Source - LSE Regulatory
RNS Number : 6292L
Sanne Group PLC
14 September 2021
 

14 September 2021

 

Sanne Group plc

(the Group, Sanne or the Company)

 

Interim Results for the six months ended 30 June 2021

 

Continued growth momentum and strategic progress

 

Sanne, a leading global provider of alternative asset and corporate services, announces its results for the six months ended 30 June 2021.

 


 

6 months to 30 June 2021

 

6 months to 30 June 2020

 

Change

Constant currency change3

Underlying1





Net revenue2

£90.7m

£83.9m

8.1%

12.5%

Operating profit

£24.0m

£23.0m

4.3%

12.4%

Profit before tax

£22.2m

£22.3m

(0.5%)

6.4%

Diluted earnings per share

11.5p

12.3p

(6.5%)

2.4%

Free cash flow attributable to equity holders4

£14.7m

£14.0m

5.0%

n.a.

Operating profit margin

26.4%

27.4%

(100bps)

(3bps)

Statutory





Turnover2

£96.2m

£86.5m

11.2%

15.6%

Operating profit

£12.6m

£12.3m

2.4%

14.7%

Profit before tax

£9.4m

£11.6m

(19.2%)

(8.0%)

Diluted earnings per share

4.1p

6.1p

(32.8%)

(21.3%)

Interim dividend per share

-

4.8p

n.a.

n.a.

See below for notes

 

Highlights:

o   Robust financial performance:

Return to double digit net revenue growth on a constant currency basis with growth of 12.5%3 year-on-year and organic growth of 4.0%3

Returning growth momentum following impact of COVID-19 pandemic on the industry: organic net revenue growth of 4.1% on H2 2020 vs, only 1.4% H2 2020 on H1 2020

Underlying operating profit growth of 12.4%3

Underlying operating profit margin flat at 27.3%3, excluding a 1.0 percentage point dilution effect due to FX

Continued strong cash generation with underlying operating cash conversion in excess of 100%

Significant growth in new business wins up 41.4% year-on-year with annualised revenue of approximately £15.7 million secured in the first half

o   Continued strategic progress:

Completed acquisitions of PEA6 and Strait7 to add new presence in important Scandinavian markets of Sweden and Denmark as well as expand the Group's North American footprint

Successful completion of a £79.5m equity placing and refinancing of the Group's revolving credit facility

Positive progress on roll-out of new Group technology strategy

Acquisitions completed during 2020 performing well and integrations well underway

Agreed the acquisition of PraxisIFM Group plc's fund business to augment the Group's presence in the European listed funds market

Sale of investment in Colmore realising net proceeds of $25.2m (£18.1m), a return of 2.3 times our original investment after two years, with continued commitment to the strategic partnership with Sanne under its new owner, Prequin

Takeover process

On 25 August 2021 the Company announced that the Board had reached an agreement with Apex Group Ltd ("Apex") on the terms of a recommended all cash offer of 920p per share to be made by Apex (the "Acquisition")

§ Sanne's Directors intend to recommend unanimously that Sanne Shareholders vote in favour of the Scheme at the Court Meeting and the resolution to be proposed at a Sanne General Meeting

§ It is anticipated that the Acquisition will complete in the first half of calendar year 2022

As a result of the terms of the Acquisition, the Board concluded it is not recommending the payment of an interim dividend for 2021

 

Outlook:

Continued high demand for private asset alternatives driving ongoing market recovery

Good momentum seen in the first half of 2021 expected to continue into the second half, making the Group well positioned to deliver continued improvement to our organic growth rate.

 

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

 

"I am delighted by the continued strategic progress that the Company has achieved so far this year, despite the macro-economic uncertainty that prevails. The business has continued to demonstrate its resilience and in the first half we have delivered material new business wins that will further drive future revenue momentum. The efforts of all of our people are thoroughly appreciated and I would like to thank them for their continued excellent service during the first half of the year."

 

 

Enquiries:

 

Sanne Group plc

Martin Schnaier, Chief Executive Officer

James Ireland, Chief Financial Officer

 

+44 (0) 1534 722 787

 

Tulchan Communications LLP

Tom Murray

Harry Cameron

 

 

+44 (0) 20 7353 4200

 

 

The Company will be hosting a virtual investor and analyst presentation at 9.30am (GMT) this morning. A webcast will be provided and is available by registering at the following link:

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

 Dial-in numbers:

 

 UK: 0800 640 6441

International Access Numbers: +44 20 3936 2999

 Participant PIN: 

 884963

 

A PDF copy of the 2021 Interim Results presentation will be available to download on Sanne's Investor Relations results and presentation page after the live webcast has ended.

 

Notes:

1. Underlying results for the year have been presented after the exclusion of non‐underlying items, third-party fund management fees and discontinued activities. Further details of non-underlying items can be found in note 5 of the consolidated financial statements. Further detail of alternative performance measures is provided in the Alternative Performance Measures section

2. Net revenue comprises turnover less third-party fund management fees. More detail is provided in the Financial Review

3. Constant currency represents the comparative performance using the same FX rates for the 2020 and 2021 performance to eliminate movements due to FX

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

5. The results shown in the table above and comments below refer to continuing operations only unless otherwise stated

6 Private Equity Administrators Group

7 Strait Capital Company Ltd

 

Sanne is a leading global provider of alternative asset and corporate services. Established for over 30 years and listed on the Main Market of the London Stock Exchange and a member of the FTSE 250 index, Sanne employs more than 2,000 people worldwide and administers structures and funds that have in excess of £500 billion of assets.

 

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

 

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

www.sannegroup.com

 

 

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

 

 

Strategic Review

Chief Executive Officer's Statement

 

The first half of 2021 has been a period of growing momentum for the Group as we begin to see client activity across our end markets recover, with our strong platform and client proposition making us well-placed to benefit. Despite the COVID-19 pandemic continuing to impact the global macroeconomic environment, we have seen a good recovery in investment activity, which in turn has been driving an increase in fund raising activity across our target client base.

 

This market recovery and our continued investment for growth throughout the pandemic have resulted in a very strong half year for new business wins. The annualised value of new business wins for the first six months of the year was £15.7m, which represents a 41.4% increase compared with the same period in 2020. New business win momentum has been seen across all regions and product strategies and has continued into the second half of the year.

 

From this strong momentum, the Group has seen a continued improvement in the constant currency organic growth rate, and the Group is well positioned to deliver continued improvement through the second half of 2021.  The scale of this new business win activity has resulted in some short-term gross profit margin pressure as we scale up teams to manage the take-on and delivery of new business. However, despite this, the structural changes made over the last two years to manage the Group's well-invested operating platform mean that underlying operating profit margins have remained broadly flat, before the impact of foreign exchange movements, compared with the first half of 2020.

 

In addition to the robust first half performance and increase in new business wins, Sanne has successfully completed two acquisitions in the first six months of the year and is expected to complete a third in Q4 2021.

 

Financial performance

Underlying Group Income Statement

H1 2021
(£'000)

H1 2020
(£'000)

% Change

Constant
currency %
change

Net revenue

           90,729

           83,949

8.1%

12.5%

Gross profit

           51,795

           49,649

4.3%

9.3%

 - Gross profit margin

57.1%

59.1%

(200bps)

(170bps)






Overhead costs

          (27,821)

          (26,668)



Underlying operating profit from continuing operations

           23,974

           22,981

4.3%

12.4%

 - Underlying operating profit margin

26.4%

27.4%

(100bps)

(3bps)

Note: the above table includes Alternative Performance Measures. See the Alternative Performance Measures section for their calculation methodology.

The Group delivered double digit net revenue growth of 12.5%, on a constant currency basis in the first half. As 2021 has seen a significant strengthening of sterling against the Group's other predominant currencies, this has resulted in reported net revenue growth of 8.1%.

 

The return to double digit net revenue growth on a constant currency basis has been driven by a combination of organic growth as well as the contribution from the five acquisitions that the Group has completed since the start of 2020. Constant currency organic net revenue growth compared with the same period last year was 4.0%. However, a more comprehensive picture of the increasing organic growth performance since the height of the COVID-19 pandemic can be seen by looking at H1 2021's performance compared with H2 2020. The impact of the pandemic on our end markets caused a significant slow-down in new business and transactional activity during 2020, whilst having minimal impact on end-of-life attrition. As a result, we saw net revenue in the second half of 2020 grow by 1.4% on the first half of the same year. By contrast, our first half performance represents constant currency organic net revenue growth of 4.0% on the second half of 2020. The strong new business wins and increase in transactional activity being seen across the business should provide strong momentum in the second half of the year.

 

We have made improvements in the approach to business development across the Group and benefited from a number of strategic hires into our Product Development team, which have been instrumental in positioning the Group to benefit from the recovery in client fund raising. This has driven the 41.4% increase in the annualised value of new business wins in the first half of 2021 compared with the first half of 2020. We have also seen a reduction in the delays between winning business and generating revenue which were such a feature of 2020.

 

Despite positive revenue momentum, the mix effect from PEA and Strait, which both join the Group on lower margins, and the strong pick-up in new business wins, which have required a short-term scaling up of the teams ahead of revenue being generated, have resulted in a short-term reduction in the Group's gross profit margin. This has meant that the gross profit margin in the first half was 57.1%, a 170 basis points reduction on a constant currency basis compared with the prior year. The first half constant currency gross profit growth has been 9.3%.

