SNN.L Regulatory News (SNN)

19 March 2020

Sanne Group plc

(the Group, SANNE or the Company)

Preliminary Results for the year ended 31 December 2019

SANNE, a leading global provider of alternative asset and corporate services, announces its results for the year ended 31 December 2019.

1. Underlying Total Group results show the combined results for both continuing and discontinued operations presented after the exclusion of non-underlying items. Discontinued operations refers to the Jersey Private Client business.

2. Underlying continuing operations performance measures show the contribution from continuing operations only presented after the exclusion of both non-underlying items and a cost allocation in relation to the discontinued operations. A detailed reconciliation is presented later in the statement.

3. Constant currency represents the 2019 performance based on 2018 FX 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

Highlights:

- Strong revenue momentum:

o Continuing operations revenue growth of 16.2%3 with organic growth from continuing operations of 13.5%3

o Total Group revenue growth of 14.7%3,1 with organic total sales growth of 12.1%3,1

o Strong new business wins, with annualised revenue of approximately £24.5 million secured in 2019 (2018: £24.5m) with momentum continuing into 2020

- Second half recovery, as anticipated, and strong cash flow:

o Material improvement in second half underlying operating profit margin to deliver 28.2% for the full year (H1: 26.4%), following decisive action addressing first half challenges

o Underlying operating cashflow generation of 105%

- Active strategic development programme for growth and focus:

o Disposal of legacy Private Client business for up to £12 million to focus on core alternative and corporate markets

o Extension of global network with office openings in Tokyo, San Diego and Mumbai

o Acquisition of Inbhear establishing Cayman presence and strengthening Irish service offering

o Investment in Colmore bringing new data analytics offering to our clients

- Statutory profits reflect exceptional one-off costs largely related to earn out payments for LIS and AgenSynd (£6.3m) as well as intangible impairment in South Africa (£2.4m)

- Final dividend of 9.4p (14.1p total), reflecting the Board's confidence in the prospects of the Group consistent with the Group's progressive dividend policy

Outlook

- Good momentum in Alternatives and Corporate businesses positions SANNE well for further growth in 2020

- Positive alternatives market backdrop with continued growth in addressable market

- Healthy pipeline of acquisition opportunities

- Well prepared for potential operational impacts from the COVID-19 outbreak, as a result of the Group's resilient business model

- Board expects to deliver a resilient performance in 2020 and remains confident in the medium and long-term prospects for the Group

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

"During 2019 we have continued to build on our strong market position and benefitted from the structural growth drivers within the alternative asset markets that we address. We have also worked successfully to address the challenges facing the business during the first half of the year. We made the decision to continue to invest in our platform to support our growth aspirations, expand our footprint and thereby continue to deliver the highest levels of client service. This investment for growth has been supported by a simplification of the Group through the sale of our legacy Jersey Private Client business.

As we continue into 2020, our core business remains resilient and is underpinned by a robust model. This resilience has been critical for us to have coped well to date with the COVID-19 outbreak from an operational perspective. Many of our offices have been operating under business continuity plans with minimal impact on service delivery to our clients and I would like to thank all our staff for their continued efforts during a difficult time.

We remain confident that SANNE is well positioned to capture the exciting opportunities that exist within our core markets in the years to come."

Enquiries:

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: https://3xscreen.videosync.fi/20200319-sanne-fy19/register

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

A PDF copy of the 2019 Full Year results presentation will be available to download on SANNE's Investor Relations results and presentation page after the live webcast has ended.

Notes:

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 1,700 people worldwide and administers structures and funds that have in excess of £250 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 Statement

2019 has been an important year for SANNE, as the Group continued to build its global platform and capabilities in order to take advantage of the significant structural growth opportunity in our core markets. During the year, we have made a number of significant changes to the structure and operations of the Group to ensure that our expertise and resources are deployed as effectively as possible.

These changes have not been without their challenges, as evidenced by lower profit margins in the first half of the year, but I am pleased with the progress made in the second half to address these issues and restore the Group's margins. Importantly, SANNE continues to capture significant revenue growth across all our key markets as well as continuing to invest in our network and platform for profitable future growth.

Operational Update

We saw strong double-digit revenue growth across all regions during 2019, with the exception of the Channel Islands, where the declining Private Client business diluted the overall result. In particular, the Group's core Alternatives businesses, making up 88% of 2019's total revenues and 92% of continuing revenues, increased by 18% as demand for our services from existing and new clients continued to grow.

While revenue growth remained robust during 2019, underlying profit levels were flat as a result of operational challenges which affected margins during the first half of the year. The decisive actions taken to rectify these issues delivered a material improvement to profit margins during the second half. These actions, combined with the Group's strong cash conversion levels, make SANNE well placed to deliver both top line growth and increased levels of profitability in 2020 and beyond.

Reflecting our confidence in this growth potential, the Board is recommending a final dividend of 9.4 pence per ordinary share (2018: 9.2 pence), taking the total dividend for the year, including the interim dividend of 4.7 pence per share, to 14.1 pence per share (2018: 13.8 pence in total).

Strategic developments

During the year, we continued to invest for profitable growth, both organically and inorganically. We added three new offices to our global footprint in Tokyo, San Diego and Mumbai as well as entering into an agreement to acquire Inbhear which will add a new office in Cayman, a new strategic jurisdiction for SANNE with significant growth potential. We also established a strategic partnership with Colmore to deliver a new data analytics offering to our fund manager client base underscoring our commitment to client service and innovation.

Following the end of the period, SANNE announced that we had reached an agreement to divest our legacy Private Client operations in Jersey. This will simplify the Group's structure and enable management to focus on SANNE's attractive core Alternatives and Corporate businesses.

Our people

During my time as Chairman, SANNE has grown from 290 to over 1,700 employees. I am proud of the culture we have established, and proactive employee engagement remains a key focus for the Group. During 2019 SANNE established a Workforce Advisory Panel to bring employees from all areas of the business and geographies together to provide a forum for them to interact with each other and the non-executive directors from the Board.

During the first half of the year Martin Schnaier replaced Dean Godwin as Chief Executive Officer, following Dean's retirement. Martin has been one of the driving forces behind SANNE's growth since he joined the Group in 2011. I would like to take this opportunity to thank Dean for his immense contribution to transform the business during his seven years as Chief Executive.

The Board has a diverse range of skills and backgrounds. We have decided to appoint a third female director to the Board during the year, in line with best practice. With our continuing investment in, and focus on, technology to enhance our service offering, we are considering how to increase technology input to the Board's deliberations. We are also aware of the fact that Andy Pomfret, Nicola Palios and I will have served on the Board for six years by the time of the next full-year reporting cycle. As a result, while we all remain committed Board members, Board succession planning is actively on the Board's agenda for the coming year.

Environmental, Social and Governance (ESG) - Our role in society

We understand the expectations and commitments made by our investors with regard to Environmental Social & Governance (ESG) considerations. Sustainability is essential to delivering our business plan and growth profile, particularly within our increasingly global footprint. Environmental and social considerations are therefore embedded in our corporate values and commercial operations. Robust governance, transparency and accountability principles also underpin our approach across all areas of business. 

With this in mind, our initial objective is to establish a robust baseline, quantifying our environmental and social impact across our operations using 2019 as our baseline year. Subsequently, during 2020 we will be finalising ESG and sustainability policy framework and setting ambitious long term environmental and social policy objectives, including carbon offsetting targets. Further detail is set out in our ESG section of this annual report.

As a professional services provider, our most material contributors to our environmental and carbon footprint are business travel and utilities consumption, both representing essential components of our business operations. For the first time, we have disclosed our 2019 carbon emissions in this annual report.

Looking ahead

The demand for alternative asset investments, increasing regulatory requirements and complexity and propensity for asset managers to seek an outsourced solution for administration are powerful long-term drivers for our market. We have a strong strategy and proposition that positions SANNE well in the sector to make the most of these opportunities. Notwithstanding the uncertain economic backdrop including the current impact being seen as a result of the global COVID-19 outbreak, the Board continues to look to the future with confidence.

Rupert Robson

Chairman

Strategy Review

Vision

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

Client-driven

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, debt, capital markets and real assets.

