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JTC PLC   -  JTC   

Full year results to 31 December 2018

Released 07:00 03-Apr-2019

RNS Number : 9124U
JTC PLC
03 April 2019
 

3 April 2019

JTC PLC

 

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

 

Full year results for the year ended 31 December 2018

 

JTC delivers strong first set of full year results

 

 

2018

2017

Variance

Revenue (£)

£77.3m

£59.8m

+29.3%

Underlying *

 

 

 

EBITDA (£)

£23.8m

£14.4m

+65.3%

Adjusted diluted EPS (p) **

18.4p

13.8p

+33.1%

Statutory

 

 

 

EBITDA (£)

£5.3m

£9.6m

-45.4%

Diluted EPS (p)

(3.9p)

(7.0p)

N/A

Final dividend per share (p) proposed

2.0p

-

+2.0p

Net debt (£)

(£48.7m)

(£42.5m)

+£6.2m

 

* Items classified as non-underlying are as detailed in Note 10 of the financial statements. Non-underlying items are defined as specific items that the Directors do not believe will recur in future periods. The 2018 results reflect the pre listing capital structure up to 14 March 2018 and the subsequent structure post IPO.

 

** Adjusted diluted EPS is the loss for the year adjusted to remove the impact of non-underlying items within EBITDA, amortisation of customer contracts, other gains, share of profits from equity accounted investees, finance income, loan note interest, amortisation of loan arrangement fees and unwinding of NPV discounts.

 

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 10. As explained in the Company Prospectus, underlying EBITDA margin is the main profitability measure used within the Fund and Trust Company Administration market. 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.

 

2018 Highlights

 

Profitable growth momentum

 

·      Revenue up 29.3% to £77.3m (2017: £59.8m), reflecting a combination of good net organic growth (+8.7%) and growth from acquisitions (20.6%)

·      Underlying EBITDA up 65.3% to £23.8m (2017: £14.4m). Statutory EBITDA is £5.3m (2017: £9.6m)

·      Underlying EBITDA margin increased materially to 30.9% (2017: 24.1%) ahead of expectations due to the focus on improving profitability levels. Statutory EBITDA margin is 6.8% (2017: 16.1%)

·      Statutory EBIT for the year is £0.6m after expensing EBT capital distributions (£13.2m), acquisition and integration costs (£4.3m), IPO (£1.0m) and other non-underlying costs (£0.1m)

·      Strong performance by both the Institutional Client Services (ICS) and Private Client Services (PCS) Divisions

 

Focused growth strategy

 

·      8.7% net organic growth (17.6% gross)

·      £9.7m annualised value of new business won in 2018 from existing and new clients

·      Strong organic new business enquiry pipeline of £32m at 31 December 2018, up 25% from £25.6m at 31 December 2017

·      Successfully acquired Minerva and Van Doorn, broadening our proposition and global network and leveraging our existing and scalable operating platform

·      Post period end acquired Exequtive Partners, a Luxembourg based provider of corporate and related fiduciary services

·      M&A deal pipeline that is subject to disciplined acquisition criteria and positions us well to take advantage of further consolidation opportunities in the global fund, corporate and trust administration industry

 

Scalable platform for growth

 

·      Enhancements made to senior management team

·      2017 acquisitions fully and successfully integrated

·      2018 acquisitions integrating as planned

·      The Group remains well invested to deliver continued operational improvement

 

Outlook

 

·      The Group is trading in line with Board expectations

·      Net organic growth in the range 8-10% (gross 17-20%)

·      Underlying EBITDA margin in the range 30-35%

·      The industry outlook remains positive for further growth opportunities, both organic and through acquisitions

·      The Group is well-organised and positioned to navigate macro-environmental changes

 

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

 

"We are pleased with our first full year results since listing and in particular to have built on the positive momentum from the first half of the year and delivered on the key objectives we set out at the time of IPO. Performance in both our Institutional and Private Client Divisions was strong, highlighting our balanced approach to servicing the market, with organic growth improving in the second half of the year. The businesses we acquired in 2017 were fully integrated into the Group and good progress was made with integrating the two businesses acquired in 2018, Van Doorn (Netherlands) and Minerva (Jersey, London, Geneva, Dubai, Mauritius and Singapore). We continue to manage an active pipeline of acquisition opportunities in what we see as a market that is still ripe for further consolidation. The senior management team was strengthened through acquisitions, new hires and internal promotions and this continues to form an important part of our drive to improve performance across jurisdictions and service lines. Our people and our shared ownership approach remain at the heart of JTC and I would like to thank every member of the JTC team globally for their contribution to our success in 2018."

 

 

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 (09:00 arrival) at the offices of Numis Securities, 10 Paternoster Square, London, EV4M 7LT.

 

An audio-cast of the presentation will subsequently be made available on the JTC website: www.jtcgroup.com/investor-relations

 

 

 

Forward Looking Statements

 

This announcement may contain forward looking statements. No forward looking statement is a guarantee of future performance and actual results or performance or other financial condition could differ materially from those contained in the forward looking statements. These forward looking statements can be identified by the fact they do not relate only to historical or current facts. They may contain words such as "may", "will", "seek", "continue", "aim", "anticipate", "target", "projected", "expect", "estimate", "intend", "plan", "goal", "believe", "achieve" or other words with similar meaning. By their nature forward looking statements involve risk and uncertainty because they relate to future events and circumstances. A number of these influences and factors are outside of the Company's control. As a result, actual results may differ materially from the plans, goals and expectations contained in this announcement. Any forward looking statements made in this announcement speak only as of the date they are made. Except as required by the FCA or any applicable law or regulation, the Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this announcement.

 

About JTC

 

JTC is a publicly listed, award-winning provider of fund, corporate and private wealth services to institutional and private clients.

 

Founded in 1987, we have over 700 people working across our global office network and are trusted to administer more than US$ 110 billion of client assets.

 

The principle of true shared ownership for all employees is fundamental to our culture and aligns us completely with the best interests of our clients and other stakeholders.

 

www.jtcgroup.com

 

 

Strategic Report
ChIEf executive Officer's review

Another year of focused growth and improvement

We are very pleased with our first full year results since listing and in particular the improvement we delivered in our profit margin. Both divisions have performed well and we are pleased with the contribution from acquisitions and progress with their integration onto the JTC platform. The fundamental drivers for our sector remain strong and we have a positive outlook for 2019.

 

We are delighted to present our first full year results as a listed company.

While we are new to the public markets, JTC has a proud history spanning more than 30 years and a track record of success built on the foundation of our shared ownership culture, which aligns the interests of all our stakeholders for the long term. Our progress is driven by a combination of highly motivated staff, continuous organic growth, the ability to complete intelligent and value enhancing acquisitions and above all, a commitment to client service excellence delivered via a platform that is global and scalable.

We believe it is this combination of our successful history, our clear growth strategy and our positive momentum that has led to a strong set of results in 2018 and we are pleased with what the Group has achieved since its IPO.

At JTC we are a progressive business. We seek to advance through a process of evolution rather than revolution and this approach has served us well for more than three decades and through periods of substantial change in the wider business environment. However, we pride ourselves on never being complacent and understand that to stand still would be to go backwards.

We believe that we are represented in the key jurisdictions required for our business. We rigorously assess the competence of our business in each jurisdiction against a number of key criteria. Depending upon that assessment we invest in infrastructure, people and review acquisition opportunities. In jurisdictions where we see further potential we have specific plans for how we are going to enhance our position in those markets.

At JTC our goal is to continue to build an outstanding business for the long term where high standards are coupled to entrepreneurial spirit and the commitment to become a better business for all stakeholders every single day.

Financial Highlights

Our full year results are in line with our expectations at the time of listing in March 2018 and slightly ahead of consensus expectations. In comparing to the previous year, Group revenue increased by 29.3% to £77.3m and underlying EBITDA by 65.3% to £23.8m (statutory EBITDA decreased by 45% to £5.3m). Although statutory EBIT for the year was £0.6m, a decrease of 90.7% from 2017 (£6.8m), this is after incurring the following one-off costs:

·  A capital distribution (£13.2m) from "JTC EBT12" to all staff as a result of our IPO relating to our previous share structure

·  Acquisition and integration costs (£4.3m)

·  Costs associated with the IPO (£1.0m)

·  Other non-underlying costs / charges (£0.1m)

These results were achieved through a combination of net organic growth of 8.7% and the positive contribution of the two acquisitions made in 2017; New Amsterdam Cititrust (NACT) and the Bank of America Merrill Lynch International Trust and Wealth Structuring (BAML) business as well as the part-year contribution from the two acquisitions made in 2018, Van Doorn and Minerva.

Importantly, we have delivered as predicted on the key objective we set ourselves at the time of IPO, which was to improve significantly the underlying EBITDA margin. We achieved a 2018 result of 30.9% (+6.8pp) which was achieved through improvements to the scalable operating models of both Divisions, the full integration of acquisitions made in 2017 and the positive progress made with integrating acquisitions made in 2018 (statutory EBITDA margin fell to 6.8% (2017: 16.1%) as a result of the one-off costs incurred).

Growth by Acquisition

An important component of our strategy is to continue to supplement organic growth with acquisitions. JTC has a successful track record of executing deals which enhance our core business 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. Ours is an industry with a steady stream of acquisition opportunities. It is core to our approach that any acquisition has to fit culturally and that the rationale for the acquisition is about more than just the numbers. We invest in quality businesses with great people that provide excellent service to clients.

Our continuing investment in scalable infrastructure and our proven 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 in 2018, Van Doorn and Minerva, demonstrate this.

It is important to acknowledge that some acquisition opportunities fell away in 2018, even after progressing to advanced stages of negotiation, and we regard this as a positive sign of the rigour with which we apply our disciplined approach to inorganic growth. We are not afraid to walk away from deals that do not meet our exacting criteria at all stages of the transaction.

Post period end, we acquired Exequtive Partners, a Luxembourg based provider of administration services to corporate and fund clients. The acquisition will add significant scale in a key jurisdiction and will be complementary to the Van Doorn acquisition within the Benelux region.

Our acquisition pipeline remains 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

In 2018 the ICS Division accounted for 56.1% of Group turnover (60.3% in 2017). Gross revenue showed a 20.2% increase in the year to £43.4m (2017: £36.1m) and a 54.1% increase in underlying EBITDA in the year (2018: £12.5m vs 2017: £8.1m).

Revenue growth was due to good performance across established asset classes, especially real estate and private equity, while at the same time adding new service areas, including in the emerging FinTech space. In jurisdictional terms, the performance of our Jersey, Netherlands, Luxembourg and UK offices were particular highlights.

Margin improvement was largely achieved by further refining and improving the operating model between the ICS jurisdictions and the Global Service Centre (GSC) in Cape Town, South Africa, a trend that we expect to see continue in 2019 as we capitalise on ongoing investments in technology and operating processes, as well as capturing economies of scale.

The addition of the Van Doorn business to the NACT business (acquired in 2017) substantially enhanced our presence in the Netherlands and provides a high growth, business development focused hub in the Benelux region.

The post period end acquisition of Exequtive Partners adds significant scale in the key ICS jurisdiction of Luxembourg and we also see opportunities for further acquisitions due to specific market dynamics in the region.

During the year, the Division was boosted by a number of senior hires including a Head of Business Development for Institutional Client Services & the US, a new Managing Director in London for the UK business and the leadership team from the Van Doorn acquisition.

Moving into 2019 we are pleased that Tony Whitney, Head of our ICS Division, will take up the new role of Chief Commercial Officer for the Group from April. Tony brings over 20 years of JTC experience to his new post and will work across both Divisions to support and drive our organic and inorganic growth strategies. Replacing Tony as the new Head of the ICS Division will be Jonathan Jennings, who joined the Group as Managing Director of the UK business in 2018 and who will combine both roles moving forward, continuing to be based in London.

Private Client Services (PCS) Division

In 2018 the PCS Division accounted for 43.9% of Group turnover (39.7% in 2017). Gross revenue showed a 43% increase in the year to £33.9m (2017: £23.7m) and 79.6% increase in underlying EBITDA in the year (2018: £11.3m vs 2017: £6.3m).

Revenue growth was driven by the full year effect of the acquisition of the BAML business made in late 2017, the acquisition of Minerva in the second half of 2018 and contributions from across the existing PCS network, with our US offering proving particularly popular.

Margin improvement was particularly strong in the year, as a result of the rapid integration of the BAML business and improvements to the PCS operating platform.

During the year, the Division was boosted by a number of senior hires focused on regional business development and the new JTC Private Office, as well as the leadership team from the Minerva acquisition, who bring with them a wealth of experience and extensive network of contacts in India, Africa, the Middle East and Asia in particular.

Our People and Culture

It is impossible to overstate the importance of our people and culture in the success of JTC.

We have long believed that culture is the best foundation from which we can collectively build a business for the long-term and at the heart of JTC sits a philosophy and commitment of Shared Ownership for all employees. This was formalised in 1998 with the creation of our first Employee Benefit Trust (EBT) and the definition of our Guiding Principles. Our culture guides us in all interactions with all our stakeholders, including clients, colleagues, intermediary partners, regulators, government bodies and the communities in which we operate and live.

As the Group has grown, our culture has become even more important to us and it is rewarding to note that it continues to be referenced as a positive factor in making us an 'acquirer of choice' across all sub-sectors and geographies.

Maintaining and investing in our culture and people is a constant priority and 2018 saw a number of important milestones and new developments. At IPO the JTC EBT12 realised more than £13m of value for our people, an outstanding result for the six years of hard work in growing the business from our previous capital event in 2012. There was never any doubt that the philosophy of Shared Ownership would continue once JTC became a public company and we were pleased to roll out updated 'Ownership for All' and 'Advance to Buy' programmes for all staff across the Group following the IPO.

In addition, we continued to invest directly in our people through our in-house learning and development programme, JTC Academy, including the design of a new programme for our most senior managers, JTC LION (Leaders In Our Name), which is also directly linked to our long-term succession planning strategy.

Above all, and on behalf of all members of the Board, I would like to take this opportunity to thank every member of the team from around the world for their continuing dedication and contribution in 2018. I am privileged to lead a business with so much talent.

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 more than 30 years of JTC operations. We were pleased to appoint Steven Bowen as Chief Risk Officer for the Group in January 2019. Steven joined us as part of the Minerva acquisition and brings with him over 25 years of industry experience. Further detail on our approach to monitoring and managing risk will be provided in our forthcoming Annual Report.  

Going Concern

The financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group has the resources to continue in business for at least 12 months from the approval of the financial statements. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including future projections of profitability and cash flows.

Dividend

In addition to the interim dividend of 1.0p per share, the Board has recommended a final dividend of 2.0p per share in line with expectations. Subject to shareholder approval, the final dividend will be paid on 21 June 2019 to shareholders on the register as at the close of business on the record date of 31 May 2019.

Outlook

The results delivered in 2018 have generated further momentum which we carry into 2019 and we are confident in the ability of the Group to deliver continued positive progress.

We see multiple organic growth opportunities in both Divisions through the consolidation of recent acquisitions, a healthy and growing enquiries pipeline, new business wins, more work from existing clients and increased cross-selling opportunities. We continue to target organic growth, net of attrition, in the range 8-10% at a Group level. This growth will be supplemented by further new strategic and opportunistic acquisitions in the foreseeable future bringing additional diversification and greater capability to the Group.