 

Overheads remain well-managed, and we continue to benefit from operational gearing in our platform. This control over costs has allowed us to reduce overheads as a proportion of revenue whilst simultaneously increasing our spend on technology as we continue the roll out of our new strategy.

 

Underlying operating profit has increased 12.4% with a broadly flat margin of 27.3%, both at constant currency, despite the short-term dilution in gross profit margin. However, a greater proportion of overhead costs are incurred in sterling which means the strengthening of the currency that has seen a headwind in revenue does not get reflected to the same degree across the Group's cost base.

 

The Group's cash performance has once again been strong with underlying operating cash conversion for H1 at 100.4%. Underlying free cash flow attributable to equity holders was also up 5.0% on the first half of 2020 to £14.7 million. This has been driven by our continued working capital discipline as well as the resilient nature of our business model.

 

Continued strategic delivery

 

We have continued our focus on innovation and driving our use of technology to enhance client service and operational efficiency throughout the first half. The implementation of our new technology strategy has progressed well, and we have continued to develop innovative client facing initiatives such as Sanne.Live, Sanne Rio and Spotlight which are demonstrable differentiators for Sanne in client pitches. The technology strategy has also involved a significant increase in investment in strategic projects to drive improvements in our efficiency, as well as further enhance the quality of client service. These include projects to rebuild the Group's data architecture and data management framework, as well as redesigning key workflows across core administration technologies. We expect these initiatives to free up significant resources within our teams, enabling them to focus on the high-touch service upon which Sanne has built its reputation.

 

The first half of the year has also seen continued focus on expanding our full range of products and services across our global footprint. Whilst the on-going travel restrictions in place as a result of the COVID-19 pandemic have made expanding expertise across jurisdictions more difficult, we have still seen good successes in the period. This has been most notable as we continue to gain traction in Asia Pacific with loan agency, private debt and hedge services. We have also successfully launched depositary services in Ireland, with Sanne becoming the first independent administrator to be granted a specialised depositary licence in the first half. Compliance and ESG services have also seen significant momentum in the period across all regions.

 

Our inorganic strategy has continued the strong momentum we achieved during 2020, with the completion of two strategically important deals in the first half and a third announced shortly after the half year end. In March, we completed the acquisition of PEA, a leading independent private equity administration business, which adds two new locations to the Group in Sweden and Denmark, as well as doubling the size of our existing Guernsey operation. We have benefited from a number of early revenue synergies across the PEA client base as we seek to service these clients across other, existing Sanne offices. In April we acquired Strait, a fund administrator largely focused on private equity clients based in Dallas, Texas. As well as expanding our strategically important North American platform, Strait has brought with it a strong management team who will be critical in helping the Group expand more rapidly across the world's largest alternatives market. Both acquisitions have performed well since acquisition and integration remains on track.

 

Following the end of the period, we have also announced the acquisition of the fund administration business from Praxis IFM Group plc (the "Praxis Funds Business"), a c.80 person fund administration business across Guernsey, the UK, Malta, Luxembourg and Jersey. The acquisition of the Praxis Funds Business should position Sanne as one of the leading players in the European listed funds administration sector, as well as augmenting our presence in Guernsey, a significant domicile for UK and European private equity funds. The acquisition is expected to complete in the second half of the year after gaining relevant regulatory change of control clearances.

 

During August, we disposed of our minority equity stake in Colmore AG for total net proceeds of $25.2 million (£18.1m) as a result of its sale to Prequin. Sanne invested in Colmore in 2019 and entered into a strategic partnership to work together on certain new business opportunities, as well as develop our data analytics product for General Partner clients, Sanne Spotlight. We remain a close strategic partner with Colmore both in relation to complimentary mandates, as well as in relation to the further development of Sanne Spotlight. We have also realised a significant financial return on the investment with the realised proceeds representing 2.3 times our original equity investment in under two years and equivalent to an annual return on investment of over 50%.

 

People

 

People remain the Group's most valuable asset and we continue to work hard to ensure that their health and wellbeing remain a priority of our business. The implications of the COVID-19 pandemic have continued to create challenges for our work force across all regions and I remain humbled and impressed by the resilience, determination and performance of all our team despite these challenges.

 

Through various initiatives, we continue to actively bring our teams closer together and have seen another six months of impressive CSR and charitable activities across the globe. We have also continued our momentum from 2020 developing our workforce engagement and connectivity. This has involved rolling out new mental wellness support and training, a new wider suite of training and development packages as well as continued focus on our Workforce Advisory Panel and Diversity and Inclusion Committee.

 

Takeover process and dividend

On 25 August 2021 the Company announced that the Board had reached an agreement with Apex Group Ltd ("Apex") on the terms of a recommended all cash offer of 920p per share to be made by Apex.

As a result of the terms of the Acquisition, the Company will not be paying shareholders an interim dividend for 2021 and similarly does not expect to pay a full year dividend either.

Outlook

 

The strong market recovery that we have seen during the first half of the year, demonstrating the high demand for private asset alternatives, is expected to continue during the second half of 2021.  This positive momentum means that the group

is well placed to deliver continued improvement to our organic growth rate for the year ending 31 December 2021.

 

 

 

Martin Schnaier               

Chief Executive Officer

 

 

Operational Review

 

The Group's four reporting segments are: Europe, Middle East and Africa (EMEA); Channel Islands (CI); North America (NA); and, Asia-Pacific & Mauritius (APM).

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

 

 

Europe, Middle East and Africa (EMEA)

EMEA

H1 2021
£'000

H1 2020
£'000

% Change

% Constant currency change

Revenue

33,810

30,981

9.3%

10.3%

- Alternatives

33,035

29,669



- Corporate

775

1,259



Gross Profit

18,486

17,253

7.1%

9.0%

Gross profit margin

54.7%

55.8%



 

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

 

The EMEA segment has seen a good net revenue growth in the period of 10.3% which benefits from the inclusion of the Denmark and Sweden operations of PEA for four months of the period and a full six-month contribution from Inbhear. Organic growth has been 1.7% versus the first half of 2020, but we expect a stronger second half of 2021 as we see markets begin to recover.

 

The European jurisdictions saw good revenue growth across almost all product lines and jurisdictions, particularly Spain, Ireland and the UK as well as South Africa as it rebounds from a challenging 2020. Sweden and Denmark, which have joined the Group following the completion of the PEA acquisition, have seen impressive revenue growth versus their acquisition case. Luxembourg has seen slightly lower growth as a result of some client attrition at the end of 2020 from the AIFM Manco platform. However, Luxembourg has seen the strongest momentum in new business wins in the first half of the year so is expected to generate a strong second half performance.

 

The segment's margin on a reported basis in the period is down 110 basis points which is due to mix effect from the lower gross profit margins in the Denmark and Sweden jurisdictions and some FX impact. Excluding the Denmark and Sweden results, the reported gross profit margin for the segment was 55.7% and on a constant currency basis was 56.1%. This margin improvement results from the continued recovery of the margin in Luxembourg and South Africa, in line with management's expectations.

 

Channel Islands (CI)

Channel Islands

H1 2021
£'000

H1 2020
£'000

% Change

% Constant currency change

Revenue

20,865

20,059

4.0%

4.3%

- Alternatives

15,742

15,348



- Corporate

5,123

4,711



Gross Profit

11,909

11,927

(0.2%)

0.5%

Gross profit margin

57.1%

59.5%



 

Note: The results above include only continuing operations

 

Sanne's CI segment operates in both Jersey and Guernsey. The segment provides services across all our closed-ended investment strategies (Private Debt, Capital Markets, Real Estate and Private Equity). The segment also includes the majority of the Group's services to corporate clients. The results for 2020 exclude the contribution from the Group's Jersey Private Client business that was disposed of on 1 July 2020.

 

Revenues from the CI segment saw growth in the period of 4.3%, which reflects the lower growth in new business in the Channel Islands in recent years. However, the Group has successfully invested in the management teams in both Jersey and Guernsey over the last 12 months, and is starting to see positive results across the new business wins in the period across all core alternative asset classes.

 

The period has seen a short-term decline in gross profit margin as both jurisdictions have been investing in strengthening their team following good new business momentum in the second quarter. The region is expected to deliver margins in-line with 2020 for the full year.

 

 

Asia Pacific and Mauritius (APM)

Asia/Pacific & Mauritius

H1 2021
£'000

H1 2020
£'000

% Change

% Constant currency change

Revenue

18,876

18,152

4.0%

13.5%

Gross Profit

12,885

12,715

1.3%

11.0%

Gross profit margin

68.3%

70.0%



 

Sanne's APM segment operates across Hong Kong, Singapore, Shanghai, Tokyo, Mumbai and Mauritius. This segment provides services across all core products areas.

 

The segment delivered revenue growth of 13.5%, driven by another strong year across the Asia Pacific offices as well as encouraging progress in Mauritius.

