SNN.L Regulatory News (SNN)

1 April 2022

Sanne Group plc

(the Group, Sanne or the Company)

Full Year Results for the year ended 31 December 2021

"A year of record new business wins, good organic growth momentum and execution of strategic acquisitions."

Sanne, a leading global provider of alternative asset and corporate services, announces its results for the year ended 31 December 2021.

See below for notes

Highlights:

Record year for new business wins and increasing organic growth has led to a strong financial performance:

· Net revenue growth of 19.0%3, resulting from strong growth across all regions and organic growth of 8.6%3

· Underlying operating profit growth of 21.0%3 

· Continued underlying operating profit margin improvement of 48bps at constant currency

· Strong cash generation with underlying cash conversion of 99.7% and free cash flow attributable to equity holders up 18.0% on the prior year

· Record new business wins, up 48.4% with annualised new business revenue of approximately £33.4 million secured in 2021 (2020: £22.5 million)

· Apex7 offer for Sanne has resulted in material non-underlying transaction fees and accelerated share-based payments accruals resulting in a statutory loss before tax and diluted earnings per share

Continued strategic activity:

· Three successful acquisitions in the year

· Acquisitions of PEA5 and Strait6 in the first half added new presence in the important Scandinavian markets of Sweden and Denmark as well as expanding the Group's North American presence to Dallas

· Both acquisitions have performed well through the year

· Acquisition of the fund administration business of PraxisIFM Group plc augmented the Group's presence and capability in Guernsey, UK, Malta, Jersey and Luxembourg

· Continued progress with the roll out of the Group's new technology strategy and growing success with the Group's new technology-led offerings to clients including the client portal and data services

· Sale of the Group's investment in Colmore AG 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 ownership

Recommended all cash offer for Sanne:

· On 5 October 2021, the Company announced that its shareholders had voted overwhelmingly in support of an all-cash offer of 920 pence per share made by Apex7

· The all-cash offer remains subject to the satisfaction or waiver of conditions relating to a small number of regulatory change of control clearances which are progressing well

Outlook

· Continued high demand for alternative asset investments driving strong market recovery in Sanne's addressable markets

· The significant new business momentum seen in the second half of 2021 has continued in 2022 positioning Sanne well to deliver a strong financial performance for 2022

· The combination of Sanne with the Apex business will create one of the largest platforms in the sector allowing the enlarged group to be even better positioned to thrive and creating even better opportunities for our people and clients

· The acquisition of the Group by Apex is now expected to complete either late in the second quarter or early in the third quarter of 2022

Enquiries:

Notes:

Capitalised terms in this Announcement, unless otherwise defined, have the same meanings as set out in the scheme document published in relation to the Acquisition by Sanne on 10 September 2021.

This announcement has been released without the consent of Apex7.

1. Underlying results for the year have been presented after the exclusion of non-underlying items (including costs arising directly as a result of the takeover offer for Sanne) and third-party fund management fees. Further details of non-underlying items can be found in note 7 of the consolidated financial statements. Further detail of alternative performance measures is provided in the Alternative Performance Measures definitions section.

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

3. Constant currency changes represent the 2021 performance based on applicable 2020 currency rates to eliminate movements due to FX.

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

5. Private Equity Administrators Group

6. Strait Capital Company Ltd

7. Apex Acquisition Company Limited, a subsidiary of Apex Group Limited

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 2,200 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.

Chairman's and CEO's Statement

Despite the material distractions arising from well-publicised offers for the Company during the year, 2021 has seen a strong financial performance from the Group, with impressive double-digit growth and maintenance of healthy profit margins and cash conversion. We have begun to see good returns from our investment over the last three years in our business development and product specialist teams, as well as benefitting from the continued market recovery in the alternative assets space. As a result, we have successfully delivered net revenue growth of 19.0% and underlying operating profit growth of 21.0%, both at constant currency. It is particularly pleasing to see this result given that the Group was the subject of takeover speculation and a formal offer period for the majority of the year.

The Group's growth has been underpinned by continued improvement in our organic growth performance. Client activity rebounded well as the year progressed and our well invested platform and market proposition has allowed us to capture significant new business activity. The annualised value of new business wins in the year was £33.4 million, representing a 48.4% increase from the prior year. This record level of new business in the year has not only driven an increase in the constant currency organic growth rate for 2021 but underpins further growth momentum into 2022 and beyond.

