sanne group plc (“the ompany”) together with its ... · recently acquired businesses...

10 September 2019

Sanne Group plc

(“the Company”) together with its subsidiaries (“the Group” or “SANNE”)

Interim results for the six months ended 30 June 2019

Sanne Group plc is one of the leading providers of outsourced alternative asset and corporate business services

to the world’s leading fund managers and corporates.

6 months to 30 June 2019

6 months to 30 June 2018

Change Constant currency change2

Revenue £78.7m £65.9m 19.5% 17.4%

Underlying1

Operating profit £20.8m £20.0m 3.7% (3.1%)

Profit before tax £19.2m £19.4m (1.3%) (9.4%)

Diluted earnings per share 10.4p 11.2p (7.1%) (17.6%)

Operating profit margin 26.4% 30.4%

Statutory

Operating profit £7.5m £11.5m (34.9%) (48.5%)

Profit before tax £5.4m £10.9m (50.3%) (62.2%)

Diluted earnings per share 2.4p 5.9p (60.2%) (74.0%)

Interim dividend per share 4.7p 4.6p

1. Underlying results for the year have been presented after the exclusion of non‐underlying items. Within operating profit and profit before tax, these items

include, amongst other costs, acquisition and integration costs (2019: £0.3m), share based payments where linked to acquisitions (2019: £1.1m), amortisation

of intangible assets (2019: £8.3m), earn-out accrual for AgenSynd (2019: £1.2m) and the impairment of intangible assets (2019: £1.9m). Further details can be

found in note 4 of the consolidated financial statements

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

Highlights:

H1 results (under IFRS 16):

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

o Continued very strong Alternatives revenue growth of 25.2% (2018: 20.3%), especially in North

America and Asia-Pacific

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

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

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

Africa intangibles impairment

Record levels of new business wins from both new and existing customers with annualised fees of

approximately £16.0 million won in the first six months (H1 2018: £11.5 million)

Actions implemented to improve margin in H2

Committed to continued investment to support the Group’s growth ambitions in its core markets and

products

Successful refinancing of Group facilities provides additional flexibility

Recently acquired businesses successfully integrated and already adding value to the group

Martin Schnaier took over as CEO on 16 May 2019

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

Group

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

Minority shareholding in Colmore, with its award-winning technology platform will enable SANNE to

provide fund management clients with real-time market leading analytics services

Outlook:

The continued outperformance from SANNE’s core Alternatives businesses gives the Board confidence in the

Group’s full year revenue expectations, despite the challenges in the Corporate and Private Client business areas.

Whilst the actions we are taking are improving underlying operating margin, the items impacting profitability in

the first half are unlikely to be fully compensated for in the second half. The Board therefore expects to report

a full year underlying operating profit margin in the region of 28% to 30% and EPS in line with its revised

expectations, as announced in the Group’s trading statement on 27 July 2019.

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

“Our record new business wins demonstrate that SANNE’s client proposition remains very attractive and our

increasing focus on fast-growing Alternative asset classes is driving significant revenue momentum. However it

is clearly disappointing that the first half profitability has come in materially below our original expectations.

Looking at our strengths and market opportunity, I am as excited about the future as I have ever been. As the

new CEO, my responsibility is to ensure that SANNE fulfils its significant potential, and I am confident that the

global platform we are investing in will be essential to the long-term success of the business. I have two

immediate priorities: to focus on addressing the issues that have impacted the Group’s margins, and to generate

good returns from the Corporate and Private Client business. We are already working hard on each of these,

with some positive results already coming through, and I look forward to reporting on our progress in the months

ahead.”

Enquiries:

Sanne Group plc

Martin Schnaier, Chief Executive Officer

James Ireland, Chief Financial Officer

+44 (0) 1534 722 787

Investec Bank plc

Chris Baird / David Flin

Edward Thomas / Neil Coleman

+44 (0) 20 7597 5970

RBC Capital Markets

Darrell Uden

Daniel Werchola

Jonathan Hardy

+44 (0) 20 7653 4000

Tulchan Communications LLP

Tom Murray / David Ison

+44 (0) 20 7353 4200

The Company will be hosting an investor and analyst presentation at 09:30am (BST) on 10th September 2019, at

Haywood & Wren, The Clubhouse, Holborn Circus – 20 St Andrew Street, EC4A 3AG

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

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

08003589473 (Toll Free)

+44 3333000804 (Toll) Access Code: 62085336# International dial-in numbers: http://events.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf A copy of the 2019 Half Year results presentation will be available on SANNE's Investor Relations pages at www.sannegroup.com after the live webcast has ended.

Notes:

SANNE is a leading global provider of outsourced alternative asset and corporate business services. Established

for over 30 years and listed as a FTSE 250 company on the Main Market of the London Stock Exchange, SANNE

employs more than 1,600 people worldwide and administers structures and funds that have in excess of £250

billion of assets.

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

international corporates

SANNE operates from a global network of offices located in leading financial jurisdictions, which are spread across

the Americas, Europe, Africa and Asia-Pacific.

sannegroup.com

https://protect.mimecast-offshore.com/s/m3GAC0V7qVfGLA42uwaksh?domain=events.arkadin.com

https://protect.mimecast-offshore.com/s/EVHUCjqKQqTnvxAjs56m1Y?domain=sannegroup.com

INTERIM MANAGEMENT STATEMENT

Chief Executive Officer’s Report

Revenue

We have seen continued strong revenue growth across all of SANNE’s core alternatives businesses, as the Group

improves market penetration as well as benefiting from structural growth trends in global alternatives markets.

As a result of these growth drivers, the Group saw overall constant currency revenue growth of 17.4% (19.5%

on an actual basis) compared to the same period in the prior year, despite the Corporate and Private Client (CPC)

businesses performing below expectations.

The Group’s performance was underpinned by good organic revenue growth of 12.8% in constant currency

(14.9% on an actual basis) across the Group (organic revenue growth is reported revenue growth adjusted to

remove the 2019 H1 contribution from AgenSynd as well as pro-rating the contribution from LIS down to five

months, comparable to H1 2018’s contribution).

SANNE’s Alternative Asset focused client services now represent c.89% of SANNE’s total revenues, compared to

c.78% four years ago, as the Group continues to build on its leading market position. The Group’s alternatives

businesses saw constant currency growth in the first half of 22.8% and 17.3% on a comparable organic basis.

The Group has also benefited from a full six months’ contribution in H1 2019 from LIS in Luxembourg (H1 2018’s

result included only 5 months) as well as AgenSynd in Madrid, which was acquired during H2 2018. Both these

acquisitions continue to perform well and in line with the Group’s expectations.

The Group's European Corporate and Private Client businesses, previously the CPC segment (14.8% of 2018

Group revenues), delivered disappointing first half financial performances. The Corporate business was flat

compared to the prior period whilst Private Client declined compared to the first half of 2018. Overall combined

revenues for these businesses were down approximately 13.2% on the same period in 2018.

New business

In the first half of the year, the Group secured new business from both new and existing clients totalling

approximately £16.0 million on a projected annualised fee basis (H1 2018: £11.5 million). This is another record

half year result and demonstrates the attractiveness of our offering. Approximately 30% of this was business

won from clients new to the Group, with the balance from SANNE’s existing customer base. We are pleased to

see clients from across the global business placing increasing trust in SANNE as their long term, strategic partner.

Costs and operating margin

Whilst the Group saw a good revenue performance for H1 2019, the underlying operating profit margin was

adversely affected by a combination of items, as announced in July 2019. The underlying operating profit margin

in the first half fell to 26.4% from 30.4% in H1 2018 and underlying operating profit for the period was broadly

flat on the prior year at £20.8 million.

There were a number of reasons for this margin decline. The principal one was a fall in gross profit margins in

the new Europe, Middle East & Africa (EMEA) and Channel Islands (CI) reporting segments, as investment in

people in our client service teams, was made ahead of being able to recognise revenues from new clients.

