Interim results

RNS Number : 9537Y

JTC PLC

15 September 2020

 

15 September 2020

JTC PLC

("the Company") together with its subsidiaries ("the Group" or "JTC")

Interim results for the six months ended 30 June 2020

JTC delivers 10.1% net organic revenue growth, strong cash conversion and increases dividend by 41.2%

	As reported			Underlying
	H1 2020	H1 2019	Change	H1 2020	H1 2019	Change
Revenue (£m)	53.7	46.6	+15.2%	53.7	46.6	+15.2%
EBITDA (£m)	16.7	15.7	+6.1%	17.9	16.1	+11.2%
EBITDA margin (%)	31.0%	33.7%	-2.7pp	33.3%	34.5%	-1.2pp
Operating profit/EBIT (£m)	10.2	10.7	-4.7%	11.5	11.1	+3.0%
Profit before tax (£m)	10.4	9.0	+14.7%	11.6	9.5	+22.1%
Earnings per share (p)*	8.62	7.09	+21.6%	12.03	9.61	+25.2%
Cash conversion	93%	82%	+11.0pp	108%	103%	+5.0pp
Net debt (£m)	(70.5)	(63.9)	-6.6	(68.0)	(60.9)	-7.1
Interim dividend per share (p)	2.4	1.7	+41.2%	2.4	1.7	+41.2%

*Average number of shares for 6 months to 30 June 2020: 114,350,893 (12 months ending 2019: 111,352,868).

financial highlights

· Revenue up 15.2% to £53.7m (H1 2019: £46.6m), reflecting a combination of strong net organic growth (+10.1%) and growth from acquisitions (+5.1%)

· Underlying EBITDA up 11.2% to £17.9m (H1 2019: £16.1m) with underlying EBITDA margin down 1.2pp to 33.3% (H1 2019: 34.5%)

· Annualised new business wins totaling £8.6m, including NESF, (H1 2019: £5.9m) with substantial new mandates won during the period

· Net debt at period end of 2.0x underlying proforma EBITDA (H1 2019: 1.9x) reflecting our acquisition activity during the period

· Underlying cash conversion of 108% (H1 2019: 103%)

· Interim dividend increased 41.2% to 2.4p (H1 2019: 1.7p)

strategic highlights

· JTC's highly resilient business model has allowed the business to perform well during the first half of the year during a period of global turmoil

· Strong all round performance from the Private Client Services (PCS) Division and substantial new business wins in the Institutional Client Services (ICS) Division

· Acquired the Sanne private client business in Jersey (1 July 2020) and technology-enabled fund administration business NES Financial (NESF) in the US (29 April 2020). Also acquired a small bolt-on in the UK (Registrar Services) and established a presence in Ireland on a greenfield basis with a new office in Dublin (Corporate Services)

· M&A pipeline remains healthy and our disciplined approach will continue

CURRENT TRADING & Outlook

· The Group has traded broadly in line with Board expectations

· JTC's medium term guidance metrics at Group level remain unchanged:

o  8% - 10% net organic revenue growth per annum

o  Underlying EBITDA margin of 33% - 38%

o  Net debt of up to 2.0x underlying EBITDA

o  Cash conversion in the range 85% - 90%

· Ongoing integration of acquisitions made in H1 2020, with particular focus on NESF in the US and the application of acquired technology capabilities across the wider Group.

· The Group's established platform will enable further operational efficiencies, especially in the fund services practice of the ICS division, and to also allow it to take advantage of consolidation opportunities.

· Continued positive growth prospects for the Group, underpinned by long-term fundamental drivers for our industry

Nigel Le Quesne, Chief Executive Officer of JTC PLC, said:

"In the first half of 2020 we all faced extreme challenges at very short notice. At JTC our priorities were the safety of our people, uninterrupted service for our clients and maintaining the long-term performance of the Group. The strong results delivered in H1 are testament to the highly resilient nature of our business, the outstanding quality of our people and the loyalty of our client base.

Based on our more than 30 years' experience, our outlook remains positive. We will continue to focus on the smooth integration of the Sanne private client and NESF businesses while simultaneously working to grow the Group through client service excellence, improving operational efficiencies and making even greater use of technology. We will also remain open to acquisition opportunities that fit our disciplined approach to inorganic growth."

Enquiries:

JTC PLC    [phone]

Nigel Le Quesne, Chief Executive Officer 

Martin Fotheringham, Chief Financial Officer

David Vieira, Chief Communications Officer

Camarco  [phone]

Geoffrey Pelham-Lane 

Georgia Edmonds

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 client services. Founded in 1987, the company employs c.900 people across its global office network and is trusted to administer assets of c.US$ 130 billion.

JTC is committed to its shared ownership culture and philosophy, with management and staff holding over 20% of the equity of the firm, clearly aligning the interests of clients, employees and other stakeholders.

www.jtcgroup.com

 

Strategic Report
ChIEf executive Officer's review

Resilient growth

The first half of 2020 presented unique challenges that ultimately proved just how resilient and well-constructed our business is. We often reference our long track record spanning more than 30 years and experience in successfully navigating external shocks and volatility and so it has proved again during the Covid-19 pandemic. Our shared ownership culture came to the fore as our outstanding global team ensured that client service continued seamlessly and despite restrictions on certain aspects of business development activity, we grew strongly during the period in terms of net organic growth and new business wins. We were also able to acquire NESF and a smaller ICS bolt-on in the period and the Sanne PCS business immediately post period end. We continue to see many acquisition opportunities and, if anything, our potential pipeline is even stronger than at the beginning of the year. The fundamental drivers of our industry remain valid and we see good opportunities for both organic and inorganic growth in the second half of the year and beyond.

Financial Highlights

Our H1 2020 results are in line with our expectations and we have seen good momentum in the period across both divisions. In comparing to the same period last year, Group revenue increased by 15.2% to £53.7m (H1 2019: 46.6m), the annualised value of new business won was up 46% to £8.6m (H1 2019: £5.9m) and underlying EBITDA increased by 11.2% to £17.9m (H1 2019: £16.1m). It is worth noting that due to the timing of acquisitions, the growth seen during the period was predominantly driven by the core business, with net organic revenue growth of 10.1%, which is at the top end of our guidance range and a 1.9pp increase on the 8.2% recorded in the 12 months to 30 June 2019. Our underlying EBITDA margin fell slightly to 33.3% (H1 2019: 34.5%) but is still within our guidance range of 33% - 38%. The cause was weaker margin performance in our ICS Division and explained in more detail below is the work that is underway to bring ICS margins back in line with Group targets. The net debt at the period end was 2.0x proforma underlying EBITDA (H1 2019: 1.9x) and underlying cash conversion was strong at 108% (H1 2019: 103%).

Our outlook is positive and we maintain our medium term guidance, namely: 8%-10% net organic revenue growth per annum at Group level; underlying EBITDA margin of 33%-38% at Group level; net debt of up to 2.0x underlying EBITDA and annual cash conversion in the range 85%-90%.

I am also pleased that we have been able to increase our interim dividend by 41.2% to 2.4p per share (H1 2019: 1.7p).  

Institutional Client Services (ICS) Division

Gross revenue showed a 19.6% increase in the period to £30.3m (H1 2019: £25.4m) but disappointingly, underlying EBITDA was flat at £8.2m (H1 2019: £8.2m) and underlying EBITDA margin fell 5.1pp to 27.1% (H1 2019: 32.2%).

Turning first to revenue growth, this was a success driven by an effective business development and marketing programme that pivoted rapidly to adapt to remote working conditions. Last twelve months (LTM) organic revenue growth was 8.9% (H1 2019 LTM: 12.3%) and the annualised value of new business won during H1 2020 was £6.9m, an increase of 116% over the H1 2019 figure of £3.2m. We have seen positive trends for win rate and average mandate size and the new work won in the period demonstrates the quality of our new business pipeline at the time of 'lockdown' and the strength of our relationships with existing clients and intermediaries who refer business to JTC. The ICS organic new business pipeline at 30 June 2020 was up 32% at £29.3m (H1 2019: £22.2m) and we continue to be invited to tender for mandates of £1m+ pa on a regular basis.