We have also successfully completed three acquisitions in the year to both drive growth and expand the Group's geographic footprint and augment our capabilities in our target end markets.

Financial Performance

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

The Group's constant currency net revenue growth in 2021 was 19.0%. Despite the relative strengthening of sterling against the Group's other predominant currencies, reported net revenue growth was also double digit at 14.4%.

2021's strong revenue growth has been underpinned by the continued increase in the Group's organic growth rates since the period of significant client activity slowdown in 2020 that resulted from the COVID 19 pandemic. Full year constant currency organic net revenue growth was 8.6%, up from 5.8% in the prior year. Our continued investment in our Product Development team and business development activities has helped ensure Sanne has captured a significant proportion of our addressable market opportunity.

Gross profit has also seen double digit year on year growth, both on a constant and reported currency basis. However, the Group's gross profit margin has seen a slight decline year on year by 162 basis points, at constant currency. This has partly been a result of mix effect from recent acquisitions that joined the Group on lower profit margins as well as the strong pick-up in new business activity which requires some short-term scaling-up of client service teams ahead of full revenue being recognised. However, the Group has also experienced some margin pressure from inefficiencies and increased costs arising from higher levels of staff turnover, particularly in the second half of the year. This has been driven, in part, by the prolonged period of uncertainty arising from the takeover process engulfing the Group for much of 2021.

Group overheads continue to be well managed and we continue to benefit from operational leverage over many of these central functions as we grow. This has meant that, in 2021, we have again reduced overhead spend as a proportion of Group revenues at the same time as, within overhead spend, significantly increasing investment in our technology infrastructure, capability and functionality.

Underlying operating profit has increased 21.0% at constant currency with the underlying operating profit margin also improving 48 basis points at constant currency. However, on a reported currency basis, the underlying operating profit margin has reduced slightly, by 37 basis points, due to a greater proportion of overhead costs compared with revenues being incurred in sterling. This means that the strengthening of the UK currency has created a year-on-year headwind in revenue that 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 in line with the Group's guidance at 99.7%. Underlying free cash flow attributable to equity holders was also up 18.0% versus 2020 to £39.6 million. This has been driven by our continued working capital discipline as well as the resilient nature of our business model.

Continued strategic delivery

During 2021, we have focused on enhancing and innovating our client service proposition, as well as driving technology enhancements throughout our business. This has delivered a multitude of successes across our Group, such as the launch of loan agency services in New York and Japan, depositary services in Ireland and compliance and ESG services across more of our locations. Our client technology strategy also continues to gather revenue momentum as demonstrable differentiators in our proposition such as the Sanne Live portal, the Sanne Rio ESG reporting tool and our Sanne Spotlight data analytics service have been rolled out to clients. These differentiators have not just sold well as standalone offerings, but have opened up ever larger mandate opportunities from some of the world's largest asset management firms. Our strategic partnership with Alternative Assets Accounting Software Inc. is also progressing well, with innovative, new reporting tools for both General Partner and Limited Partner clients launching late in the year across our first set of clients.

We have also benefited in the year from a growing trend amongst the largest asset management groups to look to consolidate their service providers and focus on truly integrated, global platforms that can offer the full suite of core services across all key regions. We have heavily invested in recent years to be able to deliver on this opportunity and, in 2021, have also sought to improve our processes and focus on targeting these mandates. As a result, we have seen and successfully won an increasing number of these very large, multi-jurisdiction and multi-product offering mandates, particularly in the second half of the year, with a strong pipeline going into 2022.

The year has also seen significant additional progress in rolling out our internal technology strategy and investing in strategic initiatives to drive improved efficiency. In the year we successfully migrated the Group to the Cloud, whilst completing the design and build of new data management and data architecture platforms. These should allow us to improve our processes and drive efficiency across all functions, in turn freeing up resources both internally and within client service teams to focus on driving the highest quality output whilst improving profit margins.

Our inorganic strategy has also kept up strong momentum despite on-going travel restrictions and the distraction of the takeover process for most of the year. We completed two acquisitions in the first half of the year that each enhanced the Group's geographic footprint as well as a third acquisition that completed towards the end of the year expanding our capability in existing locations.

