Interim results for the 6 months ended 30 June 18
18 September 2018
JTC PLC
("the Company) together with its subsidiaries ("the Group" or "JTC")
Interim results for the six months ended 30 June 2018
JTC delivers a strong performance in its first results as a listed company, building on a 30 year record of growth
|
|
H1 2018 |
H1 2017 |
Variance |
|
Revenue (£) |
£35.3m |
£28.2m |
+25.2% |
|
Underlying EBITDA (£)* |
£10.5m |
£6.7m |
+56.7% |
|
Underlying EBITDA margin (%)* |
29.9% |
23.6% |
+6.3 pp |
|
Underlying profit from operating activities ('EBIT') |
£8.6m |
£5.5m |
+56% |
|
Underlying diluted EPS(p)* |
7.29p |
(1.51p) |
n/a |
|
Interim dividend per share(p) |
1p |
- |
+1p |
|
|
|||
|
Enquiry pipeline (£) |
£25.8m |
£24.5m |
+5.3% |
* Items classified as non-underlying are: IPO costs, EBT capital distribution, acquisition and integration costs and other non-underlying costs. Non-underlying items are defined as specific items that the directors do not believe will recur in future periods. The H1 2018 results reflect the pre listing capital structure up to 14 March 2018 and the subsequent structure post IPO.
In order to assist the reader's understanding of the financial performance of the Group in this period of significant change, alternative performance measures ("APMs") have been included to ensure consistency with the IPO prospectus and to better reflect the underlying activities of the Group excluding specific non-recurring items as set out in note 6.
H1 2018 Highlights
Profitable growth momentum
· Revenue up 25.2% to £35.3m (H1 2017: £28.2m), reflecting a combination of good net organic (8%) and FY17 acquisitions (17%) growth
· Underlying EBITDA up 56.7% to £10.5m (H1 2017: £6.7m)
· Underlying EBITDA margin increased materially to 29.9% (H1 2017: 23.6%) in line with expectations
· Underlying EBIT up 56% to £8.6m (H1 2017: £5.5m)
· Strong performance by both Institutional Client Services (ICS) and Private Client Services (PCS) Divisions
Focused growth strategy
· Strong enquiry pipeline of £25.8m, up 5.3% from £24.5m (H1 2017)
· Well positioned to take advantage of consolidation opportunities in the global fund, corporate and trust administration industry
· Post period end, successfully acquired1 Minerva and Van Doorn, broadening our proposition and global network and leveraging our existing and scalable operating platform
· Active deal pipeline under consideration subject to continued disciplined acquisition criteria
Investing for further growth
· Enhancements to senior management team
· 2017 acquisitions successfully integrated
· Continued operational investments including IT systems and office infrastructure
Outlook
· The Group is trading in line with Board expectations
· The industry outlook remains positive for further growth opportunities, both organic and through acquisitions
1 Subject to relevant regulatory approvals
Nigel Le Quesne, Chief Executive Officer of JTC PLC, said:
"We are very pleased with the performance of the Group in the first half of the year and delighted with our successful listing during the period. We continue to see positive organic growth in both our Institutional and Private Client Divisions with a healthy ongoing pipeline from new and existing clients. As well as good progress with integrating the businesses acquired in 2017 we have also made two further acquisitions, post period end, with the recent Van Doorn (Netherlands) and Minerva (Jersey, London, Geneva, Dubai, Mauritius and Singapore) businesses, which are progressing well. In addition to these, we have several other potential targets where we are engaged in negotiations. We have continued to strengthen the senior management team as part of an ongoing drive to improve performance in all our key jurisdictions and service lines and this, coupled with our ongoing investment in improving processes and technologies, makes us confident in the ability of the Group to deliver on the expectations we set ourselves at the time of listing and in meeting the Board's expectations for the full year."
Enquiries:
JTC PLC +44 (0) 1534 700 000
Nigel Le Quesne, Chief Executive Officer
Martin Fotheringham, Chief Financial Officer
David Vieira, Chief Communications Officer
Camarco +44(0)20 3757 4985
Geoffrey Pelham-Lane
Kimberley Taylor
Sophie Boyd
A presentation for analysts will be held at 09:30 today (09:15 arrival) at the offices of Camarco, 107 Cheapside, London, EC2V 6DN.
An audio-cast of the presentation will subsequently be made available on the JTC website: www.jtcgroup.com/investor-relations
Forward Looking Statements
This announcement may contain forward looking statements. No forward looking statement is a guarantee of future performance and actual results or performance or other financial condition could differ materially from those contained in the forward looking statements. These forward looking statements can be identified by the fact they do not relate only to historical or current facts. They may contain words such as "may", "will", "seek", "continue", "aim", "anticipate", "target", "projected", "expect", "estimate", "intend", "plan", "goal", "believe", "achieve" or other words with similar meaning. By their nature forward looking statements involve risk and uncertainty because they relate to future events and circumstances. A number of these influences and factors are outside of the Company's control. As a result, actual results may differ materially from the plans, goals and expectations contained in this announcement. Any forward looking statements made in this announcement speak only as of the date they are made. Except as required by the FCA or any applicable law or regulation, the Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this announcement.
About JTC
JTC is an award-winning provider of fund, corporate and private wealth services to institutional and private clients. The Company has a global presence, with over 650 staff operating in more than 18 different jurisdictions and assets under administration totalling c. US$ 100+ billion.
JTC remains fully committed to its shared ownership culture and philosophy, with management and staff continuing to hold over 20% of the equity in the firm, clearly aligning the interests of clients, employees and other stakeholders.
Chief Executive's Review
Introduction
We are pleased to present our interim results for the first time as a listed company.
Although this is a momentous first, for the JTC senior management and the business at large, this is in effect another phase in a process started nearly 30 years ago to build a first class institution which aligns the interests of all its stakeholders over the long term, whilst seeking to improve in every respect on a daily basis.
As a result, the transition from private ownership into the listed environment has been relatively smooth for JTC. We have been able to concentrate on continuing to develop and grow the business in every respect. From a trading perspective we have found that being a listed business has been well received by clients, potential clients and intermediaries across both the Institutional and Private Client Divisions.
Having finalised our 3 year plan to 2020 our strategy for growth can be defined as JTC continuing to focus on excellence in the delivery of our core competencies as a provider of fund, corporate and trust administration services to both institutional and private clients, with growth coming from organic activities supplemented by acquisitions and by the maintenance of an appropriate infrastructure to support these objectives. We are confident that this period will be consistent with our 30 year track record of growth and profitability with the opportunity for an acceleration driven by the consolidating market dynamics. Key to our success will be to continue to be true to our shared ownership credentials and look to ensure that the team is of the highest quality and as a result our people are rewarded appropriately for their efforts as true stakeholders in the Group.
We have had a strong first half and continue to see profitable growth momentum in the underlying business, we have a successful growth strategy by acquisition and continue to be a suitor of choice to potential targets across our global industry. We are on track to meet our full year expectations and have positive impetus into 2019.
Financial Highlights
We are pleased with the first half year results, which are in line with expectations and consistent with our view at the time of listing in March. Both Divisions are on target and the Group's revenue has increased by £7.1 m (25.2%) to £35.3m and underlying EBITDA by £3.8m (56.7%) by comparison with H1 2017. Underlying EBIT increased by £3.1m (56%) to £8.6m (H1 2017: £5.5m) and this reflects the strong business performance highlighted in the underlying EBITDA figures. These results have been achieved by a mixture of net organic growth of 8% and the anticipated positive contribution of the two 2017 acquisitions; New Amsterdam Cititrust (NACT) in the Netherlands in the ICS Division and the Bank of America Merrill Lynch International Trust and Wealth Structuring (ITWS) business (US, Cayman, Geneva, Isle of Man and Singapore) in the PCS Division.
As anticipated we have seen a significant margin improvement to 29.9% (a 6.3pp increase on H1 2017) due to enhancements in processes, the bedding in of acquisitions and increased operational efficiency between our ICS Global Service Centre (GSC) in South Africa and the jurisdictions it supports, together with the swift integration, including resultant synergies, of the ITWS business in the PCS Division.
Growth by Acquisition
A key component of our strategy is to continue to supplement organic growth with acquisitions. JTC has a successful track record of executing deals at favourable prices and we are well placed to leverage our ability and proven methodology, together with our ability to source, negotiate and integrate acquisitions swiftly and efficiently.
The opportunity is supported by both the trend towards consolidation in the industry and leveraging the attraction of our 'shared ownership for all' model as a fundamental premise of our proposal. More often than not this, together with an open and honest dialogue, leads to JTC achieving preferred bidder status in a competitive process and allows us to approach other off-market opportunities with confidence.
The constant investment in scalable infrastructure and the disciplined approach to the integration process, coupled with the skill of the team, gives us both the capability and bandwidth to continue to consider both smaller 'bolt-ons' and larger acquisitions on a regular basis. The two acquisitions executed this year (subject to regulatory approval) are immediately accretive and help to demonstrate this.
Van Doorn - the Van Doorn acquisition for the ICS Division is a high quality, fast-growing corporate services business that is an ideal and complementary addition to our existing Netherlands platform. The enlarged team will provide opportunities for both organic and potential inorganic growth in country, as well as enhance our management bandwidth in the Benelux region and business development activities across continental Europe.
Minerva - the larger Minerva business which is a traditional trust company business with elements of both corporate and private client services will primarily be managed in our PCS Division and will bring both greater depth to a number of existing platforms (Jersey, London, Geneva, Mauritius and Singapore) as well as a Middle East base in Dubai. With links and client relationships in the Indian Sub-Continent we are exploring plans for greater penetration into this important region, which also acts as a cross-selling bridge into Asia.
Our acquisition pipeline is very healthy with a number of opportunities of varying scale and stages of progress that are well aligned with the business plans of both Divisions.
Institutional Client Services (ICS) Division
Our ICS Division provides fund and corporate administration services to institutional clients, primarily fund managers and multinationals. The ICS footprint is global and includes: New York, Miami, Cayman, Jersey, Guernsey, London, Luxembourg, Amsterdam, Cape Town and Mauritius. The scalable infrastructure of the Division is underpinned by asset class expertise, best-in-breed IT systems and our GSC in South Africa, which provides fund administration and accounting services to the entire network.
The key market drivers identified in our IPO Prospectus earlier this year continue to prevail, with market trends in the ICS business pointing towards a market appetite for greater outsourcing particularly in the alternative assets arena led by a number of factors including greater regulatory complexity, a desire from investors for third party scrutiny and transparency and a preference from managers to concentrate on performance rather than building infrastructure.
The Division accounted for 56% of Group turnover in the period and made strong, steady progress against its financial objectives with a 15.3% increase in total revenue (to £19.9m) over H1 2017 (£17.3m) and a 2.7pp increase in gross margin (to 59.6% from 56.9%) over the same period.