Gross profit margins were also impacted by increased spend on the dedicated Business Development team and

the creation of the Product Development team. In addition, the Group failed to deliver operating efficiencies in

the central operations teams that were established in 2018, which would have largely mitigated this increased

spend. The total spend on the Business Development, Product Development and centralised teams has grown

to around 2.6% of total revenues in the first half of 2019. Changes have been made to the reporting and

operating structure of the centralised teams towards the end of the period and we are confident that these will

realise efficiencies in the second half and beyond.

The final item that has impacted the first half margin was elevated overhead spend in relation to increased

activity, particularly in relation to recruitment spend and new office moves. The first half has seen significant

office moves in Luxembourg, Hong Kong and Shanghai to support the future growth in headcount. In addition,

new offices have been established in Amsterdam, Tokyo, Mumbai and San Diego as a direct result of client

demand. These small operations enable us to add more value to existing clients on the ground and an ability to

enhance our already strong client relationship management.

The majority of office moves for 2019 have taken place in the first half and actions have been taken, including

changes to reporting lines and oversight, to focus on managing cost control in areas where spend has been

unexpectedly elevated in the first half. As such, overheads are expected to grow more slowly than revenues in

the second half.

Strategy for growth

SANNE’s strategic focus remains to be one of the world’s leading providers of outsourced alternative asset and

corporate business services, supporting clients in fast growing markets through local market knowledge and a

deep understanding of the asset classes and markets in which they operate.

We continue to see a trend towards clients requiring their service provider to be able to support them across

the spectrum of administrative services and throughout all key international finance centres. The Group remains

focused on investing to build out its platform capability and jurisdictional footprint to ensure SANNE provides a

quality one-stop-shop for local and international alternative asset managers. The opening of four new offices

and locations during 2019 aligns with this strategic focus.

In addition to capability and jurisdictional footprint, industry-leading client service is at the heart of SANNE’s

strategy. Clients in the closed-ended alternatives sector demand bespoke and high-touch services, underpinned

by a deep understanding of local markets that meet their ongoing needs. This close partnership approach to

client service has always been a differentiator for SANNE and it remains critical to the continued success of the

business. The creation of the Product Development team in 2019 provides the Group with experienced senior

people who are focused on the continuous development of our client service offering, as well as ensuring that

clients continue to benefit from engagement with SANNE as a product and service specialist.

Over the last two years, SANNE has also stepped up its investment in its people, processes and systems to ensure

that the Group’s global platform is well invested to support long-term growth. Areas of focus include information

technology, risk and compliance, management bandwidth and governance, as well as the creation of the

dedicated Business Development team to focus on new clients wins and help the Group take advantage of more

cross-sell opportunities.

Group structure and management changes

The first half of 2019 saw a material change in the reporting and operating structure of the Group as it shifted

from a divisional business reporting structure to a jurisdiction-oriented structure. This change brings with it a

number of significant benefits. These include a more robust governance and control framework at local levels,

fostering local accountability, as well as bringing an improved focus on local employee engagement across our

expanding jurisdictional footprint. The impact of these changes is also outlined in the Operational Review below.

Following the AGM on 16th May 2019, and as previously announced, Martin Schnaier became Chief Executive

Officer, succeeding Dean Godwin.

As a result of the CEO succession plan, Mark Law, previously Managing Director of the Group’s Asia-Pacific &

Mauritius business, was promoted to the Chief Commercial Officer role, replacing Martin Schnaier, with

responsibility for SANNE’s Client Service teams. Jing Jing Qian has been promoted to the Managing Director

position for Asia-Pacific, whilst Peter Nagle joined the Group in 2018 as Managing Director for Mauritius. Michael

Riley joined the business as Head of Mergers and Acquisitions during April 2019 and Malcolm Hassan joined as

Managing Director for Business Development and Marketing in May 2019.

Our people

As a people business, SANNE’s employees are central to the Group’s success. The strong top line growth we

continue to see across our Group is testament to the hard work and commitment of our employees across the

globe and I would take this opportunity to thank them for their efforts. Keeping our people at the centre of our

business and our client proposition is key and since the CEO change there has been a renewed focus on our

Group culture, and ongoing investment in our people across the global business.

Operational Review

This is the first time SANNE has reported under its new segmental structure. The new structure reflects the

change made at the start of the period to move to jurisdictional management and reporting across all parts of

the Group. The Group’s four reporting segments are now Europe, Middle East and Africa (EMEA); Channel Islands

(CI); North America (NA); and Asia-Pacific & Mauritius (APM). The NA and APM segments remain unchanged

from prior years. The former EMEA Alternatives and Corporate & Private Client (CPC) segments have been

combined and then split between operations in the Channel Islands and outside the Channel Islands. For

continuity we will continue to report the old CPC revenues separately within EMEA and CI.

Europe, Middle East & Africa (EMEA)

SANNE’s EMEA business includes our services to alternative asset managers and financial institutions across

Luxembourg, Dublin, London, Madrid, Paris, Amsterdam, Malta and Cape Town. This segment provides services

across all core alternative closed-ended investment strategies as well as the Group’s open-ended Hedge business

and a small element of Corporate business located in Ireland.

Under the new reporting structure, EMEA delivered constant currency revenue growth of 21.6% on an organic

basis and 34.6% on an actual basis, factoring in the full 6 months of LIS and AgenSynd. Separating out the CPC

portion of this reporting segment (approximately 3.2% of the segment’s first half revenues) the EMEA

Alternatives business delivered 22.8% organic growth and 36.5% actual in the period on a constant currency

basis. EMEA has seen very little impact from foreign exchange, albeit there has been a very small headwind from

the Sterling-Euro exchange rate.

H1 2019 (£'000)

H1 2018 (£'000)

% growth Constant currency %

growth

31 Dec 2018

(£'000)

Revenue 31,341 23,420 33.8% 34.6% 53,427

- Alternatives 30,352 22,383

- CPC 989 1,037

Gross profit 17,404 13,921 25.0% 25.1% 31,846

Margin 55.5% 59.4% 59.6%

The organic revenue performance for EMEA has been the result of continued buoyant markets, increased market

penetration and strong demand for SANNE’s closed-ended alternative asset business services. The strong trend

in the domiciliation of funds and managers to Luxembourg driven by a number of macro factors including Brexit

and the Anti-Tax Avoidance Directive (ATAD) in Europe. Having a large, scaled capability across all key

jurisdictions (especially Luxembourg which provides a one-stop-shop service across AIFMD mandates), SANNE

is well placed to benefit from this trend.

The Group’s Hedge offering, which has traditionally been exclusively focused on the South African market, has

seen a subdued performance in the period due to ongoing challenging market conditions in South Africa. We

are starting to see progress in expanding the product offering internationally, with European clients won and

serviced on the platform during the period. The business has also seen some legacy South African clients serve

notice in the period although positive new client wins already signed are expected to mitigate this loss in both

the second half and in future periods.

The gross margin for the region has declined by 3.9% in the first half which was partly a result of the business

bearing a larger proportional cost of the Business Development, Product Development and centralised teams.

Additionally, whilst the changes from the new reporting structure, which are most significant across EMEA, have

been bedding in, the region has invested ahead of the curve in resourcing levels. The division also suffered some

delays in recognising certain revenues, thus resulting in the cumulative impact of diluting margins. Significant

additional work has been undertaken towards the end of the first half and into the second half to manage

capacity across regions to prevent this issue recurring in the second half. SANNE continues to invest in the

capacity of the business to take on the growth in new structures.

Channel Islands (CI)

SANNE’s CI business consists of offices located in both Jersey and Guernsey, servicing alternative asset

managers, financial institutions and structures for global corporates and high-net-worth individuals.

Revenues from the new CI segment were slightly lower than the prior year, reflecting the majority of the old

CPC segment being included, which materially diluted the overall growth rate. The CI Alternatives business saw

organic constant currency growth in the period of 4.4% which reflects the industry backdrop driving much new

business to Luxembourg. The old CPC business however represents approximately 41.2% of CI and was down

circa 14.3% on the first half of 2018. This was a result of a flat period on period performance from Corporate

whilst the Private Client business was significantly down.