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 benefitted 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.

In December, we completed the acquisition of the fund administration business from PraxisIFM Group plc, a c.80 person fund administration business across Guernsey, the UK, Malta, Luxembourg and Jersey. The acquisition positions 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, and increasing our ability to service open-ended fund structures in Europe.

As discussed in our results for the six months to 30 June 2021, 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. This represents a very attractive financial return for the Group, but more importantly, our investment allowed us to build a strong strategic partnership with Colmore that enabled the rapid development and rollout of Sanne Spotlight which we believe to be industry-leading in its data proposition to clients. Despite the disposal of our strategic investment, we continue to have an exclusive development arrangement with Colmore that should continue to benefit the Group going forward.

People

Sanne has always been, first and foremost, a people business. Our employees are our most valuable asset and 2021 has been another year of prioritising their health and safety. We have continued to manage the business despite the pressures put on our workforce by the continuing COVID-19 Pandemic. It has been great to see the strength and resilience of our workforce through extremely tough times. Their commitment and drive to deliver for our clients despite the challenges of the pandemic and the significant uncertainty that a takeover process for the Company inevitably creates has been remarkable. For this, we wish to thank all of them for their considerable efforts this year.

As a Group, we have continued to invest in supporting our workforce as well as trying to safeguard their physical and mental wellbeing. In the second half of the year, we began to trial changes to the structure and ways of working. This has been aimed at trying to find sustainable practices that maintain many of the benefits Sanne, its employees and clients have enjoyed during this exceptional period, whilst also trying to address the inevitable longer-term challenges that arise with high levels of remote working. This work will continue into 2022 as we try to find the best balance for all our employees and clients.

We have also continued to focus on employee engagement following the establishment of the workforce advisory panel in 2019. Through the Panel and our existing D&I and CSR committees around the Group, we have sought to bring our teams closer together through increased communications and various initiatives. These initiatives have involved rolling out new mental wellness support and training, a new wider suite of training and development packages and a plethora of CSR and charitable activities.

Takeover process and dividend

On 25 August 2021 the Company announced that the Board had reached an agreement with Apex on the terms of a recommended all cash offer of 920p per share to be made by Apex (the Acquisition) which is intended to be effected by means of a scheme of arrangement under Article 125 of the Jersey Companies Law (Scheme). Further, on 5 October 2021, the Board announced that at the Court Meeting and General Meeting, each held in connection with the Scheme, the requisite majority of Scheme and Sanne Shareholders had voted in favour of the offer by Apex.

Good progress has been made working towards satisfying the outstanding conditions of the Scheme with regulatory approvals now received in respect of all jurisdictions other than Luxembourg. However, further to the announcement made on 22 February 2022, Apex has recently reported to Sanne that whilst it remains hopeful that all the remaining conditions will be satisfied and that the Scheme will become effective by the end of Q2, it is possible that this may now occur in early Q3. Consequently, Sanne is in discussions with Apex and the Takeover Panel about an appropriate extension to the Long Stop Date, should one be required.

Whilst the Acquisition represents a good outcome for Sanne shareholders, it has resulted in a significant amount of additional transaction related costs in 2021. These have principally been related to transaction advisory fees and the cost of accelerating the Group's share-based payments as required under the terms of the relevant schemes. Whilst these costs have been treated as non-underlying, their acceleration in the year, following the result of the Court Meeting and General Meeting in October has resulted in a reported loss after tax.

As a result of the terms of the Acquisition, the Company did not declare an interim dividend in 2021 and will not be paying shareholders a final dividend for 2021.

Looking ahead

The demand for alternative asset investments is as high today as we have ever seen it whilst increasing regulatory requirements and complexity and the propensity for asset managers to seek an outsourced solution for administration are powerful long-term drivers for our market. That, in addition to the strong growth trends that we have seen, particularly in the second half of 2021 and continuing into 2022, means there remains a compelling opportunity for Sanne going forward.

More recently, we have been watching with concern the increasing geopolitical uncertainties and humanitarian crises arising from the conflict in the Ukraine. Whilst our thoughts are with all those affected by the crisis, the Group does not operate in either Russia or the Ukraine and has very limited exposure to the region. In addition, the Group's income is not expected to be materially impacted by the wider economic market volatility and asset price fluctuations. As such, we do not expect the political and economic implications of the conflict to have any material impact on the Group's performance.