This has been driven largely by finessing and improving the operating model between the ICS service jurisdictions and the GSC in Cape Town, South Africa, which we expect to see continue in H2.
The organic growth in the Division is primarily driven by the appetite for outsourcing in alternative assets, largely real estate and private equity, with particularly strong performance from Jersey, Luxembourg and the UK.
The addition of the Van Doorn business to the recently acquired (2017) NACT business will add further firepower in the Netherlands into H2 and there remain other opportunities for further acquisitions in the near term.
The Division has also been boosted by some senior hires including a Head of Business Development for Institutional Services & the US and a new Managing Director in London for the UK business. These individuals, together with invitees from the rest of the Group's existing senior team, will be included in the new leadership programme (LION) being introduced by the JTC Academy in H2 of 2018.
Private Client Services (PCS) Division
Our PCS Division provides trust and corporate administration services to cater for the personal and business needs of private clients including HNW and UHNW individuals and families as well as family and private offices. The Division also services institutions such as international wealth management firms. The PCS footprint is global and includes: New York, Miami, South Dakota, Cayman, BVI, Jersey, Guernsey, Isle of Man, London, Geneva, Dubai, Labuan, Mauritius, Singapore, Hong Kong, Malaysia and New Zealand. The scalable infrastructure of the Division is underpinned by regional expertise, best-in-breed IT systems and growing outsourcing centres in Labuan (Malaysia) and Mauritius, which provide accounting services to the PCS network.
With the rise of a generation of true 'world citizens' in the UHNW community underpinned by a desire for wealth preservation, legitimate privacy and to be fully compliant across several territories, the outlook for the private wealth sector remains positive. There is also a need for a more sophisticated delivery of service over product in the emerging markets with a 'flight to quality' evident. In the wider market there is a desire to provide access to client friendly consolidated information supplementing a preference for delivery from one service provider rather than several. These dynamics together with JTC's historic pedigree in providing corporate services to the business needs of UHNW individuals and family and private offices provides a positive backdrop for the Division.
PCS accounted for 44% of Group turnover in the period, of which 21% comprised corporate services provided to private clients, which makes corporate services the Group's biggest service line at 36% of total revenue. The Division posted a particularly strong set of numbers when compared with the same period in 2017 due to the full period effect of the acquisition of the ITWS business. As a result it achieved a 40.7% increase in total revenue from £11.0m in H1 2017 to £15.4m in H1 2018 and a 7.7% gross margin improvement from 57.2% to 64.9% over the same period. The ITWS business has performed very well including the contribution of £1.6m of new revenue from restructuring activities and yielded synergy cost savings as it was integrated into our operating model. We continue to work with Bank of America Merrill Lynch (BAML) to improve the product offering to their clients via the BAML financial adviser network to drive new work from existing BAML clients and to attract new BAML clients to JTC.
The opportunity presented by the recent Minerva acquisition will add to both the senior management expertise and the geographical spread and offering of the Group during H2 and into the future. This together with the launch of a more bespoke and exclusive JTC Private Office proposition introducing the proprietary Edge technology platform during H2 is expected to a positive impetus for the Division into 2019.
New business growth is being seen across the Division driven primarily by the Channel Islands business, where flight to quality is a theme and the US business leveraging our increased network and local capability.
Risk
The principal risks facing the Group remain as set out in our Prospectus at the time of listing. Material risks include acquisition risk, competition risk, data protection and cyber security risk, staff resourcing risk, political and regulatory change risk, and regulatory and procedural compliance risk. We remain satisfied as to the effectiveness of the Group's risk analysis, management and culture, developed over the past 30 years of JTC's operations. A detailed update on our approach to monitoring and managing risk, identifying new or changed risks and the effectiveness of our risk responses and reporting mechanisms, will be presented as part of our first Annual Report, which will be released in H1 2019.
Going Concern
The financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group has the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including future projections of profitability and cash flows.
Dividend
The Board has declared an interim dividend of 1 pence per share. The dividend will be paid on 26 October 2018 to shareholders on the register as at the close of business on the record date of 28 September 2018.
Outlook
We remain confident in the ability of the Group to deliver on the expectations we set ourselves at the time of the listing and in meeting the Board's expectations for the full year, and these will be further enhanced by the consolidation of the recent acquisitions. From an organic perspective we have opportunities in both Divisions to improve performance from widening our offering, a healthy enquiries pipeline, new business wins and more work from our existing clients. This, coupled with the value accretive effect of the acquisitions and the cross selling opportunities these will deliver, will continue to allow the Group's operating model to be developed and improved. This growth will be supplemented by further new strategic and opportunistic acquisitions in the foreseeable future bringing further diversification and greater capability to the Group.
The outlook remains positive for further growth in the industry with compelling fundamentals prevailing in the addressable market. This is particularly the case for JTC with its well organised global footprint to allow jurisdictional arbitrage and an understanding of what the trends are and positions itself appropriately from a skill set, operational and technological perspective.
JTC's history of being able to adapt to these trends and develop accordingly, together with our own strategy for success, leaves us confident for H2 2018 and into the future.
Nigel Le Quesne
Chief Executive Officer
Chief Financial Officer's Review
JTC Group KPI's
|
|
H1 2018 |
H1 2017 |
Growth |
|
Revenue (£) |
£35.3m |
£28.2m |
+25.2% |
|
Gross profit margin |
61.9% |
57.0% |
+4.9pp |
|
Gross profit margin ICS |
59.6% |
56.9% |
+2.7pp |
|
Gross profit margin PCS |
64.9% |
57.2% |
+7.7pp |
|
Reported EBITDA (£) |
(£5.8m) |
£6.0m |
n/a |
|
Underlying EBITDA (£)* |
£10.5m |
£6.7m |
+56.7% |
|
Underlying EBITDA margin (%)* |
29.9% |
23.6% |
+6.3pp |
|
Underlying EBIT* |
£8.6m |
£5.5m |
+56% |
|
Loss before tax (£) |
(£9.2m) |
(£1.1m) |
n/a |
|
Underlying profit/(loss) before tax (£) |
£7.4m |
(£0.5m) |
+£7.9m |
|
Basic and diluted EPS (p) |
(10.97p) |
(2.45p) |
n/a |
|
Underlying diluted EPS (p)* |
7.29p |
(1.51p) |
n/a |
|
Interim dividend per share (p) |
1p |
- |
+1p |
|
Cash and Bank balance (£)** |
£21.7m |
£18.6m |
+£3.1m |
|
Net debt (£)** |
(£23.7m) |
(£41.3m) |
-£17.6m |
* Items classified as non-underlying are as detailed in Note 6 of the condensed financial statements. Non-underlying items are defined as specific items that the directors do not believe will recur in future periods.
**Excludes cash held by JTC EBT at 30/6/18
Financial Review
The H1 2018 results reflect the pre listing capital structure up to 14 March 2018 and the subsequent structure post IPO.
In order to assist the reader's understanding of the financial performance of the Group in this period of significant change, alternative performance measures ("APMs") have been included to ensure consistency with the IPO prospectus and to better reflect the underlying activities of the Group excluding specific non-recurring items as set out in note 6.
Revenue
In H1 2018, revenue totalled £35.3m, an increase of £7.1m (25.2%) compared to H1 2017.
Period on period growth was driven by net LTM organic growth of 8% and inorganic growth from the acquisitions of the Merrill Lynch International Trust and Wealth Structuring business (ITWS) and New Amsterdam Cititrust (NACT).
Non regretted losses in the LTM period were 6.1% and therefore gross organic growth was 14%.
£1.6m of H1 2018 revenue growth was achieved from providing new restructuring services to the ITWS clients. This was a clear example of the opportunity that JTC has to provide additional services to this newly acquired client base.
New Business/ Pipeline
The enquiry pipeline increased from £24.5m at 30 June 2017 to £25.8m (+5.3%) at 30 June 2018.
Gross Profit Margin
Gross profit margin for H1 2018 was 61.9%, an improvement of 4.9pp from H1 2017.
This improvement was seen in both operating Divisions with ICS improving gross margin from 56.9% in H1 2017 to 59.6% (+2.7pp) in H1 2018. The margin improvement is due to the continuing focus on improving operational efficiency and leveraging the GSC in Cape Town.
Within PCS the gross profit margin was 64.9%, a 7.7pp improvement from the equivalent period in 2017. The gross profit margin improvement has been due to the swift integration and re-organisation of the global PCS business following the acquisition of the ITWS business.
Underlying profit and margin performance
Underlying EBITDA in H1 2018 was £10.5m, an increase of £3.8m and 57% from H1 2017.
The underlying EBITDA margin % is an extremely important KPI for the business and is a key measure of management's ability to return the business to historic performance levels. The performance in 2018 highlights the progress that has been made with underlying EBITDA margin up to 29.9% from 23.6% in H1 2017 - a significant improvement of 6.3pp. This has been driven by improved operational efficiency in both operating divisions as well as continuing cost control.
Underlying EBIT was £8.6m, an increase of £3.1m and 56% from H1 2017. The improvement reflects the strong business performance highlighted above and takes into account the increased amortisation cost in the period arising from the ITWS and NACT acquisitions.
Non Underlying Items
Non underlying items within EBITDA in the period totalled £16.3m. These were comprised as follows:
· £0.7m costs associated with the IPO
· £2.1m of acquisition and integration costs associated with the ITWS acquisition
· £13.4m capital distribution made by JTC EBT12 following the IPO
· £0.1m other costs
JTC currently consolidates its EBTs within its results and hence the reason that the capital distribution is included within staff costs. The full charge to the Income Statement is recognised in the period to 30 June 2018.
Loss Before Tax
The reported loss before tax for the period ended 30 June 2018 was £9.2m (H1 2017 £1.1m loss). Adjusting for non-underlying items the underlying profit before tax for H1 2018 was £7.4m (H1 2017: £0.5m loss).
It should be noted that Finance costs in the reporting period include the costs of the Group's pre IPO capital structure and changes to the capital structure made at the time of the IPO. Finance costs in H1 2018 comprise £1.1m of amortisation/non cash flow items and £1m of costs which impact cash flow. Within the cash flow items the loan note interest relates to the pre IPO period and is not recurring. The bank loan interest rate pre IPO was higher than the rate under the post IPO debt package. The interest rate charged in the first six months of new bank loan facility is higher than the ongoing rate. The combined impact of these two factors on the H1 2018 results was a higher bank loan interest cost of £200k.
Cash Flow and debt
Cash generated from underlying operations was £5.9m representing a 56% conversion of underlying EBITDA. The conversion rate was adversely impacted in the period due to the ITWS acquisition. This is due to the bi-annual billing frequency whereby JTC has not yet benefitted from a full cycle of cash flows. Cash conversion for the full year will include a full cycle of the ITWS cash flows.
