Full year results for the year ended 31 Dec 2019
22 April 2020
JTC PLC
("the Company) together with its subsidiaries ("the Group" or "JTC")
Full year results for the year ended 31 December 2019
JTC delivers continued disciplined growth and announces
positive outlook based on its resilient business model
|
|
As reported |
Underlying* |
||||
|
|
2019** |
2018 |
Change |
2019 |
2018 |
Change |
|
Revenue (£m) |
99.3 |
77.3 |
+28.5% |
99.3 |
77.3 |
+28.5% |
|
EBITDA (£m) |
33.7 |
5.4 |
+529.2% |
31.7 |
23.9 |
+32.4% |
|
EBITDA margin |
34.0% |
6.9% |
+27.1pp |
31.9% |
31.0% |
+0.9pp |
|
Operating profit/EBIT |
23.0 |
0.7 |
+3084.6% |
24.3 |
19.2 |
+26.8% |
|
Profit/loss before tax (£m) |
17.6 |
-2.1 |
-928.5% |
20.5 |
17.0 |
+20.0% |
|
Earnings per share (p)*** |
15.43 |
-3.87 |
-498.7% |
22.33 |
19.23 |
+16.1% |
|
Cash conversion |
70% |
128% |
-58.0pp |
89% |
90% |
-1.0pp |
|
Net debt (£m) |
-66.5 |
-48.7 |
-17.8 |
-59.3 |
-46.4 |
-12.9 |
|
Dividend per share (p) |
5.3 |
3.0 |
+2.3p |
5.3 |
3.0 |
+2.3p |
* Reconciliation of performance measures to reported results. For further information on underlying results see appendix to CFO Review.
** As reported 2019 results include the impact of IFRS 16.
*** Average number of shares for 2019: 111,352,868 (2018: 99,631,757). Underlying EPS is calculated per note 34.4 of the company financial statements and is referred to as adjusted underlying basic EPS.
financial highlights
· Revenue up 28.5% to £99.3m (2018: £77.3m), reflecting a combination of good net organic growth of 8.4% (+15.4% gross) and growth from acquisitions (+20.1%)
· Underlying EBITDA up 32.4% to £31.7m (2018: £23.9m) with underlying EBITDA margin up 0.9pp to 31.9% (2018: 31.0%)
· Performance in line with guidance given for the period of 8 - 10% net organic growth and 30 - 35% underlying EBITDA margin
· Record annualised new business wins totaling £14.9m, comprising £8.9m in ICS (up 48%) and £6.0m in PCS (up 62%)
· A robust balance sheet with available facilities of £150m, and no debt falling due for repayment until 2023
strategic highlights
· Good performance from both the Institutional Client Services (ICS) and Private Client Services (PCS) Divisions, with particularly strong results from the PCS Division
· Acquired Exequtive Partners in Luxembourg and small bolt-ons in Cayman and Netherlands
· Post period end, small bolt-ons in the UK (Registrar services) and Ireland (corporate services) and announcement of the acquisitions of the Sanne private client business in Jersey and technology-enabled US fund administration business NES Financial (NESF)
· M&A pipeline remains healthy. Disciplined approach will continue in 2020 with focus on the integration of acquisitions announced in Q1 while continuing to seek opportunities, particularly in the US, UK and mainland Europe
outlook
· Continued positive growth prospects for the Group, underpinned by fundamental drivers for our industry
· Medium-term guidance for net organic growth maintained at 8 - 10% and update guidance for underlying EBITDA margin to 33 - 38% taking into account IFRS 16
· Focus on integration of acquisitions announced in Q1 2020 (NESF and Sanne private client)
· The Group remains well invested to deliver continued operational improvement and take advantage of further consolidation opportunities.
covid-19
· Swift, effective and resilient response to the risks and challenges that have emerged with seamless transition to remote working for c.900 employees with no interruption to client service
· A highly experienced management team, resilient global platform and 32 year track record of growth year on year
· Highly visible recurring revenues with diversification across clients, services and geographies and no immediate impact seen on client activity levels
Nigel Le Quesne, Chief Executive Officer of JTC PLC, said:
"2019 has seen another strong set of results maintaining our 32 year record of revenue and profit growth. In particular, we have seen good revenue growth, further margin improvement and record new business wins in both Divisions. We have maintained our disciplined approach to acquisitions with Exequtive Partners in 2019 and the Sanne private client business and NES Financial (US fund services) in Q1 2020.
"I would like to take this opportunity to extend my thanks to the excellent JTC team for their dedication and support in 2019 and in particular in their response to the challenges brought by the Coronavirus pandemic in 2020."
Enquiries:
JTC PLC +44 (0) 1534 700 000
Nigel Le Quesne, Chief Executive Officer
Martin Fotheringham, Chief Financial Officer
David Vieira, Chief Communications Officer
Camarco +44(0)20 3757 4985
Geoffrey Pelham-Lane
Kimberley Taylor
Monique Perks
A presentation for analysts will be held at 09:30 today via audio-conference arranged by Camarco.
An audio-cast of the presentation will subsequently be made available on the JTC website: www.jtcgroup.com/investor-relations
Forward Looking Statements
This announcement may contain forward looking statements. No forward looking statement is a guarantee of future performance and actual results or performance or other financial condition could differ materially from those contained in the forward looking statements. These forward looking statements can be identified by the fact they do not relate only to historical or current facts. They may contain words such as "may", "will", "seek", "continue", "aim", "anticipate", "target", "projected", "expect", "estimate", "intend", "plan", "goal", "believe", "achieve" or other words with similar meaning. By their nature forward looking statements involve risk and uncertainty because they relate to future events and circumstances. A number of these influences and factors are outside of the Company's control. As a result, actual results may differ materially from the plans, goals and expectations contained in this announcement. Any forward looking statements made in this announcement speak only as of the date they are made. Except as required by the FCA or any applicable law or regulation, the Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this announcement.
About JTC
JTC is an award-winning provider of fund, corporate and private wealth services.
Founded in 1987, we have over 900 people working across our global office network and are trusted to administer assets of more than US$130 billion.
The principle of making all our people owners of the business is fundamental to our culture and aligns us completely with the best interests of our clients and other stakeholders.
Strategic Report
Chief Executive Officer's Review
A year of disciplined growth and robust performance
Introduction
JTC has a strong track record of performance and growth spanning more than 30 years and we are very pleased that this continued in 2019.
Last year I stated that our goal is to continue to build an outstanding business for the long term where high standards are coupled with entrepreneurial spirit and the commitment to become a better business for all stakeholders every day. I am pleased to say that these goals were achieved during the year.
Good results do not just happen and I want to take this opportunity, personally and on behalf of the Board, to thank every one of our c. 900 colleagues around the world, all of whom contributed to another strong year at JTC.
Financial highlights
2019 saw the business deliver a strong set of results that were in line with our expectations. At Group level we generated revenue growth of 28.5% to £99.3m, underlying EBITDA growth of 32.4% to £31.7m and an improvement of 0.9pp in underlying EBITDA margin to 31.9%.
These results were achieved through a combination of net organic growth of 8.4% (15.4% gross) and the positive contribution of the full-year effect of the two acquisitions made in 2018, the Netherlands corporate services business, Van Doorn, and the multi ‑ jurisdictional private client focused business, Minerva. In addition, the Luxembourg fund and corporate services business, Exequtive Partners, acquired in March 2019, also made a positive part-year contribution.
These activities mean that we again delivered within our guidance of 30 - 35% underlying EBITDA margin and 8 - 10% net organic growth, metrics that we believe represent 'good to very good' performance for a company in our sector that is growing and operating in a stable and sustainable manner.
Institutional client services division
Gross revenue for the ICS Division increased 26.4% to £54.8m (2018: £43.4m) and there was a 25.2% increase in underlying EBITDA to £15.6m (2018: £12.5m). The underlying EBITDA margin fell 0.3pp to 28.5% (2018: 28.8%), but the Division did improve the margin during the year from 27.8% in H1. We believe that positive further improvements can be achieved, especially through the adoption of new process and technology capabilities, helping to ensure that the ICS Division delivers within our Group-wide guidance, which we update for 2020 and beyond to 33 - 38% underlying EBITDA margin, taking into account IFRS 16.
Jon Jennings took over the reins as Group Head of ICS from April and has strengthened and aligned his team to take up the twin challenges of driving both growth and efficiency, while maintaining a focus on client service excellence.
Revenue growth was a success, driven by improvements in business development and marketing, with record annualised new business wins of £8.9m, up 48% (2018: £6m). Fund and corporate services remain complementary with a focus on private equity and real estate, as well as debt, renewables and other alternative asset types. The performance of our Luxembourg, UK and Jersey offices were particular highlights.
The acquisition of the Exequtive Partners business in Luxembourg added scale to our platform in this high growth market and also enhanced our leadership team in the region. We saw higher rates of client attrition in the Netherlands due to changing market dynamics, but were also able to make the small bolt-on purchase of the Aufisco business for a very reasonable price for the same reasons.
Post period end we purchased a small bolt-on in the UK that adds Registrar services to our offering and another that expands our footprint to Ireland for the first time and where we will commence with corporate services before expanding into fund services once relevant regulatory approvals have been secured.
Also post period end, we were delighted to announce the acquisition of NES Financial (NESF), a US based, technology-enabled fund administration business. The US is a key growth market for the industry and we believe that NESF provides the perfect platform to drive the strategic expansion of our ICS Division and in particular our presence in the high growth alternatives fund administration sector.
The ICS Division enjoys strong market fundamentals and we will continue to invest in the platform to deliver organic growth and to capitalise on the technology capabilities brought by the NESF acquisition.
Private client services division
Gross revenue for the PCS Division showed a 31.2% increase to £44.5m (2018: £33.9m) and a 40.3% increase in underlying EBITDA to £16.1m (2018: £11.4m). The underlying EBITDA margin improved by 2.3pp to 36.1% (2018: 33.8%) which was a particularly strong performance given the ongoing investment in the platform.
Revenue growth was driven by a new regional model for business development and marketing, supported by an enhanced and centralised approach to client on-boarding and traction from our private office capabilities. This delivered record annualised new business wins of £6.0m, up 62% (2018: £3.7m). Performance of the Jersey and Americas offices were particularly strong, with good contributions from Guernsey, Switzerland and Cayman.
Margin improvement was strong following a period of deliberate investment in the Division in 2018 and this was driven in part by the full integration of the Minerva business, which was achieved three months ahead of schedule. A new Executive Committee governance structure was also introduced, streamlining decision making and operational change management.
Investment was made in JTC Private Office, including a number of senior hires and further investment in technology. The focus continues to be on using this innovative holistic offering to differentiate JTC in the market and drive organic growth. Evidence of progress can be seen in the number of clients where annual fee income is greater than £100k, which increased by 50% in 2019 and helped to drive up the average mandate size within the Division.
The Division was named Trust Company of the Year (Large Firm) at the Society of Trust and Estate Practitioners (STEP) Private Client Awards, one the most prestigious awards of its type in this sector and an accolade that I believe is the external confirmation of what the Division has achieved for some time now.
Post period end we announced the acquisition of the Sanne private client business, a simple and straightforward addition to our market-leading Jersey platform.
The PCS Division is very much a leader in its sector and we see clear opportunities for further investment and growth.
Our people and culture
We have always understood that our people are a fundamental source of differentiation and that is why our culture is based on shared ownership, with every employee being an owner of the business. This approach has been a driver of client service excellence, financial performance and continuous operational improvement across the Group for more than 20 years.
It is not often that external validation is available for something as intangible as culture, but in 2019 we were honoured to be selected by Professor Ethan Bernstein of Harvard Business School (HBS) as the subject of a case study for the full-time HBS Master of Business Administration (MBA) programme, detailing the features and successes of JTC's shared ownership model since its inception in 1998. This world class, yet unsolicited, recognition of our core cultural philosophy is testament to an unwavering belief that aligning the interests of our people and the Company with the interests of our clients and partners is a powerful and effective way to build a successful, sustainable and growth orientated organisation. It was an enormous privilege to attend HBS and participate in the inaugural teaching of the case study, and the insights from the students were powerful and life affirming in equal measure.
We believe that through our shared ownership model we have long been exponents of a more sustainable and responsible approach to finance and capitalism. We therefore regard the increasing emphasis being placed on environmental, social and governance (ESG) practices as very positive and an opportunity for the Group that aligns with our culture and purpose.
In keeping with our Guiding Principle to maximise the potential of every colleague, 2019 saw us expand the JTC Academy with a suite of additional online and real-world learning and development courses. 85 high performers were promoted across the Group during the year and 14 colleagues took up internal roles in new locations (from secondments to permanent relocations) as part of JTC Gateway. We also enhanced our JTC Wellbeing programme with the launch of a new 24/7 Employee Assistance Service that extends to all employees and their immediate families.
Risk
The principal and emerging risks facing the Group are set out in our 2019 Annual Report. Material risks include acquisition risk, competition risk, data protection and cyber security risk, staff resourcing risk, political and regulatory change risk, natural disaster risk, and regulatory and procedural compliance risk.
Post period end we have been required to deal with the challenges presented by the global COVID-19 pandemic and I am pleased to report that the business has so far proved itself to be highly responsive and resilient. To support the safety and wellbeing of all our people we achieved a Group-wide transition to remote working in a matter of days and have been able to directly monitor the commercial performance of the business on a daily basis under our Business Continuity Planning (BCP) operational framework.
We remain satisfied as to the effectiveness of the Group's overall risk analysis, management and culture, developed over more than 30 years of JTC operations.
Post period end, we were pleased to appoint William (Bill) Byrne as Chief Risk Officer (CRO), effective from February 2020. Bill joined JTC in 2016 as Group Counsel and takes over as CRO from Steven Bowen, who joined the Group as part of the Minerva acquisition in 2018.
Going concern
The financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group has the resources to continue in business for at least 12 months from the approval of the financial statements. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including future projections of profitability and cash flows.
Dividend
In addition to the interim dividend of 1.7p per share, the Board has recommended a final dividend of 3.6p per share in line with expectations. Subject to shareholder approval, the final dividend will be paid on 3 July 2020 to Shareholders on the register as at close of business on the record date of 5 June 2020.
Outlook
We have always believed that JTC is a highly resilient business and the challenges presented by the COVID-19 pandemic have brought this into focus. The response of the Group has been excellent and we are confident in our ability to successfully trade through this period for a number of reasons. We have a highly experienced management team; a track record of revenue and profit growth spanning 32 years; a well-invested and scalable global platform; we are well diversified across clients, services and geographies; our revenue is highly visible and recurring; we deliver strong cash conversion and we have a robust balance sheet with a net debt to underlying EBITDA ratio of less than 2.0 times on a pro-forma basis.
We will continue to operate under our BCP framework for as long as required, focusing on the wellbeing of our people, the delivery of excellent client service and the commercial success of the Group.
Thinking more broadly, we constantly monitor and analyse the momentum of the business and in particular the drivers of underlying growth. We are positive about the prospects for the Group and believe the fundamental drivers, as articulated in our investment case, remain valid.
Delivering consistent organic growth of the underlying business, which we always measure net of attrition, is fundamental to our approach and it is worth remembering that the Group's growth was purely through organic means for the first 23 of its 32 years. We continue to believe that net organic growth in the range of 8 - 10% at Group level is a measure of good to excellent long-term performance in our sector. Organic growth will be driven by further improvements in our 'go to market' strategies and activities; the enhancement and expansion of our service offering and expertise, the smart application of new technological capabilities and an unwavering dedication to delivering client service excellence. We believe that the combination of our people, technology, processes and global reach will enable the Group to continue to win new business, further penetrate established markets and successfully develop new markets.
Alongside our core organic growth strategy, growth through acquisitions remains an important part of the Group's future. We continue to see consolidation across the sector and have good visibility of deal flow of all sizes within both the ICS and PCS spaces. Our M&A pipeline remains healthy and we continue to take a disciplined approach. Our immediate focus in 2020 will be the completion and integration of the acquisitions we have announced in the first quarter, but we will continue to monitor opportunities for further acquisitions in particular in the US, the UK and mainland Europe.
In terms of profitability, we update our medium term guidance to 33 - 38% underlying EBITDA margin, taking into account IFRS 16. The PCS Division is already operating consistently within this range and will work to maintain performance whilst simultaneously investing in growth opportunities. The ICS Division is making steady progress to deliver margin performance comfortably within our target range and will be investing further in the expertise, technological capabilities and process improvements to achieve that goal. We also believe that the ICS Division will benefit from relatively stronger market growth rates, particularly in the area of alternative asset fund administration.
Strategic Report
Chief Financial Officer's Review
Continuing to improve the business
Financial review
|
|
As reported |
Underlying* |
||||
|
|
2019** |
2018 |
Change |
2019 |
2018 |
Change |
|
Revenue (£m) |
99.3 |
77.3 |
+28.5% |
99.3 |
77.3 |
+28.5% |
|
EBITDA (£m) |
33.7 |
5.4 |
+529.2% |
31.7 |
23.9 |
+32.4% |
|
EBITDA margin |
34.0% |
6.9% |
+27.1pp |
31.9% |
31.0% |
+0.9pp |
|
Operating profit/EBIT |
23.0 |
0.7 |
+3084.6% |
24.3 |
19.2 |
+26.8% |
|
Profit/loss before tax (£m) |
17.6 |
-2.1 |
-928.5% |
20.5 |
17.0 |
+20.0% |
|
Earnings per share (p)*** |
15.43 |
-3.87 |
-498.7% |
22.33 |
19.23 |
+16.1% |
|
Cash conversion |
70% |
128% |
-58.0pp |
89% |
90% |
-1.0pp |
|
Net debt (£m) |
-66.5 |
-48.7 |
-17.8 |
-59.3 |
-46.4 |
-12.9 |
|
Dividend per share (p) |
5.3 |
3.0 |
+2.3p |
5.3 |
3.0 |
+2.3p |
* Reconciliation of performance measures to reported results. For further information on underlying results see appendix to CFO Review.
** As reported 2019 results include the impact of IFRS 16.
*** Average number of shares for 2019: 111,352,868 (2018: 99,631,757). Underlying EPS is calculated per note 34.4 of the company financial statements and is referred to as adjusted underlying basic EPS.
Revenue
In 2019, revenue was £99.3m, an increase of £20.0m (28.5%) compared with 2018.
Year on year growth was driven by net organic growth of 8.4% (gross 15.4%) and growth from acquisitions of 20.1%. Overall client attrition in the period was 7.0% compared with 8.8% in 2018 and is lower than previous periods. 97.4% (2018: 98.3%) of revenues that are not end of life were retained in the period.
ICS net organic growth was 9.4%. We saw good growth in Luxembourg, Jersey and the UK but this was offset by contractions in Guernsey and the NACT business in the Netherlands. The latter was from a tightening of the regulatory regime. We expect to see a continuance of this and as a consequence we have impaired the value of client relationships associated with the NACT business which was bought in 2017 (at a multiple of 5 times EBITDA). Conversely, this tightening of regulation has also created opportunities to acquire businesses at attractive prices as shown by the gain on bargain purchase which arose on the acquisition of Aufisco.
PCS organic growth was 7.2%. We continue to see strong demand for our Private Client offering and were pleased at the continuing strength of our Channel Islands business and ongoing development of our US onshore offering. Attrition in PCS was 7.4% with no particular bias in any one jurisdiction.
Revenue growth, on a constant currency basis, in the year is summarised below.
|
|
PLC |
ICS |
PCS |
|
2018 Revenue |
£77.9m |
£43.3m |
£34.6m |
|
Lost - JTC Decision |
(£0.6m) |
(£0.2m) |
(£0.4m) |
|
Lost - Moves Service Provider |
(£1.2m) |
(£0.7m) |
(£0.5m) |
|
Lost - Natural End / No Longer Required |
(£3.2m) |
(£1.8m) |
(£1.4m) |
|
Net More From Existing Clients |
£4.5m |
£3.4m |
£1.1m |
|
New Clients |
£6.6m |
£3.2m |
£3.4m |
|
Acquisitions |
£15.3m |
£7.6m |
£7.7m |
|
2019 Revenue |
£99.3m |
£54.8m |
£44.5m |
Acquisitions
Acquisitions contributed £15.3m of new revenue in the year broken down as follows:
|
|
PLC |
ICS |
PCS |
|
Minerva |
£8.7m |
£1.0m |
£7.7m |
|
Van Doorn |
£1.7m |
£1.7m |
- |
|
Exequtive Partners |
£4.3m |
£4.3m |
- |
|
Aufisco |
£0.6m |
£0.6m |
- |
|
Total |
£15.3m |
£7.6m |
£7.7m |
When JTC acquires a business, the acquired book of clients is defined as inorganic. These clients continue to be treated as inorganic for the first two years of JTC ownership.
