Source - LSE Regulatory
RNS Number : 3826M
JTC PLC
21 September 2021
 

21 September 2021

JTC PLC

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

Interim results for the period ended 30 June 2021

JTC announces H1 revenue and profit up 24.8% and 22.6% respectively, demonstrating its continued market resilience

 

As reported

Underlying*

 

H1 2021

H1 2020

Change

H1 2021

H1 2020

Change

Revenue (£m)

67.0

53.7

+24.8%

67.0

53.7

+24.8%

EBITDA (£m)

19.9

16.7

+19.5%

21.9

17.9

+22.6%

EBITDA margin

29.7%

31.0%

-1.3pp

32.7%

33.3%

 -0.6pp

Operating profit/EBIT (£m)

11.7

10.2

+14.7%

13.8

11.5

+20.1%

Profit before tax (£m)

36.8

10.4

+254.8%

11.4

9.9

+15.4%

Earnings per share (p)**

29.73

8.62

+244.8%

11.74

10.47

+12.2%

Cash conversion

103%

93%

+10pp

108%

108%

 -

Net debt (£m)

-28.2

-70.5

+42.3

-23.6

-68.0

 +44.4

Interim dividend per share (p)

2.6

2.4

 +0.2p

2.6

2.4

 +0.2p

 

*     For further information on underlying results see appendix to CFO Review.

**    Average number of shares for H1 2021: 122,883,321 (H1 2020: 114,350,893)

financial highlights

·  Revenue up 24.8% to £67.0m (H1 2020: £53.7m), reflecting continued good net organic growth of 7.6% (+16.0% gross) and inorganic growth of 17.2%

·  Underlying EBITDA up 22.6% to £21.9m (H1 2020: £17.9m) with an underlying EBITDA margin of 32.7% (H1 2020: 33.3%)

·  Annualised new business wins totalling £10.3m (H1 2020: £8.6m), comprising £4.8m in ICS and £5.5m in PCS which included our largest ever single mandate (c. £2.5m per annum)

·  Strong underlying cash conversion of 108% (H1 2020: 108%)

·  Interim dividend of 2.6p per share (H1 2020 2.4p)

·  A robust balance sheet further strengthened by £65.9m gross proceeds from our April fundraise, and including an undrawn £45.6m out of the available £150m banking facilities with no debt falling due for repayment before 2023

 

STRATEGIC HIGHLIGHTS

·  Margin improvement in the ICS Division coming through as planned alongside good growth in revenue and new business won

·  Continued strong performance in the PCS Division including record new business wins and further investment in people and service development

·  Excellent progress being made with the integration of the RBC cees employee benefits business in the Channel Islands and UK

·  Acquired INDOS, a specialist depositary, AML and ESG governance services business with operations in the UK and Ireland

·  Post period end announced the acquisitions of Segue Partners (US Fund Services) and Ballybunion Capital (Irish Fund Services)

·  Post period end, £20m of shares awarded to all employees globally as part of JTC's innovative shared ownership model, where all employees are direct owners of the business.

 

OUTLOOK

·  The momentum seen in Q2 for new business won has continued into early H2 and the Board expects to deliver full year results in line with management guidance and market expectations

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

·  Continued focus on the integration of RBC cees and INDOS, which are both expected to achieve results in line with management expectations

·  Focus on completion and integration of Segue and Ballybunion

·  The Group remains well invested to deliver continued operational improvement

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

 

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

 

"We are very pleased with progress made in the period, which is the first six months of our new Galaxy Era business plan. The core business performed strongly despite the ongoing market challenges and it was particularly pleasing to see margin improvement in the ICS Division, continued strong performance from the PCS Division and a strong flow of new business wins, including our largest ever single mandate. We are delighted with our acquisitions of RBC cees and INDOS and the pace of integration of those businesses onto our global platform. The post period end acquisitions of Segue in the US and Ballybunion in Ireland further demonstrate the momentum of our disciplined inorganic growth strategy.  Most importantly, our people and culture remain at the heart of JTC's success and we were proud to make a post period award of £20m in JTC shares to all our people globally, reflecting the substantial growth of the business since IPO in 2018.  These results demonstrate the continued resilience of our business, which I am delighted to report, continues to deliver profitable growth and consistent returns for all our shareholders."

 

 

Chief Executive Officer's Review

Success through shared endeavour

Nigel Le Quesne, Chief Executive Officer

 

shared ownership

 

It is always satisfying to deliver rewards to those who deserve it. Post period end, on 22 July, we awarded c.£20m worth of JTC shares to our global team to reflect the performance of the business since listing in 2018 and the contribution made by each person to the growth and success of the Group in the ensuing period. Shared ownership for all JTC employees was established in 1998 and we have been unwavering in our commitment to it as the cornerstone of our culture ever since. In the 23 years since JTC established shared ownership, we have directly distributed £46m via three separate awards and created value in excess of £350m for owner-employees. Much of this value is still held in the Company today, with our people owning c.20% of the issued share capital of the business, a figure we are proud of. The timing and quantum of the award allowed us to once again recognise the Group's most valuable asset, its people, in spite of the ongoing challenges of Covid. We believe that our innovative approach to shared ownership creates a bond and dedication between the JTC teams which goes far beyond the individual financial benefits each person derives. It creates an environment of mutual respect and camaraderie, which in turn creates an understanding of the importance and satisfaction that comes from the enhanced results of shared endeavour.  

 

FINANCIAL PERFORMANCE

 

Performance continues to be in line with market expectations set pre-Covid. In comparing to the same period last year, Group revenue increased 24.8% to £67.0m (H1 2020: £53.7m) and underlying EBITDA increased 22.6% to £21.9m (H1 2020: £17.9m). Our underlying EBITDA margin fell slightly by 0.6pp to 32.7% (H1 2020: 33.3%) but excluding acquisitions was stable within the core business at 34.7% (H1 2020: 34.8%).

 

Net organic growth was 7.6% (H1 2020: 10.1%) and reflected an exceptional period in the prior year. The annualised value of new business won increased 19.8% to £10.3m (H1 2020: £8.6m) and we typically expect to convert c.60% of this to revenue within the financial year. Business won in the period included the largest single mandate ever secured by the Group (£2.5m+ per annum), demonstrating our ability to win larger and more complex work from major global institutions.

 

Underlying net debt at 30 June 2021 was £23.6m, representing 0.55x underlying EBITDA (31 December 2020: 1.96x) following our successful fund raise in April. Underlying cash conversion was strong at 108% (H1 2020: 108%).   

 

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

 

Institutional Client Services (ICS) division

 

Revenue increased 31.2% in the period to £39.8m (H1 2020: £30.3m) with last twelve months ("LTM") net organic growth of 5.9% (H1 2020: 8.9%). Underlying EBITDA increased 40.8% to £11.6m (H1 2020: £8.2m) and pleasingly, the underlying EBITDA margin improved by 2.0pp to 29.1% (H1 2020: 27.1%) and excluding acquisitions made since 2020 (NESF, RBC cees and INDOS), the core ICS business showed an even greater improvement of 2.2pp to 31.6% (H1 2020: 29.4%). This is a direct result of the structural, behavioural and technological changes and reorganisation that have been undertaken within the Division and the fund services practice in particular. We expect this momentum to continue as the Division works its way back to our Group guidance range of 33% to 38% over the medium-term.

 

New business wins in H1 were £4.8m (H1 2020: £6.9m). We have seen an encouraging start to H2 with £2.5m of mandates won in July and August - which are traditionally quieter months. While the fund services market remained generally subdued, the volume of new fund mandates won increased by 28% over H1 2020.

 

In H1 2021, we completed the acquisition of the RBC cees business in Jersey, Guernsey and the UK and have re-launched JTC Employer Solutions as a service line of the ICS practice. The business has integrated seamlessly and the cross-selling opportunities across both divisions are significant and some of which we expect to start appearing in H2.

 

Also completed during the period was the acquisition of INDOS, which adds further expertise and sophistication to the Group, adding best in class Depositary and AML service capabilities with teams in both the UK and Ireland. INDOS' ESG services have been migrated to the JTC brand and an expanded suite of ESG services will be rolled out in H2, which again will also deliver cross-selling opportunities with our PCS Division. 