H1 2019 (£'000)

H1 2018 (£'000)


growth

31 Dec 2018

(£'000)

Revenue 18,101 18,894 -4.2% -4.2% 37,510

- Alternatives 10,650 10,202

- CPC 7,451 8,692

Gross profit 11,089 11,882 -6.7% -6.6% 23,630

Margin 61.3% 62.9% 63.0%

Within CI Alternatives, growth has been weighted towards Private Equity, where our high quality services and

expertise continues to attract new clients, along with new funds for existing clients. Our Real Estate services

business has also seen some growth in clients, supported by a knowledgeable and experienced team providing

good practical and technical support to our clients. It is worth noting that the performance of the Real Estate

team would have been even greater had it not been for Brexit concerns impacting some of the transaction

volume levels within the business. Our Debt business performed in line with budget and growth expectations.

Shortly after the period end, SANNE announced that it had reached a settlement with the Group’s regulator in

Jersey, the Jersey Financial Services Commission (JFSC), in relation to one of SANNE’s local entities and a

historical failure to remediate certain issues in the Jersey business within an agreed timeframe. Full details about

this are available on the JFSC’s website at www.jerseyfsc.org .

The lack of growth in our Corporate Business in H1 2019 was largely attributable to the loss of one large client

in late 2018 and occurred due to a domiciliation requirement in a jurisdiction in which we were not able to

http://www.jerseyfsc.org/

continue to support the service offering. Efforts continue to replace this lost business with both new clients and

cross-selling our broader product offering across the existing client base.

Our Private Client business performed particularly poorly during the period, with revenue falling below 2018 H1

levels. We are well advanced with a strategic review of this business line.

The gross margin for Channel Islands has declined by 1.6% in the first half. As in the EMEA Segment, this has

been partly due to CI bearing a larger proportion of cost for the Business Development, Product Development

and centralised teams. EMEA and CI together account for 62.8% of overall Group revenues. CI has also suffered

from the same issues resulting from the change to jurisdictional reporting structure across the legacy EMEA

Alternatives business which has resulted in the segment diluting margins in H1.

Asia-Pacific & Mauritius (APM)

SANNE’s APM business includes our services across Hong Kong, Singapore, Shanghai, Tokyo, Mumbai and

Mauritius. This segment provides services across all core alternative closed-ended investment products.

The segment saw strong growth in the period of 18.5%. This result benefited from a currency tailwind in the

period with much of the revenue recognised in US dollars. Excluding this benefit the constant currency growth

was 12.7%.

H1 2019 (£'000)

H1 2018 (£'000)


growth

31 Dec 2018

(£'000)

Revenue 16,382 13,829 18.5% 12.7% 30,457

Gross profit 11,314 9,894 14.4% 5.4% 22,102

Margin 69.1% 71.5% 72.6%

The performance reflects two differing market dynamics as between Asia-Pacific and Mauritius. Across Asia-

Pacific, we have a smaller but very high growth platform benefiting from positive market dynamics and strong

client wins. This performance is driven by a high win rate of business from new, high profile asset management

clients as well as significant large wins from longer-term clients of the Group.

Our Mauritius business is a market leader in the more mature Mauritian administration industry and prior to

SANNE’s ownership had not been a growth platform. Whilst we have successfully started generating growth in

the Mauritian business compared with the pre-acquisition revenue levels, the local Mauritian market due to its

maturity is inherently lower growth than Asia-Pacific. As such the first half of 2019 has seen a broadly flat

performance on the first half of 2018 before currency tailwinds are accounted for as the business works through

expected end-of-life attrition from the legacy book.

APM also expanded its regional footprint into Tokyo following the office opening in January 2019. This is in direct

response to client demand and will serve to further add to our already well-established Asian office network and

market expertise. In June 2019, the region obtained its new book-keeping license in China, complementing

SANNE’s existing fund service offering into the local Chinese registered entity level. The licence allows SANNE to

offer a full suite of fund solutions to cater for institutional managers, positioning us well as we seek to further

grow our fund servicing business in Asia. The period also saw the opening of a new representative sales office in

Mumbai. The majority of the market opportunity through Mauritius today is investment flowing into the Indian

market and we see a lot of exciting opportunities to grow in line with the investment flows into the Indian funds

industry. Our new sales capability onshore will be critical in capturing more of this opportunity.

During the first half of 2019, we have also created Centre of Excellence in Mauritius focusing on the preparation

of financial statements for the wider Group and for external clients. To date we have recruited 27 staff into this

outsourcing hub and expect to increase the number of people substantially during the second half of the year,

as this initiative is already making a positive contribution to the Group.

Gross margin in the period has remained broadly in line with the prior year. We have seen a small amount of

dilution from the increased spend on growth initiatives. However, the main driver for the reported drop has

been mix effect as the faster growing Asia-Pacific region becomes a larger proportion of the segment and

averages down the margin percentage.

North America (NA)

SANNE’s NA Alternatives business primarily services Private Equity and Real Estate clients in North America. We

continued making progress during the first half of 2019 in expanding our coverage of our local client base across

various closed-ended fund strategies.

NA experienced strong organic growth for the first half of 2019. The constant currency organic revenue growth

was 24.9%, increasing to 32.9% when the beneficial currency tailwind is factored in. The increase in the half-year

growth rates reflect the aforementioned expansion across our client base, including the introduction of new

clients locally through other jurisdictional relationships.

H1 2019 (£'000)

H1 2018 (£'000)


growth

31 Dec 2018

(£'000)

Revenue 12,896 9,707 32.9% 24.9% 21,609

Gross profit 6,455 4,712 37.0% 38.8% 10,770

Margin 50.1% 48.5% 49.8%

The majority of growth in the first half of the year was driven by continued strong demand from the existing

client base that continued expanding both domestically and internationally across different asset products. We

continue to see a lower level of administration outsourcing in North America compared with other regions

around the globe. However, we do see an increasing trend from asset managers seeking a third-party

administrator to increase internal efficiencies and demonstrating receipt of independent servicing to their

investor base. There also continues to be positive momentum in new funds coming to market across all asset

classes.

Gross margins for the first half of the year are broadly flat compared to the prior period. Margins in our NA

segment have always been lower than other regions in the Group largely reflecting structurally different market

conditions in North America where the penetration of outsourcing of fund administration with closed-ended

fund managers is notably lower.

Strategic partnership with, and minority investment in Colmore

SANNE has entered into a strategic partnership with Colmore, a leading technology solutions business during Q3

2019. This has involved Sanne making a minority investment in Colmore. This partnership will bring leading new

technology solutions into our service offering that provides fund management clients with real-time dynamic

access to insight reports, analysis and data. This is an important partnership for SANNE as we continue to see

technology taking an increasingly important role in how we deliver our services to clients.

M&A

SANNE continues to review various M&A opportunities across a number of the Group’s fastest growing

jurisdictions in North America, EMEA and Asia-Pacific and our new head of M&A has now been in place for four

months. We are currently presented with a very strong pipeline of high quality opportunities. We will continue

to be highly selective and undertake a disciplined approach to M&A.

