.0% 16.5%
The effective tax rate of 19.1% (2016: 13.5%) is higher due to a larger percentage of taxable profits being earned in higher tax jurisdictions, this being the first full year with all the acquisitions reflecting in the results which pushed the effective tax rate up. The normalised effective tax rate of 16.0% (2016: 16.5%) is in line with prior year due to adjustments being GBP184k where it was GBP624k for 2016.
10. Earnings per share
2017 2016
GBP'000 GBP'000
---------------------------------- -------- --------
Profit for the year 18,130 12,948
---------------------------------- -------- --------
Non-underlying items:
Non-underlying operating expenses 15,670 7,312
Non-underlying other costs - (955)
---------------------------------- -------- --------
Underlying earnings 33,800 19,305
---------------------------------- -------- --------
Shares Shares
---------------------------------------------- ------------ ------------
Weighted average numbers of ordinary shares
in issue 138,433,199 113,693,355
---------------------------------------------- ------------ ------------
Effect of dilutive potential ordinary shares:
Deferred consideration shares 2,387,219 417,480
Restricted Stock Awards 1,102,475 202,172
Performance Share Plan 484,130 235,974
---------------------------------------------- ------------ ------------
Weighted average number of ordinary shares
for the purposes of diluted EPS 142,407,023 114,548,981
---------------------------------------------- ------------ ------------
Basic EPS (pence) 13.1 11.4
Diluted EPS (pence) 12.7 11.3
Underlying basic EPS (pence) 24.4 17.0
Underlying diluted EPS (pence) 23.7 16.9
---------------------------------------------- ------------ ------------
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 2017.
Underlying basic EPS and Underlying diluted EPS are calculated on the same basis as Basic EPS and Diluted EPS with the only difference being that the earnings used are the underlying earnings which is the profit for the year adjusted for non-underlying items as detailed in note 8. No adjustment has been made for the tax impact of the non-underlying items.
1,786,173 ordinary shares were issued on 7 February 2018 as part of the LIS Group acquisition (note 31).
11. Profit for the year
2017 2016
GBP'000 GBP'000
------------------------------------------------ -------- --------
Profit for the year has been arrived at after
charging/(crediting):
Net foreign exchange gains (348) (1,096)
Depreciation of equipment 1,742 1,085
(Loss)/gain on disposal of equipment (25) 14
Auditor's remuneration for audit services 493 386
Auditor's remuneration for other services:
- FATCA 17 104
- Acquisitions - 582
- ISAE 3402 30 -
- Software 195 172
- Other assurance services 64 -
Amortisation of intangible assets (see note
14) 12,972 2,707
Staff costs 51,842 29,364
Impairment loss recognised on trade receivables
(see note 17) 453 271
Premises expense 5,424 3,377
------------------------------------------------ -------- --------
12. Dividends
2017 2016
GBP'000 GBP'000
------------------------------------------------------------------- -------- --------
Amounts recognised as distributions to equity holders in the year:
Final dividend 8,858 6,327
Interim for the current year 5,811 3,626
------------------------------------------------------------------- -------- --------
Total dividends 14,669 9,953
------------------------------------------------------------------- -------- --------
Proposed final dividend 11,364 8,658
------------------------------------------------------------------- -------- --------
The proposed final dividend is subject to approval at the forthcoming AGM and has not been included as a liability in these financial statements. These dividends are shown net of the 10% Jersey tax credit.
2017 2016
pence pence
per share per share
------------------------------------ ---------- ----------
Dividend per share ("DPS"):
Interim for the current year 4.2 3.2
Final proposed for the current year 8.4 6.4
------------------------------------ ---------- ----------
Total dividend per share 12.6 9.6
------------------------------------ ---------- ----------
2017 2016
-------------------------------------------- ------------ ------------
Weighted average numbers of ordinary shares
in issue 138,433,199 113,693,355
-------------------------------------------- ------------ ------------
13. 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 2016 - IDS acquisition 6,727 FLSV acquisition 44,868 Sorato acquisition 1,649 Exchange differences 1,850 ---------------------- -------- At 31 December 2016 55,094 ---------------------- -------- IFS Group acquisition 53,797 Exchange differences (8,504) ---------------------- -------- At 31 December 2017 100,387 ---------------------- --------
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:
Carrying
Value
GBP'000
Sanne South Africa 9,049
Sanne Netherlands 1,649
Sanne Americas 40,601
Sanne Mauritius 49,088
-------------------- --------
100,387
------------------- --------
The recoverable amounts of all CGUs are based on the same key assumptions.