Working capital (trade receivables minus deferred revenue) as a percentage of revenue fell from 33.1% at 31 December 2017 to 30.2% (improvement of 2.9pp) by 30 June 2018.
Net debt at the period end was £23.7m (excluding JTC EBT12 cash).
Reconciliation of underlying EBITDA to Loss before tax
The reconciliation of underlying EBITDA to Loss before tax for H1, 2018 is as follows:
|
All figures in £'m for H1, 2018 |
Reported performance |
Non underlying items |
Underlying performance |
|
Underlying EBITDA |
(5.8) |
(16.3) |
10.5 |
|
Depreciation and amortisation |
2.0 |
- |
2.0 |
|
(Loss)/ profit from operating activities (EBIT) |
(7.7) |
(16.3) |
8.6 |
|
Finance costs, other gains and losses etc |
1.5 |
(0.3) |
1.2 |
|
Loss before tax |
(9.2) |
(16.6) |
7.4 |
Non underlying items are set out in detail in note 6 to the condensed interim financial statements and are in the opinion of the directors specific items that will not recur.
Martin Fotheringham
Chief Financial Officer
Statement of directors' responsibilities in respect of the interim financial statements
For the 6 month period ended 30 June 2018
"The directors' confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
· an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
· material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report."
Nigel Le Quesne Martin Fotheringham
Chief Executive Officer Chief Financial Officer
17 September 2018 17 September 2018
Independent Review Report to JTC PLC
For the 6 month period ended 30 June 2018
Report on review of the condensed consolidated interim financial statements
Our conclusion
We have reviewed the accompanying condensed consolidated interim financial statements of JTC PLC (the "Company") and its subsidiaries (together the "Group") as of 30 June 2018. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union, and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The accompanying condensed consolidated interim financial statements comprise:
· the condensed consolidated balance sheet as of 30 June 2018;
· the condensed consolidated income statement for the six-month period then ended;
· the condensed consolidated statement of comprehensive income for the six-month period then ended;
· the condensed consolidated statement of changes in equity for the six-month period then ended;
· the condensed consolidated cash flow statement for the six-month period then ended; and
· the notes, comprising a summary of significant accounting policies and other explanatory information.
The condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union, and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibilities and those of the directors
The Directors are responsible for the preparation and presentation of the condensed consolidated interim financial statements in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the condensed consolidated interim financial statements based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of interim financial information performed by the independent auditor of the entity' issued by the International Auditing and Assurance Standards Board. A review of the interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim financial reporting report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial statements.
PricewaterhouseCoopers CI LLP
Chartered Accountants
Jersey, Channel Islands
17 September 2018
The maintenance and integrity of the JTC PLC website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
|
JTC PLC |
|||
|
Condensed Consolidated Income Statement |
|||
|
For the period from 1 January 2018 to 30 June 2018 |
|||
|
|
6 Months to |
6 Months to |
|
|
|
30 Jun 2018 |
30 Jun 2017 |
|
|
Notes |
£'000 |
£'000 |
|
|
Revenue |
4 |
35,307 |
28,212 |
|
Staff costs |
6 |
(30,990) |
(15,162) |
|
Establishment costs |
|
(2,194) |
(1,837) |
|
Other operating expenses |
|
(8,023) |
(5,405) |
|
Other operating income |
|
142 |
220 |
|
Earnings before interest, taxes, depreciation and amortisation ("EBITDA") |
|
(5,758) |
6,028 |
|
|
|
|
|
|
Comprising: |
|
|
|
|
Underlying EBITDA |
|
10,545 |
6,656 |
|
Non-underlying items |
6 |
(16,303) |
(628) |
|
|
|
(5,758) |
6,028 |
|
Depreciation and amortisation |
|
(1,982) |
(1,152) |
|
(Loss)/profit from operating activities |
|
(7,740) |
4,876 |
|
Other gains and losses |
|
509 |
167 |
|
Finance income |
|
49 |
31 |
|
Finance cost |
5 |
(2,120) |
(6,173) |
|
Share of profit/(loss) of equity-accounted investee |
|
104 |
(1) |
|
Loss before tax |
|
(9,198) |
(1,100) |
|
|
|
|
|
|
Comprising: |
|
|
|
|
Underlying profit/(loss) before tax |
|
7,421 |
(472) |
|
Non-underlying items |
6 |
(16,619) |
(628) |
|
|
|
(9,198) |
(1,100) |
|
Tax |
7 |
(787) |
(531) |
|
|
|
|
|
|
Loss for the period |
|
(9,985) |
(1,631) |
|
Earnings per ordinary share ("EPS") (expressed in pence per ordinary share) |
|||
|
Basic and diluted EPS (pence) |
8 |
(10.97) |
(2.45) |
|
Underlying and diluted EPS (pence) |
8 |
7.29 |
(1.51) |
|
The above condensed consolidated income statement should be read in conjunction with the accompanying notes. |
|||
|
Condensed Consolidated Statement of Comprehensive Income |
||
|
For the period from 1 January 2018 to 30 June 2018 |
||
|
6 Months to |
6 Months to |
|
|
30 Jun 2018 |
30 Jun 2017 |
|
|
|
£'000 |
£'000 |
|
Loss for the period |
(9,985) |
(1,631) |
|
Other comprehensive income/(loss): |
||
|
Items that may be subsequently reclassified to profit or loss: |
||
|
Exchange differences on translation of foreign operations |
229 |
(332) |
|
Total comprehensive loss for the period |
(9,756) |
(1,963) |
|
The above condensed consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. |
||
|
Condensed Consolidated Balance Sheet |
|||
|
As at 30 June 2018 |
|||
|
|
30 Jun 2018 |
31 Dec 2017 |
|
|
Notes |
£'000 |
£'000 |
|
|
Assets |
|||
|
Non-current assets |
|||
|
Goodwill |
9 |
76,168 |
76,183 |
|
Other intangible assets |
9 |
21,000 |
21,761 |
|
Property, plant and equipment |
10 |
5,496 |
5,504 |
|
Contract-related assets |
11 |
952 |
- |
|
Investment in equity-accounted investee |
12 |
990 |
886 |
|
Other debtors and prepayments |
|
972 |
940 |
|
Deferred tax assets |
|
57 |
61 |
|
Total non-current assets |
|
105,635 |
105,335 |
|
Current assets |
|||
|
Contract-related assets |
11 |
476 |
- |
|
Trade and other receivables |
13 |
25,707 |
24,769 |
|
Other debtors and prepayments |
|
3,645 |
2,639 |
|
Current tax receivables |
|
105 |
24 |
|
Cash and cash equivalents |
3 |
28,583 |
16,164 |
|
Total current assets |
|
58,516 |
43,596 |
|
Total assets |
|
164,151 |
148,931 |
|
Equity |
|||
|
Share capital |
14 |
1,069 |
10 |
|
Share premium |
14 |
78,980 |
238 |
|
Own shares |
|
(1,500) |
(1) |
|
Capital reserve |
|
(525) |
(1,213) |
|
Translation reserve |
|
1,339 |
1,110 |
|
Accumulated profits |
|
8,372 |
2,884 |
|
Total equity |
|
87,735 |
3,028 |
|
Non-current liabilities |
|||
|
Contract-related liabilities |
11 |
830 |
- |
|
Loans and borrowings |
15 |
44,739 |
63,341 |
|
Provisions |
|
698 |
646 |
|
Deferred tax liabilities |
|
2,698 |
2,817 |
|
Trade and other payables |
16 |
4,213 |
1,805 |
|
Total non-current liabilities |
|
53,178 |
68,609 |
|
Current liabilities |
|||
|
Contract-related liabilities |
11 |
473 |
- |
|
Loans and borrowings |
15 |
678 |
56,364 |
|
Provisions |
|
110 |
187 |
|
Trade and other payables |
16 |
15,023 |
14,736 |
|
Deferred revenue |
|
5,656 |
5,012 |
|
Current tax liabilities |
|
1,298 |
995 |
|
Total current liabilities |
|
23,238 |
77,294 |
|
Total equity and liabilities |
|
164,151 |
148,931 |
|
The above condensed consolidated balance sheet should be read in conjunction with the accompanying notes. |
|||
|
Condensed Consolidated Statement of Changes in Equity |
|||||||||
|
For the period from 1 January 2018 to 30 June 2018 |
|||||||||
|
Attributable to owners of JTC PLC |
|||||||||
|
|
|
Share |
Share |
Own |
Capital |
Translation |
Accumulated |
Total |
|
|
|
capital |
premium |
shares |
reserve |
reserve |
profits/(losses) |
equity |
||
|
Notes |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at 1 January 2017 |
|
10 |
83 |
(1) |
(2,349) |
1,826 |
(24,010) |
(24,441) |
|
|
Loss for the period |
|
- |
- |
|
- |
- |
- |
(1,631) |
(1,631) |
|
Other comprehensive loss for the period |
|
- |
- |
|
- |
- |
(332) |
- |
(332) |
|
Total comprehensive loss for the period |
|
- |
- |
|
- |
- |
(332) |
(1,631) |
(1,963) |
|
Share based payment expense |
|
- |
- |
|
- |
269 |
- |
- |
269 |
|
Sale and purchase of own shares |
|
- |
- |
|
- |
(5) |
- |
- |
(5) |
|
Balance as at 30 June 2017 |
|
10 |
83 |
(1) |
(2,085) |
1,494 |
(25,641) |
(26,140) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at 31 December 2017 |
|||||||||
|
as originally presented |
|
10 |
238 |
(1) |
(1,213) |
1,110 |
2,884 |
3,028 |
|
|
Change in accounting policy * |
19 |
- |
- |
|
- |
- |
- |
(168) |
(168) |
|
Restated total equity |
|||||||||
|
as at 31 December 2017 |
|
10 |
238 |
(1) |
(1,213) |
1,110 |
2,716 |
2,860 |
|
|
Loss for the period |
|
- |
- |
|
- |
- |
- |
(9,985) |
(9,985) |
|
Other comprehensive income for the period |
|
- |
- |
|
- |
- |
229 |
- |
229 |
|
Total comprehensive loss for the period |
|
- |
- |
|
- |
- |
229 |
(9,985) |
(9,756) |
|
Issue of share capital |
14 |
1,059 |
79,484 |
|
- |
- |
- |
- |
80,543 |
|
Cost of share issuance |
|
- |
(742) |
|
- |
- |
- |
- |
(742) |
|
Share based payment expense |
17 |
- |
- |
|
- |
172 |
- |
- |
172 |
|
Movement in EBT and JSOP's |
|
- |
- |
- |
|
516 |
- |
- |
516 |
|
Movement of own shares |
3 |
- |
- |
(1,499) |
- |
- |
- |
(1,499) |
|
|
EBT12 gain on sale of shares |
3 |
- |
- |
|
- |
- |
- |
15,641 |
15,641 |
|
Balance as at 30 June 2018 |
|
1,069 |
78,980 |
(1,500) |
(525) |
1,339 |
8,372 |
87,735 |
|
|
* See note 19 for details regarding the restatement as a result of a change in accounting policy. |
|||||||||
|
The above condensed consolidated statement of changes in equity should be read in conjunction with the accompanying notes. |
|||||||||
|
|
Condensed Consolidated Cash Flow Statement |
|
|
|||
|
|
For the period from 1 January 2018 to 30 June 2018 |
|
||||
|
|
|
30 Jun 2018 |
30 Jun 2017 |
|||
|
|
Notes |
£'000 |
£'000 |
|||
|
Operating (loss)/profit |
|
(7,740) |
4,876 |
|||
|
Adjustments for: |
|