As a standalone business, the accelerating organic growth and continued investment in the platform positions Sanne well to continue taking advantage of the market opportunity. The combination of Sanne with the Apex business once the Acquisition completes will create one of the largest platforms in the sector allowing the enlarged Group to be even better positioned to thrive creating even better opportunities for our people and clients.

Rupert Robson

Chairman

Martin Schnaier

Chief Executive Officer

Strategy Review

The vision of the Group is to be one of the world's leading providers of outsourced alternative asset and corporate administration services.

The Group looks to partner with top tier alternative asset managers, financial institutions and global corporates, who require a high-touch professional service due to the bespoke nature of their investment products and activities. These products and activities have become increasingly complex and cross-jurisdictional, requiring co-ordinated support across a global platform supported by industry experts in private equity, private debt, capital markets and real assets.

Client-driven

Sanne executes this strategy by offering "local excellence on a global platform". It has built a platform spanning 23 locations with over 2,200 employees that is preeminent in its core markets and is relied upon by over 1,950 clients with AuA totalling in excess of £500 billion. Clients choose Sanne not only because of its depth of resource, but also because of its client-centric approach, which focuses relentlessly on delivering quality support.

This client-centric approach is predicated on a professional services philosophy and is backed up by the assurance of its listing on the London Stock Exchange, which provides a credible governance framework for a business with over £500 billion in assets under administration. Sanne also takes a long-term approach with clients to ensure stability of service over 10-year-plus cycles in an industry where the competitive landscape is dominated by short-term propositions.

Structural market growth

Sanne's continuing growth has stemmed from the combined effects of investor demand for alternative investment strategies, ever increasing regulatory complexity and the rise in outsourcing by asset managers increasing the size of our addressable markets. The trend towards outsourcing services to a firm such as Sanne is a result of increasing sophistication among clients in relation to outsourcing together with a desire to rationalise supply chains by using fewer, larger and more capable administrators. In this environment, we believe that Sanne is uniquely placed to meet growing industry needs and is determined to develop a sustainable product that helps facilitate global investment in a responsible manner.

Segmental and Operational Review

The Group's four reporting segments are structured geographically as: Europe, Middle East and Africa (EMEA); Channel Islands (CI); North America (NA); and Asia-Pacific & Mauritius (APM). The Group provides its core offerings of fund administration services to alternative assets funds and corporate administration across all of its segments.

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

Europe, Middle East and Africa (EMEA)

Sanne's EMEA segment operates across Luxembourg, Ireland, the United Kingdom, Spain, France, the Netherlands, Malta, Denmark, Sweden 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.

EMEA has seen a return to strong net revenue growth of 17.4% in 2021 versus 7.6% in 2020. The region has benefited from acquisitive growth with the addition of the Danish and Swedish operations of PEA acquired in the year as well as some of the operations of the PraxisIFM funds business.

Good growth has been seen across almost all jurisdictions in the region. Most jurisdictions saw high single digit or low double-digit growth with South Africa delivering a stronger result as it rebounded from a difficult 2020 and gained good momentum across closed-ended client structures, helping to diversify away from its traditional reliance on open-ended clients. In Spain we saw continued good growth in the dominant loan agency offering, as well as good traction with new wins within Real Estate. Despite being impacted by continued new fund delays in H1, Luxembourg enjoyed a strong recovery in the second half of 2021 benefitting from a very strong new business performance and the catch up of delayed fund launches. Ireland saw growth due to the full year impact of the prior year Inbhear acquisition, but organically suffered from some delays from material new client mandates expected to now commence in 2022. The Netherlands office, whilst small, also saw one of its larger clients wind up some legacy structures which dampened performance. The new Denmark and Sweden offices saw very strong results in the year as well opening up a significant number of additional opportunities for other areas of the Group across their client base.