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.
Using the above assumptions has resulted in weighted average cost of capital of 17.7% for Sanne South Africa, 13.9% for Sanne Netherlands, 13.0% for Sanne Americas and 15.7% for Sanne Mauritius.
Projected cash flows
Projected cash flows are calculated with reference to each CGU's latest budget and business plan which are subject to a rigorous review and challenge process. Management prepares 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.
Projected cash flows are calculated using the prior period actual result and compounding these results by the budgeted numbers. Sanne Netherlands has a specific growth strategy and revenue growth is based on up to 12% and replacement of previous client losses, driven by specific business plans, for all other CGUs we used 7.0%-10.2%. The terminal value growth rate used is 2.58% and is applied after five years.
Based on the value in use calculations, none of the CGUs show indications of impairment.
Sensitivity to changes in assumptions
Management believes that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the aggregate carrying amount to exceed the recoverable amount on CGUs.
14. Intangible assets
Contract Customer Total
GBP'000 GBP'000 GBP'000
------------------------- -------- -------- --------
Cost
At 1 January 2016 10,430 1,233 11,663
Acquired during the year 16,529 3,929 20,458
Exchange difference 1,806 470 2,276
------------------------- -------- -------- --------
At 31 December 2016 28,765 5,632 34,397
Acquired during the year 42,275 8,031 50,306
Impairments (20) - (20)
Exchange difference (4,446) (822) (5,268)
------------------------- -------- -------- --------
At 31 December 2017 66,574 12,841 79,415
------------------------- -------- -------- --------
Amortisation
At 1 January 2016 3,641 310 3,951
Charge for the year 2,340 367 2,707
Exchange difference 128 24 152
------------------------- -------- -------- --------
At 31 December 2016 6,109 701 6,810
Charge for the year 10,931 2,041 12,972
Exchange difference (308) (57) (365)
------------------------- -------- -------- --------
At 31 December 2017 16,732 2,685 19,417
------------------------- -------- -------- --------
Carrying amount
At 31 December 2017 49,842 10,156 59,998
------------------------- -------- -------- --------
At 31 December 2016 22,656 4,931 27,587
------------------------- -------- -------- --------
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 value in use calculations were performed for the intangible assets relating to the Sorato acquisition. The trigger related to the Group choosing to terminate a client relationship where the client's risk profile had increased significantly. A GBP20k impairment was recognised in operating expenses.
The Group has a contractual commitment for the purchase of LIS Group the purchase accounting for which will include the acquisition of intangible assets. See note 31 for further details.
Analyses of the carrying amount of the intangible assets acquired can be found below:
Carrying
Acquisition Amortisation amount
Acquisition date period end GBP'000
-------------------- ---------------- ------------- --------
Contract intangible
Delorean 1 June 2013 31 May 2020 3,147
30 April
Ariel 1 May 2014 2021 751
31 October
FAS 1 November 2016 2022 7,718
31 December
IFS 1 January 2017 2022 32,090
28 February
CCS 1 March 2016 2023 664
30 November
Sorato 1 December 2016 2023 202
IDS 1 June 2016 31 May 2024 5,270
-------------------- ---------------- ------------- --------
Total 49,842
----------------------------------------------------- --------
Customer intangible
31 October
FAS 1 November 2016 2022 1,471
31 December
IFS 1 January 2017 2022 6,097
28 February
CCS 1 March 2016 2023 542
Delorean 1 June 2013 31 May 2023 641
30 November
Sorato 1 December 2016 2023 52
30 April
Ariel 1 May 2014 2024 51
IDS 1 June 2016 31 May 2024 1,302
-------------------- ---------------- ------------- --------
Total 10,156
----------------------------------------------------- --------
15. Equipment
Computer Fixtures
equipment and equipment Total
GBP'000 GBP'000 GBP'000
------------------------------- ---------- -------------- --------
Cost
At 1 January 2016 2,689 1,129 3,818
Additions 703 812 1,515
Additions through acquisitions 1,101 1,027 2,128
Disposals - (34) (34)
Exchange differences 212 127 339
------------------------------- ---------- -------------- --------
At 31 December 2016 4,705 3,061 7,766
Additions 1,397 1,057 2,454
Additions through acquisitions 858 1,232 2,090
Disposals (100) (489) (589)