With regard to the fall in underlying EBITDA margin, we have taken the opportunity presented by the external environment to focus internally and have started to implement a revised operating model into our fund services practice supported by a greater reliance on technology to deliver efficiencies. In the short-term this has had an adverse effect on the ICS margin, which we anticipated, but once implemented (within the next 6-12 months) we are confident that there are increasing efficiencies to be found in the servicing of this growing book providing a scalable platform and working model for future expansion.

We purchased a small bolt-on business in the UK that adds Registrar Services to our offering. We have also expanded our footprint to Ireland for the first time, where we will commence with Corporate Services before expanding into Fund Services once relevant regulatory approvals have been secured.

The acquisition of NES Financial (NESF), a technology-enabled fund administration business, provided an important strategic entry into the US, which is a key growth market for the industry and in particular the alternative fund administration sector. The pace of integration has been slower than normal due to remote working restrictions and the business itself has faced a number of Covid-19 related headwinds as market conditions have temporarily impacted fund raising for existing NESF clients as well as slowing the rate of new fund launches. The low interest rate environment and impending US elections in November are also acting as a general drag on market confidence in the US and the markets served by NESF, further slowing activity levels. As such, we believe the direct financial benefit of the transaction will only begin to come through in 2021. More generally, we are making good progress with the very capable NESF management team to develop the business and integrate it into the global JTC platform. The technology capabilities of NESF are starting to be leveraged in both Divisions to enhance the client experience, improve processes and deliver efficiencies all of which will make an increasing impact over time.

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. The work to improve the margin is well underway and we expect to see positive changes in the second half of the year.

Private Client Services (PCS) Division

Gross revenue showed a 10.0% increase in the period to £23.4m (H1 2019: £21.2m) and underlying EBITDA increased by 22.1% to £9.7m (H1 2019: £7.9m). Underlying EBITDA margin increased by 4.2pp to 41.4% (H1 2019: 37.2%).

Revenue growth was good, with particularly strong LTM organic revenue growth of 11.8% (H1 2019: 2.3%) demonstrating the ability of the PCS Division to develop and grow the core client book. Indeed, the number of client mandates generating in excess of £100k pa in fees increased by 21.8% period on period as clients took more services from the PCS Division, including our innovative JTC Private Office offering. The annualised value of new business won during the period was slightly disappointing at £1.7m (H1 2019: £2.7m) and this reflects the more personal nature of PCS work in general, with many clients and intermediaries unable to travel or attend in-person meetings due to Covid-19 restrictions. However, the organic new business pipeline at 30 June 2020 was £13.3m (H1 2019: £11.0m) which augurs well for the second half of the year.

Margin improvement was strong with the PCS Division now operating consistently at or beyond the top end of our Group guidance range of 33% - 38%, driven by a highly efficient operating model.  

Immediately post period end on 1 July 2020, we purchased the Sanne private client business in Jersey, which has delivered a high quality client book supported by an experienced group of employees. Clients representing annualised ongoing revenues of £4.1m transferred to JTC resulting in a cash payment of £9m. Our ability to rapidly integrate the business into our Jersey office, despite having to do this on a virtual basis, is further evidence of the rationale for this straightforward deal. Moving forward, our award winning PCS team will provide fresh impetus and positivity and we have already seen material cross selling activity within the acquired book, including engagement with our JTC Private Office and treasury services. We believe that the acquisition price will ultimately represent only a low single digit multiple of the EBITDA that it generates for the Group.

The PCS Division continues to be a clear leader in its sector and we see multiple opportunities for further investment and growth. We will enhance our Edge client portal, which forms part of the JTC Private Office proposition, using technology acquired in the NESF transaction and will also continue to leverage a range of 'first cousin' services, including: treasury, custody, FX and tax compliance to drive organic growth.

inorganic Growth

We maintained our disciplined approach to acquisitions and during the period completed the NESF transaction as well as a small bolt-on deal and immediately post-period end completed the Sanne PCS transaction, as detailed in the Divisional sections above.

More generally, we continue to regard the sector as being in a period of consolidation and have an active global pipeline of M&A opportunities of varying sizes and stages of development. The impact of the Covid-19 pandemic on acquisition opportunities and pricing is still evolving, but following an initial hiatus of several months, we are now seeing an increase in activity levels with deal flow back to, or even exceeding, levels seen at the beginning of the year pre-pandemic.

We believe there will be opportunities to make acquisitions at attractive price points that fit with our disciplined approach and commitment to both the ICS and PCS Divisions. As ever, always knowing when to say no remains a key JTC attribute.  

Our People and Culture

Our shared ownership culture has always been at the heart of JTC and in 2020 it came into its own. The Covid-19 pandemic required an almost overnight shift to remote working for our more than 900 employees worldwide and their collective response has been nothing short of outstanding. The team spirit, ingenuity, commitment and professionalism displayed by the team at JTC has allowed us to not only provide a seamless and uninterrupted service to clients, but has enabled the business to grow and develop through a period of incredible challenge and uncertainty. As already noted, we even managed to successfully progress two major acquisitions under lockdown conditions, a testament to the skill and tenacity of our people.

While some of our 23 offices are now fully or partially back to 'normal' working, we anticipate that the impact of the pandemic on our people and their working arrangements will be felt for some time to come. At JTC we pride ourselves on being innovative and solutions orientated and new processes and adoption of technology that have been accelerated through necessity are now in the process of being formally adopted as long-term working practices, to the benefit of our people, our clients and the long-term success of JTC.

Our people continue to be our most important asset and personally, and on behalf of the Board, I would like to thank all members of the team for their contribution in the first half of the year and their continued dedication to JTC.

Risk

The principal risks facing the Group remain as set out in our 2019 Annual Report. Ongoing material risks include acquisition risk, client risk, data protection and cyber security risk, staff resourcing risk, political and regulatory change risk, and regulatory and procedural compliance risk. The Covid-19 pandemic presents a particular set of risks at the present time and we believe that the business has demonstrated great resilience to date in this regard. Overall, we remain satisfied as to the effectiveness of the Group's risk analysis, management and culture, developed over more than 30 years of JTC operations.

Dividend

The Board has recommended an interim dividend of 2.4p per share, an increase of 41.2% period on period (H1 2019: 1.7p). The interim dividend will be paid on 23 October 2020 to shareholders on the register as at close of business on the record date of 25 September 2020.

Outlook

We are pleased with the results delivered in the period and in particular the net organic growth of the business and the growth in both revenue and underlying EBITDA. The strong results are testament to the highly resilient and defensive nature of our business, the outstanding quality of our people and the loyalty of our client base and as such our guidance metrics remain unchanged and we increase our dividend pay-out ratio guidance from 25% of underlying earnings per share to 30%.

Although overall margin at Group level was at the lower end of our expectations, a particular area of focus going forward will be on the implementation of the revised operating model of our fund services business within the ICS Division. The PCS Division continues to build on its recent success and has a clear path to maintain that momentum.

We will continue to focus on the smooth integration of both Sanne and NESF in the second half of the year, although we recognise that there will be challenges due to the impact of the Covid-19 pandemic, in particular for the NESF business and we remain open to opportunities that fit our disciplined approach to inorganic growth.

Our long-term outlook for our business and industry is positive, despite Covid-19, and we see good organic and inorganic growth opportunities for both Divisions.