|
|
|||
|
Amortisation of intangible assets |
9 |
1,338 |
718 |
|||
|
Depreciation of tangible assets |
10 |
430 |
434 |
|||
|
Amortisation of contract-related assets |
11 |
214 |
- |
|||
|
Share-based payment expense |
17 |
172 |
269 |
|||
|
Acquisition costs |
|
- |
128 |
|||
|
Foreign exchange |
|
437 |
123 |
|||
|
Operating cash flows before movements in working capital |
|
(5,149) |
6,548 |
|||
|
(Increase)/decrease in receivables |
|
(2,137) |
617 |
|||
|
Increase/(decrease) in payables |
|
3,745 |
(508) |
|||
|
Cash (used in)/generated by operations |
|
(3,541) |
6,657 |
|||
|
Income taxes paid |
|
(593) |
(714) |
|||
|
Net movement in cash from operating activities |
|
(4,134) |
5,943 |
|||
|
|
|
|
|
|||
|
Comprising: |
|
|
|
|||
|
Underlying net movement in cash from operating activities |
|
5,891 |
6,354 |
|||
|
Non-underlying cash items |
6 |
(10,025) |
(411) |
|||
|
|
|
(4,134) |
5,943 |
|||
|
Investing activities |
|
|
|
|||
|
Interest received |
|
48 |
31 |
|||
|
Purchase of intangible assets |
9 |
(454) |
(274) |
|||
|
Purchase of tangible assets |
10 |
(373) |
(3,519) |
|||
|
Deferred consideration |
16 |
(1,160) |
- |
|||
|
Acquisition of subsidiaries |
|
- |
(184) |
|||
|
Net cash used in investing activities |
|
(1,939) |
(3,946) |
|||
|
Financing activities |
|
|
|
|||
|
Bank charges |
|
(68) |
(50) |
|||
|
Interest on other loans |
|
(47) |
(45) |
|||
|
Interest on bank loans |
|
(492) |
(1,138) |
|||
|
Facility fees |
|
(26) |
(37) |
|||
|
Share capital raised |
|
20,000 |
- |
|||
|
Share issuance costs |
|
(742) |
- |
|||
|
Proceeds from sale of EBT12 shares |
3 |
15,641 |
- |
|||
|
Acquisition of own shares |
3 |
(1,500) |
- |
|||
|
Loan arrangement fees |
|
(756) |
(38) |
|||
|
Redemption of bank loans |
|
(55,836) |
- |
|||
|
Redemption of other borrowings |
|
(508) |
(325) |
|||
|
Bank loan drawn down |
|
45,000 |
- |
|||
|
Other loan drawn down |
|
- |
2,525 |
|||
|
Redemption of loan notes |
|
(2,161) |
- |
|||
|
Net cash from financing activities |
|
18,505 |
892 |
|||
|
|
|
|
|
|||
|
Net increase in cash and cash equivalents |
|
12,432 |
2,889 |
|||
|
Cash and cash equivalents at the beginning of the period |
|
16,164 |
15,765 |
|||
|
Effect of foreign exchange rate changes |
|
(13) |
(93) |
|||
|
Cash and cash equivalents at end of period* |
|
28,583 |
18,561 |
|||
* Cash balance includes £6.92m for pending EBT12 capital distributions (see note 3).
The above condensed consolidated cash flow statement should be read in conjunction with the accompanying notes.
|
Notes to the condensed consolidated interim financial statements |
||
|
For the period from 1 January 2018 to 30 June 2018 |
||
|
1. |
General information |
|
|
JTC PLC ("the Company") and its subsidiaries (together "the Group" or "JTC") present their condensed consolidated interim financial statements for the six months ended 30 June 2018. JTC is a publicly listed provider of fund, corporate and private wealth services to institutional and private clients. |
||
|
On 14 March 2018, the Company obtained control of the entire share capital of JTC Group Holdings Limited ("JTCGHL") via a share exchange, and thus control of the Group (see note 14). |
||
|
Although the share exchange resulted in a change of legal ownership, in substance these condensed financial statements reflect the continuation of the pre-existing Group, formerly headed by JTCGHL. As a result, the comparatives for 30 June 2017 and 31 December 2017 presented in these condensed financial statements are the consolidated results of JTCGHL. For the impact on the earnings per share calculation, see note 8. |
||
|
The condensed consolidated balance sheet at 31 December 2017 reflects the share capital structure of JTCGHL. The condensed consolidated balance sheet at 30 June 2018 presents the legal change in ownership of the Group, including the share capital of JTC PLC and the effects of the share exchange transactions. |
||
|
Basis of preparation |
||
|
The consolidated results have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the European Union ("EU"). The consolidated interim financial statements are therefore presented on a condensed basis as permitted by IAS 34 and do not include all disclosures that would otherwise be required in a full set of financial statements and should be read in conjunction with the Historical Financial Information ("HFI") within the prospectus available at www.jtcgroup.com. Where there are no significant changes, no additional disclosures have been made. |
||
|
These condensed consolidated financial statements do not constitute statutory accounts. Statutory accounts for JTCGHL for the year ended 31 December 2017 were approved by the board of directors on 8 March 2018. The report of the Auditors on the 31 December 2017 accounts was unqualified. |
||
|
These financial statements were approved by the board of directors on 17 September 2018 and have been reviewed but not audited by the Group's external auditors. |
||
|
Going concern |
||
|
The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The directors have reviewed the Group's financial projections and cash flow forecasts and believe, based on these, that it is appropriate to prepare the condensed consolidated interim financial statements of the Group on a going concern basis. Accordingly, they have adopted the going concern basis of accounting in preparing the condensed consolidated interim financial statements. |
||
|
Accounting policies |
||
|
The Group has applied consistent accounting policies, presentation and methods of calculation as those followed in the preparation of the Group's consolidated financial statements for the year ended 31 December 2017, except for the adoption of new and amended standards as set out in note 19. |
||
|
The condensed financial statements are presented in pounds sterling, which is the functional and reporting currency of the Company, and the presentation currency of the Group. All amounts disclosed in the condensed financial statements and accompanying notes have been rounded to the nearest thousand (£'000) unless otherwise stated. |
||
|
New and amended standards adopted by the Group |
||
|
A number of new or amended standards became applicable for the current reporting period and the Group had to change its accounting policies and make modified retrospective adjustments as a result of adopting the following standards: |
||
|
|
- |
IFRS 9 'Financial Instruments', and |
|
|
- |
IFRS 15 'Revenue from Contracts with Customers'. |
|
The impact of the adoption of these standards and the new accounting policies are disclosed in note 19. The other new or amended standards did not have any impact on the Group's accounting policies and did not require retrospective adjustments. |
||
|
Seasonality |
||
|
Given the makeup of the Group's customers and contracts, seasonality is not expected to have a significant bearing on the financial performance of the Group. |
||
|
Impact of standards issued but not yet applied by the Group |
||
|
IFRS 16 'Leases' |
||
|
IFRS 16 'Leases', published in January 2016, introduces a new definition of a lease and eliminates the current dual accounting model for lessees, bringing most leases on to the balance sheet in the financial statements of the lessee. It replaces existing guidance on leases, including IAS 17. The Group has a significant number of operating lease contracts, mainly for office properties and therefore the following changes are expected upon transition to IFRS 16: |
||
|
|
- |
Assets and liabilities of the Group are expected to increase due to recognition of the right-of-use asset and a lease liability. |
|
|
- |
Earnings before Interest, Taxes, Depreciation and Amortisation (EBITDA) will increase as the lease payments will be presented as depreciation and net finance expenses rather than operating expenses. |
|
|
- |
Operating cash flow will increase and investing and financing cash flow will decrease as the lease payments will no longer be considered as operational. |
|
The Group plans to adopt the new standard on the required effective date. The Group will complete its review of the operating and finance leases in existence across the business during 2018 in order to assess the impact. |
||
|
2. |
Critical accounting estimates and judgements |
|
|
The preparation of these condensed financial statements requires management to make certain assumptions, estimates and judgements that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities as of the date of the condensed financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. |
||
|
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of revision and the future periods if the revision affects both current and future periods. The judgements, estimates and assumptions applied in the condensed financial statements, including the key sources of estimation of uncertainty, were the same as those applied in the Group's HFI, except as noted below. |
||
|
(i) |
Critical judgements in applying the entity's accounting policies |
|
|
(a) |
Capitalisation of costs to obtain a contract |
|
|
IFRS 15 requires incremental costs of obtaining a contract (i.e. costs that would not have been incurred if the contract had not been obtained) to be recognised as an asset if the costs are expected to be recovered. IFRS 15 further requires that capitalised costs of obtaining a contract are amortised in a systematic manner consistent with the pattern of transfer of the related goods or services and are subject to an impairment analysis. |
||
|
The directors have concluded that as the commission fees payable in obtaining a contract are incremental costs and are expected to be recovered over the useful economic life of the client contract, they should be capitalised and included in the balance sheet as contract-related assets. This includes commission paid and expected to be paid in the future as a percentage of revenue generated. In accordance with the transition provisions in IFRS 15, the Group has applied the modified retrospective approach, which means that the cumulative impact of the adoption is recognised in retained earnings as of 1 January 2018 and that the comparative figures have not been restated. For the impact of the adoption, see note 19 (d). |