Exchange differences (93) (146) (239)
------------------------------- ---------- -------------- --------
At 31 December 2017 6,767 4,715 11,482
------------------------------- ---------- -------------- --------
Accumulated depreciation
At 1 January 2016 1,530 641 2,171
Charge for the year 841 244 1,085
Additions through acquisitions 854 552 1,406
Disposals - (20) (20)
Exchange differences 175 117 292
------------------------------- ---------- -------------- --------
At 31 December 2016 3,400 1,534 4,934
Charge for the year 1,058 684 1,742
Additions through acquisitions 665 1,115 1,780
Disposals (88) (486) (574)
Exchange differences (87) (126) (213)
------------------------------- ---------- -------------- --------
At 31 December 2017 4,948 2,721 7,669
------------------------------- ---------- -------------- --------
Carrying amount
At 31 December 2017 1,819 1,994 3,813
------------------------------- ---------- -------------- --------
At 31 December 2016 1,305 1,527 2,832
------------------------------- ---------- -------------- --------
As at 31 December 2017, GBP2.7 million (2016: GBP1.9 million) of computer equipment and GBP1.4 million (2016: GBP669k) of fixtures and equipment is fully depreciated.
16. Subsidiaries
Detailed below is a list of subsidiaries of the Company as at 31 December 2017 which, in the opinion of the Directors, principally affects the profit 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 trust, nominee and company services or provide related support services.
Subsidiaries Country of incorporation ------------------------------------- ------------------------ Sanne Capital Markets Ireland Republic of Ireland Limited Sanne Fiduciary Services (UK) England and Wales Limited Sanne Fiduciary Services Limited Jersey Sanne Finance Limited Jersey Sanne Financial Management Consulting People's Republic of (Shanghai) Co Ltd China Sanne Fund Administration Limited Jersey Sanne Group (Guernsey) Limited Guernsey Sanne Group (Luxembourg) S.A. Luxembourg Sanne Group (UK) Limited England and Wales Sanne Group Administration Services England and Wales (UK) Limited 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 Republic of Ireland Services Ireland Limited(1) FLSV Fund Administration Services United States of America LLC Sanne Group d.o.o. Beograd(2) Serbia Sanne Management Company RF (PTY) Republic of South Africa Limited(3) 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) Republic of South Africa Limited Sanne (Mauritius) Limited(4) Mauritius Sanne Group (Netherlands) B.V. Netherlands Acquired or incorporated during the year SANNE Mauritius(5) Mauritius SANNE Trustees (Mauritius)(6) Mauritius Sanne (Luxembourg) Holdings S.a.r.l. Luxembourg Sanne Group Funding Limited Jersey ------------------------------------- ------------------------
(1) Sanne Corporate Administration Services Ireland Limited was formerly known as Castlewood Corporate Services Limited.
(2) Sanne Group d.o.o. Beograd was formerly known as FLSV FAS d.o.o. Beograd-Stari Grad.
(3) Sanne Management Company RF (PTY) Limited was formerly known as IDS Management Company (PTY) Limited.
(4) Sanne (Mauritius) Limited was formerly known as Sanne Holdings (Mauritius) Limited.
(5) SANNE Mauritius was formerly known as International Financial Services Limited. (6) SANNE Trustees (Mauritius) was formerly known as IFS Trustees.
17. Trade and other receivables
2017 2016
GBP'000 GBP'000
---------------------------------- -------- --------
Trade receivables 26,911 21,629
---------------------------------- -------- --------
Allowance for doubtful debts (945) (522)
---------------------------------- -------- --------
25,966 21,107
---------------------------------- -------- --------
Other debtors and prepayments 2,908 1,639
---------------------------------- -------- --------
Total trade and other receivables 28,874 22,746
---------------------------------- -------- --------
Trade receivables
Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost.
The Group considers all receivables over 60 days to be past due.
Allowances against doubtful debts are recognised against receivables with reference to these indicators:
-- Insolvency or closure of the customer's business; -- Customer liquidity issues; and -- General creditworthiness, including past default experience of the customer.
Receivables as disclosed above include amounts which are past due at the reporting date but against which the Group has not recognised an allowance for doubtful receivables because there are no significant indicators of their irrecoverability.