 

The APAC offices delivered growth of 32.2% as a result of strong growth across three of the four offices. Japan has continued to win a large number of new mandates, as well as benefiting from the inclusion of the Deutsche Bank Trust Company acquired in October 2020. Singapore and Shanghai have also seen strong progress in delivering new-new wins as well as activity from existing clients. Hong Kong saw another slower period, as clients favour Singapore as a new fund destination. Mauritius saw revenue growth of 3.7% which is a good result given the region's largest end market of India has continued to be badly impacted by the CoVID-19 pandemic, and Mauritius itself has suffered from being on the EU's and FATF's blacklist of jurisdictions. The region continues to work towards addressing this and has recently been removed from the FATF blacklist.

 

The segment's gross profit margins decreased in the period to 68.3%. This was entirely a function of mix effect between the fast-growing APAC region and lower growth but higher margin Mauritian region.

 

 

North America (NA)

North America

H1 2021
£'000

H1 2020
£'000

% Change

% Constant currency change

Revenue

17,178

14,810

16.0%

27.2%

Gross Profit

8,515

7,754

9.8%

20.7%

Gross profit margin

49.6%

52.4%








 

Sanne's NA segment primarily services closed ended alternative fund clients in North America.

 

The first half of the year saw revenue growth of 27.2%, the business delivered organic growth of 6.9% and benefited from the inclusion of the Strait acquisition from 1 April 2021. Margins have declined on the prior year due to short term investment in additional heads as well as a result of mix effect following the acquisition of Strait.

 

 

This strong performance continued to be delivered from opportunities across the region's traditionally strong presence in the Private Equity sector. Travel restrictions have delayed the launch of the Group's loan agency offering in the region, but this is expected to launch later in the second half.

 

Financial Review

Unless otherwise stated, all results discussed in the Financial Review refer to continuing operations.

 

Group Income Statement

 


H1 2021
£'000

H1 2020
£'000

% Change

% Constant currency change






Turnover

96,170

86,475



Less: Third-party fund management fees

(5,441)

(2,526)



Net revenue

90,729

83,949

8.1%

12.5%






Gross profit

51,795

49,649

4.3%

9.3%

Margin

57.1%

59.1%



Overheads

(27,821)

(26,668)



Underlying operating profit

23,974

22,981

4.3%

12.4%

Margin

26.4%

27.4%



Non-underlying items

(11,341)

(10,647)



Operating profit

12,633

12,334

2.4%

14.7%






Other gains and losses

(296)

1,463



Net underlying finance cost

(1,516)

(2,241)



Non-underlying finance cost and share of net loss of investment

(1,428)

                   -  



Profit before tax

9,393

11,626



Taxation for the period

(3,044)

(2,665)



Profit after tax

6,349

8,961



Discontinued operations

-

930



Total group profit after tax

6,349

9,891








Underlying diluted EPS

11.5

12.3p



Reported diluted EPS

4.1

6.1p



 

Turnover and Net Revenue

Turnover for the period grew by 15.6% on a constant currency basis and 11.2% on an actual basis in the first half as a result of increased number of clients where we invoice for and disburse the third-party asset manager fees.

 

Net revenue increased by 12.5% on a constant currency basis in the period to £90.7 million (2020: £83.9m) whilst organic revenue growth in the period was 4.0% on a constant currency basis.

 


H1 2021

H1 2020



Constant currency growth


(£'000)

(£'000)


% Growth

Net revenue

90,729

83,949


8.1%

12.5%

Inbhear 4 month adjustment of H1 revenues

DB Trust Company H1 revenues

Avalon H1 revenues

PEA H1 revenues

Strait H1 revenues

 

(897)

(1,135)

(783)

(2,299)

(1,949

-

-

-

-

-




Net organic revenue

83,666

83,949


(0.3%)

4.0%

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


H1 2021

H2 2020



Constant currency growth


(£'000)

(£'000)


% Growth

Net revenue

90,729

85,743


5.8%

10.2%

DB Trust Company 3 month adj. of H1 revenues

Avalon 3 month adj. of H1 revenues

PEA H1 revenues

Strait H1 revenues

 

(375)

(392)

(2,299)

(1,949)

-

-

-

-




Net organic revenue

85,715

85,743


0.0%

4.1%

 

Gross profit

Gross profit for the period was £51.8 million (2020: £49.6m). The gross profit margin was 57.1%, down on the prior period result of 59.1%. This reflects both the negative margin impact that arises as a result of both the PEA and Strait acquisitions generating a lower margin than Sanne as well as investment in the first half ahead of new business wins expected to hit the platform in the second half.

 

Underlying operating profit and overheads

Underlying operating profit grew by 12.4% on a constant currency basis, or to £24.0m (2020: 23.0m) on a reported basis when looking at continuing operations. This reflects the robust net revenue and gross profit growth as well as an improvement in the overheads cost as a proportion of net revenues.

 

Group overheads, excluding non-underlying items, increased by only £1.2 million on the prior year despite the double-digit growth in the business. These costs represented 30.7% of net revenue for the first half compared with 31.8% for the first half of 2020. This improvement was achieved despite a significant increase in the absolute and proportional investment in technology in the period.

 

Non-underlying costs and reported operating profit

Non-underlying costs within operating profit from continuing operations in 2021 saw only a small increase to £11.3 million (2020: £10.6m). Non-underlying items within profit measures include share-based payments and earn-out costs where they relate to acquisitions (£0.6m); acquisition and integration related costs (£2.1m); amortisation of intangible assets (£7.9m) and other costs. For further detail on non-underlying items, please see note 5 in the financial statements.

 

Reported operating profit for the period has increased in-line with underlying operating profit, up 14.7% on a constant currency basis and 2.4% on an actual basis.

 

Net finance expense and other gains and losses

The overall net finance expense and other gains and losses cost increased on the prior year to a total of £3.2 million (2020: £0.7m). The underlying net finance expense was actually lower at £1.5m compared with £2.2m in the first half of 2020, as a result of lower overall utilisation of the Group's debt facilities following the equity fund raise in April 2021. However, the Group saw increased non-underlying net finance costs in the first half of 2021 of £0.8m (2020: nil) and a non-underlying FX charge of £0.6m (2020: nil) arising from the refinancing the Group's debt facilities and the acquisition of Deutsche Bank Trust Company respectively. The Group also saw a big swing in other gains and losses where the first half of 2020 saw a benefit of £1.5m of other gains and losses arising from foreign exchange whilst the first half of 2021 has seen foreign exchanges costs of £0.9m.

 

Taxation

The Group's underlying effective tax rate for continuing operations for the first half was in line with the prior year at 19.1% (2020: 19.3%). When adjusted for non-underlying items, the reported effective rate for the half year for the Group increased substantially on the prior year to 32.4% (2020: 22.9%). The increase in the reported tax rate was driven by higher profitability in jurisdictions such as Luxembourg and North America where there is a higher statutory tax rate.

 

Diluted earnings per share

As a result of the one-off foreign exchange gains in the first half of 2020 and the increase shares in issue following the equity fund raise in April 2021, diluted underlying earnings per share is down 6.5% to 11.5 pence from 12.3 pence in the same period last year. However, ignoring the impact of foreign exchange, the constant currency growth of diluted underling earnings per share was 2.4%. Reported diluted earnings per share, which includes the post-tax contribution from discontinued operations in 2020, was down to 4.1 pence (2020: 6.1p). The equity fund raise undertaken by the Group in April 2021 has also resulted in an increased number of fully diluted shares which has also caused a short term reduction in diluted earnings per share.

 

Dividend

The Board is aware of the importance of dividends to our shareholders. However, the Board concluded that in light of the terms of the Acquisition, it is not recommending the payment of an interim dividend for 2021.

Cash flow and working capital

The first half of 2021 has seen another strong period of cash generation with underlying operating cash conversion of 100.4% (2020: 96.1%).  The main movements in the cash flow are summarised below:

 


H1 2021
(£'000)

H1 2020
(£'000)

Underlying operating profit

23,974

22,981

Depreciation (equipment and IFRS16)

4,126

4,493

Other (includes share based payments and movements in provisions)

1,489

(2,179)

Change in working capital

(3,280)

(3,541)

Total cash flows on leases recognised under IFRS16

(3,513)

(3,337)

Non-cash non-underlying items

1,277

3,668

Underlying operating cash flows

24,073

22,085

Underlying operating cash conversion

100.4%

96.1%

Capital Exp. (Equipment and Software)

(2,755)

(1,898)

Tax

(4,051)

(3,993)

Loan to minority investments

-

(820)

Net finance cost

(2,581)

(1,390)

Underlying free cash flow attributable to equity holders

14,686

13,984

 

Capital expenditure in the year comprised equipment and software purchases and software development costs. The purchase of equipment and software largely relates to office fit-out costs in the Group. The software development costs relate to the development of new technology product such as Spotlight and Sanne.Live.

 

Capital management and financing

At 30 June 2021, the Group's net debt was £46.4 million (2020: £100.5m), including gross cash balances of £40.7m (2020: £51.5m). This reflected the strong operating cash generation seen in the year and comes after the funding of both the PEA and Strait acquisitions as well as raising £79.5 million in April 2021 by way of an equity placing. At 30 June 2021 the cash ring fenced for regulatory capital requirements ("regulatory cash") was £11.5 million (2020: £13.3m). As a result, the Group's net debt to underlying earnings before interest, taxation, depreciation and amortisation calculated ignoring IFRS 16 (net debt to pre-IFRS 16 EBITDA) ratio was 0.9x at the period end (2020: 1.9x). 