Financial review

Group Income Statement

H1 2019 (£'000)

H1 2018 (£'000)

% change Constant

currency % change

Revenue 78,720 65,850 19.5% 17.4%

Direct cost (32,458) (25,441)

Gross profit 46,262 40,409 14.5% 11.2%

Underlying operating expenses (25,467) (20,364)

Underlying operating profit 20,795 20,045 3.7% (3.1%)

Non underlying operating expenses (13,309) (8,547)

Operating profit 7,486 11,498 (34.9%) (48.5%)

Underlying interest cost and other gains and losses (1,621) (615)

Underlying profit before tax 19,174 19,430 (1.3%) (9.4%)

Non-underlying interest cost and other gains and losses (457) -

Profit before tax 5,408 10,883 (50.3%) (62.2%)

Underlying tax (4,023) (3,314)

Underlying profit after tax 15,151 16,116

Non-underlying tax 2,076 997

Profit for the half year 3,461 8,566 Earnings per ordinary share ("EPS") (expressed in pence per ordinary share)

Basic 2.4 6.1

Diluted 2.4 5.9 (60.2%) (74.0%)

Underlying basic 10.5 11.5

Underlying diluted 10.4 11.2 (7.1%) (17.6%)

Revenue

Group revenue increased by 19.5% in the year to £78.7 million (H1 2018: £65.8m) which reflected a constant

currency growth rate of 17.4%. Organic revenue growth in the period was 14.9% on an actual basis and 12.8%

on a constant currency basis. Organic revenue growth is reported revenue growth adjusted for acquisitions on

a like-for-like basis. In order to calculate this growth rate, we have stripped out the 2019 H1 contribution from

AgenSynd as well as pro-rating the contribution from LIS down to 5 months, comparable to H1 2018’s

contribution. The impact of these adjustments is shown below:

H1 2019

(£'000) H1 2018

(£'000) % growth Constant currency

% growth

Revenue 78,720 65,850 19.5% 17.4%

- Inorganic 3,060 -

- Organic 75,660 65,850 14.9% 12.8%

Foreign Exchange

The Group’s results are exposed to translation risk from the movement in currencies. The Group’s major

exposure is to Euro and US dollar being translated back into Sterling. These currencies have moved as shown in

the table below:

Average At 30 June

Per £ Sterling 2019 2018 % 2019 2018 %

Euro 1.1228 1.1367 1.2% 1.12 1.13 0.09%

US Dollar 1.2672 1.3755 7.9% 1.27 1.32 3.8%

Operating profit

Underlying operating profit for the period was marginally ahead by 3.7% on the prior year at £20.8 million (H1

2018: £20.0m) reflecting the balance of strong top line growth as well as the decline in first half underlying

operating profit margins. Statutory operating profit in the period was £7.5m, down from £11.5m in 2018. This is

largely a result in significantly higher non-underlying items in H1. In particular the one-off accrual for the

AgenSynd earn-out that is linked to on-going employment and therefore recognised through the Group’s Income

Statement as well as the intangible impairment in South Africa.

Underlying net finance cost

Underlying group net finance costs increased to £1.6 million in the period (H1 2018: £0.6m). Of this increase,

£0.4 million was driven by higher interest costs on the Group’s loan facilities as a result of the higher debt

balance. The remaining £0.6 million related to the recognition of lease interest under IFRS 16 (see below for

more detail on IFRS 16).

Non-underlying items

Non-underlying items within operating profit include share-based payments where they relate to acquisitions,

acquisition and integration costs, amortisation and impairment of intangible assets and one-off costs related to

the refinancing of the Group’s banking facilities undertaken in the year and the regulatory fine the Group settled

shortly after the period end. Non-underlying costs in the first half were £13.3 million (H1 2018: £8.5m). Included

within this amount was £1.9 million related to the impairment of intangible assets recognised with the

acquisition in South Africa (see Note 10). Also included was a provision for £0.4m relating to the settlement

reached with the JFSC shortly after the period end and associated fees (see Note 4). Further details on non-

underlying items is given in Note 4 in the Notes to the Consolidated Results. There is also a non-underlying

interest expense in the period of £0.5 million that is the write-off of previously capitalised arrangement fees in

relation to the Group’s old banking facilities.

Taxation

The Group’s underlying effective tax rate for the period was 21% (H1 2018: 17.1%). The increase in the

underlying effective tax rate in the period is a result of a greater proportion of the Group’s profits being made

in higher corporate tax rate jurisdictions.

Earnings per share

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

share were 2.37 pence (H1 2018: 5.94p).

IFRS 16

The Group has applied IFRS 16 for the first time to the period beginning 1 January 2019 and has transitioned by

adopting the modified retrospective approach which does not require restatement of the comparatives. In order

to provide like-for-like comparators, the table below shows the 2019 financials had IFRS 16 not been adopted:

Current

H1 2019

(£'000)

IAS17

H1 2019

(£'000)

Difference

(£’000)

Gross profit 46,262 46,262 -

Underlying operating expense (25,467) (25,872) 405

- Rental cost - (3,014) 3,014

- IFRS16 Depreciation (2,609) - (2,609)

- Other underlying operating expenses (22,858) (22,858) -

Underlying operating profit 20,795 20,390 405

Net underlying finance and other cost (1,621) (941) (680)

- IFRS16 Interest cost (680) - (680)

- Other net finance cost (941) (941) -

Underlying profit before tax 19,174 19,449 (275)

Working capital and cash flow

Working capital at 30 June 2019 as a percentage of annualised revenue was 22.6% (H1 2018: 20.4%). Underlying

operating cash flow conversion for the first half was 118% (H1 2018: 68%). The business continues to enjoy an

attractive cash flow profile. The strong cash conversion performance in the first half is, in part, a result of

normalisation in working capital following a lower conversion rate in the prior year.

Capital expenditure in the first half of the year was £2.9 million (H1 2018: £0.6m). This reflected a large number

of office moves that took place in the first half due to continued expansion. Most notable was the consolidation

of all the Group’s Luxembourg operations into a single location, a doubling of office space in Shanghai, a new,

larger premises for the Group’s Hong Kong operation, a relocation of the Group’s Netherlands office from

Rotterdam to Amsterdam as well as new office space in Tokyo and Mumbai.

Indebtedness and refinancing

The Group’s net debt position at 30 June 2019 was £64.0 million (H1 2018: £49.3m) reflecting the acquisition of

AgenSynd in the second half of 2018 and the capital expenditure seen in the first half. The Group also successfully

refinanced its debt facilities in the first half. The new debt facility is a multi-currency committed £150 million

revolving credit facility with an uncommitted accordion facility of £70 million. The Group’s net debt position

includes cash and bank balances held for regulatory capital. Cash held for regulatory capital is £9.1 million (30

June 2018: £11.1m) which would increase the Group’s net debt position if excluded.

Dividend

The Board has declared an interim dividend of 4.7 pence per share (H1 2018: 4.6p). The dividend will be paid on

18 October 2019 to shareholders on the register as at the close of business on the record date of 20 September

2019.

Risk

The principal risks facing the Group are reviewed regularly and represented by those set out in the Annual Report

2018. These are categorised as Acquisition Due Diligence Risk; Strategy Risk; Competitor Risk; Business Change

Risk; Cyber Security Risk; Process Risk; Staff Resourcing Risk; Data Management Risk; Regulatory Change Risk;

Compliance Risk; Financial Crime Risk and Impairment Risk.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE INTERIM STATEMENT

We confirm to the best of our knowledge that:

The condensed set of financial statements have been prepared in accordance with IAS 34 Interim Financial

Reporting as adopted by the EU; and

The interim management report includes a fair review of the information required by:

A. DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events

that have occurred during the first six months of the financial year and their impact on the condensed

set of financial statements; and a description of the principal risks and uncertainties for the remaining six

months of the year; and

B. DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have

taken place in the first six months of the current financial year and that have materially affected the

financial position or performance of the entity during that period; and any changes in the related party

transactions described in the last annual report that could do so.

The interim statement contains certain forward looking statements which are made by the directors in good faith

based on the information available to them at the time of their approval of this interim statement. Forward looking

statements contained within the interim statement should be treated with some caution due to the inherent

uncertainties, including economic, regulatory and business risk factors, underlying any such forward looking

statements.

We undertake no obligation to update any forward looking statements whether as a result of new information,

future events or otherwise. The interim statement has been prepared by Sanne Group plc to provide information

to its shareholders and should not be relied upon by any other party or for any other purpose.

Martin Schnaier

Chief Executive Officer

9 September 2019

Independent review report to Sanne Group plc

Report on the condensed consolidated financial statements

Our conclusion

We have reviewed Sanne Group plc's condensed consolidated financial statements (the "interim financial statements") in the Half-year report of Sanne Group plc for the 6 month period ended 30 June 2019. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’, as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

the consolidated balance sheet as at 30 June 2019;

the consolidated income statement and consolidated statement of comprehensive income for the period then ended;

the consolidated cash flow statement for the period then ended;

the consolidated statement of changes in equity for the period then ended; and

the explanatory notes to the interim financial statements.

The interim financial statements included in the Half-year report have been prepared in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’, as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.