One customer across multiple contracting entities represents more than 5% of the total balance of trade receivables.
Institutional Client A - 7.6% (2016: 6%)
The Directors consider that the carrying value of trade and other receivables is approximately equal to their fair value.
2017 2016
Movement in the allowance for doubtful debts: GBP'000 GBP'000
----------------------------------------------------- -------- --------
Balance at the beginning of the year 522 588
Recognised through acquisitions 292 -
Impairment losses recognised 453 271
Amounts written off during the year as uncollectable (193) (275)
Amounts recovered during the year (129) (62)
----------------------------------------------------- -------- --------
Total allowance for doubtful debts 945 522
----------------------------------------------------- -------- --------
2017 2016
Ageing of past due but not impaired receivables: GBP'000 GBP'000
------------------------------------------------- -------- --------
61-90 days 1,325 184
91-120 days 2,529 1,971
121-180 days 387 153
180+ days 197 148
------------------------------------------------- -------- --------
Total 4,438 2,456
------------------------------------------------- -------- --------
2017 2016
Ageing of impaired receivables: GBP'000 GBP'000
-------------------------------- -------- --------
<31 days 4 10
31-60 days 3 -
61-90 days - -
91-120 days 6 10
121-180 days - -
180+ days 932 502
-------------------------------- -------- --------
Total 945 522
-------------------------------- -------- --------
18. Net (debt)/cash
2017 2016
GBP'000 GBP'000
------------------------------------- -------- --------
Bank loan (see note 22) (64,335) (59,518)
Trapped cash (i) (6,867) (3,046)
Less: Cash and cash equivalents (ii) 50,803 108,673
-------------------------------------- -------- --------
Total net (debt)/cash (20,399) 46,109
-------------------------------------- -------- --------
The Group has undrawn borrowings at 31 December 2017 of GBP35 million (2016: GBP40 million). See note 22.
i. Trapped cash represents the minimum cash balance to be held to meet regulatory capital requirements.
ii. The cash and cash equivalents balance as at 31 December 2016 included GBP73.8 million held for purposes of completing the IFS Group acquisition on 1 January 2017 as detailed in note 26.
19. Operating lease arrangements
2017 2016
GBP'000 GBP'000
-------------------------------------------- -------- --------
The Group as lessee:
Total lease payments under operating leases
recognised as an expense 4,056 1,973
-------------------------------------------- -------- --------
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
2017 2016
GBP'000 GBP'000
--------------------------------------- -------- --------
Within one year 4,050 3,043
In the second to fifth years inclusive 13,556 7,456
After five years 34,896 3,752
--------------------------------------- -------- --------
52,502 14,251
--------------------------------------- -------- --------
Operating lease payments represent rentals payable by the Group for office properties. 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. Any lease incentives are spread over the term of the lease. The break dates for the lease agreements vary.
20. Share capital
2017 2016
GBP'000 GBP'000
---------------------------------------------------------------- -------- --------
Authorised
500,000,000 ordinary shares of GBP0.01 each 5,000 5,000
Called up, issued and fully paid
141,608,934 (2016: 135,286,860) ordinary shares of GBP0.01 each 1,416 1,353
---------------------------------------------------------------- -------- --------
2,610,246 ordinary shares (2% of the issued share capital) are held by Sanne Group Employees' Share Trust ("EBT") (2016: 2,644,046) and have been treated as treasury shares in accordance with IAS 32 Financial Instruments.
At 31 December 2017, the Company held 98,533 (2016: 98,533) treasury shares.
2017
Movements in share capital during the year ended 31 December 2017 GBP'000
------------------------------------------------------------------ --------
Balance at 1 January 2017 1,353
Issue of shares (i) 63
------------------------------------------------------------------- --------
Balance at 31 December 2017 1,416
------------------------------------------------------------------- --------
(i) The Company issued 5,844,507 shares on 1 January 2017 as part consideration in the acquisition of IFS Group (note 8). The Company also issued 477,567 shares on 1 November 2017 which relates to the Company's acquisition of FLSV Fund Administration Services LLC which completed on 1 November 2016. The shares issued represent the element of the first tranche of the deferred share consideration.