 

In the period, Sanne successfully refinanced its debt facilities increasing committed facilities by around 40% to £210 million whilst keeping key commercial terms broadly in line with the old facility. The new facility also extends the maturity to 18 March 2023 with extension options of up to two years. The new debt facility is a multi-currency committed £210 million revolving credit facility with an uncommitted accordion facility of £100 million. Sanne is now supported by a syndicate of 6 international banks.

 

Foreign Exchange

The first half of 2021 has seen a significant strengthening of sterling compared with prior periods which has created a notable headwind to the Group's reported results. The Group's results are exposed to translation risk from the movement in currencies. Overall, the average movement from currencies has decreased net revenue and underlying operating profit by £2.3 million and £1.0 million respectively. During the six months ended 30 June 2020 the key individual exchange rates have moved, as shown in the table below.

 



At 30 June

 


Half year average

 

Per £ sterling

 

2021

2020

%

 

2021

2020

%

Euro

 

1.165

1.101

5.8%

 

1.156

1.122

3.0%

US Dollar

 

1.380

1.238

11.5%

 

1.388

1.259

10.3%

 

Post balance sheet events

In July the Group entered into an agreement to purchase the fund administration business from PraxisIFM Group plc for £54 million in cash. The acquisition remains subject to certain regulatory change of control clearances and is expected to complete in Q4 2021. The acquisition will be settled from the Group's existing resources.

 

In August, the Group sold its equity investment in Colmore A.G. to Preqin Limited for $25.2 million (£18.1m) in cash. The loan granted to Colmore was also repaid in full as part of the same transaction. The sale agreement includes a contingent consideration, recognisable upon the sale of the shares after the reporting period.

 

See note 22 of the consolidated financial statements for full details of post balance sheet events.

 

Principal risks facing the business

Sanne operates an embedded risk management framework which ensures the principal risks facing the Group are reviewed regularly by the Board. There are a number of potential risks that could have a material impact on the Group's financial performance and position which remain as set out in the 2020 Annual Report. These are categorised as Acquisition Risk; Strategy Risk; Competitor & Client Demand Risk; Data & Cyber Security Risk; Process Risk; Staff Resources Risk; Compliance Risk; Financial Crime Risk; Fiduciary Risk and Financial Performance Risk.

 

ALTERNATIVE PERFORMANCE MEASURE DEFINITIONS

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

 

Changes since 2020

In July 2020 the Group disposed of its Jersey Private Client business and the six month contribution from this business was shown as discontinued operations in the 2020 financial year. In order to present the Group's cash flows on a comparable year-on-year basis, the Group's underlying operating cash flow, underlying operating cash conversion and underlying free cash flow attributable to equity holders APMs were calculated on a total Group basis. With the discontinued operations not contributing any performance to the 2021 financial year, these APMs provide a more representative picture of the Group's performance considered on a continuing operations basis only. As such, these cash flow APMs have been changed to look only at continuing operations for both 2021 and the prior year comparatives.

 

The APMs used to manage the Group are as follows:

 

NET REVENUE

Net revenue comprises turnover less third-party fund management fees. These third-party fund management fees relate to asset management fees for a small number of funds that are clients of the Group's AIFM Management Company in Luxembourg. These revenues are the management fees for the asset manager in each funds case, but contractually are paid by the fund entity to Sanne's management company before being disbursed to the relevant asset manager. Sanne recognises these third-party fees as turnover under IFRS 15. Given these revenues are not economically Sanne's we have sought to separate these out and believe that net revenues are a more accurate reflection of the income that Sanne earns for its services to the relevant fund entity. A reconciliation of this APM is shown on the face of the income statement.

 

ORGANIC REVENUE GROWTH

Organic revenue growth is net revenue growth excluding the benefit from acquisitions. Organic revenue growth measures are a key performance indicator for the growth of the business excluding the impacts of any acquisitions undertaken. This provides an indication on how well the business is expanding without the deployment of further capital. Organic revenue growth is calculated by excluding revenue from any acquisition made in the period. Where an acquisition was made part way through the prior year comparative period, the current period contribution will be reduced on a pro-rata to include only the same number of months as had been included in the prior year. A reconciliation is included in the Financial Review.

 

CONSTANT CURRENCY GROWTH

The year on year percentage change excluding the effects of change in foreign exchange rates. Constant currency metrics give a better reflection of the period on period performance of the business by ignoring the impact of currency movements that are outside the Group's control. Details of the impact of foreign exchange rates are covered in the Financial Review.

 

OVERHEADS

The Group's cost for all functions and operations that support the client-focused service teams. These costs measure the cost of supporting the delivery of client-service, revenue-generating teams. The Group's overheads are operating expenses as disclosed on the consolidated income statement less non-underlying items and other operating income included within operating profit from continuing operations.

 

UNDERLYING PROFIT MEASURES

Underlying profit measures are used to present the period on period performance of the Group excluding one-off or non-trading related income and costs. Underlying profit measures include underlying operating profit from continuing operations, underlying profit before tax from continuing operations, underlying diluted earnings per share and underlying operating profit margin. Underlying profit measures provide an important period-on-period comparison of profits arising from the Group's core activities, undisturbed by exceptional or one off incomes and costs. These are arrived at by adjusting reported profit measures for non-underlying items as disclosed in note 5 of these financial statements. Underlying operating profit margin is arrived at by dividing underlying operation profit from continuing operations by net revenue.

 

UNDERLYING OPERATING CASH FLOW

Underlying operating cash flow represents the cash generated by continuing operations in the year, adding back the cash charges within non-underlying items and reducing for the cash out flow in relation to the Group's leases that have been accounted for under IFRS 16. Underlying operating cash flow provides an important measure of how much cash has been created by the operations of the business in the period, excluding the cash flows associated with non-underlying items, financing activities and investing activities. A reconciliation is included in the Financial Review.

 

UNDERLYING OPERATING CASH CONVERSION

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

 

UNDERLYING FREE CASH FLOW ATTRIBUTABLE TO EQUITY HOLDERS

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

 

UNDERLYING EFFECTIVE TAX RATE

The underlying effective tax rate is determined as the reported tax rate for the Group adjusted for the tax effects of non-underlying costs. The underlying effective tax rate best reflects the applicable tax payable in relation to the underlying performance of the Group. A reconciliation is included in note 6 of the consolidated financial statements.

 

NET DEBT

This refers to the Group's net indebtedness that is calculated by taking the Group's gross debt balance and reducing it by gross cash balances less the regulatory cash. Net debt acts as an important benchmark for the level of third party funding the Group utilises after netting off cash gross cash balances held on the balance sheet.

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE INTERIM STATEMENTS

 

 

The Directors confirm that, to the best of their knowledge, these Condensed Interim Financial Statements have been prepared in accordance with EU adopted International Accounting Standard 34 "Interim Financial Reporting" and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and that the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

material related party transactions in the first six months and any material changes in the related party transactions described in the last Annual Report.

 

The interim statement contains certain forward-looking statements which are made by the directors in good faith based on the information available to them at the time of their approval of this interim statement. Forward looking statements contained within the interim statement should be treated with some caution due to the inherent uncertainties, including economic, regulatory and business risk factors, underlying any such forward looking statements.

 

On 25 August 2021 the Group and Apex Acquisition Company Limited (an indirect wholly-owned subsidiary of Apex Group Ltd) (collectively referred to as "Apex") announced a recommended all cash offer of 920p per share to be made by Apex for the Group. The Group's existing committed debt facilities contain a standard change of control clause which, from the point of completion of the acquisition, could result in the existing committed debt facilities being withdrawn and having not had direct visibility of Apex's post completion funding for the Group at this time, this could create some uncertainty as to the Group's going concern position. Whilst the Directors have not had direct visibility of Apex's post completion funding for the Group, the Directors note the detailed intentions statement included within the announcement on 25 August which states that Apex intend to continue investing in and developing the Group as well as the Group's strong cash generation. Therefore, notwithstanding the uncertainty regarding Apex's post completion funding, the Directors are satisfied that the going concern basis remains appropriate for the preparation of the financial statements. For further details on the impact of the transaction, see note 1 of the financial statements.

 

We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. The interim statement has been prepared by Sanne Group plc to provide information to its shareholders and should not be relied upon by any other party or for any other purpose.

 

Martin Schnaier

Chief Executive Officer

 

14 September 2021

 

Independent review report to Sanne Group plc

 

Report on the condensed consolidated interim financial statements

 

Our conclusion

We have reviewed Sanne Group plc's condensed consolidated interim financial statements (the "interim financial statements") in the Interim Results of Sanne Group plc for the 6 month period ended 30 June 2021 (the "period").

 

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as issued by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

Emphasis of matter - going concern

Without modifying our conclusion on the interim financial statements, we have considered the adequacy of the disclosure made in note 1 to the interim financial statements concerning the Group's ability to continue as a going concern. On 25 August 2021 the Board of Directors of Sanne Group plc ("the Group") and the Board of Directors of Apex Acquisition Company Limited (an indirect wholly-owned subsidiary of Apex Group Ltd) (collectively referred to as "Apex") announced that they have reached agreement on the terms and conditions of a recommended all cash offer for the Group. The Directors have not had detailed visibility of Apex's post completion funding for the Group or the detailed plans behind the intentions statements included within the announcement. This condition indicates the existence of a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern. The interim financial statements do not include the adjustments that would result if the Group was no longer to be considered a going concern.