||
|
(b) |
Expected credit losses |
|
|
The Group applies the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables, see note 19. |
||
|
(ii) |
Critical accounting estimates and assumptions |
|
|
(a) |
Useful economic life ("UEL") of contract-related assets |
|
|
To derive the value of the contract-related asset the directors have estimated the commissions payable over the life of the commission agreements and in accordance with their terms. Where the commission due is a percentage of revenue, the directors estimate based on historical information, when applying retrospectively, or otherwise using management judgement based on experiences of the UEL of similar clients in comparable locations and business divisions. As the asset is expected to be recovered over the UEL of the introduced client, it is amortised over the estimate of this period. |
||
|
The contract-related liability, being the accrued commission expense, is the estimated value of future cash flows, using a suitable discount value in order to calculate the present value. |
||
|
(b) |
Credit loss rates |
|
In accordance with IFRS 9, the expected credit losses on trade receivables are estimated using a provision matrix based on the Group's historical credit loss experience, adjusted for factors that are specific to the debtors' general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including the time value of money where appropriate. Provision rates are segregated according to geographical location (JTC entity) and by client division. |
|
|
The net debt positions calculated using this matrix are reviewed by management to assess whether the applied probability of future losses are appropriate to known changes in the credit risk, where applicable, specific provisions may be allocated. WIP and accrued income provisions are assessed on a line-by-line basis to reflect the amount expected to be billed, with an additional provision to recognise future credit losses on conversion to debt. |
|
|
3. |
Significant events and transactions |
|
(i) |
Capital restructure and share exchange |
|
Immediately prior to Admission to the London Stock Exchange, the Group undertook a reorganisation of its corporate structure that resulted in the Company being the ultimate holding company of the Group and JTCGHL becoming a direct subsidiary of the Company. Subject to the terms and conditions of the Share Exchange Agreement signed on 14 March 2018, the sellers (being the holders of shares and loan notes in JTCGHL) agreed to sell and the purchaser (being the Company) agreed to purchase the entire issued share capital and all loan notes issued by JTCGHL as at completion in order to facilitate the proposed application of the whole of the issued and to be issued ordinary share capital of the Company to be admitted to the premium segment of the Official List of the FCA and to trading on the London Stock Exchange plc's main market for listed securities (see note 14). |
|
|
(ii) |
Admission to London Stock Exchange |
|
On 14 March 2018, the Company was admitted to trading on the main market of the London Stock Exchange with a market capitalisation of £310m. The IPO involved a conditional placing of £84.1m existing and new ordinary shares at a price of £2.90 each, raising £243.8m of gross proceeds. Selling shareholders raised net proceeds of £218.2m from existing shares. |
|
|
(iii) |
Debt facilities |
|
From the Admission, the Company raised net proceeds of £15.1m and these together with funds available under a new debt facility, were used to repay the JTCGHL's existing debt facility, see note 15. The balance of funds raised will be used for general working capital and wider corporate purposes. The directors believe the IPO will position the Group for its next stage of development and provide it with an optimal capital structure for future growth. |
|
|
(iv) |
Shared ownership |
|
On 8 March 2018, the Company settled The JTC PLC Employee Benefit Trust ("PLC EBT") with a view to encouraging, motivating and retaining its employees and those of its group companies. In accordance with the accounting policies in Note 4 of the Historical Financial Information ("HFI") for 31 December 2017, this Trust and the previous EBT, the Jersey Trust Company Employee Benefit Trust 2012 ("EBT12") are consolidated into the results of the Company as it is considered that the 'de facto' control exists. |
|
|
From the Admission, EBT12 received net proceeds of £15.64m for the benefit of all staff members. As at 30 June 2018, EBT12 had made capital distributions of £7.22m to employees and in July 18, a further £0.28m was distributed. The Trustees have committed to making further capital distributions of £6.29m. During the period to 30 June 2018, £13.39m has been included in direct staff costs, being the discounted value of the total committed capital distributions. Due to the capital nature of these awards and given they are directly related to the IPO, the directors consider these to be non-underlying items (see note 6). |
|
|
In addition, EBT12 appointed £1.5m to settle PLC EBT, thus continuing shared ownership for new and existing employees. The £1.5m was used to buy JTC PLC shares, these have been treated as own shares in accordance with IAS 32 'Financial Instruments'. In July 2018, a cash surplus arising from leavers has resulted in a further capital appointment of £0.35m from EBT12 to PLC EBT. |
|
|
As EBT12 is consolidated into the results of the Group, the gain of sale of shares of £15.64m is shown in the condensed consolidated statement of changes in equity. A total of £6.92m is included within cash (being £6.57m to be distributed by March 2020 and a surplus of £0.35m arising from leavers). Current other payables includes £3.34m for distributions payable in March 19 and non-current other payables includes £2.9m for distributions payable in March 2020 (see note 16). |
|
|
4. |
Segmental and Revenue information |
|
|
|
|
|
|
|
|
(i) |
Description of segments |
|
|
|
|
|
|
|
|
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 and family office clients. Declared revenue is generated from external customers. |
||||||||
|
The Chief Executive Officer and Chief Finance 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 of directors. |
||||||||
|
The Group has two divisions and therefore two reportable segments, these are Institutional Client Services and Private Client Services. Within this, the divisions focus on three business lines: Fund Services, Corporate Services and Private Wealth Services. These are as follows - |
||||||||
|
- |
Fund Services |
|
|
|
|
|
|
|
|
Support 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 and high net worth ("HNW") and ultra-high net worth ("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 Wealth Services |
|
|
|
|
|
|
|
|
Support HNW and UHNW individuals and families, from 'emerging entrepreneurs' to established single and multifamily offices. Services include formation and administration of trusts, companies, partnerships, and other vehicles and structures across a range of asset classes, including cash and investments. |
||||||||
|
(ii) |
Segmental information |
|
|
|
|
|
|
|
|
The tables below show the segmental information provided to the board of directors for the two reportable segments, being the Institutional Client Services and Private Client Services divisions, for the half-year ended 30 June 2018 and also the basis on which revenue is recognised. The board evaluates segmental performance on the basis of gross profit, after the deduction of the direct costs of staff and third party administration. |
||||||||
|
|
Revenue recognised |
|
|
Other |
|
|
||
|
|
At a point |
|
Total |
Direct |
direct |
Gross |
|
|
|
|
in time |
Over time |
revenue |
staff cost |
costs |
profit |
|
|
|
|
6 Months to 30 June 2018 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
Margin |
|
Segments |
||||||||
|
|
Institutional Client Services |
767 |
19,115 |
19,882 |
(7,790) |
(243) |
11,849 |
59.6% |
|
|
Private Client Services |
2,558 |
12,867 |
15,425 |
(4,413) |
(1,000) |
10,012 |
64.9% |
|
|
Total |
3,325 |
31,982 |
35,307 |
(12,203) |
(1,243) |
21,861 |
61.9% |
|
|
Indirect staff costs |
|
|
|
|
|
(3,730) |
|
|
|
Operating expenses |
|
|
|
|
|
(7,728) |
|
|
|
Other operating income |
|
|
|
|
|
142 |
|
|
|
Underlying EBITDA |
|
|
|
|
|
10,545 |
29.9% |
|
|
Non-underlying items specific to EBITDA (see note 6) |
|
|
|
(16,303) |
|
||
|
|
Non-underlying EBITDA |
|
|
|
|
|
(5,758) |
(16.3%) |
|
Revenue recognised At a point |
Total |
Direct |
Other direct |
Gross |
|||
|
|
in time |
Over time |
revenue |
staff cost |
costs |
profit |
|
|
6 Months to 30 June 2017 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
Margin |
|
Segments Institutional Client Services |
260 |
16,992 |
17,252 |
(7,405) |
(22) |
9,825 |
56.9% |
|
Private Wealth Services |
656 |
10,304 |
10,960 |
(4,055) |
(640) |
6,265 |
57.2% |
|
Total |
916 |
27,296 |
28,212 |
(11,460) |
(662) |
16,090 |
57.0% |
|
Indirect staff costs |
|
|
|
|
|
(3,433) |
|
|
Operating expenses* |
|
|
|
|
|
(6,221) |
|
|
Other operating income |
|
|
|
|
|
220 |
|
|
Underlying EBITDA |
|
|
|
|
|
6,656 |
23.6% |
|
Non-underlying items specific to EBITDA (see note 6) |
|
(628) |
|
||||
|
Non-underlying EBITDA |
|
6,028 |
21.4% |
||||
|
* Includes commission expenses as prior year results have not been restated for IFRS 15. |
|
|
|
||||
(iii) Geographical information
The Group's revenue from external customers by geographical location of contracting Group entity is detailed below:
|
|
6 Months to 30 Jun 2018 £'000 |
6 Months to 30 Jun 2017 £'000 |
|
Africa |
192 |
155 |
|
Americas |
1,383 |
396 |
|
Caribbean |
2,979 |
3,486 |
|
Channel Islands |
19,800 |
19,980 |
|
Europe |
8,700 |
4,103 |
|
Isle of Man |
1,467 |
- |
|
United Kingdom |
786 |
92 |
|
Total revenue |
35,307 |
28,212 |
EBITDA is not used to measure the performance of the individual segments as items like establishment costs and legal and professional fees are not allocated to individual segments. Consistent with the aforementioned reasoning, segment assets/liabilities are not reviewed regularly on a segment by segment basis and are therefore not included in the Group segmental reporting.