21. Own shares
Shares GBP'000
2017 2016 2017 2016
--------- --------- --------- ----- ----
EBT 2,610,246 2,644,046 1,141 562
Treasury 98,533 98,533 - -
--------- --------- --------- ----- ----
Total 2,708,779 2,742,579 1,141 562
--------- --------- --------- ----- ----
Sanne Group Employees' Share Trust ("EBT")
During the year, the EBT settled commitments under share-based payments of 110,327 shares. The EBT also repurchased 76,527 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 (2016: 98,533) shares in treasury resulting from the repurchases under restrictive sale agreements at a total cost of GBP2.
22. Borrowings
2017 2016
GBP'000 GBP'000
----------------- -------- --------
Bank loan 64,335 59,518
----------------- -------- --------
Total borrowings 64,335 59,518
----------------- -------- --------
On 30 September 2016, the Group entered into a new loan facility totalling GBP100 million with HSBC, to replace the previous HSBC facility, all balances to be repayable by 30 September 2021. This new facility consists of a GBP46 million term loan, a GBP14 million revolving credit facility and a GBP40 million accordion facility. On 28 September 2017, the loan facility was renegotiated to provide a GBP46 million term loan, a GBP44 million revolving credit facility and a GBP10 million accordion facility.
As a result of the settlement of the previous term loan of GBP18 million, accelerated amortisation of capitalised loan costs of GBP245k was recognised during the prior year.
On 1 November 2016, the GBP46 million loan was drawn to repay the previous GBP18 million term loan as well as part-fund the acquisition of FLSV and this loan remains outstanding at the date of these accounts. Also on 1 November 2016, the GBP14 million revolving credit facility was drawn to part-fund the acquisition of FLSV - this was repaid on 6 January 2017. On 17 May 2017, GBP5 million was drawn down from the revolving credit facility and this was repaid on 30 August 2017. On 27 December 2017, GBP19 million was drawn down against the revolving credit facility to part-fund the acquisition of Luxembourg Investment Solutions SA and Compliance Partners SA in Luxembourg, an acquisition that completed on 6 February 2018.
Covenants, attached to the loan, monitor 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. GBP524k of capitalised loan costs are being amortised over the term from 1 November 2016 until the repayment date of 30 September 2021, whilst GBP283k of capitalised loan costs are being amortised from 28 September 2017 to the same repayment date. Under the terms of the facility, HSBC holds a charge against the shares of Sanne Fiduciary Services Limited and Sanne Group (Luxembourg) SA and in the event of default, may place charges against specific assets of other Group subsidiaries that are party to the facility by virtue of being deemed a material company.
23. Deferred taxation
The deferred taxation recognised in the financial statements is set out below:
2017 2016
GBP'000 GBP'000
----------------------- -------- --------
Deferred tax asset 1,042 -
Deferred tax liability (2,144) (2,288)
----------------------- -------- --------
(1,102) (2,288)
----------------------- -------- --------
The deferred tax at year end is made up as follows:
2017 2016
GBP'000 GBP'000
------------------------- -------- --------
Intangible assets (1,497) (2,253)
Other timing differences 395 (35)
------------------------- -------- --------
(1,102) (2,288)
------------------------- -------- --------
The movement in the year is analysed as follows:
2017 2016
GBP'000 GBP'000
------------------------------------------------- -------- --------
Balance at 1 January 2016 (2,288) -
Recognised through acquisitions 91 (2,010)
Income statement 1,131 276
Other comprehensive income 12 -
Foreign exchange (to other comprehensive income) (48) (554)
------------------------------------------------- -------- --------
Balance at 31 December 2016 (1,102) (2,288)
------------------------------------------------- -------- --------
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so.
24. Trade and other payables
2017 2016
GBP'000 GBP'000
-------------------------------- -------- --------
Trade creditors 555 1,081
Other payables 1,320 375
Other taxes and social security 1,610 1,668
Accruals 4,878 4,655
Deferred consideration (i) 159 5,916
-------------------------------- -------- --------
Total trade and other payables 8,522 13,695
-------------------------------- -------- --------
Trade creditors and accruals principally comprise of amounts outstanding for trade purchases and ongoing costs. The Directors consider the carrying value of the trade and other payables is approximate to their fair value.
Included in deferred consideration is GBPnil (2016: GBP5.2 million) payable for the FAS acquisition and GBP0.2 million (2016: GBP0.7 million) for the CCS acquisition.