The segment's margin reduced to 55.4% at reported currency. Excluding the mix effect from the newly acquired Denmark and Sweden offices which joined the Group with lower gross margins, the gross from margin increased slightly to 56.6%. Whilst we have seen our Luxembourg business rebuild margins as expected, EMEA's margin for 2021, excluding the newly acquired businesses, remains lower than its historical average reflecting the increased costs seen in the year arising from the return to growth and takeover process, as discussed in the Chairman's and Chief Executive Officers Report.

Channel Islands (CI)

Note: The table above does not include results for discontinued activities in the prior period

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 9.8%. This benefits from contributions from the PEA Guernsey business and a month's contribution from the largest part of the PraxisIFM funds business in Guernsey. Organic net revenue growth in the period was 3.7%. The organic result reflected good growth across the region's closed-ended product strategies of Private Equity, Debt and Real Estate. However, a broadly flat result from the Corporate and Capital Markets businesses depressed the overall outturn. Within this result, the Group's Guernsey office saw a strong return to growth, despite being a small office. This followed significant effort and investment in the Group's presence and capability in the local market which has since been augmented by the PraxisIFM funds business.

The period has seen a small decline in gross profit margin driven largely by the Group-wide dynamics discussed in the Chairman's and Chief Executive Officers Report.

Asia Pacific and Mauritius (APM)

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 strong net revenue growth of 17.3% in 2021. This benefited from the full year impact of the acquisition in Japan of the Deutsche Bank Trust Company. However, even excluding that effect, organic net revenue growth was 13.8%.

The APAC offices delivered net revenue growth of 35.7% as a result of strong growth across three of the four offices. Japan has continued to win a large number of new mandates, scaling up quickly and successfully taking advantage of significant local opportunity. Singapore and Shanghai have also seen strong progress from delivering new-new wins, increased activity from existing clients and new revenues from business wins from 2020 as they start to scale up their investing activity. Hong Kong saw a slower period, as clients favoured Singapore as a new fund destination. Mauritius saw revenue growth of 6.8%, which was a good result given the region's largest end market of India has continued to be badly impacted by the COVID-19 pandemic.

The segment's gross profit margins decreased in the period to 67.4%. This was largely a continued function of mix effect between the fast-growing APAC region and the lower growth but higher margin Mauritian region, albeit that the region is starting to see the same challenges in relation to staff turnover as seen already elsewhere in the Group.

North America (NA)

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

North America saw exceptional growth of 37.0% in 2021 due to the full year impact of the Avalon business in Cayman and the inclusion of Strait from 1 April. Organically the segment saw growth of 9.5% despite a heavy slowdown in activity across existing clients for the first half of the year. The Group's legacy business has seen a healthy increase in new business momentum in the second half of the year. The Strait and Avalon acquisitions are performing well with Strait seeing a significant increase in its growth since joining the larger Sanne platform.

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.

Financial Review

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

Income statement

The Group reports key items in the income statement such as turnover, operating profit and diluted earnings per share as well as presenting certain alternative performance measures (APMs) such as net revenue, organic net revenue growth rates and underlying profit measures to allow an additional understanding of the results for the year. In order to provide a clear reconciliation of performance, the Group's statutory results and APMs are presented below and an explanation of each of the APMs used is provided at the end of the Financial Review.

Turnover and net revenue

Net revenue in the year increased by 19.0% on a constant currency basis and 14.4% on an actual basis to £194.2 million (2020: £169.7m). Organic net revenue growth in the period was 8.6% on a constant currency basis.

Turnover for the year grew by 21.1% on a constant currency basis and 16.5% on an actual basis when the third-party asset manager fees are included.

Note: See the Alternative Performance Measures section for further explanation of this organic growth calculation methodology.

Gross profit

Gross profit for the year was £111.4 million (2020: £100.6m). The gross profit margin was 57.4%, down on the prior year result of 59.3%. The key drivers to this slight year on year reduction in margin is discussed in the Chairman's and Chief Executive Officer's Review.

Overheads

The Group's operating model involves client-focused service teams being supported by centralised and integrated Group Services functions including information technology, risk and compliance, human resources, premises, finance and head office. All costs for these functions are included in the Group's overheads. The table below provides a reconciliation of overheads and further details on the definition is provided in the alternative performance measures section.

Overhead costs in 2021 were £57.4 million (2020: £52.7m), which represented 29.6% of net revenue for the year compared with 31.0% in 2020. The year-on-year improvement has been driven by continued tight cost management and the Group benefitting from operating leverage over some centralised Group functions as the business grows.