 

Post period end we announced the acquisitions of Segue Partners in the US and Ballybunion Capital in Ireland. Both of these bolt-on transactions bring with them talented teams and high quality client books. Segue will further expand our footprint in the strategically important US fund services market and Ballybunion adds Irish Management Company (ManCo) services and will be a key part of our growing Irish fund services platform.

 

The ICS Division enjoys strong market fundamentals and we will continue to invest in the platform to deliver organic growth as well as seeking to add further high quality businesses through disciplined acquisition. The drive to make the ICS practice the envy of the competition - as has become the case with PCS - is well underway and a new marketing campaign that will better articulate 'the JTC edge' in this regard will be rolled out in H2.

 

 

PRIVATE CLIENT SERVICES (PCS) DIVISION

 

Revenue showed a 16.5% increase in the period to £27.2m (H1 2020: £23.4m) driven by LTM net organic growth of 9.9% (H1 2020: 11.8%). Underlying EBITDA increased by 7.1% to £10.4m (H1 2020: £9.7m) and the underlying EBITDA margin decreased by 3.4pp to 38.0% (H1 2020: 41.4%). This reflected planned re-investment in the Division in terms of new talent, service lines and further technology development. The PCS business is scaling up its operational platform to meet demand from new business wins and in preparation for further growth. It is also worth noting that regulatory scrutiny and the degree of complexity in our sector continues to increase across most jurisdictions and generates costs - in both Divisions - that today are being absorbed within the business. One upside to this pressure is that it also acts as a positive driver for M&A, pushing smaller operators to seek to become part of larger platforms such as JTC that are better equipped to manage regulation efficiently and effectively on a global basis.

 

New business wins were particularly strong in H1 and the Division achieved a record £5.5m of annualised value (H1 2020: £1.7m). This included one large mandate of c.£2.5m per annum from a major global financial institution, which demonstrates our ability to win increasingly large and complex pieces of work. The overall new business performance was particularly pleasing given ongoing travel restrictions.

 

The PCS division continues to be a clear leader in its sector and we see multiple new opportunities. In addition to continuing to provide top quality trust and company services, we are introducing a number of additional services and strengthening our presence and service offering in existing markets that present the biggest growth opportunities, including the greenfield development of a US domestic practice that will complement our rapidly growing international practice based in South Dakota.

 

The PCS Division of JTC is shaping the market and we are excited and confident about its prospects in the second half of the year and beyond.

 

Inorganic Growth

 

We are very pleased with both the RBC cees and INDOS acquisitions and in particular the pace of integration onto our platform and cultural fit with the Group. We expect RBC cees to be one of our most successful deals in terms of return on capital and also anticipate strong organic growth from this market leading business. INDOS is representative of our ambitions to move up the value chain with our ICS services, providing a range of highly sophisticated services that command a premium in the market and perfectly complement our established administration services.

 

Since our successful fund raise in April, we have materially progressed a number of target opportunities and the post period end acquisitions of Segue Partners in the US and Ballybunion Capital in Ireland are further examples of our disciplined inorganic growth strategy and ability to attract high quality bolt-on businesses to become part of the JTC platform.  We believe that we see opportunities that others don't and will continue to apply our 2+2=5 approach, which leverages our substantial experience and sector knowledge to find deals that add long-term value to the Group.

 

Risk

The principal risks facing the Group remain as set out in our 2020 Annual Report. Ongoing material risks include acquisition risk, client risk, data protection and cyber security risk, staff resourcing risk, political and regulatory change risk, and regulatory and procedural compliance risk. The Covid-19 pandemic continues to present a particular set of risks and we believe that the business has demonstrated great resilience to date in this regard. Overall, we remain satisfied as to the effectiveness of the Group's risk analysis, management and culture, developed over more than 30 years of JTC operations.

Dividend

 

The Board has recommended an interim dividend of 2.6p per share, an increase of 0.2p period on period (H1 2020: 2.4p). The interim dividend will be paid on 29 October 2021 to shareholders on the register as at close of business on the record date of 1 October 2021.

 

Outlook

 

As we progress through the first year of our Galaxy Era business plan, we are very pleased with the performance and continued resilience of the business and are well on our way to our 34th consecutive year of growth. We remain incredibly ambitious for JTC and believe that the long-term growth drivers of increasing global wealth; increasing regulation and complexity; opportunities provided by technology; a growing propensity for clients to outsource; consolidation within the industry and the rise of environmental, social and governance (ESG) all provide positive tailwinds and momentum for the Group. Our compounding strategy of consistent organic growth within the core business, continuous refinement of our global platforms to deliver operational excellence and disciplined inorganic growth will enable us to capture these opportunities and generate long-term growth and value for all our stakeholders.

 

Nigel Le Quesne

Chief Executive Officer

 

 

Chief Financial Officer's Review

Continuing to deliver growth

Martin Fotheringham, Chief Financial Officer

Revenue

In H1 2021, revenue was £67.0m, an increase of £13.3m (+24.8%) compared with H1 2020.

Whilst the global economic backdrop in H1 2021 provided less conducive conditions for new business we delivered net organic growth of 7.6% in the last twelve months ("LTM") to 30 June 2021. Our rolling three year average is now 8.6% and within our medium-term guidance range of 8-10% net organic growth. Included in the period was our largest single new business win and whilst this will take time to deliver its full potential it is further evidence of our ability to secure significant mandates from large institutions.

The growth in H1 2021 comprised gross new business of 16.0% (H1 2020: 17.7%), inorganic growth of 17.2% (H1 2020: 5.1%) reflecting an active twelve months of M&A, and attrition of 8.4% (H1 2020: 7.6%). The higher attrition offset gross new business and resulted in a reduction in the retention of revenues that were not end of life to 97.0% (H1 2020: 97.5%). Non end of life attrition is largely the result of pricing levels whereby we are seeing that smaller clients are seeking lower cost solutions. The rolling three year average retention of not end of life revenues was 97.8%.

ICS LTM net organic growth was 5.9% (H1 2020: 8.9%) with a rolling three year average of 9.0%. The macroeconomic environment has undoubtedly caused a slowdown of new business with ICS growth being hardest hit in the US. Attrition for the division for the year was 9.1% (H1 2020: 7.7%). This was driven by 6.3% for end of life losses and attrition is expected to return to historic levels by the year end.

PCS LTM net organic growth was 9.9% (H1 2020: 11.8%) with a rolling three year average of 8.0%. We continue to see strong demand for our Private Client offering and were pleased at the strong growth in Cayman, Guernsey, Jersey, Mauritius and the US. Attrition in PCS was consistent with prior periods at 7.5% (H1 2020: 7.4%).

LTM revenue growth, on a constant currency basis is summarised in the chart below.

 

PLC

ICS

PCS

LTM revenue Jun 20

£103.8m

£59.0m

£44.8m

Lost - JTC decision

(£1.0m)

(£0.6m)

(£0.4m)

Lost - Moved service provider

(£2.1m)

(£1.1m)

(£1.0m)

Lost - End of life/no longer required

(£5.5m)

(£3.6m)

(£1.9m)

Net more from existing clients

£9.0m

£4.4m

£4.5m

New clients

£7.4m

£4.1m

£3.3m

Acquisitions

£15.4m

£11.0m

£4.5m

LTM revenue Jun 21

£127.0m

£73.2m

£53.8m

Acquisitions

Acquisitions contributed £15.4m of new revenue in the period broken down as follows:

 

PLC

ICS

PCS

INDOS (Q2 2021)

£0.3m

£0.3m

-

RBC cees (Q2 2021)

£5.2m

£5.2m

-

Sanne (Q3 2020)

£4.5m

-

£4.5m

NESF (Q2 2020)

£5.3m

£5.3m

-

Anson Registrars (Q1 2020)

£0.1m

£0.1m

-

Total

£15.4m

£10.9m

£4.5m

When JTC acquires a business, the acquired book of clients is defined as inorganic. These clients continue to be treated as inorganic for the first two years of JTC ownership.

NEW BUSINESS/PIPELINE

During H1 2021, JTC secured new work with an annual value of £10.3m (H1 2020: £8.6m) and £2.9m of this was recognised during the period. The divisional split of new work won was ICS £4.8m (H1 2020: £6.9m) and PCS £5.5m (H1 2020: £1.7m). The PCS new business wins were strong and pleasingly we are seeing an increase in the size of mandates won. Whilst new business wins increased we continue to see delays in bringing these through to revenue due to a slower rate of launch of new funds as investors continue to be deterred by the uncertainty in the macroeconomic environment as well as the increased complexity of on-boarding larger client mandates.

