Full year results for the year ended 31 Dec 2020

RNS Number : 2323V
JTC PLC
13 April 2021
 

13 April 2021

JTC PLC

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

Full year results for the year ended 31 December 2020

A strong performance with continued growth from both new business wins and disciplined M&A

 

 

As reported

Underlying*

 

2020

2019

Change

2020

2019

Change

Revenue (£m)

115.1

99.3

+15.9%

115.1

99.3

+15.9%

EBITDA (£m)

34.9

33.7

+3.5%

38.7

35.4

+9.4%

EBITDA margin

30.3%

34.0%

-3.7pp

33.6%

35.6%

 -2.0pp

Operating profit/EBIT

21.0

23.0

-8.4%

24.9

24.6

+1.0%

Profit before tax (£m)

11.2

17.6

-36.3%

21.4

19.7

+8.3%

Earnings per share (p)**

9.02

15.43

-41.5%

22.49

21.74

+3.4%

Cash conversion

91.0%

81.0%

+10.0pp

91.0%

89.0%

 +2.0pp

Net debt (£m)

-76.0

-66.5

-9.5

-75.8

-59.3

 -16.5

Dividend per share (p)

6.75

5.3

 +1.45p

6.75

5.3

 +1.45p

 

Reconciliation of performance measures to reported results. For further information on underlying results see appendix to CFO Review.

**  Average number of shares for 2020: 116,736,585 (2019: 111,352,868)

financial highlights

· Revenue up 15.9% to £115.1m (2019: £99.3m), reflecting a combination of good net organic growth of 7.9% (+16.7% gross) and inorganic growth of 8.0%

· Underlying EBITDA up 9.4% to £38.7m (2019: £35.4m) with underlying EBITDA margin of 33.6% (2019: 35.6%)

· Performance in line with medium-term guidance of 8% - 10% net organic growth and 33% - 38% underlying EBITDA margin

· Record annualised new business wins totaling £17.9m (2019: £14.9m), comprising £13.4m in ICS and £4.5m in PCS

· Strong underlying cash conversion of 91.0% (2019: 89.0%)

· A robust balance sheet with an undrawn £44.4m out of the available £150m facility and no debt falling due for repayment before 2023

strategic highlights

· Highly resilient response to Covid-19 with no redundancies, no staff placed on furlough, no government support taken and dividend increased from 25% to 30% of underlying PAT

· Good performance from both divisions, with continued strong results from the PCS Division

· Acquired fund services business NESF in the US, the Sanne Private Clients business in Jersey and announced the acquisition of the RBC CEES employee benefits business in the Channel Islands and UK.

· Post period end, acquisition announced of INDOS, a specialist depositary, AML and ESG governance services business with operations in the UK and Ireland.

· M&A pipeline remains healthy and disciplined approach will continue in 2021 with particular focus on the US, UK, Ireland and mainland Europe.

outlook

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

· Medium-term guidance maintained. Net organic revenue growth of 8% - 10%; underlying EBITDA margin of 33% - 38%; cash conversion of 85% - 90% and net debt of 1.5 - 2.0 times underlying EBITDA.  

· Focus on integration of RBC CEES and INDOS businesses

· The Group remains well invested to deliver continued operational improvement and take advantage of further consolidation opportunities.

· The current financial year has started well with momentum in new business wins and the Group is trading in line with management guidance/consensus expectations.

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

"We are particularly pleased with our results for 2020 as they have been achieved despite the challenges of the global pandemic. If there was a year that tested our people, our culture, and the resilience of our business model, it was 2020. I would therefore like to thank and congratulate our global team for managing to deliver both strong revenue and profit growth through this period of significant adversity. The rise in revenue was achieved by a balanced combination of net organic growth and growth by acquisition, with strong contributions from both Institutional Clients Services and Private Client Services. Based on our 33-year track record, our scale, our diversification, our infrastructure and our people, we believe that JTC is well equipped to continue to succeed and grow both now and in the future."

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 

Monique Perks                                               

Emily Shea-Simonds

 

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 a publicly listed, global professional services business with deep expertise in fund, corporate and private client services. Every JTC person is an owner of the business and this fundamental part of our culture aligns us with the best interests of all our stakeholders. Our purpose is to maximize potential and our success is built on service excellence, long-term relationships and technology capabilities that drive efficiency and add value.

www.jtcgroup.com

Chief Executive Officer's Review

Nigel Le Quesne

Chief Executive Officer

People, Culture and Resilience

We like to keep things simple at JTC with our aim to make the business better every year. Once again we believe we achieved that in 2020.

By the time we reported last year, we were able to talk about how the Group might respond to the pandemic, and I mentioned factors such as our well-invested infrastructure, experienced management, historic track record and our scale and diversification as keys to our resilience. I also talked separately and specifically about the importance of the culture of the Group and how we had invested in it over decades. Well, there's nothing like the year we've just had to test the validity of that belief, in every respect. And in hindsight, our people and culture were the most important factors in making sure we could trade successfully through 2020. I would like to take this opportunity to thank and congratulate our global team for the performance of the business during an extraordinary year for the whole world. Even in the ongoing face of the pandemic, I genuinely believe we are a better business going into 2021 thanks to the energy, commitment and entrepreneurial spirit of our people.

Financial Performance

Performance was in-line with market expectations that were set pre-Covid-19 and we delivered headline revenue growth to £115.1m (2019: £99.3m), achieving £38.7m of underlying EBITDA (2019: £35.4m) at a Group margin of 33.6% (2019: 35.6%). These strong results were achieved through a combination of net organic growth of 7.9% (2019: 8.4%) and inorganic growth of 8.0% (2019: 20.1%).

This means that we again delivered in line with our medium-term guidance of 8%-10% net organic revenue growth and 33%-38% underlying EBITDA margin, which we continue to believe represent the key 'guide rails' for sustainable high performance in our sector.

A Balanced Approach

We have for many years adopted multi-year business plans that we name to mark chapters in our journey. From 2018 to 2020 we called our plan the Odyssey Era and during this three year period the performance of the Private Client Services (PCS) Division has been exceptional. On the other side of the business, the Institutional Client Services (ICS) Division has grown strongly, but has struggled, in relative terms, to achieve the same levels of operational efficiency. Having said that, we know from experience that our Divisions go through natural business cycles as they develop and evolve. Sometimes they will be at the top of their game and at other times need to make important operational changes. Conceptually we believe in the flywheel effect, where businesses succeed not from a single initiative, but from the accumulation of small wins over years of hard work. In 2020, we put a lot of good work into getting the ICS business to the position where the flywheel moment will be achieved in the medium-term. What we're seeing with PCS is the flywheel effect made real - it's outperforming its peer group in the market in almost every respect. To me, it brings home the benefit of having two Divisions within the Group and we look forward to this playing out over our next business plan era, which we are calling Galaxy and will run for five years until the end of 2025.

Institutional Client Services Division

Revenue increased 17.8% to £64.6m (2019: 54.8m) and there was a 0.8% decrease in underlying EBITDA to £18.0m (2019: £18.1m). The underlying EBITDA margin fell 5.2pp to 27.9% (2019: 33.1%) but excluding NESF, which was particularly impacted by a combination of Covid-19 and the performance of the US economy, the margin was 30.6%. Net organic growth was 6.9% (2019: 9.4%) with the annualised value of new business wins being £13.4m (2019: £8.9m). As already noted, 2020 was a more challenging year for ICS, but we have undoubtedly made progress. The planned internal operational restructuring of the fund services practice was completed, albeit at a slower pace than we would have liked due to travel restrictions, which prevented us from delivering the change programme in our preferred face-to-face format. However, the Division has landed its two biggest ever clients, judged by annualised revenue, in the last 18 months, has a strong new business pipeline going into 2021 and enjoys positive long-term structural tailwinds.

One trend we observed, possibly hastened by the effects of the pandemic, and particularly important to the ICS market, was an acceleration in decision making from larger clients who showed a greater inclination to outsource as part of their longer-term strategy. This led to us competing for and winning a number of higher value and more complex mandates, which are positive for our market profile and the lifetime value of the JTC book, but necessarily take longer to on-board and get up to speed due to their size and complexity.

In terms of acquisitions, NESF provided an important entry point to the high-growth US fund services market and brought with it a capable and experienced management team. The business also gives us a significant in-house technology capability for the first time and one that can be leveraged across the entire Group in due course.

We are excited about prospects in the corporate employee benefit services field following the acquisition of RBC CEES, announced at the end of the period, which when combined with our own shared ownership credentials, immediately positions us as a leader in this space. The business adds complementary service lines that we believe have substantial growth potential as the wider ESG agenda drives more companies to consider broader and more sophisticated employer benefit programmes. There are also opportunities for cross-selling of private client services to underlying members of such programmes.

The post period end INDOS acquisition will expand our fund services offering and brings sophisticated depositary, AML and ESG services to the Division, as well as a highly skilled team in the UK and Ireland. This will allow us to provide holistic solutions at every stage of the fund cycle, as well as our well-established administration and accountancy services. INDOS, in combination with NESF, will also be at the forefront of our expansion into specific ESG related services.

Looking ahead our ICS business has some of the most exciting organic and inorganic growth prospects in the Group as we move into 2021 and we look forward to capturing those opportunities and driving performance.

Private Client Services Division

Revenue showed a 13.7% increase to £50.5m (2019: £44.5m) and a 20.2% increase in underlying EBTIDA to £20.7m (2019: £17.2m). The underlying EBITDA margin improved 2.2pp to 41.0% (2019: 38.8%). Net organic growth was 9.0% (2019: 7.2%) with the annualised value of new business wins being £4.5m (2019: £6.0m).

The performance of the PCS Division built on the great work and results in 2019. At the start of our Odyssey Era business plan three years ago, PCS was possibly seen as an unfashionable and relatively low-growth business. But it has performed strongly, benefiting from a consistency of focused management and efficiencies due to a restructuring of operational support during the Odyssey Era, which has shown through to the 2020 results. Our Private Office proposition has continued to drive growth, with the number of clients paying £100k pa or more increasing by 25%. The Division also benefited from the acquisition and full integration of the Sanne Private Clients business during the year. This strengthened our Jersey platform, delivered a skilled team and high quality client book and was immediately portable to our operating platform. It also further increased our share of and commitment to the PCS market and was a straightforward acquisition for us, in spite of the constraints of integrating during lockdown.

One of the more notable trends in the PCS Division is its ability to attract relationships with global financial institutions who trust us to provide services for their individual private clients. Mirroring a trend seen in the ICS Division, these large firms are opting for a lighter operating model, for example through white labelling, and are seeking to ensure that they remain ahead of market trends and fully compliant by partnering with JTC, an acknowledged expert in the field.

The PCS Division enters 2021 with good momentum that we are confident will carry into the Galaxy Era.

Inorganic Growth

In 2020 we once again looked at over 50 opportunities as the market continues to consolidate at pace. Our substantial experience and disciplined approach meant that we are very pleased with the deals completed in the year.

At the heart of JTC's approach to inorganic growth we combine a set of core criteria with near-term areas of focus. Our overarching principle is to acquire businesses that make JTC better for the long-term and our core criteria are: to improve jurisdictional strength, add scale, strengthen our service offering and create cross-selling and synergy opportunities. In 2020 our specific areas of focus were primarily ICS orientated with an emphasis on alternative asset classes, the US, UK, Ireland and Luxembourg. We also sought out opportunities related to the addition of so-called first-cousin services and technology capabilities. Notwithstanding this framework, we always remain alert to executing opportunistic deals as they may arise.

In combination, these criteria and areas of focus create a 'two plus two must equal five' mentality when we look at deals and the acquisitions made embody this approach.

We believe the sector will continue to consolidate for at least the next 5-10 years and look forward to remaining an active participant and enter 2021 with an active pipeline of opportunities.

Risk

We were pleased to welcome Richard Ingle as our new Chief Risk Officer (CRO). Richard has a distinguished financial service career spanning more than 30 years and has worked for a number of well-respected institutions including the Financial Services Authority, JP Morgan and Standard Chartered. His arrival not only strengthens the Risk & Compliance function, but also the overall leadership team as he takes a seat on the Group Holdings Board. I would also like to record my thanks to Bill Byrne, our Chief Group Counsel, who undertook the role for the majority of 2020 and now returns to his core role of leading our legal function across the Group. Bill will continue to work closely with Richard and his team, as well as both Divisions and the Operations teams.

Outlook

As we start our five-year Galaxy Era journey, it is worth noting that when we entered the Odyssey Era in 2018 we had a Group turnover of £59.8m and underlying EBITDA of £14.4m, so we have significantly moved the dial over the past three years. Assessing what we have achieved in 2020 specifically, our senior team is our most cohesive ever, and is another year wiser. We have upgraded the general talent within the Group, as we continue to find more of the industry's top professionals attracted to what we have to offer, including our shared ownership culture and entrepreneurial approach. We assess the strength of our operations in each individual jurisdiction on a regular basis and, on the whole, they are improving year on year. And importantly, we are beginning to be seen as leaders and a driver of trends in the markets we operate in.