In terms of profitability we are delighted to have delivered on the objective set at the time of the IPO to return the business to an underlying EBITDA margin of 30%+. We are confident in our ability to realise further benefits from the optimisation of our operating platforms across both Divisions, as well as certain economy of scale benefits. We will maintain our approach to be appropriately invested in people, systems and processes at all times and will continue to target an underlying EBITDA margin in the range 30 - 35% subject to exceptional and clearly explained acquisition activity.

Despite ongoing and well-known uncertainties in the macro environment, 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, clear understanding of market trends and the ability to position itself appropriately from a skill set, operating model and technology perspective. All of this means that the Group is well positioned to respond to an ever-evolving macro environment.

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 2019 and beyond.

Nigel Le Quesne

Chief Executive Officer

 

 

 

Chief financial officer's review

Achieving the targets we set ourselves

Financial Review

The 2018 results reflect the pre listing capital structure up to 14 March 2018 and the current capital 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 10. As explained in the Company Prospectus, underlying EBITDA margin is the main profitability measure used within the Fund and Trust Company Administration market. 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.

JTC Group Financial KPIs

 

Revenue (£)

£77.3m

£59.8m

+29.3%

Underlying *

 

 

 

EBITDA (£)

£23.8m

£14.4m

+65.3%

EBITDA margin (%)

30.9%

24.1%

+6.8pp

EBIT (£)

£19.2m

£11.5m

+66.6%

Adjusted diluted EPS (p)**

18.4p

13.8p

+33.1%

Statutory

 

 

 

Gross profit margin (%)

61.5%

56.5%

+5.0pp

Gross profit margin ICS (%)

61.1%

56.4%

+4.7pp

Gross profit margin PCS (%)

62.2%

56.7%

+5.5pp

EBITDA (£)

£5.3m

£9.6m

-45.4%

EBIT (£)

£0.6m

£6.8m

-90.7%

Loss before tax (£)

(£2.1m)

(£3.6m)

+40.2%

Basic and diluted EPS (p)

(3.9p)

(7.0p)

N/A

Final dividend per share (p)

2.0p

-

+2.0p

Cash conversion (%)

80%

85%

-5.0pp

Net debt (£)

(£48.7m)

(£42.5m)

+£6.2m

*       Items classified as non-underlying are as detailed in Note 10 of the financial statements. Non-underlying items are defined as specific items that the Directors do not believe will recur in future periods. Non-underlying items charged to EBIT in 2018 include: EBT Capital Distribution (£13.2m), acquisition and integration costs (£4.3m) IPO costs (£1.0m) and other costs (£0.1m).

**     Adjusted diluted EPS is the loss for the year adjusted to remove the impact of non-underlying items within EBITDA, amortisation of customer contracts, other gains, share of profits from equity accounted investees, finance income, loan note interest, amortisation of loan arrangement fees and unwinding of NPV discounts.

Revenue

In 2018, revenue was £77.3m, an increase of £17.5m (29.3%) compared to 2017.

Period on period growth was driven by net LTM organic growth of 8.7% and inorganic growth of 20.6% from the acquisitions made in 2017 of the Bank of America Merrill Lynch International Trust and Wealth Structuring business (BAML) and New Amsterdam Cititrust (NACT) as well as the 2018 acquisitions of Minerva and Van Doorn.

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

FY17 Revenue

 

 

£59.4m

Lost - JTC Decision

 

 

(£0.1m)

Lost - Moved Service Provider

 

 

(£0.9m)

Lost - End of Life

 

 

(£4.0m)

Net more from Existing Clients

 

 

£5.5m

New Clients

 

 

£4.4m

Acquisitions

 

 

£13.0m

FY18 Revenue

 

 

£77.3m

Note: presented as constant currency using December 2018 Consolidated Income Statement exchange rates.

Client attrition in the period was 8.9% compared to 8.3% in 2017 and is consistent with previous periods. Attrition is broken down into three principal categories as also shown in the table above. This demonstrates that 98.2% of revenues that are not end of life were retained in the period.

Acquisitions contributed £13.0m of new revenue in the year broken down as follows:

Minerva

£4.4m

Van Doorn

£1.4m

NACT

£1.6m

BAML

£5.6m

Total

£13.0m

Revenue from acquisitions is treated as inorganic for the first 12 months of JTC ownership. NACT and BAML revenues appear in both 2017 and 2018 covering the first 12 months of JTC ownership

New Business / Pipeline

The enquiry pipeline increased by 25% from £25.6m at 31 December 2017 to £32m at 31 December 2018. During 2018 JTC secured new work with an annual value of £9.7m (2017: £8.9m). Typically this revenue will have an average lifecycle of approximately 10 years.

Gross Profit Margin

Gross profit margin for 2018 was 61.5%, an improvement of 5.0pp from 2017.

This improvement was seen in both operating Divisions with ICS improving gross margin from 56.4% in 2017 to 61.1% (+4.7pp) in 2018. The margin improvement is due to the continuing focus on improving operational efficiency and leveraging the Global Service Centre (GSC) in Cape Town.

Within PCS the gross profit margin was 62.2%, a 5.5pp improvement from 2017. The gross profit margin improvement was particularly strong in H1 due to the swift integration and re-organisation of the global PCS business following the acquisition of BAML. The focus in the first half of 2018 was to right-size the business taking into account the BAML acquisition. Having successfully achieved that, management moved their attention to delivering stronger organic growth and invested in senior BD capability to deliver this. This led to slightly lower margins in the division in H2 in the expectation that this would deliver stronger future revenue growth.

Underlying Profit and Margin Performance

Underlying EBITDA in 2018 was £23.8m, an increase of £9.4m and 65.3% from 2017. The reconciliation of the improvement in the underlying EBITDA is shown below.

Underlying EBITDA FY17

 

 

£14.4m

ICS Gross Profit - Efficiency

 

 

£2.0m

ICS Gross Profit - Volume

 

 

£4.1m

PCS Gross Profit - Efficiency

 

 

£1.8m

PCS Gross Profit - Volume

 

 

£5.8m

Indirect Staff

 

 

(£1.3m)

Operating Expenses

 

 

(£3.0m)

Underlying EBITDA FY18

 

 

£23.8m

Note: Efficiency Gross Margin Increase: Increase in Current Year Margin * Current Year Revenue. Presented based upon reported exchange rates.  

The underlying EBITDA margin % is the primary KPI used by the business and is a key measure of management's ability to run the business effectively and in line with competitors and historic performance levels. The performance in 2018 highlights the progress that has been made with underlying EBITDA margin increased to 30.9% from 24.1% in 2017 - a significant improvement of 6.8pp. This has been driven by improved operational efficiency in both operating divisions as well as continuing cost control. ICS's underlying EBITDA margin improved from 22.5% in 2017 to 28.8% reflecting the continuing refinement of the divisional operating model and utilisation of the Cape Town GSC. PCS's underlying EBITDA margin improved from 26.6% to 33.5% in the year. This was driven by the swift and effective integration of the BAML business as well as the benefits accruing from the operational changes made in the latter part of 2017. The business has continued to invest in processes, systems and operational capabilities and this investment will support future growth.

The Group recognises that EBIT is a more commonly accepted reporting metric and will over the next 12 months transition to using this as its primary profitability indicator for external stakeholders. Statutory EBITDA and EBIT are both impacted by significant non-underlying costs in this first year of reporting post the IPO. Details of these non-underlying costs are set out below.

Non-Underlying Items

Non-underlying items incurred in the period totalled £19.1m. These comprised the following:

·  £13.2m capital distribution from JTC EBT12 to all staff as a result of our IPO

·  £4.3m of acquisition and integration costs

·  £1.0m costs associated with the IPO

·  £0.6m other costs/ charges

Of the £19.1m of non-underlying costs, £18.6m are incurred at EBIT level, and £0.4m are included within Finance costs and £0.1m are other costs.

JTC 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 31 December 2018. Acquisition and integration costs reflect costs incurred on the completed acquisitions as well as transactions which are ongoing or did not complete.

Loss Before Tax

The reported loss before tax for the period ended 31 December 2018 was £2.1m (2017: £3.6m loss).

Adjusting for non-underlying items the underlying profit before tax for 2018 was £17.0m (2017: £0.9m loss). The improvement reflects both the strong business performance in the current year as well as the higher financing costs associated with the Group's capital structure pre-IPO, albeit offset by increased non-underlying costs.

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 listing. Finance costs in 2018 comprise £1.5m of amortisation/non cash flow items and £2.0m of costs which impact cash flow. Within the cash flow impacting 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 the new bank loan facility was higher than the ongoing rate.

Earnings Per Share

Underlying diluted EPS was 15.3p (2017: (2.9p)). Adjusted diluted EPS was 18.4p (2017: 13.8p). Adjusted diluted EPS is the loss for the year adjusted to remove the impact of non-underlying items within EBITDA, amortisation of customer contracts, other gains, share of profits from equity accounted investees, finance income, loan note interest, amortisation of loan arrangement fees and unwinding of NPV discounts.

Cash Flow and Debt

Cash generated from underlying operating activities was £19.2m representing an 80% conversion of underlying EBITDA (2017: 85%). During 2018 the conversion rate was adversely impacted due to the BAML acquisition. Former BAML clients are billed bi-annually in arrears and therefore JTC had not yet benefited from a full cycle of cash flows. At 31 December 2018 there was still a mismatch whereby three months of the revenues were not due for collection. Adjusting for this we would have seen an 89% cash conversion in the year. This is a strong performance when considered in the context of revenue growth of 29%. Working capital (trade receivables minus deferred revenue) as a percentage of revenue fell from 33.0% at 31 December 2017 to 31.1% (improvement of 1.9pp) by 31 December 2018.

Cash Conversion

FY16

FY17

FY18

Cash Conversion

91%

85%

80%

Adjusted Cash Conversion

91%

85%

89%

Revenue Growth

 

17%

29%

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

Net debt at the period end was £48.7m compared to £42.5m at 31 December 2017. This represents 2.0 times the underlying 2018 EBITDA (2017: 2.9 times). Underlying 2018 EBITDA does not include the full year impact of the profit of the Van Doorn or Minerva acquisitions in this calculation. On a proforma basis, net debt as a proportion of underlying EBITDA would fall to 1.7 times.

Reconciliation of Underlying EBITDA to Loss Before Tax

The reconciliation of underlying EBITDA to loss before tax for 2018 is as follows:

All figures in £'m for 2018

EBITDA

5.2

18.6

23.8

Depreciation and amortisation

(4.6)

-

(4.6)

Profit from operating activities (EBIT)

0.6

 (18.6)

19.2

Finance costs, other gains and losses etc.

(2.7)

0.5

(2.2)

Loss / profit before tax

(2.1)

(19.1)

17.0

Non-underlying items are set out in detail in note 10 to the consolidated financial statements and are, in the opinion of the Directors, specific items that will not recur.

 

Martin Fotheringham

Chief Financial Officer

 

 

 

Financial statements

Consolidated Income Statement

For the year ended 31 December 2018

 

Notes

2018
£'000

2017
£'000

Revenue

5

77,254

59,792

Staff costs

6

(50,703)

(32,006)

Establishment costs

 

(4,705)

(4,082)

Other operating expenses

8

(15,638)

(13,134)

Credit impairment losses

13

(1,285)

(1,357)

Other operating income

 

343

434

 

 

 

 

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

 

5,266

9,647

 

 

 

 

Comprising:

 

 

 

Underlying EBITDA

 

23,837

14,422

Non-underlying items

10

(18,571)

(4,775)

 

 

5,266

9,647

 

 

 

 

Depreciation and amortisation

20

(4,637)

(2,894)

Profit from operating activities

 

629

6,753

 

 

 

 

Other gains

9

522

1,833

Finance income

25

103

73

Finance cost

25

(3,475)

(12,215)

Share of profit/(loss) of equity-accounted investee

 

92

(6)

Loss before tax

 

(2,129)

(3,562)

 

 

 

 

Comprising:

 

 

 

Underlying profit/(loss) before tax

 

16,990

(858)

Non-underlying items

10

(19,119)

(2,704)

 

 

(2,129)

(3,562)

 

 

 

 

Tax

28

(1,728)

(1,083)

 

 

 

 

Loss for the year

 

(3,857)

(4,645)

 

 

 

 

 

 

 

 

Earnings per ordinary share ("EPS")

 

 

 

(expressed in pence per ordinary share)

 

 

 

Basic and diluted EPS (pence)

11

(3.87)

(6.98)

Underlying EPS (pence)

11

15.32

(2.92)

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

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2018

 

2018
£'000

2017
£'000

Loss for the year

(3,857)

(4,645)

 

 

 

Other comprehensive income/(loss):

 

 

Items that may be subsequently reclassified to profit or loss:

 

 

Exchange differences on translation of foreign operations

1,334

(716)

 

 

 

Total comprehensive loss for the year

(2,523)

(5,361)

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

Consolidated Balance Sheet

As at 31 December 2018

 

Notes

2018
£'000

2017
£'000

Assets

 

 

 

Property, plant and equipment

18

6,406

5,504

Goodwill

19

104,835

76,183

Other intangible assets

19

41,835

21,761

Investment in equity-accounted investee

21

978

886

Other receivables

16.1

1,536

940

Deferred tax assets

29

135

61

Other non-current financial assets

24.1

244

64

Total non-current assets

 

155,969

105,399

Trade receivables

13

16,142

10,862

Other receivables

16.1

3,884

2,575

Work in progress

12

7,084

5,855

Accrued income

14

9,309

8,052

Current tax receivables

 

453

24

Cash and cash equivalents

 

32,457

16,164

Total current assets

 

69,329

43,532

Total assets

 

225,298

148,931

 

 

 

 

Equity

 

 

 

Share capital

27.1

1,109

10

Share premium

27.1

94,599

238

Own shares

27.2

(2,565)

(1)

Capital reserve

27.3

(112)

(1,213)

Translation reserve

27.3

2,444

1,110

Accumulated profits

27.3

13,426

2,884

Total equity

 

108,901

3,028

 

 

 

 

Liabilities

 

 

 

Loans and borrowings

23

72,032

63,341

Other financial liabilities

24.2

241

1,087

Provisions

30

1,038

646

Deferred tax liabilities

29

6,010

2,817

Trade and other payables

16.2

5,469

718

Total non-current liabilities

 

84,790

68,609

Loans and borrowings

23

683

56,364

Other financial liabilities

24.2

7,968

5,356

Deferred income

15

7,744

5,012

Provisions

30

401

187

Current tax liabilities

 

2,871

995

Trade and other payables

16.2

11,940

9,380

Total current liabilities

 

31,607

77,294

Total equity and liabilities

 

225,298

148,931

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

 

Consolidated Statement of Changes in Equity

For the year ended 31 December 2018

 

 

Notes

Share

capital

£'000

Share

premium

£'000

Own

shares

£'000

Capital

 reserve

 £'000

Translation

reserve

£'000

Accumulated

profits/(losses)

£'000

Total

equity

£'000

Balance at 1 January 2017

 

10

83

(1)

(2,349)

1,826

(24,010)

(24,441)

Loss for the year

 

-

-

-

-

-

(4,645)

(4,645)

Other comprehensive loss for the year

 

-

-

-

-

(716)

-

(716)

Total comprehensive loss for the year

 

-

-

-

-

(716)

(4,645)

(5,361)

Issue of share capital

 

-

155

-

-

-

-

155

Share-based payment expense

 

-

-

-

517

-

-

517

Sale and purchase of own shares

 

-

-

-

(636)

-

-

(636)

Own shares movement

 

-

-

-

1,255

-

-

1,255

Shareholder loan note interest waived

23

-

-

-

-

-

31,038

31,038

Fair value of loan notes

 

-

-

-

-

-

501

501

Balance at 31 December 2017

 

10

238

(1)

(1,213)

1,110

2,884

3,028

 

 

 

 

 

 

 

 

 

Balance at 1 January 2018 as originally presented

10

238

(1)

(1,213)

1,110

2,884

3,028

Adoption of new standards

3.1(C)

-

-

-

-

-

(168)

(168)

Restated total equity at 1 January 2018

 

10

238

(1)

(1,213)

1,110

2,716

2,860

Loss for the year

 

-

-

-

-

-

(3,857)

(3,857)

Other comprehensive income for the year

 

-

-

-

-

1,334

-

1,334

Total comprehensive loss for the year

 

-

-

-

-

1,334

(3,857)

(2,523)

Issue of share capital

27

1,099

95,103

-

-

-

-

96,202

Cost of share issuance

 

-

(742)

-

-

-

-

(742)

Share-based payment expense

7.2

-

-

-

443

-

-

443

Movement in EBT and JSOPs

 

-

-

-

658

-

-

658

Movement of own shares

27.2

-

-

(2,564)

-

-

-

(2,564)

EBT12 gain on sale of shares

27.2

-

-

-

-

-

15,641

15,641

Dividends paid

27

-

-

-

-

-

(1,074)

(1,074)

Balance at 31 December 2018

 

1,109

94,599

(2,565)

(112)

2,444

13,426

108,901

The notes are an integral part of these financial statements.