NEW BUSINESS/PIPELINE
The enquiry pipeline decreased by £1.6m (5.0%) from £32.0m at 31 December 2018 to £30.4m at 31 December 2019. The drop in pipeline value was due to the high value of work won in H2 and improvements in our speed of on-boarding. During 2019 JTC secured new work with an annual value of £14.9m (2018: £9.7m). The divisional split was ICS £8.9m (2018: £6.0m) and PCS £6.0m (2018: £3.7m). Typically this revenue will have an average life-cycle of approximately 10 years. We are confident that the quality of the pipeline is higher than in previous periods. We are conscious of the impact that the current COVID-19 situation may have on activity levels and anticipate that there may be a reduction in new business wins; however, we anticipate that will be compensated by increased activity in our existing book of business.
UNDERLYING EBITDA AND MARGIN PERFORMANCE
Underlying EBITDA in 2019 was £31.7m, an increase of £7.8m (32.4%) from 2018. The reconciliation of the improvement in the underlying EBITDA is shown below.
|
2018 Underlying EBITDA |
£23.9m |
|
ICS Gross Profit - Efficiency |
(£0.2m) |
|
ICS Gross Profit - Volume |
£7.0m |
|
PCS Gross Profit - Efficiency |
£0.3m |
|
PCS Gross Profit - Volume |
£6.6m |
|
Indirect Staff |
(£2.2m) |
|
Operating Expenses (Incl. Other Income) |
(£3.7m) |
|
2019 Underlying EBITDA |
£31.7m |
The underlying EBITDA margin % is the primary KPI used by the business and is a key measure of management's ability to run the business effectively and in line with competitors and historic performance levels. The performance in 2019 highlights the continuing progress that has been made by the Group with underlying EBITDA margin increased to 31.9% from 31.0% in 2018 - an improvement of 0.9pp. This has been primarily driven by improved operational efficiency in the PCS Division.
ICS's underlying EBITDA margin fell back from 28.8% in 2018 to 28.5% in 2019. At mid-year the ICS margin was 27.8% but with a focus on cost efficiencies and the impact of the Commercial Office the full year margin improved to 28.5%. We believe that the acquisition of the NESF business and adoption of its market-leading technology will support further margin improvement in the Division, albeit we appreciate that the improvements may take time to implement.
PCS's underlying EBITDA margin improved from 33.8% to 36.1% in the year. This was driven by the integration of the Minerva business and also a focus upon operational improvement and process efficiency.
We continue to invest in the business and have been encouraged by the strong growth in new business wins in H2 2019 and in the size of mandates being won by both Divisions.
DEPRECIATION AND AMORTISATION
As a result of the adoption of IFRS 16 there has been a significant increase in the depreciation charge in 2019. In 2018 the depreciation charge was £0.9m but this increased to £4.6m in 2019. This was due to the inclusion of a charge against the right-of-use assets of £3.4m.
The Group has £171.5m (2018: £145.2m) of balance sheet assets consisting of goodwill (2019: £124.9m, 2018: £104.8m) and customer relationships (2019: £46.6m, 2018: £40.4m). We regularly test these assets for impairment and monitor the recoverability of the carrying amounts. During 2019 there was an acceleration of client attrition in the NACT business owing to a more stringent regulatory environment in the Netherlands. This in turn resulted in an impairment to the NACT customer relationships intangible asset of by £0.5m.
No other impairments were required for other acquisitions. We recognise that in the current uncertain COVID-19 business environment there may be an increased need to monitor for impairment indicators and where there is evidence of impairment, we shall review carrying amounts in our balance sheet.
STATUTORY OPERATING PROFIT/EBIT
The Group recognises that EBIT is a more commonly accepted reporting metric and hence shows these results for the benefit of external stakeholders. Statutory EBIT is impacted by non-underlying costs albeit these are substantially reduced from 2018 which was the first year of reporting post the IPO. Details of these non-underlying costs are set out below.
NON-UNDERLYING ITEMS
Non-underlying items incurred in the period totalled £2.1m (2018: £19.1m). These comprised the following:
· (£0.4m) credit from EBT12 whereby staff that left the business forfeited their rights to the EBT distribution (2018: £13.2m)
· £2.0m of acquisition and integration costs (2018: £4.3m)
· £0.5m other costs/charges (2018: £0.6m)
In 2018 we incurred £1.0m of costs associated with the IPO that took place that year.
Of the £2.1m (2018: £19.1m) of non-underlying costs, £1.7m (2018: £18.6m) are incurred at EBITDA level and £0.2m (2018: £0.4m) are included within finance costs and £0.2m (2018: £0.1m) are other costs.
JTC is required to consolidate its EBTs within its results and for that reason the capital distribution is included within staff costs. The full charge to the income statement was recognised in the period to 31 December 2018. Acquisition and integration costs reflect costs incurred on the completed acquisitions as well as transactions which are ongoing or did not complete.
PROFIT BEFORE TAX
The reported profit before tax for the period ended 31 December 2019 was £17.6m (2018: £2.1m loss).
Adjusting for non-underlying items the underlying profit before tax for 2019 was £20.4m (2018: £17.0m). The improvement reflects the growth in revenues and margin increase in the period. However, the relative profitability was negatively impacted by £1.7m adverse foreign exchange movements. This is due to the translation of substantial US dollar and Euro monetary balance sheet items held at the year end.
Finance costs in the year comprise £1.6m of amortisation/non-cash flow items (2018: £1.5m) and £2.4m of costs which impact cash flow (2018: £2.0m).
TAX
The tax charge in the year was £0.5m (2018: £1.7m). This was lower than in previous periods and reflects the impact of a significant deferred tax credit of £0.8m as a result of the movements in relation to the value of customer relationships held on the balance sheet. During the year the Group reviewed its transfer pricing policy and updated this to reflect the evolving nature of the business and the way it operates. The policy continues to be fully compliant with OECD guidelines.
EARNINGS PER SHARE
Adjusted underlying basic EPS was 22.33p (2018: 19.23p). Adjusted underlying basic EPS is the profit for the year adjusted to remove the impact of non-underlying items within profit after tax, amortisation of customer relationships and associated deferred tax impact, amortisation of loan arrangement fees and unwinding of NPV discounts and the impact of IFRS 16.
CASH FLOW AND DEBT
Cash generated from underlying operating activities was £28.7m (2018: £19.5m) and the underlying cash conversion was 89% (2018: 90%). During 2019 the actual conversion rate was adversely impacted by the timing of receipts from the Exequtive business which we purchased in April 2019 and Aufisco which was acquired in July 2019. This impact will be eliminated in the 2020 cash conversion result and hence we continue with our medium-term guidance that underlying cash conversion will be in the range of 85 - 90% p.a. Post year end we have maintained a strong focus on cash collection.
Net debt at the period end was £66.5m compared with £48.7m at 31 December 2018. The underlying net debt of £59.3m (2018: £46.4m) excludes regulatory capital (which is not included for banking covenant testing) and also excludes the £4.2m loan advanced to NESF prior to the post-period end acquisition - which will be subsequently settled at completion. Underlying leverage is therefore 1.9 times underlying EBITDA (2018: 1.9 times). At 31 December 2019 the bank covenant test for leverage was 3.5 times pro-forma EBITDA. The covenant test moves to 3.25 times pro-forma EBITDA on 31 March 2020 and then decreases to 3.0 times on 31 March 2021.
Our banking facility was increased by £50.0m on 9 January giving a total undrawn facility balance of £63.3m. The facilities expire on 8 March 2023.
RECONCILIATION OF UNDERLYING EBITDA TO REPORTED RESULTS
During 2019 IFRS 16 was adopted by the business. It has a significant impact on the comparison of performance of the business year on year. The table below sets out the impact of the adoption of the new standard.
|
(£m) |
As reported (inc IFRS 16) |
Non-underlying costs |
Underlying (inc IFRS 16) |
IFRS 16 impact |
Underlying (exc IFRS 16) |
|
Revenue |
99.3 |
0.0 |
99.3 |
0.0 |
99.3 |
|
Staff costs |
(46.7) |
0.5 |
(46.2) |
0.0 |
(46.2) |
|
Establishment costs |
(1.4) |
(0.2) |
(1.6) |
(3.7) |
(5.3) |
|
Other operating expenses |
(17.7) |
1.4 |
(16.3) |
0.0 |
(16.3) |
|
Other operating income |
0.2 |
0.0 |
0.2 |
0.0 |
0.2 |
|
EBITDA |
33.7 |
1.7 |
35.4 |
(3.7) |
31.7 |
|
Depreciation and amortisation |
(10.8) |
0.0 |
(10.8) |
3.4 |
(7.4) |
|
Profit/(loss) from operating activities |
22.9 |
1.7 |
24.6 |
(0.3) |
24.3 |
|
Other gains/(losses) |
(1.5) |
0.3 |
(1.2) |
0.0 |
(1.2) |
|
Finance income |
0.2 |
0.0 |
0.2 |
0.0 |
0.2 |
|
Finance cost |
(4.0) |
0.1 |
(3.9) |
1.0 |
(2.9) |
|
Profit/(loss) before tax |
17.6 |
2.1 |
19.7 |
0.7 |
20.4 |
|
Tax |
(0.5) |
0.0 |
(0.5) |
0.0 |
(0.5) |
|
Profit/(loss) for the year |
17.1 |
2.1 |
19.2 |
0.7 |
19.9 |
As a result of the adoption of this accounting standard we raise our guidance on underlying EBITDA from a range of 30 - 35% to 33 - 38%. We estimate that the annual impact on reported profit after tax will be a deduction of £1.0m. The standard does not have a cash flow impact and we will adjust for this in calculating underlying profit available for dividends.
MARTIN FOTHERINGHAM
CHIEF FINANCIAL OFFICER
Appendix: Reconciliation of Reported results to APM's
1. EBITDA
|
(£m) |
2019 |
2018 |
|
Reported EBITDA |
33.7 |
5.4 |
|
Non-underlying items |
|
|
|
Capital distribution from EBT |
(0.4) |
13.2 |
|
Acquisition and integration costs |
2.0 |
4.3 |
|
Other incl. IPO costs |
0.0 |
1.1 |
|
|
35.3 |
23.9 |
|
Impact of IFRS 16 |
(3.7) |
0.0 |
|
Underlying EBITDA |
31.7 |
23.9 |
2. Cash conversion
|
(£m) |
2019 |
2018 |
|
Net cash from operating activities |
21.6 |
5.9 |
|
Non-underlying cash items |
5.1 |
12.7 |
|
Taxes paid |
2.0 |
0.9 |
|
Underlying cash generated |
28.7 |
19.5 |
|
Acquisition normalisation (*) |
2.6 |
2.0 |
|
Normalised underlying cash generated |
31.3 |
21.5 |
|
Underlying EBITDA incl. IFRS 16 |
35.4 |
23.9 |
|
Underlying cash conversion |
89% |
90% |
* Acquisition normalisation refers to the following: In 2019, in line with customer contracts, £2.0m of Exequtive revenues were collected by the previous owners in advance of JTC ownership. Aufisco revenue was recorded in 2019 but cash collected in 2020 in accordance with the acquisition agreement and customer billing cycles. In 2018 under the terms of the BAML customer agreements and due to the timing of the acquisition in 2017, JTC had billed for 12 months of work but had only been paid for 9 months.
3. Net Debt / Leverage
|
(£m) |
2019 |
2018 |
|
Cash balances |
26.3 |
32.5 |
|
Bank debt |
(86.7) |
(71.5) |
|
Other debt |
(0.5) |
(1.2) |
|
Cash held on behalf of JTC EBT |
(2.6) |
(6.1) |
|
Advance NESF deal funding |
4.2 |
0.0 |
|
Net debt |
(59.3) |
(46.4) |
|
Underlying EBITDA |
31.7 |
23.9 |
|
Leverage |
1.87 |
1.94 |
FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2019
|
|
Note |
2019 |
2018 |
|
Revenue |
4 |
99,274 |
77,254 |
|
Staff costs |
5 |
(46,699) |
(50,703) |
|
Establishment costs |
|
(1,446) |
(4,705) |
|
Other operating expenses |
6 |
(16,362) |
(15,638) |
|
Credit impairment losses |
12 |
(1,253) |
(1,285) |
|
Other operating income |
|
53 |
343 |
|
Share of profit of equity-accounted investee |
|
146 |
92 |
|
Earnings before interest, taxes, depreciation and amortisation ("EBITDA") |
|
33,713 |
5,358 |
|
|
|
|
|
|
Comprising: |
|
|
|
|
Underlying EBITDA |
|
31,686 |
23,929 |
|
Non-underlying items |
7 |
(1,670) |
(18,571) |
|
Impact of IFRS 16 |
3.2 |
3,697 |
- |
|
|
|
33,713 |
5,358 |
|
|
|
|
|
|
Depreciation and amortisation |
8 |
(10,752) |
(4,637) |
|
Profit from operating activities |
|
22,961 |
721 |
|
|
|
|
|
|
Other (losses)/gains |
9 |
(1,479) |
522 |
|
Finance income |
10 |
170 |
103 |
|
Finance cost |
10 |
(4,013) |
(3,475) |
|
Profit/(loss) before tax |
|
17,639 |
(2,129) |
|
|
|
|
|
|
Comprising: |
|
|
|
|
Underlying profit before tax |
|
20,398 |
16,990 |
|
Non-underlying items |
7 |
(2,106) |
(19,119) |
|
Impact of IFRS 16 |
3.2 |
(653) |
- |
|
|
|
17,639 |
(2,129) |
|
|
|
|
|
|
Tax |
11 |
(458) |
(1,728) |
|
|
|
|
|
|
Profit/(loss) for the year |
|
17,181 |
(3,857) |
|
Earnings per ordinary share ("EPS") |
|
Pence |
Pence |
|
Basic EPS |
34.1 |
15.43 |
(3.87) |
|
Diluted EPS |
34.2 |
15.35 |
(3.87) |
The notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2019
|
|
2019 |
2018 |
|
Profit/(loss) for the year |
17,181 |
(3,857) |
|
|
|
|
|
Other comprehensive (loss)/income: |
|
|
|
Items that may be subsequently reclassified to profit or loss: |
|
|
|
Exchange difference on translation of foreign operations (net of tax) |
(1,375) |
1,334 |
|
|
|
|
|
Total comprehensive income/(loss) for the year |
15,806 |
(2,523) |
The notes are an integral part of these consolidated financial statements.
Consolidated Balance Sheet
As at 31 December 2019
|
|
Note |
2019 |
2018 |
|
Assets |
|
|
|
|
Property, plant and equipment |
20 |
37,865 |
6,406 |
|
Goodwill |
21 |
124,880 |
104,835 |
|
Other intangible assets |
21 |
48,039 |
41,835 |
|
Investment in equity-accounted investee |
32 |
1,124 |
978 |
|
Other non-financial assets |
22 |
965 |
1,536 |
|
Other receivables |
15 |
217 |
244 |
|
Deferred tax assets |
23 |
103 |
135 |
|
Total non-current assets |
|
213,193 |
155,969 |
|
|
|
|
|
|
Trade receivables |
12 |
16,255 |
16,142 |
|
Work in progress |
13 |
9,297 |
7,084 |
|
Accrued income |
14 |
12,906 |
9,309 |
|
Other non-financial assets |
22 |
2,992 |
3,002 |
|
Other receivables |
15 |
6,266 |
1,335 |
|
Cash and cash equivalents |
16 |
26,317 |
32,457 |
|
Total current assets |
|
74,033 |
69,329 |
|
Total assets |
|
287,226 |
225,298 |
|
|
|
|
|
|
Equity |
|
|
|
|
Share capital |
26.1 |
1,141 |
1,109 |
|
Share premium |
26.1 |
100,658 |
94,599 |
|
Own shares |
26.2 |
(3,027) |
(2,565) |
|
Capital reserve |
26.3 |
451 |
(112) |
|
Translation reserve |
26.3 |
1,069 |
2,444 |
|
Retained earnings |
26.3 |
28,265 |
13,426 |
|
Total equity |
|
128,557 |
108,901 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Trade and other payables |
17 |
- |
4,713 |
|
Loans and borrowings |
18 |
86,681 |
72,032 |
|
Lease liabilities |
19 |
28,616 |
- |
|
Deferred tax liabilities |
23 |
7,656 |
6,010 |
|
Other non-financial liabilities |
24 |
518 |
997 |
|
Provisions |
25 |
1,116 |
1,038 |
|
Total non-current liabilities |
|
124,587 |
84,790 |
|
|
|
|
|
|
Trade and other payables |
17 |
21,148 |
19,398 |
|
Loans and borrowings |
18 |
508 |
683 |
|
Lease liabilities |
19 |
2,875 |
- |
|
Other non-financial liabilities |
24 |
7,536 |
8,254 |
|
Current tax liabilities |
11 |
1,942 |
2,871 |
|
Provisions |
25 |
73 |
401 |
|
Total current liabilities |
|
34,082 |
31,607 |
|
Total equity and liabilities |
|
287,226 |
225,298 |
The notes are an integral part of these consolidated financial statements.
The consolidated financial statements were approved by the Board of Directors on 21 April 2020 and signed on its behalf by:
Nigel Le Quesne Martin Fotheringham
Chief Executive officer Chief Financial Officer
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
|
|
Note |
Share capital £'000 |
Share premium £'000 |
Own shares £'000 |
Capital reserve '000 |
Translation reserve £'000 |
Retained earnings £'000 |
Total equity £'000 |
|
Balance at 1 January 2018 as originally presented |
|
10 |
238 |
(1) |
(1,213) |
1,110 |
2,884 |
3,028 |
|
Adoption of new standards |
|
- |
- |
- |
- |
- |
(168) |
(168) |
|
Restated total equity at 1 January 2018 |
|
10 |
238 |
(1) |
(1,213) |
1,110 |
2,716 |
2,860 |
|
Loss for the year |
|
- |
- |
- |
- |
- |
(3,857) |
(3,857) |
|
Other comprehensive income for the year |
|
- |
- |
- |
- |
1,334 |
- |
1,334 |
|
Total comprehensive loss for the year |
|
- |
- |
- |
- |
1,334 |
(3,857) |
(2,523) |
|
Issue of share capital |
26.1 |
1,099 |
95,103 |
- |
- |
- |
- |
96,202 |
|
Cost of share issuance |
|
- |
(742) |
- |
- |
- |
- |
(742) |
|
Share-based payment expense |
36.2 |
- |
- |
- |
443 |
- |
- |
443 |
|
Movement in EBT and JSOPs |
|
- |
- |
- |
658 |
- |
- |
658 |
|
Movement of own shares |
26.2 |
- |
- |
(2,564) |
- |
- |
- |
(2,564) |
|
EBT12 gain on sale of shares |
26.2 |
- |
- |
- |
- |
- |
15,641 |
15,641 |
|
Dividends paid |
27 |
- |
- |
- |
- |
- |
(1,074) |
(1,074) |
|
Balance at 31 December 2018 |
|
1,109 |
94,599 |
(2,565) |
(112) |
2,444 |
13,426 |
108,901 |
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2019 as originally presented |
1,109 |
94,599 |
(2,565) |
(112) |
2,444 |
13,426 |
108,901 |
|
|
Adoption of new standard |
3.2 |
- |
- |
- |
- |
- |
1,792 |
1,792 |
|
Restated total equity at 1 January 2019 |
|
1,109 |
94,599 |
(2,565) |
(112) |
2,444 |
15,218 |
110,693 |
|
Profit for the year |
|
- |
- |
- |
- |
- |
17,181 |
17,181 |
|
Other comprehensive loss for the year |
|
- |
- |
- |
- |
(1,375) |
- |
(1,375) |
|
Total comprehensive income for the year |
|
- |
- |
- |
- |
(1,375) |
17,181 |
15,806 |
|
Issue of share capital |
26.1 |
32 |
6,093 |
- |
- |
- |
- |
6,125 |
|
Cost of share issuance |
|
- |
(34) |
- |
- |
- |
- |
(34) |
|
Share-based payment expense |
36.2 |
- |
- |
- |
694 |
- |
- |
694 |
|
Movement in EBT |
|
- |
- |
- |
(131) |
- |
- |
(131) |
|
Movement of own shares |
26.2 |
- |
- |
(462) |
- |
- |
- |
(462) |
|
Dividends paid |
27 |
- |
- |
- |
- |
- |
(4,134) |
(4,134) |
|
Balance at 31 December 2019 |
|
1,141 |
100,658 |
(3,027) |
451 |
1,069 |
28,265 |
128,557 |
The notes are an integral part of these consolidated financial statements.