The enquiry pipeline decreased by £0.2m (-0.7%) from £45.5m at 31 December 2020 to £45.3m at 30 June 2021 although the decrease was impacted by securing our largest ever single mandate.

UNDERLYING EBITDA AND MARGIN PERFORMANCE

Underlying EBITDA in H1 2021 was £21.9m, an increase of £4.0m (22.6%) from H1 2020. The underlying EBITDA margin for the Group was 32.7% (H1 2020: 33.3%).

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

ICS's underlying EBITDA margin increased from 27.1% in H1 2020 to 29.1% in H1 2021. Excluding acquisitions made since 2020 (NESF, RBC cees and INDOS) the EBITDA margin for the division was 31.6% (H1 2020: 29.4%). This demonstrates the strong progress in the implementation of a revised operating model in the division and our focus for future reporting will be on the overall divisional margin.  

PCS's underlying EBITDA margin decreased to 38.0% from 41.4% in H1 2020. The division continues to perform well and the drop in margin is reflective of the reinvestment in people and systems. We have also seen increasing amounts of time spent handling regulatory oversight.

DEPRECIATION AND AMORTISATION

The depreciation and amortisation charge increased to £8.2m in H1 2021 from £6.4m in H1 2020. £0.9m of this increase was as a result of acquired intangible customer relationships and £0.6m of the increase was as a result of an increased charge for right-of-use assets. This reflects the enlarged footprint of the business.

STATUTORY OPERATING PROFIT

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

Statutory operating profit is impacted by non-underlying costs which are higher than H1 2020, primarily as a result of the costs associated with increased M&A activity.

PROFIT BEFORE TAX

The reported profit before tax was £36.8m (H1 2020: £10.4m).

Adjusting for non-underlying items, the underlying profit before tax for H1 2021 was £11.4m (H1 2020: £9.9m). The improvement reflects the growth in revenues although the margin decreased in the period. The company is aware of the proposed introduction of minimum global tax rates and we believe that it is too early to be able to accurately assess the impact such a change would have on JTC.

NON-UNDERLYING ITEMS

Non-underlying items incurred in the period totalled a £25.5m credit (H1 2020: £0.5m credit). Included within EBITDA were the following:

·      £1.7m acquisition and integration costs (H1 2020:  £1.1m)

·      £0.3m revision of ICS operating model (H1 2020: nil)

 

Also included in non-underlying items were the following:

 

·      £20.9m credit of the reversal of contingent consideration (H1 2020: nil)

·      £8.0m gain on bargain purchase of RBC cees (H1 2020: nil)

 

·      £1.4m foreign exchange losses (H1 2020: £1.8m credit)

 

The credit on reversal of contingent consideration arises due to the requirement to revalue the equity-settled financial liability in relation to the NESF acquisition. When we purchased NESF we ensured that there was a two year capped earn-out and that all future contingent consideration would be settled in JTC equity. Due to the continued Covid-19 impact on new business, management has forecast that the US ICS business is unlikely to achieve the required EBITDA threshold for the second earn-out. We have therefore credited operating profit with the £20.9m reversal of contingent consideration that had previously been accrued.

 

We do, however, remain confident in the growth outlook for the US ICS business as evidenced by no impairment to intangible assets.

 

The gain on bargain purchase with respect to the RBC cees acquisition reflects the fact that the price paid for this business was less than the fair value of the assets acquired.

 

We announced the distribution of the EIP awards post period end. These awards were made in JTC shares and will be reflected in the full year results. These will be treated as a non-underlying item and will reduce the large credit recorded in H1.

UNDERLYING EARNINGS PER SHARE

Underlying basic EPS increased by 12.2% and was 11.74p (H1 2020: 10.47). Underlying basic EPS is the profit for the year adjusted to remove the impact of non-underlying items within profit after tax, amortisation of customer relationships and associated deferred tax impact, amortisation of loan arrangement fees and unwinding of net present value discounts.

CASH FLOW AND DEBT

Cash generated from underlying operating activities was £22.5m (H1 2020: £19.4m) and the underlying cash conversion was 108% (H1 2020: 108%). This reflects the highly cash generative nature of our business and we maintain our full year market guidance range of 85%-90%.

Underlying net debt at the period end was £23.6m compared with £68.0m at 30 June 2020. Underlying leverage is therefore 0.55 times underlying EBITDA (H1 2020: 1.82 times). At 31 December 2020 net debt was £75.8m. In April 2021 the group raised gross proceeds of £65.9m from an equity fundraise. This strengthened our balance sheet and will allow the Group to capitalise on a high quality pipeline of near-term acquisition opportunities and deliver on a disciplined and proven approach to inorganic growth.

Our banking facility of £150m has a total undrawn balance at 30 June 2021 of £45.6m. The facilities expire on 8 March 2023.

 

Martin Fotheringham

Chief Financial Officer

 

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

 

For the 6 month period ended 30 June 2021

"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

20 September 2021                                                                               20 September 2021

 

 

Appendix: Reconciliation of Reported results to APMs

In order to assist the reader's understanding of the financial performance of the Group, alternative performance measures ('APMs') have been included to better reflect the underlying activities of the Group excluding specific items as set out in Note 8 to the financial statements. The Group appreciates that APMs are not considered to be a substitute for, or superior to, IFRS measures but believes that the selected use of these may provide stakeholders with additional information which will assist in the understanding of the business.

1. EBITDA

 

H1 2021

£m

H1 2020

£m

Reported EBITDA

19.9

16.7

Non-underlying items

 

 

Acquisition and integration costs

1.7

1.1

Revision of ICS operating model

0.3

-

Other costs

-

0.1

Underlying EBITDA

21.9

17.9

2. Cash conversion

 

H1 2021

£m

H1 2020

£m

Net cash from operating activities

20.0

14.9

Non-underlying cash items

1.9

3.9

Taxes paid

0.6

0.6

Underlying cash from operating activities

22.5

19.4

Acquisition normalisation*

1.1

-

Normalised underlying cash from operating activities

23.6

19.4

Underlying EBITDA

21.9

17.9

Underlying cash conversion

108%

108%

 

* Acquisition normalisation refers to the following: In 2021, £1.1m of RBC cees revenues were billed in advance and collected by the previous owners in advance of JTC ownership.

3. Net Debt/Leverage

 

H1 2021

£m

H1 2020

£m

Cash balances

79.8

41.0

Bank debt

-103.5

-104.4

Other debt

-

-4.6

Net debt - underlying

-23.6

-68.0

LTM Underlying EBITDA

42.8

37.3

Leverage

0.55

1.82

 

4.  UNDERLYING PROFIT & EPS

 

Management have updated the definition of non-underlying items to include foreign exchange (losses)/gains (see Note 8 to the financial statements) in order to best reflect the underlying performance of the company. This has resulted in the update of the H1 2020 comparative for underlying profit before tax (previously £11.6m) and underlying EPS (previously 12.03p).

 

Independent review report to JTC PLC    

Report on the condensed consolidated interim financial statements

_________________________________________________________________________

Our conclusion

We have reviewed JTC PLC's condensed consolidated interim financial statements (the "interim financial statements") in the interim financial report 30 June 2021 (the "interim financial report") of JTC PLC for the 6-month period ended 30 June 2021. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

_________________________________________________________________________

What we have reviewed

The interim financial statements comprise:

●     the condensed consolidated interim balance sheet as at 30 June 2021;

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

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

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

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

●     the explanatory notes to the interim financial statements.