|
5. |
Finance cost |
6 Months to |
6 Months to |
|
|
|
|
30 Jun 2018 |
30 Jun 2017 |
|
|
|
|
|
£'000 |
£'000 |
|
|
Bank loan interest |
754 |
1,136 |
|
|
|
Other loan interest |
62 |
45 |
|
|
|
Loan note interest* |
48 |
4,686 |
|
|
|
Amortisation of loan arrangement fees |
147 |
160 |
|
|
|
Accelerated amortisation of loan arrangement fees |
251 |
- |
|
|
|
Unwinding of discount |
734 |
34 |
|
|
|
Other finance expense |
124 |
112 |
|
|
|
Total finance cost |
2,120 |
6,173 |
|
|
*Sale of loan notes following capital restructure, see note 3. |
||||
|
6. |
Non-underlying items |
6 Months to |
6 Months to |
|
|
|
|
30 Jun 2018 |
30 Jun 2017 |
|
|
|
|
|
£'000 |
£'000 |
|
|
Initial Public Offering ("IPO") (i) |
724 |
- |
|
|
|
Acquisition and integration costs (ii) |
2,094 |
361 |
|
|
|
Capital distribution from EBT12 (iii) |
13,385 |
- |
|
|
|
Other (iv) |
100 |
267 |
|
|
|
Non-underlying items within EBITDA* |
16,303 |
628 |
|
|
|
Unwinding of discount on capital distribution from EBT12 (iii) |
65 |
- |
|
|
|
Accelerated amortisation of loan arrangement fees (v) |
251 |
- |
|
|
|
Total non-underlying items |
16,619 |
628 |
|
|
|
*Includes £10,025k (30 June 17: £411k) of cash items |
|
|
|
|
The directors consider that the items above are not representative of underlying performance: |
||||
|
|
(i) |
During the period ended 30 June 2018, the Group expensed fees relating to the IPO of £724k. |
|
|
|
|
(ii) |
During the period ended 30 June 2018, the Group expensed £2,094k in relation to the following acquisitions (30 June 17: £361k). This includes; International Trust and Wealth Structuring Business of Bank of America Corporation ("ITWS") £2,072k (30 June 17: £64k), New Amsterdam Cititrust B.V. ("NACT") £1k (30 June 17: £68k), Kleinwort Benson (Channel Islands) Fund Services Limited ("KB Group") £21k (30 June 17: £180k) and Swiss & Global Fund Administration (Cayman) Ltd ("S&GFA") (30 June 17: £49k). |
||
|
|
(iii) |
Capital distribution from EBT12 to employees following the IPO, these are reflected in staff costs (see note 3). |
||
|
(iv) |
One off costs relating to other items not considered to represent the ongoing operations of the business. This includes one off costs of £93k to reorganise the senior management team (30 June 17: £100k). |
|||
|
|
(v) |
Due to refinancing at the time of the IPO, £251k of loan arrangement fees were written off in relation to the previous bank facility (see note 15(i)). |
||
|
7. |
Tax |
6 Months to |
6 Months to |
|
|
|
|
30 Jun 2018 |
30 Jun 2017 |
|
|
|
|
|
£'000 |
£'000 |
|
|
Current income tax |
962 |
588 |
|
|
|
Deferred income tax |
(175) |
(57) |
|
|
|
Total income tax |
787 |
531 |
|
|
Income tax is calculated across the Group based on the prevailing income tax rates in the jurisdictions in which profits are earned. |
||||
8. Earnings per share
|
|
Note |
6 Months to 30 Jun 2018 £'000 |
6 Months to 30 Jun 2017 £'000 |
|
Loss for the period |
|
(9,985) |
(1,631) |
|
Non-underlying items: |
|
|
|
|
- included with operating expenses |
6 |
16,303 |
628 |
|
- included with finance costs |
6 |
316 |
- |
|
Underlying earnings |
|
6,634 |
(1,003) |
|
|
|
|
|
|
Weighted average number of shares: |
|
|
|
|
Original shareholder exchange |
|
66,534,213 |
66,534,213 |
|
New issue to original shareholders |
|
693,024 |
- |
|
Primary raise |
|
4,153,172 |
- |
|
Loan note conversion |
|
19,609,979 |
- |
|
Weighted average number of ordinary shares |
|
90,990,388 |
66,534,213 |
|
|
|
|
|
|
Basic and diluted EPS (pence) |
|
(10.97) |
(2.45) |
|
Underlying and diluted EPS (pence) |
|
7.29 |
(1.51) |
The Group presents basic and diluted earnings per share ("EPS") data for its ordinary shares. Basic EPS is calculated by dividing the underlying earnings, attributable to ordinary shareholders, by the weighted average number of ordinary shares in issue during the period.
As explained in note 1, the Group's financial statements reflect the continuation of the pre-existing group previously headed by JTCGHL. To aid comparability following the Group's reconstruction and share reorganisation, the number of ordinary shares issued to the original shareholders in exchange for their shareholding in JTCGHL has been used to best indicate the share capital in existence at that time and provide earnings per share information on a consistent basis.
|
9. |
Intangible assets and goodwill |
|
Customer |
|
|
Assets under |
|
|
|
|
Goodwill |
Contracts |
Licenses |
Software |
construction |
Total |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Cost |
|
|
|
|
|
|
|
|
At 1 January 2018 |
76,183 |
23,274 |
245 |
2,786 |
- |
102,488 |
|
|
Adjustments* |
27 |
- |
- |
- |
- |
27 |
|
|
Additions |
- |
- |
- |
194 |
65 |
259 |
|
|
Exchange differences |
(42) |
320 |
(2) |
- |
- |
276 |
|
|
At 30 June 2018 |
76,168 |
23,594 |
243 |
2,980 |
65 |
103,050 |
|
|
Accumulated amortisation |
|
|
|
|
|
|
|
|
At 1 January 2018 |
- |
2,730 |
29 |
1,785 |
- |
4,544 |
|
|
Charge for the period |
- |
1,065 |
10 |
263 |
- |
1,338 |
|
|
At 30 June 2018 |
- |
3,795 |
39 |
2,048 |
- |
5,882 |
|
|
Carrying amount |
|
|
|
|
|
|
|
|
At 30 June 2018 |
76,168 |
19,799 |
204 |
932 |
65 |
97,168 |
|
|
At 31 December 2017 |
76,183 |
20,544 |
216 |
1,001 |
- |
97,944 |
*Additional consideration paid in relation to a working capital adjustment for the NACT acquisition.
|
10. |
Property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
Office |
|
Assets |
|
|
|
|
Computer |
furniture and |
Leasehold |
under |
|
||
|
|
equipment |
equipment |
improvements |
construction |
Total |
||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Cost |
|||||||
|
|
At 1 January 2018 |
2,639 |
927 |
6,071 |
- |
9,637 |
|
|
|
Additions |
224 |
70 |
82 |
53 |
429 |
|
|
|
Disposals |
(270) |
(60) |
(25) |
- |
(355) |
|
|
|
Exchange differences |
(17) |
(14) |
11 |
- |
(20) |
|
|
|
At 30 June 2018 |
2,576 |
923 |
6,139 |
53 |
9,691 |
|
|
Accumulated depreciation |
|||||||
|
|
At 1 January 2018 |
1,938 |
735 |
1,460 |
- |
4,133 |
|
|
|
Charge for the period |
205 |
38 |
187 |
- |
430 |
|
|
|
Disposals |
(270) |
(60) |
(23) |
- |
(353) |
|
|
|
Exchange differences |
(16) |
(8) |
9 |
- |
(15) |
|
|
|
At 30 June 2018 |
1,857 |
705 |
1,633 |
- |
4,195 |
|
|
|
|
||||||
|
|
Carrying amount |
|
|
|
|
|
|
|
|
At 30 June 2018 |
719 |
218 |
4,506 |
53 |
5,496 |
|
|
|
At 31 December 2017 |
701 |
192 |
4,611 |
- |
5,504 |
|
|
11. |
Contract-related assets and liabilities |
|
|
|
30 Jun 2018 |
31 Dec 2017 |
|
|
|
|
|
|
|
£'000 |
£'000 |
|
|
|
Contract-related assets - non-current |
|
|
|
952 |
- |
|
|
|
Contract-related assets - current |
|
|
|
476 |
- |
|
|
|
Contract-related liabilities - non-current |
|
|
|
(830) |
- |
|
|
|
Contract-related liabilities - current |
|
|
|
(473) |
- |
|
|
|
Net contract-related assets |
|
|
|
125 |
- |
|
|
The commission fees due to intermediaries as a result of obtaining contracts are viewed as incremental costs of obtaining a contract and are expected to be recovered over the useful economic life. |
|||||||
|
In accordance with IFRS 15, the commission fees are capitalised as contract-related assets and amortised on a straight line basis over the useful economic life of the client contract. During the six months to 30 June 2018, the Group recognised amortisation of £214k. Contract-related liabilities represent the discounted value of future cash payments to be made to intermediaries for commissions. |
|||||||
12. Investment in equity-accounted investee
Kensington International Group Pte. Ltd ("KIG") provides corporate, fiduciary, trust and accounting services in Singapore and is a strategic partner for the Group, providing access to new clients and markets in the Far East.
|
|
|
% ownership interest |
|
|
|||||||
|
Name of entity |
Country of incorporation |
|
30 Jun 2018 |
31 Dec 2017 |
Nature of relationship |
Measurement method |
|||||
|
Kensington International Group Pte. Ltd ("KIG") |
Singapore |
|
42% |
42% |
Associate |
Equity method |
|||||
|
The carrying amount of the equity-accounted investment has changed as follows: |
|
||||||||||
|
|
|
30 Jun 2018 £'000 |
31 Dec 2017 £'000 |
|
|||||||
|
Carrying value at the beginning of the period / year |
|
886 |
674 |
|
|||||||
|
Increase in investment in the period / year |
|
- |
218 |
|
|||||||
|
Profit / (Loss) for the period / year |
|
104 |
(6) |
|
|||||||
|
Carrying value at the end of the period / year |
|
990 |
886 |
|
|||||||
|
13. |
Trade and other receivables |
30 Jun 2018 £'000 |
31 Dec 2017 £'000 |
|
|
Trade receivables |
14,195 |
13,498 |
|
|
Allowance for doubtful debts |
(3,041) |
(2,635) |
|
|
|
11,154 |
10,863 |
|
|
Accrued income |
8,213 |
8,051 |
|
|
Work in progress |
6,340 |
5,855 |
|
|
Total trade and other receivables |
25,707 |
24,769 |
|
14. |
Share capital and share premium |
|
30 Jun 2018 |
|
|
|
|
£'000 |
|
|
Authorised 300,000,000 Ordinary shares of £0.01 each |
|
3,000 |
|
|
Called up, issued and fully paid 106,896,552 Ordinary shares of £0.01 each |
|
1,069 |
The Company was incorporated on 12 January 2018 with an authorised share capital of £10,000 divided into 1,000,000 shares of £0.01 each, of which 2 shares were issued on incorporation at par. On 12 February 2018, the date of the IPO prospectus, a further 902,427 Ordinary Shares were issued, also at par.
Immediately prior to Admission, the Group undertook a reorganisation (the "Reorganisation") of its corporate structure that resulted in the Company being the ultimate holding company of the Group and JTCGH becoming a direct subsidiary of the Company. In connection with the Reorganisation and the IPO Offer, the Company's shareholders resolved by written resolution on 8 March 2018 that the authorised share capital of the Company be increased from £10,000 divided into 1,000,000 Ordinary Shares to £3,000,000 divided into 300,000,000 Ordinary Shares. The Reorganisation was effected pursuant to a Share Exchange Agreement made with the previous shareholders of, and holders of loan notes issued by, JTCGHL which was entered into on 14 March 2018.
Under the Share Exchange Agreement, all of the shares in, and Loan Notes (save in the case of certain Loan Notes which were repaid prior to Admission) issued by JTCGHL were transferred to the Company and the Company issued an additional 99,097,573 Ordinary Shares to such shareholders and noteholders following which the Company became the sole shareholder of JTCGHL. Completion of the Share Exchange Agreement took place immediately prior to Admission, being conditional upon the Board deciding to proceed with Admission and any necessary prior regulatory consents being obtained.
On 14 March 2018, the directors authorised the issue of 99,097,573 Ordinary shares at par for the Reorganisation and a further 6,896,552 Ordinary shares at par for the IPO Offer and Admission.
The IPO Offer comprised of the sale by Original Shareholders of 77,173,702 Ordinary shares and 6,896,552 New Ordinary Shares at £2.90 per share, raising gross proceeds of £243.8m. These were admitted to the Official List of the UK Listing Authority with a Premium Listing and approval to trade on the Main Market of the London Stock Exchange.