Nigel Le Quesne

Chief Executive Officer

 

Chief financial officer's review

Growth and opportunity despite macroeconomic headwinds

Financial Review

Despite the challenging economic backdrop we have delivered another strong set of results. LTM organic growth was ahead of guidance at 10.1% (H1 2019: 8.2%) and underlying EBITDA was 33.3 % (H1 2019: 34.5%). Underlying cash conversion was 108% (H1 2019: 103%). Our PCS business continues to deliver outstanding results by almost every measure. Delivering LTM organic growth of 11.8% is testament to the quality of the business. By our own standards our ICS performance was relatively disappointing - albeit we recognise that the results are as good, and indeed better, than many other similar businesses in our market. The implementation of a number of changes planned for the ICS division was delayed by the impact of Covid-19. In addition the pandemic had an immediate and direct impact upon NESF performance. However, we have worked hard with management in the USA to address the issues and are confident that this will in time be another successful acquisition. We have also started to see a positive impact on our technology capabilities from making this acquisition.

We remain extremely confident in the continuing success of the overall business and its ability to deliver significant growth in revenues at highly attractive margins. We recognise that we adopt a prudent approach to managing our business but we believe that, given our view of the enduring strength of the business and its predictable profits and cash flows that, it is appropriate to increase our dividend pay-out guidance from 25% of underlying EPS to 30%.

We are currently seeing unprecedented M&A opportunities. It is our intention to pursue those which we believe will improve our business. It is management's view that that utilising existing banking facilities is the most efficient capital allocation and lowest cost of capital. As previously indicated management would be comfortable with temporarily increasing leverage levels up to 2.5 times proforma EBITDA for the right opportunity on the basis of strong forecast cash flows.

Revenue

In H1 2020, revenue was £53.7m, an increase of £7.1m (15.2%) compared to H1 2019.

Period on period growth was driven by net LTM organic growth of 10.1% and inorganic growth from acquisitions of 5.1%.

LTM Revenue growth, on a constant currency basis is summarised below.

		GROUP	ICS	PCS
LTM Revenue Jun 19		£89.1m	£48.7m	£40.4m
Lost - JTC Decision		(£0.5m)	(£0.3m)	(£0.2m)
Lost - Moves Service Provider		(£1.3m)	(£0.9m)	(£0.4m)
Lost - End of Life / No Longer Required		(£3.8m)	(£2.2m)	(£1.6m)
Net More From Existing Clients		£5.8m	£2.9m	£2.9m
New Clients		£7.3m	£4.3m	£3.0m
Acquisitions		£9.7m	£7.2m	£2.5m
LTM Revenue Jun 20		£106.3m	£59.7m	£46.6m

Note: presented as constant currency using H1, 2020 Consolidated Income Statement exchange rates.

LTM organic growth for the period ending 30 June 2020 was 10.1%. PCS organic growth was 11.8% (H1 2019: 2.3%) and ICS organic growth was 8.9% (H1 2019: 12.3%). PCS organic growth was lower in 2018 and early 2019 due to the impact of the closure of sales offices in Latin America in late 2017. Much of this revenue growth had been low margin and management determined to move away from this and to concentrate on larger accounts. We have seen strong growth in the Channel Islands, USA and Cayman. With regard to ICS our organic growth is very much in line with guidance. Given the macroeconomic environment and constraints on business development and new fund issues we believe this is a strong performance. We have recently been successful in winning a number of large ICS mandates.

LTM client attrition is 7.6%, a small increase from 7.0% at 31 December 2019. The majority of the increase in attrition is due to a higher number of end of life structures (4.5% in the twelve months to 31 December 2019 increased to 5.1% at 30 June 20). Attrition is broken down into three principal categories as shown in the table above. 97.5% of revenues that are not end of life were retained in the period (97.4% at 31 December 2019).

Acquisitions contributed £9.7m of new revenue in the LTM period broken down as follows:	GROUP	ICS	PCS
NESF (Q2 2020)	£1.4m	£1.4m	-
Anson Registrars (Q1 2020)	£0.2m	£0.2m	-
Aufisco (Q4 2019)	£1.2m	£1.2m	-
Acquisitions < 12 months (Minerva, Van Doorn, Exequtive)	£6.9m	£4.4m	£2.5m
Total	£9.7m	£7.2m	£2.5m

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 increased by 28.3% from £33.2m at 30 June 2019 to £42.6m at 30 June 2020. During H1 2020 JTC secured new work with an annualised value of £8.6m and in the period £1.9m of revenue was recognised (H1 2019: £5.9m annualised value of won work, £2.3m revenue recognised). Typically this revenue will have an average lifespan of approximately 10 years and we estimate that the Lifetime Value of the Book increased by £80.2m during H1, a 44.1% uplift on the increase in H1, 2019.

Underlying Profit and Margin Performance

Underlying EBITDA in H1 2020 was £17.9m, an increase of £1.8m. Although the underlying EBITDA margin for the group fell from 34.5% in H1 2019 to 33.3% in H1 2020 it remained within our stated guidance range.  

	ICS		PCS		GROUP
	H1 2020	H1 2019	H1 2020	H1 2019	H1 2020	H1 2019
Revenue	£30.3m	£25.4m	£23.4m	£21.2m	£53.7m	£46.6m
Underlying gross profit	£17.4m	£15.1m	£14.7m	£13.1m	£32.1m	£28.2m
Underlying gross profit margin	57.4%	59.7%	63.0%	61.6%	59.9%	60.6%
Underlying EBITDA	£8.2m	£8.2m	£9.7m	£7.9m	£17.9m	£16.1m
Underlying EBITDA margin	27.1%	32.2%	41.4%	37.2%	33.3%	34.5%

The underlying EBITDA margin % remains the primary KPI used by the business and is a key measure of our ability to run the business effectively and in line with competitors and historical performance levels.

For H1 2020 the underlying EBITDA margin in the PCS division increased to 41.4% (H1 2019: 37.2%). This reflects the continuing exceptional performance of this part of the business. We have been able to swiftly integrate acquisitions and improve margins and are confident in our ability to be able to deliver equivalent margins from the recently acquired Sanne Private Client business.

In the ICS division the underlying EBITDA margin fell to 27.1% (H1 2019: 32.2%). Whilst the actual margin achieved compares well with many other businesses in our market it was below what we expect. This was due to two principle reasons. First, the advent of Covid-19 meant that we were frustrated in our plans within the legacy JTC business to be able to restructure operations. We have a clear plan but have held off implementing this given the continuing situation. Second, NESF has been materially impacted by Covid-19. The business derived a significant proportion of its revenue from commissions linked to bank interest rates. With the reduction in US base rates this source of income was immediately impacted. We are working with NESF management to implement a new pricing model which is consistent with the core JTC approach of time/activity based revenue and are confident that the short term adverse impact will be addressed. We recognise that the benefits of this new pricing model will not be immediately realised. Any additional earn out consideration for this transaction will be due at the end of the second year of ownership and we are confident that the merits of this acquisition will clearly be apparent over this period.

The Group reported EBIT in the period of £10.2m (H1 2019: £10.7m). Adjusting for non-underlying items the equivalent results are H1 2020: £11.5m and H1 2019: £11.1m.

profit Before Tax

The reported profit before tax for the six month period ended 30 June 2020 was £10.4m (H1 2019: £9.0m).

Earnings Per Share

Basic EPS was 8.62p in the period (H1 2019: 7.09p). Underlying EPS was 12.03p (H1 2019: 9.61p). Underlying EPS is the profit for the year adjusted to remove the impact of non-underlying items charged to profit as detailed in note 9.3 of the Consolidated Interim Financial Statements.

Cash Flow and Debt

Cash generated from underlying operating activities in the six month period was £19.4m representing an underlying cash conversion ratio of 108% of underlying EBITDA (H1 2019: 103%). Net investment days reduced from 116 days at 31 December 2019 to 103 days at 30 June 2020.

Our annual billing and payment cycle is such that it is usual to see strong H1 cash conversion and a reduction in net investment days. We retain our view that we expect that our annual cash conversion should typically be in the range 85 - 90%. We do experience fluctuations in reported cash conversion depending upon the timing of acquisitions we have made but these are will only impact in the first year of our ownership.

