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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.
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
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