Following a capital appointment of £1.5m from EBT12 to PLC EBT (see note 3), 474,500 Ordinary shares in the Company were purchased and are held by PLC EBT and have been treated as own shares in accordance with IAS 32 'Financial Instruments'.
15. Loans and borrowings
|
|
|
30 Jun 2018 £'000 |
31 Dec 2017 £'000 |
|
Non-current |
|
|
|
|
Bank loans (i) |
|
43,892 |
- |
|
Investor loan notes (ii) |
|
- |
28,126 |
|
Management loan notes (iii) |
|
- |
34,029 |
|
Other loans |
|
847 |
1,186 |
|
|
|
44,739 |
63,341 |
|
Current |
|
|
|
|
Bank loan (i) |
|
- |
55,522 |
|
Other loans |
|
678 |
842 |
|
|
|
678 |
56,364 |
|
Total loans and borrowings |
45,417 |
119,705 |
|
(i) As part of the restructure at the time of the IPO, the Group settled the secured bank loan with HSBC Bank plc and Royal Bank of Scotland plc totalling £55.8 million. The issue costs of £251k associated with the loan have been written off, having previously been capitalised for amortisation over the term of the loan. To partially fund the repayment the Group has taken out a replacement loan arrangement with HSBC for £55m, of which £45m has been drawn as at 30 June 2018 with an additional £10m undrawn and available on a revolving credit facility and a further
£30m in the form of an undrawn accordion facility. Loan covenants in place monitor interest cover and leverage, with leverage defining the interest payable at a margin above LIBOR.
(ii) As part of the Reorganisation prior to the IPO, (save in the case of certain Loan Notes which were repaid prior to Admission), the Loan Notes were transferred to the Company and the Company issued Ordinary Shares to such noteholders. See note 14.
The following table details the Group's remaining contractual maturity for its loans and borrowings with agreed repayment years. This has been drawn up based on the undiscounted cash flows 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.
|
|
<3 months |
3 - 12 months |
1 - 5 years |
>5 years |
Total |
|
Loans and borrowings |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
30 June 2018 |
740 |
1,257 |
50,851 |
- |
52,848 |
|
31 December 2017 |
587 |
58,770 |
64,151 |
- |
123,508 |
With regards to interest rate sensitivity, 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 loss for the period ended 30 June 2018 would decrease/increase by £225k (year ended 31 December 2017: £278k).
|
16. |
Trade and other payables |
|
|
|
|
|
|
|
30 Jun 2018 |
31 Dec 2017 |
|
|
Current |
£'000 |
£'000 |
|
|
|
Trade payables |
398 |
415 |
|
|
|
Other taxation and social security |
163 |
145 |
|
|
|
Other payables* |
5,665 |
4,133 |
|
|
|
Deferred consideration*** |
5,217 |
5,356 |
|
|
|
Accruals |
3,580 |
4,687 |
|
|
|
Total current |
15,023 |
14,736 |
|
|
Non-current |
||||
|
|
Other payables** |
4,001 |
716 |
|
|
|
Deferred revenue |
1 |
2 |
|
|
|
Deferred consideration*** |
211 |
1,087 |
|
|
|
Total non-current |
4,213 |
1,805 |
|
|
*Includes £3.34m of discounted EBT12 capital distributions payable in March 2019. |
||||
|
**Includes £2.9m of discounted EBT12 capital distributions payable in March 2020. |
||||
|
***Deferred consideration paid in the period ended 30 June 2018 includes; £1.15m for the NACT acquisition and £0.45m for the S&GFA acquisition. |
||||
|
17. |
Share-based payments |
30 Jun 2018 |
30 Jun 2017 |
|
|
|
|
|
£'000 |
£'000 |
|
|
Acquisition related share based payments |
33 |
74 |
|
|
|
Non-acquisition related share based payments* |
139 |
195 |
|
|
|
Total share based payments expense |
172 |
269 |
|
|
*The non-acquisition related share based payments were all awarded prior to the IPO. |
||||
|
18. |
Related party transactions |
|
|
|
|
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. |
||||
|
The Group's other significant related parties are: |
||||
|
|
- |
Key management personnel, being those persons having the authority and responsibility for planning, directing and controlling the activities of the Group are defined as the board of directors of the principal operating entities, JTC PLC and JTCGHL. |
||
|
|
- |
CBPE Capital LLP ("CBPE"), a key shareholder prior to the IPO. The directors of CBPE were also directors of entities within the Group during the year ended 31 December 2017 and up to the IPO. |
||
|
Following the Reorganisation and prior to admission to the London Stock Exchange, the shares held and subsequently sold were as follows: |
||||
|
|
- |
Key management personnel held 27,822,439 Ordinary shares, 13,714,600 were sold, raising net proceeds of £38.78m. |
||
|
|
- |
CBPE held 42,654,162 Ordinary shares, they sold their entire shareholding, raising net proceeds of £120.60m. |
||
|
Following Admission, key management personnel hold 14,107,839 Ordinary shares, representing 13.2% of the total in issue. |
||||
|
The remuneration of key management personnel of the Group is set out below in aggregate for each of the categories specified in IAS 24 'Related Party Disclosures'. |
||||
|
|
|
|
6 Months to |
6 Months to |
|
|
|
|
30 Jun 2018 |
30 Jun 2017 |
|
|
|
|
£'000 |
£'000 |
|
|
Salaries and other short-term employee benefits |
719 |
601 |
|
|
|
Post employment and other long-term benefits |
32 |
30 |
|
|
|
Share based payments |
51 |
108 |
|
|
|
Total |
802 |
739 |
|
|
19. |
Changes in accounting policies |
|
|
|
|
|
This note explains the impact of the adoption of IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers' on the Group's financial statements and also discloses the new accounting policies that have been applied from 1 January 2018, where they are different to those applied in prior periods. |
|||||
|
(a) |
Impact on the financial statements |
|
|
|
|
|
As a result of the changes in the Group's accounting policies, prior year financial statements had to be restated. As explained in note 19(b) below, IFRS 9 was adopted without restating comparative information. The reclassifications and the adjustments arising from the new impairment rules are therefore not reflected in the restated balance sheet as at 31 December 2017, but are recognised in the opening balance sheet on 1 January 2018. |
|||||
|
The following table shows the adjustments recognised for each individual line item. The adjustments are explained in more detail by standard below. |
|||||
|
1 Jan 2018 |
|||||
|
|
As originally presented |
IFRS 15 |
IFRS 9 |
1 Jan 2018 |
|
|
|
Balance sheet |
£'000 |
£'000 |
£'000 |
£'000 |
|
Non-current assets |
|||||
|
|
Goodwill |
76,183 |
- |
- |
76,183 |
|
|
Other intangible assets |
21,761 |
- |
- |
21,761 |
|
|
Property, plant and equipment |
5,504 |
- |
- |
5,504 |
|
|
Contract-related assets |
- |
227 |
- |
227 |
|
|
Investment in equity-accounted investee |
886 |
- |
- |
886 |
|
|
Other debtors and prepayments |
940 |
- |
- |
940 |
|
|
Deferred tax assets |
61 |
- |
- |
61 |
|
|
Total non-current assets |
105,335 |
227 |
- |
105,562 |
|
Current assets |
|||||
|
|
Contract-related assets |
- |
92 |
- |
92 |
|
|
Trade and other receivables |
24,769 |
- |
(301) |
24,468 |
|
|
Other debtors and prepayments |
2,639 |
- |
- |
2,639 |
|
|
Current tax receivables |
24 |
- |
- |
24 |
|
|
Cash and cash equivalents |
16,164 |
- |
- |
16,164 |
|
|
Total current assets |
43,596 |
92 |
(301) |
43,387 |
|
|
Total assets |
148,931 |
319 |
(301) |
148,949 |
|
|
Share capital |
10 |
- |
- |
10 |
|
|
Share premium |
238 |
- |
- |
238 |
|
|
Own shares |
(1) |
- |
- |
(1) |
|
|
Capital reserve |
(1,213) |
- |
- |
(1,213) |
|
|
Translation reserve |
1,110 |
- |
- |
1,110 |
|
|
Accumulated profits |
2,884 |
133 |
(301) |
2,716 |
|
|
Total equity |
3,028 |
133 |
(301) |
2,860 |
|
Non-current liabilities |
|||||
|
|
Contract-related liabilities |
- |
125 |
- |
125 |
|
|
Loans and borrowings |
63,341 |
- |
- |
63,341 |
|
|
Provisions |
646 |
- |
- |
646 |
|
|
Deferred tax liabilities |
2,817 |
- |
- |
2,817 |
|
|
Trade and other payables |
1,805 |
- |
- |
1,805 |
|
|
Total non-current liabilities |
68,609 |
125 |
- |
68,734 |
|
Current liabilities |
|||||
|
|
Contract-related liabilities |
- |
167 |
- |
167 |
|
|
Loans and borrowings |
56,364 |
- |
- |
56,364 |
|
|
Provisions |
187 |
- |
- |
187 |
|
|
Trade and other payables |
14,736 |
(106) |
- |
14,630 |
|
|
Deferred revenue |
5,012 |
- |
- |
5,012 |
|
|
Current tax liabilities |
995 |
- |
- |
995 |
|
|
Total current liabilities |
77,294 |
61 |
- |
77,355 |
|
|
Total equity and liabilities |
148,931 |
319 |
(301) |
148,949 |
(b) IFRS 9 'Financial Instruments' - Impact of adoption
IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.
The adoption of IFRS 9 'Financial Instruments' from 1 January 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. The new accounting policies are set out in note 19(c) below. In accordance with the transitional provisions in IFRS 9 (7.2.15) and (7.2.26), comparative figures have not been restated.
The total impact on the Group's retained earnings as at 1 January 2018 is as follows:
|
|
Notes |
£'000 |
|
Closing retained earnings 31 December 2017 - IAS 39 Reclassify investments from available-for-sale to Fair Value through Profit and Loss ("FVPL") |
(i) |
2,884 - |
|
Increase in provision for trade and other receivables |
(ii) |
(301) |
|
Adjustment to retained earnings from adoption of IFRS 9 on 1 January 2018 |
|
(301) |
|
Opening retained earnings 1 January 2018 - IFRS 9 (before restatement for IFRS 15) |
|
2,583 |
(i) Classification and measurement
On 1 January 2018 (the date of initial application of IFRS 9), management has assessed that loans as well as trade receivables are held to collect contractual cash flows and give rise to cash flows representing solely payments of principal and interest and will therefore continue to be measured at amortised cost under IFRS 9. The application of the classification and measurement requirements of IFRS 9 had no financial impact on the balance sheet or equity of the Group.
(ii) Impairment of financial assets
The Group was required to revise its impairment methodology under IFRS 9 for each class of financial asset. The impact of the change in impairment methodology on the Group's retained earnings and equity is disclosed in the table in note 19(b) above.
While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.