Consolidated cash flow Statement
For the year ended 31 December 2019
|
|
Note |
2019 |
2018 |
|
Operating cash flows before movements in working capital |
35.1 |
34,261 |
5,709 |
|
Increase in receivables |
|
(4,912) |
(3,436) |
|
(Decrease)/increase in payables |
|
(5,751) |
4,565 |
|
Cash generated by operations |
|
23,598 |
6,838 |
|
Income taxes paid |
|
(2,009) |
(907) |
|
Net cash from operating activities |
|
21,589 |
5,931 |
|
|
|
|
|
|
Comprising: |
|
|
|
|
Underlying net movement in cash from operating activities |
|
26,739 |
18,601 |
|
Non-underlying cash items |
35.2 |
(5,150) |
(12,670) |
|
|
|
21,589 |
5,931 |
|
|
|
|
|
|
Investing activities |
|
|
|
|
Interest received |
|
171 |
103 |
|
Payment for property, plant and equipment |
20 |
(2,009) |
(1,175) |
|
Payment for intangible assets |
21 |
(1,417) |
(1,024) |
|
Payment for business combinations |
31 |
(22,279) |
(31,176) |
|
Loans to third parties |
|
(4,317) |
- |
|
Net cash used in investing activities |
|
(29,851) |
(33,272) |
|
|
|
|
|
|
Financing activities |
|
|
|
|
Share capital raised |
|
- |
20,000 |
|
Share issuance costs |
|
(33) |
(742) |
|
Repayment of loan notes |
|
- |
(2,161) |
|
Proceeds from sale of EBT12 shares |
26.2 |
- |
15,641 |
|
Sale and purchase of own shares |
26.2 |
(434) |
(2,565) |
|
Dividends paid |
27 |
(4,134) |
(1,074) |
|
Repayment of loans and borrowings |
|
(689) |
(56,689) |
|
Proceeds from loans and borrowings |
18.1 |
15,509 |
72,960 |
|
Loan arrangement fees |
|
(285) |
(1,318) |
|
Interest paid on loans and borrowings |
|
(2,193) |
(1,718) |
|
Facility fees paid on loans and borrowings |
|
(183) |
(93) |
|
Principal paid on lease liabilities (2018: Principal paid on finance leases) |
|
(2,167) |
(18) |
|
Interest paid on lease liabilities (2018: Interest paid on finance leases) |
|
(936) |
(3) |
|
Net cash from financing activities |
|
4,455 |
42,220 |
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents |
|
(3,807) |
14,878 |
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the year |
|
32,457 |
16,164 |
|
Effect of foreign exchange rate changes |
|
(2,333) |
1,415 |
|
Cash and cash equivalents at end of year |
16 |
26,317 |
32,457 |
The notes are an integral part of these consolidated financial statements.
Notes to the Consolidated financial statements
For the year ended 31 December 2019
SECTION 1 - BASIS FOR REPORTING AND GENERAL INFORMATION
1. REPORTING ENTITY
JTC PLC (the "Company") was incorporated on 2 January 2018 and is domiciled in Jersey, Channel Islands. The address of the Company's registered office is 28 Esplanade, St Helier, Jersey.
The consolidated financial statements of the Company for the year ended 31 December 2019 comprise the Company and its subsidiaries (together the "Group" or "JTC") and the Group's interest in an associate.
The Company was admitted to the London Stock Exchange on 14 March 2018 (the "IPO") having obtained control of the entire share capital of JTC Group Holdings Limited ("JTCGHL") via a share exchange, and thus control of the Group, see note 26. The consolidated balance sheet at 31 December 2018 reflected the change in legal ownership of the Group, including the share capital of JTC PLC and the effects of the share exchange transactions.
The Group provides fund, corporate and private wealth services to institutional and private clients.
2. BASIS OF PREPARATION
2.1. STATEMENT OF COMPLIANCE AND BASIS of MEASUREMENT
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union, the interpretations of the IFRS Interpretations Committee ("IFRS IC") and Companies (Jersey) Law 1991. The consolidated financial statements comply with IFRS as issued by the International Accounting Standards Board ("IASB") and have been prepared on a going concern basis, under the historical cost convention.
2.2. FUNCTIONAL AND PRESENTATION CURRENCY
The consolidated financial statements are presented in pounds sterling, which is the functional and reporting currency of the Company and the presentation currency of the consolidated financial statements. All amounts disclosed in the consolidated financial statements and notes have been rounded to the nearest thousand (`000) unless otherwise stated.
3. SIGNIFICANT ACCOUNTING POLICIES
3.1. CHANGES IN ACCOUNTING POLICIES AND NEW STANDARDS ADOPTED
The accounting policies set out in these consolidated financial statements have been consistently applied to all the years presented, unless otherwise stated.
New standards and interpretations issued and effective from 1 January 2019
To the extent they are relevant, the Group has adopted, from 1 January 2019, all IFRS standards and interpretations including amendments that were in issue and effective for accounting periods beginning on 1 January 2019. These are as follows:
· IFRS 16 'Leases'
· IFRIC 23 'Uncertainty over Income Tax Treatments'
· Prepayment Features with Negative Compensation (Amendments to IFRS 9)
· Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)
· Annual Improvements to IFRS Standards 2015-2017 Cycle
· Plan Amendment, Curtailment or Settlement (Amendments to IAS 19)
These standards and interpretations had no material impact for the Group, except for IFRS 16, as described below.
New standards and interpretations issued but not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2019 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions, except for Definitions of a Business (Amendments to IFRS 3).
This amendment narrows the definition of a business and adds an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business. For the Group, this amendment could result in more acquisitions being accounted for as asset acquisitions.
3.2. IFRS 16 'LEASES'
This note explains the impact of the adoption of IFRS 16 'Leases' on the Group's consolidated financial statements.
The Group has adopted IFRS 16 'Leases' retrospectively from 1 January 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transition provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019. The new accounting policies are disclosed in note 19.
To assess the impact of IFRS 16, Management have considered existing operating and finance leases as well as reviewing all other contracts in place within the business to ascertain if they fall within the definition of a lease. The most significant contracts identified are where the Group enters into leases for the rental of office space in different countries. Leases are negotiated for a variety of terms over which rentals are primarily fixed with break clauses and options to extend for further periods at the prevailing market rate. Any lease incentives are spread over the term of the lease. The break dates for the lease agreements vary.
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 'Leases'. The liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as at 1 January 2019.
The incremental borrowing rate applied to each lease was determined considering the Group's borrowing rate and the risk-free interest rate, adjusted for factors specific to the country, currency and term of the lease. The incremental borrowing rates applied to individual leases ranged between 1.5% and 9.2%. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 3.1%.
For those leases previously classified as finance leases, the right-of-use asset and lease liability are measured at the date of initial application at the same amounts as under IAS 17 immediately before the date of initial application. The measurement principals of IFRS 16 are only applied after that date.
The right-of-use assets recognised relate only to leases for the rental of office space, other right-of-use assets were all considered to be low-value or short-term.
Practical expedients applied
In applying IFRS 16 for the first time, the Group used the following practical expedients permitted by the standard:
· The exclusion of initial direct costs in the measurement of the right-of-use asset for operating leases at the date of initial application.
· Reliance on previous assessments on whether leases are onerous instead of performing an impairment review.
· For operating leases with a remaining lease term of less than 12 months and for leases of low-value assets, accounting for the lease expense on a straight-line basis over the remaining lease term.
· The use of hindsight in determining the lease term where the contract contains options to extend or terminate leases.
The Group has also elected not to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, for contracts entered into before the transition date the Group relied on the assessment it made in applying IAS 17 and IFRIC 4 'Determining whether an Arrangement Contains a Lease'.
Measurement of lease liabilities
The following is a reconciliation of total operating lease commitments at 31 December 2018 to the lease liabilities recognised at 1 January 2019:
|
|
£'000 |
|
Operating lease commitments disclosed at 31 December 2018 |
37,698 |
|
Discount applied using the lessee's incremental borrowing rate at the date of initial application |
(8,246) |
|
Add: finance lease liabilities recognised at 31 December 2018 |
35 |
|
Less: Recognition exemptions |
|
|
- Leases with remaining lease term of less than 12 months |
(330) |
|
- Leases of low-value assets |
(143) |
|
Other adjustments relating to commitment disclosures |
160 |
|
Total lease liabilities recognised under IFRS 16 at 1 January 2019 |
29,174 |
|
|
|
|
Of which: |
|
|
Current lease liabilities |
2,631 |
|
Non-current lease liabilities |
26,543 |
|
|
29,174 |
Measurement of right-of-use assets
The associated right-of-use assets for property leases were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet as at 31 December 2018. There were also onerous lease contracts that required adjustment to the right-of-use asset at the date of initial application.
Adjustments recognised in the balance sheet on 1 January 2019
The change in accounting policy affected the following items in the balance sheet on 1 January 2019:
· Property, plant and equipment increased by £29.1m for right-of-use assets.
· Prepayments decreased by £0.1m.
· Provisions for onerous leases decreased by £0.1m.
· Provisions for rent-free periods decreased by £1.6m.
· Lease liabilities increased by £29.2m; £26.6m is shown in non-current liabilities and £2.6m in current liabilities.
· The net impact on retained earnings on 1 January 2019 was an increase of £1.8m.
Impact for the current financial year end
For the current financial year end, IFRS 16 has impacted as follows:
· EBITDA for the year to 31 December 2019 increased by £3.7m.
· Profit after tax for the year to 31 December 2019 decreased by £0.7m.
· The carrying value of non-current lease liabilities is £28.7m and £2.9m for current lease liabilities at 31 December 2019, see note 19.1.
· The carrying value of right-of-use assets is £30.2m at 31 December 2019, this is presented within property, plant and equipment, see note 20.
· Basic Earnings Per Share have decreased by 0.06p per share for the year to 31 December 2019 as a result of the adoption of IFRS 16.
3.3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The basis of consolidation is described below, otherwise significant accounting policies related to specific items are described under the relevant note. The description of the accounting policy in the notes forms an integral part of the accounting policies. Unless otherwise stated, these policies have been consistently applied to all the years presented.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its "subsidiaries"). The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity.
De-facto control exists where the Company has the practical ability to direct the relevant activities of the investee without holding the majority of the voting rights. In determining whether de-facto control exists the Company considers the size of the Company's voting rights relative to other parties, substantive potential voting rights held by the Company and by other parties, other contractual arrangements and historical patterns in voting attendance.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non-controlling interest and other components of equity. Any resulting gain or loss is recognised in the consolidated income statement.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group. All inter-company transactions and balances, including unrealised gains and losses, arising from transactions between Group companies are eliminated on consolidation.
The acquisition method of accounting is used to account for business combinations by the Group (see note 31). Associates are accounted for via the equity method of accounting (see note 32).
Company only financial statements
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). Separate financial statements for the Company are not prepared unless required to do 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.
SECTION 2 - RESULT FOR THE YEAR
4. Segmental Reporting
RevenueRevenue is recognised in the consolidated income statement to the pro-rated part of the services rendered to the client at the reporting date. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured as the fair value of the consideration received or receivable for services provided in the normal course of business, excluding discounts and sales-related taxes. Revenue comprises fees and commissions from providing corporate, fund and private client administration services to institutional and private clients. The contractual arrangements can be time based, based on a percentage of net asset value ("NAV"), fixed fees or service charges and can be billed in advance or in arrears. Principal versus agent considerationWhen the Group acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognised is the net amount of commissions made by the Group. Other revenueWhere revenue is derived from offering treasury services to clients, revenue is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Rental income where the Group acts as lessor is recognised on a straight-line basis over the relevant term of the lease. |
4.1. Basis of segmentation
The Group has a multi-jurisdictional footprint and the core focus of operations is on providing services to its institutional and private client base, with revenues from alternative asset managers, financial institutions, corporates, high-net-worth ("HNW") and ultra-high-net-worth ("UHNW") individuals and family office clients. Declared revenue is generated from external customers. Business activities include:
Fund services
Supporting a diverse range of asset classes, including real estate, private equity, renewables, hedge, debt and alternative asset classes providing a comprehensive set of fund administration services (e.g. fund launch, NAV calculations, accounting, compliance and risk monitoring, investor reporting, listing services).
Corporate services
Includes clients spanning across small and medium entities, public companies, multinationals, sovereign wealth funds, fund managers, HNW and UHNW individuals and families requiring a 'corporate' service for business and investments. As well as entity formation, administration and other company secretarial services, the Group also services international and local pension plans, employee share incentive plans, employee ownership plans and deferred compensation plans.
Private client services
Supporting HNW and UHNW individuals and families, from 'emerging entrepreneurs' to established single and multi-family offices. Services include JTC's own comprehensive Private Office, as well as the formation and administration of trusts, companies, partnerships, and other vehicles and structures across a range of asset classes, including cash and investments.
The Chief Executive Officer and Chief Financial Officer are together the Chief Operating Decision Makers of the Group and determine the appropriate business segments to monitor financial performance. Each segment is defined as a set of business activities generating a revenue stream determined by divisional responsibility and the management information reviewed by the Board. They have determined that the Group has two reportable segments: these are Institutional Client Services ("ICS") and Private Client Services ("PCS").
4.2. Segmental information
The table below shows the segmental information provided to the Board for the two reportable segments (ICS and PCS) on an underlying basis:
|
|
ICS |
PCS |
Total |
|||
|
2019 £'000 |
2018 £'000 |
2019 £'000 |
2018 £'000 |
2019 £'000 |
2018 £'000 |
|
|
Revenue |
54,824 |
43,362 |
44,450 |
33,892 |
99,274 |
77,254 |
|
|
|
|
|
|
|
|
|
Direct staff costs |
(21,371) |
(16,465) |
(14,897) |
(10,782) |
(36,268) |
(27,247) |
|
Other direct costs |
(157) |
(416) |
(1,592) |
(2,046) |
(1,749) |
(2,462) |
|
|
|
|
|
|
|
|
|
Underlying gross profit |
33,296 |
26,481 |
27,961 |
21,064 |
61,257 |
47,545 |
|
Underlying gross profit margin % |
60.7% |
61.1% |
62.9% |
62.2% |
61.7% |
61.5% |
|
|
|
|
|
|
|
|
|
Indirect staff costs |
(5,221) |
(4,169) |
(4,760) |
(3,600) |
(9,981) |
(7,769) |
|
Other operating expenses |
(12,471) |
(10,043) |
(7,318) |
(6,240) |
(19,789) |
(16,283) |
|
Other income |
28 |
219 |
171 |
217 |
199 |
436 |
|
|
|
|
|
|
|
|
|
Underlying EBITDA |
15,632 |
12,488 |
16,054 |
11,441 |
31,686 |
23,929 |
|
Underlying EBITDA margin % |
28.5% |
28.8% |
36.1% |
33.8% |
31.9% |
31.0% |
The Board evaluates segmental performance based on revenue, underlying gross profit and underlying EBITDA. Profit before income tax is not used to measure the performance of the individual segments as items such as depreciation, amortisation of intangibles, other gains and net finance costs are not allocated to individual segments. Consistent with the aforementioned reasoning, segment assets and liabilities are not reviewed regularly on a by-segment basis and are therefore not included in the IFRS segmental reporting.
5. Staff costs
Employee benefitsShort-term benefitsShort-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present, legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. Defined contribution plansPayments to defined contribution retirement benefit schemes are recognised as an expense when employees have rendered services entitling them to contributions. The Group has no further payment obligation once the contributions have been paid. Termination benefitsTermination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises costs for a restructuring that is within the scope of IAS 37 and involves the payment of termination benefits. If benefits are not expected to be settled wholly within one year of the end of the reporting period, then they are discounted. Employee Benefit Trust ("EBT")The Group is committed to the concept of shared ownership and it is this ethos that has historically led to the creation of EBTs to hold shares in the Company for the benefit of employees. All permanent employees of the Group automatically become beneficiaries once they complete their probationary period. Any awards that were made upon completion of a capital event were expensed to staff costs immediately. Due to the capital nature of these awards they are considered to be non-underlying. |
|
|
Note |
2019 £'000 |
2018 £'000 |
|
Salaries and Directors' fees |
|
39,667 |
31,925 |
|
Capital distribution from EBT12 |
7 |
(407) |
13,211 |
|
Other short-term employee benefits |
|
1,216 |
986 |
|
Defined contribution pension costs |
|
1,735 |
1,355 |
|
Share-based payments |
36.2 |
694 |
443 |
|
Training and other staff-related costs |
|
3,794 |
2,783 |
|
|
|
46,699 |
50,703 |
6. OTHER OPERATING EXPENSES
|
Other operating expenses are accounted for on an accruals basis. |
|
|
2019 £'000 |
2018 £'000 |
|
Third party administration fees |
1,789 |
2,518 |
|
Legal and professional fees |
3,825 |
4,140 |
|
Auditor's remuneration for audit services |
1,033 |
795 |
|
Auditor's remuneration for other services: |
|
|
|
- Acquisitions |
- |
78 |
|
- IPO |
- |
285 |
|
Insurance |
607 |
593 |
|
Travelling |
1,418 |
961 |
|
Marketing |
890 |
715 |
|
IT expenses |
4,436 |
3,565 |
|
Other expenses |
2,364 |
1,988 |
|
Other operating expenses |
16,362 |
15,638 |
7. non-underlying items
|
The Group classifies certain one-off charges or non-recurring credits that have a material impact on the Group's financial results as non-underlying items. They represent specific items of income or expenditure that are not of an operational nature and do not represent the core operating results, and based on their significance in size or nature are presented separately to provide further understanding about the financial performance of the Group. |
|
|
Note |
2019 £'000 |
2018 £'000 |
|
EBITDA |
|
33,713 |
5,358 |
|
Non-underlying items within EBITDA: |
|
|
|
|
Capital distribution from EBT12(i) |
|
(407) |
13,211 |
|
Acquisition and integration costs(ii) |
|
2,041 |
4,257 |
|
IPO costs |
|
36 |
954 |
|
Office closures |
|
- |
56 |
|
One-off costs to reorganise Senior Management team |
|
- |
93 |
|
Total non-underlying items within EBITDA |
|
1,670 |
18,571 |
|
Impact of IFRS 16 |
3.2 |
(3,697) |
- |
|
Underlying EBITDA |
|
31,686 |
23,929 |
|
|
|
|
|
|
Profit/(loss) before tax |
|
17,639 |
(2,129) |
|
Total non-underlying items within EBITDA |
|
1,670 |
18,571 |
|
Unwinding of discount on capital distribution(i) |
|
165 |
190 |
|
Gain on bargain purchase(iii) |
|
(188) |
(457) |
|
Impairment of customer relationship intangible asset(iv) |
|
459 |
- |
|
Loss on disposal of acquired fixed asset |
|
- |
564 |
|
Accelerated amortisation of loan arrangement fees |
|
- |
251 |
|
Total non-underlying items within profit before tax |
|
2,106 |
19,119 |
|
Impact of IFRS 16 |
3.2 |
653 |
- |
|
Underlying profit before tax |
|
20,398 |
16,990 |
(i) Following the IPO in March 2018, the Group expensed £13.21m to staff costs being the discounted value of the total committed capital distributions from EBT12. During 2019, £0.4m was credited to staff costs in relation to leavers who forfeited their distributions.
(ii) During 2019, the Group completed two acquisitions (Exequtive and Aufisco) and expensed £0.82m of acquisition and integration expenditure (see notes 31.1 and 31.2). Also expensed in the year was £0.78m in relation to the acquisition of Minerva (see note 31.3) and £0.37m in relation to the acquisition of Van Doorn (see note 31.4). Acquisition and integration costs includes but is not limited to: travel costs, professional fees, legal fees, tax advisory fees, onerous leases, transitional services agreement costs, any client-acquired penalties, acquisition-related share-based payments and staff reorganisation costs.