		H1 2020	H1 2019
Net cash from operating activities		£14.9m	£12.1m
Non-underlying cash items		£3.9m	£3.7m
Taxes paid		£0.6m	£0.7m
Underlying cash generated		£19.4m	£16.5m
Underlying EBITDA		£17.9m	£16.1m
Underlying cash conversion		108%	103%

Note: Cash Conversion = Underlying Cash Flow from Operating Activities / Underlying EBITDA. 

Net debt at the period end was £70.5m compared to £63.9m at 30 June 2019. Our banking covenants are calculated on the basis of IAS 17 accounting standard and at 30 June 2020 our leverage ratio was 2.12 times LTM EBITDA. Underlying LTM EBITDA does not include the full year impact of the profit of the NESF acquisition in this calculation. On a proforma basis, leverage at 30 June 2020 was 2.0 times.

Currently we are seeing a number of high quality acquisition opportunities. At 30 June 2020 we had £44m of unused banking facilities and post period end we drew down an additional £10m to finance the acquisition of the Sanne Private Client business. These facilities expire in March 2023. We believe that it would be fiscally prudent for us to seek to fully utilise these facilities as we believe that the cost of drawing down this debt is significantly cheaper than the cost of raising equity. We recognise that this may increase our leverage levels in the short term but we are comfortable that there is sufficient covenant headroom within our facilities and that the cash generating nature of our business is such that leverage levels should quickly fall.

Martin Fotheringham

Chief Financial Officer

 

Statement of directors' responsibilities in respect of the interim financial statements

For the 6 month period ended 30 June 2020

"The directors' confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

· an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report."

Nigel Le Quesne  Martin Fotheringham

Chief Executive Officer  Chief Financial Officer

14 September 2020  14 September 2020

 

 

Independent review report to JTC PLC

Report on the condensed consolidated interim financial statements

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Our conclusion

We have reviewed JTC PLC's condensed consolidated interim financial statements (the "interim financial statements") in the interim financial report 30 June 2020 of JTC PLC (the "Company") and its subsidiaries (together the "Group") for the 6-month period ended 30 June 2020 (the "period"). Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

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What we have reviewed

The interim financial statements comprise:

● the condensed consolidated interim balance sheet as at 30 June 2020;

● the condensed consolidated interim income statement for the period then ended;

● the condensed consolidated interim statement of comprehensive income for the period then ended;

● the condensed consolidated interim statement of changes in equity for the period then ended;

● the condensed consolidated interim statement of cash flows for the period then ended; and

● the explanatory notes to the interim financial statements.

The interim financial statements included in the interim financial report 30 June 2020 have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 3 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is the Companies (Jersey) Law 1991 and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
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Responsibilities for the interim financial statements and the review

_________________________________________________________________________

Our responsibilities and those of the directors

The interim financial report 30 June 2020, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report 30 June 2020 in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the interim financial report 30 June 2020 based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose.  We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
________________________________________________________________________________

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the International Auditing and Assurance Standards Board. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the interim financial report 30 June 2020 and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers CI LLP

Chartered Accountants

Jersey, Channel Islands

14 September 2020

(a)  The maintenance and integrity of the JTC PLC website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(b)  Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

JTC PLC

INTERIM FINANCIAL REPORT 30 JUNE 2020

UNAUDITED

Condensed consolidated interim income statement

Condensed consolidated interim statement of comprehensive income

Condensed consolidated interim balance sheet

Condensed consolidated interim statement of changes in equity

Condensed consolidated interim statement of cash flows

Notes to the condensed consolidated interim financial statements

1.  Reporting entity  

2.  Significant changes in the current reporting period 

3.  Basis of preparation 

4.  Significant accounting policies and standards 

5.  Critical accounting estimates and judgements 

6.  Segmental reporting 

7.  Staff expenses 

8.  Non-underlying items

9.  Earnings per share 

10.  Property, plant and equipment

11.  Business combinations 

12.  Share capital and reserves 

13.  Trade and other payables 

14.  Loans and borrowings 

15.  Other non-financial liabilities 

16.  Financial risk and capital management 

17.  Cash flow information 

18.  Related party transactions 

19.  Events occurring after the reporting period
 

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT

£'000	Note	H1 2020	H1 2019
Revenue	6	53,697	46,613
Staff costs	7	(27,024)	(21,969)
Establishment costs		(863)	(544)
Other operating expenses		(8,346)	(8,019)
Credit impairment losses		(1,096)	(509)
Other operating income		42	27
Share of profit of equity-accounted investee		245	97
Earnings before interest, taxes, depreciation and amortisation ("EBITDA")		16,655	15,696
Comprising:
Underlying EBITDA		17,879	16,077
Non-underlying items	8	(1,224)	(381)
		16,655	15,696
Depreciation and amortisation		(6,419)	(4,955)
Profit from operating activities		10,236	10,741
Other gains	16.1	2,234	259
Finance income		27	78
Finance cost		(2,117)	(2,031)
Profit before tax		10,380	9,047
Comprising:
Underlying profit before tax		11,637	9,528
Non-underlying items	8	(1,257)	(481)
		10,380	9,047
Tax		(519)	(1,178)
Profit for the period		9,861	7,869
Earnings per ordinary share ("EPS")		Pence	Pence
Basic EPS	9.1	8.62	7.09
Diluted EPS	9.2	8.57	7.06

The above condensed consolidated interim income statement should be read in conjunction with the accompanying notes.

 

CONDENSED CONSOLIDATED INTERIM STATEMENT
OF COMPREHENSIVE INCOME

£'000	Note	H1 2020	H1 2019
Profit for the period		9,861	7,869
Items that may be subsequently reclassified to profit or loss:
Exchange differences on translation of foreign operations (net of tax)	16.1	3,399	120
Total comprehensive income for the period (net of tax)		13,260	7,989

The above condensed consolidated interim statement of comprehensive income should be read in conjunction with the accompanying notes.
 

CONDENSED CONSOLIDATED INTERIM BALANCE SHEET

£'000	Note	30.06.2020	31.12.2019
Assets
Property, plant and equipment	10	38,563	37,865
Goodwill	11	176,903	124,880
Other intangible assets	11	54,162	48,039
Investment in equity-accounted investee		1,369	1,124
Other non-financial assets		990	965
Other receivables		64	217
Deferred tax assets		58	103
Total non-current assets		272,109	213,193
Trade receivables		17,413	16,255
Work in progress		10,621	9,297
Accrued income		14,269	12,906
Other non-financial assets		4,908	2,992
Other receivables		5,862	6,266
Cash and cash equivalents*		40,951	26,317
Total current assets		94,024	74,033
Total assets		366,133	287,226
Equity
Share capital	12.1	1,225	1,141
Share premium	12.1	130,823	100,658
Own shares	12.2	(3,084)	(3,027)
Capital reserve		760	451
Translation reserve		4,468	1,069
Retained earnings	12.3	33,715	28,265
Total equity		167,907	128,557
Trade and other payables	13	16,253	-
Loans and borrowings	14	104,417	86,681
Lease liability		29,033	28,616
Deferred tax liabilities		9,224	7,656
Other non-financial liabilities	15	541	518
Provisions		1,285	1,116
Total non-current liabilities		160,752	124,587
Trade and other payables	13	14,117	21,148
Loans and borrowings	14	4,557	508
Lease liability		3,677	2,875
Other non-financial liabilities	15	12,515	7,536
Current tax liabilities		2,526	1,942
Provisions		82	73
Total current liabilities		37,474	34,082
Total equity and liabilities		366,133	287,226

*The cash balance at 31.12.19 included £2.6m for pending EBT12 capital distributions, these were paid in full during the period.

The above condensed consolidated interim balance sheet should be read in conjunction with the accompanying notes.