 

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

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

Responsibilities for the interim financial statements and the review

_________________________________________________________________________

Our responsibilities and those of the directors

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

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

What a review of interim financial statements involves

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

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

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

    

PricewaterhouseCoopers CI LLP

Chartered Accountants

Jersey, Channel Islands

20 September 2021    

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

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

 

Financial statements

 

JTC PLC

INTERIM FINANCIAL REPORT 30 JUNE 2021

UNAUDITED

Condensed consolidated interim income statement

Condensed consolidated interim statement of comprehensive income

Condensed consolidated interim balance sheet

Condensed consolidated interim statement of changes in equity

Condensed consolidated interim statement of cash flows

Notes to the condensed consolidated interim financial statements

1.    Reporting entity           

2.    Significant changes in the current reporting period             

3.    Basis of preparation   

4.    Significant accounting policies and standards     

5.    Critical accounting estimates and judgements    

6.    Segmental reporting  

7.    Staff costs    

8.    Non-underlying items

9.    Other net gains            

10.  Earnings per share     

11.  Goodwill       

12.  Business combinations             

13.  Share capital and reserves       

14.  Trade and other payables         

15.  Loans and borrowings               

16.  Other non-financial liabilities   

17.  Financial risk and capital management 

18.  Cash flow information               

19.  Related party transactions        

20.  Contingencies             

21.  Events occurring after the reporting period          

 

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT

£'000

Note

H1 2021

H1 2020

Revenue

6

67,003

53,697

Staff costs

7

(34,070)

(27,024)

Other operating expenses

 

(12,366)

(9,209)

Credit impairment losses

 

(904)

(1,096)

Other operating income

 

17

42

Share of profit of equity-accounted investee

 

219

245

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

 

19,899

16,655

 

 

 

 

Comprising:

 

 

 

Underlying EBITDA

 

21,920

17,879

Non-underlying items

8

(2,021)

(1,224)

 

 

19,899

16,655

 

 

 

 

Depreciation and amortisation

 

(8,159)

(6,419)

Profit from operating activities

 

11,740

10,236

 

 

 

 

Other net gains

9

27,370

2,234

Finance income

 

32

27

Finance cost

 

(2,318)

(2,117)

Profit before tax

 

36,824

10,380

 

 

 

 

Comprising:

 

 

 

Underlying profit before tax

 

11,368

9,854

Non-underlying items

8

25,456

526

 

 

36,824

10,380

 

 

 

 

Tax

 

(287)

(519)

Profit for the period

 

36,537

9,861

 

 

 

 

Earnings per ordinary share ("EPS")

 

Pence

Pence

Basic EPS

10.1

 29.73

 8.62

Diluted EPS

10.2

 29.46

 8.57

Underlying basic EPS

10.3

 11.74

 10.47

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

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME   

£'000

Note

H1 2021

H1 2020

Profit for the period

 

36,537

9,861

Items that may be subsequently reclassified to profit or loss:

 

 

 

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

17.1

(2,147)

3,399

Total comprehensive income for the period (net of tax)

 

34,390

13,260

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

CONDENSED CONSOLIDATED INTERIM BALANCE SHEET                          

£'000

Note

30.06.2021

31.12.2020

Assets

 

 

 

Property, plant and equipment

 

48,017

49,249

Goodwill

11,12

178,603

173,777

Other intangible assets

12

75,303

54,944

Investments

 

2,493

2,274

Other non-financial assets

 

228

303

Other receivables

 

217

64

Deferred tax assets

12

3,040

104

Total non-current assets

 

307,901

280,715

 

 

 

 

Trade receivables

 

22,136

17,230

Work in progress

 

11,790

11,431

Accrued income

 

18,917

13,382

Other non-financial assets

 

5,805

3,671

Other receivables

 

3,881

4,368

Cash and cash equivalents

 

79,831

31,078

Total current assets

 

142,360

81,160

Total assets

 

450,261

361,875

 

 

 

 

Equity

 

 

 

Share capital

13.1

1,333

1,225

Share premium

13.1

195,674

130,823

Own shares

13.2

(3,252)

(3,084)

Capital reserve

 

2,243

1,456

Translation reserve

 

(5,006)

(2,859)

Retained earnings

13.3

67,381

30,844

Total equity

 

258,373

158,405

 

 

 

 

Trade and other payables

14

2,163

23,027

Loans and borrowings

15

103,478

104,376

Lease liabilities

 

38,818

39,154

Deferred tax liabilities

 

10,935

8,902

Other non-financial liabilities

16

170

311

Provisions

 

1,783

1,601

Total non-current liabilities

 

157,347

177,371

 

 

 

 

Trade and other payables

14

12,303

11,684

Loans and borrowings

15

 -

2,456

Lease liabilities

 

3,830

4,215

Other non-financial liabilities

16

15,960

5,171

Current tax liabilities

 

2,409

2,534

Provisions

 

39

39

Total current liabilities

 

34,541

26,099

Total equity and liabilities

 

450,261

361,875

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

CONDENSED CONSOLIDATED INTERIM STATEMENT
OF CHANGES IN EQUITY

 

 

For the period ended 30 June 2021

 

 

Attributable to owners of JTC PLC

£'000

Note

Share capital

Share premium

Own shares

 Capital reserve

Translation reserve

Retained earnings

Total equity

Balance at 1 January 2021

 

1,225

130,823

(3,084)

1,456

(2,859)

30,844

158,405

Profit for the period

 

 -

 -

 -

 -

 -

36,537

36,537

Other comprehensive loss for the period

 

 -

 -

 -

 -

(2,147)

 

(2,147)

Total comprehensive income for the period

 

 -

 -

 -

 -

(2,147)

36,537

34,390

Issue of share capital

13.1

108

64,851

 -

 -

 -

 -

64,959

Share-based payment expense

7

 -

 -

 -

787

 -

 -

787

Movement of own shares

13.2

 -

 -

(168)

 -

 -

 -

(168)

Balance at 30 June 2021

 

1,333

195,674

(3,252)

2,243

(5,006)

67,381

258,373

 

 

 

For the period ended 30 June 2020

 

 

Attributable to owners of JTC PLC

 

 

Share

Share

Own

Capital

Translation

Retained

Total

£'000

Note

capital

premium

shares

 reserve

reserve

earnings

equity

Balance at 1 January 2020

 

1,141

100,658

(3,027)

451

1,069

28,265

128,557

Profit for the period

 

 -

 -

 -

 -

 -

9,861

9,861

Other comprehensive income for the period

 

 -

 -

 -

 -

3,399

 -

3,399

Total comprehensive income for the period

 

 -

 -

 -

 -

3,399

9,861

13,260

Issue of share capital

13.1

84

30,165

 -

 -

 -

 -

30,249

Share-based payment expense

7

 -

 -

 -

383

 -

 -

383

Movement in EBT

 

 -

 -

-

(74)

 -

 -

(74)

Movement of own shares

13.2

 -

 -

(57)

 -

 -

 -

(57)

Dividends paid

13.3

 -

 -

 -

 -

 -

(4,411)

(4,411)

Balance at 30 June 2020

 

1,225

130,823

(3,084)

760

4,468

33,715

167,907

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

 

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS

£'000

Note

H1 2021

H1 2020

Operating cash flows before movements in working capital

18

20,467

16,793

Increase in receivables

 

(6,362)

(4,013)

Increase in payables

 

6,458

2,726

Cash generated by operations

 

20,563

15,506

Income taxes paid

 

(589)

(650)

Net movement in cash from operating activities

 

19,974

14,856

 

 

 

 

Comprising:

 

 

 

Underlying net movement in cash from operating activities

 

22,447

19,371

Non-underlying cash items

18

(1,884)

(3,865)

 

 

20,563

15,506

 

 

 

 

Investing activities

 

 

 

Interest received

 

31

26

Payment for property, plant and equipment

 

(406)

(181)

Payment for intangible assets

 

(1,076)

(1,218)

Payment for business combinations

 

(25,517)

(8,738)

Prepayment for investment

 

 -

(403)

Net cash used in investing activities

 

(26,968)

(10,514)

 

 

 

 

Financing activities

 

 

 

Share capital raised

 

65,882

 -

Share issuance costs

 

(2,003)

 -

Purchase of own shares

 

(168)

(45)

Dividends paid

13.3

 -

(4,411)

Loans to related parties

 

(301)

(238)

Repayment of loans and borrowings

 

(23,770)

(344)

Proceeds from loans and borrowings

 

22,397

17,926

Loan arrangement fees

 

 -

(17)

Interest paid on loans and borrowings

 

(1,203)

(1,075)

Facility fees paid on loans and borrowings

 

(167)

(139)

Principal paid on lease liabilities

 

(2,512)

(1,540)

Interest paid on lease liabilities

 

(571)

(465)

Net cash from financing activities

 

57,584

9,652

 

 

 

 

Net increase in cash and cash equivalents

 

50,590

13,994

 

 

 

 

Cash and cash equivalents at the beginning of the period

 

31,078

26,317

Effect of foreign exchange rate changes on cash and cash equivalents

 

(1,837)

640

Cash and cash equivalents at end of period

 

79,831

40,951

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

NOTES TO THE CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS

1. REPORTING ENTITY

JTC PLC ("the Company") was incorporated on 2 January 2018 and is domiciled in Jersey, Channel Islands. The address of the Company's registered office is 28 Esplanade, St Helier, Jersey.