Trade and other receivables
The Group applies the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables, further enhanced by specific provisions where deemed appropriate by management.
To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The expected credit losses on trade receivables are estimated using a provision matrix based on the Group's historical credit loss experience, adjusted for factors that are specific to the debtors' general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date. Provision rates are segregated according to geographical location and by client division.
On that basis, the total loss allowance as at 1 January 2018 was determined as follows for trade receivables.
|
Trade Receivable Allowance 1 January 2018 |
< 30 Days |
31 - 60 Days |
61 - 120 Days |
> 120 Days |
Total |
|
Gross carrying amount (£'000) |
4,215 |
2,149 |
1,360 |
5,774 |
13,498 |
|
Loss allowance (£'000) |
(81) |
(86) |
(122) |
(2,583) |
(2,872) |
|
Expected loss rate |
1.92% |
4.00% |
8.97% |
44.74% |
21.28% |
The other receivables relate to unbilled work and have substantially the same risk characteristics as the trade receivables. The Group has therefore concluded that the expected loss rates for trade receivables < 30 days, being 1.9%, is an appropriate estimation of the expected credit loss on other receivables this results in a loss allowance of
£64k as at 1 January 2018.
|
The loss allowances for trade receivables and other receivables as at 31 December 2017 reconcile to the opening loss allowances on 1 January 2018 as follows: |
|||||
|
|
|
Trade |
Other |
Total |
|
|
|
|
|
£'000 |
£'000 |
£'000 |
|
|
At 31 December 2017 - calculated under IAS 39 |
2,635 |
- |
2,635 |
|
|
|
Amounts restated through opening retained earnings |
237 |
64 |
301 |
|
|
|
Opening loss allowance as at 1 January 2018 - calculated under IFRS 9 |
2,872 |
64 |
2,936 |
|
|
The loss allowance on trade receivables increased by a further £169k to £3,041k for trade receivables as at 30 June 2018 (See note 13). |
|||||
|
Trade receivables and other receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, the failure of a debtor to engage in a repayment plan with the Group (and no payments have been received for a period of time) and contact with the client has been lost. |
|||||
|
(c) |
IFRS 9 'Financial Instruments' - Accounting policies applied from 1 January 2018 |
|
|
|
|
|
Investments and other financial assets |
|||||
|
(i) |
Classification |
|
|
|
|
|
From 1 January 2018, the Group classifies its financial assets in the following measurement categories: |
|||||
|
|
- |
those to be measured subsequently at fair value (either through other comprehensive income, or through the profit and loss account), and |
|||
|
|
- |
those to be measured at amortised cost. |
|
|
|
|
The classification depends on the Group's business model for managing the financial assets and the contractual terms of the cash flows. |
|||||
|
For assets measured at fair value, gains and losses will either be recorded in the profit and loss account or other comprehensive income. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income ("FVOCI"). |
|||||
|
The Group reclassifies debt investments when and only when its business model for managing those assets changes. |
|||||
|
(ii) |
Measurement |
|
|
|
|
|
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at FVPL, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed through the profit and loss account. |
|||||
|
Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. |
|||||
|
Debt instruments |
||
|
Subsequent measurement of debt instruments depends on the Group's business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Group classifies its debt instruments: |
||
|
|
- |
Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit and loss and presented in other gains/(losses), together with foreign exchange gains and losses. Impairment losses are presented as separate line item in the statement of profit and loss. |
|
|
- |
Fair Value through Other Comprehensive Income ("FVOCI"): Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets' cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through Other Comprehensive Income ("OCI"), except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses which are recognised in profit and loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit and loss and recognised in other gains/(losses). Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other gains/(losses) and impairment expenses are presented as separate line item in the statement of profit and loss. |
|
|
- |
FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. A gain or loss on a debt investment that is subsequently measured at FVPL is recognised in profit and loss and presented net within other gains/(losses) in the period in which it arises. |
|
Equity instruments |
||
|
The Group subsequently measures all equity investments at fair value. Where the Group's management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit and loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit and loss as other income when the Group's right to receive payments is established. |
||
|
Changes in the fair value of financial assets at FVPL are recognised in other gains/(losses) in the statement of profit and loss as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value. |
||
|
(iii) |
Impairment |
|
|
From 1 January 2018, the Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. |
||
|
For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. |
||
(d) IFRS 15 'Revenue from Contracts with Customers' - Impact of adoption
The Group has adopted IFRS 15 'Revenue from Contracts with Customers' from 1 January 2018 which resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements.
In accordance with the transition provisions in IFRS 15, the Group has applied the modified retrospective approach, which means that the cumulative impact of the adoption is recognised in retained earnings as of 1 January 2018 and that the comparative figures have not been restated.
(i) Accounting for costs to obtain a contract
When commission is due to a third party or intermediary to obtain a contract, the Group previously expensed these as commissions payable. For the year ended 31 December 2017, the expense was £269k. Following their IFRS 15 assessment, the directors concluded that the commission fees paid are incremental to obtaining a contract and are expected to be recovered over the term of the contract and therefore should be capitalised. As a result, the Group now estimates the commissions due over the life of each contract and capitalises these costs as current and non current contract-related assets. The assets are then amortised on a straight line basis over the expected term of the specific contract it relates to, with an amortisation charge recognised on the income statement. When the expected life of a contract is less than one year, the commissions payable will be expensed directly to the profit and loss account.
Current and non current contract-related liabilities are also now recognised being the commissions payable over the term of the contract. These are discounted to record the net present value of the obligation with the unwinding of discount also now shown in the income statement, within finance costs. The current contract-related liabilities reflect the cash flows expected within one year and would be reduced as payments are made.
To reflect this change in policy:
- accrued commissions payable of £106k in Trade and other payables were reversed,
- contract-related assets of £319k were recognised, split between current and non-current, £92k and £227k,
- contract-related liabilities of £292k were recognised, split between current and non-current, £167k and £125k.
The net adjustment to retained earnings on 1 January 2018 was £133k.
The following sets out the adjustments made to the amounts recognised in the balance sheet at the date of initial application (1 January 2018):
|
|
IAS 18 carrying amount |
|
IFRS 15 carrying amount |
|
|
31 Dec 2017 £'000 |
Reclassification £'000 |
1 Jan 2018 £'000 |
|
Non-current contract-related assets |
- |
227 |
227 |
|
Current contract-related assets |
- |
92 |
92 |
|
Non-current contract-related liabilities |
- |
125 |
125 |
|
Current contract-related liabilities |
- |
167 |
167 |
|
Trade and other payables |
14,736 |
(106) |
14,630 |
The impact on the Group's retained earnings as at 1 January 2018 is as follows:
|
|
|
£'000 |
|
Retained earnings - after IFRS 9 restatement (see note 19b) |
|
2,583 |
|
Recognition of asset for costs to fulfil a contract (i), adjustment to be retained earnings from adoption of IFRS 15 |
|
133 |
|
Opening retained earnings 1 January 2018 - IFRS 9 and IFRS 15 |
|
2,716 |
Since 1 January 2018, the Group has recognised additional contract-related assets and liabilities and the net position after amortisation of the assets and discounting and payments against the liabilities, is shown in note 11. During the six months to 30 June 2018, the Group recognised amortisation charges of £214k, finance costs of £30k and foreign exchange differences of £10k, reducing profit after tax by £255k.
|
(e) |
IFRS 15 'Revenue from Contracts with Customers' - Accounting policies |
||||
|
(i) |
Rendering of services |
||||
|
The Group is a multijurisdictional, independent provider of fund, corporate and private wealth services. Revenue from the rendering of these services is recognised in the accounting period in which the services are rendered. For fixed fee contracts, revenue is recognised on a straight-line basis over the term of the contract, as the customers simultaneously benefit from the services as they are performed. |
|||||
|
Some contracts include multiple deliverables, such as client set-up fees. However, as client set-up engages multiple groups throughout the organisation, has a different risk profile, is non-recurring in nature, separately identifiable from the other services promised in the contract and the customer can benefit from the service on its own, it is therefore accounted for as a separate performance obligation. In this case, the transaction price will be allocated to each performance obligation based on the stand-alone selling prices. If contracts include set-up fees, revenue for this performance obligation is recognised when control over the corresponding service is transferred to the customer. |
|||||
|
(ii) |
Financing components |
||||
|
The Group does not ordinarily expect to have any contracts where the period between the transfer of the promised services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money. |
|||||
|
(iii) |
Costs to obtain a contract |
||||
|
Incremental costs of obtaining a contract (i.e. costs that would not have been incurred if the contract had not been obtained) will be recognised as a contract-related asset if the costs are expected to be recovered over the useful economic life of the client contract. The capitalised costs of obtaining a contract will be amortised on a straight line basis over the estimated UEL of the contract. The asset will be subject to an impairment analysis each period end. |
|||||
|
Incremental costs of obtaining a contract are expensed when incurred, if the amortisation period of an asset that the entity would have recognised is one year or less. |
|||||
|
Contract-related liabilities are recognised to reflect the incremental costs payable (e.g. sales commissions). The expected cash flows are discounted using an appropriate rate to establish the net present value of the obligations. The unwinding of the discount is shown in finance costs in the income statement. |
|||||
|
20. |
Events after the reporting period |
||||
|
(a) |
Business combinations |
||||
|
(i) |
Acquisition of Van Doorn CFS B.V. |
||||
|
On 17 August 2018, the Company entered into an agreement with International Capital Group B.V. to purchase the entire issued share capital of Van Doorn CFS B.V., a specialist provider of corporate and related fiduciary services based in Amsterdam, in the Netherlands. The consideration for the acquisition will be satisfied through the payment of €10.5m cash (adjusted for net working capital and net debt), consideration shares in the Company to the value of €5m and contingent consideration up to a maximum of €5.5m (subject to meeting appropriate EBITDA and Revenue performance criteria). |
|||||
|
(ii) |
Acquisition of Minerva Holdings Limited and MHL Holdings SA |
||||
|
On 5 September 2018, the Company entered into an agreement with Dome Management Limited and Dome Management SA to purchase the entire issued share capital of Minerva Holdings Limited and MHL Holdings SA, a fund, corporate and private wealth services provider with operations in Jersey, London, Geneva, Singapore, Dubai and Mauritius. The consideration for the acquisition will be satisfied through the payment of £16.8m cash (adjusted for net working capital and net debt), consideration shares in the Company to the value of £11.2m and contingent consideration up to a maximum of £2m (subject to achieving a minimum EBITDA margin of 30%). |
|||||
|
For the two acquisitions noted above, at the date the condensed financial statements were authorised for issue, it was impracticable to disclose the information required by IFRS 3 'Business Combinations' as management needed to consider the pertinent facts and circumstances surrounding each of the business combinations in order to appropriately determine the date upon which control was obtained and then make their fair value assessments.
|
|||||
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