JTC
Annual Report 2018

Plain-text annual report

S T R O N G E R T O G E T H E R 2 0 1 8 A N N U A L R E P O R T A N N U A L R E P O R T 2 0 1 8 | J T C P L C S T R O N G E R T O G E T H E R C E L E B R A T I N G O V E R 3 0 Y E A R S O F G R O W T H In March 2018, JTC secured a premium listing on the main market of the London Stock Exchange. This milestone marked the beginning of an exciting new chapter for the Group, and another phase in a growth story that started over 30 years ago. 20 19 2 0 1 7 › We acquire Merrill Lynch Wealth Management’s International Trust and Wealth Structuring (BAML) business, strengthening the depth of our global offering and commitment to the Americas. JTC moves to new global headquarters, JTC House in Jersey. › J T C T O D A Y › JTC acquires Exequtive Partners in Luxembourg (post period end, 25 March 2019) 1 9 9 1 › Current CEO, Nigel Le Quesne, joins the firm as its fifth employee. 1 9 9 8 › The first JTC Employee Benefit Trust (EBT) is formed, establishing JTC’s approach that ‘every employee is an owner’. 1 98 7 › The business is established in Jersey. 2 0 0 1 – 2 0 1 1 › JTC establishes operations in the UK, BVI, Switzerland, Luxembourg and Guernsey. 2 0 0 8 › A management buy-out results in the Group being wholly owned by management and staff. 2 0 1 0 › JTC makes its first acquisition in Jersey. 2 0 1 2 › CBPE Capital invests in JTC, holding a minority interest in the business. This enables the Group to embark on its ‘local to global’ expansion strategy. 2 0 1 3 › The Group establishes an alliance with Kensington Trust Group, providing coverage in Hong Kong, Labuan, Malaysia, New Zealand and Singapore. 2 0 1 4 › New ‘Equity for All’ (E4A) scheme launches, enhancing shared ownership opportunities for all employees. 2 0 1 5 › We acquire a corporate services business in Luxembourg, and a fund administration business from GAM in the Cayman Islands. › The Group acquires Kleinwort Benson’s fund administration business, taking employee numbers to over 450, and strengthening the Group’s position as a global provider in fund administration. 2 0 1 8 › JTC PLC lists on the main market of the London Stock Exchange. The Group acquires Van Doorn in the Netherlands and also Minerva, which adds additional depth to several existing JTC locations and a new Middle East base in Dubai. W E A R E J T C JTC is an award-winning provider of fund, corporate and private client 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 $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. C O N T E N T S Chief Executive Officer’s Review S T R A T E G I C R E P O R T 1 Highlights 2 Our business at a glance 6 14 Our Market Drivers 16 Our Business Model 18 Strategy in Action 24 Key Performance Indicators 28 Risk Management 30 Risks and Uncertainties 33 Principal Risks and Uncertainties 35 Our Resources and Relationships 46 Chief Financial Officer’s Review G O V E R N A N C E 52 Chairman’s Introduction 56 Leadership and Effectiveness 63 Viability Statement 69 Nomination Committee Report 72 Audit and Risk Committee Report 79 Remuneration Committee Report 90 Directors’ Report › Chief Executive Officer’s Review page 6 F I N A N C I A L S T A T E M E N T S 100 Consolidated Income Statement 101 Consolidated Statement of Comprehensive Income 102 Consolidated Balance Sheet 103 Consolidated Statement of Changes in Equity 104 Consolidated Cash Flow Statement 105 Notes to the Consolidated Financial Statements 154 Glossary › Our resources and relationships page 35 H I G H L I G H T S › For more information see page 46 U N D E R L Y I N G E B I T D A ( £ ) * A D J U S T E D D I L U T E D E P S ( P ) * * R E V E N U E ( £ ) £7 7. 3M £2 3. 8M 2 0 1 7 £ 5 9 . 8 M 2 0 1 7 £ 1 4 . 4 M 1 8. 4P 2 0 1 7 1 3 . 8 P S T A T U T O R Y E B I T D A ( £ ) D I L U T E D E P S ( P ) F I N A L D I V I D E N D P E R   S H A R E ( P ) N E T D E B T ( £ ) £5 .3 M (3 .9P ) 2. 0P 2 0 1 7 £ 9 . 6 M 2 0 1 7 ( 7 . 0 P ) (£ 48 .7 M) 2 0 1 7 ( £ 4 2 . 5 M ) * 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. F I N A N C I A L H I G H L I G H T S S T R A T E G I C H I G H L I G H T S Revenue up 29.3% reflecting a good combination of organic growth Net organic growth of 8.7% with £9.7m of new business won and growth from acquisitions. Underlying EBITDA margin increased from existing and new clients and strong organic new business materially to 30.9% (2017: 24.1%) ahead of expectations due enquiry pipeline of £32m at 31 December 2018 (2017: £25.6m). to the focus on improving profitability levels across the Group. Successfully acquired Van Doorn and Minerva in 2018 and post Strong performance by both Institutional Client Services (ICS) and period end acquired Exequtive Partners, a Luxembourg based provider Private Client Services (PCS) Divisions. of corporate and related fiduciary services. Well positioned to take advantage of further consolidation opportunities. A L T E R N A T I V E P E R F O R M A N C E M E A S U R E S 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 (page 117). As explained in the Company Prospectus, underlying EBITDA margin is the main profitability comparator used within the Fund and Trust 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. A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS O U R B U S I N E S S A T A G L A N C E JTC is a leading independent and international provider of fund, corporate and private client services. O U R G L O B A L R E A C H JTC has a highly qualified and multi-lingual team of more than 700 professionals providing a global service to our clients from a network of 20 offices. O U R P E O P L E 700+ O U R S T R U C T U R E Our business is organised into two reporting Divisions each of which has a global footprint. Cross-selling opportunities exist between the services we offer and the jurisdictions from which we deliver those services. I N S T I T U T I O N A L C L I E N T S E R V I C E S ( I C S ) D I V I S I O N P R I VAT E C L I E N T S E R V I C E S ( P C S ) D I V I S I O N Provides fund and corporate administration services to institutional Provides trust and corporate administration services to meet the clients, primarily fund managers, listed companies and multinationals. personal and business needs of private clients, including HNW and UHNW individuals and families, as well as family and private offices, and international wealth management firms. V I S I O N : Be acknowledged as a top-tier global provider of fund and corporate services. V I S I O N : Be recognised as the best private client practice in the world. R E V E N U E G R O U P T O T A L R E V E N U E G R O U P T O T A L £43.4 m 56.1% £33. 9 m 43.9% O U R T W O R E P O R T I N G D I V I S I O N S P R O V I D E C L I E N T S E R V I C E S A C R O S S T H R E E S E R V I C E L I N E S W I T H , I N E F F E C T , E A C H O F I C S A N D P C S P R O V I D I N G C O R P O R AT E S E R V I C E S T O T H E I R R E S P E C T I V E C L I E N T G R O U P S . F U N D S E R V I C E S C O R P O R A T E S E R V I C E S P R I VA T E W E A L T H S E R V I C E S 28% 40% 32% Fund Services administers a wide variety of listed and unlisted funds across a diverse range of asset classes, including real estate, private equity, renewables, hedge, debt and other alternatives. Clients include a broad spectrum of fund managers from market entrants to large institutions. We provide support throughout the entire lifespan of a fund, from establishment to valuation, including ongoing reporting and regulatory compliance. Corporate Services provides company secretarial and administration services to a broad range of clients, including SMEs, public companies, multinationals and sovereign wealth funds. We also service private and family offices and individual private clients who require a corporate service for business and investments. Different structures provided include real estate holding vehicles, investment holding vehicles, joint ventures and acquisition structures. We also provide services for pension and employee share plans. Private Wealth Services include the formation and administration of vehicles such as trusts, companies and partnerships on behalf of predominantly HNWIs and UHNWIs and their families and also dedicated private and family offices. We also provide Private Wealth Services to large institutions, such as banks, as an independent third party provider. We specialise in a holistic approach to protecting and nurturing private capital in real estate, financial and non-financial assets across countries and generations. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 2 3 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS L E A D I N G T O G E T H E R Leadership takes courage, confidence and commitment. We understand that our clients want more than just a service provider, they want to work with a partner that is as committed to their long-term success as they are. Courageous. Confident. Committed. Leading. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 4 5 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSC H I E F E X E C U T I V E O F F I C E R ’ S R E V I E W A N O T H E R Y E A R O F F O C U S E D G R O W T H A N D I M P R O V E M E N T W H Y I N V E S T I N J T C ? C H I E F E X E C U T I V E O F F I C E R N I G E L L E Q U E S N E 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. C O N S I S T E N T P E R F O R M A N C E A N D W E L L - I N V E S T E D B U S I N E S S W I T H C A P A C I T Y C O N T I N U A L G R O W T H T O S U P P O R T C O N T I N U E D G R O W T H We have grown our revenue through organic expansion for 31 We invest in our expertise and infrastructure steadily and consecutive years, complemented by a successful acquisition prudently as we grow, avoiding step changes to our cost base. strategy since 2010. Our structure and scale can support further growth at limited additional cost. Our fixed cost base provides the potential to H I G H - Q U A L I T Y R E C U R R I N G R E V E N U E S improve margins as revenue grows. We have visibility of cash flow, with predictable, non-cyclical revenues from long-term client relationships. S T R O N G O N C O M P L I A N C E A N D R I S K M A N A G E M E N T D I V E R S I F I E D C L I E N T S , S E R V I C E S A N D This is fundamental to our success in an industry where the J U R I S D I C T I O N S ability to manage risk is key. JTC has a sophisticated and well- This diversification protects us against a downturn in trading established compliance and risk-management system, and conditions in any single market. Our largest client contributes relationships with all relevant regulators. 2.9 per cent of revenue, our largest ten clients just 14 per cent. E X P E R I E N C E D M A N A G E M E N T T E A M D E M A N D C R E A T E D B Y The senior management team has strength and depth, and is L O N G - T E R M M A R K E T T R E N D S involved directly in winning new business, maintaining client These include the increasingly complex regulatory environment, relationships and successful acquisitions. We have a number of which encourages outsourcing to a specialist to reduce costs high potential employees and there is a clear framework in place and ensure compliance. Also, the demand for international for identifying and developing future generations of leadership. structures is increasing, and we can serve these through our presence in multiple jurisdictions. S H A R E D O W N E R S H I P C U L T U R E A H I S T O R Y O F S U C C E S S F U L A C Q U I S I T I O N , W I T H F U R T H E R C O N S O L I D A T I O N P O T E N T I A L Our culture is built around the principle of shared ownership to ensure all our people are able to share in the success of the Group. The first JTC Employee Benefit Trust (EBT) was created in 1998 and gave the whole team a direct stake in the business. We have We have a successful record of identifying and buying suitable maintained this culture ever since through the development and companies, having completed 16 acquisitions since 2010. evolution of our ‘Ownership for All’ programmes. Our operating platform supports their quick and efficient integration with minimal disruption. The fragmented market offers further acquisition opportunities, and this strategy will continue to be an important part of our growth. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 6 7 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSC H I E F E X E C U T I V E O F F I C E R ’ S R E V I E W C O N T I N U E D We believe that we are represented in the key jurisdictions required for These results were achieved through a combination of net organic growth steady stream of acquisition opportunities. It is core to our approach that any The post period end acquisition of Exequtive Partners adds significant scale our business. We rigorously assess the competence of our business in each of 8.7% and the positive contribution of the two acquisitions made in 2017; acquisition has to fit culturally and that the rationale for the acquisition is in the key ICS jurisdiction of Luxembourg and we also see opportunities for jurisdiction against a number of key criteria. Depending upon that assessment New Amsterdam Cititrust (NACT) and the Bank of America Merrill Lynch about more than just the numbers. We invest in quality businesses with great further acquisitions due to specific market dynamics in the region. we invest in infrastructure, people and review acquisition opportunities. International Trust and Wealth Structuring (BAML) business as well as the people that provide excellent service to clients. In jurisdictions where we see further potential we have specific plans for how part-year contribution from the two acquisitions made in 2018, Van Doorn During the year, the Division was boosted by a number of senior hires including we are going to enhance our position in those markets. and Minerva. Our continuing investment in scalable infrastructure and our proven disciplined a Head of Business Development for Institutional Client Services & the US, a approach to the integration process, coupled with the skill of the team, gives new Managing Director in London for the UK business and the leadership team At JTC our goal is to continue to build an outstanding business for the long Importantly, we have delivered as predicted on the key objective we set us both the capability and bandwidth to continue to consider both smaller from the Van Doorn acquisition. term where high standards are coupled to entrepreneurial spirit and the ourselves at the time of IPO, which was to improve significantly the underlying ‘bolt-ons’ and larger acquisitions on a regular basis. The two acquisitions commitment to become a better business for all stakeholders every single day. EBITDA margin. We achieved a 2018 result of 30.9% (+6.8pp) which was executed in 2018, Van Doorn and Minerva, demonstrate this. Moving into 2019 we are pleased that Tony Whitney, Head of our ICS Division, F I N A N C I A L H I G H L I G H T S Divisions, the full integration of acquisitions made in 2017 and the positive It is important to acknowledge that some acquisition opportunities fell away Tony brings over 20 years of JTC experience to his new post and will work Our full year results are in line with our expectations at the time of listing in progress made with integrating acquisitions made in 2018 (statutory EBITDA in 2018, even after progressing to advanced stages of negotiation, and we across both Divisions to support and drive our organic and inorganic growth March 2018 and slightly ahead of consensus expectations. In comparing to the margin fell to 6.8% (2017: 16.1%) as a result of the one-off costs incurred). regard this as a positive sign of the rigour with which we apply our disciplined strategies. Replacing Tony as the new Head of the ICS Division will be Jonathan previous year, Group revenue increased by 29.3% to £77.3m and underlying approach to inorganic growth. We are not afraid to walk away from deals that Jennings, who joined the Group as Managing Director of the UK business in EBITDA by 65.3% to £23.8m (statutory EBITDA decreased by 45% to £5.3m). G R O W T H B Y A C Q U I S I T I O N do not meet our exacting criteria at all stages of the transaction. 2018 and who will combine both roles moving forward, continuing to be based achieved through improvements to the scalable operating models of both will take up the new role of Chief Commercial Officer for the Group from April. 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: An important component of our strategy is to continue to supplement organic growth with acquisitions. JTC has a successful track record of executing deals Post period end, we acquired Exequtive Partners, a Luxembourg based provider in London. > A capital distribution (£13.2m) from “JTC EBT 12” to all staff as and proven methodology, together with our ability to source, negotiate and add significant scale in a key jurisdiction and will be complementary to the In 2018 the PCS Division accounted for 43.9% of Group turnover (39.7% a result of our IPO relating to our previous share structure integrate acquisitions swiftly and efficiently. Van Doorn acquisition within the Benelux region. in 2017). Gross revenue showed a 43% increase in the year to £33.9m which enhance our core business and we are well placed to leverage our ability of administration services to corporate and fund clients. The acquisition will P R I VA T E C L I E N T S E R V I C E S ( P C S ) D I V I S I O N > Acquisition and integration costs (£4.3m) > Costs associated with the IPO (£1.0m) The opportunity is supported by both the trend towards consolidation in Our acquisition pipeline remains healthy with a number of opportunities of (2018: £11.3m vs 2017: £6.3m). (2017: £23.7m) and 79.6% increase in underlying EBITDA in the year > Other non-underlying costs / charges (£0.6m) the industry and leveraging the attraction of our ‘shared ownership for all’ varying scale and stages of progress that are well aligned with the business model as a fundamental premise of our proposal. Ours is an industry with a plans of both Divisions. 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 I N S T I T U T I O N A L C L I E N T S E R V I C E S ( I C S ) D I V I S I O N half of 2018 and contributions from across the existing PCS network, with our In 2018 the ICS Division accounted for 56.1% of Group turnover (60.3% US offering proving particularly popular. 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 Margin improvement was particularly strong in the year, as a result of the (2018: £12.5m vs 2017: £8.1m). rapid integration of the BAML business and improvements to the PCS Revenue growth was due to good performance across established asset classes, operating platform. especially real estate and private equity, while at the same time adding new During the year, the Division was boosted by a number of senior hires focused service areas, including in the emerging FinTech space. In jurisdictional terms, on regional business development and the new JTC Private Office, as well as the performance of our Jersey, Netherlands, Luxembourg and UK offices were the leadership team from the Minerva acquisition, who bring with them a particular highlights. wealth of experience and extensive network of contacts in India, Africa, the Margin improvement was largely achieved by further refining and improving the operating model between the ICS jurisdictions and the Global Service O U R P E O P L E A N D C U L T U R E Middle East and Asia in particular. Centre (GSC) in Cape Town, South Africa, a trend that we expect to see It is impossible to overstate the importance of our people and culture in the continue in 2019 as we capitalise on ongoing investments in technology and success of JTC. operating processes, as well as capturing economies of scale. The addition of the Van Doorn business to the NACT business (acquired in can collectively build a business for the long-term and at the heart of JTC 2017) substantially enhanced our presence in the Netherlands and provides a sits a philosophy and commitment of Shared Ownership for all employees. high growth, business development focused hub in the Benelux region. This was formalised in 1998 with the creation of our first Employee Benefit We have long believed that culture is the best foundation from which we 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. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 8 9 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSC H I E F E X E C U T I V E O F F I C E R ’ S R E V I E W C O N T I N U E D As the Group has grown, our culture has become even more important to us D I V I D E N D and it is rewarding to note that it continues to be referenced as a positive factor In addition to the interim dividend of 1.0p per share, the Board has in making us an ‘acquirer of choice’ across all sub-sectors and geographies. recommended a final dividend of 2.0p per share in line with expectations. Maintaining and investing in our culture and people is a constant priority and 2019 to shareholders on the register as at the close of business on the record Subject to shareholder approval, the final dividend will be paid on 21 June 2018 saw a number of important milestones and new developments. At IPO date of 31 May 2019. the JTC EBT 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 O U T L O O K capital event in 2012. There was never any doubt that the philosophy of The results delivered in 2018 have generated further momentum which we Shared Ownership would continue once JTC became a public company and carry into 2019 and we are confident in the ability of the Group to deliver we were pleased to roll out updated ‘Ownership for All’ and ‘Advance to Buy’ continued positive progress. programmes for all staff across the Group following the IPO. In addition, we continued to invest directly in our people through our in- consolidation of recent acquisitions, a healthy and growing enquiries pipeline, house learning and development programme, JTC Academy, including the new business wins, more work from existing clients and increased cross-selling design of a new programme for our most senior managers, JTC LION (Leaders opportunities. We continue to target organic growth, net of attrition, in the In Our Name), which is also directly linked to our long-term succession planning strategy. range 8-10% at a Group level. This growth will be supplemented by further new strategic and opportunistic acquisitions in the foreseeable future bringing We see multiple organic growth opportunities in both Divisions through the 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 In terms of profitability we are delighted to have delivered on the objective the world for their continuing dedication and contribution in 2018. I am set at the time of the IPO to return the business to an underlying EBITDA privileged to lead a business with so much talent. margin of 30%+. We are confident in our ability to realise further benefits additional diversification and greater capability to the Group. R I S K from the optimisation of our operating platforms across both Divisions, as well as certain economy of scale benefits. We will maintain our approach to The principal risks facing the Group remain as set out in our Prospectus at the be appropriately invested in people, systems and processes at all times and will time of listing. Material risks include acquisition risk, competition risk, data continue to target an underlying EBITDA margin in the range 30 – 35% subject protection and cyber security risk, staff resourcing risk, political and regulatory to exceptional and clearly explained acquisition activity. change risk, and regulatory and procedural compliance risk. We remain satisfied as to the effectiveness of the Group’s risk analysis, management and culture, Despite ongoing and well-known uncertainties in the macro environment, the developed over more than 30 years of JTC operations. We were pleased to outlook remains positive for further growth in the industry with compelling appoint Steven Bowen as Chief Risk Officer for the Group in January 2019. fundamentals prevailing in the addressable market. This is particularly the case Steven joined us as part of the Minerva acquisition and brings with him over for JTC with its well organised global footprint, clear understanding of market 25 years of industry experience. Further detail on our approach to monitoring trends and the ability to position itself appropriately from a skill set, operating and managing risk can be found on pages 28 – 34. model and technology perspective. All of this means that the Group is well positioned to respond to an ever-evolving macro environment. G O I N G C O N C E R N 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 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 least 12 months from the approval of the financial statements. In making this and beyond. assessment, the Directors have considered a wide range of information relating to present and future conditions, including future projections of profitability and cash flows. N I G E L L E Q U E S N E C H I E F E X E C U T I V E O F F I C E R W H A T M A K E S U S D I F F E R E N T ? A U N I Q U E C U L T U R E B A S E D O N S H A R E D O W N E R S H I P Our culture is based on the principle of shared ownership and is brought to life through our internal cultural values, which in turn drive our external client facing behaviours. These are supported by three constantly evolving programmes that are available to all employees globally. JTC Academy delivers lifelong learning and development opportunities. JTC Gateway enables and encourages talent mobility between our global network of offices. JTC Wellbeing supports all our people in attaining optimum physical, emotional and mental good health. T C A C A D E M Y J S R U O I V A H E B G N I C A F T N C U L T U R A L V A L U E S E I L C W C T J J T C G A T E W A Y G N I E B L L E A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 0 1 1 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS A D A P T I N G T O G E T H E R When the only certainty in life is constant change, we’re proud of our ability to be versatile, creative and adaptable. Being responsive to changing circumstances in a smart and effective way is just one of the qualities that sets us apart for our clients. Versatile. Creative. Smart. Adaptable. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 2 1 3 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSO U R M A R K E T D R I V E R S L O N G - T E R M S T R U C T U R A L T R E N D S The breadth of our services and relationships, as well our ability to adapt, provides us with a competitive edge, as fund, corporate and private clients all require our specialist skills. The degree of fragmentation in our global industry means the addressable market size is difficult to quantify. However, all our end markets share the following long-term structural trends – which show little sign of slowing, and serve to drive our growth. C L I E N T S A R E I N C R E A S I N G L Y G L O B A L I N N A T U R E P O S I T I O N Institutions are becoming increasingly international, driven in part by greater In the past decade, we have built scale – often through communication, co-operation and data sharing between different jurisdictions merger and acquisition activity, acquiring selectively globally. In addition, wealthy individuals and family offices typically have a more and strategically to expand our global footprint. international footprint than before. This increases the demand for providers of By integrating acquisitions successfully, we can offer administrative services, who can work across many jurisdictions, with knowledge clients seamless services across multiple jurisdictions. of the regulatory regimes in each region. G L O B A L W E A L T H I S G R O W I N G P O S I T I O N The continuing rise in GDP, and the expanding middle classes in developing We intend to continue to take advantage of global countries, means global wealth continues to grow. Asia-Pacific, North America wealth creation trends in developed markets and, and Europe contributed equally to the global increase in wealth, particularly increasingly, in maturing markets such as Asia, Latin 3 4 1 2 D E M A N D I S D R I V E N B Y G R E A T E R R E G U L A T I O N P O S I T I O N The financial crisis of 2007-8 prompted a shift toward greater regulation, Clients increasingly turn to us, as a large, specialist particularly for the professional services industry. This regulation is increasingly administrator, for the services we provide to help them complex, and the requirements for accurate and timely disclosure of information cope with the regulatory burden and the requirements have increased. Asset managers, corporates, financial institutions, and wealthy for independent oversight. The continually developing for HNWIs, who saw wealth grow 10.6% to surpass US$70 trillion for the first America and Africa. We will do this through both our individuals and families, must all comply with current obligations, and plan for global regulatory framework brings us multiple revenue time in 2018 – the sixth consecutive year of gains. Global HNWI wealth is now organic growth strategy and via selective acquisitions. further impending regulations. This places far greater demands and pressure on opportunities, as well as increasing the barriers to predicted to exceed US$100 trillion by 2025.* their operations, particularly in staffing costs, on top of the potential reputational entry for competitors. risks and penalties of non-compliance. * 2018 Cap Gemini World Wealth Report O U T S O U R C I N G R E D U C E S R I S K A N D I N C R E A S E S P O S I T I O N A F R A G M E N T E D M A R K E T I S C O N S O L I D A T I N G P O S I T I O N E F F I C I E N C Y The complexity and variation across our industry Historically, our market was serviced by many smaller, local businesses – often We have successfully acquired 16 businesses since The increase in regulation and complexity is creating a clear shift towards means fund, corporate and private clients who do not outsourcing administration services to specialist providers. Such providers offer outsource may need more staff, with more specialist 5 part of, or spun out from, professional services firms or banks. Now, many 2010. Our global footprint is now a key strength, such players are exiting what they regard as non-core activity and the market while our retained regional expertise offers a knowledge and experience of multiple jurisdictions, and a full suite of the services skills. It also means automation of the operations and is consolidating, driven by increasingly complex and demanding regulatory thorough understanding of relevant jurisdictions and needed for compliant and efficient operation. For example, outsourcing reduces accounting work is more difficult. To offer clients a requirements. Administrators are growing in scale and becoming more key intermediaries. We are well placed to identify, fund managers’ costs across back-office and support functions, bolstering solution for this, we employ staff who are highly specialised. However, the market remains relatively fragmented and there is complete and integrate further opportunities quickly margins that are under pressure due to competition from low-cost passive and qualified and experienced in providing administration scope for further consolidation. index funds. Using a specialist service provider throughout a product life-cycle and accounting services to our client base, and who also reduces the risk of non-compliance. customise their outputs and formats to individual client requirements. and efficiently when they arise. By broadening our geographical reach and our breadth of services, we will benefit from the world’s strongest growth markets, and gain a degree of protection from adverse regional or economic factors. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 4 1 5 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS O U R B U S I N E S S M O D E L O U R B U S I N E S S M O D E L Our purpose is to help maximise the potential of every client, colleague and partner we work with. JTC’s culture of shared ownership drives internal values and client facing behaviours that deliver service excellence across our entire business. Our long-term organic and inorganic growth strategies are aligned with well-understood market drivers and by maintaining a well invested and scalable global platform we are able to capture opportunities and grow sustainably. O U R R E S O U R C E S A N D S T R E N G T H S 1 . O U R I N T E R N A L V A L U E S D R I V E O U R C L I E N T F A C I N G B E H A V I O U R S 2 . O U R O R G A N I C A N D I N O R G A N I C G R O W T H S T R A T E G I E S A R E A L I G N E D W I T H M A R K E T D R I V E R S O U R C L I E N T S A N D W H A T W E D O W E I N V E S T I N O U R P E O P L E JTC’s highly qualified and multilingual team of more than 700 professionals are our most important asset, bringing our culture to life and delivering client service excellence. Over 70% of our people are professionally qualified or working towards a relevant professional qualification and everyone is supported to maximise their individual potential through the JTC Academy, JTC Gateway and JTC Wellbeing programmes and rewarded through our Shared Ownership culture. W E E M B R A C E T E C H N O L O G Y We believe technology is an enabler for client service excellence and invest accordingly. JTC uses a variety of best-in-class systems to deliver and maintain an impeccable standard of administration and uses technology to innovate in both service delivery and efficiency. W E P U T R E L A T I O N S H I P S F I R S T We handpick the best team to look after each client’s needs and aim to work with clients who share our belief in the importance of building strong relationships over time. We provide services to more than 4,800 clients from over 100 different countries and are trusted to administer assets in excess of US$100 billion. As an independent administrator, we are able to form strong commercial relationships with intermediary partners, providing complementary services to clients. W E H A V E G L O B A L R E A C H Our network of 20 offices in 18 different jurisdictions provides a global platform that allows us to offer a complete and joined-up range of services, including multi- jurisdictional solutions for an increasingly international client base. R E R E R E R E U U U U T T T T L L L L U U U U C C C C P P P P I I I I H H H H S S S S R R R R E E E E N N N N W W W W O O O O D D D D E E E E R R R R A A A A H H H H S S S S S S S S H H H H A A A A R R R R E E E E D D D D O O O O W W W W N N N N E E E E R R R R S S S S H H H H I I I I P P P P C C C C U U U U L L L L T T T T U U U U RE RE RE RE 4 . T H E G R O U P D E V E L O P S B Y B E I N G A W E L L I N V E S T E D A N D S C A L A B L E G L O B A L P L A T F O R M 3 . W E T A K E A S T A K E H O L D E R M E N T A L I T Y T O E V E R Y T H I N G W E D O I N S T I T U T I O N A L C L I E N T S E R V I C E S P R I V A T E C L I E N T S E R V I C E S F U N D S E R V I C E S C L I E N T S › Institutional fund managers › Market entrant fund managers › Real Estate, Private Equity, Infrastructure, Hedge, Debt and FinTech › Other alternative assets C O R P O R A T E S E R V I C E S P R I V A T E W E A L T H S E R V I C E S C L I E N T S › UHNWI and families › Private and family offices › Private client institutions C L I E N T S › Multinationals › Listed companies › Sovereign wealth funds › Fund managers › UHNWI and families › Pension plans › Employee share incentive and other ownership plans H O W W E C R E A T E L O N G T E R M V A L U E . . . . . . F O R O U R K E Y S T A K E H O L D E R S S H A R E H O L D E R S E M P L O Y E E S C L I E N T S I N T E R M E D I A R Y P A R T N E R S C O M M U N I T I E S We seek to grow the value of our shareholders’ Through our shared ownership culture we ensure We take an entrepreneurial approach to finding solutions As an independent administrator, we are able to We value and respect the communities in which investment over time through the successful delivery of that every employee has a direct stake in the business for our clients and build long-term relationships by provide best-in-class solutions to the clients of we operate around the world and understand the our organic and acquisition growth strategies. We share and is able to share in its long-term success. We work adopting a can do attitude and providing above and beyond our intermediary partners and complement their support they provide to our employees, clients and profits through dividends while simultaneously investing to maximise the potential of every employee providing service. We nurture and value client relationships for the own offering. We develop symbiotic and reciprocal intermediary partners. We seek to create a positive the balance in the business on an ongoing basis to support through the JTC Academy, JTC Gateway and long-term with average client relationships of c.10 years. commercial relationships to support mutual growth. impact wherever we operate, creating opportunities support steady and sustainable growth. JTC Wellbeing programmes. for employment and giving back through charitable donations of time, expertise and money. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 6 1 7 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS S T R A T E G Y I N A C T I O N : I N S T I T U T I O N A L C L I E N T S E R V I C E S I N S T I T U T I O N A L C L I E N T S E R V I C E S . . . I N A C T I O N The ICS Division services an international client base spanning the US, Europe, Africa and Asia and operates a global platform that includes: New York, Miami, Cayman, Jersey, Guernsey, London, Luxembourg, Amsterdam, Cape Town, Mauritius and Dubai. The scalable infrastructure of the Division is underpinned by asset class expertise, best-in-breed IT systems and our Global Service Centre (GSC) in South Africa, which provides fund administration and accounting services to the ICS platform. We operate in markets with strong fundamentals and clear growth prospects. Key drivers include the ongoing trend for greater outsourcing particularly in the alternative assets arena led by a number of factors including greater regulatory complexity, a desire from investors for third party scrutiny and transparency and a preference from managers to concentrate on performance rather than building and managing internal infrastructure. Against this positive backdrop, the ICS Division will drive further growth by focusing on three priority areas. Winning new business by demonstrating high levels of asset class expertise and service quality. Continuing to make operational efficiency improvements, in particular through the development of our GSC. Selective M&A activity to further enhance our global footprint. It has been a privilege to lead the ICS Division and I look forward to continuing to work closely with the team in my new role as Chief Commercial Officer. I hand over the reins to the very capable hands of Jonathan Jennings from 1 April 2019. “Our 3-year business plan vision to 2020 is to be acknowledged as a top-tier global provider of fund and corporate services.” G R O U P H E A D O F I N S T I T U T I O N A L C L I E N T S E R V I C E S T O N Y W H I T N E Y Our ICS Division provides fund and corporate administration services to institutional clients, primarily fund managers, listed companies and multinationals. Fund Services administers a wide variety of listed and unlisted funds across a diverse range of asset classes including real estate, private equity, renewables, infrastructure, FinTech, hedge, debt and other alternatives. We provide support throughout the entire lifespan of a fund, including ongoing reporting and regulatory compliance. Corporate Services provides company secretarial and administration services and the broad range of structures supported include real estate holding vehicles, investment holding vehicles, joint ventures and acquisition structures. We also provide services for pension and employee share plans and enable cross- selling opportunities with the PCS Division through the provision of relevant corporate services to private and family offices and HNW/UHNW clients. 2 0 1 8 F I N A N C I A L P E R F O R M A N C E R E V E N U E O F £43 . 4M U N D E R L Y I N G E B I T D A O F N E W B U S I N E S S E N Q U I R Y P I P E L I N E O F £12.5M £22.2M U P 2 0 . 2 % F R O M £ 3 6 . 1 M I N 2 0 1 7 U P 5 4 . 1 % F R O M £ 8 . 1 M I N 2 0 1 7 A S A T 3 1 D E C E M B E R 2 0 1 8 U P 2 7 . 6 % F R O M £ 1 7 . 4 M A T 3 1 D E C E M B E R 2 0 1 7 I C S D I V I S I O N G E N E R A T E D U N D E R L Y I N G E B I T D A M A R G I N O F 56. 1 % 28.8% O F G R O U P T U R N O V E R ( 2 0 1 7 : 6 0 . 3 % ) U P 6 . 3 P P F R O M 2 2 . 5 % I N 2 0 1 7 2 0 1 8 H I G H L I G H T S 2 0 1 9 O U T L O O K > Improved margin through top line growth and continued > Acquisition and integration of Exequtive Partners operational improvement in Luxembourg > Enhanced business development capability, processes > Appointment of Chief Commercial Officer and internal and systems promotion for new Head of ICS Division > Significant personnel upgrades – a strong and talented > Continued operational improvement via Global Service global team Centre (GSC) including ongoing investment in technology > Excellent new business enquiry pipeline and processes > Integration of Van Doorn and continued high growth > Continued focus on establishment of US platform > Exemplary client testimonials and Ambassador > Increased resource and focus on business development Programme feedback activities, particularly cross-sell opportunities > M&A opportunities I N S T I T U T I O N A L C L I E N T S E R V I C E S T E S T I M O N I A L S F O R E S I G H T N I M R O D C A P I T A L L L P “Since April 2008, JTC has been Foresight Group’s administrator “JTC has an excellent reputation, vast experience and expertise of choice for its offshore fund products in Guernsey, Jersey and in administering innovative investment companies. That, along Luxembourg. JTC’s experienced and professional team are responsive with the strength of their existing relationship with Nimrod and supportive, and provide a reliable, comprehensive service.” Capital, made them an ideal and perfect fit when selecting B R I C K B L O C K our administrator.” “JTC’s expertise is integral for realising the potential of blockchain B A N K J U L I U S B A E R technology to positively impact the real estate investment process. “We have worked with JTC since January 2017. Throughout this I am certain that working together with a company of JTC’s calibre time JTC has been a highly supportive partner providing us with will reinforce the confidence of our clients and potential investors first-class services including accounting, company secretarial when it comes to BrickBlock’s offering.” and administration. The JTC team is very professional and our experience of working with them has been very positive.” Z U B R C A P I T A L “We value our long-term partnership with JTC. Their top-level C A T A L Y S T I N V E S T private equity services and attention to detail relieve the pressures “JTC clearly places a premium on nurturing quality client of the day-to-day, giving us peace of mind. The JTC team truly relationships. They are reliable, flexible to meet our demands and understand our business and always look for opportunities and invest extra resource when required to ensure our deadlines are offer solutions.” met. JTC’s support is a key element in ensuring we maintain high quality communications and goodwill to meet the ongoing needs of our international investors.” A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 8 1 9 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSS T R A T E G Y I N A C T I O N : P R I V A T E C L I E N T S E R V I C E S P R I V A T E C L I E N T S E R V I C E S . . . I N A C T I O N With the sustained growth in wealth of, and the rise of a generation of true ‘world citizens’ in the UHNW community, underpinned by a growing desire for generational wealth transfer and preservation, legitimate privacy and to be fully compliant across all territories, the outlook for private client services remains positive. There is also growing demand for more sophisticated service provision, as opposed to product sales, in emerging markets, with a flight to quality evident. In the wider market there is a desire to provide access to client friendly consolidated information supplementing a preference for delivery from one service provider rather than several. These dynamics together with JTC’s historic pedigree and reputation for delivering client service excellence, as well as our ability to provide corporate services to meet the business needs of UHNW individuals and family and private offices, provide a positive backdrop for the Division. More specifically within this environment, JTC will continue to drive growth in private client services through its newly created regional business development model, designed and structured to deliver new clients into our global service office platform which has been augmented by the successful integration of the BAML and Minerva businesses. This business development model also includes a focus on cross-selling with the ICS Division for which we are seeing positive momentum. Operationally, the PCS Division remains focused on driving through efficiencies via its four-pillar construct of Business Process Improvements, Business Integration, Outsourcing and New Business. “Our 3-year business plan vision to 2020 is to be recognised as the best Private Client practice in our sector.” G R O U P H E A D O F P R I V A T E W E A L T H S E R V I C E S I A I N J O H N S Our PCS Division might typically be described as a trust company business. It provides trust and corporate administration services to fulfil the personal and business needs of private clients including HNW and UHNW individuals and families as well as family and private offices. The Division also services institutions such as international wealth management firms. The PCS Division services clients from more than 100 countries and has a global platform that includes: New York, Miami, South Dakota, Cayman, BVI, Jersey, Guernsey, Isle of Man, London, Geneva, Dubai, Labuan, Mauritius, Singapore, Hong Kong, Malaysia and New Zealand. The scalable infrastructure of the Division is underpinned by regional expertise, best-in-class IT systems and growing outsourcing centres in Labuan (Malaysia), Singapore and Mauritius, which provide bookkeeping and accounting services to the PCS network. 