In 2021, we will continue to drive organic growth through service quality, innovation, maturity of larger mandates, process efficiencies and technological capabilities. The outlook for further inorganic growth in the Galaxy Era remains positive, with a well-developed pipeline of opportunities that can strengthen and deepen our global footprint and service offering; however it is important we maintain our reputation as a disciplined buyer. We've always said we're building this business for the long term, making sure the infrastructure we put in place future-proofs our business, incrementally keeping up with growth, whether organic or inorganic.

From a personal point of view, I see plenty for us yet to achieve, and I'm really enjoying continuing to build the Group, and plan to carry on doing so through our Galaxy Era. If there's a lesson from Covid-19, or from our financial performance over 33 years, it's that consistency and continuity of management is the right thing to aspire to. And so when succession comes, it will ideally come internally rather than externally. This collective approach that is so special to JTC can be handed down over generations to ensure the business continues to succeed and thrive for years to come.

Nigel Le Quesne

Chief Executive Officer

Chief Financial Officer's Review

Strength in numbers

Martin Fotheringham, Chief Financial Officer

Revenue

In 2020, revenue was £115.1m, an increase of £15.8m (15.9%) compared with 2019.

Despite what were undoubtedly less conducive conditions for new business we delivered net organic growth of 7.9% in the year (2019: 8.4%). The average organic growth for the last three years was 8.3%. The growth in 2020 comprised gross new business of 16.7% (2019: 15.4%), inorganic growth of 8.0% (2019: 20.1%) and attrition of 8.8% (2019: 7.0%). The higher attrition offset the increased gross new business and resulted in a reduction in the retention of revenues that were not end of life in 2020 to 96.6% (2019: 97.4%). In the last three years the average retention of not end of life revenues was 97.4%.

ICS net organic growth was 6.9% (2019: 9.4%). The average for the last three years was 9.2%. The vast majority of jurisdictions grew in 2020 with particularly strong performances in Cayman and the UK. Luxembourg and the US institutional businesses were hit harder by the macroeconomic environment and as a result we saw a reduced flow of new business. Attrition for the division for the year was 8.3% (2019: 6.8%). The slightly higher attrition mainly occurred in the Netherlands and was in connection with the NACT business. This was highlighted in the 2019 results and is consistent with the customer relationship impairment recorded in that period.

PCS net organic growth was 9.0% (2019: 7.2%). The average for the last three years was 7.4%. We continue to see strong demand for our Private Client offering and were pleased at the strong growth in Cayman, Guernsey, Jersey, Mauritius and the US. Attrition in PCS was 9.4% (2019: 7.4%) and this was higher than the prior period due to the reduction in the BVI business. This was a result of a conscious decision to exit a number of structures.

Revenue growth, on a constant currency basis, in the year is summarised in the chart below.

 

PLC

ICS

PCS

2019 Revenue

£99.1m

£54.9m

£44.2m

Lost - JTC decision

(£0.7m)

(£0.4m)

(£0.3m)

Lost - Moved service provider

(£2.5m)

(£1.0m)

(£1.5m)

Lost - End of life/no longer required

(£5.1m)

(£2.8m)

(£2.3m)

Net more from existing clients

£8.3m

£3.3m

£5.0m

New clients

£7.5m

£4.5m

£3.0m

Acquisitions

£8.5m

£6.1m

£2.4m

2020 Revenue

£115.1m

£64.6m

£50.5m

Acquisitions

Acquisitions contributed £8.5m of new revenue in the period broken down as follows:

 

PLC

ICS

PCS

NESF (Q2 2020)

£5.1m

£5.1m

-

Sanne (Q3 2020)

£2.4m

-

£2.4m

Anson Registrars (Q1 2020)

£0.2m

£0.2m

-

Acquisitions < 12 months

£0.8m

£0.8m

-

Total

£8.5m

£6.1m

£2.4m

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

During 2020 JTC secured new work with an annual value of £17.9m (2019: £14.9m). During the year £9.0m of this was recognised. The divisional split of new work won was ICS £13.4m (2019: £8.9m) and PCS £4.5m (2019: £6.0m). Typically this revenue will have an average life-cycle of approximately 10 years. Whilst new business wins increased there was undoubtedly a slowdown in the launch of new funds with investors being deterred by the uncertainty caused by Covid-19 on the macroeconomic environment. PCS is a business that typically requires a high degree of interpersonal contact and travel and meeting restrictions undoubtedly had an adverse impact on the new business won in 2020.

The enquiry pipeline increased by £15.1m (49.7%) from £30.4m at 31 December 2019 to £45.5m at 31 December 2020. The major influence on the increased pipeline was the acquisition of NESF which at 31 December 2020 had added £11m to the group pipeline. The pipeline has a number of exciting prospects and we have in the last twelve months seen a trend towards larger opportunities in both Divisions. There was a clear slowdown in the launch of new funds within ICS and this was reflected above in the lower growth, particularly in Luxembourg and the US.

UNDERLYING EBITDA AND MARGIN PERFORMANCE

Underlying EBITDA in 2020 was £38.7m, an increase of £3.3m (9.4%) from 2019. The underlying EBITDA margin for the Group was 33.6% (2019: 35.6%).

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 EBITDA margin has remained within the Group's medium term guidance range of 33-38%.

ICS's underlying EBITDA margin decreased from 33.1% in 2019 to 27.9% in 2020. Excluding NESF the EBITDA margin for the division was 30.6%. In the first half of the year, the ICS margin was 27.1% and in response to this we undertook an exercise to review our operating processes within the division. Global travel restrictions have frustrated the rate of progress that was achieved. We identified the areas that required restructuring but were reluctant to effect the changes remotely. Our colleagues are key to our business and we did not want to compromise client service or employee welfare in a time of significant global uncertainty.

As highlighted above, the ICS margin was also adversely impacted by the acquisition of NESF in April 2020. We were conscious that this acquisition would initially be margin dilutive. We believe that there is a strong growth outlook for the US fund administration market. Unfortunately the anticipated growth was not evidenced in 2020 due to the Covid-19 impact as well as the weakness in the NESF billing model. The reduction in interest rates in the US had an immediate and material impact on US revenues and EBITDA. We have subsequently restructured the business in line with current revenues albeit the current EBITDA margin is still dilutive to the division. We remain confident about the growth opportunity and the medium-term prospects for ICS in the US.

PCS's underlying EBITDA margin improved from 38.8% to 41.0% in the year. This was driven by the highly efficient operational model and the talent within the division. We continue to take advantage of the operational leverage we have built into the business and to identify additional service offerings. The acquisition of the Sanne Private Client business in July 2020 was a case in point, and we have integrated it seamlessly into our business with no adverse impact on the divisional margin.

We saw an increase in credit impairment losses in the year but believe this to be unique to the financial year and economic conditions. We also saw an increase in a number of indirect costs which the business has had to absorb.

We continue to invest in the business and have been encouraged by the strong growth in new business wins in H2 2020 and in the size of mandates being won by both Divisions.

DEPRECIATION AND AMORTISATION

The depreciation charge increased to £5.9m in 2020 from £4.6m in 2019. £1.0m of this increase was as a result of an increased charge for right-of-use assets. This reflects the increased footprint of the business in the US and Ireland.

The Group has £228.7m (2019: £172.9m) of balance sheet assets consisting of goodwill (2020: £173.8m, 2019: £124.9m), customer relationships (2020: £50.2m, 2019: £46.7m) and software (2020: £4.0m, 2019: £1.2m). The increases in the year were as a result of the acquisitions that we made. We regularly test these assets for impairment and monitor the recoverability of the carrying amounts. There were no impairments required in the year. 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.

The acquisition of NESF brought us in-house technology capabilities. We are in the process of standardising processes where possible and intend in time to use technology to automate many of these. There will be a commensurate investment in the business that we believe will ultimately deliver additional revenues and increase operational efficiency. To date we have not capitalised any costs in this regard.

STATUTORY OPERATING PROFIT

The Group recognises that statutory operating profit is a more commonly accepted reporting metric and hence shows these results for the benefit of external stakeholders.

Statutory operating profit is impacted by non-underlying costs which are higher than 2019, primarily as a result of the requirement to revalue the equity settled financial liability in relation to the contingent consideration for the NESF acquisition. When we agreed to purchase NESF we ensured that there was a two year capped earn-out and that all future contingent consideration would be settled in JTC equity. The variable number of shares offered for the earn-out was driven by a £4.23 share price. This ensured that all parties interests were absolutely aligned to focus on creating shareholder value.

As the earn-out arrangement includes a variable number of shares the contingent consideration is classified as a financial liability, in accordance with accounting standards, and is required to be re-measured to fair value at each reporting period end with the change recognised in the income statement. We are also required to estimate the value of the earn-out at each reporting period end.

We estimated the earn-out value at acquisition and the commensurate number of shares and we have not had cause to change these estimates. However, the improvement in the JTC share price since the date of the acquisition has ultimately resulted in an increase of the fair value of the contingent consideration and a subsequent charge of £6.5m has been recognised in the income statement. It should be noted that there is neither a trading nor cash impact of this charge and hence it is treated as non-underlying. We will continue to account for the fair value component of the contingent consideration in this way until the earn-out is determined and the equity obligation is settled.

Acquisition and integration costs were higher than in 2019, because of the increased volume and complexity of the transactions undertaken. Details of these non-underlying costs are set out below.

NON-UNDERLYING ITEMS

Non-underlying items incurred in the period totalled £10.1m (2019: £2.1m). These comprised the following:

· £6.5m loss on revaluation of contingent consideration (2019: nil)

· £3.3m of acquisition and integration costs

· (2019: £2.0m)

· £0.3m other costs/charges (2019: £0.4m credit)

· £nil impairment of customer relationship intangible asset (2019: £0.5m)

Of the £10.1m (2019: £2.1m) of non-underlying costs, £3.8m (2019: £1.7m) are incurred at EBITDA level and £6.3m (2019: £0.4m) are included within other gains and losses.

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 2020 was £11.2m (2019: £17.6m).

Adjusting for non-underlying items the underlying profit before tax for 2020 was £21.4m (2019: £19.7m). The improvement reflects the growth in revenues although the margin decreased in the period. However, the relative profitability was positively impacted by a £0.8m foreign exchange gain (2019: £1.2m loss). This is due to the translation of substantial US dollar and Euro monetary balance sheet items held at the year end. The gain reduced during the course of the year - it was £2.2m at mid-year and reflects the impact of the continued strengthening of GBP sterling in H2.

Finance costs in the year comprise £1.6m of amortisation/non-cash flow items (2019: £1.6m) and £2.8m of costs which impact cash flow (2019: £2.4m).

TAX

The tax charge in the year was £0.7m (2019: £0.5m). The cash tax charge is £1.8m (2019: £1.2m) but this is reduced by significant deferred tax credits of £1.1m (2019: £0.8m) as a result of the movements in relation to the value of customer relationships held on the balance sheet. The Group continuously reviews its transfer pricing policy and updates this to reflect the evolving nature of the business and the way it operates. The policy continues to be fully compliant with OECD guidelines.

UNDERLYING EARNINGS PER SHARE

Underlying basic EPS increased by 3.4% and was 22.49p (2019: 21.74). 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.

CASH FLOW AND DEBT

Cash generated from underlying operating activities was £35.3m (2019: £31.3m) and the underlying cash conversion was 91% (2019: 89%). This is consistent with our market guidance and reflects the highly cash generative nature of the business.

Net debt at the period end was £76.0m compared with £66.5m at 31 December 2019. The underlying net debt of £75.8m (2019: £59.3m) excludes regulatory capital (which is not included for banking covenant testing). Underlying leverage is therefore 2.0 times underlying EBITDA (2019: 1.7 times). At 31 December 2020 the bank covenant test for leverage was 3.25 times pro-forma EBITDA. The covenant test moves to 3.0 times proforma EBITDA on 31 March 2021 and remains at this level until the expiry of the facility.

Our banking facility was increased by £50.0m to £150m on 9 January 2020 giving a total undrawn facility balance at 31 December 2020 of £44.4m. The facilities expire on 8 March 2023.

 

Martin Fotheringham

Chief Financial Officer

Appendix: Reconciliation of Reported results to APMs

In order to assist the reader's understanding of the financial performance of the Group, alternative performance measures ('APMs') have been included to better reflect the underlying activities of the Group excluding specific items as set out in Note 7 to the financial statements. The Group appreciates that APMs are not considered to be a substitute for, or superior to, IFRS measures but believes that the selected use of these may provide stakeholders with additional information which will assist in the understanding of the business. Where applicable, any prior period APMs have been restated to include the impact of IFRS 16 in order to provide an appropriate comparison to the current year performance.

1. EBITDA

 

2020

£m

2019

£m

Reported EBITDA

34.9

33.7

Non-underlying items

 

 

Capital distribution from EBT

-

-0.4

Acquisition and integration costs

3.2

2.0

Other costs

0.6

0.1

Underlying EBITDA

38.7

35.4

2. Cash conversion

 

2020

£m

2019

£m

Net cash from operating activities

27.6

21.6

Non-underlying cash items

6.3

5.1

Taxes paid

1.4

2.0

 

35.3

28.7

Acquisition normalisation(*)

-

2.6

Underlying cash from operating activities

35.3

31.3

Underlying EBITDA

38.7

35.4

Underlying cash conversion

91%

89%

* Acquisition normalisation refers to the following: In 2019, £2.0m of Executive revenues and £0.6m of Aufisco revenues were collected by the previous owners in advance of JTC ownership.