 

Consolidated cash flow Statement

For the year ended 31 December 2018

 

Notes

2018
£'000

2017
£'000

Operating cash flows before movements in working capital

33

6,266

10,421

Increase in receivables

 

(3,436)

(2,687)

Increase in payables

 

4,565

3,461

Cash generated by operations

 

7,395

11,195

Income taxes paid

 

(907)

(1,175)

Net cash from operating activities

 

6,488

10,020

 

 

 

 

Comprising:

 

 

 

Underlying net movement in cash from operating activities

 

19,158

12,229

Non-underlying cash items

33

(12,670)

(2,209)

 

 

6,488

10,020

 

 

 

 

Investing activities

 

 

 

Interest received

 

103

56

Purchase of property, plant and equipment

18

(1,175)

(4,080)

Purchase of intangible assets

19

(1,024)

(425)

Acquisition of associate

 

-

(218)

Acquisition of subsidiaries

17

(31,176)

(4,482)

Proceeds from sale of subsidiaries

 

-

135

Net cash used in investing activities

 

(33,272)

(9,014)

 

 

 

 

Financing activities

 

 

 

Bank charges

 

(146)

(98)

Interest on finance leases

 

(3)

(16)

Interest on loans

 

(1,572)

(2,349)

Facility fees

 

(93)

(109)

Loan arrangement fees

 

(1,318)

(38)

Share capital raised

 

20,000

-

Share issuance costs

 

(742)

-

Proceeds from sale of EBT12 shares

27.2

15,641

-

Redemption of loan notes

 

(2,161)

-

Sale and purchase of own shares

27.2

(2,565)

(636)

Redemption of bank loans

23.1

(55,836)

-

Redemption of other borrowings

 

(853)

(959)

Bank loan drawn down

23.1

72,960

1,790

Other loan drawn down

 

-

3,017

Finance lease payments

 

(18)

(57)

Dividends paid

 

(1,074)

-

Net cash from financing activities

 

42,220

545

 

 

 

 

Net increase in cash and cash equivalents

 

15,436

1,551

 

 

 

 

Cash and cash equivalents at the beginning of the year

 

16,164

15,765

Effect of foreign exchange rate changes

 

857

(1,152)

Cash and cash equivalents at end of year

 

32,457

16,164

Notes to the Consolidated financial statements

For the year ended 31 December 2018

Section 1 - Basis for reporting and general information

1.    Reporting entity

2.    Basis of preparation

3.    Significant accounting policies

4.    Critical accounting estimates and judgements

Section 2 - Result for the year

5.    Segmental reporting

6.    Staff costs

7.    Share-based payments

8.    Other operating expenses

9.    Other gains

10.  Non-underlying items

11.  Earnings per share

Section 3 - Working capital

12.  Work in progress

13.  Trade receivables

14.  Accrued income

15.  Deferred income

16.  Other receivables and other payables

Section 4 - Investments

17.  Acquisition of subsidiaries

18.  Property, plant and equipment

19.  Intangible assets and goodwill

20.  Depreciation and amortisation

21.  Investment in equity-accounted investee

Section 5 - Financing, financial risk management and financial instruments

22.  Cash and cash equivalents

23.  Loans and borrowings

24.  Other financial assets and other financial liabilities

25.  Finance income and finance cost

26.  Financial instruments

27.  Share capital and reserves

Section 6 - Other disclosures

28.  Income tax expense

29.  Deferred taxation

30.  Provisions

31.  Operating leases

32.  Foreign currency

33.  Cash flow information

34.  Related party transactions

35.  Group entities

36.  Events occurring after the reporting period

SECTION 1 - BASIS FOR REPORTING
AND GENERAL INFORMATION

1.    Reporting entity

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

The financial statements of the Company for the year ended 31 December 2018 comprise the Company and its subsidiaries (together "the Group" or "JTC") and the Group's interest in an associate.

The Company was admitted to the London Stock Exchange on 14 March 2018 ("the IPO") having obtained control of the entire share capital of JTC Group Holdings Limited ("JTCGHL") via a share exchange, and thus control of the Group, see note 27.

Although the share exchange resulted in a change of legal ownership, in substance these financial statements reflect the continuation of the pre-existing Group, formerly headed by JTCGHL. As a result, the comparatives for 31 December 2017 presented in these consolidated financial statements are the consolidated results of JTCGHL. The impact on the Earnings Per Share calculation, is detailed in note 11.

The consolidated balance sheet at 31 December 2017 reflects the share capital structure of JTCGHL. The consolidated balance sheet at 31 December 2018 reflects the change in legal ownership of the Group, including the share capital of JTC PLC and the effects of the share exchange transactions.

The Group provides fund, corporate and private wealth services to institutional and private clients.

2.    Basis of preparation

2.1. Statement of compliance and basis of measurement

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union, the interpretations of the IFRS Interpretations Committee ("IFRS IC") and Companies (Jersey) Law 1991. The financial statements comply with IFRS as issued by the International Accounting Standards Board ("IASB") and have been prepared under the historical cost convention.

2.2. Going concern

The Group continues to adopt the going concern basis in preparing its financial statements. In making this assessment, the Directors noted a reported loss before tax position, that was materially impacted by the inclusion of a one-off capital distribution to employees from the Jersey Trust Company Employee Benefit Trust 2012 ("EBT12") following the IPO. They 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 financial statements.

2.3. Functional and presentation currency

The financial statements are presented in pounds sterling, which is the functional and reporting currency of the Company, and the presentation currency of the consolidated financial statements. All amounts disclosed in the financial statements and notes have been rounded to the nearest thousand ('000) unless otherwise stated.

3.    Significant accounting policies

3.1. Changes in accounting policies and new standards adopted

The accounting policies set out in these consolidated financial statements have been applied consistently to both year ends and have been applied consistently by Group entities, with the exception of IFRS 9 and IFRS 15 as set out below.

In the current year, to the extent they are relevant to its operations, the Group has adopted all IFRS standards and interpretations including amendments that were in issue and effective for accounting periods beginning on 1 January 2018.

(A) IFRS 9 'Financial Instruments'

In July 2014, IFRS 9 'Financial Instruments' was issued, replacing IAS 39 'Financial Instruments: Recognition and Measurement'. IFRS 9 brings together all three aspects of the accounting for financial instruments; classification and measurement, impairment and hedge accounting.

The adoption of IFRS 9 by the Group from 1 January 2018 resulted in changes to accounting policies and adjustments to the amounts recognised in the financial statements following the provision for additional loss allowances for trade receivables, work in progress and accrued income. The Group has applied IFRS 9 retrospectively but has elected not to restate comparative information. As a result the comparative information continues to be accounted for with the Group's previous accounting policies.

Classification and measurement

IFRS 9 introduces a single classification and measurement model for financial assets, depending on both the entity's business model for managing financial assets and the contractual cash flow characteristics of financial assets. Based on these, financial assets are classified as either amortised cost, fair value through profit or loss ("FVTPL") or fair value through other comprehensive income ("FVOCI"). As a result of applying IFRS 9, the previous classifications under IAS 39 have changed as set out in the 'summary of the impact of adoption' section of this note.

The Group considers the objective of its business model is to collect contractual cash flows and the contractual terms give rise to cash flows representing solely payments of principal and interest. As a result of adopting IFRS 9, the Group's financial assets will be classified and then subsequently measured at amortised cost.

IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. The adoption of IFRS 9 has not had a significant effect on the Group's accounting policies related to financial liabilities.

Modification

Where the Group negotiates or otherwise modifies the contractual cash flows of financial assets or financial liabilities, the Group assesses whether or not the terms are substantially different to the original terms. If the terms are substantially different, the Group derecognises the old finance asset or financial liability and recognises a new financial asset or financial liability at fair value. If the terms are not substantially different, the Group recalculates the gross carrying amount based on revised cash flows of the financial asset or financial liability and recognises the modification gain or loss in the consolidated income statement. The Group has not had any substantial modifications to financial assets or financial liabilities in the year.

Impairment of financial assets

IFRS 9 requires an expected credit loss ("ECL") model, as opposed to an incurred credit loss model under IAS 39. The ECL model requires an entity to account for expected credit losses and changes in these at each reporting date to reflect changes in credit risk since initial recognition.

(i) Trade receivables

The Group applies the simplified approach to measuring expected credit losses and recognises a lifetime expected loss allowance (see note 13 for details). On that basis, the total loss allowance as at 1 January 2018 was determined for trade receivables as follows:

 

Gross trade

receivables

£'000

Loss allowance

as % of trade

receivables

Loss allowance

for trade

receivables

£'000

<30 days

4,215

1.92%

81

30 - 60 days

2,149

4.00%

86

61 - 120 days

1,360

8.97%

122

>120 days

5,774

44.74%

2,583

Total

13,498

21.28%

2,872

 

(ii) Work in progress and accrued income

These financial assets 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 1.92%, was an appropriate estimation of the expected credit loss. This results in a loss allowance for work in progress and accrued income of £49k and £15k respectively at 1 January 2018.

Summary of the impact of adoption

The following table sets out the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group's financial assets and financial liabilities at 1 January 2018. The effect of adopting IFRS 9 on the carrying amounts of financial assets at 1 January 2018 relates solely to the new impairment requirements.

 

 

 

Classification

under IAS 39

Classification

under IFRS 9

Carrying amount under IAS 39

£'000

Carrying amount under IFRS 9

£'000

Adjustment for ECL

£000

Financial assets

 

 

 

 

 

 

Trade receivables

13

Loans and receivables

Amortised cost

10,862

10,625

237

Other receivables

16.1

Loans and receivables

Amortised cost

3,515

3,515

-

Work in progress

12

Loans and receivables

Amortised cost

5,855

5,806

49

Accrued income

14

Loans and receivables

Amortised cost

8,052

8,037

15

Other financial assets

24.1

Loans and receivables

Amortised cost

64

64

-

Cash and cash equivalents

 

Loans and receivables

Amortised cost

16,164

16,164

-

Total financial assets

 

 

 

44,512

44,211

301

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

Loans and borrowings

23

Other financial liabilities

Amortised cost

119,705

119,705

-

Trade and other payables

16.2

Other financial liabilities

Amortised cost

10,098

10,098

-

Other financial liabilities

24.2

Other financial liabilities

Amortised cost

6,443

6,443

-

Total financial liabilities

 

 

 

136,246

136,246

-

 

(B) IFRS 15 'Revenue from Contracts with Customers'

IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 'Revenue', IAS 11 'Construction Contracts' and the related interpretations.

The Group has adopted IFRS 15 'Revenue from Contracts with Customers' from 1 January 2018. The accounting policies for revenue recognition are unchanged from those under IAS 18 except for the incremental costs of obtaining a contract (i.e. costs that would not have been incurred if the contract had not been obtained, e.g. sales commissions), these are recognised as an asset if the costs are expected to be recovered. The capitalised cost of obtaining a contract is then amortised in a systemic manner consistent with the pattern of transfer of the related services.

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.

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, management 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 contract assets and discloses them within current and non-current other receivables (see note 16.1). The contract 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 in the consolidated income statement.

Current and non-current payables are also now recognised as part of other payables, being the commissions payable over the term of the contract (see note 16.2). These are discounted to record the net present value of the obligation with the unwinding of discount now shown in the consolidated income statement, within finance costs. The current other payable reflects the cash flows expected within one year and would be reduced as payments are made.

To reflect this change in policy, the following adjustments were made to balance sheet items at 1 January 2018, resulting in a net adjustment to retained earnings of £133k:

·  within trade and other payables; accrued commissions payable of £106k were reversed, and other payables of £292k were recognised, split between current and non-current, £167k and £125k (giving a net adjustment to current trade and other payables of £61k),

·  within other receivables; contract assets of £319k were recognised, split between current and non-current, £92k and £227k.

 

Non-current other receivables

16.1

940

227

1,167

Current other receivables

16.1

2,575

92

2,667

Non-current trade and other payables

16.2

(718)

(125)

(843)

Current trade and other payables

16.2

(9,380)

(61)

(9,441)

Total

 

(6,583)

133

(6,450)

 

(c) Restated opening equity following adoption of new standards

The impact on the Group's retained earnings as at 1 January 2018 following the adoption of IFRS 9 and 15 is as follows:

 

Closing retained earnings at 31 December 2017

 

2,884

Additional loss allowance (adoption of IFRS 9)

(301)

 

Recognition of asset for costs to obtain a contract (adoption of IFRS 15)

133

 

Total adoption of new standards

 

(168)

Opening retained earnings at 1 January 2018

 

2,716

3.2. New standards and interpretations not yet adopted

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2018 reporting periods and have not been adopted early by the Group. These are detailed below along with the Group's assessment of the impact of these.

(A) IFRS 16 'Leases'

IFRS 16 'Leases' was published in January 2016 and replaces IAS 17 'Leases' for reporting periods beginning on or after 1 January 2019. This standard introduces a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is less than one year or the underlying asset has a low value. A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

Transition approach

To assess the impact of IFRS 16, management has considered existing operating and finance leases as well as reviewing all other contracts in place within the business to ascertain if they fall within its definition of a lease. Following this initial review and information capture, management have been required to interpret certain arrangements as well as exercise judgement when determining the certainty of extension or termination options and the rate to discount lease payments.

Date of adoption by Group

The Group will apply the standard from its mandatory adoption date of 1 January 2019. The Group intends to apply the modified retrospective approach and will not restate comparative amounts for the year prior to first adoption. Right-of-use assets for property leases will be measured on transition as if the new rules had always been applied. All other right-of-use assets will be measured at the amount of the lease liability on adoption (adjusted for any prepared or accrued lease expenses).

Quantification of estimated impact

At the reporting date, the Group has annual non-cancellable operating lease commitments of £3.6 million (see note 31). Of these commitments, approximately £745k relate to short-term leases and will be recognised on a straight-line basis as an expense in the consolidated income statement.

Based on the information currently available, the Group estimates that on 1 January 2019 it will recognise right-of-use assets of approximately £28.8 million and lease liabilities of £28.4 million.