25. Provisions
2017 2016
GBP'000 GBP'000
--------------------------------- -------- --------
Balance at 1 January 353 134
Movement through profit and loss 153 219
--------------------------------- -------- --------
Balance at 31 December 506 353
--------------------------------- -------- --------
The provision carried relates to dilapidations for the property leases. The provision is raised over the lease terms of the applicable properties and based on management's best estimates.
26. Business combinations
IFS
On 1 January 2017, the Group acquired 100% of the issued share capital of International Financial Services Limited and IFS Trustees. These entities are incorporated in Mauritius and together trade as the IFS.
This acquisition provides the Group with a significant platform to both support clients in attractive regions and grow the Group's emerging markets presence. IFS Group forms the core of the Asia-Pacific & Mauritius Alternatives segment.
The consideration for the acquisition was satisfied through a payment of approximately GBP74.6 million (US$92 million) in cash, and the issuance of 5,844,507 consideration shares.
USD GBP
'000 '000
Recognised amounts of identifiable net assets
(at fair value):
Non-current assets Useful economic life
------------------------------------------------------- --------------------- ------- -------
Equipment 3-7 years 383 310
Customer and contract intangible 6 years 62,078 50,306
Deferred tax 111 91
------------------------------------------------------------------------------ ------- -------
62,572 50,707
----------------------------------------------------------------------------- ------- -------
Current assets
Trade and other receivables 1,769 1,433
Cash and cash equivalents 7,463 6,048
Accrued income 2,460 1,994
------------------------------------------------------------------------------ ------- -------
11,692 9,475
----------------------------------------------------------------------------- ------- -------
Current liabilities
Trade and other payables 1,349 1,093
Current tax liabilities 961 778
Deferred income 3,416 2,769
------------------------------------------------------------------------------ ------- -------
5,726 4,640
----------------------------------------------------------------------------- ------- -------
Non-current liabilities
Retirement gratuity liability 691 560
------------------------------------------------------------------------------ ------- -------
691 560
----------------------------------------------------------------------------- ------- -------
Identifiable net assets 67,847 54,982
------------------------------------------------------------------------------ ------- -------
Goodwill 66,389 53,799
------------------------------------------------------------------------------ ------- -------
Total consideration 134,236 108,781
------------------------------------------------------------------------------ ------- -------
Total consideration satisfied by:
Cash consideration - on acquisition 92,045 74,591
Equity instruments - ordinary shares (5,844,507 shares
in Sanne Group plc) 42,191 34,190
------------------------------------------------------------------------------ ------- -------
Fair value of consideration payable at acquisition
date 134,236 108,781
------------------------------------------------------------------------------ ------- -------
Net cash outflow arising on acquisition:
Cash consideration 92,045 74,591
Less: cash and cash equivalent balances acquired (7,463) (6,048)
------------------------------------------------------------------------------ ------- -------
Net cash outflow arising on acquisition: 84,582 68,543
------------------------------------------------------------------------------ ------- -------
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 GBP319k (net of FX gain of GBP1.5 million) of acquisition and integration expense in 2016. During 2017 the Group incurred integration costs of GBP152k. These costs have been expensed within operating expenses in this financial period and have further been identified as non-underlying as detailed in note 8.
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.
Effect on the results
IFS contributed GBP21.5 million revenue and a profit of GBP3.17 million to the Group's profit for the period between the date of acquisition and the balance sheet date. The date of acquisition was 1 January 2017 and therefore there are no differences in the revenue and profit which would have been contributed on a pro rata basis from the start of the period.
27. Share-based payments
2017 2016
GBP'000 GBP'000
---------------------------------------------------- -------- --------
Sanne Group plc
Employee Share Gift award - 276
Performance Share Plan 912 676
Restricted Stock Awards 2,015 439
---------------------------------------------------- -------- --------
Total share-based payments 2,927 1,391
---------------------------------------------------- -------- --------
Employee Shares settled from Employee Benefit Trust (35) (8)
---------------------------------------------------- -------- --------
Net share-based payments 2,892 1,383
---------------------------------------------------- -------- --------
Sanne Group Employees' Share Gift award
During 2016, 61,576 shares were gifted to employees of the newly acquired businesses to welcome them to the Group. As such they had no vesting period. The market value on grant date was charged in full to operating expenses and further identified as non-underlying. All awards were granted for nil consideration.
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 a nil consideration. Further awards were made through the year.