SANNE executes this strategy by offering "local excellence on a global platform". It has built a platform spanning 21 locations with over 1700 employees that is preeminent in its core markets and is relied upon by over 1,700 clients with AuA totalling in excess of £250bn. 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 £250 billion in assets under administration. Listing also means that SANNE can take a long-term approach with clients requiring 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 is a result of increasing sophistication among clients in relation to outsourcing together with a desire to rationalise supply chains. 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.

Organic growth

The Group's growth strategy is focussed on a series of core initiatives:

1. Drive differentiated, best-in-class client offering across high touch and technology enabled servicesThis involves investing in the best people and training programmes, developing efficient and best in class processes; investing in new technology-led services and propositions; rolling out new capabilities relevant to specific product groups and adding new services that are relevant to our client base

2. Increase our share of wallet within existing asset manager client groups as well as targeting new onesThis involves cross selling more services to each fund; capturing new fund launches by existing clients; servicing larger client groups across all their alternative investment product strategies and all their operating jurisdictions; displacing competitors as clients seek to rationalise their supply chain; and targeting "new-new" asset manager clients into the platform either through competitive process or encouraging first time outsourcing

3. Roll out our services and product offerings at scale across the entire global footprintThis involves ensuring that we offer all product verticals in every location they are relevant to the same high standards and scale

4. Add new geographic markets to the Group's footprint in line with client requirementsThis involves opening offices across new locations to access new markets and clients

5. Invest in resilient and scalable operating platforms and technology to support our client service offeringThis involves continuing to build robust capability across Group Service areas such as risk, compliance, human resources and finance as well as investing technology and systems to improve efficiency and capability and develop processes to ensure scalability and efficiency in our processes

Inorganic growth

6. SANNE has a proven track record of finding, acquiring and integrating specialist firms in the administration sector where this enhances the value proposition of the Group and its services. This activity is essentially relationship driven and uses SANNE's capital resources to fund acquisitions, strategic investments and partnerships to augment or accelerate growth across one or more organic growth initiatives. These transactions are always undertaken in a responsible manner after careful due diligence to ensure a shared vision and minimise any risks to the Group. SANNE does not specifically target inorganic growth for its own sake.

Chief Executive Officer's Statement

2019 was another year of strong growth for SANNE as we continued to benefit from our leading position in structural growth markets. The year has also seen us experience and address a number of operational issues as we came to the end of a period of accelerated investment in our global support functions and moved our client service teams across EMEA and CI from product-vertical reporting lines to jurisdictional-vertical reporting lines. I am pleased with the progress that we have made in the second half of the year in addressing these issues and building on our industry leading position.

2019 performance

The Group delivered a strong revenue performance in 2019 consistent with the substantial market opportunity that our business addresses. Total Group revenue grew by 14.7% on a constant currency basis and total organic revenues grew by 12.1% on a constant currency basis, in line with our "double digit" growth guidance. Excluding the Jersey Private Client operations, total continuing revenues grew by 16.2% on a constant currency basis and total continuing organic revenues by 13.5% at constant currency.

North America delivered another very strong year with organic revenue growth of 18.7 % at constant currency. EMEA and CI, excluding the Jersey Private Client operations, together saw organic revenue growth of 13.9% at constant currency with healthy activity across all alternative asset classes. APM grew organic revenues by 8.6% at constant currency, despite the anticipated higher-than-average attrition from end of life structures in Mauritius; these attrition levels are expected to normalise in 2020.

The total Group underlying operating profit margin of 28.2% (2018: 31.1%) was principally affected by two issues which arose in the first half of the year and have now been addressed. First, we incurred higher discretionary overhead expenditure, mostly relating to third party recruitment fees and premises costs, during the first half. Secondly, EMEA and CI over-recruited staff ahead of anticipated growth in these segments.

These issues were decisively addressed in the second half. With respect to overhead expenditure, we have brought together cost controls for the various Group Services functions under the control of the CFO and the finance function. These changes resulted in a rapid and significant improvement in overhead efficiency with overheads as a percentage of revenue reducing to 27.9% in the second half from 32.4% in the first half. Importantly, these improvements in costs and control have been achieved without reducing any investment spend either in the platform or within our growth initiatives.

As part of implementing our new jurisdictionally-based reporting model, we undertook a detailed exercise in the EMEA and CI segments to more closely align client revenues with the resources required to deliver the relevant client services. This will enable better resourcing decisions within these segments and generally improve their operational efficiency. The implementation phase of this exercise began later in the second half so the consequent improvement in gross margin will largely arise 2020.

The Group achieved another period of strong new business activity, with the projected annualised revenues from new business won in the year of approximately £24.5m equal to the record level seen in 2018. It is anticipated that the development of these annualised revenues will begin to benefit revenue in 2020 with the fully annualised effect being realised in the following years. The Group has seen this new business momentum continue into 2020.

Cash generation in the year has been very strong. Underlying operating cash conversion was 105% and this performance meant the underlying free cash flow attributable to equity holders was up 52.9% year on year at £35.1 million for 2019.

Expanding our footprint and enhancing our capabilities

SANNE continues to expand its global footprint and enhance its capabilities to create long-term value.

SANNE added Japan as a new jurisdiction in 2019 by opening a small office in Tokyo at the start of the year to support demand for our services in that market from existing clients. We have started to see exciting new business wins as well as build a good pipeline of opportunities in this large new market for SANNE. The Group also opened a new office on the West Coast of North America in San Diego. This office was opened to support the growing requirements from existing clients in the area, but also provides the opportunity to build a bigger client base of West Coast asset managers. Finally, the Group opened an office in Mumbai to improve connectivity for our Indian clients and intermediaries, as well to take advantage of new business opportunities that we see arising in India.

The acquisition of Inbhear, announced shortly after the year end, establishes a physical presence for the Group in the Cayman Islands. The Cayman business has a local accounting license and, with the full SANNE business behind it, has made good progress towards obtaining a trust licence. This presence will provide a significant revenue opportunity across the existing client base as well opening up a market for new clients that was difficult for Sanne to unlock on a cost effective basis. The acquisition also builds on our existing Irish presence by bringing a team of highly experienced professionals to augment our existing local offering.

During the year, SANNE also commenced work on a new technology-led data analytics service for our clients through a strategic partnership with Colmore, a leading technology solutions business. This partnership has brought new, leading technology solutions into our service offering that provides clients with real-time, dynamic access to insight reports, analysis and data. We anticipate the first version of this capability will go live with clients by the end of the first quarter of 2020. This is an important partnership for SANNE as we continue to envision technology taking an increasingly important role in the delivery of service to our clients.

We continue to see a large number of potential acquisition opportunities across our markets. SANNE has a track record of targeting and integrating high quality strategic acquisition opportunities to build out the client service offering and proposition as well as expanding our physical footprint.

Strengthening our operational platform

Over recent years, SANNE has been implementing the changes needed to support the Group's evolution from a Jersey-centric local specialist firm to a global platform capable of delivering scalable, sustainable growth.

During the year, as we moved the whole Group on to a model of jurisdiction-based reporting lines, we established dedicated strategies across each product vertical (Private Debt & Capital Markets, Real Estate, Private Equity and Loan Agency) to ensure we continue to go to market as an asset specialist and focus on delivering industry leading service and capability to all our clients. We have done this by taking a group of senior directors from across the Group and aligning them in industry specific teams. In 2019 we also continued to invest further in Business Development, a dedicated function that exclusively targets new asset manager clients drawing on the experience and expertise of the product teams.

Risk and Compliance remain a key focus with both areas undergoing management transition during 2019. We have also reinforced our focus on financial crime and on-boarding. I am pleased to note that these changes have driven a significant improvement in reporting and management of key risk indicators (KRI's) and compliance metrics, as well as enhanced policies, procedures and monitoring capability. Other critical support functions such as Human Resources, Finance and Legal continue to be strengthened and importantly, operate on fully integrated, single platforms to enhance Group-wide efficiency.

This operating platform together with our information technology function have been systematically strengthened and expanded to support the Group as it scales its global offering. Our information technology function has continued to bring together the Group's systems and infrastructure and has built a strong central capability, largely in Belgrade, with teams of developers, support and a threat protection and defence capability.