 

CONDENSED CONSOLIDATED INTERIM STATEMENT
OF CHANGES IN EQUITY

				For the period ended 30 June 2020
				Attributable to owners of JTC PLC
				Share	Share		Own		Capital	Translation	Retained	Total
£'000		Note		capital	premium		shares		reserve	reserve	earnings	equity
Balance at 1 January 2020				1,141	100,658		(3,027)		451	1,069	28,265	128,557
Profit for the period				-	-		-		-	-	9,861	9,861
Other comprehensive income for the period				-	-		-		-	3,399	-	3,399
Total comprehensive income for the period				-	-		-		-	3,399	9,861	13,260
Issue of share capital		12.1		84	30,165		-		-	-	-	30,249
Share-based payment expense		7		-	-		-		383	-	-	383
Movement in EBT				-	-		-		(74)	-	-	(74)
Movement of own shares		12.2		-	-		(57)		-	-	-	(57)
Dividends paid		12.3		-	-		-		-	-	(4,411)	(4,411)
Balance at 30 June 2020				1,225	130,823		(3,084)		760	4,468	33,715	167,907
			For the period ended 30 June 2019
			Attributable to owners of JTC PLC
			Share			Share		Own	Capital	Translation	Retained	Total
£'000			capital			premium		shares	reserve	reserve	earnings	equity
Balance at 1 January 2019			1,109			94,599		(2,565)	(112)	2,444	13,426	108,901
IFRS 16 adjustment			-			-		-	-	-	1,730	1,730
Restated balance at 1 January 2019			1,109			94,599		(2,565)	(112)	2,444	15,156	110,631
Profit for the period			-			-		-	-	-	7,869	7,869
Other comprehensive income for the period			-			-		-	-	120	-	120
Total comprehensive income for the period			-			-		-	-	120	7,869	7,989
Issue of share capital			19			5,663		-	-	-	-	5,682
Share-based payment expense			-			-		-	347	-	-	347
Movement in EBT			-			-		-	(46)	-	-	(46)
Movement of own shares			-			-		(285)	-	-	-	(285)
Dividends paid			-			-		-	-	-	(2,235)	(2,235)
Balance at 30 June 2019			1,128			100,262		(2,850)	189	2,564	20,790	122,083

The above condensed consolidated interim statement of changes in equity should be read in conjunction with the accompanying notes.
 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS

£'000	Note	H1 2020	H1 2019
Operating cash flows before movements in working capital	17	16,793	15,946
Increase in receivables		(4,013)	(332)
Increase/(decrease) in payables		2,726	(2,770)
Cash generated by operations		15,506	12,844
Income taxes paid		(650)	(706)
Net movement in cash from operating activities		14,856	12,138
Comprising:
Underlying net movement in cash from operating activities		19,371	16,551
Non-underlying cash items	17	(3,865)	(3,707)
		15,506	12,844
Investing activities
Interest received		26	78
Payment for property, plant and equipment		(181)	(627)
Payment for intangible assets		(1,218)	(528)
Payment for business combinations		(8,738)	(21,338)
Prepayment for investment		(403)	-
Net cash used in investing activities		(10,514)	(22,415)
Financing activities
Sale and purchase of own shares		(45)	(285)
Dividends paid	12.3	(4,411)	(2,235)
Loans to third parties		(238)	-
Repayment of loans and borrowings		(344)	(344)
Proceeds from loans and borrowings		17,926	15,509
Loan arrangement fees		(17)	(285)
Interest paid on loans and borrowings		(1,075)	(1,029)
Facility fees paid on loans and borrowings		(139)	(96)
Principal paid on lease liabilities		(1,540)	(915)
Interest paid on lease liabilities		(465)	(450)
Net cash from financing activities		9,652	9,870
Net increase/(decrease) in cash and cash equivalents		13,994	(407)
Cash and cash equivalents at the beginning of the period		26,317	32,457
Effect of foreign exchange rate changes on cash and cash equivalents		640	(1,593)
Cash and cash equivalents at end of period*		40,951	30,457
*The cash balance at 31.12.19 included £2.6m for pending EBT12 capital distributions, these were paid in full during the period.

The above condensed consolidated interim statement of cash flows should be read in conjunction with the accompanying notes.

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS

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 condensed consolidated interim financial statements of the Company for the period from 1 January 2020 to 30 June 2020 comprise the Company and its subsidiaries (together "the Group" or "JTC") and the Group's interest in an associate. 

2. SIGNIFICANT CHANGES IN THE CURRENT REPORTING PERIOD 

Despite the unique challenges presented by the Covid-19 pandemic, the business performed well during the six months to 30 June 2020 and is trading in line with Board expectations.

The financial position and performance of the Group was affected by the following events and transactions during the six months to 30 June 2020: 

· the acquisition of NES Financial Corp ("NESF") (see note 11.1)

· the draw down of £16.4m from our existing loan facility to partially fund the acquisition of Sanne private client business (see Note 19) and deferred consideration from previous acquisitions (see note 14.1)

For more detail on the Group's performance and financial position, please refer to the Chief Financial Officer's review.

3. BASIS OF PREPARATION

The condensed consolidated interim financial statements (the "interim financial statements") for the six months to 30 June 2020 have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union ("EU"), the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and Companies (Jersey) Law 1991. They are presented in pounds sterling (£), which is the functional and reporting currency of the Company. They do not include all the information required for a complete set of IFRS financial statements. Accordingly, the interim financial statements should be read in conjunction with the annual consolidated financial statements for the year ended 31 December 2019, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual consolidated financial statements as at and for the year ended 31 December 2019.

The Group has adopted the going concern basis of accounting in preparing the interim financial statements. The Directors are confident that the Group will meet its day-to-day working capital requirements through its cash-generating activities and bank facilities. The Group's forecasts and projections, taking account of possible changes in trading performance, show that the Group should be able to operate within the level of its current facilities. The Directors therefore have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, being at least 12 months from the date of approval of these interim financial statements. 

These interim financial statements were approved by the board of directors on 14 September 2020 and have been reviewed but not audited by the Group's external auditors.

4. SIGNIFICANT ACCOUNTING POLICIES AND STANDARDS 

The accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2019. 

To the extent relevant, all IFRS standards and interpretations including amendments that were in issue and effective from 1 January 2020, have been adopted by the Group from 1 January 2020. These standards and interpretations have had no material impact for the Group.

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS 

The preparation of these interim financial statements requires Management to make certain assumptions, estimates and judgements that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the interim financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. 

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

5.1. CRITICAL JUDGEMENTS IN APPLYING THE GROUP'S ACCOUNTING POLICIES

In addition to the critical judgements set out in note 28.1 of the 2019 Annual Report, the following are the critical judgements that Management have made in the process of applying the Group's accounting policies that have the most significant effect on the amounts recognised in the interim financial statements.

Recognition of separately identifiable intangibles 

During the period ended 30 June 2020, the Group acquired NESF (see note 11.1). IFRS 3 'Business Combinations' requires Management to identify assets and liabilities purchased including intangible assets. Following their assessment, Management concluded that the intangible assets meeting the recognition criteria were the NESF Brand, internally generated software (known as "eSTAC") and customer relationships. The intangible assets recognised through this acquisition were £0.69m, £2.68m and £2.5m respectively. 

5.2. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS 

In addition to critical estimates as set out in note 28.2 of the 2019 Annual Report, the following are the critical estimates that Management have made in the process of applying the Group's accounting policies that have the most significant effect on the amounts recognised in the interim financial statements.

Fair value of internally developed software intangibles 

To derive the fair value of the internally generated software (eSTAC), a relief from royalty valuation methodology was used. Management consider the key assumptions in this model to be the projected revenue growth and the royalty rate applied. See note 11.1(a) for the sensitivity analysis. 

Fair value of earn-out consideration

To derive the fair value of the earn-out contingent consideration, Management allocated a probability weighting to cash flow forecast scenarios to determine the calculated number of shares and then applied an estimated share price. Management considers the estimated number of shares and forecast share price to be the key assumptions in the calculation of the fair value of the earn-out contingent consideration. See note 11.1(b) for the sensitivity analysis.