3. Net Debt/Leverage

 

2020

£m

2019

£m

Cash balances

31.1

26.3

Bank debt

-104.4

-86.7

Other debt

-2.5

-0.5

Cash held on behalf of JTC EBT

-

-2.6

Advance NESF deal funding

-

4.2

Net debt - underlying

-75.8

-59.3

Underlying EBITDA

38.7

35.4

Leverage

1.96

1.68

 

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2020

 

Note

2020

£'000

2019

£'000

Revenue

4

115,090

99,274

Staff costs

5

(57,364)

(46,699)

Other operating expenses

6

(20,875)

(17,808)

Credit impairment losses

12

(2,382)

(1,253)

Other operating income

 

49

53

Share of profit of equity-accounted investee

32

359

146

Earnings before interest, taxes, depreciation and amortisation ("EBITDA")

 

34,877

33,713

 

 

 

 

Comprising:

 

 

 

Underlying EBITDA

 

38,724

35,383

Non-underlying items

7

(3,847)

(1,670)

 

 

34,877

33,713

 

 

 

 

Depreciation and amortisation

8

(13,846)

(10,752)

Profit from operating activities

 

21,031

22,961

 

 

 

 

Other losses

9

(5,409)

(1,479)

Finance income

10

33

170

Finance cost

10

(4,415)

(4,013)

Profit before tax

 

11,240

17,639

 

 

 

 

Comprising:

 

 

 

Underlying profit before tax

 

21,386

19,745

Non-underlying items

7

(10,146)

(2,106)

 

 

11,240

17,639

 

 

 

 

Tax

11

(707)

(458)

 

 

 

 

Profit for the year

 

10,533

17,181

 

Earnings per Ordinary share ("EPS")

 

Pence

Pence

Basic EPS

34.1

9.02

15.43

Diluted EPS

34.2

8.96

15.35

The notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2020

 

Note

2020

£'000

2019

£'000

Profit for the year

 

10,533

17,181

 

 

 

 

Other comprehensive loss

 

 

 

Items that may be reclassified to profit or loss

 

 

 

Exchange difference on translation of foreign operations (net of tax)

 

(3,928)

(1,375)

 

 

 

 

Items that will not be reclassified to profit or loss:

 

 

 

Remeasurements of post-employment benefit obligations

5

(808)

-

Total comprehensive income for the year

 

5,797

15,806

The notes are an integral part of these consolidated financial statements.

CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2020

 

Note

2020

£'000

2019

£'000

Assets

 

 

 

Property, plant and equipment

20

49,249

37,865

Goodwill

21

173,777

124,880

Other intangible assets

21

54,944

48,039

Investments

32

2,274

1,124

Other non-financial assets

22

303

965

Other receivables

15

64

217

Deferred tax assets

23

104

103

Total non-current assets

 

280,715

213,193

 

 

 

 

Trade receivables

12

17,230

16,255

Work in progress

13

11,431

9,297

Accrued income

14

13,382

12,906

Other non-financial assets

22

3,671

2,992

Other receivables

15

4,368

6,266

Cash and cash equivalents

16

31,078

26,317

Total current assets

 

81,160

74,033

Total assets

 

361,875

287,226

 

 

 

 

Equity

 

 

 

Share capital

26.1

1,225

1,141

Share premium

 

130,823

100,658

Own shares

26.2

(3,084)

(3,027)

Capital reserve

26.3

1,456

451

Translation reserve

26.3

(2,859)

1,069

Retained earnings

26.3

30,844

28,265

Total equity

 

158,405

128,557

 

 

 

 

Liabilities

 

 

 

Trade and other payables

17

23,027

-

Loans and borrowings

18

104,376

86,681

Lease liabilities

19

39,154

28,616

Deferred tax liabilities

23

8,902

7,656

Other non-financial liabilities

24

311

518

Provisions

25

1,601

1,116

Total non-current liabilities

 

177,371

124,587

 

 

 

 

Trade and other payables

17

11,684

21,148

Loans and borrowings

18

2,456

508

Lease liabilities

19

4,215

2,875

Other non-financial liabilities

24

5,171

7,536

Current tax liabilities

11

2,534

1,942

Provisions

25

39

73

Total current liabilities

 

26,099

34,082

Total equity and liabilities

 

361,875

287,226

The consolidated financial statements were approved by the Board of Directors on 12 April 2021 and signed on its behalf by:

Nigel Le Quesne

Chief Executive Officer

Martin Fotheringham

Chief Financial Officer

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2020

 

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 2019 as originally presented

 

1,109

94,599

(2,565)

(112)

2,444

13,426

108,901

Adoption of new standards

 

-

-

-

-

-

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

 

 

 

 

 

 

 

 

 

Balance at 1 January 2020

 

1,141

100,658

(3,027)

451

1,069

28,265

128,557

Profit for the year

 

-

-

-

-

-

10,533

10,533

Other comprehensive loss for the year

 

-

-

-

-

(3,928)

(808)

(4,736)

Total comprehensive income for the year

 

-

-

-

-

(3,928)

9,725

5,797

Issue of share capital

26.1

84

30,240

-

-

-

-

30,324

Cost of share issuance

 

-

(75)

-

-

-

-

(75)

Share-based payment expense

36.2

-

-

-

1,082

-

-

1,082

Movement in EBT

 

-

-

-

(77)

-

-

(77)

Movement of own shares

26.2

-

-

(57)

-

-

-

(57)

Dividends paid

27

-

-

-

-

-

(7,146)

(7,146)

Balance at 31 December 2020

 

1,225

130,823

(3,084)

1,456

(2,859)

30,844

158,405

The notes are an integral part of these consolidated financial statements.

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2020

 

Note

2020

£'000

2019

£'000

Operating cash flows before movements in working capital

35.1

35,600

34,261

Increase in receivables

 

(1,226)

(4,912)

Decrease in payables

 

(5,377)

(5,751)

Cash generated by operations

 

28,997

23,598

Income taxes paid

 

(1,413)

(2,009)

Net cash from operating activities

 

27,584

21,589

 

 

 

 

Comprising:

 

 

 

Underlying net movement in cash from operating activities

 

35,290

28,748

Non-underlying cash items

35.2

(6,293)

(5,150)

 

 

28,997

23,598

 

 

 

 

Investing activities

 

 

 

Interest received

 

33

171

Payment for property, plant and equipment

20

(1,518)

(2,009)

Payment for intangible assets

21

(2,884)

(1,417)

Payment for business combinations

31

(18,912)

(26,596)

Payment for investment

32

(791)

-

Net cash used in investing activities

 

(24,072)

(29,851)

 

 

 

 

Financing activities

 

 

 

Share issuance costs

 

(75)

(33)

Purchase of own shares

26.2

(45)

(434)

Dividends paid

27

(7,146)

(4,134)

Loans to related parties

 

(311)

-

Repayment of loans and borrowings

 

(2,236)

(689)

Proceeds from loans and borrowings

 

18,914

15,509

Loan arrangement fees

 

(642)

(285)

Interest paid on loans and borrowings

 

(2,442)

(2,193)

Facility fees paid on loans and borrowings

 

(156)

(183)

Principal paid on lease liabilities

 

(3,138)

(2,167)

Interest paid on lease liabilities

 

(1,006)

(936)

Net cash from financing activities

 

1,717

4,455

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

5,229

(3,807)

 

 

 

 

Cash and cash equivalents at the beginning of the year

 

26,317

32,457

Effect of foreign exchange rate changes

 

(468)

(2,333)

Cash and cash equivalents at the end of the year

16

31,078

26,317

The notes are an integral part of these consolidated financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2020

Section 1 - Basis For Reporting and General Information

1. Reporting Entity

2. Basis of Preparation

3. Significant Accounting Policies

Section 2 - Result for the Year

4.  Segmental Reporting

5.  Staff Costs

6.  Other Operating Expenses

7.  Non-underlying Items

8.  Depreciation and Amortisation

9.  Other Losses

10. Finance Income and Finance Cost

11. Income Tax Expense

Section 3 - Financial Assets and Financial Liabilities

12. Trade Receivables

13. Work in Progress

14. Accrued Income

15. Other Receivables

16. Cash and Cash Equivalents

17. Trade and Other Payables

18. Loans and Borrowings

Section 4 - Non-financial Assets and Non-financial Liabilities

19. Lease Liabilities

20. Property, Plant and Equipment

21. Intangible Assets

22. Other Non-financial Assets

23. Deferred Taxation

24. Other Non-financial Liabilities

25. Provisions

Section 5 - Equity

26. Share Capital and Reserves

27. Dividends

Section 6 - Risk

28. Critical Accounting Estimates and Judgements

29. Financial Risk Management

30. Capital Management

Section 7 - Group Structure

31. Business Combinations

32. Investments

33. Subsidiaries

Section 8 - Other Disclosures

34. Earnings Per Share

35. Cash Flow Information

36. Share-based Payments

37. Contingencies

38. Foreign Currency

39. Related Party Transactions

40. Events Occurring After the Reporting Period

 

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 Company was admitted to the London Stock Exchange on 14 March 2018 (the "IPO"). 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 2020 comprise the Company and its subsidiaries (together the "Group" or "JTC") and the Group's interest in an associate.

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.

In assessing the going concern assumption in light of Covid-19, the Directors noted that the Group continued to experience revenue growth and generate positive cash flows from operating activities. Considering these factors as part of the review of the Group's financial performance and position, forecasts and expected liquidity, the Directors have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future, being at least 12 months from the date of approval of the consolidated financial statements. They have concluded that it is appropriate to adopt the going concern basis of accounting in preparing the consolidated financial statements.

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 2020

To the extent that they are relevant, the Group has adopted from 1 January 2020 all IFRS standards and interpretations including amendments that were in issue and effective for accounting periods beginning on 1 January 2020. These are as follows:

· Definition of Material - Amendments to IAS 1 and IAS 8

· Definition of a Business - Amendments to IFRS 3

· Interest Rate Benchmark Reform - Amendments to IFRS 7, IFRS 9 and IAS 39

· Revised Conceptual Framework for Financial Reporting

These standards and interpretations have had no material impact for the Group.

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 2020 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 or on foreseeable future transactions.

3.2. 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

Revenue Recognition

Revenue is measured as the fair value of the consideration received or receivable for satisfying performance obligations contained in contracts with customers excluding discounts, VAT and other sales-related taxes.

To recognise revenue in accordance with IFRS 15 "Revenue from contracts with customers", the Group applies the five step approach: identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations and recognise revenue when, or as, performance obligations are satisfied by the Group.

The Group enters into contractual agreements with institutional and private clients for the provision of fund, corporate and private client services. The agreements set out the services to be provided and each component is distinct and can be performed and delivered separately. For each of these performance obligations, the transaction price can be either a pre-set (fixed) fee based on the expected amount of work to be performed or a variable time spent fee for the actual amount of work performed. For some clients, the fee for agreed services is set at a percentage of the net asset value ("NAV") of funds being administered or deposits held. Where contracts include multiple performance obligations, the transaction price is allocated to each performance obligation based on its stand-alone selling price.

Revenue is recognised in the consolidated income statement when, or as, the Group satisfies performance obligations by transferring control of services to clients. This occurs as follows for different elements:

· Variable fees are recognised over time as services are provided at agreed charge out rates in force at the work date where there is an enforceable right to payment for performance completed to date. Time recorded but not invoiced is shown in the consolidated balance sheet as work in progress (see note 13). To determine the transaction price, an assessment of the variable consideration for services rendered is performed by estimating the expected value, including any price concessions, of the unbilled amount due from clients for the work performed to date (see note 28.2).

· Pre-set (fixed) and NAV-based fees are recognised over time based on the actual service provided to the end of the reporting period as a proportion of the total services to be provided where there is an enforceable right to payment for performance completed to date. This is determined based on the actual inputs of time and expenses relative to the total expected inputs. Where services have been rendered and performance obligations have been met but clients have not been invoiced at the reporting date, accrued income is recognised, this is recorded based on agreed fees to be billed in arrears (see note 14). Where fees are billed in advance in respect of services under contract and given rise to a trade receivable when recognised, deferred income is recognised and released to revenue on a time apportioned basis in the appropriate reporting period (see note 24).

The Group does not adjust transaction prices for the time value of money as it does not expect to have any contracts where the period between the transfer of the promised services to the client and the payment by the client exceeds one year.