 

What we have reviewed

The interim financial statements comprise:

 

·    the Condensed consolidated balance sheet as at 30 June 2021;

·    the Condensed consolidated statement of profit or loss and Condensed consolidated statement of comprehensive income for the period then ended;

·    the Condensed consolidated statement of cash flows for the period then ended;

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

·    the explanatory notes to the interim financial statements.

 

The interim financial statements included in the Interim Results of Sanne Group plc have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as issued by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

Responsibilities for the interim financial statements and the review

 

Our responsibilities and those of the directors

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

 

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

 

What a review of interim financial statements involves

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

 

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

 

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

 

 

PricewaterhouseCoopers LLP

Chartered Accountants

London

13 September 2021

 

Sanne Group plc











Condensed consolidated statement of profit or loss





For the period 1 January 2021 to 30 June 2021




























Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 June 20201


31 Dec 2020






Note


£'000


£'000


£'000














Turnover




4


96,170


86,475


174,874


Third-party fund management fees





(5,441)


(2,526)


(5,186)


Net revenue 2






90,729


83,949


169,688


Direct costs 2






(38,934)


(34,300)


(69,138)


























Gross profit

 





51,795

 

49,649

 

100,550














Other operating income






71


14


151


Operating expenses






(39,233)


(37,329)


(76,760)


























Operating profit

 





12,633

 

12,334

 

23,941














Comprising:












Underlying operating profit from continuing operations


5


23,974


22,981


48,036


Non-underlying items within operating profit from continuing operations


5


(11,341)


(10,647)


(24,095)








12,633


12,334


23,941














Other gains and (losses)






(296)


1,463


804


Finance costs






(2,962)


(2,241)


(4,324)


Finance income






35


70


108


Share of net loss of investment in associate accounted for

using the equity method


(17)


-


-


























Profit before tax

 





9,393

 

11,626

 

20,529














Comprising:












Underlying profit before tax from continuing operations

5


22,162


22,273


44,877


Non-underlying items within profit before tax from continuing operations


5


(12,769)


(10,647)


(24,348)








9,393


11,626


20,529














Tax




6


(3,044)


(2,665)


(4,362)


























Profit after tax from continuing operations

 



6,349

 

8,961

 

16,167














Discontinued operations




7


-


930


8,679


























Profit for the period

 





6,349

 

9,891

 

24,846














Comprising:












Underlying profit for the period



5


17,936


18,909


37,992


Non-underlying items within profit for the period


5


(11,587)


(9,018)


(13,146)








6,349


9,891


24,846




















Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 Jun 2020


31 Dec 2020






Note



















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














Basic




8


4.0


6.2


11.1


Diluted




8


4.1


6.1


11.1














Underlying basic




8


11.7


12.4


25.5


Underlying diluted




8


11.5


12.3


25.4


























1 Certain expenses amounting to £103k for 30 June 2020 were reclassified between direct costs and operating expenses. This change did not affect the profit for the period. Please see note 3 for more detail.















2 Net revenue comprises turnover less third-party fund management fees. Direct costs comprise direct costs of £44.4 million (30 June 2020: £36.8 million and 31 December 2020: £74.3 million) less third-party fund management fees of £5.4 million (30 June 2020: £2.5 million and 31 December 2020: £5.2 million).



 

Sanne Group plc











Condensed consolidated statement of comprehensive income



For the period 1 January 2021 to 30 June 2021




























Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 Jun 2020


31 Dec 2020






Note


£'000


£'000


£'000

























 

Profit for the period

 

 

 

 


6,349

 

9,891

 

24,846

 













Other comprehensive income/(expense):











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







Actuarial gain/(loss) on defined benefit retirement obligation 1


311


(558)


(419)


Income tax relating to items not reclassified




(43)


107


95


Changes in the fair value and exchange rate differences on minority equity investments carried at fair value through other comprehensive income


17


10,311


595


(234)
































Items that may be reclassified subsequently to profit and loss:








Exchange differences on translation of foreign operations 2


(5,448)


13,301


(830)

























 

Total other comprehensive (expense)/income for the period

5,131

 

13,445

 

(1,388)

























 

Total comprehensive income for the period

 

 


11,480

 

23,336

 

23,458

 













Comprising:












Total comprehensive income for the period from continuing operations


11,480


22,406


14,779


Total comprehensive income for the period from discontinued operations


-


930


8,679


Total comprehensive income for the period





11,480


23,336


23,458













1 The actuarial gain in the period relates to the Group's retirement gratuity obligations in Mauritius under the Mauritian Employments Rights Act which is recognised on the Group's balance sheet as a defined benefit retirement obligation.













2 Refer to the "Financial review" section for further information relating to the movement in the exchange differences on translation of foreign operations.

 

Sanne Group plc











Condensed consolidated balance sheet









As at 30 June 2021






























Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 Jun 2020


31 Dec 2020






Note


£'000


£'000


£'000














Assets

 











Non-current assets












Goodwill




10


228,244


196,160


188,478


Other intangible assets




11


43,892


43,122


38,160


Equipment






9,266


9,473


8,971


Minority equity investment




17


-


9,227


8,765


Investment in associate




12


707


-


-


Financial asset at amortised cost





-


822


830


Right-of-use assets






38,776


34,234


33,724


Contract assets






69


63


66


Deferred tax asset






11,668


9,316


9,008














Total non-current assets

 

 

 

 

 

332,622

 

302,417

 

288,002

 













Current assets












Trade and other receivables






58,524


49,065


53,713


Cash and cash equivalents






40,660


51,501


57,119


Contract assets






10,400


9,916


8,244


Disposal group held for sale




7


-


1,220


-


Minority equity investment




17


18,709


-


-


Financial asset at amortised cost





839


-


-














Total current assets

 

 

 

 

 

129,132

 

111,702

 

119,076

 













Total assets

 

 

 

 

 

461,754

 

414,119

 

407,078

 













Equity and liabilities

 











Equity












Share capital




13


1,623


1,466


1,474


Share premium






299,234


203,423


207,190


Own shares






(449)


(1,064)


(562)


Shares to be issued






3,096


8,415


3,006


Retranslation reserve






(19,412)


167


(13,964)


Accumulated losses






(16,761)


(29,052)


(18,751)














Total equity

 

 

 

 

 

267,331

 

183,355

 

178,393

 













Non-current liabilities












Borrowings




14


75,634


138,786


133,549


Deferred tax liabilities






17,930


16,457


15,165


Provisions






3,091


2,084


2,936


Defined benefit retirement obligation





822


1,272


1,086


Lease liability






39,001


35,373


34,405














Total non-current liabilities

 

 

 

 

136,478

 

193,972

 

187,141

 













Current liabilities












Trade and other payables




15


25,056


13,061


15,059


Current tax liabilities






2,692


3,359


2,661


Provisions






248


472


359


Contract liabilities






24,327


15,355


18,542


Lease liability






5,622


4,343


4,923


Disposal group held for sale




7


-


202


-














Total current liabilities

 

 

 

 

 

57,945

 

36,792

 

41,544

 













Total equity and liabilities

 

 

 

 

 

461,754

 

414,119

 

407,078

 

Sanne Group plc








Condensed consolidated statement of changes in equity



For the period 1 January 2021 to 30 June 2021



















Share capital

Share premium

Own shares

Shares to be issued

Retranslation reserve

Accumulated losses

Total equity



Note

£'000

£'000

£'000

£'000

£'000

£'000

£'000






















Balance at 1 January 2020


1,466

203,423

(1,166)

7,723

(13,134)

(26,487)

171,825












Profit for the period


-

-

-

-

-

9,891

9,891


Other comprehensive income for the period


-

-

-

-

13,301

144

13,445












Total comprehensive income for the period


-

-

-

-

13,301

10,035

23,336












Dividend payments


-

-

-

-

-

(13,624)

(13,624)


Share-based payments


-

-

-

1,789

-

-

1,789


Shares vested


-

-

122

(1,097)

-

1,024

49


Net buyback of own shares


-

-

(20)

-

-

-

(20)












Balance at 30 June 2020


1,466

203,423

(1,064)

8,415

167

(29,052)

183,355












Profit for the period


-

-

-

-

-

14,955

14,955


Other comprehensive expense for the period


-

-

-

-

(14,131)

(702)

(14,833)












Total comprehensive income/(expense) for the period

-

-

-

-

(14,131)

14,253

122












Issue of share capital - acquisitions


8

3,767

-

(3,096)

-

-

679


Dividend payments


-

-

-

-

-

(6,959)

(6,959)


Share-based payments


-

-

-

1,189

-

-

1,189


Shares vested


-

-

516

(3,502)

-

3,007

21


Net buyback of own shares


-

-

(14)

-

-

-

(14)












Balance at 31 December 2020


1,474

207,190

(562)

3,006

(13,964)

(18,751)

178,393












Profit for the period


-

-

-

-

-

6,349

6,349


Other comprehensive income/(expense) for the period

-

-

-

-

(5,448)

10,579

5,131












Total comprehensive income/(expense) for the period

-

-

-

-

(5,448)

16,928

11,480












Issue of share capital - acquisitions

13

25

15,173

-

-

-

-

15,198


Issue of share capital

13

124

76,871

-

-

-

-

76,995


Dividend payments


-

-

-

-

-

(15,994)