As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Half-year report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half-year report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Half-year report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’ issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Half-year report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP Chartered Accountants London 9 September 2019

Sanne Group plc

Consolidated Income Statement

For the period from 1 January 2019 to 30 June 2019

Unaudited Unaudited1 Audited

6 Months to 6 Months to 12 Months

to

30 Jun 30 Jun 31 Dec

2019 2018 2018

Notes £'000 £'000 £'000

Revenue 78,720 65,850 143,003

Direct costs (32,458) (25,441) (54,655)

Gross profit 3 46,262 40,409 88,348

Other operating income 121 94 158

Operating expenses (38,897) (29,005) (62,941)

Operating profit 7,486 11,498 25,565

Comprising:

Underlying operating profit 4 20,795 20,045 44,447

Non-underlying items within operating expenses

4 (13,309) (8,547) (18,882)

7,486 11,498 25,565

Other gains and losses 186 126 (132)

Finance costs (2,340) (816) (1,909)

Finance income 76 75 156

Profit before tax 5,408 10,883 23,680

Comprising:

Underlying profit before tax 4 19,174 19,430 42,562

Non-underlying items 4 (13,766) (8,547) (18,882)

5,408 10,883 23,680

Tax 5 (1,947) (2,317) (5,506)

Profit for the period/year 3,461 8,566 18,174

Earnings per ordinary share ("EPS") (expressed in pence per ordinary share)

Basic 6 2.4 6.1 12.9

Diluted 6 2.4 5.9 12.6

Underlying basic 6 10.5 11.5 24.7

Underlying diluted 6 10.4 11.2 24.1

All profits in the current and preceding periods and year are derived from continuing operations. 1. Refer to note 8 for details of prior year restatement.

Sanne Group plc

Consolidated Statement of Comprehensive Income



6 Months to 6 Months

to 12 Months

to


2019 2018 2018

£'000 £'000 £'000


Other comprehensive income

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

Actuarial gain / (loss) on retirement benefit Obligation

44

(44)

70

Income tax relating to items not reclassified (6) 6 (11)

Items that may be reclassified subsequently to the profit and loss:

Correction of prior period error1 - (46) -

Exchange differences on translation of foreign Operations

270

2,315

8,756

Total comprehensive income for the period/year 3,769 10,797 26,989 1. Refer to note 8 for details of prior year restatement.

Sanne Group plc

Consolidated Balance Sheet

As at 30 June 2019



2019 2018 2018

Notes £'000 £'000 £'000

Assets

Non-current assets

Goodwill 9 189,226 157,905 188,928

Other intangible assets 10 56,019 69,720 66,122

Equipment 10,537 3,831 9,973

Deferred tax asset 8,787 1,549 2,082

Right-of-use asset 14 34,491 - -

Total non-current assets 299,060 233,005 267,105

Current assets

Trade and other receivables 46,846 33,959 47,251

Cash and bank balances 44,228 32,527 32,411

Contract assets 8,354 7,964 6,637

Total current assets 99,428 74,450 86,299

Total assets 398,488 307,455 353,404

Equity

Share capital 11 1,460 1,436 1,460

Share premium 200,270 185,012 200,270

Own shares (1,102) (1,307) (1,470)

Shares to be issued 10,178 22,731 12,278

Retranslation reserve (2,201) (8,958) (2,471)

Retained losses (24,549) (20,871) (17,399)

Total equity 184,056 178,043 192,668

Non-current liabilities

Borrowings 13 99,275 70,720 85,364

Deferred tax liabilities 18,219 12,911 13,395

Retirement gratuity liability 568 721 701

Other liabilities - - 4,914

Lease liability 14 35,104 - -

Total non-current liabilities 153,166 84,352 104,374

Current liabilities

Trade and other payables 37,412 29,374 34,467

Current tax liabilities 2,666 4,265 3,910

Provisions 2,110 503 1,650

Contract liabilities 14,246 10,918 16,335

Lease liability 14 4,832 - -

Total current liabilities 61,266 45,060 56,362

Total equity and liabilities 398,488 307,455 353,404 1. Refer to note 8 for details of prior year restatement.

Sanne Group plc

Consolidated Statement of Changes in Equity


Share

Capital Share

Premium Own

shares

Shares to be

issued

Retrans-lation

reserve Retained

Losses Total

Equity

£'000 £'000 £'000 £'000 £'000 £'000 £'000

Balance at 1 January 2018 (as previously reported) 1,416 171,850 (1,141) 13,373 (11,280) (16,437) 157,781

Correction of prior period error1 - - - - 53 (1,146) (1,093)

Balance at 1 January 2018 as restated 1,416 171,850 (1,141) 13,373 (11,227) (17,583) 156,688

Profit for the period as previously reported

- - - - - 9,026 9,026

Correction of prior period error1 - - - - (46) (460) (506)

Other comprehensive income for the period

- - - - 2,315 (38) 2,277

Total comprehensive income for the period - - - - 2,269 8,528 10,797

Issue of share capital 18 12,344 - - - - 12,362

Net buyback of own shares - - (166) - - - (166)

Dividend payments - - - - - (11,816) (11,816)

Share based payment - acquisitions - - - 8,558 - - 8,558

Share based payment - employees - - - 1,620 - - 1,620

Deferred consideration - acquisitions 2 818 - (820) - - -

Balance at 30 June 2018 as restated 1,436 185,012 (1,307) 22,731 (8,958) (20,871) 178,043

Profit for the period - - - - - 9,608 9,608


- - - - 6,487 97 6,584

Total comprehensive income for the period - - - - 6,487 9,705 16,192

Issue of share capital 18 12,042 - - - - 12,060


Share based payment - employees - - - 1,328 - 327 1,655

Net buyback of own shares - - (163) - - - (163)

Deferred consideration - acquisitions 6 3,216 - (11,781) - - (8,559)

Balance at 31 December 2018 1,460 200,270 (1,470) 12,278 (2,471) (17,399) 192,668

Change in accounting policy 2 - - - - - (556) (556)

Restated total equity at 1 January 2019 1,460 200,270 (1,470) 12,278 (2,471) (17,955) 192,112

Profit for the period - - - - - 3,461 3,461


- - - - 270 38 308

Total comprehensive income for the period - - - - 270 3,499 3,769


Shares vesting - - 559 (3,491) - 3,161 229

Share Based Transactions - - (191) 1,391 - - 1,200

Balance at 30 June 2019 1,460 200,270 (1,102) 10,178 (2,201) (24,549) 184,056 1. Refer to note 8 for details of the prior year restatement 2. Refer to note 14 for details relating to the change in accounting policy

Sanne Group plc

Consolidated Cash Flow Statement


Unaudited Unaudited Audited


2019 2018 2018

£'000 £'000 £'000


Adjustments for:

Depreciation of equipment 3,962 961 1,915

Amortisation of intangible assets 8,266 7,492 15,730

Impairment of intangible assets 1,879 - 55

Share-based payment expense 1,475 1,678 3,376

Disposal of equipment - - 257

Retirement gratuity reserve movement (100) (32) 11

Lease incentives received - - 1,267

Increase/(Decrease) in provisions (400) (3) 1,144

Operating cash flows before movements in working capital 22,568 21,594 49,320

Increase in receivables (1,312) (4,396) (16,241)

Decrease/(Increase) in deferred revenue (2,089) (1,998) 2,552

Increase/(Decrease) in payables 3,350 (1,693) (701)

Cash generated by operations 22,517 13,507 34,930

Income taxes paid (4,563) (2,243) (7,312)

Net cash from operating activities 17,954 11,264 27,618

Investing activities

Interest received 76 75 156

Purchases of equipment (2,891) (584) (4,221)

Payment of deferred consideration - - (14,407)

Acquisition of subsidiaries - (22,990) (29,279)

Net cash used in investing activities (2,815) (23,499) (47,751)

Financing activities

Dividends paid (13,254) (11,816) (18,376)

Interest on bank loan (945) (629) (1,732)

Buyback of own shares (191) (166) (329)

Capitalised loan cost (1,255) - -

Redemption of bank loans (85,850) (4,000) (4,000)

New bank loans raised 100,800 10,300 24,850

Lease liability interest (680) - -

Lease liability payments (2,202) - -

Net cash used in financing activities (3,577) (6,311) 413

Net increase/(decrease) in cash and cash equivalents 11,562 (18,546) (19,720)

Cash and cash equivalents at beginning of period/year 32,411 50,803 50,803

Effect of foreign exchange rate changes 255 270 1,328

Cash and cash equivalents at end of period/year 44,228 32,527 32,411

Sanne Group plc

Notes to the consolidated results


1. Basis of preparation

Sanne Group plc ("the Company") is a company incorporated in Jersey, Channel Islands. The unaudited,

condensed and consolidated financial statements for the six months ended 30 June 2019 comprise of the

Company and its subsidiaries (collectively the "Group").