The Group estimates the number of shares to be vested based on the performance targets set to be achieved and the current performance of the Group, and this is then grown by 12% as per market expectation to determine the probable performance at vesting date. The leavers assumption set by the Group is nil for PSPs as only senior management receive share grants and historical data have shown that senior management do not leave in such a short period. The vesting periods of the grants are not more than three years.
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 a nil consideration. The Group makes use of a leaver's assumption for specific jurisdictions where these awards were granted to all staff and not only senior management. The assumptions are based on historical data. With these grants also relating to acquisitions or senior management to support the acquisitions they are disclosed as non-underlying.
The number and weighted average exercise prices of share-based payment awards are as follows:
Weighted Number of Number of
average exercise shares shares
price (GBP) 2017 2016
--------------------------- ----------------- ---------- ----------
Performance Share Plan
Outstanding at 1 January - 757,787 -
Granted during the year - 535,413 833,270
Forfeited during the year - (63,920) (75,483)
--------------------------- ----------------- ---------- ----------
Outstanding at 31 December 1,229,280 757,787
--------------------------- ----------------- ---------- ----------
Restricted Stock Awards
Outstanding at 1 January - 935,302 -
Granted during the year - 544,210 1,066,562
Forfeited during the year - (32,862) (131,260)
Vested during the year 7.59 (91,096) -
--------------------------- ----------------- ---------- ----------
Outstanding at 31 December 1,355,554 935,302
--------------------------- ----------------- ---------- ----------
The fair value of services received in return for share awards granted is measured by reference to the fair value of the shares granted.
Shares to be issued were comprised of the following:
2017 2016
GBP'000 GBP'000
------------------------------------------------- -------- --------
Balance at 1 January 13,867 -
New share plans for employees 1,969 1,107
FAS acquisition - deferred consideration raised - 12,760
FAS acquisition - deferred consideration settled (2,463) -
------------------------------------------------- -------- --------
Balance at 31 December 13,373 13,867
------------------------------------------------- -------- --------
28. Long-term employee benefits
Defined contribution plan
The Group participates in a defined contribution pension plan to which it makes monthly contributions in specific jurisdictions. The total contributions during the year was GBP240k.
Defined benefit obligation
The Group has a defined benefit obligation in respect of the Mauritius Employment Rights Act 2008 which forms part of the Group through the IFS acquisition (note 26). In terms of the act in Mauritius, 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 recognised a net defined benefit liability of GBP718k (2016: GBPnil) on the balance sheet in respect of amounts that are expected to be paid out to employees under the retirement gratuities Employment Rights Act 2008. The Group has no specific assets to cover the obligation as it is all self-funded by the Group.
The most recent actuarial valuations of the defined benefit liability was carried out at 31 December 2017 by the State Insurance Company of Mauritius.
2017
Defined benefit obligation GBP'000
---------------------------------------------------------------- --------
Liability at acquisition of IFS (note 26) 560
Amounts recognised in Income Statement
- Current service cost 66
- Net interest expense 33
Amounts recognised as Other Comprehensive Income
- Actuarial (gain)/loss on defined benefit obligation 83
FX gain (24)
---------------------------------------------------------------- --------
Present value of defined benefit obligation at 31 December 2017 718
---------------------------------------------------------------- --------
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:
2017
------------------------- --------
Discount rate(1) 5.5%
Future salary increases 3%
Future pension increases 3%
Withdrawal rate 15%
Retirement age 60 years
------------------------- --------
(1) The discount rate is determined by reference to market yields on bonds.
Significant actuarial assumptions for determination of the defined benefit obligation are discount rate and expected salary increase. The sensitivity analyses below have been determined based on reasonably possible changes of the assumptions occurring at the end of the reporting period.
2017
GBP'000
-------------------------------------------------------------------- -----------
- Increase due to 1% decrease in discount rate 124
- Decrease due to 1% increase in discount rate 99
- Increase due to 1% increase in future salary increases 158
- Decrease due to 1% decrease in future salary increases 127
Weighted average duration of the defined benefit obligation (years) 17.3 years
-------------------------------------------------------------------- -----------
29. Financial instruments
The Group's financial instruments comprise bank loans, cash and cash equivalents, trade payables, other payables, trade receivables and other receivables.