Non-underlying costs and gains

Non-underlying items within profit measures include share-based payments where they relate to acquisitions; acquisition and integration costs; amortisation and impairment of intangible assets; gains on disposal of non-core business units; transaction costs related to all aspects of the takeover process for Sanne in 2021; accelerated share-based payment accruals resulting from the acquisition of Sanne by Apex; and other costs outside the ordinary operations of the Group. For further detail on non-underlying items, please see note 7 in the financial statements.

Non-underlying items increased significantly in 2021 to £50.8m (2020: £24.1m). This increase is the result of both significant transaction fees relating to the successful acquisition by Apex as well as increased share-based payment costs relating to the acceleration of the accruals for these remuneration schemes under the terms of the Acquisition. Items within non-underlying costs that arise directly as a result of the takeover process for the Group and acquisition by Apex total £25.5m. Ignoring these items, non-underlying costs would have been broadly flat on the prior year.

Operating profit

Underlying operating profit is a key measure of the Group's performance. Underlying operating profit in 2021 was up 21.0% in constant currency on the prior year at £54.2 million (2020: £48.0m). This reflected a 48bps underlying operating profit margin improvement in the year at constant currency. Statutory operating profit fell significantly to £3.5 million (2020: £23.9 million) as a result of the cost recognised as a direct result of the takeover process for the Group and the successful acquisition by Apex.

Finance cost

The Group's finance costs increased 25.6% on the prior year to £5.4m. This reflected the write-off of loan fees in the year related to the refinancing of the Group's debt facilities in the first half of the year, balanced by lower average indebtedness for most of 2021. The write-off of these loan fees has been treated as non-underlying.

Taxation

The Group's underlying effective tax rate for the year was 16.8% (2020: 17.4%). The most significant contributor to the year-on-year decrease has been the recognition of taxable losses in Japan. As with prior years there has been significant non-underlying expenditure impacting the statutory effective tax rate. When adjusted for the large non-underlying items, the statutory effective rate for the year for the total Group was -216.8% due to the statutory loss in the year (2020: 21.2%).

Diluted underlying earnings per share

Underlying diluted earnings per share was up 13.4% at constant currency to 26.6 pence (2020: 25.4 pence) in the year or 4.8% at reported currency. Reported diluted earnings per share showed a loss of 4.4 pence (2020: 11.1 pence profit) as a result of the large exceptional items related to the takeover process and successful acquisition by Apex.

Dividend

In light of the terms of the Acquisition, the Board is not recommending the payment of any dividends for 2021.

Cash flow and working capital

Underlying operating cash conversion was 99.7% (2020: 99.5%) for the full year. Underlying free cash flow attributable to equity holders also increased to £39.6 million in the year. This is up 18.0% on the prior year owing to the strong organic and acquisitive growth delivered in the year. The main movements in the cash flow are summarised in the table below.

Capital expenditure in the year comprised equipment and software purchases, office fit-out costs and software development costs.

Capital management and financing

At 31 December 2021, the Group's gross debt was £99.4 million (2020: £133.5m) and the Group had gross cash balances of £48.1 million (2020: £57.1 million). At 31 December 2021, the cash ring-fenced for regulatory liquidity requirements ("trapped cash") was £12.6 million (2020: £13.4m). As a result, the year-end net debt, excluding trapped cash, was £64.0 million (2020: £89.8m). This reflected the strong operating cash generation seen in the year and comes after the funding the PEA, Strait and PraxisIFM acquisitions as well as raising £79.5 million in April 2021 by way of an equity placing.

The Group considers its relevant leverage ratio to be the Group's net debt divided by underlying earnings before interest, taxation, depreciation and amortisation but after deducting the depreciation from finance leases under IFRS 16 (EBITDA after lease depreciation). This ratio seeks to use comparable metrics ignoring lease liabilities. This leverage ratio was 1.3x at the period end (2020: 1.8x).

The net debt to EBITDA ratio is calculated on a pre-IFRS 16 basis for the purposes of the Group's banking covenants and also allows the Group to include a full, last twelve months contribution for acquisitions even when they have not been owned by Sanne for the whole of the period. It also removes trapped cash from the available cash balances. Calculating the net debt to EBITDA ratio on the same basis as the Group's banking covenant results in a leverage ratio of 1.1x at 31 December 2021.