6. SEGMENTAL REPORTING

6.1. 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 and ultra-high-net-worth individuals and family office clients. Declared revenue is generated from external customers. 

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"). 

 

6.2. 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
£'000	H1 2020	H1 2019		H1 2020	H1 2019		H1 2020	H1 2019
Revenue	30,334	25,366		23,364	21,247		53,697	46,613
Direct staff expenses	(12,793)	(10,024)		(8,040)	(7,315)		(20,833)	(17,339)
Other direct expenses	(115)	(196)		(606)	(842)		(721)	(1,038)
Underlying gross profit	17,426	15,147		14,717	13,090		32,143	28,237
Underlying gross profit margin %	57.4%	59.7%		63.0%	61.6%		59.9%	60.6%
Indirect staff expenses	(3,598)	(2,511)		(2,462)	(2,233)		(6,060)	(4,744)
Other operating expenses	(5,628)	(4,478)		(2,863)	(3,061)		(8,490)	(7,539)
Other income	14	5		273	119		286	123
Underlying EBITDA	8,213	8,163		9,666	7,914		17,879	16,077
Underlying EBITDA margin %	27.1%	32.2%		41.4%	37.2%		33.3%	34.5%

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. 

6.3. SEASONALITY

The business of the Group does not show material changes for seasonality in the condensed consolidated interim income statement. However, the timing of invoicing annual fees in advance at the end of Q4 and the start of Q1 each year results in higher working capital and deferred income at 30 June, as demonstrated by a £4.95m increase in deferred income at 30 June 2020 when compared to 31 December 2019 (see note 15). 

7. STAFF EXPENSES 

£'000	H1 2020	H1 2019
Salaries and Directors' fees	22,863	18,691
Capital distribution from EBT12	9	(257)
Other short-term employee benefits	702	588
Defined contribution pension costs	940	797
Share-based payments	383	347
Training and other staff-related costs	2,127	1,803
	27,024	21,969

 

7.1. SHARE-BASED PAYMENT ARRANGEMENTS

In April 2020, the Group granted the following share awards:

(i)  213,420 shares (April 2019: 253,518 shares) under the PSP. The 2020 awards have the same performance conditions as the 2018 and 2019 awards (TSR and EPS performance) and also vest over a performance period of three consecutive accounting periods.

(ii)  72,717 shares (April 2019: 45,809) under the DBSP. These awards are not subject to performance conditions but are subject to the rules of the DBSP, including vesting criteria.

For further information on share-based compensation, see note 36 of the 2019 Annual Report. 

The equity-settled share-based payment expenses recognised during the period, per plan and in total are as follows: 

£'000	H1 2020	H1 2019
PSP Awards	254	246
DBSP Awards	86	25
Other Awards	43	76
Total share-based payments expense	383	347

8. NON-UNDERLYING ITEMS

£'000	H1 2020	H1 2019
Acquisition and integration costs (i)	1,119	600
Capital distribution from EBT12 (ii)	9	(257)
Other (iii)	96	38
Non-underlying items within EBITDA	1,224	381
Unwinding of discount on capital distribution from EBT12	33	100
Total non-underlying items	1,257	481

The directors consider that the items above are not representative of underlying performance. 

During the period ended 30 June 2020: 

(i)  The Group expensed £1.12m (30 June 19: £0.6m) in relation to business combinations. For those completed in the period; NESF £0.8m (see note 11.1) and other smaller acquisitions £47k (see note 11.2). For those completed in prior periods; Van Doorn £110k, Minerva £71k, Aufisco £28k, and Exequtive £8k. Also expensed in the period was £51k in relation to the acquisition of Sanne private client business (see note 19).

(ii)  An adjustment was made to the credit previously recognised in relation to leavers who forfeited their distributions. 

(iii)  One-off costs relating to other items not considered to represent the ongoing operations of the business included £96k of fees relating to terminated projects.

9. EARNINGS PER SHARE

9.1. BASIC EARNINGS PER SHARE 

£'000	H1 2020	H1 2019
Profit for the period	9,861	7,869
	No.	No.
Issued ordinary shares at 1 January	111,820,703	110,153,982
Effect of shares issued to acquire business combinations	2,560,169	909,966
Effect of movement in treasury shares held	(29,979)	(107,741)
Weighted average number of Ordinary shares (basic):	114,350,893	110,956,207
Basic EPS	8.62	7.09

 

 

9.2. DILUTED EARNINGS PER SHARE

£'000	H1 2020	H1 2019
Profit for the period	9,861	7,869
	No.	No.
Weighted average number of Ordinary shares (basic):	114,350,893	110,956,207
Effect of share-based payments issued	757,532	460,224
Weighted average number of Ordinary shares (diluted):	115,108,425	111,416,431
Diluted EPS	8.57	7.06

9.3. UNDERLYING BASIC EARNINGS PER SHARE

£'000	Note	H1 2020	H1 2019
Profit for the period		9,861	7,869
Non-underlying items	8	1,257	481
Amortisation of customer relationship intangible assets		2,764	2,284
Amortisation of loan arrangement fees		286	188
Unwinding of net present value discounts		65	194
Temporary difference arising on amortisation of customer relationships		(481)	(355)
Adjusted underlying profit for the period		13,752	10,661
		No.	No.
Weighted average number of Ordinary shares (basic):		114,350,893	110,956,207
Underlying Basic EPS		12.03	9.61

Our definition of underlying basic Earnings Per Share has been updated to remove any adjustment for IFRS 16 but now includes adjustments 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. These adjustments were previously included in adjusted underlying basic Earning Per Share which is no longer presented. 

10. PROPERTY, PLANT AND EQUIPMENT ("PPE")

During 2019, the Group transitioned to IFRS 16 'Leases' and as at 31 December 2019 the total carrying amount of £37.9m for PPE included £30.2m for right-of-use assets. During the period to 30 June 2020, as a result of acquiring NESF (see note 11.1), right-of-use assets increased by £2.5m and depreciation for the six month period ended 30 June 2020 was £1.9m.

 

11. BUSINESS COMBINATIONS

11.1. NES FINANCIAL CORP " (NESF") 

On 29 April 2020, JTC acquired 100% of NES Financial Corp and its subsidiaries (together known as "NESF"), a United States based, technology-enabled, market leading provider of specialist fund administration services. NESF was merged with, and into, JTC USA Holding Inc., a California corporation. This acquisition represents a key part of JTC's ongoing growth strategy, 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 efficiency.  

The acquired business contributed revenues of £1.4m and a loss before tax of £0.5m to the Group for the period from 1 May 2020 to 30 June 2020. If the business had been acquired on 1 January 2020, the consolidated revenue and profit for the period for the Group would have been £56.9m and £5.7m 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	3,077	2,467
Intangible assets - Brand	859	689
Intangible assets - Internally developed software	3,346	2,683
Intangible assets - Customer relationships	3,116	2,499
Intangible assets - Software	91	73
Trade receivables	1,906	1,528
Other receivables	4,372	3,505
Cash and cash equivalents	205	165
Assets	16,972	13,609
Deferred income	174	139
Deferred tax liabilities	2,002	1,605
Trade and other payables	11,510	9,230
Lease liabilities	2,819	2,261
Liabilities	16,505	13,235
Total identifiable net assets	467	374

Deferred tax liabilities have been recognised in relation to identified intangible assets, the amortisation of which is non-deductible against United States Corporation Taxes and therefore creates temporary differences between the accounting and taxable profits.

Sensitivity analysis on fair value of internally developed software intangibles 

The internally developed platform, known as eSTAC, leverages end-to-end integrated software to automate fund administration and is used to support all product lines. To derive the fair value we used a relief from royalty method. This takes an estimated royalty rate as a percentage of the projected revenues generated to calculate anticipated royalty payments which are discounted to present value using an appropriate risk adjusted rate.