(15,994)


Share-based payments


-

-

-

1,223

-

-

1,223


Shares vested


-

-

145

(1,133)

-

1,056

68


Net buyback of own shares


-

-

(32)

-

-

-

(32)












Balance at 30 June 2021


1,623

299,234

(449)

3,096

(19,412)

(16,761)

267,331

 

Sanne Group plc











Condensed consolidated statement of cash flows





For the period 1 January 2021 to 30 June 2021




























Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 Jun 2020


31 Dec 2020






Note


£'000


£'000


£'000














Operating profit from:












Continuing operations






12,633


12,334


23,941


Discontinued operations






-


1,033


8,783


Operating profit including discontinued operations




12,633


13,367


32,724














Adjustments for:












Depreciation of equipment






1,098


1,466


2,869


Depreciation of right-of-use asset





3,028


3,027


5,795


Lease liability interest






(794)


(773)


(1,530)


Amortisation of other intangible assets





7,949


8,070


15,677


Amortisation of developed software





165


-


-


Amortisation of contract assets





7


3


10


Impairment of right-of-use asset





-


-


497


Share-based payments expense



16


1,402


1,789


2,978


Disposal of equipment






25


43


175


Impairment loss recognised on trade receivables




315


-


1,458


Defined benefit retirement obligation





59


(19)


5


Gain on disposal of discontinued operations




-


-


(7,748)


Gain on bargain purchase






-


-


(38)


Deferred consideration and remuneration





-


(3,153)


(3,153)














Operating cash flows before movements in working capital




25,887

 

23,820

 

49,719














Increase in receivables






(7,395)


(2,555)


(5,750)


Increase/(decrease) in contract liabilities





6,243


(2,652)


292


(Decrease)/increase in payables





(2,128)


1,666


2,738














Cash generated from operations





22,607


20,279


46,999














Income taxes paid






(4,051)


(3,993)


(7,557)














Net cash generated from operating activities




18,556

 

16,286

 

39,442














Investing activities












Interest income on bank deposits





26


68


98


Purchases of equipment






(1,345)


(949)


(1,954)


Software development costs paid



11


(1,410)


(949)


(2,322)


Acquisition of subsidiaries




18


(29,938)


(6,409)


(11,699)


Acquisition of minority equity investment





(361)


-


(387)


Proceeds from disposal of discontinued operations


7


-


-


8,638


Financial assets at amortised cost granted





-


(820)


(820)














Net cash used in investing activities





(33,028)

 

(9,059)

 

(8,446)














Financing activities












Dividend payments






(15,994)


(13,624)


(20,583)


Bank loan interest






(1,226)


(1,390)


(2,632)


Net buyback of own shares






(32)


(20)


(34)


Shares vested






(5)


(8)


(8)


Issue of share capital and share premium





76,995


-


-


Capitalised loan cost




14


(1,355)


(28)


(29)


Redemption of bank loans




14


(234,734)


(7,302)


(12,302)


New bank loans raised




14


178,186


14,821


14,821


Lease liability payments






(2,719)


(2,564)


(5,006)














Net cash used in financing activities

 




(884)

 

(10,115)

 

(25,773)














Net (decrease)/increase in cash and cash equivalents

 

(15,356)

 

(2,888)

 

5,223














Cash and cash equivalents at the beginning of the period




57,119


51,454


51,454


Effect of foreign exchange rate changes





(1,103)


2,935


442














Cash and cash equivalents at the end of the period

 



40,660

 

51,501

 

57,119














Cash flows from continuing operations





(15,356)


(5,309)


(5,836)


Cash flows from discontinued operations



7


-


2,421


11,059














Net (decrease)/increase in cash and cash equivalents

 

(15,356)

 

(2,888)

 

5,223

 

Sanne Group plc











Notes to the condensed financial statements







For the period 1 January 2021 to 30 June 2021




















1. Basis of preparation
























Sanne Group plc ("the Company") is a company incorporated in Jersey, Channel Islands. The unaudited, condensed and consolidated financial statements for the six months ended 30 June 2021 contain the financial information of the Company and its subsidiaries (collectively the "Group").














The consolidated results have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union ("EU"). The financial statements are therefore presented on a condensed basis as permitted and do not include all disclosures that would otherwise be required in a full set of financial statements. These financial statements should be read in conjunction with any public announcements made by Sanne Group plc during the interim reporting period, and the Annual Report for the year ended 31 December 2020, available at www.sannegroup.com.














Going concern












The Directors have assessed the potential impact that COVID-19 may have on the Group's ability to continue as a going concern and its continued ability to adapt during the global pandemic. The Directors assessed the Group's current financial position, the principal risks facing the Group and the effectiveness of its strategies to mitigate these risks. The Directors reviewed the Group's financial projections and cash flow forecasts. The Group has healthy cash inflows through a good pipeline of existing and new customers and also has finance facilities available. These assessments reassured the Directors that the Group will continue as a going concern and, based on the outcome of these assessments, the Directors have adopted the going concern basis of accounting in preparing these condensed interim consolidated financial statements.

 

On 25 August 2021 the Group and Apex announced a recommended all cash offer of 920p per share to be made by Apex for the Group. The Group's existing committed debt facilities contain a standard change of control clause which, from the point of completion of the acquisition, could result in the existing committed debt facilities being withdrawn and having not had direct visibility of Apex's post completion funding for the Group at this time, this could create some uncertainty as to the Group's going concern position. Whilst the Directors have not had direct visibility of Apex's post completion funding for the Group, the Directors note the detailed intentions statement included within the announcement on 25 August which states that Apex intend to continue investing in and developing the Group as well as the Group's strong cash generation. Under International Accounting Standard 1 and the International Standard on Auditing (UK) 570 (Revised) the existence of this scenario is considered to qualify as a material uncertainty that may cast significant doubt upon the Group's ability to continue as a going concern. Therefore, notwithstanding any uncertainty regarding post completion, the Directors are satisfied that the going concern basis remains appropriate for the preparation of the financial statements.  The interim financial statements do not include the adjustments that would result if the Group was no longer to be considered a going concern.














Accounting policies












The financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The accounting policies adopted in the preparation of the condensed consolidated financial statements are consistent with those followed in the preparation of the Group's financial statements for the year ended 31 December 2020, except as disclosed below.














Investment in associate












An associate is an entity over which the Group has significant influence but not control or joint control. Significant influence is obtained if the Group holds between 20% and 50% of the voting rights in a company. However, significant influence can also be demonstrated through other means which include, but are not limited to, representation on the board of directors of the associate, the ability to participate in policy-making decisions (for example dividend declaration), material transactions between the Group and the associate, interchange of managerial personnel or the provision of essential technical information. Investments in associates are initially recognised at cost and are subsequently accounted for using the equity method.














Under the equity method, the investment in associate is initially recognised at cost. Thereafter, it is adjusted to recognise the Group's share of the post-acquisition profits or losses of the investee in the Group's profit or loss, and the Group's share of movements in other comprehensive income of the investee in the Group's other comprehensive income. Dividends received or receivable are recognised as a reduction in the carrying amount of the investment.














The Group does not recognise its share of losses in an equity-accounted investment that exceed the value of its investment (including any other unsecured long-term receivables) unless it is obligated to, or has made payments on behalf of the other entity.














The Group only eliminates unrealised gains on transactions between it and its associate to the extent that they do not exceed the value of the Group's investment in the associate. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The accounting policies of equity-accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group for interim reporting.














The carrying amount of the investment in associate is tested for impairment if indicators of impairment are identified. For the purpose of impairment testing, an investment in associate is a single cash-generating unit. The Group will impair the cash-generating unit if its recoverable amount is less than its carrying amount.














Changes to the accounting standards issued










The following changes to accounting standards issued are applicable to the reporting period but have not had an effect on the preparation of these interim condensed consolidated interim financial statements:














(a) Covid-19-related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16) - Applicable to annual reporting periods beginning on or after 1 April 2021


(b) Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) - Applicable to annual reporting periods beginning on or after 1 January 2021













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
















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














The estimates and underlying assumptions are continually reviewed. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period. If the revision affects both current and future periods, the revisions to the accounting estimates are made in the period of the revision and in future periods.














The Annual Report for the year ended 31 December 2020 sets out the estimates, critical accounting judgements, and key sources of estimation uncertainty, made by the Directors in the application of the Group's accounting policies, at that date, which have the most significant effect on the amounts recognised in the financial statements. Other than the key sources of estimation uncertainty set out below, these estimates, critical accounting judgements, and key sources of estimation uncertainty are consistent with those applied in these condensed interim financial statements.














Initial recognition of intangible assets










During the reporting period, the Group acquired the PEA Group and Strait Capital Company Limited (refer to note 18 for further details). These business combinations gave rise to the recognition of customer and contract intangibles. The Multi-Period Excess Earnings Method (MEEM) was applied to determine the value of these intangible assets. This method requires various judgements to be made, the most significant of which is the number of years the customer base acquired is expected to generate revenue for the Group. The valuation was performed assuming a seven year useful life for both the PEA Group and the Strait Capital Company Limited acquisitions. These periods were based on management's best judgement and historical evidence.