Foreign exchange

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 £4.8 million and £2.2 million respectively. During the year ended 31 December 2021 the key individual exchange rates have moved, as shown in the table below.

Post balance sheet events

In preparing the financial statements for the year ended 31 December 2021, the expense relating to share based payments was calculated using an estimated date for the Acquisition by Apex to complete at the end of March 2022. Since the year end however, there have been some delays in regulatory approvals which mean the Acquisition is now not expected to complete until either late in the second quarter or early in the third quarter of 2022. Further detail of the impact on the financials is covered in note 41 of the financial statements.

James Ireland

Chief Financial Officer

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 2021 the Group was subject to a takeover process for most of the year. This process resulted in the Company announcing that the Board had reached an agreement with Apex on the terms of a recommended all cash offer of 920p per share to be made by Apex. Further, on 5 October 2021, the Board announced that at the Court Meeting and General Meeting, each held in connection with the Scheme, the requisite majority of Scheme and Sanne Shareholders had voted in favour of the offer by Apex.

As a result of the work undertaken during the process and Acquisition contingent fees now more likely than not to be payable following the 5 October Court and General Meetings, the Group has recognised significant, one-off costs arising purely due to the transaction. These costs have been treated as non-underlying for the purposes of assessing alternative performance measures.

The Group has ceased looking at underlying operating profit from continuing and discontinued operations as an APM as it is no longer considered an important metric given there were no discontinued operations in 2021. In addition, underlying free cash flow attributable to equity holders considers only continuing operations for the same reason. No other changes have been made since 2020.

The APMs used to manage the Group are as follows:

Directors' Responsibilities Statement

The Directors are responsible for keeping proper accounting records that disclose, with reasonable accuracy, at any time, the financial position of the Company. The Directors are responsible for preparing the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial statements are required by law to give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period.

International Accounting Standard 1 requires that financial statements present fairly for each financial year the Group's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the preparation and presentation of financial statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs.

In preparing the financial statements the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue the business; and

· state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

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 to be effected by means of a scheme of arrangement under Article 125 of the Jersey Companies Law (Scheme). Further, on 5 October 2021, the Board announced that at the Court Meeting and General Meeting, each held in connection with the Scheme, the requisite majority of Scheme and Sanne Shareholders had voted in favour of the offer by Apex. 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 the 25 August 2021 which states that Apex intend to continue investing in and developing the Group as well as the Group's strong cash generation. The Independent Auditor's Report included within the Group's Annual Report and Accounts for the year ended 31 December 2021 also highlights this material uncertainty. 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 financial impact of the transaction, see note 7 of the financial statements.

The Annual Report and Accounts, taken as a whole, are fair and balanced and understandable and provide the information necessary for Shareholders to assess the Company's position, performance, business model and strategy.

The Directors confirm that they have complied with the above in preparing these financial statements.

So far as the Directors are aware, there is no relevant audit information of which the Company's auditors are unaware, and each Director has taken all the steps that he or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

Statement as a result of the Disclosure and Transparency Rules of the Financial Conduct Authority:

We confirm that to the best of our knowledge:

· the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the parent Company and its undertakings included in the consolidation taken as a whole; and

· the Strategic Report and Directors' Report include a fair view of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

This responsibility statement has been approved by the Board of Directors of Sanne Group plc on 31 March 2022 and is signed on its behalf by:

Martin Schnaier

Chief Executive Officer

31 March 2022

James Ireland

Chief Financial Officer

31 March 2022

Sanne Group plc

Consolidated Income Statement

For the year ended 31 December 2021

1 Net Revenue comprises revenue less third-party fund management fees. Direct costs comprise direct costs of £92.3 million (2020: £74.3 million) less third-party fund management fees of £9.6 million (2020: £5.2 million).

The notes are an integral part of these Consolidated Financial Statements.

Sanne Group plc

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2021

Sanne Group plc

Consolidated Balance Sheet

As at 31 December 2021

Sanne Group plc

Consolidated Statement of Changes in Equity

For the year ended 31 December 2021