The resilience of the Group's operational platform has been demonstrated by our resilience during the recent period of civil disruption in Hong Kong and more recently, the Coronavirus outbreak in many of our APAC jurisdictions. We are yet to see any material impact on our business or end markets arising from the current Coronavirus outbreak, however, we continue to pay close attention to the evolving landscape. In the first instance, we could expect to see some elevated costs in the event any of our larger jurisdictions found themselves subject to restrictions that prevented employees from travelling to work for a prolonged period of time. We are also mindful that any sustained period of time with major economies working under remote or restricted travel arrangements could impact the global flow of investment and the demand for alternative investment strategies which fuels our growth.

The decision in the summer of 2019 to undertake a strategic review of the Group's Jersey-based Private Client business was consistent with our strategy of optimising the Group's focus on those markets where we have our core strengths. The Group's significant success in targeting the closed-ended alternatives asset market in recent years had resulted in the Jersey Private Client business representing only 3.5% of Group revenues in 2019. We received significant interest in the business from potential acquirers and were pleased to reach agreement with JTC Plc in March. We wish the team well under the new owners.

Senior Management

We have continued to strengthen the Executive Committee during 2019 with a number of changes and key appointments. James Bermingham joined the Group as our first ever General Counsel, having previously spent more than a decade building a leading Channel Islands and Luxembourg competitor to SANNE. Cindy Peters joined us as a new Group Head of Human Resources; she brings with her a wealth of experience from leading professional services firms and competitor fund administration firms. At the beginning of January 2020, Marie Measures joined the Group as SANNE's first ever Chief Technology Officer. Marie brings with her a depth of technology and management experience from highly regulated financial services firms and will be critical for us in driving further technology excellence into our own business as well as our client service offering.

Outlook

The decision during 2019 to continue investing for growth positions the Group well with momentum going into 2020, within our core Alternatives and Corporate markets. We continue to improve the operational efficiency of the Group and look to build on the hard work carried out during the second half of the year.

As we continue into 2020, we are seeing a healthy pipeline of acquisition opportunities to augment our growth strategy. We remain focussed on the current macro-economic environment, especially the evolving COVID-19 outbreak and potential effects thereof and we expect to deliver a resilient performance in 2020 and remain confident in the medium and long-term prospects for SANNE.

Martin Schnaier

Chief Executive Officer

Segmental Review

At the start of 2019, in response to the significant growth and expansion of the Group over recent years, SANNE adopted a jurisdictionally-based reporting model across our European and South African jurisdictions from the previous product-vertical reporting model. This better aligns our reporting with how SANNE actually manages its business. The Group's NA and APM reporting segments already operated on this basis. As a result, there is no change to the reportable segments in NA and APM, however the old segments of "EMEA Alternatives" and "Corporate and Private Client" across Europe and South Africa have been combined and then split into two new reporting segments of CI (covering the Jersey and Guernsey jurisdictions) and EMEA covering all other European and South African business.

The Group's four reporting segments are therefore now: Europe, Middle East and Africa (EMEA); Channel Islands (CI); North America (NA); and, Asia-Pacific & Mauritius (APM). For comparability, within EMEA and CI we will split out the corporate and private client revenues (making up the old CPC segment) for 2019 and for continuing operations disclose separately the Corporate revenues.

Unless otherwise stated all growth rates discussed in the segmental 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 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.

Once again, 2019 was a year of strong growth in EMEA with revenue growth of 27.6% and organic revenue growth of 20.0%. Whilst the segment has seen gross margin decline in the year as a result of challenges that arose with the implementation of the new jurisdictional reporting model and increased investment in growth initiatives, gross profit grew by 15.2% and 5.4% on an organic basis. Whilst there were no acquisitions completed in the period, the inorganic growth in the segment in 2019 relates to the inclusion of both LIS/CP and AgenSynd for the full year in 2019 for the first time.

The main driver of growth in the year has been the continued strong demand for our services and new fund creations in the Group's core closed-ended alternatives markets of Private Debt & Capital Markets, Private Equity, Real Estate and Loan Agency. Meanwhile, the Group's open-ended hedge fund business, saw good progress through broadening the client base outside South Africa with wins in Dublin as well as further wins in South Africa offset by client losses in the second half. The overall result of which was to keep performance flat on the prior year.

2019 has also seen the completion of the integration of the AgenSynd and LIS acquisitions made in 2018. We have successfully moved AgenSynd's London team into our existing office and collocated the LIS, CP and legacy Sanne Luxembourg businesses. We also completed the integration of all systems, policies and processes as well as all areas of Group Services support such as finance, IT, HR, risk and compliance. The integration of the CP legal entity into our existing Sanne Luxembourg entity is subject only to final regulatory approval which is expected during 2020. Sanne's legacy Loan Agency book has also been migrated onto AgenSynd's industry leading client-facing technology platform and we have started cross selling service capability from the platform to other clients across the Group.

Channel Islands (CI)

Note: The Revenue and Gross profit shown above is for both continuing and discontinued operations unless otherwise stated

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) albeit, not Loan Agency. The segment also includes the Group's Private Client business, and the majority of the services to corporate clients. Following the year end, SANNE has entered into an agreement for JTC Plc to acquire the Private Client business which is entirely reported within the CI Segment.

Revenues from the new CI segment saw organic growth in the period of 2.2% which reflects the flat year on year performance in the Jersey Corporate book and further reduction in the Jersey Private Client business. Despite the trend in the industry across Europe for new funds to locate in Luxembourg, the Channel Islands segment saw good organic growth across the closed ended alternatives products of Private Debt & Capital Markets, Real Estate and Private Equity at 7.0%.

Whilst the segment, like EMEA, was impacted by the shift at the start of the year to the jurisdiction-orientated reporting model, the gross margin was broadly flat at 59.9% in 2019.

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 alternative closed-ended investment products.

The segment delivered organic revenue growth of 8.6% driven by another very strong year across the Asia Pacific offices. These offices alone saw constant currency growth of 36% in the year across the Private Equity and Real Assets fund client base, being SANNE's two main product groups in the region. 2019 saw the opening of the Group's new office in Japan and significant headcount growth across the other offices which are all of broadly similar size.

Mauritius saw a flat revenue result compared with the prior year. This was largely the result of higher than average levels of end of life client attrition seen across what is a mature book of funds. Mauritius has though seen a good level of new business wins in the year reflecting an acceleration in business development following investment in the business development team on the island and in the newly set up sales office in India. During the year the Group also established a dedicated centre of excellence for the preparation of financial statements. This service draws on the depth of accounting expertise in the Mauritian market and both supports the wider group as well as being sold to third parties.

The segment's gross profit margins declined in the year to 67.6%, primarily driven by mix effect as the fast-growing Asia Pacific offices become a larger proportion of the business. In 2019, the Asia Pacific offices represented approximately one third of the segment's overall revenues and the margins in the region are in line with those across our EMEA and CI businesses.

North America (NA)

SANNE's NA segment primarily services closed ended alternative fund clients in North America. The segment originated with the acquisition of FLSV Fund Administration Services LLC (FAS) in late 2016 and has experienced strong organic growth since.

2019 was another year of strong organic revenue growth for the NA segment at 18.7%. This revenue growth continued to be driven largely by a strong new fund launch environment across the existing client base. The segment's margin remained broadly flat on the prior year at 50.1% due to higher revenues and increased use of support from the Group's Belgrade office, offset by increased growth initiative costs.

During the year, the segment continued to be dominated by services across Private Equity. However we continued to build the segment's client base across the Real Assets and Debt & Private Capital markets. We continue to see growth opportunities from first time outsourcers and new asset managers in the market and an expansion in the types of products offered in the alternatives market. In addition, the business opened a new office on the west coast of North America. This office opened initially to support existing clients in the west coast time zone more closely, but has also afforded an opportunity to target other, new clients in the area.

Chief Financial Officer's Review

Total Group revenue grew by 14.7% in 2019 to £165.4 million (2018: £143.0m) with continuing operations revenue growth of 16.2%, both at constant currency. Underlying total group operating profit has grown at 2.9% at constant currency to £46.7 million (2018: £44.4m) as the operational challenges seen in the first half diluted underlying total group operating profit margin to 28.2% from 31.1% in 2018. Statutory operating profit for the year was £14.3 million down from £21.5 million in 2018. This reflected exceptional one-off costs largely related to acquisition earn-out payments as well as intangible impairment in South Africa.