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

 

2020

£'000

2019

£'000

2020

£'000

2019

£'000

2020

£'000

2019

£'000

Revenue

64,560

54,824

50,530

44,450

115,090

99,274

 

 

 

 

 

 

 

Direct staff costs

(26,138)

(21,371)

(17,248)

(14,897)

(43,386)

(36,268)

Other direct costs

(359)

(157)

(1,540)

(1,592)

(1,899)

(1,749)

 

 

 

 

 

 

 

Underlying gross profit

38,063

33,296

31,742

27,961

69,805

61,257

Underlying gross profit margin %

59.0%

60.7%

62.8%

62.9%

60.7%

61.7%

 

 

 

 

 

 

 

Indirect staff costs

(7,529)

(5,221)

(5,429)

(4,760)

(12,958)

(9,981)

Other operating expenses

(12,557)

(9,959)

(5,975)

(6,133)

(18,532)

(16,092)

Other income

18

28

390

171

408

199

 

 

 

 

 

 

 

Underlying EBITDA

17,995

18,144

20,728

17,239

38,724

35,383

Underlying EBITDA margin %

27.9%

33.1%

41.0%

38.8%

33.6%

35.6%

               

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 losses 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 Benefits

Short-term benefits

Short-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 pension plans

Under defined contribution pension plans, the Group pays contributions to publicly or privately administered pension insurance plans. The Group has no further payment obligation once the contributions have been paid. The contributions are recognised as an employee benefit expense when they are due.

Defined benefit pension plans

The liability or asset recognised in the consolidated balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The calculation of defined benefit obligations is performed annually by independent qualified actuaries using the projected unit credit method.

The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms approximating to the terms of the related obligation. In countries where there is no established market in such bonds, the market rates on local government bonds are used.

The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included as an employee benefit expense in the consolidated income statement.

Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the period in which they occur, directly in other comprehensive income. They are included in retained earnings in the consolidated statement of changes in equity and the consolidated balance sheet.

Changes in the present value of the defined benefit obligation resulting from plan amendments or curtailments are recognised immediately in the consolidated income statement as past service costs.

Termination benefits

Termination 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 to their present value using an appropriate discount rate.

Employee Benefit Trust ("EBT")

The Group is committed to the concept of shared ownership. It has created EBTs to indirectly hold shares in the Company for the benefit of employees (see note 26.2). All permanent employees of the Group automatically become beneficiaries once they complete their probationary period. Any awards made from the EBT will be expensed to staff costs immediately. Management regard such distributions as non-underlying costs.

 

Note

2020

£'000

2019

£'000

Salaries and Directors' fees

 

48,658

39,667

Capital distribution from EBT12

7

-

(407)

Other short-term employee benefits

 

1,555

1,216

Pension employee benefits

 

1,902

1,735

Share-based payments

36.2

1,082

694

Training and other staff-related costs

 

4,167

3,794

Staff costs

 

57,364

46,699

Defined Benefit Pension Plans

The Group operates defined pension plans in Switzerland and Mauritius. Both plans are contribution based with guarantee of a minimum interest credit and fixed conversion rates at retirement. Disability and death benefits are defined as a percentage of the insured salary. The Group recognised a net defined benefit obligation of £0.9m (2019: £nil) on the consolidated balance sheet in respect of amounts that are expected to be paid out to employees. The Group does not expect a significant change in contributions for the following years.

The Swiss plan must be fully funded under LPP/BVG law on a static basis at all times. The subsidiary, JTC (Suisse) SA, is affiliated to the collective foundation Swiss Life. The collective foundation is a separate legal entity. The foundation is responsible for the governance of the plan, the board is composed of an equal number of representatives from the employers and the employees chosen from all affiliated companies. The foundation has set up investment guidelines, defining in particular the strategic allocation with margins. Additionally, there is a pension committee responsible for the set-up of the plan benefit, this is composed of an equal number of representatives of JTC (Suisse) SA and its employees.

The amounts recognised in the consolidated balance sheet are as follows:

 

2020

£'000

Present value of funded obligations

(2,285)

Fair value of plan assets

1,382

Consolidated balance sheet liability

(903)

The movement in the net liability recognised in the consolidated balance sheet is as follows:

 

At 1 January 2020*

(901)

Service cost

(235)

Net interest

(6)

Contributions paid by employer

149

 

(993)

 

 

Actuarial remeasurements

 

Gain from change in demographic assumptions

192

Loss from change in financial assumptions

(116)

Experience gain

14

Total amount recognised in other comprehensive income

90

 

 

At 31 December 2020

(903)

 

*  During the year, Management have reviewed the accounting for their pension schemes across the Group and now recognise a defined benefit pension scheme in Switzerland which was previously accounted for as defined contribution schemes. The accounting has been corrected for the current year financial statements and was not considered material for restatement of prior periods.

The plans are exposed to actuarial risks relating to discount rate, interest rate for the projection of the savings capital, salary increase and pension increase.

The principal annual actuarial assumptions used for the IAS 19 disclosures were as follows:

 

Switzerland

Mauritius

Discount rate at 1 January 2020

0.3%

4.6%

Discount rate at 31 December 2020

0.1%

2.8%

Future salary increases

1.0%

2.5%

Rate of increase in deferred pensions

0.0%

0.0%

The mortality assumptions are based on standard mortality tables which allow for future mortality improvements. The assumptions are that a male member aged 65 will live on average until age 86.7 and that a female member aged 65 will live on average until age 88.5. For a member currently aged 45 the assumptions are that if they attain age 65, they will live on average until age 88.3 if male and age 90 if female.

6. Other Operating Expenses

Other operating expenses are accounted for on an accruals basis.

 

2020

£'000

2019

£'000

Third party administration fees

1,994

1,789

Legal and professional fees(i)

5,923

3,791

Auditor's remuneration for audit services

1,055

969

Auditor's remuneration for other services

128

98

Establishment costs(ii)

1,806

1,446

Insurance

1,183

607

Travelling

438

1,418

Marketing

964

890

IT expenses

5,343

4,436

Other expenses

2,041

2,364

Other operating expenses

20,875

17,808

(i)  Included in legal and professional fees are £2.73m (2019: £0.92m) of non-underlying items (see note 7(i)).

(ii)  Establishment costs were previously shown separately in the consolidated income statement. Following the adoption of IFRS 16 and the capitalisation of lease payments, Management consider the residual expenses in this category to be more representative of operating expenses.

7. Non-underlying Items

Non-underlying items represent specific items of income or expenditure that are not of an operational nature and do not represent the underlying 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.

 

2020

£'000

2019

£'000

EBITDA

34,877

33,713

Non-underlying items within EBITDA:

 

 

Acquisition and integration costs(i)

3,302

2,041

Revision of ICS operating model(ii)

401

-

Other(iii)

144

-

IPO costs

-

36

Capital distribution from EBT12

-

(407)

Total non-underlying items within EBITDA

3,847

1,670

Underlying EBITDA

38,724

35,383

 

 

 

Profit before tax

11,240

17,639

Total non-underlying items within EBITDA

3,847

1,670

Unwinding of discount on capital distribution

33

165

Gain on settlement of contingent consideration(iv)

(213)

-

Loss on revaluation of contingent consideration(v)

6,479

-

Gain on bargain purchase

-

(188)

Impairment of customer relationship intangible asset

-

459

Total non-underlying items within profit before tax

10,146

2,106

Underlying profit before tax

21,386

19,745

(i)  During 2020, the Group expensed £3.3m (2019: £2.04m) in relation to business combinations. For those completed in the year: NESF £2.48m (see note 31.1), Sanne private client business £0.16m (see note 31.2), RBC CEES £0.37m (see note 40) and other smaller acquisitions £0.06m (see note 31.3). For those completed in prior periods: Van Doorn £0.11m, Minerva £0.07m, Exequtive £0.02m (see note 31.4) and Aufisco £0.03m (see note 31.5). 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 and staff reorganisation costs.

(ii)  During 2020, the Group commenced the implementation of a revised operating model for the fund services practice and incurred redundancy costs.

(iii)  One-off costs relating to other items not considered to represent the ongoing operations of the business, including aborted project costs.

(iv)  Gain recognised on final settlement of contingent consideration for the Swiss & Global Fund Administration (Cayman) Ltd ("S&GFA") acquisition.

(v)  Loss on revaluation of contingent consideration to fair value for the NESF acquisition (see note 28.2 and note 31.1(B)).

8. Depreciation and Amortisation

 

Note

2020

£'000

2019

£'000

Depreciation of property, plant and equipment

20

5,884

4,588

Amortisation of intangible assets

21

7,327

5,566

Amortisation of contract assets

22

635

598

Depreciation and amortisation

 

13,846

10,752

9. Other Losses

 

Note

2020

£'000

2019

£'000

Foreign exchange gains/(losses)

 

842

(1,215)

Net profit on disposal of property, plant and equipment

 

15

7

Gain on settlement of contingent consideration

7

213

-

Loss on revaluation of contingent consideration

31.1

(6,479)

-

Gain on bargain purchase

 

-

188

Impairment of customer relationship intangible asset

21.2

-

(459)

Other losses

 

(5,409)

(1,479)

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, contingent consideration and lease liabilities 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.

 

2020

£'000

2019

£'000

Bank interest

33

158

Loan interest

-

12

Finance income

33

170

 

 

 

Bank loan interest

2,319

2,065

Amortisation of loan arrangement fees

603

376

Unwinding of net present value discounts

1,043

1,259

Other finance expense

450

313

Finance cost

4,415

4,013

11. Income Tax Expense

Current Tax

Current 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 Tax

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

Current Tax and Deferred Tax for the Year

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

 

2020

£'000

2019

£'000

Current tax expense

 

 

Jersey tax on current year profit

692

323

Foreign company taxes on current year profit

1,128

903

 

1,820

1,226

Deferred tax expense (see note 23)

 

 

Jersey origination and reversal of temporary differences

(10)

17

Temporary movements in relation to customer relationship intangible assets

(1,102)

(787)

Foreign company origination and reversal of temporary differences

(1)

2

 

(1,113)

(768)

Total tax charge for the year

707

458

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 before tax is as follows:

 

2020

£'000

2019

£'000

Profit on ordinary activities before tax

11,240

17,639

Tax on profit on ordinary activities at standard Jersey income tax rate of 10% (2019: 10%)

1,124

1,764

Effects of:

 

 

Results from entities subject to tax at a rate of 0% (Jersey company)

(485)

(1,403)

Results from tax exempt entities (foreign company)

56

(204)

Foreign taxes not at Jersey rate

670

663

Depreciation in excess of capital allowances (Jersey company)

(10)

17

Depreciation in excess of capital allowances (foreign company)

(1)

2

Temporary difference arising on amortisation of customer relationships

(1,102)

(787)

Non-deductible expenses/(income)

15

(14)

Consolidation adjustments

463

412

Other differences

(23)

8

Total tax charge for the year

707

458

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.

 

2020

£'000

2019

£'000

Reconciliation of effective tax rates

 

 

Tax on profit on ordinary activities

10.00%

10.00%

Effect of:

 

 

Results from entities subject to tax at a rate of 0% (Jersey company)

(4.32%)

(7.96%)

Results from tax exempt entities (foreign company)

0.49%

(1.16%)

Foreign taxes not at Jersey rate

5.96%

3.76%

Depreciation in excess of capital allowances (Jersey company)

(0.09%)

0.10%

Depreciation in excess of capital allowances (foreign company)

(0.01%)

0.01%

Temporary difference arising on amortisation of customer contracts

(9.80%)

(4.46%)

Non-deductible (income)/expenses

0.13%

(0.08%)

Consolidation adjustments

4.12%

2.33%

Other differences

(0.21%)

0.05%

Effective tax rate

6.27%

2.60%

Section 3 - Financial Assets and Financial Liabilities

This section 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 Assets

The 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 the rights to receive the contractual cash flows from the transaction in which substantially all of the risks and rewards of ownership of the financial asset have been 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 ("ECL") 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 Liabilities

The 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, borrowings and lease liabilities.

Trade and other payables represent liabilities incurred 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.

Lease liabilities are financial liabilities measured at amortised cost. They are initially measured at 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.

Offsetting Financial Assets and Liabilities

Financial 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:

2020

Gross

£'000

Loss allowance

£'000

Net

£'000

<30 days

7,990

(113)

7,877

30 - 60 days

1,770

(36)

1,734

61 - 90 days

1,834

(127)

1,707

91 - 120 days

967

(126)

841

121 - 180 days

1,369

(262)

1,107

180> days

8,192

(4,228)

3,964

Total

22,122

(4,892)

17,230

 

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

The movement in the allowances for trade receivables is as follows:

 

2020

£'000

2019

£'000

Balance at the beginning of the year

(4,002)

(3,659)

Credit impairment losses

(2,382)

(1,253)

Amounts written off (including unused amounts reversed)

1,492

910

Total allowance for doubtful debts

(4,892)

(4,002)

To measure the ECL, trade receivables are grouped based on shared credit risk characteristics and the days past due. The ECL 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. Management have identified gross domestic product and inflation in each country the Group provides services in to be the most relevant macroeconomic factors.

Management have given consideration to these factors and the unusual trading environment presented by Covid-19 and concluded that any impact is highly immaterial to the ultimate recovery of receivables, such is the diversification across the book in industries and geographies. Upon further analysis of the small increase to the loss allowance in 2020, Management concluded this to be a temporary increase reflective of our commitment to work with customers, providing support if necessary with extended terms. This is not considered a fundamental change to credit risk management (and commitment remains towards long-term recovery) but is representative of a short-term uplift in ECL based on an ageing profile appropriate to the current uncertain macroeconomic conditions. See note 29.2 for further comment on credit risk management.