Management carried out a sensitivity analysis on the key assumptions used in the valuation of internally developed software intangible assets. An increase or decrease of 1% to the royalty rate used of 4%, would increase or decrease the fair value by £0.86m. An increase to year on year revenue growth of 10% would increase the fair value by £0.74m, a decrease to year on year revenue growth of 10% would decrease the fair value by £0.62m.

 

 

(b) Consideration

Total consideration is satisfied by the following:

	$'000	£'000
Equity instruments (6,746,623 Ordinary shares issued at fair value)	34,732	27,931
Cash consideration	4,704	3,759
Contingent consideration - Indemnification holdback (i)	2,133	1,715
Contingent consideration - Earn-out (ii)	18,760	15,087
Fair value of total consideration	60,329	48,492

At the reporting date we have estimated the fair value of contingent consideration as follows:

(i)   The indemnification holdback part of the initial consideration was 637,954 JTC PLC Ordinary shares and we anticipated these will be adjusted downwards for working capital and transaction expenses to 421,458 shares. Of these, 50% are payable 12 months following completion (30 April 2021) with the balance payable 6 months later (31 October 2021). The simulated share prices at these dates under the Monte Carlo valuation method have been discounted using an appropriate risk free rate and as a result we estimate the fair value of the contingent shares to be £1.72m ($2.13m).

(ii)   The earn-out consideration is subject to NESF meeting certain EBITDA thresholds across assessment periods, being 1 June 2020 to 31 May 2021 ("Earn-out AP1") and 1 June 2021 to 31 May 2022 ("Earn-out AP2"). The maximum earn-out consideration for Earn-out AP1 is 7,348,771 shares and for Earn-out AP2 is 6,904,299 shares. 

To calculate the anticipated earn-out, Management gave a probability weighting to three forecast scenarios; a downside, upside and base case for the three financial years ended 31 December 2020 ("FY2020"), 31 December 2021 and 31 December 2022.  The resulting number of shares was then multiplied by an estimated share price at the relevant date.  

In each of the scenarios, there is negative EBITDA in Earn-out AP1 due to the loss forecast for FY2020 as a result of the impact of COVID-19, which is recovered in Earn-out AP2 in all instances. As the two most likely scenarios give a negative EBITDA for Earn-out AP1, a probability weighted approach, rather than a Monte Carlo simulation was used to determine the likely number of JTC PLC Ordinary shares attributed to the earn-out. 

The estimated share price is based upon the same Monte Carlo simulation and risk free rate discounting methodology as in (i) above. As a result, the number of shares due for Earn-out AP2 was calculated to be 3,765,269 with a fair value of £15.08m ($18.76m).

Sensitivity analysis on fair value of earn-out consideration 

Management carried out a sensitivity analysis on the output of the key assumptions and estimates used to calculate the fair value of the earn-out consideration. Management consider the key assumptions and estimates to include the estimated share price and the estimated number of shares to calculate the fair value of earn-out consideration. Increasing or decreasing the number of shares earnt by 20% and applying the same simulated share price using the Monte Carlo valuation model in (i) above, the fair value of the earn-out contingent consideration would be £3.2m higher/lower. Increasing or decreasing the share price by 10% and applying the number of shares as in (ii), the fair value of the earn-out contingent consideration would be £1.51m higher/lower. 

(c) Goodwill

Goodwill arising from the acquisition has been recognised as follows: 

	$'000	£'000
Total consideration	60,329	48,492
Less: Fair value of identifiable net assets	(467)	(374)
Goodwill	59,862	48,118

Goodwill is represented by assets that do not qualify for separate recognition or other factors. These include access to the US market, new business wins from new customers, effects of an assembled workforce and synergies from combining some resources and operations of the acquiree and the acquirer. 

 

 

(d) Impact on cash flow

	$'000	£'000
Cash consideration paid at 30 June 2020	3,173	2,540
Less: cash balances acquired	(205)	(165)
Net cash outflow from acquisition	2,968	2,375

(e) Acquisition related costs

Up to the 30 June 2020, the Group had incurred acquisition-related costs of £0.8m for professional, legal and advisory fees. These costs have been recognised in other operating expenses in the Group's condensed consolidated interim income statement and are treated as non-underlying items to calculate underlying EBITDA (see note 8).

11.2. OTHER ACQUISITIONS IN THE PERIOD 

On 23 January 2020, JTC acquired 100% of the share capital of Cornerstone AIS Corporate Services Ireland Limited and Cornerstone AIS Corporate Trustees Ireland Limited, entities registered in Ireland with a regulatory licence to operate as a trust or company service provider. Consideration was £65k (€77k) for net assets acquired of the same amount.

On 27 February 2020, JTC acquired 100% of the share capital of Anson Registrars Limited and Anson Registrars (UK) Limited, the entities have registered offices in Guernsey, Channel Islands and the UK respectively. This acquisition enables JTC to provide a holistic package to both corporate and fund clients who require CREST enabled registrar services, complementing the administration and accounting offering already being provided. Consideration was £222k for net assets acquired of £59k, resulting in goodwill of £163k.

12. SHARE CAPITAL AND RESERVES 

12.1. SHARE CAPITAL AND SHARE PREMIUM 

At 31 December 2019, 114,068,353 Ordinary shares of £0.01 each were in issue and fully paid up at a cost of £1.14m with share premium of £100.66m.

On 8 April 2020, the Company issued and admitted an additional 560,707 Ordinary shares at fair value to satisfy the earn-out consideration due for the acquisition of Exequtive, as they successfully maintained agreed targets for underlying EBITDA and revenue (see note 31.1 of the 2019 Annual Report).

On 29 April 2020, the Company issued an additional 1,146,291 Ordinary shares in order for PLC EBT to satisfy potential future exercises of awards granted to beneficiaries.

On 4 May 2020, the Company issued an additional 6,746,623 Ordinary shares at fair value to satisfy the share consideration payable for the acquisition of NESF (see note 11.1). 

12.2. OWN SHARE RESERVE 

Own shares represent the shares of the Company that are unallocated and held by PLC EBT for the benefit of its employees. Own shares have been excluded from the weighted average number of ordinary shares for the purpose of calculating EPS as they are not outstanding. 

As at 31 December 2019, 2,160,667 shares were held at a cost of £3.03m. During the six months to 30 June 2020, the number of own shares held increased by 1,156,643 and £0.06m following the issue of 1,146,291 new shares as described in note 12.1 above and also the purchase of 10,352 shares for PLC EBT from surplus cash held.

12.3. RETAINED EARNINGS 

The retained earnings include accumulated profits and losses. 

The final dividend for the year 2019 of 3.6p per qualifying ordinary share was paid on 3 July 2020. 

An interim dividend of 2.4p per qualifying ordinary share (2019: 1.7p per qualifying ordinary share) was declared by the Directors on 14 September 2020 and will be payable on 23 October 2020 to shareholders on the record on 25 September 2020.  The interim dividend has not been recognised as a liability as at 30 June 2020. 

13. TRADE AND OTHER PAYABLES 

£'000	30.06.2020	31.12.2019
Non-current
Other payables	312	-
Deferred consideration	15,941	-
Total non-current	16,253	-
Current
Trade payables	1,117	1,196
Other taxation and social security	797	646
Other payables	5,973	5,670
Accruals	4,039	5,176
Deferred consideration	2,191	8,460
Total current	14,117	21,148
Total trade and other payables	30,370	21,148

14. LOANS AND BORROWINGS

£'000	30.06.2020	31.12.2019
Non-current
Bank loan	104,417	86,681
Total non-current	104,417	86,681
Current
Bank loan	3,114	-
Other loans	1,443	508
Total current	4,557	508
Total loans and borrowings	108,974	87,189

14.1. BANK LOANS

(a) Non-current bank loan 

On 9 January 2020, the Company's revolving facility commitment was increased by £50m taking the total facility commitment to £150m, consisting of a term loan of £45m and a revolving facility commitment of £105m. The commitments were increased by each 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. 