The consolidated results have been prepared in accordance with International Accounting Standard 34 'Interim

Financial Reporting', as adopted by the European Union ("EU"). The financial statements are therefore presented

on a condensed basis as permitted and do not include all disclosures that would otherwise be required in a full

set of financial statements and should be read in conjunction with the Annual Report for the year ended 31

December 2018, available at www.sannegroup.com. Deloitte was the external auditors for the 2018 results. PwC

has been appointed as auditors from 2019.

Going concern

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational

existence for the foreseeable future. The Directors have reviewed the Group’s financial projections and cash

flow forecasts and believe, based on those projections and forecasts, that it is appropriate to prepare the

consolidated financial statements of the Group on a going concern basis. Accordingly, they have adopted the

going concern basis of accounting in preparing the consolidated financial statements.

Accounting policies

The accounting policies adopted in the preparation of the condensed consolidated financial statements are

consistent with those followed in the preparation of the Group's financial statements for the year ended 31

December 2018, except as disclosed below.

Impact of standards issued and applied from 1 January 2019

IFRS 16 ‘Leases’ is effective for periods beginning on or after 1 January 2019, and is therefore applicable to the

current period. This standard replaces accounting treatment for leases previously depicted in IAS 17. It

introduced a single lessee accounting model whereby a lessee is required to recognise a right-of-use asset and

a lease liability for all leases with a term of more than 12 months and the group assessed the impact of this

recognition to have a significant disclosure impact. The depreciation on the right-of-use asset will be accounted

for separately from the interest expense incurred on the lease liability in the income statement. The Group

elected to make use of the modified retrospective approach for transition and have not restated comparative

amounts. The lease liability is measured at the present value of the remaining lease payments, discounted using

the incremental borrowing rate at transition date. Right-of-use assets will be measured as if the standard has

always been applied. There is no significant impact on the net profit after implementing the new standard.

Please refer to note 14.

The following changes to accounting standards have been issued and applied from 1 January 2019, however

none of these standards had an effect on the preparation of the financial statements.

(a) Annual improvements 2015-2017 Cycle

(b) IFRIC 23 Uncertainty over Income Tax Treatments

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

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

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

http://www.sannegroup.com/

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

In the application of the Group's accounting policies, the Directors are required to make judgements, estimates

and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other

sources. The estimates and associated assumptions are based on historical experience and other factors that

are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates

are recognised in the period in which the estimate is revised if the revision affects only that period, or in the

period of the revision and future periods if the revision affects both current and future periods.

The Annual Report for the year ended 31 December 2018 set out the critical judgements and estimations of

uncertainty, made by the Directors during the application of the Group's accounting policies, at the balance

sheet date, that have the most significant effect on the amounts recognised in the financial statements.

Seasonality

Given the makeup of the Group's customers and contracts, seasonality is not expected to have a significant

bearing on the financial performance of the Group.

3. Segmental Reporting

The reporting segments engage in corporate, fund and private client administration, reporting and fiduciary

services. Declared revenue is generated from external customers.

The Group’s consolidated financial statements for the year ended 31 December 2018 had four reportable

segments under IFRS 8, namely EMEA Alternatives, Asia-Pacific & Mauritius Alternatives, North American

Alternatives and Corporate & Private Client. Given the continuing growth of the Group, these segments have

been reorganised from 1 January 2019. The four new segments are EMEA, Asia-Pacific & Mauritius, Channel

Islands and North America. This change has been in operation outside of the European regions in the Group for

some time, however the scale of operations across the old EMEA Alternatives and CPC businesses meant it was

necessary to change and split the European business between the Channel Islands (CI) and the rest of EMEA.

This change brings with it a number of significant benefits, including a more robust governance and control

framework at local levels, fostering local accountability, as well as bringing an improved focus on local employee

requirements across our expanding jurisdictional footprint.

The comparative numbers for the segmental reporting have been restated to reflect the four segments created

in the current reporting period.

The chief operating decision-maker is the Board of Directors of Sanne Group plc. Each segment is defined as a

set of business activities generating a revenue stream determined by segmental responsibility and the

management information reviewed by the Board of Directors. The Board evaluates segmental performance on

the basis of gross profit, after the deduction of the direct costs of staff, marketing and travel. No inter-segment

sales are made and, as such, no revenue disclosed within a segment needs removing on consolidation.

Unaudited 6 Months to 30 Jun 2019 Revenue Direct costs Gross profit

£'000 £'000 £'000

Segments

EMEA 31,341 (13,937) 17,404

Asia-Pacific & Mauritius 16,382 (5,068) 11,314

North America 12,896 (6,441) 6,455

Channel Islands 18,101 (7,012) 11,089

Total 78,720 (32,458) 46,262

Other operating income 121

Operating expenses (38,897)

Operating profit 7,486

Unaudited 6 Months to 30 Jun 2018 Revenue Direct costs Gross profit

£'000 £'000 £'000

Segments

EMEA 23,420 (9,499) 13,921

Asia-Pacific & Mauritius 13,829 (3,935) 9,894

North America 9,707 (4,995) 4,712

Channel Islands 18,894 (7,012) 11,882

Total 65,850 (25,441) 40,409




Unaudited 12 Months to 31 Dec 2018 Revenue Direct costs Gross profit

£'000 £'000 £'000

Segments

EMEA 53,427 (21,581) 31,846

Asia/Pacific & Mauritius 30,457 (8,355) 22,102

North America 21,609 (10,839) 10,770

Channel Islands 37,510 (13,880) 23,630

Total 143,003 (54,655) 88,348




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


6 Months

to 6 Months

to 12 Months

to


2019 2018 2018

£'000 £'000 £'000

Jersey and Guernsey 20,747 21,300 42,629

Rest of Europe 28,371 20,038 47,016

Mauritius 11,096 10,318 22,198

Americas 12,726 9,621 21,374

South Africa 2,617 2,889 5,461

Asia-Pacific 3,163 1,684 4,325

Total Revenue 78,720 65,850 143,003

4. Non-underlying items

Restated1


6 Months

to 6 Months

to 12 Months

to


2019 2018 2018

£'000 £'000 £'000


Non-underlying items within operating expenses:

Share based payments (i) 1,048 953 1,791

Acquisition and integration expense (ii) 1,561 102 1,193

Amortisation of intangible assets (iii) 8,266 7,492 15,730

Impairment of intangible assets (iv) 1,879 - -

Regulatory fine and fees (v) 433 - -

Other items 122 - 168

13,309 8,547 18,882

Underlying operating profit 20,795 20,045 44,447


Non-underlying items within other costs:

Refinancing (vi) 457 - -

Total non-underlying items 13,766 8,547 18,882

Underlying profit before tax 19,174 19,430 42,562

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

The above reflect expenses which management do not consider to be representative of underlying performance. (i) Share based payments are detailed in note 12. All acquisition related share based payments are shares issued in the course of acquisition consideration that have retained employment conditions and are therefore required to be expensed through the Income Statement. These are all related to acquisitions rather than the normal, ongoing cost of doing business and as such are shown as non-underlying expenses. (ii) The Group has completed various acquisitions in the past two years. Acquisition and integration costs included deal advisory fees, one off cost of integrating companies and accruals for cash earn-out payments. Integration and deal costs relating to acquisitions for the period ending 30 June 2019 were £318k. Also included was £1,243k relating to the AgendSynd acquisition earn-out accrual which is expensed per IFRS due to settlement being linked to continued employment. With acquisitions being outside the day-to-day activities of the ongoing business of the Group, these costs are disclosed as non-underlying to enable Shareholders to assess the core ongoing performance of the Group. The majority of acquisition and integration cost will be incurred in the first 2 years after acquisition, however this could be longer depending on the nature of the costs. (iii) The amortisation charge relates to the amortisation of intangible assets acquired through acquisitions. The amortisation of intangibles are directly linked to the acquisitions and excluded from underlying cost because these charges are based on judgements about the value and economic life of assets that, in the case of items such as customer relationships, would not be capitalised in normal operating practice. (iv) The Group's South African hedge fund business, acquired in 2016, suffered a one-off loss of clients in the period. As a result the contract intangibles were impaired by £1,879k. As with the amortisation of intangible assets this cost was excluded from underlying cost as it does not form part of the core business of the Group. (v) Regulatory fine and fees relates to a settlement and related costs with the Jersey Financial Services Commission. This expense is excluded from underlying cost as it is one off in nature. The fine amounted to £381k, with the additional costs of £52k being the legal fees incurred during the settlement process. The fine was fully settled after 30 June 2019. (vi) On 1 March 2019 the Group refinanced its loan facility. The balance of the unamortised loan costs were written off and classified as non-underlying because the refinancing was done to support future acquisitions and is not part of the day to day operations of the Group.

5. Tax

Restated1


6 Months

to 6 Months

to 12 Months

to


2019 2018 2018

£'000 £'000 £'000

Current income tax 3,293 3,260 7,540

Deferred income tax (1,346) (943) (2,034)

Total income tax 1,947 2,317 5,506

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

Income tax is calculated across the Group based on the prevailing income tax rates in the jurisdictions in which profits are earned.


6 Months

to 6 Months

to 12 Months

to


2019 2018 2018

£'000 £'000 £'000

Reconciliation of effective tax rates

As per Consolidated income statement:

Tax charge 1,947 2,317 5,506


Effective tax rate 36.0% 21.3% 23.3%

Tax charge 1,947 2,317 5,506

Adjusted for:

Non-underlying tax 2,076 997 2,227

Underlying tax charge 4,023 3,314 7,733


Non-underlying items 13,766 8,547 18,882

Profit before tax and non-underlying items 19,174 19,430 42,562

Underlying effective tax rate 21.0% 17.1% 18.2%

6. Earnings per share

Restated1


6 Months

to 6 Months

to 12 Months

to


2019 2018 2018

£'000 £'000 £'000


Non-underlying items within:

Operating expenses 13,309 8,547 18,882

Other costs 457 - -

Tax effect of non-underlying items (2,076)

(997)

(2,227)

Underlying earnings 15,151 16,116 34,829

Weighted average number of ordinary shares in issue 143,677,970 140,333,180 141,269,560

Effect of dilutive potential ordinary shares:

Deferred consideration shares 1,273,308 1,909,964 1,273,308

Restricted Stock Awards 1,241,272 1,307,550 1,288,585 Performance share plan 64,364 627,264 619,862

Weighted average number of ordinary shares for the purposes of diluted earnings per share 146,256,914 144,177,958 144,451,315

Restated1


6 Months

to 6 Months

to 12 Months

to


2019 2018 2018

£'000 £'000 £'000

Basic earnings per share (pence) 2.4 6.1 12.9

Diluted earnings per share (pence) 2.4 5.9 12.6

Underlying basic earnings per share (pence) 10.5 11.5 24.7

Underlying diluted earnings per share (pence) 10.4 11.2 24.1

1. Refer to note 9 for details of prior year restatement. The Group presents basic and diluted earnings per share ("EPS") data for its ordinary shares. Basic EPS is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period. Diluted EPS takes into consideration the Company's dilutive, contingently issuable shares as disclosed above. These arrangements have no impact on the earnings or underlying earnings figures used to calculate diluted EPS. The weighted average number of ordinary shares used in the diluted calculation is inclusive of the number of shares which are expected to be issued to satisfy the awards when they become due and where the performance criteria, if any, have been deemed to have been met as at the respective period end. Underlying basic EPS and Underlying diluted EPS are calculated in the same way as Basic EPS and Diluted EPS with the only exception being that the earnings used are the underlying earnings, being the profit for the year

adjusted for non-underlying items and the tax impact of non-underlying items. This is a change in approach from the prior year where profit for the year was just adjusted for non-underlying items, the comparative numbers were also updated to reflect this approach. 7. Dividends An interim dividend of 4.7p pence per ordinary share (2018: 4.6 pence) was declared by the Directors on 9 September 2019 and will be payable on 18 October 2019 to shareholders on the record on 20 September 2019. The 2018 final dividend of 9.2 pence was paid on 21 May 2019. 8. Correction of prior period error On 1 November 2016 the Group acquired FLSV Fund Administration Services, LLC, in the United States of America ("US"). Goodwill was recognised at acquisition and the business was consolidated into the 2016 Group accounts. Goodwill is amortised for tax purposes in the US and in line with IFRS the goodwill on the balance sheet is not amortised. This difference in tax and accounting treatment was incorrectly identified as a permanent difference and accordingly there was no deferred tax impact reflected in the periods following the acquisition. On subsequent review it was identified that under IAS 12 the difference must be classified as temporary and a deferred tax liability needs to be recognised over the 15 year period during which the Group benefits from the tax deductibility of the goodwill. The impact of correcting this error is to recognise a deferred tax liability, a corresponding increase of deferred tax charge through the Group's reported tax charge and exchange differences arising on translation of foreign operations. The correction was made in the Annual Report ending 31 December 2018. This note addresses the restatement of the 30 June 2018 interim reporting figures. The error has been corrected by restating each of the affected financial statement line items for the prior period as follows:

(Unaudited)

(Unaudited) (Restated)

6 Months

to Adjustment 6 Months

to

30 Jun Increase/ 30 Jun

2018 (Decrease) 2018

£'000 £'000 £'000

Consolidated Income Statement (extract)

Tax 1,857 460 2,317

Basic EPS 6.4 (0.3) 6.1

Diluted EPS 6.3 (0.4) 5.9

Underlying basic EPS1 12.5 (1.0) 11.5

Underlying basic diluted EPS1 12.2 (1.0) 11.2

Consolidated Balance Sheet (extract)

Deferred tax liabilities (11,312) (1,599) (12,911)

Retranslation reserve 8,965 (7) 8,958

Retained Losses 19,265 1,606 20,871

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

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



2019 2018 2018

£'000 £'000 £'000

Opening balance 188,928 107,271 107,271

Acquired during the period/year - 49,065 75,976

Exchange difference 298 1,569 5,681

Closing balance 189,226 157,905 188,928

Shortly after 30 June 2019 Sanne South Africa experienced a loss of clients. This event was considered to be an indicator for impairment and a value in use calculation was performed to determine if an impairment loss should be recognised. Sanne South Africa serves a number of intergroup entities and has aided the group in its back office functions which contributed to no impairment charge identified on goodwill. Management estimated discount rates using pre-tax rates that reflect current market assessments of the time value of money. The same factors impacting the discount rate at the end of December 2018, were considered in the interim period. These assumptions resulted in a weighted average cost of capital of 21% for Sanne South Africa Projected revenue and costs are calculated using the prior period actual result, excluding the lost client revenue and, compounding these results by the budgeted numbers. Growth rates used are specific to the cash generating units and varies between 3% to 10%. The terminal growth rate applied after five years was based on the forecasted nominal GDP of the operating jurisdiction. Management believes that any reasonably possible change in the key assumptions, on which recoverable amount per Cash Generating Unit ("CGU") is based, would not cause the aggregate carrying amount to materially exceed the recoverable amount on the CGUs.