The condensed consolidated interim financial statements of the Company for the period from 1 January 2021 to 30 June 2021 comprise the Company and its subsidiaries (together "the Group" or "JTC") and the Group's interest in other entities.

2. SIGNIFICANT CHANGES IN THE CURRENT REPORTING PERIOD

Despite the continuing challenges presented by the Covid-19 pandemic, overall the business performed well during the six months to 30 June 2021 and continues to trade in line with Board expectations.

The financial position and performance of the Group was affected by the following events and transactions during the six months to 30 June 2021:           

· the acquisition of RBC cees Limited ("RBC cees") (see note 12.1)                                                                                       

· the acquisition of INDOS Financial Limited ("INDOS") (see note 12.2)                                                                                

· the release of NESF contingent consideration liability for £20.91m (see note 12.3)                                                                        

· issuance of 10,626,078 Placing Shares, raising gross proceeds of £65.9m (see note 13.1)                                                                                     

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

3. BASIS OF PREPARATION   

The condensed consolidated interim financial statements (the "interim financial statements") for the six months to 30 June 2021 have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union ("EU"), the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and Companies (Jersey) Law 1991. They are presented in pounds sterling (£), which is the functional and reporting currency of the Company. They do not include all the information required for a complete set of IFRS financial statements. Accordingly, the interim financial statements should be read in conjunction with the annual consolidated financial statements for the year ended 31 December 2020, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual consolidated financial statements as at and for the year ended 31 December 2020.

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

These interim financial statements were approved by the board of directors on 16 September 2021 and have been reviewed but not audited by the Group's external auditors.

4. SIGNIFICANT ACCOUNTING POLICIES AND STANDARDS   

The accounting policies applied in these condensed consolidated interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2020.         

To the extent relevant, all IFRS standards and interpretations including amendments that were in issue and effective from 1 January 2021, have been adopted by the Group from 1 January 2021. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. Several amendments apply for the first time in 2021, but they do not have an impact on these condensed consolidated interim financial statements.

New standards, interpretations and amendments adopted by the Group         

· Interest Rate Benchmark Reform - Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16                                                                            

The Phase 2 amendments address issues that arise during the reform of an interest rate benchmark, including the replacement of some interbank offered rates (IBOR) with alternative benchmark rates. The key reliefs provided by the Phase 2 amendments are as follows:               

· Where there are changes in the basis for determining the contractual cash flows of financial assets and liabilities (including lease liabilities), the reliefs have the effect that the changes required by IBOR reform will not result in an immediate gain or loss in the income statement.                        

· Hedge accounting reliefs allow most IAS 39 or IFRS 9 hedge relationships that are directly affected by IBOR reform to continue.      

These amendments had no impact on the condensed consolidated interim financial statements of the Group. The Group intends to use the practical expedients in future periods if they become applicable. 

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

In the application of the Group's accounting policies, Management are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are regularly evaluated based on historical experience, current circumstances, expectation of future events and other factors that are considered to be relevant. Actual results may differ from these estimates. Management continue to be vigilant in monitoring for any potential effects whilst uncertainties relating to the Covid-19 pandemic remain.

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

The following are the critical judgements and estimates that Management have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the condensed consolidated interim financial statements.       

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

In addition to the critical judgements set out in note 28.1 of the 2020 Annual Report, the following are the critical judgements that Management have made in the process of applying the Group's accounting policies that have the most significant effect on the amounts recognised in the interim financial statements.                                                                                                           

Recognition of separately identifiable intangibles   

During the period ended 30 June 2021, the Group acquired both RBC cees (see note 12.1) and INDOS (see note 12.2). IFRS 3 'Business Combinations' requires Management to identify assets and liabilities purchased including intangible assets. Following their assessment, Management concluded that the intangible assets meeting the recognition criteria were customer relationships in both cases and for INDOS, also the software and brand. The intangible assets recognised through these acquisitions were customer relationships £23.7m (RBS cees £22.37m and INDOS £1.35m) and £1.15m for the INDOS software and £0.38m for the INDOS brand.                                                                                     

5.2. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

Further to the detail set out in note 28.2 of the 2020 Annual Report, the following are the critical estimates that Management have made in the process of applying the Group's accounting policies that have the most significant effect on the amounts recognised in the interim financial statements.

Fair value of earn-out consideration for NESF

To derive the fair value of the earn-out contingent consideration, Management revisited their cash flow forecast scenarios to determine the calculated number of shares due for the earn-out. Management consider the estimated number of shares and the forecast share price to be the key assumptions in the calculation of the fair value of the earn-out contingent consideration. See note 12.3 for the sensitivity analysis.               

US CGU impairment assessment

The recoverable amount of the US cash generating unit ("CGU) was determined based on a value in use calculation using cash flow projections. Management consider the key assumptions in the calculation to be annual revenue growth and EBIT margin. See note 11 for further detail and sensitivity analysis.

6. SEGMENTAL REPORTING   

6.1. BASIS OF SEGMENTATION

The Group has a multi-jurisdictional footprint and the core focus of operations is on providing services to its institutional and private client base, with revenues from alternative asset managers, financial institutions, corporates, high-net-worth and ultra-high-net-worth individuals and family office clients. Declared revenue is generated from external customers.           

The Chief Executive Officer and Chief Financial Officer are together the Chief Operating Decision Makers of the Group and determine the appropriate business segments to monitor financial performance. Each segment is defined as a set of business activities generating a revenue stream determined by divisional responsibility and the management information reviewed by the Board. They have determined that the Group has two reportable segments: these are Institutional Client Services ("ICS") and Private Client Services ("PCS").

6.2. SEGMENTAL INFORMATION  

The table below shows the segmental information provided to the Board for the two reportable segments (ICS and PCS) on an underlying basis:

 

ICS

PCS

Total

£'000

H1 2021

H1 2020

H1 2021

H1 2020

H1 2021

H1 2020

Revenue

39,784

30,334

27,219

23,364

67,003

53,697

 

 

 

 

 

 

 

Direct staff costs

(16,668)

(12,793)

(9,521)

(8,040)

(26,189)

(20,833)

Other direct costs

(163)

(115)

(645)

(606)

(808)

(721)

 

 

 

 

 

 

 

Underlying gross profit

22,953

17,426

17,053

14,717

40,006

32,143

Underlying gross profit margin %

57.7%

57.4%

62.7%

63.0%

59.7%

59.9%

 

 

 

 

 

 

 

Indirect staff costs

(4,085)

(3,598)

(3,207)

(2,462)

(7,292)

(6,060)

Other operating expenses

(7,304)

(5,628)

(3,726)

(2,863)

(11,030)

(8,490)

Other income

3

14

233

273

236

286

 

 

 

 

 

 

 

Underlying EBITDA

11,567

8,213

10,353

9,666

21,920

17,879

Underlying EBITDA margin %

29.1%

27.1%

38.0%

41.4%

32.7%

33.3%

The Board evaluates segmental performance based on revenue, underlying gross profit and underlying EBITDA. Profit before income tax is not used to measure the performance of the individual segments as items such as depreciation, amortisation of intangibles, other net gains and net finance costs are not allocated to individual segments. Consistent with the aforementioned reasoning, segment assets and liabilities are not reviewed regularly on a by-segment basis and are therefore not included in the IFRS segmental reporting. 

6.3. SEASONALITY

The business of the Group does not show material changes for seasonality in the condensed consolidated interim income statement. However, the timing of invoicing annual fees in advance at the end of Q4 and the start of Q1 each year results in higher working capital and deferred income at 30 June, as demonstrated by a £10.7m increase in deferred income at 30 June 2021 when compared to 31 December 2020 (see note 16). Acquisitions can also have influence this, as a result of acquiring RBC cees in April 2021, deferred income is £2.7m higher at 30 June 2021.