For the year ended 31 December 2019, the Group expects that net profit after tax will decrease by approximately £587k as a result of adopting the new rules. Underlying EBITDA used to measure segmental results is expected to increase by approximately £3 million, as long-term operating lease payments were included in EBITDA, but the amortisation of the right-of-use assets and interest on the lease liability are excluded from this measure.

Operating cash flows are expected to increase and financing cash flows decrease by approximately £3 million as repayment of the principal portion of the lease liabilities will be classified as cash flows from financing activities.

The Group expects the adoption of IFRS 16 to have an impact in the deferred tax, the effect of which is in the process of being assessed.

(b) Other standards

The following new or amended standards are not expected to have a significant impact on the consolidated financial statements:

·  IFRIC 23 Uncertainty over tax treatments;

·  Prepayment features with negative compensation (Amendment to IFRS 9);

·  Long-term interests in associates and joint ventures (Amendments to IAS 18);

·  Plan amendment, curtailment or settlement (Amendments to IAS19);

·  Annual improvements to IFRS Standards 2015-2017; and

·  IFRS 17 Insurance Contracts.

3.3. Summary of significant accounting policies

The basis of consolidation is described below, otherwise significant accounting policies related to specific items are described under the relevant note. The description of the accounting policy in the notes forms an integral part of the description of the accounting policies. Unless otherwise stated, these policies have been consistently applied to all the years presented.

 

Revenue

5

Employee benefits

6

Share-based payments

7

Work in progress

12

Trade receivables

13

Accrued and deferred income

14, 15

Business combinations and goodwill

17

Property, plant and equipment

18

Intangible assets, including impairment of non-financial assets

19

Investment in equity-accounted investee

21

Cash and cash equivalents

22

Finance income and finance costs

25

Financial instruments

26

Capital, reserves and dividends

27

Taxation

28

Provisions

30

Operating leases

31

Foreign currency

32

 

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non-controlling interest and other components of equity. Any resulting gain or loss is recognised in the consolidated income statement.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policy in line with the Group. All inter-company transactions and balances, including unrealised gains and losses, arising from transactions between Group companies are eliminated.

Company only financial statements

Under Article 105(11) of the Companies (Jersey) Law 1991, the Directors of a holding company need not prepare separate financial statements (i.e. company only financial statements). Separate financial statements for the Company are not prepared unless required to do so by the members of the Company by ordinary resolution. The members of the Company had not passed a resolution requiring separate financial statements and, in the Directors' opinion, the Company meets the definition of a holding company. As permitted by law, the Directors have elected not to prepare separate financial statements.

4. Critical accounting estimates and judgements

In the application of the Group's accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

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

4.1. Critical judgements in applying the Group's accounting policies

The following are the critical judgements, apart from those involving estimations (which are dealt with separately in 4.2), that the Directors 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 financial statements.

Recognition of customer contract intangibles

In 2018, the Group acquired Minerva and Van Doorn, see notes 17.1 and 17.2. IFRS 3 'Business Combinations' requires management to identify assets and liabilities purchased including intangible assets. Following their assessment, management concluded that the only material intangible asset meeting the recognition criteria is customer contracts. The customer contract intangible assets recognised through these acquisitions were £13.88 million and £7.72 million respectively.

4.2. Critical accounting estimates and assumptions

Fair value of customer contract intangibles

The customer contract intangible assets are valued using the multi-period excess earnings method ("MEEM") financial valuation model. Cash flow forecasts and projections are produced by management and form the basis of the valuation analysis. The key estimates and assumptions used in the modelling to derive the fair values include: year on year growth rates, client attrition rates, EBIT margins, the useful economic life of the customer contracts and the discount rate applied to free cash flow. See note 19.1 for the sensitivity analysis.

Recoverability of work in progress ("WIP")

To assess the fair value of consideration received for services rendered, management is required to make an assessment of the net unbilled amount expected to be collected from clients for work performed to date. To make this assessment, WIP balances are reviewed regularly on a by-client basis and the following factors are taken into account: (i) the ageing profile of the WIP, (ii) the agreed billing arrangements, (iii) value added and (iv) status of the client relationship. See note 12 for the sensitivity analysis.

SECTION 2 - RESULT FOR THE YEAR

5.    Segmental Reporting

Revenue

For 2018, the accounting policies for revenue recognition under IFRS 15 are unchanged from those under IAS 18 (which apply to the 2017 comparatives)with the exception of incremental costs to obtain contracts. Revenue is recognised in the consolidated income statement to the pro-rated part of the services rendered to the client at the reporting date.

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured as the fair value of the consideration received or receivable for services provided in the normal course of business, excluding discounts and sales-related taxes.

Revenue comprises fees and commissions from providing corporate, fund and private client administration services to institutional and private clients. The contractual arrangements can be timed-based, fixed fees or service charges and can be billed in advance or in arrears.

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 asset if the costs are expected to be recovered. The capitalised costs of obtaining a contract are amortised on a straight-line basis over the estimated useful economic life of the contract. The asset will be subject to an impairment analysis each period end.

Principal versus agent consideration

When the Group acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognised is the net amount of commissions made by the Group.

Other revenue

Where revenue is derived from offering treasury services to clients, revenue is recognised where it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably.

Rental income from operating leases is recognised on a straight-line basis over the relevant term of the lease.

5.1. 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 and family office clients. Declared revenue is generated from external customers.

Business activities include:

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.

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 of Directors. They determined the Group has two reportable segments: these are Institutional Client Services ("ICS") and Private Client Services ("PCS").

5.2. Segmental information

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

 

ICS

PCS

Total

2018

£'000

2017

£'000

2018

£'000

2017

£'000

2018

£'000

2017

£'000

Revenue

43,362

36,071

33,892

23,721

77,254

59,792

 

 

 

 

 

 

 

Direct staff costs

(16,465)

(15,541)

(10,782)

(8,816)

(27,247)

(24,357)

Other direct costs

(416)

(199)

(2,046)

(1,444)

(2,462)

(1,643)

 

 

 

 

 

 

 

Underlying gross profit

26,481

20,331

21,064

13,461

47,545

33,792

Underlying gross profit margin %

61.1%

56.4%

62.2%

56.7%

61.5%

56.5%

 

 

 

 

 

 

 

Indirect staff costs

(4,169)

(4,078)

(3,600)

(2,346)

(7,769)

(6,424)

Other operating expenses

(10,043)

(8,429)

(6,240)

(4,951)

(16,283)

(13,380)

Other income

219

280

125

154

344

434

 

 

 

 

 

 

 

Underlying EBITDA

12,488

8,104

11,349

6,318

23,837

14,422

Underlying EBITDA margin %

28.8%

22.5%

33.5%

26.6%

30.9%

24.1%

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

No individual customer represents more than 10% of revenue.

6.    Staff costs

Employee benefits

Short-term benefits

Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

Defined contribution plans

Payments to defined contribution retirement benefit schemes are recognised as an expense when employees have rendered services entitling them to contributions.

Termination benefits

Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises costs for a restructuring. If benefits are not expected to be settled wholly within one year of the end of the reporting period, then they are discounted.

Employee benefit trust ("EBT")

The Group is committed to the concept of shared ownership and it is this ethos that led to the creation of EBTs to hold shares in the Company for the benefit of employees. All permanent employees of the Group automatically become beneficiaries once they complete their probationary period. Any awards made upon completion of a capital event are expensed to staff costs immediately. Due to the capital nature of these awards they are considered to be non-underlying. Following the IPO, the Company settled a new EBT, the JTC PLC Employee Benefit Trust ("PLC EBT").

 

Salaries and Directors' fees

31,925

27,172

Capital distribution from EBT12

13,211

-

Other short-term employee benefits

986

761

Defined contribution pension costs

1,355

993

Share-based payments

443

517

Training and other staff-related costs

2,783

2,563

 

50,703

32,006

The Group contributes to a number of defined contribution pension schemes for its employees. The assets of all schemes are held separately from those of the Group in funds under the control of relevant external Trustees. For the year ended 31 December 2018, the total employer contribution to schemes was £1,355k (2017: £993k).

7.    Share-based payments

The Company operates equity-settled share-based payment arrangements under which services are received from eligible employees as consideration for equity instruments. The total amount to be expensed for services received is determined by reference to the fair value at grant date of the share-based payment awards made, including the impact of any non-vesting and market conditions.

The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Company's estimate of equity instruments that will eventually vest. At each balance sheet date, the Company revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the consolidated income statement such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

7.1. Description of share-based payment arrangements

(a) Pre-IPO

Prior to Admission to the London Stock Exchange, the Group operated a number of equity-settled share-based remuneration schemes. These were as follows:

Blue Sky 1 Scheme

The fair value at grant date was £81.51 per share and the shares awarded vested on 1 January 2017 subject to continued employment up to this date.

Blue Sky 2 Scheme

The fair value at grant date was £112.78 per share and the shares awarded vested on 1 January 2018 subject to continued employment up to this date.

Blue Island 1 Scheme

The fair value at grant date was £112.78 per share and the shares awarded vested upon IPO, subject to continued employment up to this date.

In addition to the Schemes noted above, the Group also made awards of their own equity instruments to employees in the following circumstances: for promotion, for employees joining the business, for the retention of key employees following acquisition and to incentivise key employees.

As these equity instruments were not traded on an active market, they were valued on a debt-free basis taking into account the general market conditions, continuing trading and potential for growth in order to reach a multiple to apply to EBITDA. The expense was recognised over the period employees rendered services up until either the specified vesting date or when service conditions were fulfilled.

Awards that had not vested prior to the IPO were converted into the equivalent number of JTC PLC shares upon listing.

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

 

No.

2018

£'000

No.

2017

£'000

Outstanding at the start of the year

 8,168

800

 8,974

774

Awarded

 9,013

300

 3,134

351

Exercised

 (8,168)

(800)

 (3,408)

(278)

Forfeited

-

-

 (532)

(47)

Converted at the IPO

643,385

-

-

-

Outstanding at the end of the year

652,398

300

 8,168

800

 

(b) Post-IPO

Following Admission to the London Stock Exchange, the Company has implemented and made awards to eligible employees under two equity-settled share-based payment plans:

Performance Share Plan ("PSP")

Executive Directors and Senior Managers may receive awards of shares, which may be granted annually under the PSP. The maximum policy opportunity award size under the PSP for an Executive Director is 150 per cent. of annual base salary, however the plan rules allow the Remuneration Committee the discretion to award up to 250 per cent. of annual base salary in exceptional circumstances. For the initial awards granted in September 2018 the limit for Executive Directors is 75 per cent. of the annual base salary. Vesting of the initial awards is subject to continued employment and achievement of performance conditions measured over a period of 3 years. The Remuneration Committee determines the appropriate performance measures, weightings and targets prior to granting any awards. Performance conditions for the initial awards include Total Shareholder Return ("TSR") relative to a relevant comparator group and the Company's absolute Underlying Earning Per Share performance.

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

 

No.

2018

£'000

Awarded

 160,638

549

Outstanding at the end of the year

 160,638

549

 

Deferred Bonus Share Plan ("DBSP")

Certain employees at Director level may be eligible for an annual bonus designed to incentivise high performance based on financial and non-financial performance measures. In line with market practice, a portion of the bonus due, as determined by the Remuneration Committee, may be deferred into shares before it is paid.

In 2019, the Group granted a variable number of equity instruments to Directors as part of the annual bonus award for performance during the financial year ended 31 December 2018. These awards vest on 31 December 2020 subject to continued employment up to this date. The fair value measured at grant date is the fixed amount awarded being £150k and this will be expensed over the three year vesting period. The number of shares will be determined when the shares are issued upon vesting.

7.2. Expenses recognised during the year

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

 

PSP Awards

142

-

DBSP Awards

50

-

Other Awards

251

517

Total share-based payments expense

443

517

8.    Other operating expenses

 

Third party administration fees

2,518

1,472

Commissions paid

-

269

Legal and professional fees

4,140

3,050

Auditor's remuneration for audit services

795

538

Auditor's remuneration for other services:

 

 

        - Acquisitions

78

18

        - IPO

285

605

Insurance

593

480

Travelling

961

552

Marketing

715

460

IT expenses

3,565

2,955

Other expenses

1,988

2,735

Other operating expenses

15,638

13,134

9.    Other gains

 

Loan written back/(off)

30

(490)

Foreign exchange gains

558

257

Net loss on disposal of property, plant and equipment

(523)

(2)

Loss on disposal of subsidiary

-

(53)

Gain on derivative forward contract

-

50

Gain on bargain purchase (see note 17.3)

457

2,071

Other gains

522

1,833

10.  Non-underlying items

The Group classifies certain one-off charges or non-recurring credits that have a material impact on the Group's financial results as non-underlying items. They represent specific items of income or expenditure that are not of an operational nature and do not represent the core operating results, and based on their significance in size or nature are presented separately to provide further understanding about the financial performance of the Group.

 

EBITDA

5,266

9,647

Non-underlying items within EBITDA:

 

 

Capital distribution from EBT12(i) (vi)

13,211

-

IPO costs(vi)

954

1,768

Acquisition and integration costs(ii)

4,257

1,995

Office closures

56

625

One-off costs to reorganise senior management team

93

200

Other

-

187

Total non-underlying items within EBITDA

18,571

4,775

Underlying EBITDA

23,837

14,422

 

 

 

Loss before tax

(2,129)

(3,562)

Non-underlying items within EBITDA

18,571

4,775

Gain on bargain purchase(iii)

(457)

(2,071)

Loss on disposal of acquired fixed assets(iv)

564

-

Unwinding of discount on capital distribution(vi)

190

-

Accelerated amortisation of loan arrangement fees(v) (vi)

251

-

Total non-underlying items within loss before tax

19,119

2,704

Underlying profit/(loss) before tax

16,990

(858)

(i)     The Group expensed £13.211 million to staff costs being the discounted value of the total committed capital distributions from EBT12 following the IPO.

(ii)    During 2018, the Group completed two acquisitions (Minerva and Van Doorn) and expensed £1.358 million of acquisition and integration expenditure (see notes 17.1 and 17.2). Also expensed in the year was £2.473 million in relation to the acquisition of BAML (see note 17.3). Acquisition and integration costs includes but is not limited to: travel costs, professional fees, legal fees, tax advisory fees, onerous leases, transitional services agreement costs, any client-acquired penalties or cost of acquired debtors subsequently defaulting, acquisition-related share-based payments and staff reorganisation costs.

(iii)   Gain on bargain purchase arising on the acquisition of BAML (see note 17.3).

(iv)   Loss on disposal of fixed assets acquired on acquisition of Minerva (see note 17.1).

(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.

(vi)   Items relating to the IPO.

11.  Earnings per share

The Group presents basic and diluted Earnings Per Share ("EPS"). In calculating the weighted average number of shares outstanding during the period any share restructuring is adjusted by a factor to make it comparable with the other periods. For diluted EPS, the weighted average number of ordinary shares is adjusted to assume conversion of all dilutive potential ordinary shares.

 

2018

£'000

2017

£'000

Loss for the year

(3,857)

(4,645)

Non-underlying items:

 

 

- included within operating expenses

18,571

4,775

- included within other gains

107

(2,071)

- included within finance costs

441

-

Underlying profit/(loss) for the year

15,262

(1,941)

 

 

No.

No.