The intangible assets recognised as a result of the acquisitions of the PEA Group amounts to £7.5 million and £5.8 million for Strait Capital Limited (using seven years as the expected useful life for the forecast of cash flows in the MEEM model). If the valuation was performed using six years as the expected useful life in the model to determine the fair value of the assets, the fair value would be £0.9 million lower, and if the fair value estimate was performed over eight years, the asset value would be £0.9 million higher for the PEA Group. If the valuation for Strait Capital Limited was performed using six years as the expected useful life in the model to determine the fair value of the assets, the fair value would be £0.7 million lower, and if the fair value estimate was performed over eight years, the asset value would be £0.7million higher. Refer to note 18 for further disclosure on the acquisitions transactions.














The world continues to experience the global outbreak of Coronavirus (COVID-19) which has had, and is still having, an unprecedented impact on global markets. The Directors are actively monitoring the situation and have assessed the expected impact on the financial results. While there can be no guarantees as to the future operations or performance of the Group, the most significant immediate impact is on the forward-looking assumptions made in the various impairment tests. Given the impact COVID-19 has had on global markets, the judgements made at 31 December 2020 were assessed and no material changes have been noted between the assessment made at 31 December 2020 and those made at 30 June 2021. The Group believes that the judgements and estimates made at the end of 31 December 2020 are still relevant as these were made when COVID-19 was already spread world-wide. Because the COVID-19 pandemic was already in full swing during the period ending 31 December 2020, and carried forward largely the same momentum for the period ending 30 June 2021, management does not consider it to be an impairment indicator. Consequently, there are no material differences from the disclosure made in the 31 December 2020 Annual Report of the Group relating to the outcome of impairment assessments.














Seasonality












Given the composition of the Group's customers and contracts, seasonality is not expected to have a significant bearing on the financial performance of the Group.













3. Segmental Reporting
























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














The chief operating decision-makers are the Executive 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 Executive Directors. The Executive Directors evaluate segmental performance based on gross profit, after the deduction of the direct costs of staff, marketing and travel. No inter-segment sales are made.














The Group's Annual Report for the year ended 31 December 2020 had four reportable segments under IFRS 8, namely EMEA, Asia-Pacific & Mauritius, North America and Channel Islands.














On 1 July 2020, the Group disposed of its private client business in Jersey (refer to note 7). This was regarded as a separate business line in the past and forms part of the Channel Islands segment.














The reporting of various client contracts and their related costs moved between segments during the six months ending 30 June 2021, the comparative numbers were also adjusted to reflect this change. The change in the segmental allocation of the contracts (and related costs) was driven by the reassessment of where revenue is generated and the work performed. The most significant of these moves was between EMEA and Channel Islands. Certain marketing costs incurred were previously included in operating expenses. These were reassessed and it was concluded that these costs directly contribute to generating revenue and these were consequently reclassified to direct costs. The reclassified costs were £103k for 30 June 2020.  The reclassification did not impact the results disclosed for 31 December 2020.














Unaudited 6 months to 30 June 2021





Revenue


Direct costs


Gross profit








£'000


£'000


£'000


Segments












EMEA 1






33,810


(15,324)


18,486


Third-party fund management fees





5,441


(5,441)


-


Asia-Pacific & Mauritius






18,876


(5,991)


12,885


North America






17,178


(8,663)


8,515


Channel Islands






20,865


(8,956)


11,909


Total






96,170


(44,375)


51,795














Other operating income










71


Operating expenses










(39,233)


Operating profit










12,633














Unaudited 6 months to 30 June 2020





Revenue


Direct costs


Gross profit








£'000


£'000


£'000


Segments












EMEA 1






30,928


(13,675)


17,253


Third-party fund management fees





2,526


(2,526)


-


Asia-Pacific & Mauritius






18,152


(5,437)


12,715


North America






14,810


(7,056)


7,754


Channel Islands 2












Continuing operations






20,059


(8,132)


11,927


Discontinued operations






2,006


(973)


1,033


Total






88,481


(37,799)


50,682














Other operating income










14


Operating expenses










(37,329)


Operating profit










13,367














Audited 12 months to 31 December 2020




Revenue


Direct costs


Gross profit








£'000


£'000


£'000


Segments












EMEA 1






63,493


(27,791)


35,702


Third-party fund management fees





5,186


(5,186)


-


Asia-Pacific & Mauritius






36,239


(10,894)


25,345


North America






29,562


(14,074)


15,488


Channel Islands 2












Continuing operations






40,394


(16,379)


24,015


Discontinued operations






2,006


(971)


1,035


Total






176,880


(75,295)


101,585














Other operating income










151


Operating expenses










(76,760)


Operating profit










24,976














Geographical information












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




















Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 Jun 2020


31 Dec 2020








£'000


£'000


£'000


Jersey and Guernsey 2












Continuing operations






17,055


18,615


35,389


Discontinued operations






-


2,006


2,006


Rest of Europe 1






36,821


33,569


69,185


Mauritius






11,244


11,938


23,061


Americas






16,350


14,051


28,017


South Africa






1,945


1,558


3,252


Asia-Pacific






7,314


4,218


10,784


Total net revenue from continuing and discontinued operations


90,729


85,955


171,694


Third-party fund management fees





5,441


2,526


5,186


Total turnover from continuing and discontinued operations


96,170


88,481


176,880














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














1 The EMEA revenue and costs are shown as net revenue and net direct costs. This is because net revenue and net direct costs exclude the impact of third-party fund management fees, which are not considered relevant in allocating resources to segments. Third-party fund management fees relate to asset management fees for a small number of funds that are clients of the Group's AIFM Management Company in Luxembourg and are limited to the EMEA operations. Given that these revenues are not economically the Group's, the Group sought to separate these and believe that net revenues are a more accurate reflection of the income that the Group earned for its services to the relevant fund entity.














2 The above-mentioned amounts for the Channel Islands include the results from both the continuing and discontinued operations. Refer to note 7 for the total revenue and direct costs attributable to discontinued operations.













4. Turnover


















Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 Jun 2020


31 Dec 2020








£'000


£'000


£'000














Disaggregation of revenue from contracts with customers




















Basis for fees charged












EMEA












- Assets under management (open-ended funds)




2,535


2,159


4,380


- Assets under management (closed-ended funds)


11,632


10,991


22,994


- Third-party fund management fees




5,441


2,526


5,186


- Service-based fees






19,643


17,778


36,145














Asia-Pacific & Mauritius












- Assets under management (closed-ended funds)


556


725


1,378


- Service-based fees






18,320


17,427


34,855














North America












- Service-based fees






17,178


14,810


29,562














Channel Islands












- Assets under management (closed-ended funds)


935


890


1,637


- Service-based fees






19,930


19,169


38,737


Total revenue from continuing operations




96,170


86,475


174,874




















Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 Jun 2020


31 Dec 2020








£'000


£'000


£'000


Timing of revenue recognition











Over time












EMEA






39,251


33,454


68,705


Asia-Pacific & Mauritius






18,876


18,152


36,233


North America






17,178


14,810


29,562


Channel Islands






20,865


20,059


40,374


Total revenue over time






96,170


86,475


174,874


Total revenue from continuing operations




96,170


86,475


174,874













5. Non-underlying items


















Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 Jun 2020


31 Dec 2020








£'000


£'000


£'000














Operating profit from continuing operations




12,633


12,334


23,941


Non-underlying items within operating profit from continuing operations:



















Share-based payments




(i)


484


839


1,951


Amortisation of other intangible assets


(ii)


7,949


8,070


15,677


Acquisition cost earn-out charges



(iii)


649


485


485


Acquisition and integration costs



(iii)


1,410


1,206


2,443


Gain on bargain purchase




(iv)


-


(38)


(38)


Impairment of right-of-use asset



(v)


-


-


497


Onerous lease contract




(v)


(14)


-


691


Settlement agreement costs and related legal fees


(vi)


713


-


1,326


Other




(iii)


150


85


1,063


Total non-underlying items included in operating profit from continuing operations




11,341


10,647


24,095











Underlying operating profit from continuing operations


23,974


22,981


48,036














Profit before tax from continuing operations




9,393


11,626


20,529


Non-underlying items included in profit before tax from continuing operations:



















Total non-underlying items included in operating profit from continuing operations




11,341


10,647


24,095











Onerous lease contract




(v)


5


-


16


Refinancing




(vii)


796


-


-


Foreign exchange loss on acquisition restructuring

(iii)


610


-


237


Share of net loss made by the investment in associate

(ix)


17


-


-


Total non-underlying items from continuing operations


12,769


10,647


24,348


Underlying profit before tax from continuing operations


22,162


22,273


44,877














Profit for the period 1






6,349


9,891


24,846


Non-underlying items within profit for the period from discontinued operations:



















Gain on disposal of discontinued operations before tax

(viii)


-


-


(7,748)


Tax effect of non-underlying items





(1,182)


(1,629)


(3,454)


Total non-underlying items from continuing and discontinued operations




11,587


9,018


13,146











Underlying profit for the period 1





17,936


18,909


37,992














1 This figure includes profit for the period after tax from both continuing and discontinued operations.














In the opinion of the directors, as explained below, the above disclosures reflect expenses which are not representative of the underlying performance and strategy of the Group.