(iii) The gain on bargain purchase arose on the acquisition of Aufisco (see note 31.2) (2018: gain on bargain purchase arose on the acquisition of BAML).
(iv) Impairment of customer relationship intangible asset separately identified on acquisition of NACT (see note 21.2).
8. DEPRECIATION AND AMORTISATION
|
|
Note |
2019 £'000 |
2018 £'000 |
|
Depreciation of property, plant and equipment(i) |
20 |
4,588 |
942 |
|
Amortisation of intangible assets |
21 |
5,566 |
3,247 |
|
Amortisation of contract assets |
22 |
598 |
448 |
|
Depreciation and amortisation |
|
10,752 |
4,637 |
(i) Depreciation has increased by £3.2m following the adoption of IFRS 16 'Leases` (see note 3.2) as a result of recognising right-of-use assets.
9. OTHER (LOSSES)/GAINS
|
|
Note |
2019 £'000 |
2018 £'000 |
|
Loan written back |
|
- |
30 |
|
Foreign exchange (losses)/gains |
|
(1,215) |
558 |
|
Net profit/(loss) on disposal of property, plant and equipment |
|
7 |
(523) |
|
Gain on bargain purchase |
|
188 |
457 |
|
Impairment of customer relationship intangible asset |
21.2 |
(459) |
- |
|
Other (losses)/gains |
|
(1,479) |
522 |
10. FINANCE INCOME AND FINANCE COST
|
Finance income includes interest income from loan receivables and bank deposits and is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Finance costs include interest expenses on loans and borrowings, the unwinding of the discount on provisions, lease liabilities and contingent consideration and the amortisation of directly attributable transaction costs which have been capitalised upon issuance of the financial instrument and released to the consolidated income statement on a straight-line basis over the contractual term. |
|
|
|
2019 £'000 |
2018 £'000 |
|
Bank interest |
|
158 |
90 |
|
Loan interest |
|
12 |
13 |
|
Finance income |
|
170 |
103 |
|
|
|
|
|
|
Bank loan interest |
|
2,065 |
1,611 |
|
Loan note interest |
|
- |
48 |
|
Amortisation of loan arrangement fees |
|
376 |
555 |
|
Unwinding of net present value discounts(i) |
|
1,259 |
986 |
|
Other finance expense |
|
313 |
275 |
|
Finance cost |
|
4,013 |
3,475 |
(i) Unwinding of net present value discounts has increased by £0.9m following adoption of IFRS 16 'Leases` (see note 3.2) as a result of recognising lease liabilities.
11. INCOME TAX EXPENSE
Current taxCurrent tax is the expected tax payable or receivable on the taxable income or loss for the year using tax laws enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Management periodically evaluate positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities. Deferred taxDeferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the 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 deferred tax assets is reviewed at the end of each reporting period 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 using tax rates that are expected to apply when the liability is settled or the asset realised using tax rates 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 yearCurrent 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. |
|
|
2019 |
2018 |
|
Current tax expense |
|
|
|
Jersey tax on current year profits |
323 |
587 |
|
Foreign company taxes on current year profits |
903 |
1,463 |
|
|
1,226 |
2,050 |
|
Deferred tax expense (see note 23) |
|
|
|
Jersey origination and reversal of temporary differences |
17 |
110 |
|
Temporary movements in relation to customer relationship intangible assets |
(787) |
(389) |
|
Foreign company origination and reversal of temporary differences |
2 |
(43) |
|
|
(768) |
(322) |
|
Total tax charge for the year |
458 |
1,728 |
The difference between the total current tax shown above and the amount calculated by applying the standard rate of Jersey income tax to the profit/(loss) before tax is as follows:
|
|
2019 |
2018 |
|
Profit/(loss) on ordinary activities before tax |
17,639 |
(2,129) |
|
Tax on profit/(loss) on ordinary activities at standard Jersey income tax rate of 10% (2018: 10%) |
1,764 |
(213) |
|
Effects of: |
|
|
|
Results from entities subject to tax at a rate of 0% (Jersey company) |
(1,403) |
1,073 |
|
Results from tax exempt entities (Foreign company) |
(204) |
(87) |
|
Foreign taxes not at Jersey rate |
663 |
788 |
|
Depreciation in excess of capital allowances (Jersey company) |
17 |
110 |
|
Depreciation in excess of capital allowances (Foreign company) |
2 |
(43) |
|
Temporary difference arising on amortisation of customer relationships |
(787) |
(389) |
|
Non-deductible (income)/expenses |
(14) |
72 |
|
Additional provisions |
- |
200 |
|
Consolidation adjustments |
412 |
173 |
|
Other differences |
8 |
44 |
|
Total tax charge for the year |
458 |
1,728 |
Income tax expense computations are based on the jurisdictions in which profits were earned at prevailing rates in the respective jurisdictions.
The Company is subject to Jersey income tax at the general rate of 0%; however, the majority of the Group's profits are reported in Jersey by Jersey financial services companies. The income tax rate applicable to certain financial services companies in Jersey is 10%. It is therefore appropriate to use this rate for reconciliation purposes.
|
|
2019 |
2018 |
|
Reconciliation of effective tax rates |
|
|
|
Tax on profit/(loss) on ordinary activities |
10.00% |
10.00% |
|
Effect of: |
|
|
|
Results from entities subject to tax at a rate of 0% (Jersey company) |
(7.96%) |
(50.67%) |
|
Results from tax exempt entities (Foreign company) |
(1.16%) |
4.11% |
|
Foreign taxes not at Jersey rate |
3.76% |
(37.19%) |
|
Depreciation in excess of capital allowances (Jersey company) |
0.10% |
(5.19%) |
|
Depreciation in excess of capital allowances (Foreign company) |
0.01% |
2.02% |
|
Temporary difference arising on amortisation of customer relationships |
(4.46%) |
18.36% |
|
Non-deductible (income)/expenses |
(0.08%) |
(3.36%) |
|
Additional provisions |
0.00% |
(9.44%) |
|
Consolidation adjustments |
2.33% |
(8.15%) |
|
Other differences |
0.05% |
(2.06%) |
|
Effective tax rate |
2.60% |
(81.58%) |
SECTION 3 - FINANCIAL ASSETS AND FINANCIAL LIABILITIES
|
This note provides information about the Group's financial instruments, including: accounting policies; specific information about each type of financial instrument; and, where applicable, information about determining the fair value, including judgements and estimation uncertainty involved. Financial assetsThe Group classifies its financial assets as either amortised cost, fair value through profit or loss ("FVTPL") or fair value through other comprehensive income ("FVOCI") depending on the Group's business model objective for managing financial assets and their contractual cash flow characteristics. As the Group's financial assets arise principally from the provision of services to clients (e.g. trade receivables), but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest, they are classified at amortised cost. Financial assets are recognised initially on the trade date which is the date that the Group became party to the contractual provisions of the instrument and are derecognised when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred. Financial assets are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. The Group assesses, on a forward-looking basis, the expected credit losses associated with its financial assets carried at amortised cost. The impairment methodology applied takes into consideration whether there has been a significant increase in credit risk. Financial assets comprise trade receivables, work in progress, accrued income, other receivables and cash and cash equivalents. For further details on impairment for each, see notes 12 to 16. Financial liabilitiesThe Group classifies its financial liabilities as either amortised cost or FVTPL depending on the purpose for which the liability was acquired. As the Group does not have any financial liabilities held for trading (derivatives), all other financial liabilities are classified as measured at amortised cost. Other financial liabilities include trade and other payables and borrowings. Trade and other payables represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. They are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method and are presented as current liabilities unless payment is not due within 12 months after the reporting period. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired. Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the consolidated income statement over the period of the borrowings using the effective interest rate method. Borrowings are removed from the consolidated balance sheet when the obligation specified in the contract is discharged, cancelled or has expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in the consolidated income statement as finance income or finance cost. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. Offsetting financial assets and liabilitiesFinancial assets and liabilities are offset and the net amount is reported in the consolidated balance sheet where there is a legally enforceable right to offset the recognised amounts, and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. |
12. TRADE RECEIVABLES
The ageing analysis of trade receivables with the loss allowance is as follows:
|
2019 |
Gross £'000 |
Loss allowance £'000 |
Net £'000 |
|
<30 days |
8,724 |
(151) |
8,573 |
|
30 - 60 days |
1,474 |
(38) |
1,436 |
|
61 - 90 days |
1,199 |
(72) |
1,127 |
|
91 - 120 days |
731 |
(59) |
672 |
|
121 - 180 days |
1,042 |
(175) |
867 |
|
>180 days |
7,087 |
(3,507) |
3,580 |
|
Total |
20,257 |
(4,002) |
16,255 |
|
2018 |
Gross £'000 |
Loss allowance £'000 |
Net £'000 |
|
<30 days |
10,048 |
(213) |
9,835 |
|
30 - 60 days |
1,214 |
(38) |
1,176 |
|
61 - 90 days |
1,090 |
(41) |
1,049 |
|
91 - 120 days |
996 |
(96) |
900 |
|
121 - 180 days |
256 |
(89) |
167 |
|
>180 days |
6,197 |
(3,182) |
3,015 |
|
Total |
19,801 |
(3,659) |
16,142 |
The movement in the allowances for trade receivables is as follows:
|
|
2019 |
2018 |
|
Balance at the beginning of the year |
(3,659) |
(2,635) |
|
IFRS 9 opening balance adjustment |
- |
(301) |
|
Impairment losses recognised in the consolidated income statement |
(1,253) |
(1,285) |
|
Amounts written off (net of any unused amounts reversed) |
910 |
562 |
|
Total allowance for doubtful debts |
(4,002) |
(3,659) |
To measure the expected credit losses, trade receivables are grouped based on shared credit risk characteristics and the days past due. The expected credit losses are estimated collectively using a provision matrix based on the Group's historical credit loss experience, adjusted for factors that are specific to the debtor's financial position (this includes unlikely to pay indicators such as liquidity issues, insolvency or other financial difficulties) and an assessment of both the current as well as the forecast direction of macroeconomic conditions at the reporting date. The Group has identified gross domestic product and inflation in each country the Group provides services in to be the most relevant macroeconomic factors. The impact of expected changes in these forward-looking macroeconomic factors has been assessed and is considered to be highly immaterial. Provision rates are segregated according to geographical location and by business line. The Group considers specific impairment on a by-client basis rather than on a collective basis. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the consolidated income statement as credit impairment losses. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against credit impairment losses.
13. WORK IN PROGRESS
|
|
2019 £'000 |
2018 £'000 |
|
Total |
9,350 |
7,132 |
|
Loss allowance |
(53) |
(48) |
|
Net |
9,297 |
7,084 |
Work in progress ("WIP") represents the net unbilled amount expected to be collected from clients for work performed to date. It is measured at the chargeable rate agreed with the individual clients less progress billed, less allowances for unrecoverable amounts and less expected credit losses. As these financial assets relate to unbilled work and have substantially the same risk characteristics as trade receivables, the Group has concluded that the expected loss rates for trade receivables <30 days, excluding specific provisions, is an appropriate estimation of the expected credit losses.
Sensitivity analysis
The total carrying amount of WIP (before ECL allowances) is £9.35m (2018: £7.13m). If Management's estimate of the recoverability of the WIP (the amount expected to be billed and collected from clients for work performed to date) is 10% lower than expected on the total WIP balance due to allowances for unrecoverable amounts, revenue would be £0.94m lower (2018: £0.71m lower).
14. ACCRUED INCOME
|
|
2019 £'000 |
2018 £'000 |
|
Total |
12,927 |
9,334 |
|
Loss allowance |
(21) |
(25) |
|
Net |
12,906 |
9,309 |
Accrued income across all the service lines represents the billable provision of services to clients which has not been invoiced at the reporting date. Accrued income is recorded based on agreed fees billed in arrears less expected credit losses. As these financial assets relate to unbilled work and have substantially the same risk characteristics as trade receivables, the Group has concluded that the expected loss rates for trade receivables <30 days is an appropriate estimation of the expected credit losses.
15. OTHER RECEIVABLES
|
|
2019 £'000 |
2018 £'000 |
|
Non-current |
|
|
|
Loans receivable from employees |
153 |
180 |
|
Loans receivable from related undertakings |
64 |
64 |
|
Total non-current |
217 |
244 |
|
|
|
|
|
Current |
|
|
|
Other receivables |
1,867 |
1,335 |
|
Loans receivable from employees |
180 |
- |
|
Loans receivable from third parties |
4,219 |
- |
|
Total current |
6,266 |
1,335 |
|
Total other receivables |
6,483 |
1,579 |
Loans receivable from employees include the following: (i) a loan for £0.18m which is interest bearing (LIBOR +1.5%) and repayable on 31 December 2020 unless the employment contract is terminated at an earlier date; and (ii) £0.15m which is due from employees participating in the Advance to Buy ("A2B") programme; these are interest bearing at 3% per annum and repayable two years after the commencement date (in early 2021) unless the employment contract is terminated at an earlier date.
Loans receivable from Northpoint Byala IC (£53k) and Northpoint Finance IC (£11k) are unsecured and interest free and, as the repayment date is unspecified, these are non-current. Both are incorporated cell companies registered in Jersey, Channels Islands and are considered related parties due to common directorships.
Loans receivable from third parties are due from NES Financial ("NESF"), a business acquired by the Group on 2 April 2020. On 26 November 2019, the Group provided an unsecured interest free, short-term loan of $2m to secure exclusivity. On 5 December 2019, a further loan was extended for $3.5m which was secured, with interest payable at 3% per annum with a repayment date of 5 June 2021. Both of these loans have been settled post year end as part of the purchase consideration calculation (see note 40).
Other receivables are subject to the impairment requirements of IFRS 9 but as balances are primarily with related parties or part of a business combination, they were assessed to have low credit risk and no loss allowance is recognised.
16. CASH AND CASH EQUIVALENTS
|
|
2019 £'000 |
2018 £'000 |
|
Cash attributable to the Group |
23,693 |
26,354 |
|
Committed EBT capital distributions (restricted) |
2,624 |
6,103 |
|
Total |
26,317 |
32,457 |
For the purpose of presentation in the statement of cash flow, cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts.
Cash and cash equivalents are subject to the impairment requirements of IFRS 9 but, as balances are mainly held with reputable international banking institutions, they were assessed to have low credit risk and no loss allowance is recognised.
17. TRADE AND OTHER PAYABLES
|
|
2019 £'000 |
2018 £'000 |
|
Non-current |
|
|
|
Other payables |
- |
4,472 |
|
Deferred consideration |
- |
241 |
|
Total non-current |
- |
4,713 |
|
|
|
|
|
Current |
|
|
|
Trade payables |
1,196 |
1,008 |
|
Other taxation and social security |
646 |
210 |
|
Other payables |
5,670 |
4,939 |
|
Accruals |
5,176 |
5,273 |
|
Deferred consideration |
8,460 |
7,968 |
|
Total current |
21,148 |
19,398 |
|
Total trade and other payables |
21,148 |
24,111 |
Included in current other payables is £2.5m being the discounted value of capital distributions due from EBT12 to employees (2018: £3.0m).
Included in non-current other payables in the prior year was the discounted value of capital distributions due from EBT12 to employees of £2.85m.
Deferred consideration payable is discounted to net present value, split between current and non-current and is due by acquisition as follows: £7.64m for Exequtive (see note 31.1), £0.56m for Aufisco (see note 31.2) and £0.26m for S&GFA (2018: £5.06m for Van Doorn, £1.96m for Minerva, £0.88m for NACT and £0.3m for S&GFA).
Due to their short-term nature, Management consider the carrying value of these financial liabilities to approximate to their fair value.
18. LOANS AND BORROWINGS
|
|
2019 £'000 |
2018 £'000 |
|
Non-current |
|
|
|
Bank loans |
86,681 |
71,494 |
|
Finance leases |
- |
30 |
|
Other loans |
- |
508 |
|
Total non-current |
86,681 |
72,032 |
|
|
|
|
|
Current |
|
|
|
Finance leases |
- |
5 |
|
Other loans |
508 |
678 |
|
Total current |
508 |
683 |
|
Total loans and borrowings |
87,189 |
72,715 |
18.1. BANK LOANS
The terms and conditions of outstanding bank loans are as follows:
|
Facility |
Currency |
Termination date |
Interest rate(i) |
2019 £'000 |
2018 £'000 |
|
Term facility |
GBP |
8 March 2023 |
LIBOR + 1.75% |
45,000 |
45,000 |
|
Revolving facility |
GBP |
8 March 2023 |
LIBOR + 1.75% |
19,000 |
19,000 |
|
Revolving facility |
EUR |
8 March 2023 |
EURIBOR + 1.75% |
23,836 |
9,014 |
|
Total principal value |
|
|
|
87,836 |
73,014 |
|
Issue costs |
|
|
|
(1,155) |
(1,520) |
|
Total bank loans |
|
|
|
86,681 |
71,494 |
(i) The initial interest rate margin was 2%; this can change as a result of net leverage calculations. As at 31 December 2019, the interest rate margin was 1.75% (2018: 1.75%).
Under the terms of the facility, HSBC Bank Plc ("HSBC") holds a charge against the shares of JTC PLC and other subsidiaries deemed to be obligors and, in the event of default, could place charges against the net assets held.
Movement in bank facilities during the year:
|
|
At 1 January 2019 £'000 |
Drawdowns £'000 |
Amortisation release £'000 |
Effect of foreign exchange £'000 |
At 31 December 2019 £'000 |
|
Principal value |
73,014 |
15,509 |
- |
(687) |
87,836 |
|
Issue costs |
(1,520) |
- |
365 |
- |
(1,155) |
|
Total |
71,494 |
15,509 |
365 |
(687) |
86,681 |
On 9 March 2018, the Group entered into a five year loan facility agreement with HSBC for a total commitment of £55m (or its equivalent in EUR and USD) consisting of a term loan of £45m and a revolving facility commitment of £10m. The loan agreement was amended on 19 October 2018 to increase the total commitment to £100m and to introduce Barclays Bank Plc ("Barclays"), Santander UK Plc ("Santander") and the Bank of Ireland ("BOI") as incoming lenders with an additional revolving facility commitment of £15m each.
An amount of £45m from the loan facility was used to partially fund the repayment of the existing secured bank loan with HSBC and Royal Bank of Scotland Plc totalling £55.8m in March 2018. The issue costs of £251k associated with this loan have been written off, having previously been capitalised for amortisation over the term of the loan. On 25 September 2018 and 16 November 2018, further withdrawals were made for £9m and £19m respectively to partially fund the two acquisitions made by the Group during the prior year, see notes 31.3 and 31.4. On 22 March 2019, a further withdrawal was made for £15.5m (€17.9m) to partially fund the acquisition of Exequtive, see note 31.1.
The cost of the facility depends upon net leverage, being the ratio of total net debt to underlying EBITDA (for LTM at average FX rates and adjusted for pro-forma contributions from acquisitions and synergies) for a relevant period. As at 31 December 2019, arrangement and legal fees amounting to £1.75m have been capitalised for amortisation over the term of the loan.
At 31 December 2019, the Group had available £12.1m of committed facilities currently undrawn (2018: £27m). All facilities are due to be repaid on or before the termination date of 8 March 2023.
On 9 January 2020, the revolving facility commitment was increased by £50m increasing the total facility commitment to £150m. The commitments were increased by bank as follows: £10m from Barclays, Santander and BOI and £20m from HSBC. The additional commitments are made on the same terms as the existing commitments.
18.2. COMPLIANCE WITH LOAN COVENANTS
The Company has complied with the financial covenants of its borrowing facilities during the 2019 and 2018 reporting period, see note 30.
18.3. OTHER LOANS
On 10 April 2017, the Group entered into a loan facility with Close Leasing Limited for £2.52m. The loan arrangement fee of £25k and an initial instalment of £194k were deducted from the cash received and the remaining balance due is being settled in 41 monthly instalments of £65k each.
18.4. FAIR VALUE
For the majority of the borrowings, the fair values are not materially different from their carrying amounts, since the interest payable on those borrowings is close to current market rates or the borrowings are short-term in nature.