Underlying total group diluted EPS was down by 4.2% on the prior year at constant currency at 23.6 pence (2018: 24.1p) as a result of increased interest costs under IFRS 16 and a higher underlying effective tax rate.

The Group delivered strong cash returns in the year generating underlying free cash flow attributable to equity holders of £35.1m in 2019, an increase of 52.9% on 2018. This performance represents an adjusted underlying operating cash conversion of 105% (2018: 82%).

Group Income Statement

The Group reports key items in the income statement such as revenue and operating profit as well as presenting certain alternative performance measures (APMs) such as organic 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 on both a total group basis (including results from both continuing and discontinued operations) as well as on a continuing basis.

Total Group Income Statement:

1Is the total of other gains and losses, finance costs and finance income

Key performance measures for the underlying continuing business:

Revenue

Total group revenue increased by 14.7% on a constant currency basis in the year to £165.4 million (2018: £143.0m). Organic revenue growth in the period was 12.1% on a constant currency basis for the whole group.

Revenue growth for the continuing operations, representing the Alternatives and Corporate businesses, was higher at 16.2% on a constant currency basis at £159.7 million (2018: £136.2m). Likewise, organic constant currency revenue growth was higher for the continuing operations at 13.5%.

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

Gross profit

Gross profit in 2019 including the results from both continuing and discontinued operations was £96.5m (2018: £88.3m), representing constant currency growth of 8.1% (9.3% at actual currency). Gross profit for continuing operations in 2019 was £92.8 million (2018: £84.3m). This reflected the strong revenue growth in the year, partially offset by a decline in gross profit margin. Gross profit margin for the total group including both continuing and discontinued operations was 58.4%, down 3.4 percentage points from the prior year. This reduction was predominantly the result of margin decline in the EMEA segment where the over-recruitment of staff ahead of anticipated growth had the most significant impact. The margin was also diluted slightly by mix effects in the APM segment where the higher growth Asia Pacific offices operate at gross profit margins in line with EMEA and CI rather than the higher margin Mauritius business. Further investment in growth initiatives such as the dedicated Business Development team and the teams supporting the product strategies described in the CEO's Statement also had an impact. The costs associated with these growth initiatives equated to c.2.5% of Group revenues compared with c.1.5% in 2018.

Disposal of the Jersey Private Client business

The table below shows the underlying financial performance of the Jersey Private Client business that is expected to be sold in 2020. The underlying profit measures for the discontinued business are alternative performance measures that differ from the disclosures made under IFRS 5 in note 11 in the financial statements. The difference is that the underlying measures also include costs that, whilst not directly transferring with the sale, will cease within the continuing Group as a consequence of the disposal or that the Group will be capable of reducing as a result of the disposal. This includes certain business systems licencing fees, office costs and some operating leverage in Group Services. These alternative performance measures allow an additional assessment of the impact of disposing of the operations as compared with the IFRS 5 presentation.

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 the Group's head office costs. All costs for these functions are included in the Group's overheads.

Total group overheads, excluding non-underlying costs, in 2019 were £49.8 million (2018: £43.9m), which represented 30.2% of total Group revenue for the year compared with 30.8% in 2018 and 32.4% in the first half of 2019.

Overheads associated with the underlying continuing operations represented 31.3% of the continuing revenues for the Group. This is higher than the total Group result reflecting that it is not possible to remove the entire overhead allocation from the Group immediately on disposing of the discontinued operations.

Non-underlying costs

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; one-off costs related to the refinancing of the Group's banking facilities undertaken in the year; and costs related to the regulatory settlement in Jersey in the year and other costs. Further detail on non-underlying items, please see note 9 in the financial statements.

Non-underlying costs in 2019 saw an increase to £29.2 million (2018: £18.9m). The main drivers behind this increase were acquisition earn-outs on LIS (£4.2m) and AgenSynd (£2.0m) charged to the income statement due to employment related clauses; impairment of contract intangibles in the South African acquisition made in 2016 (£2.4m); and costs relating to a regulatory settlement in the year and other non-trading related provisions (£1.0m).

Operating profit

Underlying total group operating profit and underlying continuing operations operating profit are key measures of the Group's performance for each of the total operations managed during the year as well as for the ongoing business. Underlying total group operating profit in 2019 was up 2.9% in constant currency on the prior year at £46.7 million (2018: £44.4 million). Underlying continuing operations operating profit, however, saw better growth of 4.7% on a constant currency basis which reflects the decline seen in the discontinued operations. Statutory operating profit fell in the year to £14.3 million (2018: 21.5m) as a result of the increase in non-underlying charges in the year.

Net finance expense

Total Group net finance expense was £4.5 million (2018: £1.8 million). The increase in 2019 largely reflects the Group's adoption of IFRS 16 for the treatment of operating leases. The interest charge in relation to operating leases in 2019 was £1.6 million. The charge before the adoption of IFRS 16 increased as a result of the higher average net debt in the year, as a result of acquisitions and related earn-out payments.

Taxation

The Group's reported effective tax rate for the total Group for the year was 33% (2018: 23.3%). The year on year increase was driven by the increasing proportion of Group profits being earned in jurisdictions with higher tax rates. As with prior years there has been significant non-underlying expenditure impacting on the effective tax rate and when adjusted for non-underlying items, the effective rate for the year for the total Group was 18.8% (2017: 18.2%).

Diluted underlying earnings per share

Total Group underlying diluted earnings per share were 23.6 pence (2018: 24.1p), underlying continuing operations diluted earnings per share were 22.3 pence (2018: 22.4p) and reported diluted earnings per share from continuing operations were 6.1 pence (2018: 12.6 pence).

Dividend

The Board continues to adopt a progressive dividend policy where it seeks to increase the absolute value of the dividend each year, subject always to maintaining a sufficient level of dividend cover. Accordingly, the Board is recommending a final dividend of 9.4 pence per ordinary share (2018: 9.2 pence). The final dividend will be payable on 20 May 2020 to Shareholders on the register at close of business on 24 April 2020.

Together with the interim dividend of 4.7 pence per share, this gives a total dividend for the year of 14.1 pence per share (2018: 13.8 pence in total).

Cash flow and working capital

In 2019 SANNE has seen strong cash generation with underlying operating cash conversion of 105% (2018: 82%). The main movements in the cash flow are summarised below:

SANNE's high levels of cash conversion in the year were driven by improved processes and controls around working capital management. This has resulted in trade receivables growing at a much slower rate than revenue and an improvement in the proportionate size of working capital balances on the balance sheet reducing to 19.7% of the year's revenue from 22.6% in 2018. The table below pulls out the key trading working capital items included within the Group's balance sheet:

1 Includes allowance for doubtful receivables

As highlighted in the table above, the Jersey Private Client business that is being sold has a much larger amount of working capital associated with it as a proportion of revenue than the continuing operations. The sale of this business will therefore result in an improvement in the Group's working capital.

Contract assets, referred to as accrued income in prior years, has remained flat year on year despite strong revenue growth. This reflects the continued focus within SANNE on prudent revenue recognition. Contract liabilities reflect revenue that has been invoiced in advance and have grown in line with the business. Write offs of trade receivables remained at exceptionally low levels during 2019 representing less than 0.1% of revenues.

Capital expenditure in the year largely 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 joint development project with Colmore, which will offer the Helios technology and data analytics platform to our global alternatives client base.

The payment of deferred consideration in the cash flow statement relates entirely to the earn-out payment on LIS and CP, which was made in the second half. Whilst we have accrued for the earn-out payment for AgenSynd, this is not due to be settled until March 2020.

Capital management and financing

At 31 December 2019, the Group's net debt was £78.1 million (2018: £53.0m), including gross cash balances of £51.5m (2018: £32.4m). This reflected the strong operating cash generation seen in the year and comes after the funding of the earn-out payment for LIS and CP, the minority investment in Colmore and dividends paid to shareholders. As a result, the Group's headline net debt to underlying earnings before interest, taxation, depreciation and amortisation calculated ignoring IFRS 16 (net debt to pre-IFRS 16 EBITDA) ratio was 1.6x at the year end.