 

 

7. STAFF costs

£'000

H1 2021

H1 2020

Salaries and Directors' fees

28,665

22,871

Other short-term employee benefits

958

702

Pension employee benefits

1,173

940

Share-based payments

787

383

Training and other staff-related costs

2,487

2,128

Total staff costs

34,070

27,024

7.1. SHARE-BASED PAYMENT ARRANGEMENTS

In April 2021, the Group granted the following share awards:

(i)    282,956 shares with a fair value of £1.51m (April 2020: 213,420 shares) under the PSP. The 2021 awards have the same performance conditions as previous awards (TSR and EPS performance) and also vest over a performance period of three consecutive accounting periods.

(ii)   59,815 shares with a fair value of £0.36m (April 2020: 72,717 shares) under the DBSP. These awards are not subject to performance conditions but are subject to vesting conditions, being continued employment.           

For further information on share-based compensation, see note 36 of the 2020 Annual Report.

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

£'000

H1 2021

H1 2020

PSP awards

492

254

DBSP awards

100

86

Other awards

122

43

Acquired awards

74

 -

Total share-based payment expense

788

383

 

8. NON-UNDERLYING ITEMS   

£'000

H1 2021

H1 2020

Acquisition and integration costs (i)

1,710

1,119

Revision of ICS operating model (ii)

311

 -

Other

 -

105

Non-underlying items within EBITDA

2,021

1,224

 

 

 

Unwinding of discount on capital distribution from EBT12

-

33

Gain on bargain purchase (iii)

(8,036)

 -

Gain on revaluation of contingent consideration (iv)

(20,840)

 -

Foreign exchange losses/(gains) (v)

1,399

(1,783)

Total non-underlying items

(25,456)

(526)

The Directors consider that the items above are not representative of underlying performance:

(i)    The Group expensed £1.71m (30 June 20: £1.12m) in relation to business combinations. For those completed in the period; RBS cees £1.08m (see note 12.1) and INDOS £0.37m (see note 12.2), for those completed in prior periods £0.1m and £0.16m for potential projects yet to complete.

(ii)   The Group incurred project and redundancy costs to implement a revised operating model for the fund services practice.

(iii)  Gain on bargain purchase arising on the acquisition of RBS cees (see note 12.1).

(iv)  Gain on revaluation of contingent consideration for the NESF acquisition (see note 12.3).       

(v)   Foreign exchange losses/(gains) relate to the revaluation of both intercompany loans and the Group's Euro loan facility. Management consider these foreign exchange movements to be non-underlying items so have adjusted in order to reflect the Group's underlying performance.

9. OTHER NET GAINS

£'000

Note

H1 2021

H1 2020

Foreign exchange (losses)/gains

 

(1,506)

2,234

Gain on bargain purchase

8

8,036

 -

Gain on revaluation of contingent consideration

8

20,840

 -

Total other net gains

 

27,370

2,234

 

10. EARNINGS PER SHARE     

The Group calculates basic, diluted and underlying basic Earnings Per Share ("EPS"). The results can be summarised as follows:

 

Note

H1 2021

Pence

H1 2020

Pence

Basic EPS

10.1

 29.73

 8.62

Diluted EPS

10.2

 29.46

 8.57

Underlying basic EPS

10.3

 11.74

 10.47

10.1. BASIC EARNINGS PER SHARE          

£'000

H1 2021

H1 2020

Profit for the period

36,537

9,861

 

 

No.

No.

Issued ordinary shares at 1 January

119,096,859

111,820,703

Effect of equity placing

3,639,872

 -

Effect of shares issued to acquire business combinations

29,301

2,560,169

Effect of movement in treasury shares held

117,289

 (29,979)

Weighted average number of Ordinary shares (basic):

122,883,321

114,350,893

Basic EPS

29.73

8.62

10.2. DILUTED EARNINGS PER SHARE     

£'000

H1 2021

H1 2020

Profit for the period

36,537

9,861

 

 

No.

No.

Weighted average number of Ordinary shares (basic):

122,883,321

 114,350,893

Effect of share-based payments issued

1,154,265

 757,532

Weighted average number of Ordinary shares (diluted):

124,037,586

 115,108,425

Diluted EPS

29.46

 8.57

10.3. UNDERLYING BASIC EARNINGS PER SHARE

£'000

Note

H1 2021

H1 2020

Profit for the period

 

36,537

9,861

Non-underlying items

8

(25,456)

(526)

Amortisation of customer relationship intangible assets

 

3,618

2,764

Amortisation of loan arrangement fees

 

283

286

Unwinding of net present value discounts

 

8

65

Temporary difference arising on amortisation of customer relationships

 

(562)

(481)

Adjusted underlying profit for the period

 

14,428

11,969

 

 

No.

No.

Weighted average number of Ordinary shares (basic):

122,883,321

114,350,893

Underlying Basic EPS

11.74

10.47

Our definition of underlying basic Earnings Per Share has been updated to remove non-underlying foreign exchange losses/(gains) which Management consider require adjustment in order to reflect the Group's underlying trading. Prior to the adjustment underlying basic Earnings Per Share was 10.60 pence (H1 2020: 12.03 pence).              

11. GOODWILL

Goodwill is not amortised but is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. With the exception of the US CGU, Management have concluded there to be no impairment indicators present at 30 June 2021. The aggregate carrying amount of goodwill allocated to the US CGU is £43.3m.

The impairment indicator is that previously anticipated growth was not achieved in 2021 due to the Covid-19 impact on the macroeconomic environment which provided less conducive conditions for new business, with US ICS growth most severely affected. This temporary slowdown in growth resulted in the entire release of the NESF contingent consideration liability of £20.91m (see note 12.3). Whilst Management remain confident in the medium term growth outlook for the jurisdiction, a full impairment assessment of the US CGU was performed in accordance with IAS 36.

Key assumptions used in discounted cash flow projection calculations                          

The recoverable amount of the US CGU has been determined based on a value in use calculation using cash flow projections. Management prepared cash flow forecasts through an assessment of historical revenues from existing clients, the pipeline of new projects and expected market demand, and the required resource base needed to service new and existing clients, coupled with their knowledge of wider industry trends and the economic environment. Management estimate discount rates using pre-tax rates that reflect current market assessments of the time value of money.         

A summary of the values assigned to the key assumptions used in the value in use calculation are as follows:                         

· Revenue growth rate: between 13.0% and 24.9% per annum              

· EBIT margin: 5 year margin improvement of 19pp.

Any potential changes in pre-tax discount rates and terminal growth rates are driven in the main by external economic factors.

Conclusion          

The recoverable amount of goodwill determined for the US CGU at 30 June 2021 was found to be higher than the carrying amount.  

Sensitivity to changes in assumptions

Management have concluded that the US CGU is sensitive to impairment and that the following reasonable changes to the key assumptions would cause the carrying amount to exceed the recoverable amount.

· Revenue growth - a 5pp drop in the forecast annual growth rate between years 2 and 5 would result in a £4.4m impairment.

· EBIT margin - a 5pp drop in the forecast margin between years 2 and 5 would result in a £2.6m impairment.

12. BUSINESS COMBINATIONS           

12.1. RBC CEES LIMITED ("RBC cees")    

On 6 April 2021, JTC entered into an agreement to acquire 100% of the share capital of RBC cees from RBC Holdings (Channel Islands) Limited, part of RBC Wealth Management. RBC cees provides a market leading employee benefits platform for an internationally diverse blue-chip corporate client base. The acquisition is complementary to JTC's existing corporate and trustee services and significantly enhances the Group's employee benefits offering.

The acquired business contributed revenues of £5.2m and profit before tax of £2.5m to the Group for the period from 1 April to 30 June 2021. If the business had been acquired on 1 January 2021, the consolidated pro-forma revenue and profit for the period for the Group would have been £72.2m and £39.2m respectively.

(a)   Identifiable assets acquired and liabilities assumed on acquisition

The following table shows, at fair value, the recognised assets acquired and liabilities assumed at the acquisition date:         

 

£'000

Property, plant and equipment

855

Intangible assets - Customer relationships

22,367

Trade receivables

2,366

Accrued income

3,426

Deferred tax asset

3,140

Cash and cash equivalents

4,083

Assets

36,237

 

 

Deferred income

3,901

Deferred tax liabilities

2,237

Trade and other payables

1,899

Liabilities

8,037

 

 

Total identifiable net assets

28,200

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

(b) Consideration

The consideration for the acquisition was £20m in cash upon completion, with a further £0.164m payable on 18 June 2021 for purchase price adjustments.