19. LEASES
|
This note provides information for leases where the Group is a lessee. The Group has changed its accounting policy for leases where the Group is the lessee. Note 3.2 explains the impact of the adoption of IFRS 16 'Leases' on the Group's consolidated financial statements. Until 31 December 2018, contracts for the rental of office furniture and equipment leases where the Group, as lessee, had substantially all the risks and rewards of ownership were classified as finance leases. Finance leases were capitalised at the lease's inception at the fair value of the leased asset or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, were included in current and non-current loans and borrowings (see note 18). Each lease payment was allocated between the liability and finance cost. The finance cost was charged to the consolidated income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The office furniture and equipment acquired under the finance lease was depreciated over the asset's useful life, or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. Leases for the rental of buildings where a significant portion of the risks and rewards of ownership were not transferred to the Group as lessee were classified as operating leases. Rentals payable under such leases were charged to the consolidated income statement on a straight-line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. When an operating lease was terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty was recognised as an expense in the period in which termination took place. Any incentives received from the lessor in relation to operating leases were recognised as a reduction of rental expense over the lease term on a straight-line basis. From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: · fixed payments, less any lease incentives receivable; · variable lease payments that are based on an index or a rate; · amounts expected to be payable by the lessee under residual value guarantees; · the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and · payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option. Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. The incremental borrowing rate applied to each lease was determined considering the Group's borrowing rate and the risk-free interest rate, adjusted for factors specific to the country, currency and term of the lease. The Group can be exposed to potential future increases in variable lease payments based on an index or rate which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset. Lease payments are allocated between principal and finance cost. The finance cost is charged to the consolidated income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Right-of-use assets are measured at cost comprising of: · the amount of the initial measurement of lease liability; · any lease payments made at or before the commencement date less any lease incentives received; · any initial direct costs; and · restoration costs. Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. Payments associated with short-term leases of equipment and vehicle and all leases of low-value assets are recognised on a straight-line basis as an expense in the consolidated income statement. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture. |
19.1. AMOUNTS RECOGNISED IN THE CONSOLIDATED BALANCE SHEET
|
|
Note |
2019 £'000 |
2018 £'000 |
|
Right-of-use assets |
|
|
|
|
Buildings |
20 |
30,230 |
29,139 |
|
|
|
|
|
|
Lease liabilities |
|
|
|
|
Current |
|
2,875 |
2,631 |
|
Non-current |
|
28,616 |
26,543 |
|
|
|
31,491 |
29,174 |
In 2018, the Group only recognised lease assets and lease liabilities in relation to leases that were classified as 'finance leases' under IAS 17 'Leases'. The assets were presented in property, plant and equipment and the liabilities as part of Group loans and borrowings. For adjustments recognised on adoption of IFRS 16 on 1 January 2019, please refer to note 3.2.
Sensitivity analysis
The Group has measured the lease liability at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate at the date of transition and right-of-use assets at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments recognised in the consolidated balance sheet before transition. The discount rate determined on a lease-by-lease basis is a significant estimate. The incremental borrowing rate for each lease has been determined by considering the term of the arrangement, the value of the lease liability and the economic environment specific to the jurisdiction. Should the discount rate used for the calculation on each lease arrangement be increased by 1%, the right-of-use asset and lease liability recognised upon transition would both be £2m lower.
19.2. AMOUNTS RECOGNISED IN THE CONSOLIDATED INCOME STATEMENT
The consolidated income statement shows the following amounts relating to leases:
|
|
|
2019 £'000 |
2018 £'000 |
|
Buildings right-of-use asset depreciation charge |
|
3,415 |
- |
|
Interest expense (included in finance cost) |
|
938 |
- |
|
Expense relating to short-term leases (included in establishment costs) |
|
136 |
- |
|
Expense relating to leases of low-value assets that are not shown above as short-term leases (included in other operating expenses) |
|
27 |
- |
The total cash outflow for leases in 2019 was £3.1m.
SECTION 4 - NON-FINANCIAL ASSETS AND NON-FINANCIAL LIABILITIES
20. PROPERTY, PLANT AND EQUIPMENT
|
Items of property, plant and equipment are initially recorded at cost and are stated at historical cost less depreciation and impairment losses. Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight-line method, on the following bases: Leasehold improvements - over the period of the lease Computer equipment - 4 years Office furniture and equipment - 4 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. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated income statement when the asset is derecognised. Assets under the course of construction are stated at cost. These assets are not depreciated until they are available for use. |
|
|
Computer equipment £'000 |
Office furniture and equipment £'000 |
Leasehold improve-ments £'000 |
Right-of-use assets £'000 |
Total £'000 |
|
Cost |
|
|
|
|
|
|
At 1 January 2018 |
2,639 |
927 |
6,071 |
- |
9,637 |
|
Additions |
372 |
256 |
843 |
- |
1,471 |
|
Additions through acquisitions |
114 |
277 |
514 |
- |
905 |
|
Disposals |
(372) |
(254) |
(581) |
- |
(1,207) |
|
Exchange differences |
6 |
- |
42 |
- |
48 |
|
At 31 December 2018 |
2,759 |
1,206 |
6,889 |
- |
10,854 |
|
Adoption of new standards (see note 3.2) |
- |
- |
- |
29,139 |
29,139 |
|
At 1 January 2019 |
2,759 |
1,206 |
6,889 |
29,139 |
39,993 |
|
Additions |
477 |
680 |
1,269 |
4,018 |
6,444 |
|
Additions through acquisitions |
24 |
38 |
- |
1,069 |
1,131 |
|
Disposals |
(40) |
(71) |
(32) |
(499) |
(642) |
|
Exchange differences |
(45) |
(32) |
(66) |
(261) |
(404) |
|
At 31 December 2019 |
3,175 |
1,821 |
8,060 |
33,466 |
46,522 |
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
|
|
|
|
At 1 January 2018 |
1,938 |
735 |
1,460 |
- |
4,133 |
|
Charge for the year |
423 |
99 |
420 |
- |
942 |
|
Disposals |
(327) |
(217) |
(119) |
- |
(663) |
|
Exchange differences |
4 |
3 |
29 |
- |
36 |
|
At 31 December 2018 |
2,038 |
620 |
1,790 |
- |
4,448 |
|
Charge for the year |
430 |
237 |
513 |
3,415 |
4,595 |
|
Disposals |
(41) |
(69) |
- |
(141) |
(251) |
|
Exchange differences |
(37) |
(21) |
(39) |
(38) |
(135) |
|
At 31 December 2019 |
2,390 |
767 |
2,264 |
3,236 |
8,657 |
|
|
|
|
|
|
|
|
Carrying amount |
|
|
|
|
|
|
At 31 December 2019 |
785 |
1,054 |
5,796 |
30,230 |
37,865 |
|
At 31 December 2018(i) |
721 |
586 |
5,099 |
- |
6,406 |
(i) The carrying value of office furniture and equipment included an amount of £162k where the Group was a lessee under finance leases. These leases expired during 2019.
21. INTANGIBLE ASSETS
GoodwillGoodwill that arises on the acquisition of subsidiaries is considered an intangible asset. See note 31 for the measurement of goodwill at initial recognition; subsequent to this, measurement is at cost less accumulated impairment losses. Intangible assets acquired in a business combinationIntangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, these are measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised in the consolidated income statement on a straight-line basis over the estimated useful life of the asset from the date of acquisition. The estimated useful lives are as follows: Customer relationships - 8.7 to 12 years The estimated useful lives and residual value are reviewed at each reporting date and adjusted if appropriate, with the effect of any change in estimate being accounted for on a prospective basis. Intangible assets acquired separatelyIntangible assets that are acquired separately by the Group and have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recognised in the consolidated income statement on a straight-line basis over the estimated useful life of the asset from the date that they are available for use. The estimated useful lives are as follows: Regulatory licence - 12 years Software - 4 years Customer relationships - 10 years The estimated useful lives and residual value are reviewed at each reporting date and adjusted if appropriate, with the effect of any change in estimate being accounted for on a prospective basis. Intangible assets under the course of construction are stated at cost and are not depreciated until they are available for use. Impairment of non-financial assetsGoodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount might not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. |
The movements of the intangible assets and goodwill are as follows:
|
|
Goodwill £'000 |
Customer relationships £'000 |
Regulatory licence £'000 |
Software £'000 |
Assets under construction £'000 |
Total £'000 |
|
Cost |
|
|
|
|
|
|
|
At 1 January 2018 |
76,183 |
23,274 |
245 |
2,786 |
- |
102,488 |
|
Adjustments |
27 |
- |
- |
- |
- |
27 |
|
Additions |
- |
- |
- |
623 |
81 |
704 |
|
Additions through acquisitions |
28,110 |
21,604 |
- |
45 |
- |
49,759 |
|
Disposals |
- |
- |
- |
(40) |
- |
(40) |
|
Exchange differences |
515 |
1,155 |
6 |
22 |
- |
1,698 |
|
At 31 December 2018 |
104,835 |
46,033 |
251 |
3,436 |
81 |
154,636 |
|
Transfers |
- |
- |
- |
81 |
(81) |
- |
|
Additions |
44 |
853 |
- |
520 |
- |
1,417 |
|
Additions through acquisitions |
21,246 |
11,988 |
- |
- |
- |
33,234 |
|
Impairment charge |
- |
(459) |
- |
- |
- |
(459) |
|
Exchange differences |
(1,245) |
(635) |
(13) |
(3) |
- |
(1,896) |
|
At 31 December 2019 |
124,880 |
57,780 |
238 |
4,034 |
- |
186,932 |
|
|
|
|
|
|
|
|
|
Accumulated amortisation |
|
|
|
|
|
|
|
At 1 January 2018 |
- |
2,730 |
29 |
1,785 |
- |
4,544 |
|
Charge for the year |
- |
2,743 |
20 |
484 |
- |
3,247 |
|
Disposals |
- |
- |
- |
(7) |
- |
(7) |
|
Exchange differences |
- |
157 |
3 |
22 |
- |
182 |
|
At 31 December 2018 |
- |
5,630 |
52 |
2,284 |
- |
7,966 |
|
Charge for the year |
- |
5,012 |
20 |
534 |
- |
5,566 |
|
Exchange differences |
- |
487 |
(3) |
(3) |
- |
481 |
|
At 31 December 2019 |
- |
11,129 |
69 |
2,815 |
- |
14,013 |
|
|
|
|
|
|
|
|
|
Carrying amount |
|
|
|
|
|
|
|
At 31 December 2019 |
124,880 |
46,651 |
169 |
1,219 |
- |
172,919 |
|
At 31 December 2018 |
104,835 |
40,403 |
199 |
1,152 |
81 |
146,670 |
21.1. GOODWILL
Goodwill impairment
Goodwill is not amortised but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is monitored by Management at jurisdictional levels. Goodwill is allocated to CGUs for the purpose of impairment testing and this allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose. The aggregate carrying amounts of goodwill allocated to each CGU is as follows:
|
CGU |
Balance at 1 Jan 2019 £'000 |
Post-acquisition adjustments £'000 |
Business combi-nations £'000 |
Exchange differences £'000 |
Total £'000 |
|
Jersey |
64,006 |
(19) |
- |
- |
63,987 |
|
Guernsey |
10,598 |
- |
- |
- |
10,598 |
|
BVI |
752 |
- |
- |
- |
752 |
|
Switzerland |
2,349 |
- |
- |
(21) |
2,328 |
|
Cayman |
237 |
- |
- |
(6) |
231 |
|
Luxembourg |
7,273 |
- |
21,246 |
(279) |
28,240 |
|
Netherlands |
15,281 |
- |
- |
(799) |
14,482 |
|
Dubai |
1,876 |
- |
- |
(61) |
1,815 |
|
Mauritius |
2,463 |
63 |
- |
(79) |
2,447 |
|
Total |
104,835 |
44 |
21,246 |
(1,245) |
124,880 |
|
CGU |
Balance at 1 Jan 2018 £'000 |
Post-acquisition adjustments £'000 |
Business combinations £'000 |
Exchange differences £'000 |
Total £'000 |
|
Jersey |
54,337 |
- |
9,669 |
- |
64,006 |
|
Guernsey |
10,598 |
- |
- |
- |
10,598 |
|
BVI |
752 |
- |
- |
- |
752 |
|
Switzerland |
1,077 |
- |
1,208 |
64 |
2,349 |
|
Cayman |
225 |
- |
- |
12 |
237 |
|
Luxembourg |
7,204 |
- |
- |
69 |
7,273 |
|
Netherlands |
1,990 |
27 |
13,159 |
105 |
15,281 |
|
Dubai |
- |
- |
1,761 |
115 |
1,876 |
|
Mauritius |
- |
- |
2,313 |
150 |
2,463 |
|
Total |
76,183 |
27 |
28,110 |
515 |
104,835 |
Key assumptions used in discounted cash flow projection calculations
The recoverable amount of all CGUs has been determined based on a value in use calculation using cash flow projections. Projected cash flows are calculated with reference to each CGU's latest budget and business plan which are subject to a rigorous review and challenge process. Management prepare the budgets through an assessment of historical revenues from existing clients, the pipeline of new projects, historical pricing, and the required resource base needed to service new and existing clients, coupled with their knowledge of wider industry trends and the economic environment.
The year 1 cash flow projections are based on detailed financial budgets and years 2 to 5 on detailed outlooks prepared by Management. The revenue growth rate assumed beyond the initial five year period is between 0.3% and 2.5%, based on the expected long-term inflation rate of the relevant jurisdiction of the CGU (the "terminal value growth rate").
Management estimate discount rates using pre-tax rates that reflect current market assessments of the time value of money. In assessing the discount rate applicable to the Group the following factors have been considered:
· Long-term treasury bond rate for the relevant jurisdiction
· The cost of equity based on an adjusted Beta for the relevant jurisdiction
· The risk premium to reflect the increased risk of investing in equities
The above assumptions have resulted in weighted average cost of capital ("WACC") of between 10.5% and 16.4%.
A summary of the values assigned to the key assumptions used in the value in use calculations are as follows:
· Revenue growth rate: up to 19.0%
· Terminal value growth rate: between 0.3% and 2.5%
· Discount rate: between 10.5% and 16.4%
· EBIT margin: between 31.3% and 63.0%
Sensitivity analysis
Management believe that any reasonable changes to the key assumptions on which recoverable amounts are based would not cause the aggregate carrying amount to exceed the recoverable amount of the CGUs, except for the revenue growth rate in the Luxembourg CGU. For this CGU, should the revenue growth rate estimated by Management in their detailed outlook for years 1 to 5 be 4% lower, an impairment of £0.9m would be recognised.
Conclusion
The recoverable amount of goodwill determined for each CGU as at 31 December 2019 was found to be higher than its carrying amount.
21.2. CUSTOMER RELATIONSHIP INTANGIBLE ASSETS
The carrying amounts of the identifiable customer relationship intangible assets acquired separately and through business combinations are as follows:
|
|
|
|
Carrying amount |
|
|
Acquisition |
Note |
Useful economic life ("UEL") |
2019 £'000 |
2018 £'000 |
|
Signes(i) |
|
10 years |
1,486 |
1,853 |
|
KB Group(i) |
|
12 years |
2,616 |
2,965 |
|
S&GFA(i) |
|
10 years |
2,198 |
2,666 |
|
BAML(i) |
|
10 years |
7,987 |
9,100 |
|
NACT(i) |
|
10 years |
1,703 |
2,582 |
|
Van Doorn(i) |
|
11.4 years |
6,500 |
7,539 |
|
Minerva(i) |
|
8.7 - 11.8 years |
12,323 |
13,698 |
|
Exequtive |
31.1 |
10 years |
9,111 |
- |
|
Aufisco |
31.2 |
10 years |
1,928 |
- |
|
Sackville |
21.2(b) |
10 years |
799 |
- |
|
Total |
|
|
46,651 |
40,403 |
(i) Acquisitions in previous years included: Signes S.a.r.l and Signes S.A. ("Signes"), Kleinwort Benson (Channel Islands) Fund Services Limited ("KB Group"), Swiss & Global Fund Administration (Cayman) Ltd ("S&GFA"), International Trust and Wealth Structuring Business of Bank of America ("BAML"), New Amsterdam Cititrust B.V. ("NACT"), Minerva Holdings Limited and MHL Holdings S.A. ("Minerva") and Van Doorn B.V. ("Van Doorn").
(a) Customer relationships acquired in a business combination
Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date. In 2019, the Group acquired Exequtive and Aufisco and recognised customer relationship intangible assets of £9.9m and £2.3m respectively, see notes 31.1 and 31.2.
Key assumptions in determining fair value
The fair value at acquisition was derived using the multi-period excess earnings method ("MEEM") financial valuation model. Management consider the key assumptions in this model to be:
· Year on year revenue growth
· The discount rate applied to free cash flow
Sensitivity analysis
Management carried out a sensitivity analysis on the key assumptions used in the valuation of new customer relationship intangible assets.
For Exequtive, an increase of 2% in year on year revenue growth would increase fair value by £0.56m and an increase in discount rate of 2% would decrease fair value by £0.59m.
Management estimate that any similar changes to these key assumptions for the other customer relationship intangible assets recognised in the year would not result in a significant change to fair value.
(b) Customer relationships acquired separately
On 12 February 2019, the Group entered into a facilitation and referral agreement and an outsourcing agreement with Sackville Bank and Trust Company Limited ("Sackville") whereby Sackville's clients would be referred to the Group as a provider of trust, custody and administration services.
The fair value of the customer relationships acquired is the consideration due, this is based on a percentage of revenue attributable to each client successfully introduced. The assets are being amortised over their estimated useful economic life of 10 years.
Amounts due from Sackville for £0.643m where clients were billed in advance of transferring to JTC have been offset against consideration due for customer relationships acquired of £0.78m. These amounts have been offset in accordance with the accounting policy for offsetting financial assets and financial liabilities, see section 3.
(c) Customer relationship intangible asset impairment
Management review customer relationship intangible assets for indicators of impairment at the reporting date. The only indicators identified were that actual revenues generated by BAML, KB Group, Minerva and NACT were lower than forecast.
An impairment assessment was performed on those assets with indicators and Management concluded that the only impairment was on the NACT customer relationship intangible asset. An in-depth review of the client relationships acquired from this business identified some customer relationships would be terminated sooner than originally anticipated due to an increasingly stringent regulatory environment, this resulted in an impairment of £0.46m.
All other customer relationship intangible assets were deemed to have a recoverable amount in excess of the carrying amount as at 31 December 2019.