Weighted average number of ordinary shares in issue:

 

 

Original shareholder exchange

 66,534,213

 66,534,213

New issue to original shareholders

 798,586

-

Primary raise

 5,536,136

-

Loan note conversion

 26,139,903

-

Issue of share consideration for Van Doorn

 291,787

-

Issue of share consideration for Minerva

 331,132

-

Weighted average number of ordinary shares for the purpose of diluted EPS

 99,631,757

 66,534,213

 

 

 

Basic and diluted EPS (pence)

 (3.87)

 (6.98)

Underlying EPS (pence)

 15.32

 (2.92)

The Group presents basic and diluted EPS and underlying EPS data for its ordinary shares. Basic EPS is calculated by dividing the loss after tax, attributable to ordinary shareholders, by the weighted average number of ordinary shares in issue during the year. Underlying EPS is calculated on the same basis but adjusted for non-underlying items in the year (see note 10).

As the Group made a loss for the year, the impact of any dilutive effects of contingently issuable shares (see note 7.1 (B)) are not calculated as the impact would be anti-dilutive.

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 EPS information on a consistent basis.

SECTION 3 - WORKING CAPITAL

12.  Work in progress

Work in progress ("WIP") represents the net unbilled amount expected to be collected from clients for work performed to date. It is measured at the chargeable rate agreed with the individual clients less progress billed and less expected credit losses.

 

 2018

£'000

2017

£'000

Total

7,132

5,855

Loss allowance (IFRS 9)

(48)

-

Net

7,084

5,855

For 2018, WIP is subject to the impairment requirements of IFRS 9. As these financial assets 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, is an appropriate estimation of the expected credit losses.

Sensitivity analysis

The total carrying amount of WIP (before ECL loss allowances) is £7.132 million. If management's estimate as to the recoverability of the WIP is 10% lower than expected, the impact to revenue would be £0.713 million.

13.  Trade receivables

Trade and other receivables that were classified as loans and receivables under IAS 39 are now classified at amortised cost. On transition to IFRS 9, opening retained earnings at 1 January 2018 were adjusted for an increase of £301k in the allowance for impairment over these receivables (see note 3.1).

Trade receivables are initially recognised at fair value, and subsequently measured at amortised cost (if the time value is material), using the effective interest method, less provision for impairment. 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 collectively using a provision matrix based on the Group's historical credit loss experience, adjusted for factors that are specific to the debtors' financial position (this includes unlikely to pay indicators such as liquidity issues, insolvency or other financial difficulties) and an assessment of both the current as well as the forecast direction of macroeconomic conditions at the reporting date. The Group has identified gross domestic product and inflation in each country the Group provides services in to be the most relevant macroeconomic factors. The impact of expected changes in these factors have been assessed and are reflected in the loss allowance for 2018. Provision rates are segregated according to geographical location and by business line. The Group considers specific impairment on a by client basis rather than on a collective basis. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement as credit impairment losses. When a trade receivable is uncollectable, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against credit impairment losses.

IAS 39 is similar to IFRS 9 but without the forward looking economic scenarios. Under IAS 39, financial assets were assessed for indicators of impairment at each balance sheet date and were considered impaired when there was objective evidence that, as a result of one or more events that occurred after initial recognition of the financial asset, the estimated future cash flows of the investment would be adversely affected. The carrying amount of trade receivables was adjusted through the use of an allowance account consistent with IFRS 9.

The ageing analysis of trade receivables with the loss allowance is as follows:

2018 (IFRS 9)

Gross

£'000

 Loss

allowance

£'000

Net

£'000

<30 days

10,048

(213)

9,835

30 - 60 days

1,214

(38)

1,176

61 - 90 days

1,090

(41)

1,049

91 - 120 days

996

(96)

900

121 - 180 days

256

(89)

167

180> days

6,197

(3,182)

3,015

Total

19,801

(3,659)

16,142

 

2017 (IAS 39)

Gross

£'000

 Loss

allowance

£'000

Net

£'000

<30 days

4,214

(25)

4,189

30 - 60 days

2,149

(26)

2,123

61 - 90 days

689

(40)

649

91 - 120 days

671

(38)

633

121 - 180 days

739

(115)

624

180> days

5,035

(2,391)

2,644

Total

13,497

(2,635)

10,862

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

 

2018

£'000

2017

£'000

Balance at the beginning of the year

(2,635)

(2,455)

IFRS 9 opening balance adjustment

(301)

 -

Impairment losses recognised in the consolidated income statement

(1,285)

(1,357)

Amounts written off (net of any unused amounts reversed)

562

1,177

Total allowance for doubtful debts

(3,659)

(2,635)

14.  Accrued income

Accrued income across all the service lines represents the billable provision of services to clients which has not been invoiced at the reporting date. Accrued income is recorded based on agreed fees billed in arrears and time-based charges at the agreed charge-out rates in force at the work date less expected credit losses.

 

 2018

£'000

2017

£'000

Total

9,334

8,052

Loss allowance (IFRS 9)

(25)

-

Net

9,309

8,052

For 2018, accrued income is subject to the impairment requirements of IFRS 9. As these financial assets 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, is an appropriate estimation of the expected credit losses.

15.  Deferred income

Fixed fees received in advance across all the service lines and up-front fees in respect of services due under contract are time-apportioned to respective accounting periods, and those billed but not yet earned are included in deferred income in the balance sheet.

16.  Other receivables and other payables

16.1. Other receivables

 

Current

 

 

Prepayments

2,054

1,298

Other receivables

1,335

1,277

Contract assets

495

-

Total current

3,884

2,575

 

 

 

Non-current

 

 

Prepayments

693

940

Contract assets

843

-

Total non-current

1,536

940

Total other receivables

5,420

3,515

For other receivables, management concluded the expected credit loss would have an immaterial impact on the financial statements.

16.2. Trade and other payables

 

Current

 

 

Trade payables

1,008

415

Other taxation and social security

210

145

Other payables

5,449

4,133

Accruals

5,273

4,687

Total current

11,940

9,380

 

 

 

Non-current

 

 

Other payables

5,469

718

Total non-current

5,469

718

Total trade and other payables

17,409

10,098

Trade payables and accruals principally comprise of amounts outstanding for trade purchases and ongoing costs. The Directors consider the carrying value of these to approximate to their fair value.

Included in current and non-current other payables is £3 million and £2.85 million respectively being the discounted value of capital distributions due from EBT12 to employees (2017: £nil) and £0.51 million and £1 million respectively for commissions payable over the term of the customer contracts obtained (see 3.1(B))(2017: £nil).

In 2017, current other payables included £2.14 million due to the BAML business for bills raised to clients covering the period prior to the acquisition, this was repaid to them during 2018.

SECTION 4 - INVESTMENTS

17. Acquisition of subsidiaries

Business combinations

The Group applies the acquisition method to account for business combinations. The consideration transferred in an acquisition is measured at the fair value of assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. The identifiable assets acquired and liabilities assumed in a business combination are measured at their fair values at the acquisition date. Acquisition-related costs are recognised in the income statement as non-underlying items within operating expenses.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree, and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement.

When the consideration transferred includes an asset or liability resulting from a contingent consideration arrangement, this is measured at its acquisition-date fair value. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement' period (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depend on how the contingent consideration is classified. Contingent consideration that is classified as equity is not re-measured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or liability is re-measured at subsequent reporting dates at fair value with the corresponding gain or loss being recognised in the consolidated income statement.

Goodwill

Goodwill is initially recognised and measured as set out above.

Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units ("CGUs") expected to benefit from the combination. CGUs to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit, pro-rata, on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

17.1. Minerva Holdings Limited and MHL Holdings SA ("Minerva")

On 5 September 2018, JTC entered into an agreement to acquire 100% of share capital of Minerva Holdings Limited and MHL Holdings SA (together "Minerva") from Dome Management Limited and Dome Management SA. Minerva is a global provider of private client, corporate, fund and treasury services. It operates in Jersey, Dubai, Mauritius, Switzerland, United Kingdom and Singapore. Minerva's client book is mainly focused on private clients, with a small element of corporate and fund structures and has a strong African focus.

The acquired business contributed revenues of £4.37 million and profit before tax of £0.234 million to the Group for the period from 1 September to 31 December 2018. If the business had been acquired on 1 January 2018, the consolidated pro-forma revenue and loss for the year for the Group would have been £86 million and £1.66 million respectively.

(a) Identifiable assets acquired and liabilities assumed on acquisition

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

 

£'000

Property, plant and equipment

884

Intangible assets

 13,879

Trade receivables

 932

Work in progress

 1,027

Accrued income

 863

Other receivables

 810

Cash and cash equivalents

 4,068

Assets

 22,463

 

 

Deferred income

 1,476

Finance lease

 50

Deferred tax liabilities

 1,396

Current tax liabilities

 63

Trade and other payables

 1,663

Liabilities

 4,648

 

 

Total identifiable net assets

 17,815

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

19,608

Equity instruments (2,877,698 ordinary shares issued at fair value)

11,200

Contingent consideration (discounted to fair value)

1,958

Fair value of total consideration

32,766

Contingent consideration of £2 million is payable following the first six months of the regulatory completion date and is contingent on Minerva maintaining an underlying EBITDA target. Based on the historic performance of the business and management's view of expected future revenue, it's anticipated this will be paid in full. The amount payable has been discounted to its present value of £1.96 million.

(c) Goodwill

Goodwill arising from the acquisition has been recognised as follows:

 

£'000

Total consideration

 32,766

Less: Fair value of identifiable net assets

 (17,815)

Goodwill

 14,951

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

(19,608)

Less: cash balances acquired

4,068

Net cash outflow from acquisition

(15,540)

 

(e) Acquisition-related costs

The Group incurred acquisition-related costs of £212k for professional, legal and advisory fees. These costs have been recognised in other operating expenses in the Group's consolidated income statement (see note 8) and are included along with integration costs to reach underlying EBITDA (see note 10).

17.2. Van Doorn CFS B.V. ("Van Doorn")

On 17 August 2018, JTC entered into an agreement with International Capital Group B.V. to purchase 100% of the share capital of Van Doorn, a Netherlands-based provider of corporate and fiduciary services.

The acquired business contributed revenues of £1.42 million and profit before tax of £0.914 million to the Group for the period from 1 September to 31 December 2018. If the business had been acquired on 1 January 2018, the consolidated pro-forma revenue and loss for the year for the Group would have been £80.1 million and £0.3 million respectively.

(a) Identifiable assets acquired and liabilities assumed on acquisition

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

 

€'000

£'000

Property, plant and equipment

54

48

Intangible assets

 8,616

7,724

Trade receivables

 342

307

Work in progress

 346

311

Other receivables

 42

38

Cash and cash equivalents

 547

490

Assets

 9,947

 8,918

 

 

 

Deferred income

 177

159

Deferred tax liabilities

 2,154

1,931

Current tax liabilities

 468

420

Trade and other payables

 217

194

Liabilities

 3,016

 2,704

 

 

 

Total identifiable net assets

 6,931

 6,214

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

(b) Consideration

Total consideration is satisfied by the following:

 

€'000

£'000

Cash consideration

11,258

10,093

Equity instruments (1,121,077 ordinary shares issued at fair value)

5,000

4,482

Contingent consideration (discounted to fair value)

5,352

4,798

Fair value of total consideration

21,610

19,373

Contingent consideration of £5 million (€5.5 million) was paid in February 2019 as the business performed successfully, exceeding the Revenue and underlying EBITDA targets set for 2018.

(c) Goodwill

Goodwill arising from the acquisition has been recognised as follows:

 

€'000

£'000

Total consideration

 21,610

 19,373

Less: Fair value of identifiable net assets

(6,931)

(6,214)

Goodwill

 14,679

 13,159

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

£'000

Cash consideration

(11,258)

(10,093)

Less: cash balances acquired

547

490

Net cash outflow from acquisition

(10,711)

(9,603)

 

(e) Acquisition-related costs

The Group incurred acquisition-related costs of £312k for professional, legal and advisory fees. These costs have been recognised in other operating expenses in the Group's consolidated income statement (see note 8) and are included along with integration costs to reach underlying EBITDA (see note 10).

17.3. International Trust and Wealth Structuring Business of Bank of America Corporation ("BAML")

On 30 September 2017, the Group acquired 100% of the issued share capital of the following companies: Merrill Lynch Corporate (New Zealand) Ltd, CM (Suisse) Trust Company Sarl, CM (IOM) Trust Company Limited and Fiduciary Services (UK) Limited (together the "BAML business"). The BAML business provides the administration of trust services for international advisory clients and provided the Group with a presence in the Isle of Man as well as increasing headcount in the key financial centres of the Cayman Islands, Geneva, London, Miami and Singapore.

The fair value of consideration was £6.69 million ($8.98 million) for acquired identifiable net assets of £8.76 million ($11.76 million) resulting in a bargain purchase and negative goodwill of £2.07 million ($2.78 million). The gain on acquisition is shown within other gains in the consolidated income statement (see note 9).

Contingent consideration of £4.3 million ($5.75 million) was payable one year following completion dependent on the BAML business achieving an agreed revenue target. On 14 December 2018, deferred consideration of £4.06 million ($5.14 million) was paid, this amount is slightly lower than anticipated as a result of the revenue target not being met in its entirety.

Within the acquired identifiable net assets we recognised customer contract intangibles of £9.61 million ($12.89 million) with a useful economic life of 12 years. Deferred tax liabilities of £1.2 million ($1.6 million) were recognised in relation to identified 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.

17.4. New Amsterdam Cititrust B.V. ("NACT")

On 31 July 2017, the Group acquired 100% of the issued share capital of New Amsterdam Cititrust B.V. ("NACT"), a business providing a range of corporate and administration services to both institutional and private clients. This acquisition served to strengthen JTC's presence in Europe and expand its global footprint to include the Netherlands.

The fair value of consideration was £5.02 million (€5.62 million) for acquired identifiable net assets of £3.02 million (€3.38 million) resulting in goodwill of £2.1 million (€2.24 million).

Contingent consideration of £1.79 million (€2 million) was payable in the two years following completion, contingent on the NACT business achieving underlying EBITDA targets for the financial years ending 31 December 2017 and 2018. On 20 March 2018, contingent consideration of £0.88 million (€1 million) was paid in respect of 2017 and on 29 January 2019, contingent consideration of £0.87 million (€1 million) was paid in respect of 2018 as both targets were achieved.

Within the acquired identifiable net assets were recognised customer contract intangibles of £2.98 million (€3.34 million) with a useful economic life of 10 years. Deferred tax liabilities of £0.75 million (€0.83 million) were recognised in relation to identified intangible assets, the amortisation of which is non-deductible against Netherlands Corporation Tax and therefore creates temporary differences between the accounting and taxable profits.

18.  Property, plant and equipment

Items of property, plant and equipment are initially recorded at cost and are stated at historical cost less depreciation and impairment losses.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight-line method, on the following bases:

Leasehold improvements                                 over the period of the lease

Computer equipment                                        4 years

Office furniture and equipment                         4 years

The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period with the effect of any changes in estimate accounted for on a prospective basis.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

An item of property, plant and equipment and any significant part initially recognised, is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated income statement when the asset is derecognised.

Assets under the course of construction are stated at cost. These assets are not depreciated until they are available for use.