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

 

2020

£'000

2019

£'000

Total

11,491

9,350

Loss allowance

(60)

(53)

Net

11,431

9,297

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, allowances for unrecoverable amounts and ECL. 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 ECL.

Sensitivity Analysis

The total carrying amount of WIP (before ECL allowances) is £11.49m (2019: £9.35m). 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 £1.15m lower (2019: £0.94m lower).

14. Accrued Income

 

2020

£'000

2019

£'000

Total

13,400

12,927

Loss allowance

(18)

(21)

Net

13,382

12,906

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 ECL. 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 ECL.

15. Other Receivables

 

2020

£'000

2019

£'000

Non-current

 

 

Loans receivable from employees

-

153

Loans receivable from related undertakings

64

64

Total non-current

64

217

 

 

 

Current

 

 

Other receivables

1,934

1,867

Loans receivable from employees

2,214

180

Loan receivable from related undertakings

220

-

Loans receivable from third parties

-

4,219

Total current

4,368

6,266

Total other receivables

4,432

6,483

Loans receivable from employees include the following: (i) £0.05m due from employees participating in Advance to Buy ("A2B") programmes (2019: £0.18m) (these are interest bearing at 3% per annum and repayable two years after the commencement date of each annual programme unless the employment contract is terminated at an earlier date) and (ii) £2.16m due from employees of NESF to participate in JTC share options as part of the acquisition, £0.97m of which was settled in early 2021 with the balance expected later in the year (these are interest bearing at 2% per annum).

Non-current loans receivable from related undertakings are due from Northpoint Byala IC (£0.05m) and Northpoint Finance IC (£0.01m), incorporated cell companies registered in Jersey, Channels Islands, considered related parties due to common directorships. These loans are unsecured, interest free and with an unspecified repayment date.

The current loan receivable from related undertakings relates to Harmonate Corp. (see note 32); this is an unsecured short-term loan and is interest bearing at 4% per annum.

In the prior year, loans receivable from third parties included £4.2m ($5.5m) due from NESF, an entity acquired during 2020. These were settled during the 2020 as part of the purchase consideration (see note 31.1).

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

 

2020

£'000

2019

£'000

Cash attributable to the Group

31,078

23,693

Committed EBT capital distributions (restricted)

-

2,624

Total

31,078

26,317

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

 

Note

2020

£'000

2019

£'000

Non-current

 

 

 

Contingent consideration

 

22,124

-

Employee benefit obligations

5

903

-

Total non-current

 

23,027

-

 

 

 

 

Current

 

 

 

Trade payables

 

1,970

1,196

Other taxation and social security

 

312

646

Other payables

 

3,006

5,670

Accruals

 

5,022

5,176

Contingent consideration

 

1,374

8,460

Total current

 

11,684

21,148

Total trade and other payables

 

34,711

21,148

Contingent consideration payable is discounted to net present value, split between current and non-current and is due by acquisition as follows: £23.35m for NESF (see note 31.1) and £0.15m for Sanne Private Client Business (see note 31.2) (2019: £7.64m for Exequtive (see note 31.4), £0.56m for Aufisco (see note 31.5) and £0.26m for S&GFA).

The fair value of contingent consideration for the acquisition of NESF is considered a critical estimate and is discussed further in note 28.2.

At 31 December 2019, current other payables included £2.5m being the discounted value of capital distributions due from EBT12 to employees; these were paid in 2020.

For current trade and other payables, 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

This note provides information about the contractual term of the Group's interest-bearing loans and borrowings, which are measured at amortised cost. For more information about the Group's exposure to interest rate, foreign currency and liquidity risk, see note 29.

 

2020

£'000

2019

£'000

Non-current

 

 

Bank loans

104,376

86,681

Total non-current

104,376

86,681

 

 

 

Current

 

 

Other loans

2,456

508

Total current

2,456

508

Total loans and borrowings

106,832

87,189

18.1. Bank Loans

The terms and conditions of outstanding bank loans are as follows:

Facility

Currency

Termination date

Interest rate(i)

2020

£'000

2019

£'000

Term facility

GBP

8 March 2023

LIBOR + 2% margin

45,000

45,000

Revolving facility

GBP

8 March 2023

LIBOR + 2% margin

35,425

19,000

Revolving facility

EUR

8 March 2023

EURIBOR + 2% margin

25,169

23,836

Total principal value

 

 

 

105,594

87,836

Issue costs

 

 

 

(1,218)

(1,155)

Total bank loans

 

 

 

104,376

86,681

(i)  The margin applied to bank loans may change as a result of net leverage calculations. At 1 January 2020, the margin was 1.75%. This changed in August 2020 to 2% and remained at this rate at 31 December 2020 (2019: 1.75%).

Under the terms of the facility, HSBC holds a charge against the shares of JTC PLC and other applicable 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 2020 £'000

Drawdowns

£'000

Amortisation release

£'000

Effect of foreign exchange

£'000

At 31 December 2020

£'000

Principal value

87,836

16,425

-

1,333

105,594

Issue costs

(1,155)

(625)

562

-

(1,218)

Total

86,681

15,800

562

1,333

104,376

On 9 March 2018, the Group entered into a five year loan facility agreement with HSBC Bank Plc ("HSBC") for a total commitment of £55m (or its equivalent in EUR and USD) consisting of a term loan of £45m and a revolving credit facility ("RCF") of £10m. The loan agreement was amended on 19 October 2018 to increase the total commitment to £100m and to introduce Barclays Bank Plc, Santander UK Plc and the Bank of Ireland as incoming lenders. On 9 January 2020, the RCF was increased by £50m providing a total facility commitment of £150m. The additional commitments are made on the same terms as the existing commitments.

During 2018, an amount of £45m was used to partially fund the repayment of the previous bank loan with HSBC and Royal Bank of Scotland Plc and subsequent to this, further withdrawals were made for £9m and £19m respectively to partially fund the acquisitions of Minerva and Van Doorn. In the prior year, £15.5m (€17.9m) was drawn to partially fund the acquisition of Exequtive. In the current year, a withdrawal was made on 16 April 2020 for £6.425m to assist with the funding required to settle contingent consideration due for Exequtive (£5.5m) and Aufisco (£0.58m); see notes 31.4 and 31.5. A further withdrawal was made on 30 June 2020 for £10m to partially fund the acquisition of Sanne Private Clients (see note 31.2).

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 2020, arrangement and legal fees amounting to £2.38m have been capitalised for amortisation over the term of the loan.

At 31 December 2020, the Group had available £44.4m of committed facilities currently undrawn (2019: £12.1m). All facilities are due to be repaid on or before the termination date of 8 March 2023.

18.2. Compliance with Loan Covenants

The Company has complied with the financial covenants of its borrowing facilities during the 2020 and 2019 reporting periods; see note 30.

18.3. Other Loans

Upon acquiring NESF, JTC inherited its 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 was outstanding at the time of the merger. The interest rate on the drawn amount was the greater of (a) the Federal Funds Rate plus 0.5%, and (b) the Prime Rate. Repayment was made in full on the maturity date of 25 January 2021.

On 10 April 2017, the Group entered into a loan facility with Close Leasing Limited for £2.52m. The balance and loan arrangement fees were settled in 41 monthly instalments of £65k each; this was repaid in full in September 2020.

On 18 June 2020, the Company entered into an uncommitted loan facility with Close Leasing Limited for £1.29m; this was settled in six monthly instalments and was repaid in full in December 2020.

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.

Section 4 - Non-financial Assets and Non-financial Liabilities

19. Lease Liabilities

Where the Group is a lessee its lease contracts are for the rental of buildings for office space and also some office furniture and equipment.

From 1 January 2019, upon adopting IFRS 16 'Leases', the Group recognises right-of-use assets which are shown with property, plant and equipment (see note 20) and lease liabilities which are shown separately on the consolidated balance sheet.

 

2020

£'000

2019

£'000

Non-current

39,154

28,616

Current

4,215

2,875

Total lease liabilities

43,369

31,491

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:

Computer equipment - 4 years

Office furniture and equipment - 4 years

Leasehold improvements - over the period of the lease

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.

For right-of-use assets, upon inception of a contract, the Group assesses whether a contract conveys the right to control the use of an identified asset for a period in exchange for consideration, in which case it is classified as a lease. The Group recognises a right-of-use asset and a lease liability at the lease commencement date. Right-of-use assets are measured at cost comprising the following:

· 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

· estimated restoration costs.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the useful life; this is considered to be the end of the lease term as assessed by Management. The lease asset is periodically adjusted for certain remeasurements of the lease liability and impairment losses (if any).

The movements of all tangible assets are as follows:

 

Computer equipment

£'000

Office furniture and equipment

£'000

Leasehold improvements

£'000

Right-of-use assets

£'000

Total

£'000

Cost

 

 

 

 

 

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

Additions

935

430

414

13,324

15,103

Additions through acquisitions

38

151

-

2,068

2,257

Disposals

(1)

(29)

(66)

(352)

(448)

Exchange differences

15

25

33

304

377

At 31 December 2020

4,162

2,398

8,441

48,810

63,811

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

At 1 January 2019

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

Charge for the year

406

361

773

4,440

5,980

Disposals

(1)

(26)

(55)

-

(82)

Exchange differences

10

5

6

(14)

7

At 31 December 2020

2,805

1,107

2,988

7,662

14,562

 

 

 

 

 

 

Carrying amount

 

 

 

 

 

At 31 December 2020

1,357

1,291

5,453

41,148

49,249

At 31 December 2019

785

1,054

5,796

30,230

37,865

21. Intangible Assets

Goodwill

Goodwill 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 Combination

Intangible 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 - 2 to 12 years

Software - 4 years

Brand - 5 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 Separately

Intangible 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:

Customer relationships - 10 years

Regulatory licence - 12 years

Software - 4 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 Assets

Goodwill 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 (CGUs). 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

Brands

£'000

Total

£'000

Cost

 

 

 

 

 

 

At 1 January 2019

104,835

46,033

251

3,517

-

154,636

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

Additions

39

106

-

1,368

-

1,513

Additions through acquisitions

50,927

8,926

81

2,757

691

63,382

Exchange differences

(2,069)

539

19

(233)

(61)

(1,805)

At 31 December 2020

173,777

67,351

338

7,926

630

250,022

 

 

 

 

 

 

 

Accumulated amortisation

 

 

 

 

 

 

At 1 January 2019

-

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

Charge for the year

-

6,038

57

1,143

89

7,327

Exchange differences

-

(18)

5

(21)

(5)

(39)

At 31 December 2020

-

17,149

131

3,937

84

21,301

 

 

 

 

 

 

 

Carrying amount

 

 

 

 

 

 

At 31 December 2020

173,777

50,202

207

3,989

546

228,721

At 31 December 2019

124,880

46,651

169

1,219

-

172,919

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 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:

In the current year:

CGU

Balance at 1 Jan 2020

£'000

Business combinations £'000

Post-acquisition adjustments

£'000

Exchange differences

£'000

Balance at 31 Dec 2020

£'000

Jersey

63,987

2,582

-

-

66,569

Guernsey

10,598

163

-

-

10,761

BVI

752

-

-

-

752

Switzerland

2,328

-

-

72

2,400

Cayman

231

-

-

(9)

222

Luxembourg

28,240

-

39

1,442

29,721

Netherlands

14,482

-

-

810

15,292

Dubai

1,815

-

-

(69)

1,746

Mauritius

2,447

-

-

(90)

2,357

US

-

48,118

64

(4,225)

43,957

Total

124,880

50,863

103

(2,069)

173,777

In the prior year:

CGU

Balance at 1 Jan 2019

£'000

Business combinations £'000

Post-acquisition adjustments

£'000

Exchange differences

£'000

Balance at 31 Dec 2019

£'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

21,246

44

(1,245)

124,880

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 1% and 2%, based on the expected long-term inflation rate of the relevant jurisdiction of the CGU.

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

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 39.3% (the maximum annual growth rate excluding the US CGU was 16.2%)

· Terminal value growth rate: between 0% and 2%

· Discount rate: between 10.5% and 16.4%

· EBIT margin: between 13.2% and 64.8%

Sensitivity to changes in assumptions

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 US. For this CGU, should the revenue growth rate estimated by Management in their detailed outlook for years 1 to 5 be 9% lower, an impairment of £1.0m would be recognised which would be equal to an impairment of 2.3% of the US CGU carrying amount.

Conclusion

The recoverable amount of goodwill determined for each CGU as at 31 December 2020 was found to be higher than its carrying amount.