22. OTHER NON-FINANCIAL ASSETS
Contract assetsIncremental costs of obtaining a contract (i.e. costs that would not have been incurred if the contract had not been obtained) are recognised as a contract cost within financial assets if the costs are expected to be recovered. The capitalised costs of obtaining a contract are amortised on a straight-line basis over the estimated useful economic life of the contract. The carrying amount of contract asset is tested for impairment in accordance with the policy described in note 21. |
|
|
2019 £'000 |
2018 £'000 |
|
Non-current |
|
|
|
Prepayments |
342 |
693 |
|
Contract assets |
623 |
843 |
|
Total non-current |
965 |
1,536 |
|
Current |
|
|
|
Prepayments |
2,112 |
2,054 |
|
Other receivables |
554 |
495 |
|
Contract assets |
326 |
453 |
|
Total current |
2,992 |
3,002 |
|
Total other non-financial assets |
3,957 |
4,538 |
23. DEFERRED TAXATION
|
For the accounting policy on deferred income tax, see note 11. |
The deferred taxation (assets) and liabilities recognised in the consolidated financial statements are set out below:
|
|
Note |
2019 £'000 |
2018 £'000 |
|
Intangible assets |
|
7,528 |
5,869 |
|
Other origination and reversal of temporary differences |
|
25 |
6 |
|
|
|
7,553 |
5,875 |
|
|
|
|
|
|
Deferred tax assets |
|
(103) |
(135) |
|
Deferred tax liabilities |
|
7,656 |
6,010 |
|
|
|
7,553 |
5,875 |
The movement in the year is analysed as follows:
|
Intangible assets |
|
2019 £'000 |
2018 £'000 |
|
Balance at the beginning of the year |
|
5,869 |
2,817 |
|
Recognised through business combinations |
|
2,648 |
3,327 |
|
Recognised in the consolidated income statement |
11 |
(787) |
(389) |
|
Foreign exchange (to other comprehensive income) |
|
(202) |
114 |
|
Balance at 31 December |
|
7,528 |
5,869 |
|
|
|
|
|
|
Other origination and reversal of temporary differences |
|
|
|
|
Balance at the beginning of the year |
|
6 |
(61) |
|
Recognised in the consolidated income statement |
|
19 |
67 |
|
Balance at 31 December |
|
25 |
6 |
24. OTHER NON-FINANCIAL LIABILITIES
Deferred incomeFixed fees received in advance across all the service lines and up-front fees in respect of services due under contract are time apportioned to respective accounting periods, and those billed but not yet earned are included in deferred income in the consolidated balance sheet. As such liabilities are associated with future services, they do not give rise to a contractual obligation to pay cash or another financial asset. Contract liabilitiesCommissions expected to be paid over the term of a customer contract are discounted and recognised at the net present value. The finance cost is charged to the consolidated income statement over the contract life so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. |
|
|
2019 £'000 |
2018 £'000 |
|
Non-current |
|
|
|
Contract liabilities |
518 |
997 |
|
|
|
|
|
Current |
|
|
|
Deferred income |
6,930 |
7,744 |
|
Contract liabilities |
606 |
510 |
|
Total current |
7,536 |
8,254 |
|
Total other non-financial liabilities |
8,054 |
9,251 |
25. PROVISIONS
|
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are not recognised for future operating losses. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. If the impact of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost in the consolidated income statement. DilapidationsThe Group has entered into leases for rental agreements in different countries. The estimated cost of the dilapidations amount payable at the end of each tenancy, unless specified, is generally estimated by reference to the square footage of the building and in consultation with local property agents, landlords and prior experience. Having estimated the likely amount due, a country specific discount rate is applied to calculate the present value of the expected outflow. The discounted dilapidation cost has been capitalised against the leasehold improvement asset in accordance with IAS 16. Onerous contractsAn onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the contract. For 2018, present obligations arising under onerous contracts were recognised and measured as provisions. For 2019, following the adoption of IFRS 16, onerous lease balances have been adjusted against the right-of-use assets recognised at the date of initial application of this new accounting standard, see note 3.2. |
|
|
Note |
Dilapidation provisions £'000 |
Onerous lease provisions £'000 |
Total £'000 |
|
At 1 January 2018 |
|
471 |
362 |
833 |
|
Additions |
|
422 |
334 |
756 |
|
Unwind of discount |
|
28 |
12 |
40 |
|
Amounts utilised |
|
- |
(210) |
(210) |
|
Impact of foreign exchange |
|
7 |
13 |
20 |
|
At 31 December 2018 |
|
928 |
511 |
1,439 |
|
Release upon application of IFRS 16 |
3.2 |
- |
(103) |
(103) |
|
Additions |
|
516 |
- |
516 |
|
Disposals |
|
(132) |
(178) |
(310) |
|
Unwind of discount |
|
11 |
1 |
12 |
|
Amounts utilised |
|
(118) |
(229) |
(347) |
|
Impact of foreign exchange |
|
(16) |
(2) |
(18) |
|
At 31 December 2019 |
|
1,189 |
- |
1,189 |
|
Analysis of total provisions: |
|
2019 £'000 |
Total £'000 |
|
Amounts falling due within one year |
|
73 |
401 |
|
Amounts falling due after more than one year |
|
1,116 |
1,038 |
|
Total |
|
1,189 |
1,439 |
Dilapidations provision
As part of the Group's property leasing arrangements there are a number of leases which include an obligation to remove any leasehold improvements (thus returning the premises to an agreed condition at the end of the lease) and to restore wear and tear by repairing and repainting. The provisions are expected to be utilised when the leases expire or upon exit.
Onerous lease provisions
The Group had identified onerous leases for premises in Jersey, Guernsey and Switzerland. Following transition to IFRS 16, for leases that have already commenced, no requirements are necessary. After commencement date, the Group appropriately reflects an onerous lease contract by applying the requirements of the policy described in note 19.
SECTION 5 - EQUITY
26. SHARE CAPITAL AND RESERVES
26.1. SHARE CAPITAL
|
The Group's Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of Ordinary shares are recognised as a deduction from equity, net of any tax effects. |
|
|
|
2019 £'000 |
Total £'000 |
|
Authorised |
|
|
|
|
300,000,000 Ordinary shares (2018: 300,000,000 Ordinary shares) |
|
3,000 |
3,000 |
|
|
|
|
|
|
Called up, issued and fully paid |
|
|
|
|
114,068,353 Ordinary shares (2018: 110,895,327 Ordinary shares) |
|
1,141 |
1,109 |
Ordinary shares have a par value of £0.01 each. All shares are equally eligible to receive dividends and the repayment of capital and represent one vote at Shareholders' meetings of JTC PLC.
|
Movements in share capital |
Note |
No. |
Par value '000 |
|
Share issue for IPO Offer |
|
106,896,552 |
1,069 |
|
Acquisition of Van Doorn |
29.4 |
1,121,077 |
11 |
|
Acquisition of Minerva |
29.3 |
2,877,698 |
29 |
|
At 31 December 2018 |
|
110,895,327 |
1,109 |
|
Acquisition of Exequtive |
29.1 |
1,925,650 |
20 |
|
PLC EBT issue |
|
1,128,210 |
11 |
|
Acquisition of Aufisco |
29.2 |
119,166 |
1 |
|
Movement in the year |
|
3,173,026 |
32 |
|
At 31 December 2019 |
|
114,068,353 |
1,141 |
Movements in the current year
On 29 March 2019, the Company issued and admitted an additional 1,925,650 Ordinary shares at fair value to satisfy the share consideration payable for its acquisition of Exequtive, see note 31.1.
On 1 October 2019, the Company issued an additional 1,128,210 Ordinary shares in order for PLC EBT to satisfy future exercises of awards granted to beneficiaries.
On 26 November 2019, the Company issued an additional 119,166 Ordinary shares at fair value to satisfy the share consideration payable for its acquisition of Aufisco, see note 31.2.
Movements in the prior year
The Company was incorporated on 12 January 2018 with an authorised share capital of £10,000 divided into 1,000,000 shares of £0.01 each. Immediately prior to Admission, the Group undertook a reorganisation (the "Reorganisation") of its corporate structure that resulted in the Company being the ultimate holding company of the Group and JTCGHL becoming a direct subsidiary of the Company. In connection with the Reorganisation and the IPO Offer, the authorised share capital of the Company was increased from £10,000 divided into 1,000,000 Ordinary shares to £3,000,000 divided into 300,000,000 Ordinary shares (known as "PLC shares").
The Reorganisation was effected pursuant to a Share Exchange Agreement whereby all of the shares in, and remaining Loan Notes issued by JTCGHL, were transferred to the Company and the Company issued an additional 99,097,573 Ordinary shares to such Shareholders and noteholders, following which the Company became the sole shareholder of JTCGHL.
On 14 March 2018, the Directors authorised the issue of 99,097,573 Ordinary shares at par for the Reorganisation and a further 6,896,552 Ordinary shares at par for the IPO Offer and Admission.
The IPO Offer comprised the sale by Original Shareholders of 77,173,702 Ordinary shares and 6,896,552 New Ordinary Shares at £2.90 per share, raising gross proceeds of £243.8m. These were admitted to the Official List of the UK Listing Authority with a Premium Listing and approval to trade on the Main Market of the London Stock Exchange.
Following the IPO, the Company settled a new EBT, known as the JTC PLC Employee Benefit Trust ("PLC EBT"). A capital appointment of £1.5m was made from EBT12 to PLC EBT and 741,345 Ordinary shares in the Company were purchased to be held by PLC EBT.
On 28 September 2018, the Company issued and admitted an additional 1,121,007 Ordinary shares at fair value to satisfy the share consideration payable for its acquisition of Van Doorn, see note 31.4.
On 20 November 2018, the Company issued an additional 2,877,698 Ordinary shares at fair value to satisfy the share consideration payable for its acquisition of Minerva, see note 31.3.
26.2. OWN SHARES
|
Own shares represent the shares of the Company that are unallocated and held by PLC EBT and previously share ownership trusts ("SOPs") and EBT12 (together the "Trusts"). 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 cost. Any consideration paid or received by the Trusts for the purchase or sale of the Company's own shares is shown as a movement in shareholders' equity. |
|
|
SOPs No. |
EBT12 No. |
PLC EBT No. |
PLC EBT £'000 |
|
At 1 January 2018 |
29,122 |
84,000 |
- |
- |
|
IPO movements |
(29,122) |
(84,000) |
474,500 |
1,500 |
|
Acquisition of Minerva |
- |
- |
101,179 |
406 |
|
Acquisition of Van Doorn |
- |
- |
115,000 |
461 |
|
Purchase of own shares |
- |
- |
50,666 |
199 |
|
At 31 December 2018 |
- |
- |
741,345 |
2,565 |
|
Acquisition of Exequtive |
- |
- |
173,482 |
- |
|
PLC EBT issue |
- |
- |
1,128,210 |
11 |
|
Purchase of own shares |
- |
- |
117,630 |
450 |
|
Movement in year |
- |
- |
1,419,322 |
462 |
|
At 31 December 2019 |
- |
- |
2,160,667 |
3,027 |
Movements in the current year
On 29 March 2019, as part of the acquisition of Exequtive, 173,482 Ordinary shares were contributed to PLC EBT.
On 1 October 2019, the Company issued an additional 1,128,210 Ordinary shares for PLC EBT.
During the year, shares were purchased for PLC EBT using surplus cash held and following capital appointments from EBT12 using its surplus cash from leavers who forfeited their capital distributions.
Movements in the prior year
Under the share exchange agreement (see note 26.1), the shares and loan notes held by EBT12 were converted into PLC shares and then sold for £15.64m upon IPO. Following the IPO, PLC EBT was settled by a capital appointment of £1.5m. Subsequent to this, purchases were made as part of the acquisitions of Minerva and Van Doorn and also from surplus cash held from EBT12 where leavers had forfeited their capital distributions.
26.3. OTHER RESERVES
Capital reserve
This reserve is used to record the gains or losses recognised on the purchase, sale, issue or cancellation of the Company's own shares, which may arise from capital transactions by the Group's employee benefit trusts as well as any movements in share-based awards to employees.
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.
Retained earnings
Retained earnings includes accumulated profits and losses.
27. DIVIDENDS
|
Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period. Interim dividends are recognised when paid. |
The following dividends were declared and paid by the Company for the year:
|
|
|
2019 £'000 |
Total £'000 |
|
Interim dividend for 2018 of 1p per qualifying ordinary share |
|
- |
1,074 |
|
Final dividend for 2018 of 2p per qualifying ordinary share |
|
2,235 |
- |
|
Interim dividend for 2019 of 1.7p per qualifying ordinary share |
|
1,899 |
- |
|
Total dividend declared and paid |
|
4,134 |
1,074 |
SECTION 6 - RISK
28. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
In the application of the Group's accounting policies, Management 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.
28.1. CRITICAL JUDGEMENTS IN APPLYING THE GROUP'S ACCOUNTING POLICIES
The following are the critical judgements that Management 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.
Recognition of customer relationship intangibles
In 2019, the Group entered into transactions with Exequtive and Aufisco, see notes 31.1 and 31.2. IFRS 3 'Business Combinations' requires Management to identify assets and liabilities purchased including intangible assets. Following their assessment, Management concluded that the only material intangible asset meeting the recognition criteria is customer relationships. The customer relationship intangible assets recognised through these acquisitions were £9.86m and £2.28m respectively.
Extension options on leases
Many of the leases for office space contain extension options as these provide operational flexibility. The Group will assess at each reporting period if they are reasonably certain that an extension option will be exercised. Such assessment involves management judgement and is based on the information available at the time the assessments are made. This includes the following factors: the length of time remaining before the option is exercisable, current trading, future trading forecasts and business plans for the jurisdiction, taking into account any potential business combinations. As at the reporting date, Management have assessed the extension options available in their leases and have deemed they cannot be reasonably certain at this time that they would exercise the extension options.
28.2. Critical accounting estimates and assumptions
The following are the critical estimates that Management 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.
Recoverability of work in progress ("WIP")
To assess the fair value of consideration received for services rendered, Management are required to make an assessment of the net unbilled amount expected to be collected from clients for work performed to date. To make this assessment, WIP balances are reviewed regularly on a by-client basis and the following factors are taken into account: the ageing profile of the WIP, the agreed billing arrangements, value added and status of the client relationship. See note 13 for the sensitivity analysis.
Incremental borrowing rate for transition to IFRS 16
On adoption of IFRS 16, the incremental borrowing rate determined for each lease to measure the lease liability at the present value of the remaining lease payments and right-of-use assets that is an amount equal to the lease liability is considered a significant estimate by Management. See note 19.1 for sensitivity analysis.
Goodwill impairment - key assumptions in calculating the recoverable amount for each CGU
Goodwill is tested annually for impairment and the recoverable amount of CGU's is determined based on a value in use calculation using cash flow projections containing key assumptions. See note 21.1 for the sensitivity analysis.
Fair value of customer relationship intangibles
The customer relationship intangible assets are valued using the MEEM financial valuation model. Cash flow forecasts and projections are produced by Management and form the basis of the valuation analysis. Other key estimates and assumptions used in the modelling to derive the fair values include: year on year growth rates, client attrition rates, EBIT margins, the useful economic life of the customer relationships and the discount rate applied to free cash flow. See note 21.2 for the sensitivity analysis.
29. FINANCIAL RISK MANAGEMENT
The Group is exposed through its operations to the following financial risks: market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk.
The Group is exposed to risks that arise from the use of its financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them.
There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows. All are classified as measured at amortised cost:
|
|
Note |
2019 £'000 |
2018 £'000 |
|
Financial assets |
|
|
|
|
Trade receivables |
12 |
16,255 |
16,142 |
|
Work in progress |
13 |
9,297 |
7,084 |
|
Accrued income |
14 |
12,906 |
9,309 |
|
Other receivables |
15 |
6,483 |
1,579 |
|
Cash and cash equivalents |
16 |
26,317 |
32,457 |
|
|
|
71,258 |
66,572 |
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
Trade and other payables |
17 |
21,148 |
24,111 |
|
Loans and borrowings |
18 |
87,189 |
72,715 |
|
Lease liabilities |
19 |
31,491 |
- |
|
|
|
139,828 |
96,826 |
General objectives, policies and processes
The Board has overall responsibility for determining the Group's financial risk management objectives and policies and, whilst retaining ultimate responsibility for them, it delegates the authority for designing and operating processes that ensure effective implementation of the objectives and policies to Management, in conjunction with the Group's finance department.
The financial risk management policies are considered on a regular basis to ensure that these are in line with the overall business strategies and the Board's risk management philosophy. The overall objective is to set policies to minimise risk as far as possible without adversely affecting the Group's financial performance, competitiveness and flexibility.
29.1. MARKET RISK
Market risk arises from the Group's use of interest-bearing, tradeable and foreign currency financial instruments. It is the risk that changes in interest rates (interest rate risk) or foreign exchange rates (currency risk) will affect the Group's future cash flows or the fair value of the financial instruments held. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
Foreign currency risk management
Foreign currency risk arises when individual Group entities enter into transactions denominated in a currency other than their functional currency. The Group's policy is, where possible, to allow Group entities to settle liabilities denominated in their functional currency with the cash generated from their own operations in that currency. Where Group entities have liabilities denominated in a currency other than their functional currency (and have insufficient reserves of that currency to settle them), cash already denominated in the currency will, where possible and ensuring no adverse impact on local regulatory capital adequacy requirements (see note 30), be transferred from elsewhere in the Group.
The Group's exposure to the risk of changes in exchange rates relates primarily to the Group's operating activities when the revenue or expenses are denominated in a different currency from the Group's functional and presentation currency of pounds sterling ("£"). For trading entities that principally affect the profit or net assets of the Group, the exposure is mainly from Euro, United States dollar and South African rand. The loans and borrowings of the Group are denominated in £ and Euro.
As at 31 December 2019, the Group's exposure to the Group's material foreign currency denominated financial assets and liabilities are as follows:
|
|
£ |
|
Euro |
|
United States dollar |
|
South African rand |
||||
|
Net foreign currency |
2019 £'000 |
2018 £'000 |
|
2019 £'000 |
2018 £'000 |
|
2019 £'000 |
2018 £'000 |
|
2019 £'000 |
2018 £'000 |
|
Trade receivables |
10,790 |
12,199 |
|
2,866 |
1,215 |
|
2,455 |
2,530 |
|
3 |
5 |
|
Work in progress |
6,821 |
4,479 |
|
1,617 |
2,081 |
|
592 |
222 |
|
- |
- |
|
Accrued income |
5,308 |
3,266 |
|
1,327 |
854 |
|
6,152 |
5,110 |
|
67 |
45 |
|
Other receivables |
986 |
583 |
|
398 |
195 |
|
4,812 |
574 |
|
- |
- |
|
Cash and cash equivalents |
7,673 |
14,618 |
|
8,514 |
9,999 |
|
9,088 |
6,155 |
|
608 |
1,192 |
|
Trade and other payables |
(6,903) |
(12,253) |
|
(10,171) |
(7,554) |
|
(2,476) |
(2,419) |
|
(777) |
(1,186) |
|
Loans and borrowings |
(63,353) |
(63,666) |
|
(23,836) |
(9,014) |
|
- |
- |
|
- |
- |
|
Lease liabilities |
(23,903) |
- |
|
(5,044) |
- |
|
(683) |
- |
|
(381) |
- |
|
Total net exposure |
(62,581) |
(40,774) |
|
(24,329) |
(2,224) |
|
19,940 |
12,172 |
|
(480) |
56 |
In order to implement and monitor this policy, Management receive a monthly analysis showing cash reserves by individual Group entities and in major currencies together with information on expected liabilities due for settlement. The effectiveness of this policy is measured by the number of resulting cash transfers made between entities and any necessary foreign exchange trades. Management consider this policy to be working effectively but will continue to regularly assess if a foreign currency hedge is appropriate.
Foreign currency risk sensitivity
The following table illustrates the possible effect on comprehensive income for the year and net assets arising from potential changes in the Euro, United States dollar and South African rand exchange rates. A strengthening or weakening of pounds sterling by 20% is considered an appropriate variable for the sensitivity analysis given the scale of foreign exchange fluctuations over the last three years.
|
|
|
Effect on comprehensive income and net assets |
|
|
|
Strengthening/ (weakening) of pound sterling(i) |
2019 £'000 |
2018 £'000 |
|
Euro |
+20% |
4,055 |
370 |
|
United States dollar |
+20% |
(3,323) |
(2,029) |
|
South African rand |
+20% |
80 |
(9) |
|
Total |
|
812 |
(1,668) |
|
|
|
|
|
|
Euro |
(20%) |
(6,082) |
(556) |
|
United States dollar |
(20%) |
4,985 |
3,043 |
|
South African rand |
(20%) |
(120) |
14 |
|
Total |
|
(1,217) |
2,501 |
(i) Holding all other variables constant.
Interest rate risk management
The Group is exposed to interest rate risk as it borrows all funds at floating interest rates. The interest rates are directly linked to LIBOR and/or EURIBOR plus a margin based on the leverage ratio of the Group, the higher the leverage ratio the higher the margin on LIBOR and/or EURIBOR. The risk is managed by the Group maintaining an appropriate leverage ratio and through this ensuring that the interest rate is kept as low as possible.
The interest fluctuations are low which minimises the Group's exposure to interest rate fluctuations. As a result, no hedging instruments have been put in place. The Group's exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.
Interest rate risk sensitivity
The following sensitivity analysis has been determined based on the floating rate liabilities.
The Group considers a reasonable interest rate movement in LIBOR to be 50 basis points based on recent historical changes to interest rates. If interest rates had been higher/lower by 50 basis points and all other variables were held constant, the Group's profit for the year ended 31 December 2019 would decrease/increase by £0.43m (2018: £0.36m).
29.2. CREDIT RISK MANAGEMENT
Credit risk is the risk of financial loss to the Group should a customer or counterparty to a financial instrument fail to meet its contractual obligations. The Group's principal exposure to credit risk arises from contracts with customers and therefore the following financial assets: trade receivables, work in progress and accrued income (together "customer receivables").
The Group manages credit risk for each new customer by giving consideration to the risk of insolvency or closure of the customer's business, current or forecast liquidity issues and general creditworthiness (including past default experience of the customer or customer type).