As a result of operating a number of regulated subsidiaries within the Group SANNE ring fences certain cash balances to ensure the relevant regulated entities are funded in order to meet minimum capitalisation requirements imposed on them. At 31 December 2019 the cash ring fenced for regulatory capital requirements ("regulatory cash") was £10.1 million (2018: £8.9m). Excluding this regulatory cash from available cash, the Group's net debt to pre-IFRS 16 EBITDA ratio increases to 1.8x.

The table below sets out how capital has been generated and used in 2019. The Group's approach to capital allocation is to seek to invest the cash generated by the business to earn the best return for the Group's principal stakeholders. Given the low capital requirements to fund organic growth, the principal use of capital has been to fund acquisitions and shareholder dividends. Management aims to do this whilst maintaining a Group net debt to pre-IFRS16 EBITDA ratio of not more than 2.0x. However, the Group's banking covenants are set materially higher with the option to increase this for a period of time so that the Group has additional funding headroom were it to be appropriate to use it.

In the first half of the year, SANNE successfully refinanced its debt facilities. The new debt facility is a multicurrency committed £150 million revolving credit facility with an uncommitted accordion facility of £70 million. The facility has a maturity of February 2023 with extension options of up to two years. At the year end the facility was £131.2 million drawn with available cash balances (excluding regulatory cash) of £51.5 million. Pre-IFRS 16 EBITDA is used to calculate leverage ratio per the terms of our facilities agreement.

Foreign Exchange

The Group's results are exposed to translation risk from the movement in currencies. Overall, the average movement from currencies have increased reported total group revenue and underlying total group operating profit by £1.5 million and £1.0 million respectively. During 2019 key individual exchange rates have moved, as shown in the table below.

ALTERNATIVE PERFORMANCE MEASURES

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. The APMs used to manage the Group are as follows:

ORGANIC REVENUE GROWTH

Organic revenue growth is quoted for both continuing operations as well as total Group revenue. In the case of continuing operations, it is reported revenue growth adjusted for acquisitions on a like-for-like basis. In the case of total Group revenue, again this shows income from both continuing and discontinued operations on a like-for-like basis for 2019 and 2018 adjusted for acquisitions. To arrive at a like-for-like basis, revenue from any acquisition made in the year is excluded. Where an acquisition was made part way through the prior year, the current year contribution will be reduced to include only the same period as had been included in the prior year. A reconciliation is included in the CFO Review. Organic revenue growth measures are a key performance indicator for the growth of the business excluding the impacts of any acquisitions undertaken. The calculation methodology for both continuing operations and total Group revenue is set out in the CFO's Report.

CONSTANT CURRENCY GROWTH

To highlight our period on period performance, we discuss our results in terms of growth at constant currency. This represents growth calculated after translating both year's performance at the prior year's applicable exchange rates. Overall, the average movement from currencies have increased reported total group revenue and underlying total group operating profit by £1.5 million and £1.0 million respectively. Therefore constant currency metrics can be arrived at by removing these amounts.

UNDERLYING TOTAL GROUP AND UNDERLYING CONTINUING OPERATIONS APMS

Post the year end the Group has announced that it has entered into an agreement to dispose of its Jersey Private Client business. As such, the statutory results for the Group are presented for continuing operations. To help provide users of these accounts with a view of performance during the year ended 31 December 2019, we present several alternative profit measures aimed at showing both the full Group's performance (including both continuing and discontinued operations) as well as the representative performance for the ongoing business only (continuing operations). In both sets of alternative performance measures, they are adjusted to exclude non-underlying costs. Non-underlying charges are defined as expense items, which if included, would otherwise obscure the understanding of the underlying performance of the Group. These items represent material restructuring, acquisition, integration and costs that are transformational in nature or costs that do not relate to the operating of the Group's business. Further explanation of why non-underlying charges are excluded from APMs is included in note 3 and note 9 of the financial statements.

Underlying total group alternative performance measures are reconciled below but include all results from both continuing and discontinuing operations whilst excluding non-underlying items.

Underlying continuing operations alternative performance measures are also reconciled below. These present results from the continuing operations only, also exclude non-underlying items but are also adjusted to remove certain direct and overhead cost allocations that, whilst not directly transferring with the sale, will cease within the continuing Group as a consequence of the disposal or that the Group will be capable of reducing as a result of the disposal. These alternative performance measures differ to the IFRS 5 definition of continuing and discontinued operations.

Total Group revenue:

Underlying total group operating profit:

Underlying total group operating profit is used to explain the operating performance of the total Group in the year including both continuing and discontinued operations on a like for like basis compared with the prior year.

Underlying total group profit before tax:

Underlying total group profit before tax is a key measure of Group profitability and assesses the Group's combined organic and inorganic profitability after funding costs have been considered.

Underlying total group diluted earnings per share:

Underlying total group diluted earnings per share represents underlying total group profit before tax less the underlying effective tax charge for both continuing and discontinued operations in the period divided by the weighted average number of shares in issue for the period. This is a key measure of total underlying profitability for shareholders from all operations owned in the year.

Underlying continuing operations operating profit:

Underlying continuing operations operating profit is used to explain the operating performance of the ongoing portion of the Group reflecting the disposal and exclusion of the Jersey Private Client business. This is a key profit measure to consider the operating profitability on an ongoing basis.

Underlying continuing operations profit before tax:

Underlying continuing operations profit before tax is a key measure of Group profitability for the ongoing business and assesses the Group's combined organic and inorganic profitability after funding costs have been considered but excluding those operations being sold.

Underlying continuing operations diluted earnings per share:

Underlying total group operating profit margin and underlying continuing operations operating profit margin

Underlying total group operating profit margin is the underlying total group operating profit as a percentage of total Group revenue. This is a key measure of total Group profitability during the year and demonstrates the efficiency of the Group. Underlying continuing operations operating profit margin is the underlying continuing operations operating profit as a percentage of continuing operations revenue. This is a key measure of the ongoing Group's profitability after the disposal of the Jersey Private Client business.

UNDERLYING OPERATING CASH FLOW

Underlying operating cash flow represents the cash generated by total operations in the year, adding back the cash charges within non-underlying items and reducing for the total cash out flow in relation to the Group's leases that have been accounted for under IFRS 16. A reconciliation is included in the CFO Review.

UNDERLYING OPERATING CASH CONVERSION

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

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 generate cash returns or be invested in the future growth of the business.

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. We consider the underlying effective tax rate to be an appropriate measure, as it best reflects the applicable tax payable in relation to the underlying performance of the Group. A reconciliation is provided in note 10 to the financial statements for the reported and total group underlying effective tax rate. The table below reconciles the underlying tax charge for underlying continuing operations and the underlying effective tax rate is this charge divided by the underlying continuing operations profit before tax:

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.

Consolidated Income Statement

For the year ended 31 December 2019

1 Refer to note 11 for details relating to the discontinued operations.

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

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2019

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

Consolidated Balance Sheet

As at 31 December 2019

The consolidated financial statements were approved by the Board of Directors on 18 March 2020 and signed on its behalf by:

Martin Schnaier James Ireland

Chief Executive Officer Chief Financial Officer

Consolidated Statement of Changes in Equity

For the year ended 31 December 2019

1 Refer to note 36 for details relating to changes in accounting policy, transitioning in the new IFRS 16 accounting standard.

Consolidated Cash Flow Statement

For the year ended 31 December 2019

Notes to the Consolidated Financial Statements

For the year ended 31 December 2019

1. General information

Sanne Group plc (the "Company"), incorporated in Jersey on 26 January 2015, is a registered public company limited by shares with a Premium Listing on the London Stock Exchange. The registered office and principal place of business is IFC 5, St. Helier, Jersey, JE1 1ST. The principal activity of the Company and its subsidiaries (collectively the "Group") is the provision of alternative asset and corporate administration services.

In the opinion of the Directors there is no ultimate controlling party.

These consolidated financial statements are presented in Pounds Sterling. Foreign operations are included in accordance with the policies set out in note 3.

The accounting policies have been applied consistently in the current and prior year, other than as set out below.

2. Adoption of new and revised Standards

Standards in issue not yet effective

Certain new accounting standards and interpretations have been published, which are not effective for 31 December 2019 reporting periods and have not been early adopted by the Group. These standards, listed below, are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

(a) Definition of Material - Amendments to IAS 1 and IAS 8

 (b) IFRS 17 Insurance Contracts

(c) Revised Conceptual Framework for Financial Reporting. The Group does not rely on the Framework in determining its accounting policies for transactions. The IFRS standards sufficiently cover all transactions.