 

Computer

equipment

£'000

Office

furniture and

equipment

£'000

Leasehold

improvements

£'000

Assets

under

construction

£'000

Total

£'000

Cost

 

 

 

 

 

At 1 January 2017

2,352

858

1,694

1,016

5,920

Additions

40

121

3,420

-

3,581

Transfers

-

-

1,016

(1,016)

-

Additions through acquisitions

286

9

-

-

295

Disposals

(27)

(62)

(68)

-

(157)

Exchange differences

(12)

1

9

-

(2)

At 31 December 2017

2,639

927

6,071

-

9,637

Additions

372

256

843

-

1,471

Additions through acquisitions

114

277

514

-

905

Disposals

(372)

(254)

(581)

-

(1,207)

Exchange differences

6

-

42

-

48

At 31 December 2018

2,759

1,206

6,889

-

10,854

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

At 1 January 2017

1,557

702

919

-

3,178

Charge for the year

404

80

568

        -

1,052

Disposals

(20)

(46)

(28)

-

(94)

Exchange differences

(3)

(1)

1

-

(3)

At 31 December 2017

1,938

735

1,460

-

4,133

Charge for the year

423

99

420

-

942

Disposals

(327)

(217)

(119)

-

(663)

Exchange differences

4

3

29

-

36

At 31 December 2018

2,038

620

1,790

-

4,448

 

 

 

 

 

 

Carrying amount

 

 

 

 

 

At 31 December 2018

721

586

5,099

-

6,406

At 31 December 2017

701

192

4,611

-

5,504

The carrying value of property, plant and equipment includes an amount of £162k (2017: £nil) in respect of office furniture and equipment held under finance leases.

19. Intangible assets and goodwill

Goodwill

Goodwill that arises on the acquisition of subsidiaries is presented with intangible assets. See note 17 for the measurement of goodwill at initial recognition, subsequent to this measurement is at cost less accumulated impairment losses.

Intangible assets acquired separately

Intangible assets that are acquired separately by the Group and have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses.

Amortisation is recognised in the consolidated income statement on a straight-line basis over the estimated useful life of the asset from the date that they are available for use. The estimated useful lives are as follows:

Regulatory licence              12 years

Software                              4 years

The estimated useful lives and residual value are reviewed at each reporting date and adjusted if appropriate, with the effect of any change in estimate being accounted for on a prospective basis.

Intangible assets under the course of construction are stated at cost and are not depreciated until they are available for use.

Intangible assets acquired in a business combination

Intangible assets acquired in a business combination and recognised separately from goodwill are initially recognised at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, these are measured at cost less accumulated amortisation and accumulated impairment losses.

Amortisation is recognised in the consolidated income statement on a straight-line basis over the estimated useful life of the asset from the date of acquisition. The estimated useful lives are as follows:

Customer contracts            8.7 to 12 years

The estimated useful lives and residual value are reviewed at each reporting date and adjusted if appropriate, with the effect of any change in estimate being accounted for on a prospective basis.

The movements of the intangible assets and goodwill are as follows:

 

Goodwill

£'000

Customer

contracts

£'000

Regulatory

licence

£'000

Software

£'000

Assets under

construction

£'000

Total

£'000

Cost

 

 

 

 

 

 

At 1 January 2017

74,022

10,935

237

2,110

250

87,554

Additions

-

-

-

282

144

426

Transfers

-

-

-

394

(394)

-

Additions through acquisitions

2,001

12,591

-

-

-

14,592

Disposals

-

-

-

(1)

-

(1)

Exchange differences

160

(252)

8

1

-

(83)

At 31 December 2017

76,183

23,274

245

2,786

-

102,488

Adjustments

27

-

-

-

-

27

Additions

-

-

-

623

81

704

Additions through acquisitions

28,110

21,604

-

45

-

49,759

Disposals

-

-

-

(40)

-

(40)

Exchange differences

515

1,155

6

22

-

1,698

At 31 December 2018

104,835

46,033

251

3,436

81

154,636

 

Accumulated amortisation

 

 

 

 

 

 

At 1 January 2017

-

1,429

10

1,289

-

2,728

Charge for the period

-

1,326

21

495

-

1,842

Exchange differences

-

(25)

(2)

1

-

(26)

At 31 December 2017

-

2,730

29

1,785

-

4,544

Charge for the period

-

2,743

20

484

-

3,247

Prior period adjustment

-

-

-

-

-

-

Disposals

-

-

-

(7)

-

(7)

Exchange differences

-

157

3

22

-

182

At 31 December 2018

-

5,630

52

2,284

-

7,966

 

 

 

 

 

 

 

Carrying amount

 

 

 

 

 

 

At 31 December 2018

104,835

40,403

199

1,152

81

146,670

At 31 December 2017

76,183

20,544

216

1,001

-

97,944

 

19.1. Intangible assets acquired in a business combination

In 2018, the Group acquired Minerva and Van Doorn and recognised customer contract intangible assets of £13.88 million and £7.72 million respectively.

Key assumptions

The fair value at acquisition was derived using the MEEM valuation model. Management considers the key assumptions used in this model to be:

·  year on year revenue growth, and

·  the discount rate applied to free cash flow.

Sensitivity analysis

Management carried out a sensitivity analysis on the key assumptions used in the valuation of the customer contract intangible assets of the two significant CGUs, being Minerva Jersey and Van Doorn.

For Minerva Jersey, an increase of 2% in year on year revenue growth would increase fair value by £516k and an increase in discount rate of 2% would decrease fair value by £550k. For Van Doorn, an increase of 2% in year on year revenue growth would increase fair value by £229k and an increase in discount rate of 2% would decrease fair value by £351k.

Management estimates that any similar changes to these key assumptions for the other customer contract intangible assets recognised in the year would not result in a significant change to fair value.

19.2. Impairment of non-financial assets

The carrying amounts of the Group's non-financial assets, current and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated.

Goodwill is tested annually for impairment. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount.

The recoverable amount of an asset or CGU is the higher of fair value less costs to sell or the value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.

To perform impairment testing, assets are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.

Where the recoverable amount is less than the carrying amount, impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and thereafter to reduce the carrying amount of other assets in the CGU. Any impairment losses identified would be immediately recognised in the consolidated income statement.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is also recognised immediately in the consolidated income statement. An impairment loss in respect of goodwill is not reversed.

(a)   Goodwill impairment

The aggregate carrying amounts of goodwill allocated to each CGU are as follows:

CGU

Balance at

1 Jan 2018

£'000

Post-acquisition

adjustments

£'000

Business

combinations

£'000

Exchange

differences

£'000

Balance at

31 Dec 2018

£'000

Jersey

54,337

-

9,669

-

64,006

Guernsey

10,598

-

-

-

10,598

BVI

752

-

-

-

752

Switzerland

1,077

-

1,208

64

2,349

Cayman

225

-

-

12

237

Luxembourg

7,204

-

-

69

7,273

Netherlands

1,990

27

13,159

105

15,281

Minerva Dubai

-

-

1,761

115

1,876

Minerva Mauritius

-

-

2,313

150

2,463

Total

76,183

27

28,110

515

104,835

 

CGU

Balance at

1 Jan 2017

£'000

Business

combinations

£'000

Exchange

differences

£'000

Balance at

31 Dec 2017

£'000

Jersey

54,337

-

-

54,337

Guernsey

10,598

-

-

10,598

BVI

752

-

-

752

Switzerland

1,077

-

-

1,077

Cayman

245

-

(20)

225

Luxembourg

7,013

-

191

7,204

Netherlands

 -

2,001

(11)

1,990

Total

74,022

2,001

160

76,183

The recoverable amount of goodwill has been determined for each CGU as at 31 December 2018 and as at 31 December 2017. For each of the CGUs, the recoverable amount was found to be higher than its carrying amount.

Key assumptions used in discounted cash flow projection calculations

The recoverable amount of all CGUs has been determined based on a value in use calculation using cash flow projections. Projected cash flows are calculated with reference to each CGU's latest budget and business plan which are subject to a rigorous review and challenge process. Management prepare the budgets through an assessment of historic revenues from existing clients, the pipeline of new projects, historic pricing, and the required resource base needed to service new and existing clients, coupled with their knowledge of wider industry trends and the economic environment.

The year 1 cash flow projections are based on detailed financial budgets and years 2 to 5 on detailed outlooks prepared by management. The revenue growth rate assumed beyond the initial five year period is between 1% and 2%, based on the expected long-term inflation rate of the relevant jurisdiction of the CGU.

Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money. In assessing the discount rate applicable to the Group the following factors have been considered:

·  Long-term treasury bond rate for the relevant jurisdiction

The cost of equity based on an adjusted Beta for the relevant jurisdiction

The risk premium to reflect the increased risk of investing in equities

The above assumptions have resulted in weighted average cost of capital ("WACC") of between 11.3% and 16.4%.

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

·  Terminal value growth rate: between 1% and 2%

·  Discount rate: between 11.3% and 16.4%

·  EBIT Margin: between 25% to 65%

Sensitivity analysis

Management believes that any reasonable changes to the key assumptions on which recoverable amounts are based would not cause the aggregate carrying amount to exceed the recoverable amount of the CGUs.

(b) Customer contract intangibles impairment

The carrying amount of the identifiable customer contract intangible assets acquired is as follows:

Acquisition

Useful
economic life

Carrying amount

2018

£'000

2017

£'000

Signes(i)

 

10 years

1,853

2,107

KB Group(i)

 

12 years

2,965

3,314

S&GFA(i)

 

10 years

2,666

2,890

BAML

17.3

10 years

9,100

9,392

NACT

17.4

12 years

2,582

2,841

Van Doorn

17.2

11.4 years

7,539

-

Minerva Jersey

17.1

11.8 years

9,736

-

Minerva Mauritius

17.1

10 years

1,801

-

Minerva Dubai

17.1

10 years

1,418

-

Minerva Switzerland

17.1

8.7 years

743

-

Total

 

 

40,403

20,544

(i)     Acquisitions in previous years included: Signes S.a.r.l and Signes S.A. ("Signes"), Kleinwort Benson (Channel Islands) Fund Services Limited ("KB Group") and Swiss & Global Fund Administration (Cayman) Ltd ("S&GFA").

Management reviews customer contract intangible assets for indicators of impairment at the reporting date. The only indicator identified was that actual revenues generated by BAML customer contracts were lower than forecast. An impairment assessment was performed and as the recoverable amount of the BAML customer contract intangible asset was higher than the carrying amount, management concluded there was no impairment.

20. Depreciation and amortisation

 

Amortisation of intangible assets

3,247

1,842

Depreciation of property, plant and equipment

942

1,052

Amortisation of contract assets

448

-

Depreciation and amortisation

4,637

2,894

21.  Investment in equity-accounted investee

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

Investments in associates are accounted for using the equity method. Under the equity method, the investment in an associate is initially recognised at cost, which includes transaction costs. Subsequent to initial recognition, the carrying amount of the investment is adjusted to recognise changes in the Group's share of the net assets of the associate since the acquisition date.

The consolidated income statement reflects the Group's share of the results of operations of the associate, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commenced until the date that significant influence ceases. In addition, when there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate. The aggregate of the Group's share of profit or loss of an associate is shown on the face of the consolidated income statement outside of operating profit and represents profit or loss after tax.

The Group has a 42% (2017: 42%) interest in Kensington International Group Pte. Ltd ("KIG"), a company incorporated in Singapore. KIG provides corporate, fiduciary, trust and accounting services and is a strategic partnership for the Group, providing access to new clients and markets in the Far East. The associate has share capital consisting of ordinary and preference shares, which are held directly by the Group. The country of incorporation is also their principal place of business, and the proportion of ownership interest is the same as the proportion of voting rights held. KIG is a private company and there is no quoted market price available for its shares. There are no contingent liabilities relating to the Group's interest in KIG.

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

Summarised income statement

Revenue

3,639

2,822

Gross profit

2,762

2,178

 

 

 

(Loss)/profit for the year

(47)

103

Other comprehensive income for the year

15

3

Total comprehensive (loss)/income for the year

(32)

106

 

 

 

Summarised balance sheet

2018

£'000

2017

£'000

Total non-current assets

516

460

Total current assets

2,133

1,524

Total assets

2,649

1,984

 

 

 

Total current liabilities

1,572

1,171

Net assets less current liabilities

1,077

813

 

Reconciliation of summarised financial information

Opening net assets

813

816

(Loss)/profit for the year

(47)

103

Other comprehensive income

15

3

Increase in equity

225

-

Foreign exchange differences

71

(109)

Closing net assets

1,077

813

Group's share of closing net assets

456

344

Goodwill

522

542

Carrying value of investment in associate

978

886

SECTION 5 - Financing, financial risk management and financial instruments

22.  Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Bank overdrafts, when applicable, are shown within borrowings in current liabilities.

 

2018
£'000

2017
£'000

Cash attributable to the Company

26,354

16,164

Committed EBT capital distributions

6,103

 -

Total

32,457

16,164

For 2018, cash and cash equivalents is subject to the impairment requirements of IFRS 9. As balances are mainly held with reputable international banking institutions, they were assessed to have low credit risk and no loss allowance is recognised.

23.  Loans and borrowings

 

2018

£'000

2017

£'000

Current

 

 

Bank loans

 -

55,522

Finance leases

5

 -

Other loans

678

842

Total current

683

56,364

 

 

 

Non-current

 

 

Bank loans

71,494

 -

Investor loan notes

 -

28,126

Management loan notes

 -

34,029

Finance leases

30

 -

Other loans

508

1,186

Total non-current

72,032

63,341

Total loans and borrowings

72,715

119,705

23.1. Bank loans

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

Facility

Currency

Termination Date

Initial interest rate (i)

2017
£'000

Term facility B

GBP

31 December 2018

LIBOR + 4.5%

-

47,500

Acquisition facility

GBP

31 December 2018

LIBOR + 4%

 -

8,336

Term facility

GBP

8 March 2023

LIBOR + 2%

45,000

 -

Revolving facility

GBP

8 March 2023

LIBOR + 2%

19,000

 -

Revolving facility

EUR

8 March 2023

EURIBOR + 2%

9,014

-

Total principal value

 

 

 

73,014

55,836

Issue costs

 

 

 

(1,520)

(314)

Total bank loans

 

 

 

71,494

55,522

(i)     From the initial interest rate, the facility margin can change as a result of net leverage calculations.

Movement in bank facilities during the year:

 

At 1 January 2018

£'000

Repayments

£'000

Drawdowns

£'000

Amortisation

release

£'000

Effect of
foreign
exchange

£'000

At 31 December 2018

£'000

Principal value

 

55,836

(55,836)

72,960

 -

54

73,014

Issue costs

 

(314)

 -

(1,750)

544

 -

(1,520)

Total

 

55,522

(55,836)

71,210

544

54

71,494

On 9 March 2018, the Group entered into a new five year loan facility agreement with HSBC Bank Plc for a total commitment of £55 million (or its equivalent in EUR and USD) consisting of a term loan of £45 million and a revolving facility commitment of £10 million. The loan agreement was amended on 19 October 2018 to increase the total commitment to £100 million and to introduce Barclays Bank Plc, Santander UK Plc and the Bank of Ireland as incoming lenders with an additional revolving facility commitment of £15 million each. All facilities are due to be repaid on or before the Termination Date of 8 March 2023.

An amount of £45 million from the loan facility was used to partially fund the repayment of the existing secured bank loan with HSBC Bank Plc and Royal Bank of Scotland Plc totalling £55.8 million in March 2018. The issue costs of £251k associated with this loan have been written off, having previously been capitalised for amortisation over the term of the loan. Two further withdrawals were made on 25 September 2018 and 16 November 2018 for £9 million and £19 million respectively to partially fund the two acquisitions made by the Group during the year as detailed in notes 17.1 and 17.2.

The cost of the facility depends upon Net Leverage, being the ratio of total net debt to underlying EBITDA (for LTM at average FX rates and adjusted for pro-forma contributions from acquisitions and synergies) for a relevant period. Arrangement and legal fees amounting to £1.75 million have been capitalised for amortisation over the term of the loan.