2017 2016
Categories of financial instruments Level GBP'000 GBP'000
------------------------------------------------- ----- -------- --------
Financial assets
Cash and bank balances 1 50,803 108,673
Loans and receivables (i) 3 29,062 22,643
Financial liabilities
Financial liabilities recorded at amortised cost
Bank loan 1 64,335 59,518
Trade and other payables (ii) 3 6,753 6,111
------------------------------------------------- ----- -------- --------
(i) Includes accrued income but excludes other debtors and prepayments.
(ii) 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.
As disclosed in note 22, in 2016 the Group took a loan which requires it to meet cash flow, leverage and interest cover covenants. In order to achieve the Group's capital risk management objective, the Group aims to ensure that it meets financial covenants attached to 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.
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 for speculative purposes.
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, while 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 the interest rate is kept as low as possible.
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 2017 would decrease/increase by GBP172k (2016: GBP63k).
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 appraise the potential impacts of the United Kingdom's referendum on EU membership ("Brexit"). The volatility of the 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 foreign currency denominated monetary assets and monetary liabilities are as follows:
Assets Liabilities
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
------------------------ -------- -------- -------- --------
Euro(1) 30,931 7,422 256 369
United States dollar(2) 16,442 78,444 1,130 1,037
South African rand 2,106 1,481 1,031 560
------------------------ -------- -------- -------- --------
49,479 87,347 2,417 1,966
------------------------ -------- -------- -------- --------
(1) Included in the Euro exposure at 31 December 2017 is GBP21.2 million cash for the LIS Group acquisition which completed on 6 February 2018 (note 31).
(2) Included in the United States dollar exposure during the prior year was GBP73.8 million cash for the Kestrel acquisition which completed on 1 January 2017.
Where considered necessary, the Group will manage its foreign currency risk through hedging arrangements. A foreign currency contract was entered into during the current year to buy euro for the LIS acquisition, and this contract was closed by year end. Foreign currency contracts were also entered into during the prior year to sell sterling and buy United States dollars; these contracts related to the FLSV and IFS Group acquisitions and both these contracts were closed before the 2016 year-end.
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 on the foreign currency impact on the year-end balance sheet and presents 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 sterling by 20% is considered an appropriate variable for the sensitivity analysis given the scale of foreign exchange fluctuations over the last two years.
Effect on Group
comprehensive
income and
net assets
--------------------- --------------
Strengthening
/ (weakening) 2017 2016
of sterling GBP'000 GBP'000
--------------------- -------------- -------- ---------
Euro +20% (6,135) (1,176)
United States dollar +20% (3,062) (12,901)
South African rand +20% (215) (153)
Euro -20% 5,113 1,411
United States dollar -20% 2,552 15,481
South African rand -20% 179 184
--------------------- -------------- -------- ---------
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.
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.
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.
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.
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 rate, 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.
3-12
< 3 months months 1-5 years > 5 years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- ---------- -------- --------- --------- --------
31 December 2017
Bank loans (i) 325 969 68,553 - 69,847
Trade payables and accruals (ii) 8,251 - - - 8,251
Provisions 353 - - - 353
--------------------------------- ---------- -------- --------- --------- --------
8,929 969 68,553 - 78,451
--------------------------------- ---------- -------- --------- --------- --------
31 December 2016
Bank loans (i) 347 1,034 65,178 - 66,559
Trade payables and accruals (ii) 7,547 - - - 7,547
Provisions 353 - - - 353
--------------------------------- ---------- -------- --------- --------- --------
8,247 1,034 65,178 - 74,459
--------------------------------- ---------- -------- --------- --------- --------
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
The Directors consider that the carrying amounts of financial assets and financial liabilities in the historical financial information approximate their fair values.
30. Related party transactions
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
The Group's other significant 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 key management personnel of the Group is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
2017 2016
GBP'000 GBP'000
----------------------------------- -------- --------
Short-term employee benefits 2,278 1,956
Share-based payments (see note 27) 549 477
----------------------------------- -------- --------
Total short-term payments 2,827 2,433
----------------------------------- -------- --------
Other
Ordinary dividends 632 764
----------------------------------- -------- --------
Total other payments 632 764
----------------------------------- -------- --------
31. Post balance sheet events
LIS
On 6 February 2018, the Group acquired 100% of the issued share capital of Investment Solutions S.A. and Compliance Partners S.A. These entities are incorporated in Luxembourg.
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.
Acquisition accounting for this transaction is incomplete at issuance of these financial statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR PGUBUWUPRUUP
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March 22, 2018 03:01 ET (07:01 GMT)
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