New and revised standards effective for the year

The Group adopted the new IFRS 16 'Leases' accounting standard on 1 January 2019, replacing IAS 17. The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. It introduced a single lessee accounting model whereby a lessee is required to recognise a right-of-use asset and a lease liability for all leases with a lease term exceeding 12 months. The Group assessed the impact of the new standard to be significant. Please refer to note 36 for further details relating to the adoption of the new standard. The depreciation on the right-of-use asset will be accounted for separately from the interest expense incurred on the lease liability in the consolidated income statement. The Group elected to make use of the modified retrospective approach for transition and have not restated comparative amounts. The lease liability is measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate at transition date. Right-of-use assets will be measured as if the standard has always been applied. There is no significant impact on the net profit after implementing the new standard.

The Group adopted IFRIC 23 'Uncertainty over Income Tax Treatments' on 1 January 2019. The Group's historic approach to 'Uncertainty over Income Tax Treatments' is in line with the new IFRIC 23. Thus, there was no material impact on the amounts reported in the financial statements. Additional disclosure had been made in note 10 to address the disclosure requirements of the new IFRIC.

In the current year, the Group applied a number of amendments to IFRSs and new interpretations issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2019. Their adoption has not had any material impact on the disclosures or on the amounts reported in these consolidated financial statements. The most significant of these standards are set out below.

(a) Annual improvements 2015-2017 Cycle

(b) Prepayment Features with Negative Compensation - Amendments to IFRS 9

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

(d) Plan Amendment, Curtailment or Settlement - Amendments to IAS 19

3. Significant accounting policies

Basis of accounting

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The consolidated financial statements have also been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB") to the extent that such standards have been endorsed by the European Union.

The consolidated financial statements have been prepared on the historical cost basis, except for certain financial assets measured at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. The principal accounting policies adopted are set out below.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) during each year. Control is achieved where the Company:

• has the power over the investee;

• is exposed, or has rights, to variable return from its involvement with the investee; and

• has the ability to use its power to affect its returns.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income when the Company obtains control over the subsidiary and ceases when the Company loses control over the subsidiary. Where necessary, adjustments are made to the financial results of the subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Under Article 105(11) of the Companies (Jersey) Law 1991, the Directors of a holding company need not prepare separate financial statements (i.e. Company only financial statements). Company only financial statements for the Company are not prepared unless required to so by the members of the Company by ordinary resolution. The members of the Company had not passed a resolution requiring separate financial statements and, in the Directors' opinion, the Company meets the definition of a Holding company. As permitted by law, the Directors have elected not to prepare separate financial statements.

Going concern

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least the next 12 months from the date of approval of these consolidated financial statements. The Directors have reviewed the Group's financial projections and cash flow forecasts and believe, based on those projections and forecasts, that it is appropriate to prepare the consolidated financial statements of the Group on the going concern basis. The Group has healthy cash inflow through a good pipeline of existing and new customers, the Group also has finance facilities available. Accordingly, they have adopted the going concern basis of accounting in preparing the consolidated financial statements. Further detail is contained in the viability statement included in the Audit Committee report in the Group's Annual Report and Accounts.

Business combinations

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred and as non-underlying items within operating expenses.

The acquiree's identifiable assets and liabilities that meet the conditions for recognition under IFRS 3 (2008) are recognised at their fair value at the acquisition date.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.

When the consideration transferred by the Group in a business combination includes an asset or liability resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement' period' (which cannot exceed one year from the acquisition date) concerning the facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates at fair value with the corresponding gain or loss being recognised in profit or loss, as non-underlying items within operating expenses.

Goodwill

Goodwill is initially recognised and measured as set out above.

Goodwill is not amortised but is reviewed for impairment at least annually or if indicators of impairment are identified. For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. Refer to note 16.

Intangible assets

Intangible assets acquired in a business combination are initially recognised at their fair value at the acquisition date (which is regarded as the cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortisation and any impairment losses.

The Group performs assessments at the end of each reporting period, in order to identify any possible indicators of impairment, this is a separate assessment from the annual Goodwill impairment review. Should there be any indicators of impairment, the Group estimates the recoverable amount of the asset and if an impairment should be recognised.

Contract intangibles

Contract intangibles consist of the recognition of the legal relationships gained through acquisition. On initial recognition the values are determined by relevant factors such as business product life-cycles, length of notice, ease of movement and general attrition. These intangibles are amortised over their useful lives using the straight-line method, which is estimated at four to eight years, based on management's expectations and client experience. The amortisation charge for the year is included in the consolidated income statement under 'operating expenses'.

Customer intangibles

Customer intangibles consist of the recognition of value attributed to the customer lists through acquisition. On initial recognition the values are determined by relevant factors such as the Group's growth pattern and ability to cross-sell to existing clients. Subsequently, these intangibles are amortised over their useful lives using the straight-line method, which is estimated at four to ten years, based on management's expectations and client experience. The amortisation charge for the year is included in the consolidated income statement under 'operating expenses'.

Software

Costs associated with maintaining software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the recognition criteria is met.

The costs related to software under development are categorised between research and development expenditure. Research expenditure and development expenditure that do not meet the recognition criteria are recognised as expenses when incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Amortisation will commence once the asset is ready for use, as intended by management.

Interest income

Interest income is recognised using the effective interest method. This is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, unless the assets subsequently become credit impaired. In the latter case, the effective interest rate is applied to the amortised cost of the financial asset. Interest is recognised on an accruals basis.

Revenue recognition

Revenue is measured at transaction price. The transaction price is the amount of consideration that the Group expects to receive in exchange for the services rendered.

Rendering of services

Revenue is based on and charged on three principal elements per the contracts with customers, 1) Assets under management (open ended funds) where revenue is charged as a percentage of the assets under management, 2) Assets under management (closed ended funds) where fees are also charged as a percentage of assets under management, 3) Service based fees where the revenue is charged based on an agreed fee structure for various services being provided. All revenue is recognised over time as the services are rendered and clients benefit from these services.

The Group provides a number of services to its customers, ranging from trust / fiduciary services, accounting and administrative activities. As the revenue recognition under IFRS 15's "five step model" is identical for all Sanne's services, the five step approach is applied as follows:

Step 1 - Identify the contract;

Contractual agreements exist between SANNE and all clients which creates enforceable rights and obligations.

Step 2 - Identify performance obligations

The services to the customer set out in the agreement are separately identifiable. Each service set out in the contract is distinct as each component can be performed and delivered separately. The different services have been identified as separate and distinct services, thus being separate performance obligations.

Step 3 - Determine transaction price

Service based fees are based on either pre-set (fixed) fees which are based on the expected amount of work (time spent at the relevant charge-out rates) to be performed or on a variable agreement where it is based on the actual amount of work (time spent at the relevant charge-out rates) but only to be determined once the work is finalised.

Determining the transaction price for these fees will vary with the amount of time spent which is supported by time sheets.

Step 4 - Allocate transaction price

The transaction prices are allocated to the performance obligations (the provision of the services) based on the stand-alone selling prices. Sanne uses the best available data to determine a price for the services rendered which is based on time spent at a specific charge out rate.

Step 5 - Recognise revenue

Sanne concluded that the obligations are satisfied over time. We recognise the revenue for these services on a time spent basis as the performance obligations are satisfied over time.

Contracts with customers do make provision for annual transaction price increases, generally in line with a relevant local inflation measures. These increases do not change the performance obligations, and the increased prices are applied prospectively when revenue is recognised.

Revenue is recognised in the subsidiary where the contract with customers is based. The segmental reporting is presented based on the jurisdiction in which the specific client relationships are owned and managed. Therefore, the revenue stated in the segmental reporting is presented based on the jurisdiction where revenue is generated but may not be the same as the contracted jurisdiction.

Contract assets

Contract assets represent the billable provision of services which have been rendered and where performance obligations have been met but clients have not been invoiced at the reporting date. These were previously called "accrued income" in SANNE's consolidated financial statements. Contract assets are recorded based on agreed fees to be billed in arrears and time spent as performance obligations are met, based on charge-out rates in force at the work date, less any specific provisions against the value of contract assets where recovery may not be made in full.