21.2. Customer Relationship Intangible Assets

The carrying amount of identifiable customer relationship intangible assets acquired separately and through business combinations are as follows:

 

 

 

Carrying amount

Acquisition

Note

Useful economic life ("UEL")

2020

£'000

2019

£'000

Signes(i)

 

10 years

1,284

1,486

KB Group(i)

 

12 years

2,267

2,616

S&GFA(i)

 

10 years

1,747

2,198

BAML(i)

 

10 years

6,896

7,987

NACT(i)(ii)

 

10 years

1,544

1,703

Van Doorn(i)

 

11.4 years

6,182

6,500

Minerva(i)

 

8.7 - 11.8 years

11,003

12,323

Exequtive(i)

 

10 years

8,581

9,111

Aufisco(i)

 

10 years

1,821

1,928

Sackville(i)

 

10 years

790

799

NESF

31.1

2 - 8 years

1,987

-

Sanne Private Clients

31.2

10 years

6,072

-

Anson Registrars

31.3

10 years

28

-

Total

 

 

50,202

46,651

(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"), Van Doorn B.V. ("Van Doorn"), Exequtive Partners S.A. ("Exequtive"), Aufisco B.V. ("Aufisco") and Sackville Bank and Trust Company Limited ("Sackville").

(ii)  In the prior year, an in-depth review of the client relationships acquired from this business identified that some customer relationships would be terminated sooner than originally anticipated due to an increasingly stringent regulatory environment; this resulted in an impairment of £459k (see note 9).

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 2020, the Group acquired NESF, Sanne Private Clients and Anson Registrars and recognised customer relationship intangible assets of £2.5m, £6.39m, and £0.03m respectively; their carrying amount at 31 December 2020 is shown above.

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

· Year on year client attrition rate

Sensitivity analysis

Management carried out a sensitivity analysis on the key assumptions used in the valuation of new customer relationship intangible assets. For the Sanne Private Clients customer relationships, an increase of 2.5% in year on year client attrition rates would decrease fair value by £0.92m. Management estimate that any reasonable changes to the key assumptions for the other customer relationship intangible assets recognised in the year would not result in a significant change to fair value.

Customer relationship intangibles impairment

Management review customer relationship intangible assets for indicators of impairment at the reporting date. The only indicators identified that would impact the acquired customer relationships were that actual revenues generated by Signes and Exequtive were lower than forecast.

An impairment assessment was performed on those assets with impairment indicators and Management concluded that the recoverable amount was in excess of the carrying amount as at 31 December 2020. All other customer relationship intangible assets were deemed to have a recoverable amount in excess of the carrying amount as at 31 December 2020.

22. Other Non-financial Assets

Contract Assets

Incremental 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.

 

 

2020

£'000

2019

£'000

Non-current

 

 

 

Prepayments

 

99

342

Contract assets

 

204

623

Total non-current

 

303

965

Current

 

 

 

Prepayments

 

2,803

2,112

Contract assets

 

544

554

Current tax receivables

 

324

326

Total current

 

3,671

2,992

Total other non-financial assets

 

3,974

3,957

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

2020

£'000

2019

£'000

Intangible assets

 

8,784

7,528

Other origination and reversal of temporary differences

 

14

25

 

 

8,798

7,553

 

 

 

 

Deferred tax assets

 

(104)

(103)

Deferred tax liabilities

 

8,902

7,656

 

 

8,798

7,553

The movement in the year is analysed as follows:

Intangible assets

 

2020

£'000

2019

£'000

Balance at the beginning of the year

 

7,528

5,869

Recognised through business combinations

 

2,247

2,648

Recognised in the consolidated income statement

11

(1,102)

(787)

Foreign exchange (to other comprehensive income)

 

111

(202)

Balance at 31 December

 

8,784

7,528

 

 

 

 

Other origination and reversal of temporary differences

 

 

 

Balance at the beginning of the year

 

25

6

Recognised in the consolidated income statement

 

(11)

19

Balance at 31 December

 

14

25

24. Other Non-financial Liabilities

Deferred Income

Fixed 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 Liabilities

Commissions 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.

 

 

2020

£'000

2019

£'000

Non-current

 

 

 

Contract liabilities

 

311

518

 

 

 

 

Current

 

 

 

Deferred income

 

4,801

6,930

Contract liabilities

 

370

606

Total current

 

5,171

7,536

Total other non-financial liabilities

 

5,482

8,054

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 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.

Dilapidations

The Group has entered into lease agreements for the rental of office space 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 Contracts

An 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. From 1 January 2019, upon adoption of IFRS 16, any provisions for onerous leases were adjusted against the right-of-use assets recognised.

 

Onerous lease provisions

£'000

Dilapidation provisions

£'000

Total

£'000

At 1 January 2019

511

928

1,439

Release upon application of IFRS 16

(103)

 -

(103)

Additions

 -

516

516

Disposals

(178)

(132)

(310)

Unwind of discount

1

11

12

Amounts utilised

(229)

(118)

(347)

Impact of foreign exchange

(2)

(16)

(18)

At 31 December 2019

-

1,189

1,189

Additions

-

528

528

Disposals

-

(73)

(73)

Unwind of discount

-

28

28

Amounts utilised

-

36

36

Impact of foreign exchange

-

(68)

(68)

At 31 December 2020

 -

1,640

1,640

 

 

 

 

Analysis of total provisions:

 

2020

£'000

2019

£'000

Amounts falling due within one year

 

39

73

Amounts falling due after more than one year

 

1,601

1,116

Total

 

1,640

1,189

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

In the prior year, the Group had identified onerous leases for premises in Jersey, Guernsey and Switzerland. Following transition to IFRS 16, these provisions were adjusted against the right-of-use assets recognised.

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.

 

 

2020

£'000

2019

£'000

Authorised

 

 

 

300,000,000 Ordinary shares (2019: 300,000,000 Ordinary shares)

 

3,000

3,000

 

 

 

 

Called up, issued and fully paid

 

 

 

122,521,974 Ordinary shares (2019: 114,068,353 Ordinary shares)

 

1,225

1,141

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

At 1 January 2019

 

110,895,327

1,109

Acquisition of Exequtive

31.4

1,925,650

20

PLC EBT issue

 

1,128,210

11

Acquisition of Aufisco

31.5

119,166

1

Movement in the year

 

3,173,026

32

At 31 December 2019

 

114,068,353

1,141

Acquisition of Exequtive

31.4

560,707

6

PLC EBT issue

 

1,146,291

11

Acquisition of NESF

31.1

6,746,623

67

Movement in the year

 

8,453,621

84

At 31 December 2020

 

122,521,974

1,225

Movements in the prior 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 31.4.

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 31.5.

Movements in the current year

On 8 April 2020, the Company issued and admitted an additional 560,707 Ordinary shares at fair value to satisfy the final earn-out consideration payable in equity for the acquisition of Exequtive; see note 31.4.

On 27 April 2020, the Company issued an additional 1,146,291 Ordinary shares in order for PLC EBT to satisfy future exercises of awards granted to beneficiaries.

On 4 May 2020, the Company issued and admitted an additional 6,746,623 Ordinary shares at fair value to satisfy the initial consideration payable for the acquisition of NESF; see note 31.1.

26.2. Own Shares

Own shares represent the shares of the Company that are unallocated and currently held by the JTC PLC Employee Benefit Trust ("PLC EBT") and previously by share ownership trusts ("SOPs") and the Jersey Trust Company Employee Benefit Trust 2012 ("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.

 

 

PLC EBT No.

PLC EBT

£'000

At 1 January 2019

 

741,345

2,565

Acquisition of Exequtive

 

173,482

-

PLC EBT issue

 

1,128,210

11

Purchase of own shares

 

117,630

451

Movement in year

 

1,419,322

462

At 31 December 2019

 

2,160,667

3,027

PLC EBT issue

 

1,146,291

12

Purchase of own shares

 

10,352

45

Movement in year

 

1,156,643

57

At 31 December 2020

 

3,317,310

3,084

Movements in the prior 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.

Movements in the current year

On 27 April 2020, the Company issued an additional 1,146,291 Ordinary shares for PLC EBT.

Purchase of own shares

During both the current and prior year, shares were purchased for PLC EBT using its surplus cash held as a result of dividend income and following capital appointments from EBT12 using its surplus cash from leavers who forfeited intended capital distributions following the IPO.

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:

 

 

2020

£'000

2019

£'000

Final dividend for 2018 of 2.0p per qualifying Ordinary share

 

-

2,235

Interim dividend for 2019 of 1.7p per qualifying Ordinary share

 

-

1,899

Final dividend for 2019 of 3.6p per qualifying Ordinary share

 

4,288

-

Interim dividend for 2020 of 2.4p per qualifying Ordinary share

 

2,858

-

Total dividend declared and paid

 

7,146

4,134

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 regularly evaluated based on historical experience, current circumstances, expectation of future events and other factors that are considered to be relevant. Actual results may differ from these estimates. Management continue to be vigilant in monitoring for any potential effects whilst uncertainties relating to the Covid-19 pandemic remain.

This note provides an overview of the areas that involved a higher degree of judgement or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be wrong.

The following are the critical judgements and 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.

28.1. Critical Judgements in Applying the Group's Accounting Policies

Recognition of separately identifiable intangibles

In 2020, the Group acquired both NESF (see note 31.1) and Sanne Private Clients (see note 31.2). 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 customer relationships in both cases and also the NESF brand and its internally generated software (known as "eSTAC"). The intangible assets recognised through these acquisitions were £8.9m (Sanne Private Clients £6.4m and NESF £2.5m), £0.69m and £2.68m respectively.

Extension options on leases

Many of the leases for office space contain extension options as these provide operational flexibility. The Group assesses at each reporting period if they are reasonably certain that an extension option will be exercised. Such assessment involves 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

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.

Goodwill impairment - key assumptions in calculating the recoverable amount for each CGU

Goodwill is tested annually for impairment and the recoverable amount of CGUs is determined based on a value in use calculation using cash flow projections containing key assumptions. See note 21.1 for further detail on key assumptions and 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 and the discount rate applied to free cash flow. See note 21.2 for the sensitivity analysis.

Fair value of internally developed software intangibles acquired on acquisition

To derive the fair value of the internally generated software (eSTAC) acquired as part of the NESF acquisition, 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 31.1(A) for the sensitivity analysis.

Fair value of earn-out consideration for NESF

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 consider 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 31.1(B) 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

2020

£'000

2019

£'000

Financial assets - measured at amortised cost

 

 

 

Trade receivables

12

17,230

16,255

Work in progress

13

11,431

9,297

Accrued income

14

13,382

12,906

Other receivables

15

4,432

6,483

Cash and cash equivalents

16

31,078

26,317

Total

 

77,553

71,258

 

 

 

 

Financial liabilities - measured at amortised cost

 

 

 

Trade and other payables

17

11,366

21,148

Loans and borrowings

18

106,832

87,189

Lease Liabilities

19

43,369

31,491

Total

 

161,568

139,828

 

 

 

 

Financial liabilities - measured at fair value

 

 

 

Trade and other payables

17

23,345

-

Total

 

23,345

-

All financial assets and liabilities are measured at amortised cost which is deemed to be representative of fair value with the exception of the contingent consideration of £23.35m for NESF that is measured at fair value in line with IAS 32. For further detail on the transaction, see note 31.1.

Management have considered the following fair value hierarchy levels in line with IFRS 13.

Level 1 - Inputs are quoted prices (unadjusted) in active markets for identical assets and liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset and liability, either directly or indirectly.

Level 3 - Inputs are unobservable inputs for the asset or liability.

Management have concluded that the contingent consideration is classified under the Level 3 inputs of the fair value hierarchy.

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, tradable 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 that 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 the Euro, US dollar and South African rand. The Group's bank loans are denominated in £ and Euros.

As at 31 December 2020, the Group's exposure to the Group's material foreign currency denominated financial assets and liabilities are as follows:

 

£

Euro

US dollar

South African rand

Net foreign currency assets/(liabilities)

2020

£'000

2019

£'000

2020

£'000

2019

£'000

2020

£'000

2019

£'000

2020

£'000

2019

£'000

Trade receivables

9,966

10,790

2,936

2,866

3,949

2,455

10

3

Work in progress

8,760

6,821

1,530

1,617

907

592

 -

 -

Accrued income

7,158

5,308

454

1,327

5,523

6,152

 -

67

Other receivables

561

986

416

398

3,285

4,812

 -

 -

Cash and cash equivalents

7,812

7,673

10,134

8,514

11,789

9,088

619

608

Trade and other payables

(28,324)

(6,903)

(1,720)

(10,171)

(2,134)

(2,476)

(990)

(777)

Loans and borrowings

(79,207)

(63,353)

(25,169)

(23,836)

(2,456)

 -

 -

 -

Lease Liabilities

(26,440)

(23,903)

(11,401)

(5,044)

(4,243)

(683)

(139)

(381)

Total net exposure

(99,714)

(62,581)

(22,820)

(24,329)

16,620

19,940

(500)

(480)

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 continues 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, US 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)

2020

£'000

2019

£'000

Euro

+20%

3,804

4,055

US dollars

+20%

(2,770)

(3,323)

South African rand

+20%

83

80

Total

 

1,117

812

 

 

 

 

Euro

(20%)

(5,705)

(6,082)

US dollars

(20%)

4,155

4,985

South African rand

(20%)

(125)

(120)

Total

 

(1,675)

(1,217)

(i)  holding all other variables constant

Interest rate risk management and sensitivity

(a)  Bank loans

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 Group is considering the proposed LIBOR reforms and it does not expect a material impact on the financial results.