2 0 1 8 F I N A N C I A L P E R F O R M A N C E R E V E N U E O F £33 . 9M U N D E R L Y I N G E B I T D A O F N E W B U S I N E S S E N Q U I R Y P I P E L I N E O F £11.3M £9.9M U P 4 3 % F R O M £ 2 3 . 7 M I N 2 0 1 7 U P 7 9 . 6 % F R O M £ 6 . 3 M I N 2 0 1 7 A S A T 3 1 D E C E M B E R 2 0 1 8 U P 2 0 . 7 % F R O M £ 8 . 2 M A T 3 1 D E C E M B E R 2 0 1 7 P C S D I V I S I O N G E N E R A T E D U N D E R L Y I N G E B I T D A M A R G I N O F 43. 9% 33.5% O F G R O U P T U R N O V E R ( 2 0 1 7 : 3 9 . 7 % ) U P 6 . 9 P P F R O M 2 6 . 6 % I N 2 0 1 7 2 0 1 8 H I G H L I G H T S 2 0 1 9 O U T L O O K > Revenue growth, margin improvement and new business > Complete Minerva integration pipeline growth > Focus on continued organic new business enquiry pipeline > Excellent integration of the BAML acquisition and popularity of growth and conversion US proposition > Implementation of updated global operating model > Integration of the Minerva acquisition progressing well (improved client experience and operational efficiencies) > Establishment of regional business development > Grow JTC Private Office proposition and client base model with dedicated Regional Heads to further drive > Capitalise on cross-selling opportunities within the global organic growth network, with support from new Chief Commercial > Global launch of JTC Private Office powered by our Officer role proprietary ‘Edge’ client portal > M&A opportunities > Overwhelmingly positive client and intermediary feedback from latest cycle of the JTC Ambassador Programme J T C P R I VAT E O F F I C E > JTC has provided ‘private’ and ‘family’ office services for decades. With growth in this space driven by a combination of global wealth creation and our own expanding international footprint, we created an engaging proposition brought to life with its own sub- brand: JTC Private Office. > JTC Private Office recognises that time is the ultimate luxury and delivers a world-class combination of personal service, deep understanding and global reach. It is powered by Edge, our proprietary client portal, which provides secure, unified and always-on access for JTC Private Office clients. > JTC Private Office will be actively marketed across all target regions and complements perfectly our full suite of underlying private client services. jtcprivateoffice.com A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 2 0 2 1 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSS T R A T E G Y I N A C T I O N : A C Q U I S I T I O N S A C Q U I S I T I O N G R O W T H S T R A T E G Y JTC has an excellent record of identifying and delivering sustainable growth In larger acquisitions, we have seen a healthy dynamic to integrating staff, who from acquisitions since our first in 2010. Over time we have become a were not ‘owners’ in their previous employment and as a consequence feel popular acquirer in a consolidating industry with a reputation for an honest, more empowered than in a small division of a large parent company. And in the straightforward approach and the ability to understand the underlying same way, the former parent company can feel assured their staff will be well fundamentals and deliver flexible solutions to suit the situation. Our acquisition looked after in the new model. This also helps provide continuity for the clients, growth strategy is designed to build scale, add new capabilities, or deliver both and so more assurance of value in the deal. simultaneously and applies to our geographic reach and service offering. In this way, we are able to grow progressively while protecting our core business at M U L T I - F A C E T E D C R I T E R I A all times. A S U C C E S S F U L A P P R O A C H We will assess a potential acquisition based on a number of indicators. Transactions often offer multi-faceted benefits, including a combination of: JTC’s acquisition growth strategy is designed to build scale and add new > Adding operational scale in existing or complementary jurisdictions capabilities to the Group from a geographic reach and service offering perspective. > Adding a ‘book’ of clients > Strengthening our existing service platform Our highly experienced Group Development Committee and external advisers > Acquiring a skilled workforce or experienced leaders are aware of acquisition opportunities in the market and review them regularly. > The cost synergy potential of rationalising systems and central functions Our disciplined approach follows an established process developed over time for > The cross-selling opportunities for the combined business assessing these opportunities, with potential targets prioritised by region, type > The ability to strengthen common client relationships. “We have a long record of successfully completing and integrating acquisitions using our disciplined, established and proven structure and processes.” and scale. Our process runs from initial assessment, through clearly defined due diligence requirements and documentation, to deploying a specific integration team to facilitate a swift transition onto the JTC platform. In this way, we can grow steadily and comfortably while protecting our existing core business at all times. A S S E S S I N G P O T E N T I A L T A R G E T S We identify and assess potential targets with the following attributes: > Smaller acquisitions that add incremental earnings or geographic capability. > Larger-scale and transformational international opportunities. Many of our completed acquisitions demonstrate our success in buying under- performing businesses. We grow our revenue at a Group level and by bringing them into our operating model, transform their levels of profitability. This brings a positive differential between the price we pay and the increase in value of the expanded Group. Notwithstanding this, we will pay for the right high quality business when it becomes available, and tend to offer a mix of cash and equity. In this way, we have the ongoing commitment from the business’ owners and senior management, helping to ensure cultural alignment from the outset. MANAGING DIRECTOR JTC NETHERLANDS AND FORMER MANAGING DIRECTOR OF VAN DOORN E K E V E R B E K E J T C A M B A S S A D O R A N D F O R M E R C H A I R M A N O F M I N E R V A V I P I N S H A H “When we first met the management team of JTC, we instantly knew that the fit would be perfect, as we sensed the same entrepreneurial spirit. We are now connecting all the dots of our businesses that will result in further growth and success of the Group.” “We worked closely with JTC leading up to and throughout our transaction during which time JTC demonstrated a respectful, professional and trustworthy approach that was fully aligned with Minerva’s long standing values. Support from JTC, including the integration team, has been faultless.” A N N O U N C E D 17 August 2018 O F F E R I N G Corporate and fund administration services A N N O U N C E D 6 September 2018 O F F E R I N G Private client, corporate, fund and treasury services F O O T P R I N T J T C D I V I S I O N F O O T P R I N T J T C D I V I S I O N Amsterdam, Netherlands Institutional Client Services Jersey, London, Geneva, Primarily Private Client Services E M P L O Y E E S 15+ Singapore, Mauritius and Dubai E M P L O Y E E S 100+ R A T I O N A L E R A T I O N A L E > High-margin, high-growth specialist provider of corporate and > Established trust company business with 40 year history and related fiduciary services good cultural fit > Expands and strengthens existing jurisdictional presence > High quality client book > Adds high quality team and leadership > Increased scale in five existing jurisdictions and addition of > Part of wider Benelux region strategy to take advantage Dubai office. of high quality consolidation opportunities > Extended reach in the markets of sub-Saharan Africa, India > Creates increased ability to cross-sell with JTC’s PCS Division and Asia C O N S I D E R A T I O N > Enhances the JTC treasury services offering. Mix of cash (69%) and shares (31%). Earn out based on FY 2018 C O N S I D E R A T I O N results. Total consideration subject to absolute cap of ¤21.5 million Mix of cash (60%) and shares (40%). Earn out based on performance in six months following completion. Total consideration subject to absolute cap of £30 million plus cash acquired C H I E F O P E R A T I N G O F F I C E R W E N D Y H O L L E Y A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 2 2 2 3 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS K E Y P E R F O R M A N C E I N D I C A T O R S T H E J T C B O A R D U S E S T H E F O L L O W I N G K P Is T O M E A S U R E T H E P E R F O R M A N C E O F T H E G R O U P R E V E N U E ( £ M ) Revenue growth measures the overall growth in the business. U N D E R L Y I N G E B I T D A ( £ M ) Underlying EBITDA measures how much profit we make from running the business. U N D E R LY I N G E B I T D A M A R G I N ( % ) Underlying EBITDA margin measures how well we are running the business against our peers and industry norms. 8 0 6 0 4 0 2 0 0 2 5 2 0 1 5 1 0 5 0 3 5 3 0 2 5 2 0 1 5 1 0 5 0 77 60 51 2 0 1 6 2 0 1 7 2 0 1 8 24 14 12 2 0 1 6 2 0 1 7 2 0 1 8 31 23 24 2 0 1 6 2 0 1 7 2 0 1 8 C A S H C O L L E C T I O N / C O N V E R S I O N ( % ) * We measure the level of cash conversion to tell us how successful we are in converting profits into cash. Note: Adjusted to include full 12 month cycle of BAML cash receipts, 2018 proforma cash conversion = 89% N E W B U S I N E S S W I N S ( £ M ) We measure new business wins to understand how well we are growing the business and how well we are performing. U N D E R L Y I N G P R O F I T B E F O R E T A X ( £ M ) Underlying profit before tax measures the profitability of the Group. L E V E R A G E ( R A T I O ) Leverage measures the level of our external debt obligations. 1 0 0 91 85 8 0 8 0 6 0 3 0 2 0 0 1 0 8 6 4 2 0 2 0 1 5 1 0 5 0 -5 3 . 5 3 . 0 2 . 5 2 . 0 1 . 5 1 .0 0 . 5 0 2 0 1 6 2 0 1 7 2 0 1 8 9 .7 8.9 7.8 2 0 1 6 2 0 1 7 2 0 1 8 1 7 -2 -1 2 0 1 6 2 0 1 7 2 0 1 8 3.2 2.9 1 .9 2 0 1 6 2 0 1 7 2 0 1 8 A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 2 4 2 5 * Cash conversion is the ratio of Net cash from operating activities compared with underlying EBITDA. STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS S T R O N G E R T O G E T H E R Our strength is the sum of our many intelligent parts. Hundreds of dedicated individuals, working around the clock and around the globe, to create robust solutions that deliver lasting value for our clients. Together we transform vision into reality and purpose into action. Intelligent. Dedicated. Loyal. Strong. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 2 6 2 7 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSR I S K M A N A G E M E N T S T R O N G F O C U S O N R I S K M A N A G E M E N T A N D C O M P L I A N C E As a regulated provider of fund, corporate and trust administration services, JTC The Audit and Risk Committee has been constituted by the Board to approve has a strong focus on risk management and compliance. Risk is considered at and periodically review the audit and risk management policies of the Group all levels, from strategic planning by the senior executive team to every action and to oversee the operation of an enterprise-wide risk management framework taken in each jurisdiction. Operating in a regulated environment, JTC has taken, and the Company’s capital planning, liquidity risk management and resolution and continues to take, compliance with laws and regulations very seriously and planning activities. enjoys positive relationships with the relevant regulatory authorities. The Board has overall responsibility for oversight of the risk management Executive Officer, Group General Counsel, Group Risk Director who are responsible policies of the Company and the operation of the Group-wide risk management framework, ensuring that such framework is commensurate with the Company’s for considering all aspects of operational risk which may affect the Group including but not limited to strategic risk, regulatory risk, people risk, systems and cyber risk, structure, risk profile, complexity, activities and size, as well as providing competition risk, client risk, fiduciary risk and performance risk. The Group Executive Risk Committee comprises of the Chief Risk Officer, Chief oversight of the Group’s capital planning, liquidity risk management and resolution planning activities. J T C P L C B O A R D J T C P L C A U D I T A N D R I S K C O M M I T T E E G R O U P E X E C U T I V E R I S K C O M M I T T E E R I S K A P P E T I T E A N D A S S E S S M E N T K E Y C O N T R O L S The Group’s risk appetite and risk tolerances are determined and monitored JTC has in place a number of key controls to ensure that client assets and the by the Board in accordance with the Group’s strategic objectives, and policies risks taken by it as a fiduciary are monitored and managed. and procedures. These include: The Group reviews and monitors its risk exposure closely, considering the potential impact and any actions required to mitigate the impact of emerging > High level of jurisdictional director control over processes issues and potential future events. > Dedicated Group monitoring function > Defined authority mandates and Terms of Reference Risk is considered at all levels, from strategic planning by the senior executive > Controls ensuring separation of transaction approval and payment team to every action taken in each jurisdiction. > Regularly updated cyber security policies and protections > A strong IT platform and business continuity arrangements R I S K M A N A G E M E N T A N D I N T E R N A L C O N T R O L S > A rigorous human resource screening and on-boarding process The Group’s risk management model adopts an industry standard three tier risk > Experienced and well trained employees approach. The first tier is formed by the business and operations managers in > Regular risk and compliance updates each regulated jurisdiction, who are responsible for maintaining a strict control environment on a day-to-day basis. Where the Group has regulated companies Many of these controls are captured by the rigorous, bespoke JTC “Recommendation requiring it to have a Compliance Officer, Money Laundering Reporting Officer for Signing” (RFS) approval process. This internal control tool ensures that decisions and Money Laundering Compliance Officer, it does so, and each regulated entity made by business divisions are thoroughly documented, reviewed and approved at submits monthly risk reports to the Group’s risk function (Group Risk Function). an appropriate level on a ‘six-eyes’ basis, dictating that at least three employees The Group Risk Function forms the second tier of the risk model. This team manage and monitor client, transactional, operational and internal risks within JTC. compiles the regulatory reports from each jurisdiction and reports to the It was developed, and is continually refined, to provide control over the Group’s Group Executive Risk Committee on a monthly basis. This ensures regular risk diverse client base, business operations and geographies and to maintain the highest and compliance oversight at senior management team level. The Group places standard of control in a rapidly growing organisation. All new employees are required reliance on the audit process and ISAE accreditation partners for the third tier to take pre-recorded RFS training and a test, with updates also included in refresher must review and approve key decisions and transactions. The RFS also helps identify, of the risk model. training. RFSs from each Division are independently tested on a monthly basis as part of the JTC compliance monitoring by the Group Risk Function. There is a strict C O M P L I A N C E M O N I T O R I N G A N D I N T E R N A L A U D I T exceptions management process, with exceptions (if any) ultimately being dealt The Group Executive Risk Committee meets quarterly and is responsible with at Board level of the relevant regulated entity and reported to the Executive for overseeing the Group’s internal risk and accreditation arrangements. Risk Committee. It also manages the remit of the Group Risk Function’s audit of each regulated jurisdiction’s risk management and compliance processes, as part of the JTC Compliance Monitoring Plan. The Group Risk Function routinely carries out spot checks on the different jurisdictions to ensure the compliance and adherence to these procedures. “Our expertise in the effective management of risk, for clients and the Group, is fundamental to our long-term success and a key strength of JTC.” C H I E F R I S K O F F I C E R S T E V E N B O W E N C O M P L I A N C E G O V E R N A N C E O P E R AT I O N A L R E G U L AT O R Y The Group Risk Function also carries out a programme of independent G R O U P R I S K F U N C T I O N ( R I S K A U D I T F U N C T I O N ) E A C H R E G U L AT E D J U R I S D I C T I O N > Ongoing day-to-day risk management responsibility, with business and operations management ensuring a robust control environment is maintained > MLRO, MLCO and CO in each regulated jurisdiction > Monthly reporting provided to Group Risk function transaction monitoring. The Group Executive Risk Committee is mandated under clear Terms of Reference which include oversight of client acceptance, dealing with exceptional cases and quality assurance protocols. The Group Executive Risk Committee supervises the Group Risk Function. The Group Risk Function in turn monitors the risk sub- groups in each regulated jurisdiction, ensuring standards are maintained and procedures adhered to. The Directors believe a culture of compliance is embedded within its staff and service teams. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 2 8 2 9 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS R I S K S A N D U N C E R T A I N T I E S R I S K M A T R I X A S S E S S M E N T The likelihood of risks actually materialising, the potential significance of the risks The Board acknowledges that it must be prepared to take a certain level of risk or of the scope of any potential harm to the Group’s business, prospects, results if the Group is to be successful in meeting its objectives, such risks are carefully of operation and financial position are first discussed, debated and challenged by considered, assessed and monitored to ensure they are proportionate and clearly senior management and the Group Risk Committee, then by the Audit & Risk aligned to the Group’s strategic goals. Committee, and then presented to the Board identified as follows: The Board has carried out a robust assessment of the principal and emerging risks and uncertainties which might prevent the Group from achieving its goal of long-term growth in revenue and shareholder returns. H G I H W O L D O O H I L E K I L M E D I U M C R I T I C A L ( H I G H R I S K ) L O W H I G H I M P A C T ( L O W R I S K ) M O D E R A T E C R I T I C A L I M P A C T The Board has agreed that the top risks to JTC will be presented in the Annual Report and Accounts as the “Principal Risks”. The risk taxonomy is represented by a two level architecture: > LEVEL 1 is the primary overarching risk elements, containing six components > LEVEL 2 represents the cohorts of specific risks that JTC is exposed to. L E V E L O N E L E V E L T W O M I T I G A T I O N L E G A L F I N A N C I A L P O L I T I C A L / R E G U L A T O R Y > Litigation / Contractual > Fiduciary > Robust policies, procedures and processes in operation within the Group (particularly risk escalation policy) > Qualified and experienced staff operating within a “6-eyes” control parameter > Utilisation of external counsel in all disputes where appropriate > Substantial PII cover > The hiring of an experienced in-house legal team > Free legal helpline with two international law firms > Robust policies, procedures and processes in operation within the Group > JTC does not provide legal or tax advice to its clients > Continuous training programme > Performance of business > Ongoing monthly reporting and KPIs that help monitor performance against performance > Earnings (fx) > Impairment > Financing > Listing Rules > Regulation > AML/CFT assumptions and targets > Robust annual business planning and budget process > Ongoing review of processes > Active cash management process including matching of cash flows where possible > Monitoring of f/x rates > Robust due diligence process in place prior to acquisitions being completed > Regular impairment testing as per accounting rules > Ongoing management and monitoring against performance assumptions > Cash management procedures in place > Robust monitoring of loan covenants > Retention of specialist advisers > Deployment of staff dedicated to ensure compliance > Utilisation of NED expertise > Product/jurisdictional diversification reduces impact > Review by appropriate boards/committees and business of horizon for potential changes > Comprehensive policies, procedures and processes in operation within the Group that align to the appropriate regulatory regimes > Promoting a robust risk and compliance culture across the Group > Ensuring appropriate compliance resource in each jurisdiction > Compliance monitoring programme in place > Comprehensive policies, procedures and processes in operation within the Group that are specifically drafted for AML/CFT purposes > The hiring of capable employees that undertake the key person roles (e.g. Compliance Officer and Money Laundering Reporting Officer) > Frequent staff training / awareness initiatives > Adequate resources > Comprehensive policies, procedures and processes in operation within the Group that are > Retention > Key person H U M A N R E S O U R C E specifically drafted for AML/CFT purposes > The hiring of capable employees that undertake the key person roles (e.g. Compliance Officer and Money Laundering Reporting Officer) > Frequent staff training / awareness initiatives > JTC ensures that the remuneration package is competitive in the market place and benchmarks against peer group > Shared ownership scheme embedded across the business > JTC encourages a strong management culture where talent management and people development is a core focus > Coverage of roles – certain roles have been identified as ‘key’ and a robust succession plan within current staff pool is being developed A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 3 0 3 1 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSR I S K S A N D U N C E R T A I N T I E S C O N T I N U E D P R I N C I P A L R I S K S A N D U N C E R T A I N T I E S L E V E L O N E L E V E L T W O M I T I G A T I O N P R I N C I P A L R I S K S A N D U N C E R T A I N T I E S The Principal risks and uncertainties, their mitigation and the evolution of risk The Principal Risks JTC is exposed to are separately assessed and recorded on the during the year are set out below. They are consistent with those reported in the Group Risk Register and Group Risk Assessment Matrix. The Chief Risk Officer IPO Prospectus, although now include the potential impact of a disorderly Brexit. > Client > Process > Robust policy and procedures including at ‘take-on’ subject to regular review with reports to the Audit & Risk Committee, presenting the Group Risk Register and appropriate escalation for higher risk clients Group Risk Assessment Matrix, providing an assessment of the risk status based > Business continuity > Frequent staff training / awareness initiatives on the controls and mitigation. > Data Security Risk > Established reporting and escalation process with review by boards/committees as appropriate > Independent client and compliance monitoring review program > Promoting a robust risk and compliance culture across the Group > Ensuring quality administration and compliance resource in each jurisdiction plus internal legal counsel support as appropriate > Well established RFS process P R I N C I P A L R I S K P O T E N T I A L C A U S E S M I T I G A T I O N Risk of a security breach including > Data exfiltration > Malware > Defined and audited IT procedures > External security assessment conducted annually cyber-attacks from > Financial theft > System access controls including least privilege I M P A C T Critical / medium risk O P E R A T I O N A L specifically drafted for business continuity and IT security purposes > Comprehensive policies, procedures and processes in operation within the Group that are 1 leading to loss of > Cyber-physical attacks > Dedicated Senior IT Security Manager confidentiality and > Network service failures > Training including compulsory online Security > Evolution to a ‘three lines of defence’ assurance and controls model destructive forces > Denial of service attacks access model > JTC run an active/active dual datacentre model, across the Channel Islands, with one integrity of data. datacentre in Jersey and another in Guernsey, this provides inter island redundancy should either datacentre suffer power or communication failure. The datacentres are connected via four diverse and redundant network links to allow for synchronous replication > The ability to continue business in alternative location if an issue arises in one jurisdiction, as was implemented for the JTC BVI office in 2017 > Defined and audited IT procedures > External security assessment conducted annually > System access controls including least privilege access model > Dedicated Senior IT Security Manager > Training including compulsory online Security Awareness courses > Employee error > Malicious employee intent Awareness courses > Review of data security procedures and controls as part of the annual ISAE 3402 Report > Robust business continuity planning Risk of the Group > Failure to apply policy and > Robust policy and procedures including at take on Medium / taking on the wrong follow procedures subject to regular review with appropriate escalation low risk type of clients, or the Group or the > Failure to follow codes of conduct for higher risk clients > Failure to invest in appropriate > Frequent staff training / awareness initiatives clients actions during and timely talent development > Established reporting and escalation process with the clients life cycle > Failure of managerial oversight review by boards/committees as appropriate > Review of data security procedures and controls as part of the annual ISAE 3402 Report leading to losses, > Failure to adequately train and > Independent client and Compliance monitoring > Acquisition > Competitor > Strategy S T R A T E G I C > Robust acquisition due diligence process including 3rd party assessments by well regarded accounting and legal firms > Governance and challenge from Non-Executive Directors > Integration strategy in place prior to acquisition > Integration committees established to manage integration process > Group Holdings Board responsibility for identifying forthcoming requirements in respect of digital / business systems investment > GHB responsibility for identifying and prioritising product innovation > Strategy regularly reviewed and challenged by Board respectively > Strategy drives annual business planning process and performance based targets 2 failed strategic objectives, poor customer service and employee frustration and potentially enforcement, supervision or regulatory sanction develop employees review program > Promoting a robust risk and compliance culture across the Group > Ensuring quality administration and compliance resource in each jurisdiction plus internal legal counsel support as appropriate > Well established RFS process > Evolution to a three lines of defence assurance and controls model Risk that acquisitions > Paying too much > Robust due diligence process including 3rd party High / do not achieve > Lack of strategic clarity assessments by well regarded accounting and medium risk R E P U T A T I O N A L > Regulatory sanction > Comprehensive risk management capability including controls embedded within the intended objectives > Slow decision making legal firms > Public litigation procedural environment > Breaching sanctions, > Prompt and effective communication with all stakeholders – regulators, shareholders, 3 or give rise to > Lack of buy-in > Governance and challenge from Non- ongoing or previously > Failure to integrate swiftly Executive Directors > Involvement in money employees, clients and suppliers unidentified liabilities. laundering or the > Strong and consistent enforcement and testing of controls on governance, business and financing of terrorism legal compliance > Integration strategy in place prior to acquisition > Integration committees established to manage integration process A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 3 2 3 3 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSP R I N C I P A L R I S K S A N D U N C E R T A I N T I E S C O N T I N U E D O U R R E S O U R C E S A N D R E L A T I O N S H I P S P R I N C I P A L R I S K P O T E N T I A L C A U S E S M I T I G A T I O N I M P A C T S T R O N G E R T O G E T H E R 4 5 6 Failure to retain high > Lack of adequate > JTC ensures that the remuneration package is High / low risk calibre, talented succession planning competitive in the marketplace and benchmarks senior managers and > Failure to invest in appropriate & against peer group other key roles in timely talent development > Shared ownership scheme embedded across the business. the business > JTC encourages a strong management culture where talent management and people development are a core focus C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y C U L T U R A L VA L U E S Our approach to Corporate Social Responsibility (CSR) is driven by our shared Our internal cultural values guide employees in their actions and form part of the ownership culture and we believe that by working with our colleagues, clients ‘JTC Way’ of doing business. and the communities in which we operate, we can all be Stronger Together. Failure to recruit or > Failure to identify roles most > Coverage of roles – certain roles have been identified High / low risk develop good quality essential to delivering on as ‘key’ and a robust succession plan within the current O U R P E O P L E > MAXIMISE INDIVIDUAL POTENTIAL – as a growth and learning focused business, we passionately believe in helping all our people to understand people to achieve our strategic aims staff pool is being developed Our people bring the JTC culture and brand to life. They possess the experience, and achieve their full potential throughout the full duration of their strategic aims > Failure to identify what skills the > Frequent staff training / awareness initiatives expertise and energy that adds value for our clients and partners and they career with JTC. position really requires > Focus too heavily on technical > JTC Academy programme for all employees globally > JTC ‘LION’ senior management represent JTC every day in the communities and markets where we operate. skills and not enough on attitude development programme S H A R E D O W N E R S H I P > MERITOCRACY – at JTC, we value outstanding behaviours that lead to outstanding results. Progress within the organisation is meritocratic and based on an individual’s ability and desire to contribute to the Group and motivation > Lack of adequate succession planning > Failure to invest in appropriate and timely talent development Through our shared ownership programmes, every permanent employee is a achieving its goals. direct stakeholder in the business and following our IPO we set ourselves the > STAKEHOLDER MENTALITY – our shared ownership culture means aim of having at least 20% of the total issued share capital owned directly by that we are all owners of the business and all have a role to play in its employees at any time. As of 31 December 2018 this figure was 25%. Since its long-term success. From new ideas to drive growth and delight clients, inception, the JTC shared ownership model has created more than £200m of to innovation in processes and cost control, we ask every member of value for stakeholders, much of which is still held by employees as JTC PLC the team to take a stakeholder mentality and treat the business and its Risk that a change in > Disorderly Brexit > Dedicated risk and compliance resource with the High / equity. Over £25m in cash has been generated directly for employees from our resources as their own. laws and regulations > Geopolitical uncertainty requisite skills, resources to monitor and report to the medium risk Employee Benefit Trusts (EBTs). > COMPANY BEFORE INDIVIDUAL – at JTC, no individual, however will materially impact > OECD tax reviews Board on strategic outlook / impact of change the sector and / or > ‘4AMLD’ / Public Beneficial > Robust and sustainable regulatory change our business. Ownership Registers management model > GDPR and data protection initiatives > Well-hedged and positioned with a global platform and established EU operations (Luxembourg & Netherlands) > Challenge and cost of measuring, > Data-focused approach that enables continuous monitoring and demonstrating monitoring and real-time insight into impact good conduct as well as meeting on operations new requirements > Proven track record of navigating and maximising > Keeping up with the rapid pace of revenue growth opportunities from regulatory change regulatory change > Minimal FX risk exposure T C A C A D E M Y T C A C A D E M Y J J talented, is ever more important than the collective whole. We celebrate and reward outstanding contributions, but always ask our people to put the long-term interests of the company first. In order to help our people live our cultural values and deliver our client facing behaviours we provide three constantly evolving programmes to all employees globally. These topics are considered regularly so that we can adapt to changing market conditions or competition. This report should be read in conjunction with the Viability Statement on page 63. S S R R U U O O I I V V A A H H E E B B G G N N I I C C A A F F T T N N E E I L I L C C J J T T C C G G A A T T E E W W A A Y Y C C U U L L T T U U R R A A L L V V A A L L U U E E S S W C C T T J J G N I E B L G N I E B L L E L E W A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 3 4 3 5 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS O U R R E S O U R C E S A N D R E L A T I O N S H I P S C O N T I N U E D S P O T L I G H T S P O T L I G H T J T C G A T E W A Y T E S T I M O N I A L J T C A C A D E M Y – L I F E L O N G L E A R N I N G A N D D E V E L O P M E N T We want everyone, wherever they work in the JTC network, to be able to develop the skills and knowledge that they need to be excellent in our world and we deliver this to our team through the JTC Academy. A C C R E D I TAT I O N A N D R E C O G N I T I O N In 2018 JTC was awarded STEP Gold Employer Partner accreditation across ten of its jurisdictions. This was in recognition of our supportive In its purest form, JTC Academy is there to help maximise our people’s potential and empowering learning and development culture. The Society of Trust within the business – it’s as simple as that. and Estate Practitioners (STEP) is the global professional association for practitioners advising families across generations. From the outset, it provides a structured development programme for all employees, giving access to materials and training tailored to job roles, performance, ambitions Following the development of our in-house management development and potential. programmes, JTC has been ‘awarded’ ‘Recognised Provider’ status by the Institute of Leadership and Management (ILM). JTC Academy builds on our traditions of mentoring and academic training and brings those practices up to date. The three main aspects of JTC Academy are: JTC is an ‘Approved Employer’ of the Association of Chartered Certified Accountants (ACCA). P R O F E S S I O N A L D E V E L O P M E N T We operate in a technical sector and relevant professional qualifications ensure that our people have the essential skills and knowledge required. Over 70% of staff hold, or are currently studying for, a relevant professional qualification. L E A D E R S H I P A N D M A N A G E M E N T D E V E L O P M E N T Leadership, team work and performance management are essential parts of life at JTC and we have developed bespoke in-house courses, accredited by the ILM, to support our people as they take on management and leadership roles within the Group. > STEP UP TO MANAGEMENT (SUTM) – a course of 7 modules delivered over 8 months to support first time line managers > MANAGING THE JTC WAY (MTJTCW) – a course of 13 modules delivered over 18 months to support managers up to Associate Director level > LEADERS IN OUR NAME (LION) – a course of 8 modules delivered over 12 months to develop our most senior leaders in the business, from Directors through to members of the Group Holdings Board. S O F T S K I L L S D E V E L O P M E N T We understand that client service excellence and outstanding individual and team performance require more than just strong technical skills. JTC Academy also provides a range of soft skills training to enable our people to develop their wider skillset and become as effective as possible. Q H O W D I D J T C S U P P O R T Y O U I N A L L O F T H I S ? I had a huge amount of encouragement and backing from my line managers in both jurisdictions who each took the time to help with any questions I had about the transfer. Additionally, the operational teams who helped facilitate the move provided a lot of support every step of the way. Q H O W D I D Y O U R F A M I L Y A N D F R I E N D S F E E L A B O U T Y O U R M O V E ? As I lived in Jersey for four years, my friends and family (especially my Mum) were really delighted to have me back home! Q W H A T W E R E Y O U R L E S S O N S L E A R N T A L O N G T H E W A Y ? Always be open to new experiences and challenges. Q W H Y D O Y O U T H I N K T H E I N T E R N A T I O N A L E X P E R I E N C E T H A T G A T E W A Y O F F E R S I S I M P O R T A N T ? Career and personal growth. You get to meet people in different jurisdictions, understand their roles and remits and of course build on your network within JTC and beyond. “An invaluable experience which fostered really beneficial relationships between the jurisdictional teams.” M A N A G E R , C O R P O R A T E S E R V I C E S E S P E R A N C E M A R A I S Q H O W D I D G A T E W A Y W O R K F O R Y O U ? Starting off, I was actually at one of the medium sized accountancy and audit firms in South Africa and had made the decision to move to Jersey to increase my financial services experience in a well-known offshore jurisdiction. At the time, some of my audit clients were administered by JTC and so I regularly had to work with JTC’s Corporate Division. I was always impressed with not only their level of professional client care but also their friendly approach and real sense of team. The experience made me think about working within a similar dynamic culture and when the position for a Manager in the JTC Jersey office came about, I jumped at the opportunity. I was also aware of the Gateway programme and that as JTC has a Cape Town office, there was the possibility of staying with the Group but being able to transfer back. Prior to joining the corporate team in Jersey, I was also in a fortunate position to have been seconded to the Finance department for five months which provided invaluable experience in understanding the bigger Group picture. A role back in the Cape Town team soon became available and the Gateway initiative meant that I was able to take up the opportunity. I was extremely happy to be able to remain with JTC. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 3 6 3 7 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSO U R R E S O U R C E S A N D R E L A T I O N S H I P S C O N T I N U E D J T C G A T E W A Y – G L O B A L T A L E N T M O B I L I T Y Equally important is the invaluable experience of living abroad, being immersed J T C W E L L B E I N G – A H O L I S T I C A P P R O A C H Engagement begins with the recruitment and selection process, where we ensure JTC Gateway offers our people the opportunity to develop their careers by in new cultures, gaining new perspectives, meeting new people, making T O W E L L B E I N G personable and timely communication through the recruitment process. All new working in Group locations across the world. It is a key element of our employee new friends, exploring new terrains and discovering hidden strengths as new Launched at the end of 2018, JTC Wellbeing supports all our people in attaining starters are given a structured induction programme and assigned a ‘buddy’, an proposition which aims to support personal and professional growth as well as challenges are met each day. optimum physical, emotional and mental good health. Following a pilot established colleague who is assigned to help with practical orientation on a day- attract and retain talent. programme in our Jersey office, the JTC Wellbeing programme has been rolled to-day basis. Where colleagues join us via an acquisition, the standard induction Since the launch of the programme over a dozen JTC Gateway placements have out to all employees globally and includes a custom app that provides employees programme is tailored appropriately as part of the structured integration process From individual secondments to key talent rotational programmes and been facilitated, ranging from temporary secondments to permanent relocations. with access to tailored advice and support on a range of wellbeing topics, that we follow. permanent transfers, JTC Gateway enables employees to broaden their professional, managerial, technical and interpersonal skills and share their own knowledge and expertise with their international colleagues facilitating cross- functional learning and fostering cross-departmental teamwork. “An invaluable chance to immerse myself in new work and develop my skills” C H R I S T O P H E R G I B B O N S including nutrition, fitness, stress management and mental health awareness. E M P L O Y E E E N G A G E M E N T Informal and formal staff social events are encouraged across the Group and in our larger offices, including Jersey, South Africa and Guernsey, we have Our shared ownership culture and stakeholder mentality mean that employee established JTC Sports and Social Committees, which are run by employees engagement and effective internal communications are a constant focus across on a voluntary basis and organise a wide range of social events from sports the Group. We work hard to share information at all levels and foster a common participation to dinners and family days. team spirit whilst also respecting local norms in all office locations. J T C W E L L B E I NG A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 3 8 3 9 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSO U R R E S O U R C E S A N D R E L A T I O N S H I P S C O N T I N U E D E M P L O Y E E C O M M U N I C A T I O N S > Online business travel portal We use a variety of communication methods to share information about the > Video and audio conferencing portal business and the markets in which we operate. This includes communication of > People HR portal (an online tool to manage all personnel records, the Group’s goals and strategies, performance updates and market news. including vacations, absence, remuneration and annual appraisal) E Q U A L O P P O R T U N I T Y JTC is committed to the policy of equal treatment of all its employees and requires all employees of whatever grade or authority, to abide by and aspire to this general principle. Our policy is to always ensure that all persons are treated fairly, irrespective of their age, colour, disability, ethnicity, family or marital status, gender identity or expression, language, national origin, physical and mental ability, political affiliation, race, religion, sexual orientation, socio-economic status, veteran status, and other characteristics that make our employees unique. We will endeavour to provide those who have physical disabilities with specific assistance and arrangements to enable them to work for us wherever and whenever this is reasonably practical. At JTC we recognise that our human capital is the most valuable asset we have. The collective sum of our individual employees’ differences, life experiences, knowledge, inventiveness, innovation, self-expression, unique capabilities and talent represents a significant part of not only our culture but our reputation and inevitably JTC’s achievements. We have created an environment in which all existing and prospective employees of JTC can access all appropriate employment opportunities. In the context of I N P E R S O N U P D A T E S We are a people business and encourage open communication and the cascade of information in person on a regular basis. Team meetings are used across the business and are adapted to suit the size of each office, with larger offices running ‘town hall’ style meetings. B R A N D E D E - C O M M S We have developed a suite of clearly signposted internal emails covering updates meeting our business objectives the following principles will guide our approach: from different parts of the business, these include: > CEO Updates > CFO Updates > COO Updates > We will discuss and be flexible in meeting individual employee’s needs and aspirations > All existing and potential employees will be fairly selected for job opportunities based on their ability to perform their role > Risk & Compliance Updates, which includes AML and GDPR > There will be respectful communication and co-operation between > HR Updates, which includes JTC Academy, JTC Gateway and JTC Wellness all employees > IT Updates > Marketing Updates > Acquisition Updates I N T R A N E T > Teamwork and employee participation, permitting the representation of all groups and employee perspectives will be encouraged > A work/life balance through agreed flexible working principles to accommodate employees’ varying needs will be considered in line with the needs of the business Our well-developed intranet ‘JTC Joogle’ is available to all staff and hosts a raft > JTC is committed to the principles of equal opportunity for all and of news and information, as well as being a secure ‘single sign on’ point of access specifically prohibits discrimination of every type for a number of core systems. Highlights include: > Daily internal JTC newsfeed > Notification of new starters and leavers > Global staff directory > JTC Academy online > Salesforce CRM access > Bespoke ‘Ownership for All’ staff portal > GDPR portal > Marketing materials portal M O D E R N A N T I - S L A V E R Y A N D H U M A N T R A F F I C K I N G JTC has taken steps to ensure slavery and human trafficking is not taking place in our supply chains or in any part of our business. A statement in response to Section 54, Part 6 of the Modern Slavery Act 2015 is available on the JTC website at jtcgroup.com and sets out the steps that the Group has taken and its on-going commitment to this vitally important topic. O U R C L I E N T S Within our cultural framework, our internal values drive our external client facing behaviours. Through these behaviours, we seek to work in partnership with our clients, gaining a deep understanding of their needs and goals so that we can deliver the best service possible. > ENTREPRENEURIAL OUTLOOK – our high levels of client engagement and stakeholder mentality allow us to take an entrepreneurial approach to finding the best service solution for each and every client. > WANT TO WIN MENTALITY – JTC is proud of its independence and we recognise that we operate in a competitive market where clients have a choice of firms to work with. We work hard to win the trust and confidence of our clients and to help them succeed in their chosen activities. > CAN DO ATTITUDE – we understand that our clients rely on us to deliver services, often with high levels of technical complexity, on a consistent basis. Our can do attitude is about finding answers and delivering results. > ABOVE AND BEYOND SERVICE – with client relationships that last on average c.10 years (and which can extend for decades over multiple generations) we know that maintaining client service excellence is key to long-term success. J J T T C C G G A A T T E E W W A A Y Y T C A C A D E M Y T C A C A D E M Y J J S S R R U U O O I I V V A A H H E E B B G G N N I I C C A A F F T T N N E E I I L L C C C C U U L L T T U U R R A A L L V V A A L L U U E E S S W C C T T J J A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 4 0 4 1 G N I E B L G N I E B L L E L E W STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS O U R R E S O U R C E S A N D R E L A T I O N S H I P S C O N T I N U E D O U R C O M M U N I T I E S We also recognise the important partnerships we have with our clients and We value and respect the communities in which we operate around the world and intermediaries and, where possible and appropriate, will look to support their understand the support they provide to our employees, clients and intermediary chosen causes. partners. We seek to create a positive impact wherever we operate, creating opportunities for employment and giving back through charitable donations of 2 0 1 8 C O M M U N I T Y H I G H L I G H T S time, expertise and money. In 2018, JTC employees in Jersey and Guernsey raised over £18,000 for Channel Islands’ charities through a number of exciting and memorable fundraising We believe in promoting an employee-led approach to the Group’s charitable activities, including ‘director dress-up’ days, bake-offs, and a variety of other fundraising and donations so that our people, wherever they are based, can work together in making a difference in their local communities. In addition challenges. Additionally, Jersey support was given to the Rotary International Shoebox appeal whilst in Guernsey, similar collections were made to create gifts In the Cayman Islands, a local charity known as ARK – Acts of Random Kindness – gathers funding and offers of personal support from local businesses in order to support children who lag behind in school because of their family circumstances. Having initially tackled poverty, the charity is now attempting to tackle the root causes of generational poverty in this way. JTC worked alongside other local businesses in support of this worthwhile cause. Additionally, we were able to make financial donations to a significant number of employees who were participating in fundraising events and challenges in support of local charities close to their hearts. E N V I R O N M E N T A L , S O C I A L A N D G O V E R N A N C E ( E S G ) JTC understands the importance of Environmental, Social and Governance (ESG) risks and opportunities for its clients and in particular, international asset managers. As an administrator with deep expertise across a range of asset classes, we are able to support our clients in delivering their ESG commitments. In South Africa, 2018 was a busy year for colleagues who run the Ubuntu As a business, JTC is committed to its own ESG related policies and in particular and in appreciation of their endeavours outside of the working environment the for elderly people spending Christmas alone. Committee – Ubuntu being a Bantu term meaning humanity. They worked to equal opportunities and wellbeing for our global workforce and comprehensive Group aims to financially support individuals who choose to undertake personal challenges on behalf of charities or initiatives close to their own hearts. tirelessly to organise numerous activities which aimed to give back to those governance and compliance practices, as underpinned by our status as a UK PLC less fortunate and in need. There were several events in support of their long- with a premium listing on the London Stock Exchange (LSE). standing association with Leliebloem Child & Youth Care Centre, including bringing children from the centre to work for a day, volunteering to help at the As a financial services firm, whilst our environmental impact is small compared centre and organising a day of carnival fun for the kids. to many other industries, we also recognise the importance of having a role Colleagues on the Isle of Man raised Christmas money for the children’s wing for managing the effect we have on the environment. As a minimum, however, of their local hospice, which provides end-of-life care for children with life- we encourage all jurisdictions to procure paper from managed forests, ‘upcycle’ threatening conditions. At other times of year, they organised events in support furniture, telephones and IT equipment between jurisdictions and from of a programme that supports the elderly and aims to improve their quality of acquisitions, recycle old equipment and stationery by redistributing to schools life through providing a helping hand alongside various social events. and charities, and to use filtered rather than disposable plastic bottled water in to play and are at the early stages of our review, planning and measurement glass bottles provided to our teams. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 4 2 4 3 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSF A S T E R T O G E T H E R To succeed in a fast-paced world requires dynamic thinking, bold ideas and sophisticated solutions. We understand the importance and value of time, working quickly to present our clients with the options they require and the answers they need. Bold. Dynamic. Sophisticated. Fast. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 4 4 4 5 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSC H I E F F I N A N C I A L O F F I C E R ’ S R E V I E W A C H I E V I N G T H E T A R G E T S W E   S E T O U R S E L V E S R E V E N U E Client attrition in the period was 8.9% compared to 8.3% in 2017 and is In 2018, revenue was £77.3m, an increase of £17.5m (29.3%) compared to 2017. consistent with previous periods. Attrition is broken down into three principal categories as also shown in the chart below. This demonstrates that 98.2% of Period on period growth was driven by net LTM organic growth of 8.7% and revenues that are not end of life were retained in the period. inorganic growth of 20.6% from the acquisitions made in 2017 of the Bank of America Merrill Lynch International Trust and Wealth Structuring business Acquisitions contributed £13.0m of new revenue in the year broken down (BAML) and New Amsterdam Cititrust (NACT) as well as the 2018 acquisitions as follows: of Minerva and Van Doorn. C H I E F F I N A N C I A L O F F I C E R M A R T I N F O T H E R I N G H A M Revenue growth, on a constant currency basis, in the year is summarised in the chart below. Minerva Van Doorn NACT BAML Total £4.4m £1.4m £1.6m £5.6m £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 N E W B U S I N E S S / P I P E L I N E 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. F I N A N C I A L R E V I E W J T C G R O U P F I N A N C I A L K P Is The 2018 results reflect the pre listing capital structure up to 14 March 2018 and the current capital structure post IPO. Revenue (£) Underlying* EBITDA (£) In order to assist the reader’s understanding of the EBITDA margin (%) 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 (page 117). As explained in the Company Prospectus, underlying EBITDA margin is the main profitability measure used within the Fund and Trust Company EBIT (£) Adjusted diluted EPS (p)** Statutory Gross profit margin (%) Gross profit margin ICS (%) Gross profit margin PCS (%) EBITDA (£) EBIT (£) Administration market. The Group appreciates that Loss before tax (£) 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. Basic and diluted EPS (p) Final dividend per share (p) Cash conversion (%) Net debt (£) 2018 2017 Growth £77.3m £59.8m +29.3% £23.8m £14.4m +65.3% 30.9% 24.1% £19.2m £11.5m 18.4p 13.8p 61.5% 61.1% 62.2% £5.3m £0.6m 56.5% 56.4% 56.7% £9.6m £6.8m +6.8pp +66.6% +33.1% +5.0pp +4.7pp +5.5pp -45.4% -90.7% (£2.1m) (£3.6m) +40.2% (3.9p) 2.0p 80% (7.0p) – 85% N/A +2.0p -5.0pp (£48.7m) (£42.5m) +£6.2m * Items classified as non-underlying are as detailed in Note 10 (page 117) 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.. R E V E N U E B R I D G E L O S T W O N £ 1 3 . 0M £ 7 7 . 3M £ 5 9 . 4M Acquisition £3.2m £ 0 . 1M £ 0 . 9M £ 4 . 0M £ 5 . 5M £ 4 . 4M Organic £56.2m FY17 revenue JTC decision Moved service provider End of life Existing clients New clients Acquisitions FY18 revenue Note: Constant currency using FY18 Consolidated Income Statement Exchange Rates A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 4 6 4 7 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSC H I E F F I N A N C I A L O F F I C E R ’ S R E V I E W C O N T I N U E D G R O S S P R O F I T M A R G I N margin improved from 26.6% to 33.5% in the year. This was driven by the swift L O S S B E F O R E T A X collection. Adjusting for this we would have seen an 89% cash conversion Gross profit margin for 2018 was 61.5%, an improvement of 5.0pp from 2017. and effective integration of the BAML business as well as the benefits accruing The reported loss before tax for the period ended 31 December 2018 was in the year. This is a strong performance when considered in the context of This improvement was seen in both operating Divisions with ICS improving continued to invest in processes, systems and operational capabilities and this from the operational changes made in the latter part of 2017. The business has £2.1m (2017: £3.6m loss). 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 gross margin from 56.4% in 2017 to 61.1% (+4.7pp) in 2018. The margin investment will support future growth. Adjusting for non-underlying items the underlying profit before tax for 2018 31.1% (improvement of 1.9pp) by 31 December 2018. improvement is due to the continuing focus on improving operational was £17.0m (2017: £0.9m loss). The improvement reflects both the strong efficiency and leveraging the Global Service Centre (GSC) in Cape Town. The Group recognises that EBIT is a more commonly accepted reporting business performance in the current year as well as the higher financing Net debt at the period end was £48.7m compared to £42.5m at 31 December metric and will over the next 12 months transition to using this as its primary costs associated with the Group’s capital structure pre–IPO, albeit offset by 2017. This represents 2.0 times the underlying 2018 EBITDA (2017: 2.9 times). Within PCS the gross profit margin was 62.2%, a 5.5pp improvement from profitability indicator for external stakeholders. Statutory EBITDA and EBIT are increased non underlying costs. 2017. The gross profit margin improvement was particularly strong in H1 due both impacted by significant non underlying costs in this first year of reporting 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, to the swift integration and re-organisation of the global PCS business following post the IPO. Details of these non underlying costs are set out below. It should be noted that Finance costs in the reporting period include the net debt as a proportion of underlying EBITDA would fall to 1.7 times. the acquisition of BAML. The focus in the first half of 2018 was to right-size costs of the Group’s pre IPO capital structure and changes to the capital the business taking into account the BAML acquisition. Having successfully N O N U N D E R L Y I N G I T E M S structure made at the time of listing. Finance costs in 2018 comprise £1.5m of R E C O N C I L I A T I O N O F U N D E R L Y I N G E B I T D A achieved that, management moved their attention to delivering stronger Non underlying items incurred in the period totalled £19.1m. These comprised amortisation/non cash flow items and £2.0m of costs which impact cash flow. T O L O S S B E F O R E T A X Within the cash flow impacting items, the loan note interest relates to the pre The reconciliation of underlying EBITDA to loss before tax for 2018 is as follows: organic growth and invested in senior BD capability to deliver this. This led to the following: slightly lower margins in the division in H2 in the expectation that this would deliver stronger future revenue growth. > £13.2m capital distribution from JTC EBT12 to all staff as a result of U N D E R L Y I N G P R O F I T A N D M A R G I N P E R F O R M A N C E > £4.3m of acquisition and integration costs our IPO 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. Underlying EBITDA in 2018 was £23.8m, an increase of £9.4m and 65.3% > £1.0m costs associated with the IPO E A R N I N G S P E R S H A R E from 2017. The reconciliation of the improvement in the underlying EBITDA is > £0.6m other costs/ charges shown in the chart below. 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 The underlying EBITDA margin % is the primary KPI used by the business and £0.4m are included within Finance costs and £0.1m are other costs. of customer contracts, other gains, share of profits from equity accounted Of the £19.1m of non underlying costs, £18.6m are incurred at EBIT level, and to remove the impact of non-underlying items within EBITDA, amortisation 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 JTC consolidates its EBTs within its results and hence the reason that the fees and unwinding of NPV discounts. capital distribution is included within staff costs. The full charge to the Income investees, finance income, loan note interest, amortisation of loan arrangement increased to 30.9% from 24.1% in 2017 – a significant improvement of 6.8pp. Statement is recognised in the period to 31 December 2018. Acquisition and C A S H F L O W A N D D E B T This has been driven by improved operational efficiency in both operating divisions integration costs reflect costs incurred on the completed acquisitions as well Cash generated from underlying operating activities was £19.2m representing All figures in £’m for 2018 Statutory results Non underlying items Underlying results EBITDA Depreciation and amortisation Profit from operating activities (EBIT) Finance costs, other gains and losses etc. Loss / profit before tax 5.2 (4.6) 0.6 (2.7) (2.1) 18.6 – (18.6) 0.5 (19.1) 23.8 (4.6) 19.2 (2.2) 17.0 Non underlying items are set out in detail in note 10 (page 117) to the consolidated financial statements and are, in the opinion of the Directors, specific items that will not recur. as well as continuing cost control. ICS’s underlying EBITDA margin improved from as transactions which are ongoing or did not complete. 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 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 M A R T I N F O T H E R I N G H A M C H I E F F I N A N C I A L O F F I C E R U N D E R LY I N G E B I T D A B R I D G E C A S H C O N V E R S I O N V O L U M E £ 5 . 8M E F F I C I E N C Y £ 1 . 8M £ 1 4 . 4M V O L U M E £ 4 . 1M E F F I C I E N C Y £ 2 . 0M £ 1 . 3M £ 23 . 8M £ 3 . 