At 31 December 2018, the Group had available £27 million of committed facilities currently undrawn (2017: £1.7 million).

23.2. Loan notes

The Investor (CBPE Capital LLP "CBPE") and Management were issued 12% Fixed Rate Unsecured loan notes with an aggregate prinicipal amount of £28.4 million and £34.3 million respectively. They were repayable on the earlier of 27 July 2022 or the date of completion of an exit with interest on the principal amount accruing from the date of issue at the rate of 12% per annum compounding annually.

On 30 November 2017, the Board approved a restructuring of the Investor and Management loan notes. As a result of the restructuring, £31.038 million of loan note interest was waived in the 2017 financial year.

The loan notes were initially recognised at fair value at the issue date and were subsequently measured on an amortised cost basis. At 30 November 2017, there was a substantial change to the terms of the loan notes, whereby they became interest-free. These interest-free loan notes were then fair valued at 31 December 2017 and changes in valuation under the new loan facility in comparison to the original loan facility went through equity as this was a transaction among equity holders.

As part of the restructuring 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 note holders (see note 27).

23.3. Other loans

On 10 April 2017, the Group entered into a loan facility with Close Leasing Limited to draw down £2.52 million. On this date, the 1% loan arrangement fee of £25k and an initial instalment of £194k were deducted from the cash received, the remaining balance due will be settled in 41 monthly instalments of £65k each.

On 22 May 2017, the Group entered into a loan facility with Lombard Finance Limited to draw down £479k. There were no arrangement fees and the total due of £492k was payable in 12 equal monthly instalments. The final instalment was paid in April 2018.

24.  Other financial assets and other financial liabilities

24.1. Other financial assets

 

Non-current

 

 

Loans receivable from related undertakings

 

 

- Northpoint Byala IC

53

53

- Northpoint Finance IC

11

11

Loan receivable from employee

180

 -

Total other financial assets

244

64

Northpoint Byala IC and Northpoint Finance IC are incorporated cell companies registered in Jersey, Channels Islands and related parties due to common directorships. The loans are unsecured and interest-free, as the repayment date is unspecified, management consider these to be non-current.

The loan made to an employee is interest-bearing (LIBOR +1.5%) and this is repayable on 31 December 2020 unless the employment contract is terminated at an earlier date.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above and in note 26.2. The Group does not hold any collateral as security.

24.2. Other financial liabilities

 

Current

 

 

Deferred consideration

7,968

5,356

Total current

7,968

5,356

 

 

 

Non-current

 

 

Deferred consideration

241

1,087

Total non-current

241

1,087

Total other financial liabilities

8,209

6,443

Deferred consideration payable for the acquisition of subsidiaries is discounted to net present value. This is split between current and non-current and is due by acquisition as follows: £5.06 million for Van Doorn, £1.96 million for Minerva, £883k for NACT and £306k for the S&GFA (2017: £1.921 million for NACT, £4.163 million for BAML and £359k for the S&GFA).

25.  Finance income and finance cost

Finance income includes interest income from loan receivables and bank deposits and is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably.

Finance costs include interest expenses on loans and borrowings, the unwinding of the discount on provisions and contingent consideration and the amortisation of directly attributable transaction costs which have been capitalised upon issuance of the financial instrument and released to the consolidated income statement on a straight-line basis over the contractual term.

 

Bank interest

90

56

Loan interest

13

17

Finance income

103

73

 

 

 

Bank loan interest

1,611

2,348

Loan note interest

48

9,202

Amortisation of loan arrangement fees

555

322

Unwinding of net present value discounts

986

119

Other finance expense

275

224

Finance cost

3,475

12,215

26.  Financial instruments

Classification and measurement

The Group has applied IFRS 9 as of 1 January 2018, the impact is disclosed in note 3.1.

IFRS 9 introduces a single classification and measurement model for financial assets, depending on both the entity's business model objective for managing financial assets and the contractual cash flow characteristics of financial assets. Based on this, there are three principal classification categories, these are: amortised cost, fair value through profit or loss ("FVTPL") and fair value through other comprehensive income ("FVOCI").

Non-derivative financial assets

The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such a transferred financial asset that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the consolidated statement of financial position if, and only if, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group classifies non-derivative financial assets into the following categories: loans and receivables.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.

Loans and receivables comprise loans, trade receivables and other receivables.

Non-derivative financial liabilities

The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired.

The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method. Other financial liabilities comprise loans and borrowings and trade and other payables.

Impairment

Non-derivative financial assets

Financial assets not classified at fair value through profit or loss, including an interest in an equity-accounted investee, are assessed at each reporting date to determine whether there is objective evidence of impairment. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that loss event(s) had an impact on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not otherwise consider, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

Financial assets measured at amortised cost

The Group considers evidence of impairment for financial assets measured at amortised cost (loans and receivables) at both a specific asset and collective level. All individually significant assets are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics.

In assessing collective impairment, the Group uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management's judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

The Group has exposure to the following main risks from its financial instruments: market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk.

This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risk, and the Group's management of capital.

The financial risk management policies are discussed by the management of the Group on a regular basis to ensure that these are in line with the overall business strategies and its risk management philosophy. Management sets policies which seek to minimise the potential adverse impact on the financial performance of the Group. Management provides necessary guidance and instructions to the employees covering the specific risk areas.

26.1. Market risk

The Group's activities expose it to the financial risks of changes in foreign currency exchange rates and interest rates. There is also a degree of currency risk through overseas operations with a functional currency other than pounds sterling and to a lesser extent when contracting with clients in currencies other than pounds sterling.

Foreign currency risk management

The principal currency of the Group's financial assets and liabilities is pounds sterling. The Group does, however, own trading subsidiaries based in Africa, Americas, Caribbean, Middle East, Asia, New Zealand and Europe which are denominated in a currency other than the principal currency. The Group manages exposure to foreign exchange rates by carrying out the majority of its transactions in the functional currency of the Group company in the jurisdiction in which it operates.

The Group entities maintain assets in foreign currencies sufficient for regulatory capital purposes in each jurisdiction. The carrying amounts of the Group's material foreign currency denominated monetary assets and monetary liabilities at the period end are as follows:

 

Monetary Assets(i)

Monetary Liabilities(ii)

 

2018

2017

2018

2017

 

£'000

£'000

£'000

£'000

Euro

10,459

3,786

(3,020)

(2,984)

United States Dollar

7,746

3,720

(1,484)

(552)

South African Rand

1,192

792

 -

(379)

Swiss Franc

745

653

(580)

(2,562)

New Zealand Dollars

13

 -

 -

 -

Singaporean Dollars

 -

 -

(31)

 -

Pound Sterling

29,602

18,040

(86,163)

(119,982)

Total

49,757

26,991

(91,278)

(126,459)

(i)     Monetary assets comprise of cash and cash equivalents and trade and other receivables.

(ii)    Monetary liabilities comprise of loans and borrowings and trade and other payables.

Foreign currency risk exposure

The following table illustrates management's assessment of the foreign currency impact on the year-end balance sheet and presents the possible impact on the Group's total comprehensive income for the year and net assets arising from potential changes in the Euro, United States Dollar, South African Rand, Swiss Franc, New Zealand Dollar and Singaporean Dollar exchange rates, with all other variables, particularly interest rates, remaining constant. A strengthening or weakening of pounds sterling by 15% is considered an appropriate variable for the sensitivity analysis given the scale of foreign exchange fluctuations over the last three years.

 

 

Effect on comprehensive income and net assets

 

Strengthening/ (weakening) of pound sterling

2018
£'000

2017
£'000

Euro

+15%

1,116

120

United States Dollars

+15%

939

475

South African Rand

+15%

179

62

Swiss Franc

+15%

25

(286)

New Zealand Dollars

+15%

2

 -

Singaporean Dollars

+15%

(5)

 -

Total

 

2,256

371

Euro

(15%)

(1,116)

(120)

United States Dollars

(15%)

(939)

(475)

South African Rand

(15%)

(179)

(62)

Swiss Franc

(15%)

(25)

286

New Zealand Dollars

(15%)

(2)

 -

Singaporean Dollars

(15%)

5

 -

Total

 

(2,256)

(371)

Interest rate risk management

The Group is exposed to interest rate risk as it borrows funds at floating interest rates, the interest rates are directly linked to LIBOR and/or EURIBOR plus a margin based on the leverage ratio of the Group, the higher the leverage ratio the higher the margin on LIBOR and/or EURIBOR. The risk is managed by the Group maintaining an appropriate leverage ratio and through this ensuring that the interest rate is kept as low as possible.

The interest fluctuations are low which minimises the Group's exposure to interest rate fluctuations. As a result, no hedging instruments have been put in place.

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

Interest rate risk exposure

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 loss for the year ended 31 December 2018 would decrease/increase by £357k (2017: £278k).

26.2. Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group's principal exposure to credit risk arises from the Group's trade receivables from clients, work in progress, accrued income and cash and cash equivalents.

Trade receivables, work in progress and accrued income consist of a large number of customers, spread across diverse industries and geographical areas. The carrying amount of financial assets recorded in the historical financial information, which is net of impairment losses, represents the Group's maximum exposure to credit risk as no collateral or other credit enhancements are held.

The Group manages credit risk by review at take-on around:

·  the risk of insolvency or closure of the customer's business;

·  customer liquidity issues; and

·  general creditworthiness, including past default experience of the customer, and customer types.

Subsequently, customer credit risk is managed by each of the Group entities subject to the Group's policies, procedures and controls relating to customer credit risk management. Outstanding customer receivables are monitored and followed up continuously. Provisions are made when there is objective evidence that the Group will not be able to collect the debts or bill the customer. This evidence can include the following: indication that the customer is experiencing significant financial difficulty or default, probability of bankruptcy, problems in contacting the customer, disputes with a customer, or similar factors. Analysis is done on a case by case basis in line with policies. The ageing of trade receivables and loss allowance at the reporting date is disclosed in note 13.

Cash and cash equivalents and interest receivable are held mainly with banks which are rated 'A-' or higher by Standard & Poor's Rating Services or Fitch Ratings Ltd for long-term credit rating.

Credit risk exposure

The gross carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was as follows:

 

Total 2018

Loss allowance 2018

Net 2018

Total 2017

Loss allowance 2017

Net 2017

 

£'000

£'000

£'000

£'000

£'000

£'000

Trade receivables

19,801

(3,659)

16,142

13,497

(2,635)

10,862

Other receivables

5,420

 -

5,420

3,515

 -

3,515

Work in progress

7,132

(48)

7,084

5,855

-

5,855

Accrued income

9,334

(25)

9,309

8,052

-

8,052

Other financial assets

244

 -

244

64

 -

64

Cash and cash equivalents

32,457

 -

32,457

16,164

 -

16,164

 

74,388

(3,732)

70,656

47,147

(2,635)

44,512

For trade receivables, work in progress and accrued income the Group has determined that the application of IFRS 9 impairment requirements at 1 January 2018 results in an additional allowance for impairment of £301k (see note 3.1.).

For the ageing of trade receivable and the provisions thereon at the year end, including the movement in the provision, see note 13.

26.3. Liquidity risk management

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk to maintain adequate reserves by regular review around the working capital cycle using information on forecast and actual cash flows.

Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity management requirements. Regulation in most jurisdictions also requires the Group to maintain a level of liquidity so the Group does not become exposed.

Liquidity and interest risk tables

The tables detail the Group's remaining contractual maturity for its financial liabilities with agreed repayment years. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rates at the balance sheet date. The contractual maturity is based on the earliest date on which the Group may be required to pay.

2018

Total

contractual

cash flow

£'000

Loans and borrowings(i)

390

1,952

78,685

 -

81,027

Trade payables and accruals

15,903

 -

 -

 -

15,903

Deferred consideration for acquisitions

5,925

2,065

242

 -

8,232

 

22,218

4,017

78,927

 -

105,162

 

 

 

 

 

 

2017

<3 months

£'000

3 - 12 months

£'000

1 - 5 years

£'000

>5 years

£'000

Total

contractual

cash flow

£'000

Loans and borrowings(i)

587

58,770

64,151

 -

123,508

Trade payables and accruals

10,190

 -

 -

 -

10,190

Deferred consideration for acquisitions

 -

5,478

1,379

 -

6,857

 

10,777

64,248

65,530

 -

140,555

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

26.4. Capital risk management

The capital structure of the Group consists of shares, share premium and borrowings. The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to shareholders through the optimisation of the debt and equity balance.

As disclosed in note 23, the Group has a bank loan which requres it to meet leverage and interest cover covenants. In order to achieve the Group's capital risk management objective, the Group aims to ensure that it meets financial covenants attached to bank borrowings. Breaches in meeting the financial covenants would permit the lender to immediately recall the loan. In line with the loan agreement the Group tests compliance with the financial covenants on a quarterly basis.

Individual regulated entities within the Group are subject to regulatory requirements to ensure adequate capital and liquidity to meet local requirements in Jersey, Guernsey, Isle of Man, UK, USA, Switzerland, Netherlands, Luxembourg, Mauritius, South Africa and the Caribbean; all are monitored regularly to ensure compliance. There have been no breaches of applicable regulatory requirements during the year.

The Directors continue to review and improve the Group's objectives, policies and processes for managing capital.

26.5. Carrying amount of financial assets and liabilities

 

Notes

2018
£'000

2017
£'000

Financial assets measured at amortised cost:

 

 

 

Trade receivables

13

16,142

10,862

Other receivables

16.1

5,420

3,515

Work in progress

12

7,084

5,855

Accrued income

14

9,309

8,052

Other financial assets

24.1

244

64

Cash and cash equivalents

22

32,457

16,164

 

 

70,656

44,512

 

 

 

 

Financial liabilities measured at amortised cost:

 

 

 

Loans and borrowings

23

72,715

119,705

Trade and other payables

16.2

17,409

10,098

Other financial liabilities

24.2

8,209

6,443

 

 

98,333

136,246

27.  Share capital and reserves

Ordinary shares

The Group's ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

Dividends

Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period. Interim dividends are recognised when paid.

Own shares

Own shares represent the shares of the Company that are unallocated and held by PLC EBT and previously share ownership trusts and EBT12 (together the "Trusts"). Own shares are recorded at cost and deducted from equity. When shares vest unconditionally, are cancelled or are reissued they are transferred from the own shares reserve at their cost. Any consideration paid or received by the Trust for the purchase or sale of the Company's own shares is shown as a movement in shareholders equity.

27.1. Share capital

 

Authorised

 

300,000,000 Ordinary shares of £0.01 each

3,000

Called up, issued and fully paid

 

110,895,327 Ordinary shares of £0.01 each

1,109

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 JTCGHL 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 (known as "PLC 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, 741,345 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'.

On 28 September 2018, the Company issued and admitted an additional 1,121,077 ordinary shares at fair value to satisfy the share consideration payable for its acquisition of Van Doorn, see note 17.2.

On 20 November 2018, the Company issued and admitted an additional 2,877,698 ordinary shares at fair value to satisfy the share consideration payable for its acquisition of Minerva, see note 17.1.

Movements in share capital

Balance at the beginning of the year

 -

Issue of shares

1,109

Balance at the end of the year

1,109

 

 

Movements in share premium

2018
£'000

Balance at the beginning of the year

 -

Issue of shares

94,599

Balance at the end of the year

94,599

27.2. Own shares

The own share reserve comprises the costs of the Company's shares held by the Group, these have been treated as own shares in accordance with IAS 32 'Financial Instruments'. Under the share exchange agreement (see note 27.1), the shares and loan notes held by EBT12 were converted into PLC shares and then sold for £15.641 million upon IPO. Following the IPO, the PLC EBT was settled by capital appointments and now holds 741,345 Ordinary shares (0.7% of the issued share capital) with a cost of £2.564 million (2017: £1k).