The interest fluctuations are generally low which minimises the Group's exposure to interest rate fluctuations. 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 year ended 31 December 2020 would decrease/increase by £528k (2019: £433k).

The Group's exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.

(b)  US pricing model

The Group's revenue is exposed where pricing is linked to interest rates. This exposure is limited to the US business (NESF) that was acquired in 2020 (see note 31.1), specifically from the revenues that are generated from depository agreements with US banking partners. As a result of Covid-19, the US Federal Reserve significantly reduced interest rates that in turn negatively impacted the US business revenues associated with deposit spread fee agreements, many tied directly to the published Federal Funds Rate. The future impact on revenue will be minimal due to the current rate being at its current low/near zero level. While rates are expected to remain low during the ongoing global pandemic, in the longer term, if US interest rates increased by 50 basis points and deposit levels as at 31 December 2020 remained constant for one year then Group revenue would increase by £1.6m.

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. Specific provisions incremental to ECL are made when there is objective forward-looking 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. This process has highlighted that some clients have been affected by an uncertain trading environment due to Covid-19 and this has in some cases resulted in some delay to payment within contracted credit terms. For more commentary on this, the ageing of trade receivables and the provisions thereon at the year end, including the movement in the provision, see note 12.

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

2020

£'000

Loss

allowance

2020

£'000

 

Net

2020

£'000

 

Total

2019

£'000

Loss

allowance

2019

£'000

 

Net

2019

£'000

Trade receivables

22,122

(4,892)

17,230

20,257

(4,002)

16,255

Work in progress

11,491

(60)

11,431

9,350

(53)

9,297

Accrued income

13,400

(18)

13,382

12,927

(21)

12,906

Other receivables

4,432

-

4,432

6,483

-

6,483

Cash and cash equivalents

31,078

-

31,078

26,317

-

26,317

 

82,523

(4,970)

77,553

75,334

(4,076)

71,258

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.

2020

<3 months

£'000

3 - 12 months

£'000

1 - 5 years

£'000

>5 years

£'000

Total contractual

cash flow

£'000

Loans and borrowings(i)

2,814

1,786

108,273

-

112,873

Trade payables and accruals

10,680

-

311

-

10,991

Contingent consideration for acquisitions

-

153

-

-

153

Lease liabilities

1,295

3,885

19,477

27,345

52,002

Total

14,789

5,824

128,061

27,345

176,019

 

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

Contingent consideration for acquisitions

823

5,382

-

-

6,205

Lease liabilities

930

2,790

12,531

23,205

39,456

Total

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.

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 that capital adequacy requirements are met for local regulatory requirements at entity level.

The managed capital refers to the Group's debt and equity balances; for quantitative disclosures, see note 18 for loans and borrowings and note 26 for share capital.

Loan Covenants

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 3.25:1)

Interest cover (being the ratio of EBITDA to net finance charges must not be less than 4:1)

*  EBITDA has not been adjusted for IFRS 16 in this calculation.

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, Ireland, 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 consolidated 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 remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or liability is remeasured at subsequent reporting dates at fair value with the corresponding gain or loss being recognised in the consolidated income statement.

31.1. NES Financial Corp ("NESF")

On 29 April 2020, JTC acquired 100% of NES Financial Corp and its subsidiaries (together known as "NESF"), a US 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 US and a commitment to acquire and develop technology capabilities that drive future growth and operating efficiency.

The acquired business contributed revenues of £5.46m and an underlying loss before tax of £1.15m to the Group for the period from 1 May 2020 to 31 December 2020. If the business had been acquired on 1 January 2020, the consolidated revenue and underlying profit for the period for the Group would have been £117.8m and £20.8m 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

 

3,345

2,682

Intangible assets - Customer relationships

 

3,114

2,497

Intangible assets - Software

 

91

73

Trade receivables

 

1,874

1,503

Other receivables

 

4,372

3,505

Cash and cash equivalents

 

205

165

Assets

 

16,937

13,581

 

 

 

 

Deferred income

 

174

139

Deferred tax liabilities

 

2,002

1,605

Trade and other payables

 

11,231

9,006

Lease liabilities

 

3,036

2,435

Liabilities

 

16,443

13,185

 

 

 

 

Total identifiable net assets

 

494

396

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

Between the acquisition date and 31 December 2020, the following fair value adjustments were made to identifiable assets acquired:

· Removal of rent free creditors and alignment of accounting policies to IFRS 16 for the lease of office space; trade and other payables were reduced by £0.48m ($0.61m) with an resulting increase to lease liabilities of £0.17m ($0.22m) and a reduction in goodwill of £0.31m ($0.39m)

· To align to IFRS 9 and provide for ECL; trade debtors were increased by £0.03m ($0.03m)

· To recognise provision for dilapidations; provisions and goodwill increased by £0.26m ($0.33m)

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. The fair value is derived using 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, while 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:

 

Note

$'000

£'000

Equity instruments (6,746,623 Ordinary shares issued at fair value)

 

34,732

27,931

Cash consideration

 

4,704

3,783

Contingent consideration - Indemnification holdback

 

2,212

1,779

Contingent consideration - Earn-out

 

18,760

15,087

Fair value of total consideration at acquisition

 

60,408

48,580

 

 

 

 

Adjustment to fair value at 31 December 2020

 

 

 

Contingent consideration - Indemnification holdback

 

900

660

Contingent consideration - Earn-out

 

7,931

5,819

 

9

8,831

6,479

 

 

 

 

Fair value of total consideration at 31 December 2020

 

69,239

55,059

Fair value of contingent consideration at acquisition

The indemnification holdback part of the initial consideration was 637,954 JTC PLC Ordinary shares and this was adjusted downwards for working capital and transaction expenses to 437,029 shares. Of these, 50% are payable 12 months following completion (30 April 2021) with the remaining balance payable six months later (31 October 2021). The simulated share prices at these dates using the Monte Carlo valuation method described below, were discounted using an appropriate risk free rate and applied to the number of shares to determine a fair value at acquisition of £1.78m ($2.21m).

The earn-out contingent 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 potential earn-out consideration is capped at 14,253,070 shares, split into 7,348,771 shares for Earn-out AP1 and 6,904,299 shares for Earn-out AP2.

To calculate the anticipated earn-out at the acquisition date, Management applied 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 to determine a fair value for the earn-out contingent consideration.

In each of the scenarios, there was a negative EBITDA in Earn-out AP1 due to the loss forecast in FY2020 as a result of the impact of Covid-19, which was recovered in Earn-out AP2 in all instances. As the two most likely scenarios gave 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. This approach calculated that no shares were due for Earn-out AP1 and 3,765,269 shares were due for Earn-out AP2.

The estimated share price was calculated using a Monte Carlo simulation based on JTC's share price at acquisition and historical volatility, adjusted for any projected dividend payments and then discounted using an appropriate risk free rate. This derived a share price estimate of £4.01 that was applied to the number of shares to determine a fair value at acquisition of £15.08m ($18.76m).

Fair value of contingent consideration at the reporting date

As the earn-out and indemnification holdback are liability-classified contingent consideration, Management are required to update their fair value at each reporting date. Management therefore reassessed the forecast Earn-out and identified no evidence to indicate an adjustment was required to the number of shares calculated for Earn-out AP2, nor any change to the number of indemnification holdback shares. However, given a change in market conditions and significant growth in JTC's share price since acquisition (£5.58 at 31 December 2020), the Monte Carlo simulation was updated, increasing the share price applied to the number of shares.

As a result, the fair value of the contingent consideration for the earn-out increased by £5.82m ($7.93m) to £20.91m ($26.69m) and for the indemnification holdback by £0.66 ($0.90m) to £2.44m ($3.11m). The total increase in the fair value of the contingent consideration of £6.48m ($8.83m) is recognised in other gains and losses in the consolidated income statement.

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 EBITDA across assessment periods. Assuming no change to the number of shares and a 10% increase or decrease to the share price, the fair value of the earn-out contingent consideration would be £2.21m higher/lower. Increasing or decreasing the EBITDA in Earn-out AP2 by 5% and applying the latest share price per the Monte Carlo simulation, the contingent consideration would increase/decrease by £3.10m.

(c)  Goodwill

Goodwill arising from the acquisition has been recognised as follows:

 

 

$'000

£'000

Total consideration

 

60,408

48,580

Less: fair value of identifiable net assets

 

(494)

(396)

Goodwill

 

59,914

48,184

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(i)

 

4,704

3,750

Less: cash balances acquired

 

(205)

(165)

Net cash outflow from acquisition

 

4,499

3,585

(i)  Included in the balance are contingent consideration payments of £1.2m ($1.5m).

(e)  Acquisition-related costs

The Group incurred acquisition-related costs of £2.48m 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. Sanne Private Client Business ("Sanne Private Clients")

On 1 July 2020, JTC acquired 100% of Pen Private Clients Limited ("PPCL"), a newly incorporated 100% owned subsidiary of Sanne Private Clients Limited ("Sanne Private Clients"), the private client services division of Sanne Group ("Sanne"). Sanne Private Clients provides specialist expertise in fiduciary, administration and family office services.

The acquired business contributed revenues of £2.4m and a profit before tax of £1.6m to the Group for the period from 1 July 2020 to 31 December 2020. If the business had been acquired on 1 January 2020, the consolidated revenue and underlying profit for the period for the Group would have been £117.5m and £23.0m 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

Intangible assets - Customer relationships

 

 

6,392

Trade receivables

 

 

173

Other receivables

 

 

10

Accrued income

 

 

802

Assets

 

 

7,377

 

 

 

 

Deferred revenue

 

 

202

Deferred tax liabilities

 

 

639

Liabilities

 

 

841

 

 

 

 

Total identifiable net assets

 

 

6,536

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

(b)   Consideration

Total consideration is satisfied by the following:

 

 

 

£'000

Maximum cash consideration

 

 

12,000

Purchase price adjustment

 

 

(2,883)

Fair value of total consideration

 

 

9,117

The consideration payable for the shares was a completion payment of £12m less a non-transferred client adjustment. Following an assessment of the actual transferring revenue at completion (including any subsequently transferred clients), the purchase price adjustment for non-transferring clients reduced the fair value of total consideration to £9.12m.

(c)  Goodwill

Goodwill arising from the acquisition has been recognised as follows:

 

 

 

£'000

Total consideration

 

 

9,117

Less: fair value of identifiable net assets

 

 

(6,536)

Goodwill

 

 

2,581

(d)  Impact on cash flow

 

 

 

£'000

Cash consideration(i)

 

 

8,963

Less: cash balances acquired

 

 

 -

Net cash flow from acquisition

 

 

8,963

(i)  £0.15m remains payable to Sanne as at 31 December 2020 and is included within contingent consideration; see note 17.

(e)  Acquisition-related costs

The Group incurred acquisition-related costs of £0.16m 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. Other Acquisitions in 2020

On 23 January 2020, JTC acquired 100% of the share capital of both 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 £0.07m (0.08m) for net assets acquired of the same amount. On 22 June 2020, the entities changed their names to JTC Corporate Services (Ireland) Limited and JTC Trustees (Ireland) Limited respectively.

On 27 February 2020, JTC acquired 100% of the share capital of Anson Registrars Limited and Anson Registrars (UK) Limited (together "Anson Registrars"), entities with registered offices in Guernsey, Channel Islands and the UK respectively. This acquisition enables JTC to provide CREST enabled registrar services, complementing the administration and accounting offering already being provided. Consideration was £0.22m for net assets acquired of £0.06m (including customer relationships of £0.03m), resulting in goodwill of £0.16m. In May 2020, the entities changed their names to JTC Registrars Limited and JTC Registrars (UK) Limited.

31.4. Exequtive Partners S.A. ("Exequtive")

On 25 March 2019, the Group acquired 100% of the share capital of Exequtive, a Luxembourg based provider of domiciliation and corporate administration services.

The fair value of consideration was £29.24m (34.18m) for acquired identifiable net assets of £7.99m (9.34m) resulting in goodwill of £21.25m (24.84m). This included earn-out consideration of £7.6m (8.88m) comprising 70% cash and 30% shares. As the business performed successfully, exceeding the revenue and underlying EBITDA targets set for 2019, this was paid in April 2020 and as a result 560,707 Ordinary shares were issued (see note 26.1).

Within the acquired identifiable net assets were customer relationship intangibles of £9.86m (11.53m) with a UEL of 10 years. Deferred tax liabilities of £2.47m (2.88m) were recognised in relation to identified intangible assets, the amortisation of which is non-deductible against Luxembourg Corporation Tax and therefore creates temporary differences between the accounting and taxable profits.

31.5. Aufisco B.V. ("Aufisco")

On 1 April 2019, the Group entered into a facilitation and referral agreement with Aufisco B.V. and Oak Tree Management B.V. ("Aufisco") whereby its clients were referred, introduced and recommended to JTC as a replacement provider of the trust, custody and administration services, their staff were also offered employment contracts, as such Management accounted for the transaction as a business combination.