10. Other intangible assets



2019 2018 2018

£'000 £'000 £'000

Opening balance 66,122 59,998 59,998

Acquired during the period - 16,751 19,797

Amortisation charge for the period/year (8,266) (7,492) (15,730)

Impairments (1,879) - (55)

Exchange difference 42 463 2,112

Closing balance 56,019 69,720 66,122

At 30 June 2019 all intangible assets were tested for indicators of impairment. The Delorean intangibles are nearing the end of their useful life and had an indicator for impairment. The Delorean intangibles relate to the acquisition of a client book from State Street in 2013. A value in use assessment was performed to determine the recoverable amount. The recoverable amount on Delorean exceeded its carrying value and no impairment was recognised thereon. Due to a one off loss of clients in Sanne South Africa, an indicator for impairment was triggered. Sanne's South African contract intangibles were impaired by £1,879k. The value in use calculations were performed using a Multi-period Excess Earnings Method (MEEM) model, requiring the following inputs: post-tax weighted average cost of capital to discount the cash flows, a general attrition rate, a direct cost and an overhead cost margin and lastly the corporate tax rate. The discount rate was identified as being the most

sensitive to change. Should the WACC rate increase by 1%, the impairment would have been £39,000 higher. Sanne does not consider this to be a material increase.

11. Share capital


6 Months

to 6 Months

to 12 Months

to


2019 2018 2018

£'000 £'000 £'000

Opening balance 1,460 1,416 1,416

Issue of shares (i) - 20 44

Closing balance 1,460 1,436 1,460

(i) The Company issued 1,786,173 shares on 6 February 2018 as part consideration in the acquisition of LIS. The Company also issued 159,095 shares on 25 May 2018 in relation to the Company's acquisition of FLSV Fund Administration Services LLC which completed on 1 November 2016. The shares issued represent an element of the deferred share consideration.

12. Share based payments Unaudited Unaudited Audited


2019 2018 2018

£'000 £'000 £'000

Sanne Group plc

Performance Share Plan (i) 129 503 1,192

Restricted Stock Awards (ii) 1,346 1,175 2,184

Total share based payments 1,475 1,678 3,376

(i) During the current and prior year periods, the Group granted awards over its ordinary shares under the terms of its Performance Share Plan ("PSP"). The exercise of awards under the PSP is conditional upon the achievement of one or more challenging performance targets set at the time of the grant and measured over a three-year performance period from grant date. All the awards were granted for a nil consideration. Further awards were made through the year. The Group estimates the number of shares to be vested based on the performance targets set to be achieved and the current performance of the Group, this is then grown by an assumed rate in line with Group forecast as per market expectation to determine the probable performance at vesting date. The vesting periods of the grants are not more than 3 years. (ii) During the current and prior periods, the Group granted awards over its ordinary shares in the form of Restrictive Stock Awards (“RSA”). The awards are granted as part of the mechanics of an acquisition to act as a retention incentive for staff, they are also used as Annual Performance Bonuses for senior management. The vesting of the awards is subject to continued employment over an agreed period. All the awards were granted for a nil consideration. RSA's awarded as part of Annual Performance Bonuses are considered to be an underlying cost of the business. RSA's granted in relation to acquisitions or the recruitment of senior management, are deemed to be non-underlying costs of the business. 13. Borrowings and contingencies On 1 March 2019, the Group refinanced the loan facility and repaid the existing loan in full. The balance of the unamortised loan costs was also written off. The new loan facility is for £150m plus an accordion option of £70m with a consortium of five banks namely HSBC, Bank of Ireland, LIoyds, Royal Bank of Canada and Santander. The new loan is now structured solely as a revolving credit facility that can be drawn down and repaid by the Group at any time.

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


as at as at as at


2019 2018 2018

£'000 £'000 £'000

Available

Term loan - 46,000 46,000

Revolving credit facility 150,000 44,000 44,000

Accordion 70,000 10,000 10,000

220,000 100,000 100,000

Drawn

Term loan - 46,000 46,000

Revolving credit facility 100,800 25,300 39,850

Accordion - - -

100,800 71,300 85,850

Capitalised loan fees 1,525 580 486

Total borrowings 99,275 70,720 85,364

During the 6 months ending 30 June 2019, the Group drew down from the revolving credit facility a net total of £100.8 million with £88 million used to repay the previous facility. Please refer to the 2018 Annual Report for the details relating to the prior period facilities. In the ordinary course of business, the Group could be subject to legal claims and/or proceedings. Should such an event arise, the Board would consider its best estimate of the amount required to settle the obligation and, where appropriate, establish a provision. While there can be no assurances that circumstances will not change, based upon information currently available, the Directors do not believe there is any such claim or proceeding that could have a material adverse effect on the Group’s financial position. 14. Changes in accounting policies On adoption of IFRS 16, the group recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of 1 January 2019. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 4.21% The Group made use of the practical expedient on transition whereby leases with a remaining lease term of less than 12 months, as at 1 January 2019, will be accounted for as a short-term lease. Consequently, no lease liability or right-of-use asset was calculated thereon. Initial direct costs were also excluded for the measurement of the right-of-use asset at initial application of the new standard. The group has also elected not to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, for contracts entered into before the transition date the group relied on its assessment made applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease. The group defines low value assets as those assets with a purchase price, for a new and unused asset, of £5,000 or lower.

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

1 Jan

2019

£'000

Operating lease commitments disclosed as at 31 December 2018 60,265

Discounted using the average incremental borrowing rate 40,243

Less: short-term leases recognised as an expense on a straight-line basis (67)

Less: low value assets recognised as an expense on a straight-line basis (15)

Plus: adjustment due to jurisdictional incremental borrowing rate used 327

Leases committed to in 2018 with a 1 January 2019 commencement date (4,660)

Lease liability recognised as at 1 January 2019 35,828

Of which are:

Current lease liabilities 3,902

Non-current lease liabilities 31,926

35,828

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

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

30 Jun 1 Jan

2019 2019

£'000 £'000

Right-of-use assets 34,491 30,828

Lease liabilities (39,936) (35,828)

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

Right-of-use assets Increase by 30,828

Lease liabilities Increase by 35,828

Deferred tax liabilities Increase by 4,426

Deferred tax assets Increase by 4,976

Trade and other payables Decrease by 5,403

Property, plant and equipment Decrease by 1,109

Retained earnings Decrease by 556

Provisions Increase by 400

The lease liability disclosed in the 31 December 2018 annual report included two leases with a 1 January 2019 commencement date. The two leases amounted to £ 4.7 million and were included in the reporting to be prudent. The group leases office space in various jurisdictions. Leases are negotiated for a variety of terms over which rentals are fixed with break clauses and options to extend for a further period at the then prevailing market rate. Rental agreements to which IFRS 16 was applied, spans anywhere from 14 months to 24 years. The group accounts for lease payments by allocating it between finance costs and the lease liability. The finance cost is charged to profit or loss over the lease period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

On initial recognition of a new lease, the lease liability is recognised as the present value of future payments, discounted using the incremental borrowing rate (unless the interest implicit to the lease is available for use). The right-of-use asset for lease agreements entered into after transition date is measured on initial recognition as the amount equal to the lease liability on initial measurement, less any lease incentives and lease payments made before the commencement date, plus any initial direct costs and dilapidation costs. 15. Related party transactions Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. The Group's only other significant related parties are key management personnel, comprising all members of the plc Board of Directors and the Executive Committee who are responsible for planning and controlling the activities of the Group. The remuneration of any employee who met the definition of key management personnel of the Group during the period is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.


as at as at as at


2019 2018 2018

£'000 £'000 £'000

Short term payments

Short-term employee benefits 1,882 1,778 2,789

Share Based Payments (see note 12) 245 306 573

Total short term payments 2,127 2,084 3,362

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

since the last annual report.

16. Post balance sheet events

On 31 July 2019, the Group entered into an agreement to purchase a minority shareholding in Colmore AG which

is a leading technology and software enabled fund administration business focused on the Limited Partner

Market. The new partnership will increase the key differentiating factors for the Group when responding to

tenders for new client mandates. The £9 million consideration was paid in cash and will have a limited impact

on the Group results.

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

sanne group plc (“the ompany”) together with its ... · recently acquired businesses...

Documents