A withdrawal was made on 16 April 2020 for £6.425m to assist with the funding required to settle deferred consideration due for the Exequtive (£5.5m) and Aufisco (£0.58m). A further withdrawal was made on 30 June 2020 for £10m to partially fund the acquisition of Sanne private client business (see note 19).

At 30 June 2020, the Company had available £44m of committed facilities currently undrawn (31 December 2019: £12.1m). All drawn facilities for this loan are due to be repaid on or before the Termination Date of 8 March 2023.

(b) Current bank loan 

Upon acquiring NESF, JTC inherited their existing bank revolving credit note with CIBC Bank USA, an Illinois banking corporation. The original note was executed on 25 January 2018 for a line up to $5m, of which $3.85m was drawn down on 1 February 2018 and remains outstanding at the time of the merger. The interest rate on the drawn amount is the greater of (a) the Federal Funds Rate plus 0.5%, and (b) the Prime Rate. Repayment of the revolving credit line is due in full prior to the debt maturity on 25 January 2021.  

14.2. OTHER LOANS 

On 18 June 2020, the Company entered into an uncommitted loan facility with Close Leasing Limited for £1.29m, which is being settled in six monthly instalments.

 

15. OTHER NON-FINANCIAL LIABILITIES

£'000	Note	30.06.2020	31.12.2019
Non-current
Contract liabilities		541	518
Total non-current		541	518
Current
Contract liabilities		637	606
Deferred income	6.3	11,878	6,930
Total current		12,515	7,536
Total other non-financial liabilities		13,056	8,054

16. FINANCIAL RISK AND CAPITAL MANAGEMENT 

16.1 FOREIGN CURRENCY RISK

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 continues to be mainly from Euro, United States dollar and South African rand. The loans and borrowings of the Group continue to be denominated in £ and Euro. Management will continue to monitor the effectiveness of the Group's policy to minimise foreign currency risk (as disclosed in note 29.1 of the 2019 Annual Report) and continue to regularly assess if a foreign currency hedge is appropriate. 

For the six months to 30 June 2020, mainly due to the Euro and United States dollar foreign currency exchange rate movements, we have recognised the following: 

· a foreign exchange gain of £3.4m in other comprehensive income (H1 2019: £0.12m gain) upon translating our foreign operations to our functional currency 

· a foreign exchange gain of £2.2m (H1 2019: £0.26m gain) in the condensed consolidated income statement upon the retranslation of monetary assets and liabilities denominated in foreign currencies

16.2 INTEREST RATE RISK

The Group is exposed to interest risk as it borrows funds at floating interest rates, these are directly linked to LIBOR and/or EURIBOR plus a margin based on the leverage ratio of the Group. 

Despite a fall in interest rates linked to Covid-19, interest fluctuations are generally low which minimises the Group's exposure to interest rate movements. As a result, no hedging instruments have been put in place.

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 period ended 30 June 2020 would decrease/increase by £0.54m (31 December 2019: £0.43m). 

16.3 CREDIT RISK

The Group's principal exposure to credit risk arises from customer receivables (this includes trade receivables, work in progress and accrued income) as well as cash and cash equivalents and other receivables. Despite a challenging trading environment, the impact of the Covid-19 outbreak on the recoverability of debtors has not been significant, as evidenced by our strong performance for underlying operating cash conversion. For net receivable positions, as at the reporting date we anticipate that customers will continue to meet their payment obligations. As a result we have not incorporated updated forward-looking information into measuring ECLs as at 30 June 2020. Our credit risk management as set out in note 29.2 of the 2019 Annual Report remains unchanged.  

 

16.4 LIQUIDITY RISK

There has been no change in our liquidity risk assessment compared to our disclosure in note 29.3 of the 2019 Annual Report.

As at 30 June 2020, the contractual maturities of the Group's financial liabilities were as follows:

	<3 months	3 - 12 months	1 - 5 years	>5 years	Total contractual cash flow
At 30 June 2020	£'000	£'000	£'000	£'000	£'000
Loans and borrowings (i)	894	5,670	109,287	-	115,851
Trade payables and accruals	12,563	-	541	-	13,104
Deferred consideration for acquisitions	1,330	861	15,941	-	18,132
Lease liabilities	1,153	3,458	13,635	22,046	40,292
	15,940	9,989	139,404	22,046	187,379

	<3 months	3 - 12 months	1 - 5 years	>5 years	Total contractual cash flow
At 31 December 2019	£'000	£'000	£'000	£'000	£'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

(i) This includes the future interest payments not yet accrued and the repayment of capital upon maturity.

16.5 CAPITAL MANAGEMENT

The Group's objective for managing capital is unchanged from that disclosed in Note 30 of the 2019 Annual Report. As disclosed in note 14, the Group has increased its borrowings during the period to partly fund the acquisitions of Exequtive, Aufisco and Sanne private client business. In accordance with the Group's capital risk management objective, the financial covenants attached to the bank borrowings continue to be met. 

For our non-current borrowings (see Note 14.1(a)), as at 30 June 2020, the Leverage ratio was 2.12x (31 December 2019: 1.98x), as a result the margin applied to LIBOR and/or EURIBOR increased to 2% (31 December 2019: 1.75%). Interest Cover was 12.89x (31 December 2019: 13.52x). As the maximum Leverage ratio is 3.25x and the Interest Cover covenant is 4.00x, for both covenants there is significant headroom. 

17. CASH FLOW INFORMATION

17.1 OPERATING CASH FLOWS

£'000	H1 2020	H1 2019
Operating profit	10,236	10,741
Adjustments for:
Depreciation of property, plant and equipment	2,879	2,117
Amortisation of intangible assets	3,540	2,838
Share-based payment expense	383	347
Share of profit of equity-accounted investee	(245)	(97)
Operating cash flows before movements in working capital	16,793	15,946

 

 

17.2 NON- UNDERLYING ITEMS WITHIN NET CASH FROM OPERATING ACTIVITIES

£'000	H1 2020	H1 2019
Net cash from operating activities	14,856	12,138
Non-underlying items:
Capital distribution from EBT12	2,650	2,976
Acquisition and integration costs	1,182	693
Other	33	38
Total non-underlying items within net cash from operating activities	3,865	3,707
Underlying net cash from operating activities	18,721	15,845

18. 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.

The Group's associate KIG has provided £0.43m of services to Group entities during the six month period to 30 June 2020 (H1 2019: £0.375m). 

The Group's only other significant related parties are key management personnel, comprising the board of directors of the principal operating entities, JTC PLC and JTCGHL, being those persons having the authority and responsibility for planning, directing and controlling the activities of the Group. 

The remuneration of key management personnel of the Group is set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'.

£'000	H1 2020	H1 2019
Salaries and other short-term employee benefits	987	990
Post employment and other long-term benefits	65	52
Share-based payments	262	252
Total payments	1,314	1,294

19. EVENTS OCCURRING AFTER THE REPORTING PERIOD 

On 1 July 2020, the Group completed its acquisition of the assets, contracts and employees of Sanne Group plc's private client business based in Jersey ("Sanne private client business"). To date, clients representing annualised ongoing revenues of £4.1m have transferred to JTC resulting in an initial cash payment of £9m. For this acquisition, at the date the interim financial statements were authorised for issue, it was impracticable to disclose the information required by IFRS 3 'Business Combinations' as Management needed to consider the pertinent facts and circumstances surrounding the business combination in order to appropriately determine the date upon which control was obtained and then make their fair value assessments. 

On 31 July 2020, JTC entered into a Subscription Agreement to purchase 20% of the share capital of Harmonate Corp ("Harmonate"), a Delaware corporation, for the aggregate sum of $1m. Harmonate was incubated within the NESF Group and became a standalone business from 30 March 2020. Harmonate is a software as a service (SaaS) business and through its proprietary data operations technology, 'Conductor', delivers supervised machine learning for the consumption, contextualisation and delivery of data, replacing the need for costly labour resources within the middle and back office functions of funds and fund administrators. 

 

END

 

 

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