(i) The share-based payments expense relates only to the costs classified as non-underlying. Refer to note 16 for details on all the share-based payments (for underlying and non-underlying in aggregate). All acquisition-related share-based payments plans are awards granted as part of acquisitions to act as retention tools for key management and to recruit senior management to support the various acquisitions. These grants are thus not in the normal course of the underlying business and are disclosed separately.














(ii) The amortisation charges relate to the amortisation of other intangible assets (specifically contract and customer intangible assets) acquired through acquisitions. The amortisation of other intangible assets is directly linked to the acquisitions and is excluded from underlying cost, because these charges are based on judgements around the value and economic life of assets. These assets are not capitalised in normal operating practice.














(iii) The Group has completed various acquisitions in the past two years. Acquisition and integration costs include deal advisory fees, one-off costs of integrating companies, accruals for cash earn-out payments, and exchange rate gains / losses made during the integration period. Acquisitions are outside the scope of the Group's underlying business. Therefore, these costs are disclosed as non-underlying to enable shareholders to assess the core ongoing performance of the Group. Most acquisition and integration costs are incurred in the first two years following acquisition. This can be longer depending on the nature of the costs. Integration and deal costs relating to acquisitions for the period ending 30 June 2021 amounted to £1.4 million. Costs incurred in relation to acquisition opportunities not yet executed or abandoned are disclosed as "Other". The "Acquisition costs earn-out charges" amounting to £0.3 million relate to the acquisition of Inbhear Fund Services Limited. Part of the acquisition pay-out is classified as remuneration under IFRS 3 and accrues over time.














(iv) On 1 April 2020, the Group acquired all the shares in Inbhear Management Services Limited as part of the wider Inbhear transaction. As with item (iii) above, acquisitions are outside the scope of the Group's underlying business. With the full consideration linked to continued employment, no consideration per IFRS 3 was paid for the acquisition. Consequently, a gain on bargain purchase was recognised.














(v) During 2020, the Group decided to make use of the break clause in its office lease agreement in the UK. And thus the Group moved into a new premises in London. COVID-19 and material, prolonged building work and renovations to the previous office building limited the Group's ability to sublease the premises. Because the property is not in use, and the Group is not able to sublease it, the right-of-use asset became idle and was impaired. This impairment is classified as a non-underlying item in order to present only premises expenses incurred for occupied office space and eliminate the effect of double counting premises expenses. The Group provided for onerous lease costs. The premises rental costs are classified as lease components and the lease liability was modified for the change in the lease term. Other costs payable by the Group, per the lease agreement, are classified as non-lease component costs and were provided for as onerous lease costs. The provision relating to the first six months of the year has been reversed to profit or loss.














(vi) During the period ending 30 June 2021, the Group incurred fees amounting to £0.7 million for ongoing legal cases, outside of the scope of ordinary business. These expenses are excluded from underlying cost as they are one-off costs.














(vii) On 18 March 2021, the Group refinanced its loan facility. The balance of the unamortised loan costs was written off and classified as non-underlying because the refinancing was done to support future acquisitions and is not part of the day-to-day operations of the Group. The refinancing resulted in the recognition of a modification loss of £0.8 million, which is included in finance costs in the condensed consolidated statement of profit or loss.














(viii) On 1 July 2020, the Group disposed of its private client business in Jersey, resulting in a gain on disposal of discontinued operations. Refer to note 7 for further details.














(ix) The Group has accounted for the investment in associate using the equity-method. Our share of the associate's loss is recognised in profit and loss. This strategic investment was made to utilise the technology and the losses or gains made by the associate is not part of the Group's core business.













6. Tax


















Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 Jun 2020


31 Dec 2020








£'000


£'000


£'000


Current income tax expense






4,278


4,076


6,935


Adjustments in respect of prior periods




(120)


(206)


(321)


Deferred income tax expense






(1,071)


(1,209)


(2,243)


Total income tax expense






3,087


2,661


4,371




















Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 Jun 2020


31 Dec 2020








£'000


£'000


£'000


The income tax expense is attributable to profit from:








Continuing operations






3,044


2,665


4,362


Discontinued operations






-


103


104


Deferred tax from other comprehensive income




43


(107)


(95)


Total income tax expense






3,087


2,661


4,371














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




















Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 Jun 2020


31 Dec 2020








£'000


£'000


£'000


Reconciliation of effective tax rates











As per the consolidated income statement and statement of comprehensive income:




Tax charge from continuing and discontinued operations


3,087


2,661


4,371


Profit before tax from continuing and discontinued operations


9,393


12,659


29,312


Effective tax rate on continuing and discontinued operations


32.9%


21.0%


14.9%














Tax charge from continuing and discontinued operations


3,087


2,661


4,371


Adjusted for non-underlying tax charge




1,182


1,629


3,454


Underlying tax charge






4,269


4,290


7,825














Profit before tax from continuing and discontinued operations


9,393


12,659


29,312


Non-underlying items






12,769


10,647


16,600


Profit before tax and non-underlying items




22,162


23,306


45,912


Underlying effective tax rate on continuing and discontinued operations

19.3%


18.4%


17.0%














The effective tax rate of 32.9% (30 June 2021: 21.0% and 31 December 2020: 14.9%) has increased due to a larger proportion of taxable profits being earned in higher tax jurisdictions.












7. Discontinued operations
























The Group entered into an agreement on 13 March 2020 to sell the private client business in Jersey to JTC plc, subject to the relevant regulatory approvals. The transaction concluded on 1 July 2020 and the agreed-upon clients and staff members were transferred to JTC plc for a consideration of £9 million with a £0.4 million working capital adjustment. The sale of the business line was reported as a discontinued operation in the prior periods. The revenue and direct costs were included in the Channel Islands reporting segment prior to the disposal. The associated assets and liabilities were consequently presented as held for sale as at 30 June 2020.














The Group created a special purpose vehicle ("SPV") to facilitate the sale of the private client business. The SPV was under common control, as the entities involved in the transaction were all ultimately controlled by the same party both before and after the combination and the control was not transitory. The sale of the SPV to JTC plc after the creation of the SPV is not considered transitory control as the entity was created as a conduit to facilitate the lift-out of the private client business in the transaction.














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




















Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 Jun 2020


31 Dec 2020








£'000


£'000


£'000


Revenue






-


2,006


2,006


Expenses






-


(973)


(971)


Profit before income tax expense





-


1,033


1,035


Income tax expense






-


(103)


(104)


Profit from discontinued operations after tax




-


930


931


Gain on disposal of discontinued operations after tax


-


-


7,748


Profit from discontinued operations





-


930


8,679














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






















Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 Jun 2020


31 Dec 2020








£'000


£'000


£'000


Net cash inflow from operating activities




-


2,421


2,421


Net cash inflow from investing activities (inflow from the proceeds)

-


-


8,638


Net increase in cash generated by the disposal group


-


2,421


11,059














The following details relate to the gain on disposal of the discontinued operations:






















Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 Jun 2020


31 Dec 2020








£'000


£'000


£'000


Cash consideration received






-


-


8,638


Trade and other payables






-


-


(55)


Carrying amount of net assets





-


-


(835)


Gain on sale of discontinued operations before tax




-


-


7,748


Income tax expense






-


-


-


Gain on disposal of discontinued operations after tax


-


-


7,748














The carrying amounts of assets and liabilities as at the date of sale (1 July 2020) were:














01 Jul 2020












£'000


Contract assets










850


Trade receivables










187


Contract liabilities










(202)


Carrying amount of net assets









835














The disposal group disclosed on 30 June 2020 consisted of the trade receivables, contract assets and contract liabilities relating to the private client business contracts. Because internally generated customer relationships are prohibited from being recognised as assets, the Group did not account for these customer contracts as assets. The Group reclassified the trade receivables, contract assets and contract liabilities relating to these clients as a disposal group held for sale in the prior period as these balances gave a reasonable representation of the value that these customer contracts held.














The following assets and liabilities were reclassified as a disposal group held for sale in relation to the discontinued operation in the prior period:




















Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 Jun 2020


31 Dec 2020








£'000


£'000


£'000


Assets of disposal group classified as held for sale










  Contract assets






-


784


-


  Trade receivables






-


436


-


Total assets of disposal group held for sale




-


1,220


-




















Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 Jun 2020


31 Dec 2020








£'000


£'000


£'000


Liabilities of disposal group classified as held for sale








  Contract liabilities






-


(202)


-


Total liabilities of disposal group held for sale




-


(202)


-













8. Earnings per share


















Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 Jun 2020


31 Dec 2020








£'000


£'000


£'000














Profit for the period






6,349


9,891


24,846














Non-underlying items within:












   Non-underlying expenses before tax





12,769


10,647


16,600


Tax effect of non-underlying items





(1,182)


(1,629)


(3,454)


Underlying earnings






17,936


18,909


37,992




















Unaudited


Unaudited


Audited








6 Months to


6 Months to


12 Months to








30 Jun 2021


30 Jun 2020


31 Dec 2020


Weighted average number of ordinary shares in issue

153,449,163

144,907,974

145,242,091


Effect of dilutive potential ordinary shares:










   Deferred consideration shares





-


636,652


-


Restricted Stock Awards






553,604


1,096,547


467,317


Performance Share Plan






376,595


-


43,009


Weighted average number of ordinary shares for the purposes of diluted earnings per share



154,379,362

146,641,173

145,752,417