Contract liabilities

Contract liabilities represent fees billed in advance in respect of services under contract and give rise to a trade receivable. Contract liabilities are released to revenue on a time apportioned basis in the appropriate accounting period. These were previously called "deferred income" in SANNE's consolidated financial statements.

Leases

Up to 31 December 2018, all leases were classified as operating leases. Rentals payable under operating leases were charged to expenses on a straight-line basis over the term of the relevant lease except where another more systematic basis was more representative of the time pattern in which economic benefits from the lease asset were consumed.

On 1 January 2019 the Group adopted IFRS 16 'Leases'. The Group assesses its contracts to determine if a contract is or contains a lease. A contract contains a lease if it conveys the right to control the use of an identified asset for a period, in exchange for consideration. At initial recognition of a new lease, the lease liability is recognised as the present value of future payments, discounted using the incremental local borrowing rate (unless the interest implicit to the lease is available for use). A corresponding right-of-use asset is recognised on initial recognition and is measured at an amount equal to the lease liability, less any lease incentives and lease payments made before the commencement date, plus any initial direct costs and dilapidation costs.

Subsequently the Group accounts for lease payments by allocating them between finance costs and the lease liability. The finance cost is charged to profit or loss over the lease period. The right-of-use asset is depreciated over the shorter of the asset's useful life or the lease term on a straight-line basis.

The Group made use of the practical expedient whereby leases with a lease term of 12 months or less are accounted for as a short-term lease. Consequently, no lease liability or right-of-use asset is recognised thereon and the lease payments will be accounted for in the consolidated income statement on a straight-line basis.

The Group also made use of the 'low value asset' practical expedient and defines low value assets as those assets with a purchase price for a new and unused asset of £5,000 or lower.

Foreign currencies

The separate financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in Pounds Sterling, which is the functional currency of the company, and the presentation currency for the consolidated financial statements.

In preparing the separate financial statements of the subsidiary companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognised in the Consolidated Income Statement in the year in which they arise.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's operations with a functional currency other than Pounds Sterling are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the exchange rates at the date of the transactions. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity in the translation reserve.

On the disposal of a foreign operations (i.e. a disposal of the Group's entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, loss of joint control over a jointly controlled entity that includes a foreign operation, or loss of significant influence over an associate that includes a foreign operation), all of the accumulated exchange differences in respect of that operation attributable to the Group are reclassified to profit or loss.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income and accumulated in the translation reserve in the consolidated statement of changes in equity.

Defined contribution schemes

Payments to defined contribution retirement benefit schemes are recognised as an expense when employees have rendered services entitling them to contributions.

Defined benefit RETIREMENT OBLIGATION

The Group has a defined benefit retirement obligation in Mauritius due to a regulatory requirement. The defined benefit retirement obligation is recognised in line with IAS 19.

The liability recognised in the consolidated balance sheet in respect of the defined benefit retirement obligation is the present value of the defined benefit retirement obligation at the end of the reporting period less the fair value of plan assets, however the Group has no plan assets.

The defined benefit retirement obligation is calculated at half year and year end by independent qualified actuaries using the projected unit credit method.

The present value of the defined benefit retirement obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related defined benefit retirement obligation.

Defined benefit costs are categorised as follows:

• service cost

• net interest expense or income; and

• re-measurement

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past-service costs are recognised immediately in profit or loss.

Earnings per share

The Group presents basic and diluted earnings per share. In calculating the weighted average number of shares outstanding during the period any share restructuring is adjusted by a factor to make it comparable with the other periods. For diluted EPS, the weighted average number of ordinary shares is adjusted to assume conversion of all dilutive potential ordinary shares.

Both basic and diluted EPS measures are shown for the statutory profit position. The Group has also presented an alternative version with profit adjusted for non-underlying items to provide an additional understanding of the financial performance of the Group (note 12).

Taxation

Tax on the profit or loss for the period comprises current and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the consolidated statement of comprehensive income as it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of the deferred tax asset is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been enacted or substantively enacted at the balance sheet date.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Current tax and deferred tax for the year

Current and deferred tax are recognised in the consolidated income statement, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

Equipment

Equipment is stated at cost less accumulated depreciation and any recognised impairment loss. Software that forms an integral part of the related hardware, where the hardware cannot be operated without the specific software is treated as equipment.

Depreciation is recognised so as to write off the cost of assets less their residual values over their useful lives, using the straight-line method, on the following bases:

Computer equipment 3 to 5 years

Computer software 3 years

Fixtures and equipment 5 to 24 years

The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period with the effect of any changes in estimate accounted for on a prospective basis.

The gain or loss arising on the disposal or scrappage of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in profit or loss.

Impairment of tangible and intangible assets (excluding goodwill)

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

The recoverable amount of an asset is the higher of its fair value less costs to sell or the value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

Financial instruments

Financial assets and financial liabilities are recognised in the Group's consolidated balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Financial assets

All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value.

Cash and cash equivalents

Cash and cash equivalents include cash on hand and deposits held at call with banks.

Call deposits held with the bank are redeemable to the group within 24 hours' notice, without early payment penalties or interest forfeits. These call deposits have a maturity of three months or less from the date of acquisition.

Trapped cash represents the minimum cash balance to be held to meet regulatory capital requirements, as set out by relevant laws and regulations in the different jurisdictions. The trapped cash is determined based on certain rules that are different in each jurisdiction. Trapped cash is recognised as cash and cash equivalents.

Financial assets at amortised costs

The Group's business model is to collect the contractual cash flows from its assets. The cash flows consist solely of interest and principal payments. Therefore, the financial assets are classified as carried at amortised cost. The assets are measured at amortised cost using the effective interest method, less the expected credit losses. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Refer to note 34 disclosing the financial assets categorised as financial assets at amortised costs.

Financial assets at fair value through other comprehensive income

The Group has made an equity investment, that is not held for trading purposes. The Group has made the irrevocable election to carry the investment at fair value through other comprehensive income. On initial recognition the investment was measured at fair value, plus transaction costs. Subsequently, this investment will be measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the investment revaluation reserve. Dividends on the investment in equity instrument are recognised in profit or loss. On disposal of the equity investments the cumulative gain or loss will not be reclassified to the consolidated statement of comprehensive income, instead, it is transferred to retained earnings.

Impairment of financial assets

The Group recognises a loss allowance, for expected credit losses on its financial assets. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the financial asset. When the expected credit loss for trade receivables is determined, the Group makes use of the simplified approach, whereby the loss recognised is equal to the lifetime expected credit losses. Lifetime expected credit losses represent the expected losses that may result from possible default events, and the probability of such an event occurring, over the life time of the financial asset. The expected lifetime credit losses of the trade receivables, are estimated using a provision matrix. The matrix is based on the Group's historical credit loss experience, the most significant factor being the days past due. It is then adjusted for forward-looking factors, that are specific to the trade receivables.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

Financial liabilities and equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

Repurchase of the Company's own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company's own equity instruments.

Financial liabilities

All financial liabilities are classified as measured at amortised cost. These liabilities are initially measured at fair value less transaction costs and subsequently using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant year. The effective interest rate is the rate that discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the amortised cost of a financial liability. Where financial liabilities are short term and immaterial, no interest is levied.

Accrued interest is recorded separately from the associated borrowings within current liabilities.

Employee share trust/Own shares

Own shares represent the shares of the Company that are held in treasury and by the Group's employee share ownership trust (which is consolidated in the Group consolidated financial statements). Own shares are recorded at cost and deducted from equity. When shares vest unconditionally, are cancelled or are reissued they are transferred from the own shares reserve at their weighted average cost. Any consideration paid or received by the Trust for the purchase or sale of the Company's own shares is shown as a movement in shareholders' equity.

Provisions

Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are determined by the expected future cash flows at a pre-tax rate that reflects current market assessments of the risks specific to the liability. Onerous lease provisions are measured at the lower of the net cost to fulfil, or to exit the contract, discounted as appropriate.

Fiduciary activities

The assets and liabilities of trusts and companies under administration and held in a fiduciary capacity are not included in these consolidated financial statements.