The fair value of consideration was £1.75m (1.96m) for acquired identifiable net assets of £1.94m (2.17m) resulting in negative goodwill of £0.19m (0.214m). This included earn-out consideration of £0.59m (0.66m), which was paid in March 2020.

Within the acquired identifiable net assets were customer relationship intangibles of £2.125m (2.375m) with a UEL of 10 years. Deferred tax liabilities of £0.18m (0.2m) 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.

32. Investments

The Group's interest in other entities includes an associate and an investment held at cost. An associate is an entity in which the Group has significant influence, but not control or joint control, over the financial and operating policies. The Group's interest in an equity-accounted investee solely comprises an interest in an associate.

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.

Where the Group has an interest in an entity but does not have significant influence, the investment is held at cost.

Set out below are the associates of the Group as at 31 December 2020 which, in the opinion of the Directors, are material to the Group. The entities listed have share capital consisting solely of Ordinary shares, which are held directly by the Group. The country of incorporation is also their principal place of business, and the proportion of ownership interest is the same as the proportion of voting rights held.

 

 

 

 

% of ownership interest

Carrying amount

Name of entity

Country of

incorporation

Nature of

relationship

Measurement

method

2020

%

2019

%

2020

%

2019

%

Kensington International Group Pte. Ltd

Singapore

Associate(i)

Equity method

42

42

1,483

1,124

Harmonate Corp.

United States

Investment(ii)

Cost Method

16

-

791

-

Total investments

 

 

 

 

 

2,274

1,124

(i)  Kensington International Group Pte. Ltd ("KIG") provides corporate, fiduciary, trust and accounting services and is a strategic partner of the Group, providing access to new clients and markets in the Far East.

(ii)  Harmonate Corp. ("Harmonate") provides fund operation and data management solutions to clients in the financial services industry. The Group acquired 24.2% of the share capital in Harmonate on 31 July 2020 for a total consideration of £0.8m ($1.0m). During November 2020, Harmonate undertook an equity raise which resulted in the dilution of the Group's equity holding; the resulting ownership interest for the Group was 16.3%

The summarised financial information for KIG, which is accounted for using the equity method, is as follows:

Summarised income statement

 

2020

£'000

2019

£'000

Revenue

 

5,336

4,695

Gross profit

 

4,327

3,673

 

 

 

 

Profit for the year

 

947

409

 

Summarised balance sheet

 

2020

£'000

2019

£'000

Total non-current assets

 

667

418

Total current assets

 

5,134

2,974

Total assets

 

5,801

3,392

 

 

 

 

Total current liabilities

 

3,529

1,969

Net assets less current liabilities

 

2,272

1,423

 

Reconciliation of summarised financial information

 

2020

£'000

2019

£'000

Opening net assets

 

1,423

1,077

Profit for the year

 

947

409

Foreign exchange differences

 

(98)

(63)

Closing net assets

 

2,272

1,423

Group's share of closing net assets

 

961

602

Goodwill

 

522

522

Carrying value of investment in associate

 

1,483

1,124

 

Impact on consolidated income statement

 

 

£'000

Balance at 1 January 2019

 

 

978

Share of profit of equity-accounted investee

 

 

146

Balance at 31 December 2019

 

 

1,124

 

 

 

 

Balance at 1 January 2020

 

 

1,124

Share of profit of equity-accounted investee

 

 

359

Balance at 31 December 2020

 

 

1,483

33. Subsidiaries

The Group's subsidiaries at 31 December 2020 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

49

Exequtive Partners S.A.

Luxembourg

Trading

100

Exequtive Services S.à r.l.

Luxembourg

Trading

100

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 Trustees (Suisse) Sàrl

Switzerland

Trading

100

JTC Trustees (IOM) Limited

Isle of Man

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

JTC Corporate Services (Ireland) Limited

Ireland

Trading

100

JTC Registrars Limited

Guernsey

Trading

100

JTC Registrars (UK) Limited

United Kingdom

Trading

100

JTC USA Holdings, Inc.

United States

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 that it has control of this entity and it has, therefore, been consolidated.

Section 8 - Other Disclosures

34. Earnings Per Share

Basic Earnings Per Share

The 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 Share

The 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.

Underlying Basic Earnings Per Share

The calculation of underlying basic Earnings Per Share is based on basic Earnings Per Share after adjusting profit for the year for non-underlying items and 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 and underlying basic Earnings Per Share ("EPS"). The results can be summarised as follows:

 

Note

2020

Pence

2019

Pence

Basic EPS

34.1

9.02

15.43

Diluted EPS

34.2

8.96

15.35

Underlying basic EPS

34.3

22.49

21.74

34.1. Basic Earnings Per Share

 

 

2020

£'000

2019

£'000

Profit for the year

 

10,533

17,181

 

 

No.

No.

Issued Ordinary shares at 1 January

111,820,703

110,153,982

Effect of shares issued to acquire business combinations

4,946,720

1,346,281

Effect of movement in treasury shares held

(30,838)

(147,395)

Weighted average number of Ordinary shares (basic):

116,736,585

111,352,868

Basic EPS

9.02

15.43

34.2. Diluted Earnings Per Share

 

 

2020

£'000

2019

£'000

Profit for the year

 

10,533

17,181

 

 

Note

No.

No.

Weighted average number of Ordinary shares (basic)

34.1

116,736,585

111,352,868

Effect of share-based payments issued

 

857,841

539,647

Weighted average number of Ordinary shares (diluted):

 

117,594,426

111,892,515

Diluted EPS

 

8.96

15.35

34.3.   Underlying Basic Earnings Per Share

 

Note

2020

£'000

2019

£'000

Profit for the year

 

10,533

17,181

Non-underlying items

7

10,146

2,106

Amortisation of customer relationship intangible assets

21

6,038

5,012

Amortisation of loan arrangement fees

10

603

376

Unwinding of net present value discounts

 

38

323

Temporary difference arising on amortisation of customer relationships

11

(1,102)

(787)

Adjusted underlying profit for the year

 

26,256

24,211

 

 

Note

No.

No.

Weighted average number of Ordinary shares (basic)

34.1

116,736,585

111,352,868

Underlying basic EPS

 

22.49

21.74

Underlying basic EPS is an alternative performance measure used by Management to better reflect the underlying activities of the Group excluding specific non-recurring items.

35. Cash Flow Information

35.1. Operating Cash Flows

 

 

2020

£'000

2019

£'000

Operating profit

 

21,031

22,961

Adjustments for:

 

 

 

Depreciation of property, plant and equipment

 

5,884

4,588

Amortisation of intangible assets

 

7,962

6,164

Share-based payment expense

 

1,082

694

Share of profit of equity-accounted investee

 

(359)

(146)

Operating cash flows before movements in working capital

 

35,600

34,261

35.2. Non-underlying Items Within Net Cash from Operating Activities

 

 

2020

£'000

2019

£'000

Net cash from operating activities

 

28,997

23,598

Non-underlying items:

 

 

 

Capital distribution from EBT12

 

2,641

2,976

IPO costs

 

-

36

Acquisition and integration costs

 

3,108

2,138

Revision of ICS operating model

 

401

-

Other

 

143

-

Total non-underlying items within net cash from operating activities

 

6,293

5,150

Underlying net cash from operating activities

 

35,290

28,748

35.3. Financing Activities

Changes in liabilities arising from financing activities:

 

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 2019

-

-

5

30

678

72,002

72,715

Adjustment for change in accounting policy

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

Cash flows:

 

 

 

 

 

 

 

Acquired on acquisition

743

2,293

-

-

3,070

-

6,106

Drawdowns

 

 

-

-

-

16,425

16,425

Repayments

(132)

(4,012)

-

-

(883)

-

(5,027)

Other non-cash movements(i)

729

12,258

-

-

(239)

1,270

14,018

At 31 December 2020

4,215

39,155

-

-

2,456

104,376

150,202

(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

2020

£'000

2019

£'000

Bank loans

18

(104,376)

(86,681)

Other loans

18

(2,456)

(508)

Trapped cash(i)

 

(2,444)

(3,007)

Committed capital distributions(ii)

 

-

(2,624)

Loans receivable from employees

15

2,164

-

Less: cash and cash equivalents

 

31,078

26,317

Total net debt

 

(76,034)

(66,503)

(i)  Trapped cash represents the minimum cash balance to be held to meet regulatory capital.

(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 Management's estimate of equity instruments that will eventually vest. At each balance sheet date, Management 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 awards vested are as follows:

 

No.

2020

£'000

No.

2019

£'000

Outstanding at the start of the year

652,398

300

652,398

300

Exercised

(652,398)

(300)

-

-

Outstanding at the end of the year

-

-

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 £534k. 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 £614k. 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 March 2022.

On 23 April 2020, the Group granted 213,420 of the Company's shares to Executive Directors and senior management ("PSP3"); these awards have a set limit for Executive Directors of 75% of the annual base salary and have a fair value of £825k. Vesting of the PSP3 awards is subject to continued employment and achievement of performance conditions measured over a three year period from 1 January 2020 to 31 December 2022. If conditions are met, the awards will vest on 31 March 2023.

Details of the number of shares awarded but not vested are as follows:

 

No.

2020

£'000

No.

2019

£'000

Outstanding at the beginning of the year

410,488

1,148

156,970

534

Awarded

213,420

825

253,518

614

Forfeited

(16,667)

(43)

-

-

Outstanding at the end of the year

607,241

1,930

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 3 April 2019, the Group granted 49,756 of the Company's shares to eligible Directors as part of the annual bonus award for performance during the financial year ended 31 December 2018 ("DBSP1"). The DBSP1 awards vest on 3 April 2021 subject to continued employment up to this date. The fixed amount awarded being £149k will be expensed over the three year vesting period.

On 23 April 2020, the Group granted 72,717 of the Company's shares to eligible Directors as part of the annual bonus award for performance during the financial year ended 31 December 2019 ("DBSP2"). The DBSP2 awards vest on 23 April 2022 subject to continued employment up to this date. The fixed amount awarded being £313k will be expensed over the three year vesting period.

During March 2021, the Group will notify eligible Directors of their intention to grant shares as part of the annual bonus award for performance during the financial year ended 31 December 2020 ("DBSP3"). The number of shares awarded will be determined at the grant date in April 2021. The DBSP3 awards vest on 1 January 2023 subject to continued employment up to this date. The fixed amount awarded being £364k will be expensed over the three year vesting period.

Details of the number of shares awarded but not vested are as follows:

 

No.

2020

£'000

No.

2019

£'000

Outstanding at the beginning of the year

45,809

137

-

-

Awarded

72,717

313

49,756

149

Forfeited

(10,184)

(39)

(3,947)

(12)

Outstanding at the end of the year

108,342

411

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.

2020

£'000

No.

2019

£'000

Outstanding at the beginning of the year

25,913

95

3,668

15

Awarded

82,280

328

22,245

80

Exercised

(6,086)

(25)

-

-

Outstanding at the end of the year

102,107

398

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:

 

 

 

2020

£'000

2019

£'000

PSP awards

 

 

630

382

DBSP awards

 

 

242

146

Other awards

 

 

210

166

Total share-based payments expense

 

 

1,082

694

37.   Contingencies

The Group operates in a number of jurisdictions and enjoys a close working relationship with all of its regulators. It is not unusual for the Group to find itself in discussion with regulators in relation to past events. With any such discussions there is inherent uncertainty in the ultimate outcome but the Board currently does not believe that any such current discussions are likely to result in an outcome that would have a material impact upon the Group.

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.

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:

 

 

 

2020

£'000

2019

£'000

Salaries and other short-term employee benefits

 

 

2,199

2,371

Post-employment and other long-term benefits

 

 

130

124

Share-based payments

 

 

625

383

Total payments

 

 

2,954

2,878

39.2. Other Related Party Transactions

Loans receivable from employees, associates and other related undertakings are disclosed in note 15.

The Group's associate, KIG (see note 32), has provided £838k of services to Group entities during the year (2019: £712k). The Group has an interest in Harmonate (see note 32); the Group has provided £273k of services to it during the year (2019: £nil).

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 2020 to the date of issue of these consolidated financial statements. They are as follows:

(a)  Acquisition of INDOS Financial Limited ("INDOS")

On 11 February 2021, JTC entered into an agreement with INDOS, a specialist provider of depositary and other high value services for alternative investment funds, to purchase 100% of its share capital for a maximum consideration of £12.5m. The initial consideration is £11m which will be settled in cash of £10m and JTC equity of £1m. A further £1.5m contingent consideration is available on the achievement of performance targets. This represents an important strategic acquisition, adding complementary capabilities and technical expertise to JTC's increasingly sophisticated fund services offering.

(b)  Acquisition of RBC CEES Limited ("RBC CEES")

On 10 December 2020, the Group announced the acquisition of RBC CEES from RBC Holdings (Channel Islands), part of RBC Wealth Management. RBC CEES is a market leading employee benefits platform with an internationally diverse blue-chip corporate client base. The consideration comprised of £20m in cash funded from existing facilities and this was paid on 6 April 2021, following the grant of shareholder and regulatory approvals. The acquisition is complementary to JTC's existing corporate and trustee services and significantly enhances the Group's employee benefits offering.

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.

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JTC (JTC)
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