Sanne Group PLC (LON:SNN), the global provider of alternative asset and corporate services, today provided an update on trading for the six months ended 30 June 2019 and full year outlook.
Key points:
• Record levels of new business wins from both new and existing clients
• Very strong revenue performance across all core Alternatives business segments and jurisdictions
• Underlying H1 operating cash conversion in excess of 100%
• Margin lower in H1 leading to lowered margin guidance for the full year despite expected H2 margin improvement
H1 2019
The Group delivered constant currency organic revenue growth of 13% and factoring in the impact of the prior year acquisitions, delivered total constant currency revenue growth of 17%. Growth was due to very strong performances in all of the core Alternatives business segments across all jurisdictions. However, this growth was partially offset by weak performance from our European Corporate and Private Client businesses.
Record levels of new business won in H1 2019 from both new and existing clients totalled approximately £16.0 million (2018: £11.5m) on a projected annualised fee basis.
Revenue growth for the Group’s Alternatives businesses globally was approximately 22% on a constant currency basis. Of this, the Group’s North American Alternatives segment saw constant currency revenue growth in excess of 25% whilst in the Asia-Pacific Mauritius Alternatives segment, the business delivered 14%. Under the old segmental split, the EMEA Alternatives segment saw constant currency organic revenue growth of approximately 16% increasing to over 25% when the full period contribution of 2018’s acquisitions is included. Both of the 2018 acquisitions continue to perform well. The Group opened new offices in Tokyo and Mumbai during the first half of the year to capture growing opportunities in those markets.
The Group’s European Corporate and Private Client businesses, previously the CPC segment (13% of 2018 Group revenues), delivered disappointing first half financial performances. The Corporate business was flat whilst Private Client was down on the first half of 2018. Overall combined revenues were down approximately 11% on the same period in 2018. During H1 2019, these businesses saw limited new client wins and some client attrition. An update on initiatives to address the performance issues will be provided in the interim results statement.
The Group’s underlying operating margin in H1 2019 is expected to be approximately 26%, below our previous expectations for the current year. The margin performance in the first half was affected by a combination of items. We have seen a disappointing lack of delivery of operating efficiencies in the central operations teams that we highlighted in 2018, and some elevated overhead spend. We have already taken action to address these issues and continue to implement initiatives to improve the full year outturn.
The first half also saw the Group continuing to invest in building a leading, sustainable, global, Alternatives platform. This includes our Business Development and new Product Development teams where we are seeing significant benefits, some of which were reflected in strong first half business wins. In response to some of the new business wins, we have also hired ahead of their implementation, particularly within the EMEA Alternatives segment.
Cash generation was strong during the first half, resulting in underlying operating cash conversion in excess of 100%.
Full year outlook
The continued outperformance from SANNE’s core Alternatives businesses gives the Board confidence in the Group’s full year revenue expectations, despite the challenges in the Corporate and Private Client business areas.
Whilst we see good levels of revenue growth, the items impacting the underlying operating margin in the first half are unlikely to be fully compensated for in the second half. The Board therefore expects to report at full year underlying operating profit margin in the region of 28% to 30%, which is below our previous expectations.
The very strong growth in our Alternatives business resulted in a Group blended tax rate of approximately 21% for the first half, higher than the previous period, which is indicative of a geographic mix effect where revenues were earned in higher tax rate jurisdictions. Assuming the continued strong revenue trajectory and business mix, we would expect a similar blended rate for the full year.
As a result of the changes to underlying operating margin and blended tax rate the Board expects to report underlying earnings per share for the full year below its previous expectations.
M&A
SANNE continues to review various M&A opportunities across a number of the Group’s fastest growing jurisdictions in North America, EMEA and Asia-Pacific and our new head of M&A has now been in place for 3 months. We are currently presented with a very strong pipeline of high quality opportunities, which also include potential partnerships that would enable access to industry leading technology capabilities. We will continue to be selective and undertake our disciplined approach to M&A.
Martin Schnaier, Chief Executive Officer of Sanne Group plc said:
“The Group has delivered a good revenue performance overall in the first half. Our core Alternatives businesses across our global platform operate in growing markets and are therefore well set to continue driving this revenue growth.
The first half margin is a disappointing outcome and well below the optimal margin for the business. We have taken action to address the increased spend and delay in operating efficiencies being realised.
We remain committed to investing in the significant growth opportunities that we are delivering on in our core markets and products. Although this investment is impacting our margin guidance for the current year, the priority is to ensure the Group is well positioned to deliver sustainable growth in the medium and long term.”
Analyst and investor conference call
Management will host a conference call for analysts and investors at 8.30am on Monday 29 July (UK time). To register and for instructions on how to connect and/or request automatic dial-in, please click the following link:
https://www.speakservecloud.com/register-for-call/9a3647ee-58da-47cf-a3de-e7f63ac98d2e
Notice of interim results
The Group will announce its interim results for the six months ended 30 June 2019 on Tuesday 10 September 2019.
The Group will present these results under its new reporting structure (splitting out Channel Islands from EMEA, as outlined at its Capital Markets Day on 16 May 2019) and under IFRS16.