Subsequently, customer credit risk is managed by each of the Group entities subject to the Group's policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are monitored and followed up continuously. Provisions are made when there is objective evidence that the Group will not be able to bill the customer in line with the contract or collect the debts arising from previous invoices. This evidence can include the following: indication that the customer is experiencing significant financial difficulty or default, probability of bankruptcy, problems in contacting the customer, disputes with a customer, or similar factors. This analysis is performed on a customer-by-customer basis.
Credit risk in relation to other receivables is considered for each separate contractual arrangement by Management. As these are primarily with related parties the risk of the counterparty defaulting is considered to be low.
Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. Cash and cash equivalents are held mainly with banks which are rated 'A-' or higher by Standard & Poor's Rating Services or Fitch Ratings Ltd for long-term credit rating.
The financial assets are subject to the impairment requirements of IFRS 9, for further detail of how this is assessed and measured, see notes 12 to 16.
Credit risk exposure
Trade receivables, work in progress and accrued income result from the provision of services to a large number of customers (individuals and corporate), spread across different industries and geographies. The gross carrying amount of financial assets represents the maximum credit exposure and as at the reporting date this can be summarised as follows:
|
|
Total 2019 £'000 |
Loss allowance 2019 £'000 |
Net 2019 £'000 |
Total 2018 £'000 |
Loss allowance 2018 £'000 |
Net 2018 £'000 |
|
Trade receivables |
20,257 |
(4,002) |
16,255 |
19,801 |
(3,659) |
16,142 |
|
Work in progress |
9,350 |
(53) |
9,297 |
7,132 |
(48) |
7,084 |
|
Accrued income |
12,927 |
(21) |
12,906 |
9,334 |
(25) |
9,309 |
|
Other receivables |
6,483 |
- |
6,483 |
1,579 |
- |
1,579 |
|
Cash and cash equivalents |
26,317 |
- |
26,317 |
32,457 |
- |
32,457 |
|
|
75,334 |
(4,076) |
71,258 |
70,304 |
(3,732) |
66,572 |
For the ageing of trade receivable and the provisions thereon at the year end, including the movement in the provision, see note 12.
29.3. LIQUIDITY RISK MANAGEMENT
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk to maintain adequate reserves by regular review around the working capital cycle using information on forecast and actual cash flows.
The Board is responsible for liquidity risk management and they have established an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity management requirements. Regulation in most jurisdictions also requires the Group to maintain a level of liquidity so the Group does not become exposed.
Liquidity tables
The tables detail the Group's remaining contractual maturity for its financial liabilities with agreed repayment years. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rates at the balance sheet date. The contractual maturity is based on the earliest date on which the Group may be required to pay.
|
2019 |
<3 months £'000 |
3 - 12 months £'000 |
1 - 5 years £'000 |
>5 years £'000 |
Total contractual cash flow £'000 |
|
Loans and borrowings(i) |
462 |
2,114 |
92,321 |
- |
94,897 |
|
Trade payables and accruals |
13,294 |
- |
518 |
- |
13,812 |
|
Deferred consideration for acquisitions |
823 |
5,382 |
- |
- |
6,205 |
|
Lease liabilities |
930 |
2,790 |
12,531 |
23,205 |
39,456 |
|
|
15,509 |
10,286 |
105,370 |
23,205 |
154,370 |
|
2018 |
<3 months £'000 |
3 - 12 months £'000 |
1 - 5 years £'000 |
>5 years £'000 |
Total contractual cash flow £'000 |
|
Loans and borrowings(i) |
390 |
1,952 |
78,685 |
- |
81,027 |
|
Trade payables and accruals |
11,941 |
- |
5,469 |
- |
17,410 |
|
Deferred consideration for acquisitions |
6,003 |
1,965 |
242 |
- |
8,210 |
|
|
18,334 |
3,917 |
84,396 |
- |
106,647 |
(i) This includes the future interest payments not yet accrued and the repayment of capital upon maturity.
30. CAPITAL MANAGEMENT
Risk management
The Group's objective for managing capital is to safeguard the ability to continue as a going concern, while maximising the return to Shareholders through the optimisation of the debt and equity balance and to ensure capital adequacy requirements are met for local regulatory requirements at entity level.
Loan covenants
As disclosed in note 18, the Group has bank loans which require it to meet leverage and interest cover covenants. In order to achieve the Group's capital risk management objective, the Group aims to ensure that it meets financial covenants attached to bank borrowings. Breaches in meeting the financial covenants would permit the lender to immediately recall the loan. In line with the loan agreement the Group tests compliance with the financial covenants on a quarterly basis.
Under the terms of the loan facility, the Group is required to comply with the following financial covenants:
· Leverage (being the ratio of total net debt to underlying EBITDA (for LTM at average FX rates and adjusted for pro-forma contributions from acquisitions and synergies for a relevant period), must not be more than 3.5:1)
· Interest cover (being the ratio of EBITDA to net finance charges, must not be less than 4:1)
The Group has complied with these covenants throughout the reporting period.
Capital adequacy
Individual regulated entities within the Group are subject to regulatory requirements to ensure adequate capital and liquidity to meet local requirements in Jersey, Guernsey, the Isle of Man, the UK, the US, Switzerland, the Netherlands, Luxembourg, Mauritius, South Africa and the Caribbean; all are monitored regularly to ensure compliance. There have been no breaches of applicable regulatory requirements during the reporting period.
SECTION 7 - GROUP STRUCTURE
31. BUSINESS COMBINATIONS
|
A business combination is defined as a transaction or other event in which an acquirer obtains control of one or more businesses. Where the business combination does not include the purchase of a legal entity but the transaction includes acquired inputs and processes applied to those inputs in order to generate outputs, the transaction is also considered a business combination. The Group applies the acquisition method to account for business combinations. The consideration transferred in an acquisition is measured at the fair value of assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. The identifiable assets acquired and liabilities assumed in a business combination are measured at their fair values at the acquisition date. Acquisition-related costs are recognised in the income statement as non-underlying items within operating expenses. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in the consolidated income statement as a gain on bargain purchase. When the consideration transferred includes an asset or liability resulting from a contingent consideration arrangement, this is measured at its acquisition-date fair value. 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) about 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 depend on how the contingent consideration is classified. Contingent consideration that is classified as equity is not re-measured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or liability is re‑measured at subsequent reporting dates at fair value with the corresponding gain or loss being recognised in the consolidated income statement. |
31.1 EXEQUTIVE PARTNERS S.A. ("Exequtive")
On 25 March 2019, JTC entered into an agreement to acquire 100% of the share capital of Exequtive from Primitivo S.à.r.l, De Gorzen S.à.r.l, Tika Holdings S.à.r.l, Pimpiri S.à.r.l and Stichting Administratiekantoor Employee Benefit Jomaroma. Exequtive was a privately owned Luxembourg-based provider of domiciliation and corporate administration services.
The acquired business contributed revenues of £4.72m and profit before tax of £2.25m to the Group for the period from 1 April to 31 December 2019. If the business had been acquired on 1 January 2019, the consolidated pro-forma revenue and profit for the year for the Group would have been £100.86m and £18.83m respectively.
(a) Identifiable assets acquired and liabilities assumed on acquisition
The following table shows, at fair value, the recognised assets acquired and liabilities assumed at the acquisition date:
|
|
€'000 |
£'000 |
|
Property, plant and equipment |
72 |
62 |
|
Intangible assets |
11,530 |
9,863 |
|
Trade receivables |
1,351 |
1,156 |
|
Accrued income |
35 |
30 |
|
Other receivables |
160 |
137 |
|
Cash and cash equivalents |
2,431 |
2,079 |
|
Assets |
15,579 |
13,327 |
|
|
|
|
|
Deferred income |
2,361 |
2,019 |
|
Deferred tax liabilities |
2,883 |
2,466 |
|
Current tax liabilities |
569 |
487 |
|
Trade and other payables |
423 |
362 |
|
Liabilities |
6,236 |
5,334 |
|
|
|
|
|
Total identifiable net assets |
9,343 |
7,993 |
Deferred tax liabilities have been recognised in relation to identified customer relationship intangible assets, the amortisation of which is non-deductible against Luxembourg Corporation Tax and therefore creates temporary differences between the accounting and taxable profits.
(b) Consideration
Total consideration is satisfied by the following:
|
|
€'000 |
£'000 |
|
Cash consideration |
18,637 |
15,943 |
|
Equity instruments (1,925,650 Ordinary shares issued at fair value) |
6,660 |
5,697 |
|
Contingent consideration discounted to fair value (70% cash, 30% equity) |
8,883 |
7,599 |
|
Fair value of total consideration |
34,180 |
29,239 |
Contingent consideration of €9m is payable within 20 business days of the adoption of the 2019 audited financial statements for Exequtive business and is contingent on it maintaining agreed targets for underlying EBITDA and revenue. Based on the historical performance of the business and Management's view of expected future revenue, it is anticipated this will be paid in full. The amount payable has been discounted to its present value of €8.9m.
(c) Goodwill
Goodwill arising from the acquisition has been recognised as follows:
|
|
€'000 |
£'000 |
|
Total consideration |
34,180 |
29,239 |
|
Less: Fair value of identifiable net assets |
(9,343) |
(7,993) |
|
Goodwill |
24,837 |
21,246 |
(d) Impact on cash flow
|
|
€'000 |
£'000 |
|
Cash consideration paid |
18,340 |
15,688 |
|
Less: Cash balances acquired |
(2,431) |
(2,079) |
|
Net cash outflow from acquisition |
15,909 |
13,609 |
(e) Acquisition-related costs
The Group incurred acquisition-related costs of £0.36m for professional, legal and advisory fees. These costs have been recognised in other operating expenses in the Group's consolidated income statement (see note 6) and are treated as non-underlying items to calculate underlying EBITDA (see note 7).
31.2. AUFISCO B.V. ("Aufisco")
On 1 April 2019, Van Doorn CFS B.V. (now JTC Institutional Services (Netherlands) B.V. ("JTC Institutional"), see note 31.4) entered into a facilitation and referral agreement with Aufisco B.V. and Oak Tree Management B.V. ("Aufisco" or the "Sellers") whereby Aufisco will refer, introduce and recommend its clients to JTC Institutional as a replacement provider of the trust, custody and administration services and JTC Institutional will offer employment contracts to Aufisco staff.
Management concluded that the transaction should be accounted for as a business combination as the acquired inputs (skilled workforce and customer relationship intangible assets) and processes (expertise, industry knowledge and operational processes) applied to those inputs had the ability to generate outputs (revenue).
The results of the acquired business have been consolidated from 1 July 2019 as Management concluded this was the date control was obtained by the Group, this being the date that access was gained to the customer relationships being transferred.
The transaction has contributed revenues of £0.6m (€0.69m) to the Group for the period from 1 July to 31 December 2019. If the transaction has completed on 1 January 2019, the consolidated pro-forma revenue for the year for the Group would have been £1.08m (€1.23m).
(a) Identifiable assets acquired and liabilities assumed on acquisition
The following table shows, at fair value, the recognised of assets acquired and liabilities assumed at the acquisition date:
|
|
€'000 |
£'000 |
|
Intangible assets |
2,375 |
2,125 |
|
Assets |
2,375 |
2,125 |
|
|
|
|
|
Deferred tax liabilities |
203 |
182 |
|
Liabilities |
203 |
182 |
|
|
|
|
|
Identifiable net assets |
2,172 |
1,943 |
Deferred tax liabilities have been recognised in relation to identified customer relationship intangible assets, the amortisation of which is non-deductible against Netherlands Corporation Tax and therefore creates temporary differences between the accounting and taxable profits.
(b) Consideration
Total consideration is satisfied by the following:
|
|
€'000 |
£'000 |
|
Cash consideration |
800 |
716 |
|
Equity instruments (119,166 Ordinary shares issued at fair value) |
500 |
447 |
|
Contingent consideration |
658 |
589 |
|
Fair value of total consideration |
1,958 |
1,752 |
Contingent consideration of £0.59m (€0.66m) was paid in March 2020.
(c) Negative goodwill
Negative goodwill arising from the acquisition has been recognised as follows:
|
|
Note |
€'000 |
£'000 |
|
Total consideration |
|
1,958 |
1,752 |
|
Less: Fair value of identifiable net assets |
|
(2,172) |
(1,943) |
|
Foreign exchange translation to average rate |
|
- |
3 |
|
Negative goodwill |
7 |
(214) |
(188) |
Negative goodwill represents a bargain purchase and is supported by the significant synergies Management expect to be realised and the transaction price being impacted by the Sellers' wish to find alternative servicing arrangements for their clients.
(d) Impact on cash flow
No cash was acquired so the net cash outflow from the transaction during the reporting period was the cash consideration of £0.72m (€0.8m).
(e) Acquisition-related costs
The Group incurred acquisition-related costs of £41k for professional, legal and advisory fees. These costs have been recognised in other operating expenses in the Group's consolidated income statement (see note 6) and are treated as non-underlying items to calculate underlying EBITDA (see note 7).
31.3. MINERVA HOLDINGS LIMITED AND MHL HOLDINGS S.A. ("MINERVA")
On 5 September 2018, the Group acquired 100% of the share capital of Minerva, a global provider of private client, corporate, fund and treasury services, operating in Jersey, Dubai, Mauritius, Switzerland, the UK and Singapore.
The fair value of consideration was £32.8m for acquired identifiable net assets of £17.8m resulting in goodwill of £15m. Contingent consideration of £2m was payable in the six months following completion, contingent on the Minerva business maintaining an underlying EBITDA target. On 21 May 2019, contingent consideration of £2m was paid as the target was maintained.
Within the acquired identifiable net assets were customer relationship intangibles of £13.7m, spilt across the following jurisdictions: Jersey £9.74m (UEL 11.8 years), Mauritius £1.8m (UEL 10 years), Dubai £1.4m (UEL 10 years) and Switzerland £0.74m (UEL 8.7 years). Deferred tax liabilities of £1.4m were recognised in relation to identified intangible assets, the amortisation of which is non-deductible against Corporation Tax in the different jurisdictions and therefore creates temporary differences between the accounting and taxable profits.
31.4. VAN DOORN CFS B.V. ("VAN DOORN")
On 17 August 2018, JTC entered into an agreement with International Capital Group B.V. to purchase 100% of the share capital of Van Doorn, a Netherlands-based provider of corporate and fiduciary services.
The fair value of consideration was £19.37m (€21.61m) for acquired identifiable net assets of £6.21m (€6.93m) resulting in goodwill of £13.16m (€14.68m).
Contingent consideration of £5m (€5.5m) was paid in February 2019 as the business performed successfully, exceeding the revenue and underlying EBITDA targets set for 2018.
Within the acquired identifiable net assets were customer relationship intangibles of £7.54m (€8.6m) with a UEL of 11.4 years. Deferred tax liabilities of £1.93m (€2.15m) were recognised in relation to identified intangible assets, the amortisation of which is non-deductible against Netherlands Corporation Tax and therefore creates temporary differences between the accounting and taxable profits.
On 7 October 2019, Van Doorn changed its name to JTC Institutional Services Netherlands B.V.
32. INTEREST IN EQUITY-ACCOUNTED ASSOCIATE
|
The Group's interests in an equity-accounted investee solely comprises an interest in an associate. An associate is an entity in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Investments in associates are accounted for using the equity method. Under the equity method, the investment in an associate is initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the carrying amount of the investment is adjusted to recognise the Group's share of post-acquisition profits or losses in the consolidated income statement within EBITDA, and the Group's share of movements in other comprehensive income of the investee in other comprehensive income. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate. The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy described in note 21. |
The Group has a 42% (2018: 42%) interest in Kensington International Group Pte. Ltd ("KIG"), a company incorporated in Singapore. KIG provides corporate, fiduciary, trust and accounting services and is a strategic partnership for the Group, providing access to new clients and markets in the Far East. The associate has share capital consisting of Ordinary and preference shares, which are held directly by the Group. The country of incorporation is also its principal place of business, and the proportion of ownership interest is the same as the proportion of voting rights held. KIG is a private company and there is no quoted market price available for its shares. There are no contingent liabilities relating to the Group's interest in KIG.
The summarised financial information for KIG, which is accounted for using the equity method, is as follows:
|
Summarised income statement |
2019 £'000 |
2018 £'000 |
|
Revenue |
4,695 |
3,639 |
|
Gross profit |
3,673 |
2,762 |
|
|
|
|
|
Profit/(loss) for the year |
394 |
(47) |
|
Other comprehensive income for the year |
15 |
15 |
|
Total comprehensive income/(loss) for the year |
409 |
(32) |
|
Summarised balance sheet |
2019 £'000 |
2018 £'000 |
|
Total non-current assets |
418 |
516 |
|
Total current assets |
2,974 |
2,133 |
|
Total assets |
3,392 |
2,649 |
|
|
|
|
|
Total current liabilities |
1,969 |
1,572 |
|
Net assets less current liabilities |
1,423 |
1,077 |
|
Reconciliation of summarised financial information |
2019 £'000 |
2018 £'000 |
|
Opening net assets |
1,077 |
813 |
|
Profit/(loss) for the year |
394 |
(47) |
|
Other comprehensive income |
15 |
15 |
|
Increase in equity |
- |
225 |
|
Foreign exchange differences |
(63) |
71 |
|
Closing net assets |
1,423 |
1,077 |
|
Group's share of closing net assets |
602 |
456 |
|
Goodwill |
522 |
522 |
|
Carrying value of investment in associate |
1,124 |
978 |
33. SUBSIDIARIES
The Group's subsidiaries at 31 December 2019 which, in the opinion of Management, principally affect the profit or the net assets of the Group are listed below. Unless otherwise stated, the Company owns 100% of share capital consisting solely of Ordinary shares, and the proportion of ownership interests held equals the voting rights held by the Group. The country of incorporation is also their principal place of business.
Where the shareholding and voting rights are equal to or less than 50%, Management have concluded that it is appropriate to include these entities as subsidiaries in the consolidation, in accordance with the basis of consolidation accounting policy described in note 3.3. The interests in subsidiaries not 100% owned are attributed to the Company and no minority interest is recognised.
|
Name of subsidiary |
Country of incorporation and place of business |
Activity |
% holding |
|
JTC Fund Solutions (Jersey) Limited |
Jersey |
Trading |
100 |
|
JTC Group Holdings Limited |
Jersey |
Holding |
100 |
|
JTC Group Limited |
Jersey |
Head office services |
100 |
|
JTC (Jersey) Limited |
Jersey |
Trading |
100 |
|
JTC Fund Services (UK) Limited |
United Kingdom |
Trading |
100 |
|
JTC Group Holdings (UK) Limited |
United Kingdom |
Holding |
100 |
|
JTC Trust Company (UK) Limited |
United Kingdom |
Trading |
100 |
|
JTC UK (Amsterdam) Limited |
United Kingdom |
Holding |
100 |
|
JTC (UK) Limited |
United Kingdom |
Trading |
100 |
|
JTC Miami Corporation |
United States |
Trading |
50 |
|
JTC Trustees (USA) Ltd |
United States |
Trading |
100 |
|
JTC Fund Solutions (Guernsey) Limited |
Guernsey |
Trading |
100 |
|
JTC Global AIFM Solutions Limited |
Guernsey |
Trading |
100 |
|
JTC Fund Solutions RSA (Pty) Ltd |
South Africa |
Trading |
100 |
|
JTC Fiduciary Services (Singapore) Pte Limited |
Singapore |
Trading |
100 |
|
JTC (BVI) Limited |
British Virgin Islands |
Trading |
100 |
|
Exequtive Management S.à r.l. |
Luxembourg |
Trading |
100 |
|
Exequtive Partners S.A. |
Luxembourg |
Trading |
100 |
|
Exequtive Services S.à r.l. |
Luxembourg |
Trading |
49 |
|
JTC Global AIFM Solutions SA |
Luxembourg |
Trading |
100 |
|
JTC Luxembourg Holdings S.à r.l. |
Luxembourg |
Holding |
100 |
|
JTC (Luxembourg) S.A. |
Luxembourg |
Trading |
100 |
|
JTC Signes S.à r.l. |
Luxembourg |
Trading |
100 |
|
JTC Signes Services SA |
Luxembourg |
Trading |
100 |
|
JTC (Suisse) SA |
Switzerland |
Trading |
100 |
|
JTC Trust Company (Switzerland) SA |
Switzerland |
Trading |
100 |
|
JTC Trustees (Suisse) Sàrl |
Switzerland |
Trading |
100 |
|
JTC Trustees (IOM) Limited |
Isle of Man |
Trading |
100 |
|
Autumn Productions B.V. |
Netherlands |
Trading |
100 |
|
Global Tax Support B.V.(i) |
Netherlands |
Trading |
- |
|
JTC Holdings (Netherlands) B.V. |
Netherlands |
Holding |
100 |
|
JTC Institutional Services Netherlands B.V. |
Netherlands |
Trading |
100 |
|
JTC (Netherlands) B.V. |
Netherlands |
Trading |
100 |
|
JTC Trust Company (New Zealand) Limited |
New Zealand |
Trading |
100 |
|
JTC (Cayman) Limited |
Cayman Islands |
Trading |
100 |
|
JTC Fund Services (Cayman) Ltd |
Cayman Islands |
Trading |
100 |
|
JTC Fiduciary Services (Mauritius) Limited |
Mauritius |
Trading |
100 |
|
JTC Corporate Services (DIFC) Limited |
Dubai |
Trading |
100 |
(i) As the parent company JTC Group Holding (UK) Limited has a call option to purchase Global Tax Support B.V. for €1 from its parent, Management consider they have control of this entity and it has, therefore, been consolidated.
