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Sanne warns on margins

The alternative asset and corporate services provider has issued a profit warning after missing margin expectations in the first half of 2019
July 29, 2019

Sanne (SNN) investors were left reeling after the group revealed that a weaker-than-expected underlying operating margin and higher blended tax rate for the first-half could cause full year underlying earnings per share to miss guidance. The shares plunged by as much as 35 per cent in response.

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The margin squeeze to around 26 per cent is said to have arisen from a failure to deliver anticipated operating efficiencies, elevated overhead spending and ongoing investment in the alternatives platform. With these issues unlikely to be fully compensated during the second half, the group predicts the full year margin will be in the range of 28-30 per cent, below management's previous expectations of a margin in the low-30s.

However, the group reported record levels of new business from both new and existing clients during the period, totalling £16m on a projected annualised fee basis. Overall revenue increased by 17 per cent at constant currencies, with 13 per cent organic growth.

But set against some client attrition, combined revenues in the European corporate and private client segments declined by around 11 per cent at constant currencies. Although global alternatives sales surged by more than a fifth, revenues earned in higher rate tax jurisdictions pushed the blended tax rate up to around 21 per cent – higher than the previous period and expected to persist for the full year.

Numis downgraded its adjusted pre-tax profit and EPS forecasts by 12 per cent to £46.3m and EPS of 25.2p, respectively, for 2019.