(c) Goodwill

Goodwill arising from the acquisition has been recognised as follows:

 

£'000

Total consideration

20,164

Less: Fair value of identifiable net assets

(28,200)

Negative goodwill

(8,036)

Negative goodwill represents a bargain purchase. This is supported by: (i) significant synergies Management expect to be realised and (ii) the transaction price being impacted by both their historical losses (due to high group central cost allocations) and that the business was viewed as non-core by the sellers.

(d) Impact on cash flow   

 

 

£'000

Cash consideration paid at 30 June 2021

20,164

Less: cash balances acquired

(4,083)

Net cash outflow from acquisition

16,081

(e) Acquisition-related costs          

The Group incurred acquisition and integration costs of £1.08m. These costs have been recognised in other operating expenses in the Group's consolidated interim income statement and are treated as non-underlying items to calculate underlying EBITDA (see note 8).

12.2. INDOS FINANCIAL LIMITED ("INDOS")             

On 1 June 2021, JTC acquired 100% of INDOS Financial Limited, a privately owned UK and Irish based, specialist provider of depositary and other high value services for alternative investment funds. This acquisition adds further technical expertise in the fund services business line within the ICS division and directly adds scale in the UK and Ireland, two growth jurisdictions.                                                                               

The acquired business contributed revenues of £0.3m and loss before tax of £0.02m to the Group for the period from 1 June to 30 June 2021. If the business had been acquired on 1 January 2021, the consolidated pro-forma revenue and profit for the period for the Group would have been £68.6m and £36.6m respectively.

(a) Identifiable assets acquired and liabilities assumed on acquisition             

The following table shows, at fair value, the recognised assets acquired and liabilities assumed at the acquisition date:         

 

£'000

Property, plant and equipment

111

Intangible assets - Brand

383

Intangible assets - Customer relationships

1,352

Intangible assets - Software

1,150

Trade receivables

573

Other receivables

115

Cash and cash equivalents

584

Assets

4,268

 

 

Deferred income

9

Deferred tax liabilities

703

Trade and other payables

422

Lease liabilities

95

Liabilities

1,229

 

 

Total identifiable net assets

3,039

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

 

(b) Consideration

Total consideration is satisfied by the following:         

 

£'000

Cash consideration

10,019

Equity consideration

1,080

Deferred consideration relating to aged receivables

37

Fair value of total consideration

11,136

The element of consideration payable in equity is due to employees of INDOS who transferred to JTC, these shares are subject to a one year lock in period which expires on 1 June 2022. As these shares are not marketable until expiry of the lock-in period, they are discounted for a lack of marketability to reach their fair value.

(c) Goodwill

Goodwill arising from the acquisition has been recognised as follows: 

 

£'000

Total consideration

11,136

Less: Fair value of identifiable net assets

(3,039)

Goodwill

8,097

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

(d) Impact on cash flow

 

£'000

Cash consideration paid at 30 June 2021

10,019

Less: cash balances acquired

(584)

Net cash outflow from acquisition

9,435

(e) Acquisition-related costs          

The Group incurred acquisition and integration costs of £0.37m. These costs have been recognised in other operating expenses in the Group's consolidated income statement and are treated as non-underlying items to calculate underlying EBITDA (see note 8).          

12.3. NES FINANCIAL CORP ("NESF")

On 29 April 2020, JTC acquired 100% of NESF, a United States based, technology-enabled, market leading provider of specialist fund administration services.

The transaction included an earn-out and an indemnification holdback, both of which are liability-classified contingent consideration. Management is required to assess and update the fair value of both at each reporting date. At 31 December 2020, the values were as follows: earn-out £20.91m ($26.69m) and indemnification holdback £2.44m ($3.11m). In light of trading since 1 January 2021, Management has reassessed these and concluded as follows:

(i)    The earn-out contingent consideration was subject to NESF meeting certain EBITDA thresholds across assessment periods 1 June 2020 to 31 May 2021 ("Earn-out AP1") and 1 June 2021 to 31 May 2022 ("Earn-out AP2"). As Management had anticipated, the required threshold for Earn-out AP1 was not met. For Earn-out AP2, the forecast scenarios were revisited at 30 June 2021. In light of the continued impact of Covid-19 on trading, Management have concluded that this threshold would also not be met and therefore no earn-out contingent consideration would be payable. As a result, a gain on revaluation of £20.91m is recognised in other gains in the consolidated income statement (see note 9).       

(ii)   The indemnification holdback consideration is still due and we note that 50% was not settled as due on 30 April 2021 as further adjustments were under discussion. At 30 June 2021, Management anticipates that 407,906 JTC PLC Ordinary shares are still to be paid, a reduction of 29,124 shares following further adjustment for transaction expenses. The Monte Carlo simulation has been updated, increasing the share price applied to the number of shares to £6.14. As a result, the fair value of the contingent consideration for the indemnification holdback increased by £0.07m to £2.5m. This loss on revaluation of £0.07m is recognised in the consolidated income statement in other net gains (see note 9).

Sensitivity analysis on fair value of earn-out consideration  

Management carried out a sensitivity analysis on the output of the key assumptions and estimates used to calculate the fair value of the earn-out consideration. Management consider the key assumptions and estimates to include the estimated share price and EBITDA.

Management believe that any reasonable changes to the key assumptions would not cause a material change to the fair value of the earn-out contingent consideration.

12.4. SANNE PRIVATE CLIENT BUSINESS ("Sanne Private Clients")

On 1 July 2020, JTC acquired 100% of Sanne Private Clients, the private client services division of Sanne Group ("Sanne"), the division providing specialist expertise in fiduciary, administration and family office services.

The consideration payable for the shares was a completion payment of £12m less a non-transferred client adjustment. Following an assessment of the actual transferring revenue at completion (including any subsequently transferred clients), the purchase price adjustment for non-transferring clients reduced the fair value of total consideration to £9.1m, of this £0.15m remains outstanding and is included within current contingent consideration (see note 14).

13. SHARE CAPITAL AND RESERVES

13.1. SHARE CAPITAL AND SHARE PREMIUM

At 31 December 2020, 122,521,974 Ordinary shares of £0.01 each were in issue and fully paid up at a cost of £1.23m with share premium of £130.82m.

On 5 May 2021, the Company issued 10,626,078 Placing Shares at a price of £6.20 per share, raising gross proceeds of £65.9m for the Company. The Placing Shares are fully paid and rank pari passu in all respects with the existing shares, including the right to receive all dividends and other distributions declared, made or paid after the issue date.

On 4 June 2021, the Company issued an additional 176,783 Ordinary shares at fair value to satisfy the share consideration payable for the acquisition of INDOS (see note 12.2).

13.2. OWN SHARE RESERVE

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

As at 31 December 2020, 3,317,310 shares were held at a cost of £3.08m. During the six months to 30 June 2021, the number of own shares held decreased by 230,837 as DBSP and PSP Share Awards vested but increased by 30,495 shares as purchases were made from surplus cash held by PLC EBT.             

As at 30 June 2021, 3,116,968 shares were held at a cost of £3.3m.

On 1 July 2021, the Company issued an additional 1,333,248 Ordinary shares in order for PLC EBT to satisfy potential future exercises of awards granted to beneficiaries.

On 22 July 2021, the Company granted a total of 3,079,658 Ordinary share awards with a value of c.£20m to all current permanent Group employees, excluding all Executive Directors, under the Employee Incentive plan ("EIP"). The awards were satisfied by the transfer of existing Ordinary shares held by the Company, as such, the granting of shares under the EIP is non-dilutive to existing shareholders of the Group. The shares are valued at the share price on the grant date and this value, along with associated social security costs, will be reflected in staff costs in the income statement and treated as a non-underlying item in the consolidated financial statements for the year ended 31 December 2021.

13.3. RETAINED EARNINGS           

The retained earnings include accumulated profits and losses.

The final dividend for the year 2020 of 4.35p per qualifying Ordinary share was paid on 2 July 2021.

An interim dividend of 2.6p per qualifying Ordinary share (2020: 2.4p per qualifying ordinary share) was declared by the Directors on 16 September 2021 and will be payable on 29 October 2021 to shareholders on the record on 1 October 2021. The interim dividend has not been recognised as a liability as at 30 June 2021.     