SECTION 8 - OTHER DISCLOSURES
34. EARNINGS PER SHARE
Basic Earnings Per ShareThe calculation of basic earnings per share is based on the profit for the year divided by the weighted average number of Ordinary shares for the same year. Diluted Earnings Per ShareThe calculation of diluted Earnings Per Share is based on basic Earnings Per Share after adjusting for the potentially dilutive effect of Ordinary shares that have been granted. For the period ended 31 December 2018, as the Group made a loss, the potential impact of any dilutive Ordinary shares is not calculated as the impact would be anti-dilutive. Underlying basic Earnings Per ShareThe calculation of underlying basic Earnings Per Share is based on the profit for the period adjusted for non-underlying items and the impact of IFRS 16, divided by the weighted average number of Ordinary shares. Adjusted underlying basic Earnings Per ShareThe calculation of adjusted underlying basic Earnings Per Share is calculated on the same basis as underlying basic Earnings Per Share but with profit for the period being adjusted to remove the unwinding of net present value discounts, the amortisation of both customer relationship intangible assets and loan arrangement fees and the temporary differences arising on the amortisation of customer relationships. |
The Group calculates basic, diluted, underlying basic and adjusted underlying basic Earnings Per Share ("EPS"). The results can be summarised as follows:
|
|
Note |
2019 Pence |
2018 Pence |
|
Basic EPS |
34.1 |
15.43 |
(3.87) |
|
Diluted EPS |
34.2 |
15.35 |
(3.87) |
|
Underlying basic EPS |
34.3 |
17.91 |
15.32 |
|
Adjusted underlying basic EPS |
34.4 |
22.33 |
19.23 |
34.1. BASIC EARNINGS PER SHARE
|
|
2019 £'000 |
2018 £'000 |
|
Profit/(loss) for the year |
17,181 |
(3,857) |
|
|
No. |
No. |
|
Issued ordinary shares at 1 January |
110,153,982 |
- |
|
Effect of shares issued on IPO |
- |
99,008,837 |
|
Effect of shares issued to acquire business combinations |
1,346,281 |
622,920 |
|
Effect of movement in treasury shares held |
(147,395) |
- |
|
Weighted average number of Ordinary shares (basic): |
111,352,868 |
99,631,757 |
|
Basic EPS |
15.43 |
(3.87) |
34.2. DILUTED EARNINGS PER SHARE
|
|
2019 £'000 |
2018 £'000 |
|
Profit/(loss) for the year |
17,181 |
(3,857) |
|
|
Note |
No. |
No. |
|
Weighted average number of Ordinary shares (basic) |
34.1 |
111,352,868 |
99,631,757 |
|
Effect of share-based payments issued |
|
539,647 |
- |
|
Weighted average number of Ordinary shares (diluted): |
|
111,892,515 |
99,631,757 |
|
Diluted EPS |
|
15.35 |
(3.87) |
34.3. UNDERLYING BASIC EARNINGS PER SHARE
|
|
Note |
2019 £'000 |
2018 £'000 |
|
Profit/(loss) for the year |
|
17,181 |
(3,857) |
|
Non-underlying items: |
|
|
|
|
- included within operating expenses |
7 |
1,670 |
18,571 |
|
- included within other (losses)/gains |
7 |
271 |
107 |
|
- included within finance costs |
7 |
165 |
441 |
|
Impact of IFRS 16 |
3.2 |
653 |
- |
|
Underlying profit for the year |
|
19,940 |
15,262 |
|
|
Note |
No. |
No. |
|
Weighted average number of Ordinary shares (basic) |
34.1 |
111,352,868 |
99,631,757 |
|
Underlying basic EPS |
|
17.91 |
15.32 |
34.4. ADJUSTED UNDERLYING BASIC EARNINGS PER SHARE
|
|
Note |
2019 £'000 |
2018 £'000 |
|
Underlying profit for the year |
34.3 |
19,940 |
15,262 |
|
Amortisation of customer relationship intangible assets |
21 |
5,012 |
2,743 |
|
Amortisation of loan arrangement fees |
10 |
376 |
555 |
|
Unwinding of net present value discounts (excluding the impact of IFRS 16) |
|
323 |
986 |
|
Temporary difference arising on amortisation of customer relationships |
11 |
(787) |
(389) |
|
Adjusted underlying profit for the year |
|
24,864 |
19,157 |
|
|
Note |
No. |
No. |
|
Weighted average number of Ordinary shares (basic) |
34.1 |
111,352,868 |
99,631,757 |
|
Adjusted underlying basic EPS |
|
22.33 |
19.23 |
35. CASH FLOW INFORMATION
35.1. OPERATING CASH FLOWS
|
|
2019 £'000 |
2018 £'000 |
|
Operating profit |
22,961 |
721 |
|
Adjustments for: |
|
|
|
Depreciation of property, plant and equipment |
4,588 |
943 |
|
Amortisation of intangible assets |
6,164 |
3,694 |
|
Share-based payment expense |
694 |
443 |
|
Share of profit of equity-accounted investee |
(146) |
(92) |
|
Operating cash flows before movements in working capital |
34,261 |
5,709 |
35.2. NON-UNDERLYING ITEMS WITHIN NET CASH FROM OPERATING ACTIVITIES
|
|
2019 £'000 |
2018 £'000 |
|
Net cash from operating activities |
21,589 |
5,931 |
|
Non-underlying items: |
|
|
|
Capital distribution from EBT12 |
2,976 |
7,543 |
|
IPO costs |
36 |
954 |
|
Acquisition and integration costs |
2,138 |
4,024 |
|
Office closures |
- |
56 |
|
Other |
- |
93 |
|
Total non-underlying items within net cash from operating activities |
5,150 |
12,670 |
|
Underlying net cash from operating activities |
26,739 |
18,601 |
35.3. FINANCING ACTIVITIES
Changes in liabilities arising from financing activities:
|
|
Note |
Lease liabilities due within one year £'000 |
Lease liabilities due after one year £'000 |
Finance leases due within one year £'000 |
Finance leases due after one year £'000 |
Borrowings due within one year £'000 |
Borrowings due after one year £'000 |
Total £'000 |
|
At 1 January 2018 |
|
- |
- |
- |
- |
56,364 |
63,341 |
119,705 |
|
Cash flows: |
|
|
|
|
|
|
|
|
|
Acquired on acquisition |
|
- |
- |
5 |
48 |
- |
- |
53 |
|
Drawdowns |
|
- |
- |
- |
- |
- |
72,960 |
72,960 |
|
Repayments |
|
- |
- |
- |
(18) |
(56,000) |
(689) |
(56,707) |
|
Loan notes settled on IPO |
|
- |
- |
- |
- |
- |
(62,202) |
(62,202) |
|
Accrual of loan note interest |
|
- |
- |
- |
- |
- |
48 |
48 |
|
Other non-cash movements(i) |
|
- |
- |
- |
- |
314 |
(1,456) |
(1,142) |
|
At 31 December 2018 |
|
- |
- |
5 |
30 |
678 |
72,002 |
72,715 |
|
|
|
|
|
|
|
|
|
|
|
Adoption of new standard |
3.2 |
2,631 |
26,543 |
- |
- |
- |
- |
29,174 |
|
Cash flows: |
|
|
|
|
|
|
|
|
|
Drawdowns |
|
- |
- |
- |
- |
- |
15,509 |
15,509 |
|
Repayments |
|
(146) |
(2,922) |
(5) |
(30) |
(170) |
(519) |
(3,792) |
|
Other non-cash movements(i) |
|
390 |
4,995 |
- |
- |
- |
(311) |
5,074 |
|
At 31 December 2019 |
|
2,875 |
28,616 |
- |
- |
508 |
86,681 |
118,680 |
(i) Other non-cash movements include the amortisation of loan arrangement fees, foreign exchange movement, additions and disposals of lease liabilities relating to right-of-use assets and the unwinding of net present value discounts.
35.4. NET DEBT
|
|
Note |
2019 £'000 |
2018 £'000 |
|
Bank loans |
18 |
(86,681) |
(71,494) |
|
Finance leases |
18 |
- |
(35) |
|
Other loans |
18 |
(508) |
(1,186) |
|
Trapped cash(i) |
|
(3,007) |
(2,294) |
|
Committed capital distributions(ii) |
|
(2,624) |
(6,103) |
|
Less: Cash and cash equivalents |
|
26,317 |
32,457 |
|
Total net debt |
|
(66,503) |
(48,655) |
(i) Trapped cash represents the minimum cash balance to be held to meet regulatory capital requirements.
(ii) Committed capital distribution from EBT12 to employees.
36. SHARE-BASED PAYMENTS
|
The Company operates equity-settled share-based payment arrangements under which services are received from eligible employees as consideration for equity instruments. The total amount to be expensed for services received is determined by reference to the fair value at grant date of the share-based payment awards made, including the impact of any non-vesting and market conditions. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Company's estimate of equity instruments that will eventually vest. At each balance sheet date, the Company 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 the consolidated income statement such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves. |
36.1. DESCRIPTION OF SHARE-BASED PAYMENT ARRANGEMENTS
(a) Pre-IPO
Prior to Admission to the London Stock Exchange, the Group operated a number of equity-settled share-based remuneration schemes and also made awards of its own equity instruments to employees in the following circumstances: for promotion, for employees joining the business, for the retention of key employees following acquisition and to incentivise key employees. Awards that had not vested prior to the IPO were converted into the equivalent number of JTC PLC shares upon listing.
Details of the number of shares awarded but not vested are as follows:
|
|
No. |
2019 £'000 |
No. |
2018 £'000 |
|
Outstanding at the start of the year |
652,398 |
300 |
8,168 |
800 |
|
Awarded |
- |
- |
9,013 |
300 |
|
Exercised |
- |
- |
(8,168) |
(800) |
|
Forfeited |
- |
- |
- |
- |
|
Converted at the IPO |
- |
- |
652,398 |
- |
|
Outstanding at the end of the year |
652,398 |
300 |
652,398 |
300 |
(b) Post-IPO
Following Admission to the London Stock Exchange, the Group implemented and made awards to eligible employees under two equity-settled share-based payment plans; it also continues to make awards when employees join the business, for the retention of key employees following acquisition and to incentivise key employees. Details of the share plans are as follows:
Performance share plan ("PSP")
Executive Directors and Senior Managers may receive awards of shares, which may be granted annually under the PSP. The maximum policy opportunity award size under the PSP for an Executive Director is 150% of annual base salary; however, the plan rules allow the Remuneration Committee the discretion to award up to 250% of annual base salary in exceptional circumstances. The Remuneration Committee determines the appropriate performance measures, weightings and targets prior to granting any awards. Performance conditions include Total Shareholder Return ("TSR") relative to a relevant comparator group and the Company's absolute underlying Earning Per Share performance.
On 18 September 2018, the Group granted 156,970 of the Company's shares to Executive Directors and Senior Management ("PSP1"), these awards have a set limit for Executive Directors of 75% of the annual base salary and have a fair value of £0.53m. Vesting of the PSP1 awards is subject to continued employment and achievement of performance conditions measured over a three year period from 14 March 2018, being the date of the IPO, to 14 March 2021. If conditions are met, the awards will vest on 14 March 2021.
On 3 April 2019, the Group granted 253,518 of the Company's shares to Executive Directors and Senior Management ("PSP2"), these awards have a set limit for Executive Directors of 75% of the annual base salary and have a fair value of £0.61m. Vesting of the PSP2 awards is subject to continued employment and achievement of performance conditions measured over a three year period from 1 January 2019 to 31 December 2021. If conditions are met, the awards will vest on 31 December 2021.
Details of the number of shares awarded but not vested are as follows:
|
|
No. |
£'000 |
|
Outstanding at the beginning of the year |
156,970 |
534 |
|
Awarded |
253,518 |
614 |
|
Outstanding at the end of the year |
410,488 |
1,148 |
Deferred bonus share plan ("DBSP")
Certain employees at director level may be eligible for an annual bonus designed to incentivise high performance based on financial and non-financial performance measures. In line with market practice, a portion of the bonus due, as determined by the Remuneration Committee, may be deferred into shares before it is paid.
On 12 April 2019, the Group granted 49,756 of the Company's shares to Directors as part of the annual bonus award for performance during the financial year ended 31 December 2018 ("DBSP1"). The DBSP1 awards vest on 31 December 2020 subject to continued employment up to this date. The fixed amount awarded being £0.15m will be expensed over the three year vesting period.
In April 2020, the Group will grant shares to Directors as part of the annual bonus award for performance during the financial year ended 31 December 2019 ("DBSP2"). The number of shares awarded will be determined at the grant date. The DBSP2 awards vest on 31 December 2021 subject to continued employment up to this date. The fixed amount awarded being £0.31m will be expensed over the three year vesting period.
Details of the number of shares awarded but not vested are as follows:
|
|
No. |
£'000 |
|
Outstanding at the beginning of the year |
- |
- |
|
Awarded |
49,756 |
149 |
|
Forfeited |
(3,947) |
(12) |
|
Outstanding at the end of the year |
45,809 |
137 |
Other awards
The Group has continued to make awards to employees joining the business. The grant date of each award is the start date of employment with the fair value being a fixed amount stated in an employee's offer letter. The number of shares awarded is determined by the market value at the grant date. The awards will vest on the second anniversary of the grant date subject to continued employment.
Details of the number of shares awarded but not vested are as follows:
|
|
No. |
£'000 |
|
Outstanding at the beginning of the year |
3,668 |
15 |
|
Awarded |
22,245 |
80 |
|
Outstanding at the end of the year |
25,913 |
95 |
36.2. EXPENSES RECOGNISED DURING THE YEAR
The equity-settled share-based payment expenses recognised during the year, per plan and in total, are as follows:
|
|
2019 £'000 |
2018 £'000 |
|
PSP awards |
382 |
142 |
|
DBSP awards |
146 |
50 |
|
Other awards |
166 |
251 |
|
Total share-based payments expense |
694 |
443 |
37. COMMITMENTS
The Group leases various offices and some equipment under non-cancellable operating leases expiring within 3 months to 18 years. Leases are negotiated for a variety of terms over which rentals are fixed, with break clauses and options to extend for further periods at the prevailing market rate.
Until 31 December 2018, rental expenses relating to operating leases were shown accounted for on an accruals basis and shown in the consolidated income statement. From 1 January 2019, on adoption of IFRS 16 'Leases' (see note 3.2), except for short-term and low-value leases, the Group has recognised lease liabilities, measured at the present value of remaining lease payments (see note 19) and a right-of-use asset at an amount equal to the lease liability (see note 20).
|
Commitments for minimum lease payments under non-cancellable operating leases |
2019 £'000 |
2018 £'000 |
|
Within one year |
- |
3,499 |
|
In the second to fifth years inclusive |
- |
10,109 |
|
After five years |
- |
24,090 |
|
|
- |
37,698 |
|
|
2019 £'000 |
2018 £'000 |
|
|
|
|
|
Total rental expense relating to operating leases |
- |
3,587 |
38. FOREIGN CURRENCY
|
The individual 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 financial statements of the individual 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 average exchange rates for the year, unless exchange rates fluctuate significantly during that year, in which case the exchange rates at the date of transactions are used. Income and expense items relating to entities acquired during the financial year are translated at the average exchange rate for the period under the Group's control. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity in the translation reserve. Any goodwill arising on the acquisition of a foreign operation subsequent to 1 July 2014 and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date. |
39. RELATED PARTY TRANSACTIONS
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
39.1. KEY MANAGEMENT PERSONNEL
The Group has defined key management personnel as Directors and members of Senior Management who have the authority and responsibility to plan, direct and control the activities of the Group. The remuneration of key management personnel in aggregate for each of the specified categories is as follows:
|
|
2019 £'000 |
2018 £'000 |
|
Salaries and other short-term employee benefits |
2,371 |
1,795 |
|
Capital distribution from EBT12 |
- |
841 |
|
Post-employment and other long-term benefits |
124 |
66 |
|
Share-based payments |
383 |
194 |
|
Total payments |
2,878 |
2,896 |
39.2. OTHER RELATED PARTY TRANSACTIONS
Loan receivable balances due from related undertakings are disclosed in note 15.
The Group's associate, KIG (see note 32), has provided £0.71m of services to Group entities during the year (2018: £0.8m).
During 2018, the Group was charged by CBPE Capital LLP, the Group's private equity partner up to the point of the IPO, £10k for the provision of Non-Executive Directors and £5k for associated travel and expenses.
39.3. ULTIMATE CONTROLLING PARTY
JTC PLC is the ultimate controlling party of the Group.
40. EVENTS OCCURRING AFTER THE REPORTING PERIOD
There have been a number of subsequent events from 31 December 2019 to the date of issue of these financial statements. They are as follows:
(a) Acquisition of Sanne private client business
On 13 March 2020, JTC (Jersey) Limited entered into an agreement to acquire the Private Client Services division of Sanne Fiduciary Services Limited, a fully owned subsidiary of Sanne Group PLC. The acquisition is structured for the clients representing £5.3m of annualised revenue to be transferred into a new entity which will be acquired by JTC once regulatory approval and other completion deliverables are met. The maximum consideration payable is £12m and is calculated depending on the revenue linked to transferring clients. As part of the transaction the employees of the division will also be transferring to JTC.
(b) Acquisition of NES Financial ("NESF")
On 2 April 2020, JTC entered into an agreement with NESF, a US based technology enabled market leading provider of specialist fund administration services to purchase 100% of their share capital for an initial consideration of £32.3m ($40.0m) to be satisfied by the issue of 7,453,178 Ordinary shares and $0.25m of cash. The acquisition represents a key part of the Group's ongoing growth strategy and in particular its focus on developing its ICS business in the United States and a commitment to acquire and develop technology capabilities that drive future growth and operating efficiencies.
The transaction has an earn out which gives the NESF shareholders the opportunity to receive an additional 14,253,070 Ordinary shares upon achievement of an underlying EBITDA target over a two year period post closing. The transaction is subject to shareholder and regulatory approvals which are expected before the end of Q2, 2020.
In addition, JTC has agreed to invest US$1m to acquire 20% of the share capital of Harmonate. Harmonate is a Software as a Service (SaaS) business based in Silicon Valley which delivers supervised machine learning for the consumption, contextualisation and delivery of data.
For both acquisitions detailed in (a) and (b) above, at the date the consolidated financial statements were authorised for issue, it was impracticable to disclose the information required by IFRS 3 'Business Combinations' as some of the required information was not available.
(c) Coronavirus ("COVID-19")
The continuing escalation of the Covid-19 global pandemic is having an unprecedented impact on the global economy. Whilst acknowledging a possible slowdown in client activities in the short-term, the directors remain confident that the Group maintains the ability to respond rapidly and adapt in order to support and service clients effectively. To date the Group has seen limited impact on the overall performance, but as the situation continues to evolve, it is not possible to quantify the financial impact on the Group at this stage. Covid-19 is considered to be a non-adjusting post balance sheet event and no adjustment is made in the consolidated financial statements as a result.
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