 

JSOPs

No.

EBT12

No.

PLC EBT

No.

At 1 January 2017

 36,602

 84,000

 -

Movement

 (7,480)

 -

 -

At 31 December 2017

 29,122

 84,000

 -

Movement

 (29,122)

 (84,000)

 741,345

At 31 December 2018

 -

 -

 741,345

27.3. Other reserves

Capital reserve

This reserve is used to record the gains or losses recognised on the purchase, sale, issue or cancellation of the Company's own shares, which may arise as a result of transactions with employees or owners of the Group.

Translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.

Accumulated profits

The accumulated profit and loss reserve includes all current and prior year accumulated profits and losses and share-based employee remuneration.

SECTION 6 - Other disclosures

28. Income tax expense

Current tax

Current tax is the expected tax payable or receivable on the taxable income or loss for the period using tax laws enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated using tax rates that are expected to apply when the liability is settled or the asset realised using tax rates enacted or substantively enacted at the balance sheet date.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

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

Current tax and deferred tax for the year

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

 

Current tax expense

 

 

Jersey tax on current year profits

587

300

Foreign company taxes on current year profits

1,463

982

 

2,050

1,282

Deferred tax expense (see note 29)

 

 

Jersey origination and reversal of temporary differences

110

7

Temporary movements in relation to customer contracts

(389)

(172)

Foreign company origination and reversal of temporary differences

(43)

(34)

 

(322)

(199)

 Total tax charge for the year

1,728

1,083

The difference between the total current tax shown and the amount calculated by applying the standard rate of Jersey income tax to the loss before tax is as follows:

 

Loss on ordinary activities before tax

(2,129)

(3,562)

Tax on loss on ordinary activities at standard Jersey income tax rate of 10% (2017: 10%)

(213)

(356)

Effects of:

 

 

Results from tax exempt entities (Jersey company)

1,073

1,280

Results from tax exempt entities (Foreign company)

(87)

(144)

Foreign taxes not at Jersey rate

788

569

Depreciation in excess of capital allowances (Jersey company)

110

6

Depreciation in excess of capital allowances (Foreign company)

(43)

(34)

Temporary difference arising on amortisation of customer contracts

(389)

(172)

Non-deductible expenses

72

17

Additional provisions

200

 -

Consolidation adjustments

173

(101)

Other differences

44

18

Total tax charge for the year

1,728

1,083

Income tax expense computations are based on the jurisdictions in which profits were earned at prevailing rates in the respective jurisdictions.

The Company is subject to Jersey income tax at the general rate of 0%, however, the majority of the Group's profits are reported in Jersey by Jersey financial services companies where the applicable income tax rate is 10%. It is therefore appropriate to use this rate for reconciliation purposes.

 

2018
£'000

2017
£'000

Reconciliation of effective tax rates

 

 

Tax on loss on ordinary activities

10.00%

10.00%

Effect of:

 

 

Results from tax exempt entities (Jersey company)

(50.67%)

(35.93%)

Results from tax exempt entities (Foreign company)

4.11%

4.05%

Foreign taxes not at Jersey rate

(37.19%)

(15.96%)

Depreciation in excess of capital allowances (Jersey company)

(5.19%)

(0.17%)

Depreciation in excess of capital allowances (Foreign company)

18.36%

0.95%

Temporary difference arising on amortisation of customer contracts

2.02%

4.82%

Non-deductible expenses

(3.36%)

(0.49%)

Additional provisions

(9.44%)

0.00%

Consolidation adjustments

(8.15%)

2.82%

Other differences

(2.06%)

(0.51%)

Effective tax rate

(81.58%)

(30.42%)

29. Deferred taxation

The deferred taxation (assets) and liabilities recognised in the financial statements are set out below:

 

Intangible assets

5,869

2,817

Other origination and reversal of temporary differences

6

(61)

 

5,875

2,756

 

 

 

Deferred tax assets

(135)

(61)

Deferred tax liabilities

6,010

2,817

 

5,875

2,756

 

 

 

The movement in the year is analysed as follows:

2018

2017

Intangible assets

£'000

£'000

Balance at the beginning of the year

2,817

1,022

Recognised through acquisitions

3,327

1,947

Recognised in income statement

(389)

(172)

Foreign exchange (to other comprehensive income)

114

20

Balance at 31 December

5,869

2,817

 

 

 

Other origination and reversal of temporary differences

 

 

Balance at the beginning of the year

(61)

(33)

Recognised in income statement

67

(28)

Balance at 31 December

6

(61)

At 31 December 2018 and 31 December 2017 the Group recognised all material deferred tax assets and liabilities.

30.  Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. If the impact of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost in the consolidated income statement.

Onerous contracts

Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the contract.

Dilapidations

The Group has entered into leases for rental agreements in different countries. The estimated cost of the dilapidations amount payable at the end of each tenancy, unless specified, is generally estimated by reference to the square footage of the building and in consultation with local property agents, landlords and prior experience. Having estimated the likely amount due, a country specific discount rate is applied to calculate the present value of the expected outflow. The discounted dilapidation cost has been capitalised against the leasehold improvement asset in accordance with IAS 16.

 

Dilapidation provisions

£'000

Onerous lease provisions

£'000

Total

£'000

At 1 January 2017

159

186

345

Additions

471

223

694

Unwind of discount

-

8

8

Amounts utilised

(159)

(55)

(214)

At 31 December 2017

471

362

833

Additions

422

334

756

Unwind of discount

28

12

40

Amounts utilised

-

(210)

(210)

Impact of foreign exchange

7

13

20

At 31 December 2018

928

511

1,439

 

Analysis of total provisions:

2018
£'000

2017
£'000

Amounts falling due within one year

401

187

Amounts falling due after more than one year

1,038

646

Total

1,439

833

Dilapidations provision

As part of the Group's property leasing arrangements there are a number of leases which include an obligation to remove any leasehold improvements (thus returning the premises to an agreed condition at the end of the lease) and to restore wear and tear by repairing and repainting. The provisions are expected to be utilised when the leases expire or upon exit.

Onerous lease provisions

As at 31 December 2018, the Group has identified onerous leases for premises in Jersey, Guernsey and Switzerland. The provision is calculated as the net present value of the cost of the leases less the income from any known sub-leases.

31.  Operating leases

The Group principally enters into operating leases for the rental of buildings and equipment. Rentals payable under such leases are charged to the consolidated income statement on a straight-line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. Any incentives received from the lessor in relation to operating leases are recognised as a reduction of rental expense over the lease term on a straight-line basis.

Group as lessee

Total lease payments under operating leases recognised as an expense

3,587

3,188

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

 

Within one year

3,499

3,196

In the second to fifth years inclusive

10,109

10,736

After five years

24,090

19,159

 

37,698

33,091

The Group has entered into leases for rental agreements in different countries. Leases are negotiated for a variety of terms over which rentals are fixed with break clauses and options to extend for further periods at the prevailing market rate. Any lease incentives are spread over the term of the lease. The break dates for the lease agreements vary.

The Group has also entered into commercial leases on certain motor vehicles and items of office equipment. These leases have an average life of between three and five years with renewal options included in certain contracts.

32.  Foreign currency

The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in pounds sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions.

At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in the consolidated income statement in the year in which they arise.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's operations with a functional currency other than pounds sterling are translated at exchange rates prevailing on the balance sheet date.

Income and expense items are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during that year, in which case the exchange rates at the date of transactions are used.

Income and expense items relating to entities acquired during the financial year are translated at the average exchange rate for the period under the Group's control. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity in the translation reserve.

Any goodwill arising on the acquisition of a foreign operation subsequent to 1 July 2014 and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date.

33.  Cash flow information

Operating cash flows

 

Operating profit

629

6,753

Adjustments for:

 

 

Depreciation of property, plant and equipment

943

1,052

Amortisation of intangible assets

3,694

1,842

Share-based payment expense

443

517

Foreign exchange

557

257

Operating cash flows before movements in working capital

6,266

10,421

Non-underlying items within net cash from operating activities

 

Net cash from operating activities

6,488

10,020

Non-underlying items:

 

 

Capital distribution from EBT12

7,543

-

IPO costs

954

54

Acquisition and integration costs

4,024

1,142

Office closures

56

625

Other

93

388

Total non-underlying items within net cash from operating activities

12,670

2,209

Underlying net cash from operating activities

19,158

12,229

Financing activities

Changes in liabilities arising from financing activities:

 

Finance leases due within
one year
£'000

Finance leases due after
one year
£'000

Borrowings

due within

one year

£'000

Borrowings

due after

one year

£'000

Total
£'000

At 1 January 2018

-

-

56,364

63,341

119,705

Cash flows:

 

 

 

 

 

Acquired on acquisition

5

48

-

-

53

Drawdowns

-

-

-

72,960

72,960

Repayments

-

(18)

(56,000)

(689)

(56,707)

Loan notes settled on IPO

-

-

-

(62,202)

(62,202)

Accrual of loan note interest

-

-

-

48

48

Other non-cash movements(i)

-

-

314

(1,456)

(1,142)

At 31 December 2018

5

30

678

72,002

72,715

(i)     Other non-cash movements include the fair value adjustment on the loan note extinguishment, amortisation of loan arrangement fees and foreign exchange movement.

Net debt

 

Notes

2018
£'000

2017
£'000

Bank loans

23

(71,494)

(55,522)

Finance leases

23

(35)

-

Other loans

23

(1,186)

(2,028)

Trapped cash(i)

 

(2,294)

(1,127)

Committed capital distributions(ii)

 

(6,103)

-

Less: Cash and cash equivalents

 

32,457

16,164

Total net debt

 

(48,655)

(42,513)

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

(ii) Committed capital distribution from EBT12 to employees.

34. 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.

34.1. Key management personnel

The Group has defined key management personnel as Directors and members of senior management who have the authority and responsibility to plan, direct and control the activities of the Group. The remuneration of key management personnel in aggregate for each of the specified categories is as follows:

 

Salaries and other short-term employee benefits

1,795

1,217

Capital distribution from EBT12

841

-

Post-employment and other long-term benefits

66

60

Share-based payments

194

218

Total payments

2,896

1,495

34.2. Other related parties transactions

During the year, the Group was charged by CBPE Capital LLP ("CBPE"), the Group's private equity partners up to the point of the IPO; £10k for the provision of Non-Executive Directors (2017: £50k) and £5k for associated travel and expenses (2017: £24k). See note 23 for the Investor loan notes previously held by CBPE Capital LLP which were repaid during the year.

Loan receivable balances due from related undertakings are disclosed in note 24.1.

Northpoint Latam Limited ("NPL"), a related party due to common directorships, previously acted as agent for the referral of new business to provide support services to Group offices in Latin America and North America. In accordance with a letter of agreement from JTC (BVI) Limited ("JTCBVI") to NPL, JTCBVI agreed to cover any and all costs in relation to the services provided by NPL. These included operating costs, third party administration and commissions paid. There are no costs in the current year as the Group closed its direct operations in Latin America at the end of 2017 and the arrangement ceased (2017: £1.24m).

The Group's associate, KIG (see note 21), has provided £799k of services to Group entities during the year (2017: £182k).

34.3. Parent and ultimate controlling party

Prior to admission to the London Stock Exchange, there was no ultimate controlling party as shares were held by both CBPE and Management. Following the IPO, the Company is the new ultimate controlling party of the Group.

35. Group entities

Detailed below is a list of subsidiaries of the Company at 31 December 2018 which, in the opinion of management, principally affect the profit or the net assets of the Group. The Group owns 100% of the ordinary share capital of all subsidiaries within the Group, with 100% voting power held.

 

Name of subsidiary

Country of incorporation and place of business

Activity

JTC Group Holdings Limited

Jersey

Holding

JTC Group Limited

Jersey

Head office services

JTC (Jersey) Limited

Jersey

Trading

JTC Fund Solutions (Jersey) Limited

Jersey

Trading

JTC Trust & Corporate Services Limited

Jersey

Trading

JTC (UK) Limited

United Kingdom

Trading

JTC Fund Services (UK) Limited

United Kingdom

Trading

JTC Fiduciary Services (UK) Limited

United Kingdom

Trading

JTC Miami Corporation

United States

Trading

JTC Trustees (USA) Ltd

United States

Trading

JTC Fund Solutions (Guernsey) Limited

Guernsey, Channel Islands

Trading

JTC Global AIFM Solutions Limited

Guernsey, Channel Islands

Trading

JTC Fund Solutions RSA (Pty) Ltd

South Africa

Trading

Caledonia Accounting Services Pte Ltd

Singapore

Trading

JTC Fiduciary Services (Singapore) Pte Limited

Singapore

Trading

JTC (BVI) Limited

British Virgin Islands

Trading

JTC (Luxembourg) S.A.

Luxembourg

Trading

JTC Luxembourg Holdings S.à r.l.

Luxembourg

Holding

JTC Signes Services SA

Luxembourg

Trading

JTC Signes S.à r.l.

Luxembourg

Trading

JTC Global AIFM Solutions SA

Luxembourg

Trading

JTC (Geneva) Sàrl

Switzerland

Trading

JTC (Suisse) SA

Switzerland

Trading

JTC Trustees (Suisse) Sàrl

Switzerland

Trading

JTC Trust Company (Switzerland) SA

Switzerland

Trading

JTC Trustees (IOM) Limited

Isle of Man

Trading

JTC (Netherlands) B.V.

Netherlands

Trading

Autumn Productions B.V.

Netherlands

Trading

JTC Holdings (Netherlands) B.V.

Netherlands

Holding

Van Doorn CFJ B.V.

Netherlands

Trading

JTC Trust Company (New Zealand) Limited

New Zealand

Trading

JTC (Cayman) Limited

Cayman Islands

Trading

JTC Fund Services (Cayman) Ltd

Cayman Islands

Trading

JTC (Mauritius) Limited

Mauritius

Trading

JTC Fiduciary Services (Mauritius) Limited

Mauritius

Trading

JTC Corporate Services (DIFC) Limited

Dubai

Trading

36. Events occuring after the reporting period

There have been a number of subsequent events from 31 December 2018 to the date of issue of these financial statements. They are as follows:

·  On 12 February 2019, JTC entered into an outsourcing and a facilitation and referral agreement with Sackville Bank and Trust Company Limited ("Sackville") for the referral of Sackville's clients to JTC as a replacement provider of the trust, custody and administration services. Total compensation is expected to be between USD $1.2 million and $1.4 million.

·  On 25 March 2019, JTC signed a sale and purchase agreement to acquire 100% of the share capital of Exequtive Partners S.A ("Exequtive") for a maximum total consideration of €34 million, part of which is contingent on Exequtive meeting certain EBITDA and revenue targets. Exequtive is a privately owned Luxembourg-based provider of domiciliation and corporate administration services. The acquisition was funded using cash, drawing €17.9 million from our existing bank facilities and by the issuance of 1,925,650 PLC shares.

·  On 1 April 2019, JTC entered into a facilitation and referral agreement with Aufisco B.V. and Oak Tree Management B.V. for the referral of their clients to JTC as a replacement provider of the trust and administration services. Total estimated compensation is expected to be up to a maximum of €2 million.


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Full year results to 31 December 2018 - RNS