 

14. TRADE AND OTHER PAYABLES    

£'000

30.06.2021

31.12.2020

Non-current

 

 

Employee benefit obligations

739

903

Share-based compensation

172

 -

Contingent consideration

1,252

22,124

Total non-current

2,163

23,027

 

 

 

Current

 

 

Trade payables

1,550

1,970

Other taxation and social security

448

312

Other payables

3,056

3,006

Accruals

5,536

5,022

Share-based compensation

271

 -

Contingent consideration

1,442

1,374

Total current

12,303

11,684

Total trade and other payables

14,466

34,711

15. LOANS AND BORROWINGS

£'000

30.06.2021

31.12.2020

Non-current

 

 

Bank loan

103,478

104,376

Total non-current

103,478

104,376

 

 

 

Current

 

 

Other loans

-

2,456

Total current

-

2,456

Total loans and borrowings

103,478

106,832

15.1. BANK LOANS

(a) Non-current bank loan               

The Company's total facility commitment of £150m, consisting of a term loan of £45m and a revolving facility commitment of £105m. A withdrawal was made on 30 March 2021 for £21m to fund the acquisition of RBC cees (see note 12.1), following the placing (see note 13.1), this amount was refunded to the facility.

At 30 June 2021, the Company had available £45.6m of committed facilities currently undrawn (31 December 2020: £44.4m). All drawn facilities for this loan are due to be repaid on or before the Termination Date of 8 March 2023.

15.2. OTHER LOANS

On 25 January 2021, the Company repaid £2.5m ($3.4m) for the revolving credit note acquired with NESF that was held with CIBC Bank USA, an Illinois banking corporation.

16. OTHER NON-FINANCIAL LIABILITIES        

£'000

Note

30.06.2021

31.12.2020

Non-current

 

 

 

Contract liabilities

 

170

311

Total non-current

 

170

311

 

 

 

 

Current

 

 

 

Contract liabilities

 

473

370

Deferred income

6.3

15,487

4,801

Total current

 

15,960

5,171

Total other non-financial liabilities

 

16,130

5,482

17. FINANCIAL RISK AND CAPITAL MANAGEMENT

17.1. FOREIGN CURRENCY RISK

The Group's exposure to the risk of changes in exchange rates relates primarily to the Group's operating activities when the revenue or expenses are denominated in a different currency from the Group's functional and presentation currency of pounds sterling ('£'). For trading entities that principally affect the profit or net assets of the Group, the exposure continues to be mainly from Euro, US dollar and South African rand. The Group's bank loans are denominated in £ and Euro. Management will continue to monitor the effectiveness of the Group's policy to minimise foreign currency risk (as disclosed in note 29.1 of the 2020 Annual Report) and continue to regularly assess if a foreign currency hedge is appropriate.

For the six months to 30 June 2021, mainly due to the Euro and United States dollar foreign currency exchange rate movements, we have recognised the following: 

· a foreign exchange loss of £2.1m in other comprehensive income (H1 2020: £3.4m gain) upon translating our foreign operations to our functional currency

· a foreign exchange loss of £1.5m (H1 2020: £2.2m gain) in the condensed consolidated income statement upon the retranslation of monetary assets and liabilities denominated in foreign currencies (see note 9)

17.2. INTEREST RATE RISK

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

The risk is managed by the Group maintaining an appropriate leverage ratio. Following the recent equity placing on 5 May 2021 (see note 13.1), the quarterly leverage ratio reduced resulting in a lower interest rate (see note 17.5).

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

The following sensitivity analysis has been determined based on the floating rate liabilities. The Group considers a reasonable interest rate movement in LIBOR to be 50 basis points based on recent historical changes to interest rates. If interest rates had been higher/lower by 50 basis points and all other variables were held constant, the Group's profit for the period ended 30 June 2021 would decrease/increase by £0.52m (31 December 2020: £0.53m).

In relation to the IBOR reform, as GBP LIBOR will cease to exist near the end of 2021, loan documentation will be updated in due course to reflect the new reference rate for GBP.     

 

17.3. CREDIT RISK

The Group's principal exposure to credit risk arises from contracts with customers and therefore from the following financial assets: trade receivables, work in progress and accrued income (together "customer receivables") as well as cash and cash equivalents and other receivables. The Covid-19 pandemic continues to adversely affect the trading environment but the impact on the recoverability of customer receivables has not been significant, as evidenced by our strong performance for underlying operating cash conversion and decrease in credit impairment losses. Our analysis on a customer-by customer basis highlighted delays to payment within contracted credit terms but that there remained a commitment towards long-term recovery. For net receivable positions at the reporting date, we anticipate that customers will meet their payment obligations. As a result we have not incorporated updated forward-looking information into measuring ECLs as at 30 June 2021. Our credit risk management as set out in note 29.2 of the 2020 Annual Report remains unchanged.

17.4. LIQUIDITY RISK

There has been no change in our liquidity risk assessment compared to our disclosure in note 29.3 of the 2020 Annual Report.

17.5. CAPITAL MANAGEMENT       

The Group's objective for managing capital is unchanged from that disclosed in Note 30 of the 2020 Annual Report.

During the period, the Group completed its first placing since listing in 2018, raising gross proceeds of £65.9m (see note 13.1). These proceeds will allow the Group to capitalise on a high quality pipeline of near-term acquisition opportunities and deliver on a disciplined and proven approach to inorganic growth.

In accordance with the Group's capital risk management objective, the financial covenants attached to the bank borrowings continue to be met.

 

18. CASH FLOW INFORMATION

18.1. OPERATING CASH FLOWS  

£'000

H1 2021

H1 2020

Operating profit

11,740

10,236

Adjustments for:

 

 

Depreciation of property, plant and equipment

3,468

2,879

Amortisation of intangible assets

4,691

3,540

Share-based payment expense

787

383

Share of profit of equity-accounted investee

(219)

(245)

Operating cash flows before movements in working capital

20,467

16,793

18.2. NON-UNDERLYING ITEMS WITHIN NET CASH FROM OPERATING ACTIVITIES

£'000

H1 2021

H1 2020

Net cash from operating activities

20,563

15,506

Non-underlying items:

 

 

Capital distribution from EBT12

 -

2,650

Acquisition and integration costs

1,573

1,182

Other

311

33

Total non-underlying items within net cash from operating activities

1,884

3,865

Underlying net cash from operating activities

22,447

19,371

19. RELATED PARTY TRANSACTIONS

Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

The Group's associate Kensington International Group Pte Ltd has provided £0.38m of services to Group entities during the six month period to 30 June 2021 (H1 2020: £0.43m).

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

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

£'000

H1 2021

H1 2020

Salaries and other short-term employee benefits

1,282

987

Post employment and other long-term benefits

67

65

Share-based payments

504

262

Total payments

1,853

1,314

 

20. CONTINGENCIES   

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

21. EVENTS OCCURRING AFTER THE REPORTING PERIOD

Other than as described elsewhere (see note 13.2 and 13.3), subsequent events from 30 June 2021 to the date of issue of these condensed consolidated interim financial statements are as follows:

(a) Acquisition of Segue Partners LLC ("Segue")

On 16 September 2021, JTC acquired Segue, an innovative fund services provider head-quartered in St. Louis, Missouri, USA. The initial consideration will be settled in cash and JTC equity. A further consideration is available on the achievement of performance targets in 2022 and 2023. This acquisition will enhance the fund services presence in the US, providing an additional scalable platform that is well positioned for growth and complements the Group's existing US footprint, including its focus on world-class technology.

(b) Acquisition of Ballybunion Capital ("Ballybunion")

Subject to change of control and regulatory approval, JTC entered into an agreement to acquire Ballybunion, a boutique asset manager based in Ireland. The initial consideration will be settled in cash and JTC equity. A further consideration is available on the achievement of performance targets in the current year. This acquisition will substantially enhance the fund services presence in Ireland, providing ManCo and governance services for Irish domiciled funds, giving access to new clients and providing a platform from which to drive future growth in the strategically important Irish funds services market.

For both acquisitions detailed in (a) and (b) above, at the date the condensed consolidated interim financial statements were authorised for issue, it was impracticable to disclose the information required by IFRS 3 'Business Combinations' as some of the required information was not available.  

 

 

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