Share-based payments

Employees of the Group receive bonus allocations in the form of share-based payments under Performance Share Plan, Restrictive Stock Awards and Annual Performance Bonuses, whereby eligible employees render services as consideration for equity instruments (shares).

Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market-based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 32.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

The grant date fair value is estimated with reference to the market price of the company's shares. For share plans containing market-based vesting conditions, the fair value was determined using a valuation model that takes into account the share price at grant date, expected price volatility and a risk free rate.

Operating profit

The operating profit reflects the profit earned from the Group's business operations. It includes revenue and other operating income less direct and indirect cost. Furthermore, the operating profit comprises of underlying and non-underlying items. Operating profit excludes finance costs, finance income and foreign exchange gains and losses.

Non-underlying items

Non-underlying items are disclosed and described separately in the consolidated financial statements where in the opinion of the directors it is appropriate to do so to provide further information of the financial performance of the Group.

The Group's core business is the administration, reporting and fiduciary services it provides in various jurisdictions. All acquisition and integration related costs are disclosed as non-underlying as these fall outside the core business of the Group. Restricted Share Awards form part of the non-underlying items as they are used as a tool to retain key personnel relating to the acquisitions and recruit senior management to support the acquisitions. Amortisation of contract and customer intangible assets recognised through the acquisitions is also included as non-underlying. These charges are based on judgements about the value and economic life of assets that, in the case of items such as customer relationships, would not be capitalised in normal operating practice. Therefore excluding the amortisation of intangible assets from underlying earnings allows the income and costs of both organically generated and acquired contracts to be presented on a like-for-like basis. Any impairment losses attributable to these intangible assets are also deemed to be outside of the course of ordinary business. Regulatory fines and the fees associated with these fines are also deemed to be one off in nature and are classified as being non-underlying items.

All the non-underlying items are regarded as expense items outside the normal course of business and disclosed separately to assist Shareholders to better analyse the performance of the core business. Changes to the subsequent contingent consideration arising from prior and current period business combinations are included in non-underlying items.

Further details of the nature of non-underlying items are given in note 9.

Direct costs

Direct costs are defined by management as the costs of the income generating divisions including staff payroll, marketing and travel attributable to the division in relation to the delivery of services and supporting growth.

Disposal groups held for sale and discontinued operations

Disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell.

An impairment loss is recognised for any initial or subsequent write-down of the disposal group to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of the disposal group, but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the disposal group is recognised at the date of derecognition.

The disposal group includes trade receivables, contract assets and contract liabilities and consequently does not attract depreciation, amortisation or interest payable.

Assets that are part of the disposal group classified as held for sale are presented separately from the other assets in the consolidated balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the consolidated balance sheet.

A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the consolidated income statement.

PREPAYMENTS

Prepayments are treated as a current asset, and represents goods or services that the Group has paid fore before the delivery there of. The prepayment will be released to the relevant expense in the period to which the delivery of goods or services relate to.

4. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in note 3, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years.

Critical judgements in applying the group's accounting policies

The following are the critical judgements at the balance sheet date that the directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the consolidated financial statements.

Classification of equity investment

The Group obtained an equity investment in Colmore A.G. The group does not hold controlling voting rights in Colmore A.G. The group tested the requirements for significant influence. Sanne has representation on the board of directors, however, due to a single board member holding the outright majority shares, Sanne is not able to direct the daily operations or participate in policy-making processes. Even though Sanne has entered into an agreement with Colmore A.G. to develop new software, Sanne does not deem this to be a material transaction. Sanne will also not be in a position to make changes to the managerial personnel of Colmore A.G. nor will it be providing essential technical information. Sanne cannot demonstrate significant influence. Subsequently the group will carry the investment as an investment in equity rather than an investment in associate. Therefore equity accounting will not be applied, instead the investment is measured at fair value through other comprehensive income. Refer to note 20 for related disclosure on the fair value measurement methodology applied.

Disposal group held for sale

During the year Sanne made a strategic decision to try and dispose of the private client business in Jersey. Judgement was applied to determine if the planned disposal falls within the scope of held for sale. In making the judgement Sanne considered the requirements set out in IFRS 5 Non-current assets held for sale and Discontinued Operations. It was concluded that the client agreements and employee group disposed of would make up a disposal group - the rationale being that the contracts, if externally acquired in a business combination, would've been recognised as an intangible asset. As these customer relationships were internally generated, the standard prohibited the recognition as assets. Subsequently the trade receivables, contract assets and contract liabilities recognised on these clients in the prior year have been reclassified on the consolidated balance sheet as a "Disposal group held for sale".

Key sources of estimation uncertainty

FAIR VALUE MEASUREMENT OF INVESTMENT IN EQUITY

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. The key inputs in the fair value assessment is the weighted average growth rate, terminal growth rate and the WACC rate. Refer to note 20 for further disclosure relating to the fair value assessment.

Impairment testing

Goodwill

In the assessment of the annual impairment tests on Goodwill, the following assumptions are deemed to be key sources of estimation: the revenue growth rate and the discount rate. Management has assessed that, except for Sanne South Africa, no other CGU's reasonably possible changes would cause the aggregate carrying amount to materially exceed the recoverable amount of the CGU. Note 16 sets out these rates and sensitivities.

Contract assets

The Group recognises contract assets within revenue and as a receivable for amounts that remain unbilled at the year end, recorded at the recoverable amount. The recoverable amount of contract assets is assessed on an individual basis using the judgement of management, and takes into account an assessment of the client's financial position, the aged profile of the contract assets and an assessment of historical recovery rates. The balance at year end is £6.5 million (£6.6 million), the failure to recover 15% (based on an extreme worst case scenario) of this balance would result in an impairment of £970k (2018: £994k).

Other estimates

Probability of vesting of equity instruments granted in terms of share based payment schemes

The cumulative expense recognised in terms of the Group's share based payment schemes reflects, in the opinion of the Directors, the number of equity instruments granted that will ultimately vest. At each reporting date, management adjusts the unvested equity instruments with the forfeited instruments. Management is of the opinion that this number, adjusted for future attrition rates, represents the most accurate estimate of the number of instruments that will ultimately vest.

Impairment testing

Intangible assets

During the financial year an impairment was recognised on Sanne's South African contract intangibles. The recoverable amount was calculated using a Multi-Period Excess Earnings Method (MEEM) model, requiring the following inputs: post-tax weighted average cost of capital to discount the cash flows, a general attrition rate, a direct cost and an overhead cost margin and lastly the corporate tax rate. The discount rate was identified as being the most sensitive to change, however, Sanne does not consider that a change in the discount rate to result in material changes. Refer to note 17 relating for additional information on the assumptions used.

Lease term

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended. Exercising either the extension or termination options are case dependent and is an ongoing assessment. Therefore, should the Group apply the extension option, the lease liability and right-of-use asset will be increased. Should the Group terminate an agreement both the lease liability and right-of-use asset will be derecognised.

5. 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-maker is considered to be the Executive Directors of Sanne. 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 on the basis of gross profit, after the deduction of the direct costs of staff, marketing and travel. No inter-segment sales are made.

The Group classified its private client contracts and employee group held in Jersey as a discontinued operation due to significant contracts having been designated as held for sale. This was regarded to as major business line in the past and forms part of the Channel Islands segment. Please refer to note 11 for additional details relating to the sale.

The Group's consolidated financial statements for the year ended 31 December 2018 had four reportable segments under IFRS 8, namely EMEA Alternatives, Asia-Pacific & Mauritius Alternatives, North American Alternatives and Corporate & Private Client. Given the continuing growth of the Group, these segments have been reorganised from 1 January 2019. The new segments are EMEA, Asia-Pacific & Mauritius, Channel Islands and North America. This change has been effective outside of the European regions in the Group for some time, however the scale of operations across the old EMEA Alternatives and CPC businesses meant it was necessary to change and split the European business between the Channel Islands (CI) and the rest of EMEA. This change brings with it a number of significant benefits, including a more robust governance and control framework at local levels, fostering local accountability, as well as bringing an improved focus on local employee requirements across our expanding jurisdictional footprint.

The comparative numbers for the segmental reporting have been restated to reflect the four segments created in the current reporting period, with effect from 1 January 2019.

1 Refer to note 11 for the total revenue and direct costs attributable to discontinued operations.

Geographical information

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

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.

6. Revenue