0M 9 1 % 8 5 % 1 7 % 8 9 % 8 0 % Proforma adjustment to include full 12 month cycle of BAML cash receipts 2 9 % Underlying EBITDA FY17 ICS Gross Profit PCS Gross Profit Indirect Staff Operating Expenses Underlying EBITDA FY18 FY16 FY17 –– Year on Year Revenue Growth % –– Underlying Operating Cash Conversion FY18 Note: Reported Rates from FY18 Financial Statements Note: Cash Conversion = Underlying Cash Flow From Operating Activities/Underlying EBITDA A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 4 8 4 9 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSG R E A T E R T O G E T H E R Our success has been built over decades, founded on our independence and an enduring belief in our values and how they translate to service excellence. While our outlook and reach has grown on a global scale, we remain as true to our founding principles as ever Powerful. Independent. Enduring. Global G O V E R N A N C E : 52 Chairman’s Introduction 56 Leadership and Effectiveness 63 Viability Statement 69 Nomination Committee Report 72 Audit and Risk Committee Report 79 Remuneration Committee Report 88 Directors’ Report A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 5 0 5 1 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSC H A I R M A N ’ S I N T R O D U C T I O N D R I V I N G P E R F O R M A N C E T H R O U G H C U L T U R E N O N - E X E C U T I V E C H A I R M A N M I K E L I S T O N O B E B O A R D A S A N E W L I S T E D B U S I N E S S , W H A T I S Y O U R As Chairman, my aim is to maintain an environment in which the skills and V I E W O N T H E R O L E O F G O V E R N A N C E ? experience of every director can be fully exploited to enhance the success of “Excellence in governance is fundamental to the Group’s day-to-day the Company. The challenge in any team endeavour is the management of activities. The Board recognises the importance of corporate governance relationships and in public ownership this is magnified by the duty of Non- in order to generate and protect value for our investors. Executive Directors to challenge and scrutinize, whilst simultaneously sharing the Executive Directors’ responsibility for the success of the Company. Our governance structure is designed to maintain effective control and oversight of our business whilst at the same time promoting the The Executive Directors’ vast experience and patience has been of great value to entrepreneurial spirit that has underpinned JTC’s success to date.” their new colleagues as the full range of mature controls, business processes and procedures have been reviewed by the Board. The knowledge and comfort gained from this familiarisation effort has enabled us to move forward collectively Client benefits include risk mitigation, operational efficiency, business model to agree the fundamentals for the business in the next stage of its life, under agility and demonstrable third party scrutiny. public ownership. We have agreed or reaffirmed Company purpose, values, strategy, risk appetite, number of high net worth and ultra-high net worth individuals in both mature culture and accountabilities. I am confident that we can preserve an environment where the corporate governance requirements of a London Stock Exchange and nascent markets. Increasingly they are internationally mobile and financially sophisticated, and the need to manage their affairs amidst myriad complex and listing can be fulfilled without sacrificing the agility and flair of private enterprise ubiquitous regulation generates opportunities from both a private assets and which has defined the Company so far. corporate services perspective. Our private client business continues to benefit from rapid growth in the P U R P O S E A N D VA L U E S Our proven ability to build scale at marginal cost and achieve synergies The Directors believe that the Company serves a positive purpose in assisting which creates value for our shareholders, derives from our ongoing calibrated the legitimate facilitation of the capital flows on which the economic and investment in infrastructure alongside our historic early stage investment in key social benefits of globalization depend. We enable companies and individuals to jurisdictions for global delivery. operate internationally whilst demonstrating full compliance with a myriad of rules and regulations without themselves having to maintain the infrastructure W O R K I N P R O G R E S S demanded by this increasingly complex environment. We respect client needs Although the Board’s review of corporate governance during its first three quarters for the legitimate privacy to which they are entitled and on which their personal has validated its high expectations, there are areas where its continuing scrutiny security or business competitiveness may depend. These fundamentals are the will be augmented by specific further work to comply more comprehensively As a specialist provider of outsourced administration services, including corporate governance and company secretarial services, JTC is committed to achieving the highest levels of corporate governance. D E A R S H A R E H O L D E R drivers of demand for our professional expertise and we look to build strong with the FRC’s new governance codes when we report against them next year. The PLC Board took office in March last year with the great benefit of absolute sustainable relationships with clients for the long term and partner with them clarity on what was expected of it, defined not only in the Prospectus from the in their endeavours. IPO but also in the newly revised UK Governance Code. We are conscious that shareholder engagement in these early days has in practice been largely with the Executive Directors, generally at the time of the Our challenge as Directors is generating value for shareholders whilst Amongst them, integrity, the unique ownership mentality and mutual feedback from the advisers and brokers on the views of the major shareholders, complying with these enhanced governance expectations and respecting the respect form the basis for the behaviour of our business, its people and its and of course the Non-Executive Directors are available to meet at any time. interests of a wide range of stakeholders. Our task is assisted by the quality of the business and the people within it. Moreover, with the provision of wider stakeholders. We intend to enhance the mechanisms for shareholder engagement and, for example, we plan to arrange a capital markets day later in the year to allow governance and compliance services as a core business offering to a diverse S O U R C E S O F VA L U E G E N E R A T I O N shareholders to meet the full Board as well as the wider executive team. institutional and private client base, JTC is accustomed to applying those JTC has a more than 30 year history of delivering growth year on year, both disciplines internally too. organically and more recently by acquisition following the Group’s first purchase We also aim to review the composition of the Board in light of the planned Our values are justifiably a common thread throughout this Annual Report. results announcements and on an ad hoc basis. The entire Board receives formal in 2010. The opportunities to generate value in this balanced manner are Effectiveness Reviews and the evolving needs of the business. In making any The company’s genetic characteristics have evolved over three decades and accelerating in what is a rapidly consolidating market. new appointments we will maintain JTC’s guiding principle to recruit on merit as in life itself, they are key to its growth and longevity. Its entrepreneurial whilst conscious that gender diversity at Board level presently does not reflect parentage remains a strong influence in JTC’s corporate values and ethical We operate in a global environment which offers highly favourable fundamentals that which prevails throughout the rest of the organisation, where 51% of the behaviour, with this DNA strengthened by the addition of minority private for growth for JTC in all three of our service lines (Funds, Corporate and Private management grades are occupied by women. equity ownership (CBPE Capital) to its blood line in 2012. Add to this its Wealth) which are enveloped by our two fee earning Divisions – Institutional hard-wired culture of rigorous compliance and governance honed during its formative years by being headquartered in Jersey, one of the world’s most Client Services and Private Client Services. Our attention to continuous executive development of the management team has confirmed the great potential of the LION (Leaders in our Name) programme rigorously regulated international finance centres, and you have a pedigree From an institutional perspective sustained investment growth in alternative to develop our future leaders and facilitate succession in the longer term by which replicates well in any environment. asset classes , which are forecast by PwC to double in the decade to 2025, evolution from within. A more immediate benefit of this initiative has been the when coupled with the complexity of demonstrating cross-border compliance, is driving greater outsourcing of services to expert third party providers like JTC. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 5 2 5 3 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS C H A I R M A N ’ S I N T R O D U C T I O N C O N T I N U E D opportunity it has afforded the Executive Directors to turn a larger proportion of S T A T E M E N T O F C O R P O R A T E G O V E R N A N C E their time and attention to the new challenges of being a listed business, whilst The Directors present this first Annual Report for the year ended 31 December delivering business growth and sustainable organisational change. 2018, on the affairs of JTC, together with the Consolidated Financial Statements We have been very greatly reassured by the very evident commitment of the corporate governance and, in 2018, has continued to build on the corporate executive team throughout a very demanding year. We are also pleased to see governance framework which was established on incorporation of the Company. very promising talent emerging from within the growing ranks of professionals as the Company acquires new businesses and develops its own team, as well as This Corporate Governance Report, including the sections which follow, sets out and the Auditor’s report. JTC is committed to achieving the highest levels of G O V E R N A N C E H I G H L I G H T S making strategic hires as necessary. The formal leadership development programs how the Company has applied the main principles of good governance as set I N D E P E N D E N C E E VA L U A T I O N and the increased delegation of authority are already improving ‘bench-strength’ out by the UK Corporate Governance Code, April 2016, as issued by the FRC At the point of listing, and at the date of this Annual Report, we have We have not undertaken an internal evaluation of the Board or the in the Company’s Executive team. (the “Code”). two independent Non-Executive Directors, on our Board, excluding Board’s committees as they were established in March 2018. Instead, the Chairman, which is in line with the guidance under the Code. an internal evaluation will be undertaken in the second half of 2019 R E M U N E R A T I O N A N D R E W A R D The Directors consider that the Company has been compliant with the ahead of the 2019 annual reporting process. The Board is well supported by the work of the Remuneration Committee in Code provisions as applied during the period since listing, other than the E X P E R I E N C E its aim to ensure that workforce performance and remuneration supports following exception: the long term success of the Company and promotes its values. Core to the Group’s unique culture is that all employees will have an ownership stake in the business. The importance of this shared ownership is wider than merely the Provision B.6.1 of the Code states that the Board should report in the Annual Report how performance evaluation of the Board, its Committees and its When the Board was established, our focus was to ensure that we A T T E N D A N C E had relevant industry, financial and public company expertise and Each of our Directors attended all relevant Board and committee we believe that we have achieved that with our Board today. meetings with an acceptable level attended in person. financial incentives and this model brings a set of competitive advantages which individual directors has been conducted. As the Board was only appointed in A C C O U N T A B I L I T Y C O M P L I A N C E O F C O M P O S I T I O N are encompassed in the Group’s guiding principles and client facing behaviours. March 2018 a formal performance evaluation was not undertaken during the We have clear and documented separation of duties between the O F   C O M M I T T E E S Michael Gray, Chair of the Remuneration Committee reports in his introduction year. The effectiveness of the Board and of the Board and Committee Meetings Chairman and the CEO. JTC’s CEO, Nigel Le Quesne, is responsible The composition of our committees complies with the on page 79 on the approach taken to executive remuneration and the work done is a standing agenda item at the Board’s six scheduled meetings a year. A formal for determining JTC strategy and day-to-day operations, leading Code requirements. in reviewing the Company’s Remuneration Policy, as well as other work carried performance evaluation of the Board, its Committees and its individual directors the JTC Group Holdings Limited Board, which assists in the day to out during the year on this important matter. will be conducted in 2019in accordance with the three year evaluation cycle day delivery of this strategy and general operations. Mike Liston, as R E M U N E R A T I O N A N D R E W A R D A N N U A L G E N E R A L M E E T I N G the strategic direction, key commercial or contracting decisions and designed to incentivise and motivate the Executive Team to achieve I look forward to welcoming shareholders to the Company’s AGM. I will be We have laid out this Corporate Governance Report using the Code as a overall succession planning for the Board. the strategy as laid out in this Annual Report. detailed at page 70 of the Nomination Committee’s report. Chairman, provides oversight and guidance to Nigel Le Quesne on We present our Remuneration Policy on pages 79 to 80, which is joined by the CEO and the CFO, together with the Chairs of the Audit and Risk, framework for articulating the Board’s activities this period and also to frame our Nomination and Remuneration Committees to answer questions relating to the focus for the coming year. The structure of this Corporate Governance Report responsibilities of those committees. The Notice convening the 2019 AGM, to is as follows: be held on 21 May 2019, will be issued along with this Annual Report to the shareholders at least 21 clear days in advance of the meeting. Separate resolutions > Leadership and effectiveness will be proposed on each substantially separate matter and the results of the > Accountability proxy votes on each resolution will be clearly collated independently by the > Stakeholder engagement and relationships Company’s registrar and will be published on the Company’s website after > Remuneration the meeting. I am grateful to my fellow Directors, JTC’s employees and to all of our Shareholders for their support in our first year as a listed company, and 31 years reference to this Corporate Governance Report are shown at page 62, Board Statements and page 88, the Directors’ Report. Details of where to find additional information which should be read with of successful operations. M I K E L I S T O N O B E N O N - E X E C U T I V E C H A I R M A N A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 5 4 5 5 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSL E A D E R S H I P A N D E F F E C T I V E N E S S 1 . L E A D E R S H I P A N D E F F E C T I V E N E S S T H E R O L E O F T H E B O A R D B O A R D B A L A N C E A N D I N D E P E N D E N C E R I S K M A N A G E M E N T A N D I N T E R N A L C O N T R O L S The Code recommends that at least half the Board of Directors, excluding the The Board is responsible for the overall system of internal control and for JTC is led and controlled by the Board which is collectively responsible for the long-term and sustainable performance of the Group. The roles of the Chairman and Chairman, should comprise independent Non-Executive Directors. The Non- reviewing its effectiveness. The Board has carried out a robust assessment of the the CEO are separate and clearly defined, with the division of responsibilities set out below. D I R E C T O R S A N D O F F I C E R S P R I N C I P A L R E S P O N S I B I L I T I E S > Manages and provides leadership to the Board Executive Chairman was independent on appointment and we have appointed principal risks facing the Group, including those that would threaten its business two further Independent Non-Executive Directors whose skills and experience model, future performance, solvency or liquidity as detailed on pages 28 to 34 of are detailed on page 59 of this Report. The Board considers that all of its Non- the Strategic Report. The Board has delegated the day-to-day responsibility for Executive Directors are independent, in character and judgement, and therefore designing, operating and monitoring the internal control and risk management the Board complies with the requirements of the Code. Additionally, the framework and systems to the senior management team. The internal control Directors, both individually and collectively, have the range of skills, knowledge, and risk management framework and systems have evolved through the diversity of experience and dedication necessary to lead the Group and have the identification, evaluations and assessment of how to manage key risks, taking > Acts as a direct liaison between the Board and management, working with the CEO to assist the flow requisite strategic and commercial experience to contribute to the leadership into account risk appetite. The senior management team reports changes, N O N - E X E C U T I V E C H A I R M A N of information of JTC. > Ensures that the Directors have sufficient information to enable the Directors to form appropriate judgements developments or results of testing to the Board, through the Chief Risk Officer on a quarterly basis. We have laid out a summary of our risk management processes > The Chairman develops and sets the agendas for Board meetings, working with the CEO and Company Secretary B O A R D I N D U C T I O N A N D T R A I N I N G on pages 28 to 30 to the Strategic Report and provided further detail on page > Recommends an annual schedule of Board and committee meetings > Ensures effective communications with shareholders and other stakeholders > Responsible for the day-to-day management of JTC To ensure that the Non-Executive Directors are able to influence, participate fully 73 of the Audit and Risk Committee Report. There have been no changes to the in discussions and challenge appropriately and knowledgeably, all Non-Executive internal control or risk management frameworks during the period since listing Directors received a tailored induction on joining the Board, including meeting with members of the JTC senior team and meetings with JTC’s external advisers. and up to the date of approval of the Annual Report. It should be noted that the systems of internal control are designed to manage, rather than eliminate, the > Together with the Senior Management, is responsible for executing the strategy, once it has been agreed by The induction involved visits to JTC’s head office in Jersey and management risk of failure to achieve business objectives and therefore they can only provide the Board presentations as part of the Board strategy day. Further training will be provided reasonable, and not absolute, assurance against material errors, losses, fraud or C H I E F E X E C U T I V E O F F I C E R > Creates a framework that optimises resource allocation to deliver strategic objectives over varying timeframes as needs are identified and we continue to utilise a portion of our Board meetings breaches of law and regulations. We have a number of internal controls which > Ensures the successful delivery against plan and other key business objectives, allocating decision-making and to provide market updates or to discuss a variety of industry, regulatory and operate across the JTC business. The key controls which are relied upon during responsibilities accordingly governance issues or changes, in light of the impact these could or do have on the year are set out on page 29 to the Strategic Report. This should be read > Together with the Executive Committee, identifies and executes new business opportunities and assesses our business. potential acquisitions or disposals in conjunction with the principal risks and uncertainties facing JTC, which are detailed on page 33 to 34 to the Strategic Report. > Manages the Group with reference to its risk profile in the context of the Board’s risk appetite W H A T W E F O C U S E D O N I N 2 0 1 8 S E N I O R I N D E P E N D E N T D I R E C T O R > Is a Non-Executive Director > Provides a sounding board for the Chairman and CEO > Serves as an intermediary for the other Directors when necessary > Is available to shareholders if they have concerns > Provide constructive challenge to the Executive Directors > Help develop proposals on strategy > Scrutinise management’s performance in meeting agreed goals and objectives During the period since listing we assessed, considered and debated a wide range Based on the review performed, the board has concluded that they have not of matters including but not limited to: identified any significant failings or weaknesses during the year > Strategy > Budgets and long-term plans 3 . S T A K E H O L D E R E N G A G E M E N T A N D R E L A T I O N S H I P S S H A R E H O L D E R R E L A T I O N S > Performance of the business – both financial and operational The Board is committed to ensuring that we maintain good communications > Financial statements, announcements and other financial with existing and potential shareholders based on mutual understanding of the reporting matters > Risk management and controls Company’s objectives. A comprehensive investor relations programme underpins this commitment, led by the Chief Communications Officer. The Chief Executive N O N - E X E C U T I V E > Monitor performance reports > Shareholder feedback and reports from brokers and analysts Officer and the Chief Financial Officer regularly engage with institutional D I R E C T O R > Satisfy themselves on the integrity of financial information and that controls and risk management systems are > Succession and talent management robust and defensible > Determine appropriate levels of remuneration for Executive Directors > Appoint and remove Executive Directors as required and review succession planning > Overall management of the financial risks of the Group > Remuneration > Regulatory updates > Updates on the industry 2 . A C C O U N T A B I L I T Y shareholders in order to develop an understanding of their views, which is communicated back to, and discussed with, the Board. Presentations given to analysts and investors covering the annual and interim results, along with all results and other regulatory announcements as well as further information for investors, are included on the investor relations section of the Company’s website at www.jtcgroup.com/investor-relations. Additional shareholder C H I E F F I N A N C I A L > Responsible for financial planning and record-keeping, as well as financial reporting to the Board and shareholders R E S P O N S I B I L I T Y F O R T H E A N N U A L R E P O R T information is also set out inside the back cover. Shareholders are able to contact O F F I C E R > Ensures effective financial compliance and control, while responding to regulatory developments, including The Board has charged the Audit and Risk Committee with reviewing the the Company through the Chief Communications Officer or the Company financial reporting, capital requirements, and corporate responsibility contents of this 2018 Annual Report to assess whether, when taken as a whole, Secretary at the Company’s registered office, listed at the end of this Report. it is fair, balanced and understandable and provides the necessary information Our Senior Independent Director, Dermot Mathias, serves as an additional point C O M P A N Y S E C R E T A R Y > Ensures compliance with statutory and regulatory requirements model and strategy. This process and the focus of this review is further disclosed addressed properly through the normal channels. He may be contacted through > JTC (Jersey) Limited has been appointed as the corporate company secretary for shareholders to assess the JTC consolidated position, performance, business of contact for shareholders should they feel that any concerns are not being > Ensures that decisions of the Board of Directors are accurately recorded and implemented on page 74 to the Audit and Risk Committee Report. the Company Secretary. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 5 6 5 7 O T H E R S T A K E H O L D E R S Other stakeholders, other than shareholders, have been identified as clients, employees and the communities in which we operate, see pages 16 and 17 to the Strategic Report. STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSB O A R D O F D I R E C T O R S T H E R I G H T S K I L L S A N D E X P E R I E N C E T O D E L I V E R O U R S T R A T E G Y P L C B O A R D N O N - E X E C U T I V E C H A I R M A N M I K E L I S T O N O B E C H I E F E X E C U T I V E O F F I C E R N I G E L L E Q U E S N E C H I E F F I N A N C I A L O F F I C E R M A R T I N F O T H E R I N G H A M I N D E P E N D E N T S E N I O R N O N - E X E C U T I V E D I R E C T O R D E R M O T M A T H I A S I N D E P E N D E N T N O N - E X E C U T I V E D I R E C T O R M I C H A E L G R A Y T E N U R E O N B O A R D : Appointed 8 March 2018 I N D E P E N D E N T C O M M I T T E E M E M B E R S H I P S : T E N U R E O N B O A R D : Appointed 12 January 2018. Overall responsibility for implementing strategy and day-to-day operations Joined the Group in 1991. Nomination, Audit and Risk, Remuneration E X P E R I E N C E : E X P E R I E N C E : Extensive experience across public and private sector businesses. Chief Executive of Jersey Electricity plc Key figure in the development of JTC over the last 28 years with extensive trust, fund and corporate administration experience. between 1993 and 2008, subsequently holding a R E L E V A N T S K I L L S : number of non-executive roles. > Extensive experience in leadership R E L E V A N T S K I L L S : Broad range of experience at board level, including 7 years relevant industry experience. and management > Commercial, strategic, communication and investor relations skills > Experience of financial markets and E X T E R N A L A P P O I N T M E N T S : fund management Not applicable. E X T E R N A L A P P O I N T M E N T S : Not applicable. T E N U R E O N B O A R D : T E N U R E O N B O A R D : Appointed 12 January 2018. Responsible for Appointed 8 March 2018 T E N U R E O N B O A R D : Appointed 8 March 2018 implementation of the Group’s financial strategy and all aspects of accounting and taxation. Joined the Group in 2015 E X P E R I E N C E : Chartered Accountant with extensive management, and corporate finance experience. R E L E V A N T S K I L L S : > Strong financial analysis skills > Extensive experience in financial management and reporting > Broad range of management experience E X T E R N A L A P P O I N T M E N T S : Not applicable. I N D E P E N D E N T I N D E P E N D E N T C O M M I T T E E M E M B E R S H I P S : C O M M I T T E E M E M B E R S H I P S : Nomination, Audit and Risk (Chairman), Remuneration Nomination (Chairman), Audit and Risk, Remuneration E X P E R I E N C E : (Chairman) Chartered Accountant with extensive management, E X P E R I E N C E : corporate finance and NED experience. FCIBS, Associate AMCT, Dip IoD. 20 years senior R E L E V A N T S K I L L S : > Strong financial skills management, financial and capital raising expertise and relevant experience. > Extensive experience in leadership R E L E V A N T S K I L L S : and management E X T E R N A L A P P O I N T M E N T S : > Extensive experience in the banking sector > Communication and management skills Non-Executive Director and Chairman of the E X T E R N A L A P P O I N T M E N T S : Audit Committee of Shaftesbury PLC . Governor of Non-Executive Director Jersey Finance Limited. Activate Learning Non-Executive Director, member of the Audit Committee of GCP Infrastructure Investments Limited. Director of MMG Consulting Limited. Director J-Star Jersey Company Limited. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 5 8 5 9 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSL E A D E R S H I P A N D E F F E C T I V E N E S S G R O U P H O L D I N G S B O A R D G R O U P H E A D O F I N S T I T U T I O N A L C L I E N T S E R V I C E S J O N A T H A N J E N N I N G S G R O U P H E A D O F P R I V A T E C L I E N T S E R V I C E S I A I N J O H N S C H I E F C O M M E R C I A L O F F I C E R T O N Y W H I T N E Y C H I E F O P E R A T I N G O F F I C E R W E N D Y H O L L E Y C H I E F R I S K O F F I C E R S T E V E N B O W E N J O I N E D J T C : J O I N E D J T C : J O I N E D J T C : J O I N E D J T C : J O I N E D J T C : 2018 2012 1997 2008 2018 Q U A L I F I C A T I O N S : Q U A L I F I C A T I O N S : Q U A L I F I C A T I O N S : Q U A L I F I C A T I O N S : Q U A L I F I C A T I O N S : LLB(Hons), TEP P R O F I L E : MBA, BBUS (Acc), CPA, TEP FCIS Chartered FCIPD, MIAB P R O F I L E : P R O F I L E : P R O F I L E : ACIB, TEP P R O F I L E : T H E B O A R D ’ S R O L E M A T T E R S R E S E R V E D F O R T H E B O A R D The Board is responsible for the long term success of the Company. The main There is a formal schedule of matters reserved for the Board. The schedule of responsibilities and key actions carried out are set out at pages 64 to 65. matters covers a number of areas including strategy, approval of acquisitions and The Board is scheduled to meet six times in any full calendar year. Attendance at business development proposals, the dividend policy, budget, internal controls the Board and Committee meetings during the period from incorporation to and risk management and Group policies. Other matters have been delegated December 2018 is set out in the table below. to the Board Committees, the Senior Management and other committees such as the Group Development Committee. The schedule of matters are reviewed There are no relationships or circumstances that are considered likely to affect periodically and were last reviewed in March 2018 along with the Group Policies the independence of the Non-Executive Directors . and Procedures. B O A R D A N D C O M M I T T E E S T R U C T U R E B O A R D O F D I R E C T O R S The Board has formally delegated specific responsibilities to Committees, Financial Officer and the Company Secretary. The full terms of reference namely the Audit and Risk, Remuneration and Nomination Committees. for each of these Committees are available on the Company’s website Jonathan joined JTC in 2018 Iain joined JTC in 2012 and Tony joined JTC in 1997, Wendy joined JTC in 2008 as As JTC’s Chief Risk Officer, Steven In addition, during the year it approved the establishment of a Disclosure (www.jtcgroup.com) or on request from the Company Secretary. as Managing Director – UK, has extensive experience in was appointed a Director in Head of Human Resources has day-to-day management Committee, whose members are the Chief Executive Officer, the Chief based in London. He is an dealing with the financial 2007 and became Managing before being promoted to the responsibility and oversight experienced financial services affairs of some of the world’s Director of the Jersey office role of Chief Operating Officer for the Risk and Compliance professional with a career wealthiest individuals and in 2015. In early 2018 he was in 2012, at which time she functions across the Group. spanning more than two decades. families. As Group Head of promoted to the role of Group was appointed to the Group In addition, Steven also has As well as significant expertise Private Wealth Services, Iain is Head of Institutional Client Holdings Board. She has over oversight of our Treasury in cross-border corporate responsible for the leadership, Services and joined the Group 25 years’ experience in financial Services business line. He joined activity emanating from the strategic development and Holdings Board. During 2018 services operations, having JTC in November 2018 as part Channel Islands, Luxembourg performance of JTC’s PCS Tony was responsible for the previously worked at leading of the Minerva acquisition, and UK, he also has a deep Division, which services clients leadership, strategic development offshore law firm Mourant where he formerly held the A U D I T A N D R I S K C O M M I T T E E N O M I N A T I O N C O M M I T T E E R E M U N E R A T I O N C O M M I T T E E » F O R M O R E I N F O R M A T I O N S E E P A G E 7 2 » F O R M O R E I N F O R M A T I O N S E E P A G E 6 9 » F O R M O R E I N F O R M A T I O N S E E P A G E 7 9 understanding of the private from more than 100 countries. and performance of our ICS (formerly Mourant Ozannes) position of Group Managing B O A R D A N D C O M M I T T E E S T R U C T U R E client market and has earned Iain leads a multilingual team Division, which delivers fund and Coopers & Lybrand (now Director. Steven has worked industry recognition, being of private client professionals and corporate services to an PricewaterhouseCoopers). in the banking and fiduciary named one of the ‘50 Most and has been included in the international client base. As Chief Operating Officer, industry for over 30 years. Influential’ by ePrivateClient Citywealth ‘Leaders List’ every in 2016. Prior to joining JTC, year since 2011 as well as Jonathan was Group CEO of being named as one of the Dominion Fiduciary in Jersey. ‘50 Most Influential’ by Private From 1 April 2019 Jonathan will take over from Tony Whitney as Group Head of Institutional Client Services, responsible for the further growth and success of our Fund Services and Corporate Services business lines, within the ICS Division. Client Practitioner (now ePrivateClient) in 2012 and every year since 2015. Prior to joining JTC, Iain was Global Head of Private Clients for TMF Group (formerly Equity Trust) and a member of its Global Executive Committee. From 1 April 2019 Tony will take on the newly created role of Chief Commercial Officer, also a Group Holdings Board position, where he will be responsible for leading the Group-wide execution of JTC’s organic and inorganic growth strategies and will have oversight of the marketing and business development functions. Wendy is responsible for He joined Minerva from Standard evaluating and developing Bank, where he worked in a the operational strategy of number of executive roles, the Group to ensure it has the including Global Head of operational capabilities needed to support its growth strategies the Private Clients Trust & Fiduciary business. Prior to and deliver its financial targets. joining Standard Bank, Steven A significant part of Wendy’s was employed by JP Morgan role is to lead the efficient Chase & Co. for over twenty and effective integration of years where he held a number acquisitions onto the JTC of senior roles. operating platform taking into account all aspects of operations including people and culture, technology, operational finance, marketing and facilities. Board Met Audit & Risk Nomination Remuneration Michael Liston Nigel Le Quesne Dermot Mathias Michael Gray Martin Fotheringham 5 4 2 3 5 N/A N/A N/A 5 4 2 3 5 4 2 3 5 N/A N/A N/A A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 6 0 6 1 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSB O A R D S T A T E M E N T S V I A B I L I T Y S T A T E M E N T R E Q U I R E M E N T B O A R D S T A T E M E N T W H E R E T O F I N D F U R T H E R I N F O R M A T I O N This Corporate Governance Report, including the sections which follow, sets out how the Company has > Page 54 applied the main principles of good governance as set out by the UK Corporate Governance Code, April > Page 70 2016, as issued by the FRC (the “Code”). The Directors consider that the Company has been compliant with the Code provisions as applied during the period since listing, with the following exception: C O M P L I A N C E Provision B.6.1 of the Code states that the Board should report in the Annual Report how performance W I T H T H E C O D E evaluation of the Board, its Committees and its individual directors has been conducted. As the Board was only appointed in March 2018 a formal performance evaluation was not undertaken during the year. The effectiveness of the Board and of the Board and Committee Meetings is a standing agenda item at the Board’s six scheduled meetings a year. A formal performance evaluation of the Board, its Committees and its individual directors will be conducted in 2019in accordance with the three year evaluation cycle detailed in the Nomination Committee’s report. R O B U S T A S S E S S M E N T O F T H E P R I N C I P A L R I S K S F A C I N G T H E G R O U P A N N U A L R E V I E W O F S Y S T E M S O F R I S K The risks from the Group Risk Register are discussed, debated and challenged, firstly by senior management and Executive Directors, and then by the Group Risk Committee, with a view to > Pages 28 to 34 > Pages 72 to 74 presenting the key risks to the Board. The Board has agreed that the chief risks will be presented in the Annual Report and Accounts as the ‘Principal Risks’. There is an ongoing process for identifying, evaluating and managing the Principal Risks faced by the Company. Based on the review performed, the Board has not identified any significant failings or weaknesses during the year. While the Board is ultimately responsible for the operation of an effective system of internal control > Pages 28 to 34 and risk management appropriate to the business, the Audit & Risk Committee is responsible for reviewing the risk management systems and internal controls to ensure that they remain effective and that any identified weaknesses are appropriately dealt with. The systems of internal control and M A N A G E M E N T risk management that have been in place for the year are regularly reviewed by the Board. The Board A N D I N T E R N A L C O N T R O L is satisfied that these systems accord with the provisions of the Code. The process by which the Board reviews the effectiveness of the internal control and risk management systems is summarised in the Risk Management section of the Strategy Report. F A I R , The Annual Report and Consolidated Financial Statements, taken as a whole, are fair and balanced and > Page 91 B A L A N C E D A N D understandable and provide the information necessary for Shareholders to assess the performance, UNDERSTANDABLE strategy and business model of the Company. A S S E S S M E N T O F P R O S P E C T S T H E C O N T E X T F O R T H E A S S E S S M E N T ( O F   P R O S P E C T S ) The key assumptions in the financial forecasts, reflecting the overall strategy, include: > 8% to10% annual organic growth year on year The Group’s business model and strategy are central to an understanding of its > Target of 30% to 35% margin for the Group as a whole prospects, and details can be found on pages 16 to 17. The nature of the Group’s activities is long-term and the business model is open-ended. The Group’s It has also been assumed that refinancing will be available on similar terms to current overall strategy has been in place for several years, subject to the ongoing those negotiated in 2018 to support any proposed expansion of the business. monitoring and development described below. The Board continues to take a conservative approach to the Group’s strategy in the Risks, which are set out on pages 33 to 34. The purpose of the Principal Risks core business and the focus is largely on cost control and operational efficiency. table is primarily to summarise those matters that could prevent the Group from delivering on its strategy. A number of other aspects of the Principal Risks – Decisions relating to major new projects and investments are made with because of their nature or potential impact – could also threaten the Group’s a low appetite for risk and are subject to an escalating system of approvals, ability to continue in business in its current form if they were to occur. This was including short payback periods. Similar controls operate in relation to major considered as part of the assessment of the Group’s viability, as explained below. These key assumptions are reflected in numbers 1 to 6 of the Group’s Principal new customer contracts. G O I N G C O N C E R N B A S I S The Group is well diversified with its two divisions and three business lines The Directors also considered it appropriate to prepare the financial statements with revenues deriving from multiple jurisdictions and clients. . The Board on the going concern basis, as explained in the Basis of Preparation paragraph in continuously considers the changes in the risk profile of the Group and ensures note 2 to the Financial Statements on page 106. that a thorough risk assessment is made when making any investment decisions. V I A B I L I T Y S T A T E M E N T I N A C C O R D A N C E W I T H T H E A S S E S S M E N T P R O C E S S A N D K E Y A S S U M P T I O N S P R O V I S I O N C . 2 . 2 The Group’s prospects are assessed primarily through its strategic planning A S S E S S M E N T O F V I A B I L I T Y process. This process includes an annual review of the ongoing plan, led by the The Directors have assessed the viability of the Group over a three year period, CEO and the Group Holdings Board which ensures that all relevant functions are taking account of the Group’s current position and the potential impact of the involved. The Board participates fully in the annual process. Part of the Board’s Principal Risks documented in the strategic report. Based on this assessment, role is to consider whether the plan continues to take appropriate account the Directors have a reasonable expectation that the Company will be able to of the external environment including macroeconomic, political, social and continue in operation and meet its liabilities as they fall due over the three technological changes. year period ending 31 December 2021. In making this statement the Directors have considered the current financial position of the Group and the resilience The output of the annual review process is a set of objectives, an analysis of of the Group in the event of severe but reasonable scenarios. The modelling the risks that could prevent the plan being delivered, and a number of financial of these scenarios has taken into account the Principal Risks and their impact forecasts. The latest updates to the strategic plan were finalised in February on the business model, future performance, solvency and liquidity over the 2019 following this year’s review. This considered the Group’s current position period. On the basis that the Group has limited exposure to long-term financial and the development of the business as a whole over the next 3 years commitments the Directors have determined that the three year period is an appropriate period over which to provide its viability statement. As a result of this focus, detailed financial forecasts were also prepared for the 3 year period to 31 December 2021, so that 2 years and 9 months remains at V I A B I L I T Y S T A T E M E N T the time of approval of this year’s annual report. The first year of the financial Based on their assessment of prospects and viability above, the Directors confirm forecasts form the Group’s operating budget and is subject to regular review that they have a reasonable expectation that the Group will be able to continue throughout the year. The second and third year are in a reasonable level of detail, in operation and meet its liabilities as they fall due over the three year period and are flexed based on the actual results in year one. ending 31 December 2021. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 6 2 6 3 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSL E A D E R S H I P A N D E F F E C T I V E N E S S C O N T I N U E D B O A R D R O L E S A N D R E S P O N S I B I L I T I E S K E Y A C T I O N S B O A R D R O L E S A N D R E S P O N S I B I L I T I E S K E Y A C T I O N S > Responsibility for the overall management of the Group > Approval and regular review of the Group’s general commercial strategy > Changes to the structure, size and composition of the Board, following recommendations from the Nomination Committee > Development initiatives and long-term strategic options. Approval of the annual operating and capital expenditure > Approval of the Terms of Reference, membership of Board Committees, including the four existing committees S T R A T E G Y A N D M A N A G E M E N T budgets and any material changes to them > Oversight of the Group’s operations ensuring – competent and prudent management – sound planning – an adequate system of internal control – compliance with statutory and regulatory obligations. – adequate accounting and other records > Review of performance in light of the Group’s strategy, objectives, business plans and budgets and ensuring that any necessary corrective action is taken > Extension of the Group’s activities into new business or geographic areas > Any decision to cease to operate all or any material part of the Group’s business B O A R D M E M B E R S H I P A N D O T H E R A P P O I N T M E N T S – the Audit and Risk Committee, the Remuneration Committee, the Nomination Committee and the Disclosure Committee > Appointment and removal of the Directors of the Company and changes to their executive positions all on the recommendation of the Nomination Committee > Approval of the terms of reference of the Chairman, Senior Independent Director, Chief Executive and Executive Directors > Selection and appointment of the Chairman and Senior Independent Director following recommendations from the Nomination Committee > Ensuring adequate succession planning for the Board and senior management > The scope and extent of delegations to Directors or Board Committees > Appointment and removal of the Company Secretary > Appointment, re-appointment or removal of the external auditor to be put to shareholders for the approval, > Approval of the preliminary announcements of interim and final results and the interim management statements following recommendations from the Audit Committee F I N A N C I A L R E P O R T I N G following recommendations from the Audit and Risk Committee > Approval of the Annual Report and Accounts including the Remuneration Report, Directors’ Report and Corporate Governance Report; Summary Financial Statement and any interim financial statement following recommendations from the Audit and Risk Committee A N D C O N T R O L S > Approval of the dividend policy > Declaration of the interim dividend and recommendation of the final dividend > Approval of the remuneration of the auditors and terms of engagement, following recommendations from the Audit Committee R E M U N E R A T I O N and the Company Chairman to be delegated to the Remuneration Committee > Approval of the policy level of remuneration and terms of appointment of non-Executive Directors on the > Determining the remuneration policy, level of remuneration and terms of appointment for the Executive Directors > Approval of any significant changes in accounting policies or practices following recommendations from the Audit recommendation of the Executive Directors and the Company Chairman and Risk Committee C O M M U N I C A T I O N S > Approval of all circulars (including listing particulars) to shareholders > Approval of all resolutions and related documentation to be put forward to shareholders at a General Meeting. R I S K M A N A G E M E N T > Review and set risk appetite > Review procedures for detection of fraud and prevention of bribery > Approve annual assessment of effectiveness of risk and control processes > Approve levels of insurance coverage for JTC and the Directors and officers I N T E R N A L C O N T R O L S from the Audit Committee, including approving an appropriate statement for inclusion in the Annual Report > Ensuring maintenance of a sound system of internal control and risk management, following recommendation S T R U C T U R E A N D C A P I T A L > Changes relating to the Group’s capital structure including reduction of capital, share issues (except under employee share plans) and share buy-backs (including the use of treasury shares) > Major changes to the Group’s corporate structure including the making or receiving of any take-over bid or similar C O R P O R A T E G O V E R N A N C E M A T T E R S P O L I C I E S > Performance evaluation of the Board and that of its Committees and individual Directors at least once each year and reporting to shareholders on whether such performance evaluation had taken place and how it had been conducted > Determination of the independence of any Non-Executive Director or proposed Non-Executive Director. > Review of the Group’s overall corporate governance arrangements Approval of the Group’s policies and standards, including: > Key Financial and Non-Financial Risk and Control Policies > Guide to Ethical Business Practice (and related policies) > Whistleblowing Policy and Procedure > The acquisition or disposal of interests in the shareholding of a Group company or the acquisition of businesses NOT approved in accordance with the Group Development Committee policy and procedure M A J O R > Approval of the Group’s annual Budget T R A N S A C T I O N S > Capital expenditure of a Group company materially in excess of Budget > Revenue expenditure of a Group company materially in excess of Budget > Prosecution, defence or settlement of litigation being material to the interests of the Group corporate transaction and the entering into of material joint venture agreements E M P L O Y E E S H A R E S > Material changes to the rules of the Company pension schemes > Changes to the Group’s management and control structure > Any changes to the Company’s listing or its status as a public company A N D P E N S I O N > Establishing employee and other incentive schemes and any material changes to them S C H E M E S S U C C E S S I O N P L A N N I N G > Succession plans for Board and Committees, including selecting a Chairman, CEO and appointing a Senior Independent Non-Executive Director > Appointment of a Company Secretary A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 6 4 6 5 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSL E A D E R S H I P A N D E F F E C T I V E N E S S C O N T I N U E D B O A R D A C T I V I T Y D U R I N G T H E Y E A R P R I O R I T I E S F O R T H E Y E A R A H E A D 2 0 1 8 2 0 1 9 B O A R D C O N S I D E R A T I O N S A N D F O C U S A R E A S B O A R D C O N S I D E R A T I O N S A N D F O C U S A R E A S B U S I N E S S P L A N N I N G B U D G E T A P P R O VA L R I S K M O N I T O R I N G , O V E R S I G H T The 3 year business plan to 31 December The annual operating and capital expenditure A N D M I T I G A T I O N B U S I N E S S P U R P O S E A N D S T R A T E G Y B O A R D D I V E R S I T Y I N T E G R A T I N G C U L T U R E JTC endeavours to achieve appropriate It is impossible to overstate the importance 2020 codifies JTC’s strategy for organic budgets were reviewed and approved in JTC has a sophisticated and well-established We seek consistently and clearly to diversity, including gender diversity, of our people and culture in the success growth & strategic acquisitions, as articulated accordance with the Group’s 3 year business compliance and risk-management framework. communicate our strategy to ensure all throughout the Company. The Board is of JTC. We have long believed that culture to investors at IPO. The strategy was plan, with appropriate challenge made to The Board carried out a robust assessment of stakeholders understand how we deliver value. committed to take into account a variety of is the best foundation from which we reviewed in detail and management challenged on the strength of their planning, management on their key judgements and estimates in relation to financial reporting to the principal risks facing the Group, including those that would threaten its business model, In 2019 we will be giving further consideration as to how we articulate JTC’s wider purpose factors before making new appointments to the Board, including relevant skills to perform can collectively build a business for the long-term. Maintaining and investing in our and expectations for the future. ensure competent and prudent management, future performance, solvency or liquidity. as a business. the role, experience, knowledge and diversity. culture and people is a constant priority and sound planning. 2018 saw a number of important milestones. There are a number of new developments planned for 2019. M A R K E T D R I V E R S M & A P I P E L I N E A N D D E C I S I O N - M A K I N G S U C C E S S I O N P L A N N I N G T H R E E Y E A R B U S I N E S S P L A N Growth is primarily driven by demand for specialist In 2018 the Board reviewed a number of acquisition opportunities in light of the Group’s strategy We have started to refine our talent development and succession The business plan is the framework within which opportunities and outsourcing due to increased regulation, operational complexity, globalisation, emerging market wealth to supplement organic growth with value enhancing acquisition opportunities. Having determined their benefit to JTC, the Board was pleased to approve the acquisition of Van Doorn and the planning programme as a listed company and will continue to focus on this in coming years. The Non-Executive Directors have spent time with challenges facing the Group are evaluated, and all decisions on strategy and services, staff roles, financial management, budgeting process and creation & industry consolidation. JTC’s strategy is Minerva business, both of which were immediately accretive and met JTC’s criteria of ensuring that members of the senior management team to gain a deeper insight into core policies and procedures taken. Performance against the plan is kept reviewed and tested against these key drivers. acquisitions enhance the Group’s offering beyond the ‘numbers’. how we currently manage talent and remuneration, and this is expected under constant review. to increase in the coming year. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 6 6 6 7 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS L E A D E R S H I P A N D E F F E C T I V E N E S S C O N T I N U E D E F F E C T I V E N E S S : N O M I N A T I O N C O M M I T T E E P U R P O S E A N D C U L T U R E A L I G N E D Our purpose is to help maximise the potential of every client, colleague and partner with whom we work. At JTC we understand that the purpose of the business extends beyond economic value creation and is intimately linked to the culture, values and strategies of the Group. We operate in a complex international space and our services support capital flows, wealth creation and wealth preservation across the globe. We have a responsibility to conduct our business in a sustainable way working within legal and regulatory frameworks that are constantly developing and evolving. > For our clients, JTC’s services help them to navigate the challenges and complexity they face in the most effective and efficient ways. We help clients to maximise their potential by partnering with them for the long-term and delivering innovative solutions that add value and allow them to focus on their strengths and goals. M E M B E R S H I P O F T H E C O M M I T T E E In compliance with the Code, the Committee’s membership is limited to the Non-Executive Directors of the Company. There have been no changes in Committee membership since Admission. JTC (Jersey) Limited, the corporate Company Secretary, acts as secretary to the Committee. C O M M I T T E E M E M B E R S Michael Gray – Committee Chairman, Independent Non-Executive Director Mike Liston – Non-Executive Chairman Dermot Mathias – Senior Independent Non-Executive Director C O M M I T T E E M E E T I N G S I N 2 0 1 8 The Committee met twice during the year. Attendance by the Committee members at these meetings is shown below: 8 Mar 15 Nov Michael Gray (Chair) Mike Liston Dermot Mathias R O L E O F T H E C O M M I T T E E The Committee’s primary purpose is to develop and maintain a formal, rigorous and transparent procedure for identifying appropriate candidates for Board appointments and re-appointments and to make recommendations to the Board. In addition, the Committee is responsible for reviewing the succession plans for the Executive Directors and the Non Executive Directors. This involves: C H A I R O F T H E R E M U N E R A T I O N C O M M I T T E E M I C H A E L G R A Y N O M I N A T I O N C O M M I T T E E D E A R S H A R E H O L D E R S , > Keeping under review the leadership needs of the Group, both Executive On behalf of the Board I am pleased to introduce the Nomination Committee and Non-Executive, with a view to ensuring the continued ability of the > For our people, JTC’s culture of shared ownership makes (the “Committee”) Report for 2018. The members of the Committee are Group to compete effectively in the market-place every member of the team a direct stakeholder in the business and able to share in the success we achieve. Our meritocratic environment and support provided by the JTC Academy, JTC Gateway and JTC Wellbeing programmes have been created specifically to maximise the potential of every colleague. > For our partners, both commercial and social, JTC’s shared ownership culture is extended to the people that we work and live alongside every day. We help our commercial partners to maximise their potential by providing complementary services to our shared clients. For our social partners we give time, expertise and money to help individuals and groups achieve their aspirations and enjoy a better life. myself, the Senior Independent Non-Executive Director, Dermot Mathias, and > Regularly reviewing the structure, size and composition of the the Non-Executive Chairman, Michael Liston. We can confirm that we have Board to ensure it has an appropriate balance of skills, diversity, complied with the Code recommendations that the Committee comprises experience, knowledge and independence, and reporting and making a majority of Independent Non-Executive Directors. Myself and Dermot recommendations to the Board with regard to any changes Mathias are confirmed as independent for the purposes of the Code. JTC > Regularly assessing the knowledge, skills and experience of individual (Jersey) Limited, the corporate Company Secretary, acts as Secretary to the members of the Board and reporting the results to the Board Committee. By invitation, the meetings of the Committee may be attended by the Chief Executive and Chief Financial Officer. There have been no changes Further details on the Committee’s roles and responsibilities can be found in our in Committee membership since formation in March 2018. Terms of Reference on our website, at jtcgroup.com. M I C H A E L G R A Y N O N - E X E C U T I V E D I R E C T O R , C O M M I T T E E C H A I R M A N H I G H L I G H T S F R O M T H E Y E A R As part of the preparation for Admission, the Board appointed three Non-Executive Directors, selected on the basis of their industry and public company skills, knowledge and experience required for Board members as guided by the UK Corporate Governance Code. An external recruitment consultant was not engaged as part of the recruitment process, nor was there public advertising. Instead recommendations from the Company’s advisers were sought. An assessment of the candidates’ skills was undertaken and interviews were held with members of the Board and Senior Management on a one-on-one basis prior to appointment. A tailored induction programme was arranged for the Non-Executive Directors, both in the run-up to their appointment but also following the IPO as part of the strategy day held on 1 May 2018. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 6 8 6 9 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSE F F E C T I V E N E S S : N O M I N A T I O N C O M M I T T E E C O N T I N U E D C O M M I T T E E C O M P O S I T I O N A N D M E E T I N G P R I O R I T I E S F O R T H E C O M I N G Y E A R idea of stated gender quotas. However JTC endeavours to achieve appropriate L E A D E R S H I P A T T E N D A N C E We have started to refine our talent development and succession planning diversity, including gender diversity, throughout the Company. Two of our key risks are people focussed and they are: The first meeting of the Committee took place on 8 March 2018 for the purpose programme as a listed company and will continue to focus on this in the coming of reviewing the composition of the Board prior to Admission. The meeting on years. The Non-Executive Directors have spent time with members of the senior The Board acknowledges that there is currently relatively low representation of > The failure to retain high calibre, talented senior managers and other key 15 November focussed on succession planning, constitution of the Board and management team to gain a deeper insight into how we currently manage talent female employees at the most senior levels of the organisation. At Director level roles in the business Committees and the Board Diversity Policy. The Nomination Committee and the and remuneration, and this is expected to increase in the coming year. and above, this currently stands at 35% vs 65% in favour of male employees. > The failure to recruit or develop good quality people to achieve our Board are of the view that its size and composition as well as the mix of talents, quality and skills are well suited to JTC’s current circumstances and needs and D I V E R S I T Y At other levels of the business, gender representation is more representative with, strategic aims for example, middle management (Assistant Manager to Associate Director) allow for its efficient functioning as a decision-making body and promoting The Committee will take into account a variety of factors before recommending figures standing at 59% female and 41% male. In line with our Guiding Principles To assist with this, the Chief Operating Officer regularly meets with the sound governance. any new appointments to the Board, including relevant skills to perform the and our commitment to operating a meritocratic approach to career progression, Committee Chairman and has presented to the Committee on the Group’s role, experience, knowledge and diversity. The Board is generally opposed to the this will continue to have the attention of the Board to ensure that we have the succession planning and talent development programme. A regular review of B O A R D C O M M I T T E E A N D D I R E C T O R S ’ P E R F O R M A N C E E VA L U A T I O N C Y C L E 2 0 1 9 2 0 2 0 2 0 2 1 > Questionnaire > Questionnaire > In accordance with the provisions of the > One-to-one discussions between the > One-to-one discussions between the Code it is intended that the evaluation of Chairman and each director, and senior Chairman and each director, and senior the Board’s performance will be externally management, to solicit feedback management, to solicit feedback facilitated every 3 years (Code reference > Closed session discussion of the Board > Closed session discussion of the Board B.6.2). and Committee evaluations led by the and Committee evaluations led by the > An external evaluator has not yet been Chairman and Committee Chairs Chairman and Committee Chairs appointed. The Committee will select > Summary of evaluation results provided to > Summary of evaluation results provided a suitably qualified, experienced and the full Board to the full Board independent evaluator with consideration > Feedback actioned, policies and practices > Feedback actioned, policies and practices to providing comfort for shareholders that updated as necessary updated as necessary the Board has the necessary skills to run the Company as effectively as possible. appropriate level of diversity and balance throughout the organisation over time. succession planning takes place across the Group, with a particular focus given to The most important priority of the Committee has been and will continue to be supports the decisions about the organisation’s design and structure. The results ensuring that members of the Board should collectively possess the broad range of this review are incorporated into the succession planning process and the of skills, expertise and industry knowledge, and business and other experience Committee discusses the succession plan at least annually. senior executive succession. The process of documenting the Group’s Talent Map necessary for the effective oversight of the Group. P E R F O R M A N C E E VA L U A T I O N In addition to this, a forward looking review of the future anticipated shape of the organisation will be considered next year to identify any potential gaps As the Nomination Committee has only been established for a short time, a that may emerge and work to ensure the organisation’s design remains fit for formal performance evaluation has not been conducted. It is intended that a purpose. One of the elements of our People Plan has focussed on the continual performance evaluation will be conducted in 2019 and reported on in the development of the senior executive team to provide world class leadership to the Company’s 2019 Annual Report. Group. We encourage regular contact between members of the senior executive team and the Board, the intention is that all members of the senior executive D I R E C T O R S A N D T H E I R O T H E R I N T E R E S T S team will present to the Board at least once a year. Through acquisitions, In accordance with the Companies (Jersey) Law 1991, as amended, all Directors recruitment and internal promotion we are satisfied that we have an experienced who were interested in, or subsequently became aware of their interest in, a senior executive team, with clearly defined roles. transaction or proposed transaction with the Company or any of its subsidiaries, are required immediately to declare the nature and extent of such interest to the R E - E L E C T I O N Board of Directors. On the recommendation of the Committee and in accordance with the Company’s Articles of Association and with the Code, all currently appointed The Directors’ Register of Interests and Conflicts is maintained by the Company Directors will retire at the forthcoming AGM and offer themselves for re-election Secretary and is reviewed by the Directors at every Board meeting. by shareholders. Executive Directors may hold external directorships if the Board determines The Board recommends the re-election of each member of the Board based upon that such appointments do not cause any conflict of interest. Where such their skills, experience and contribution towards delivering the Group’s strategy appointments are approved and held, it is a matter for the Board to agree and delivering long-term value for stakeholders. whether fees paid in respect of the appointment are retained by the individual or paid to the Company. S H A R E H O L D E R E N G A G E M E N T T H E P R O C E S S W A S D I V I D E D I N T O F O U R S T A G E S : I am available to shareholders throughout the year and at the 2019 AGM to 1 1 2 2 3 3 4 4 The Nomination Committee periodically reviews the format of the Board answer questions on the work of the Committee. Committee and Directors’ performance evaluation programme to ensure that feedback is actioned. Evaluation 360˚ questionnaire Closed session discussions Feedback actioned and methodology set by the feedback and one-on-one of evaluations outcomes reported Nomination Committee interviews conducted M I C H A E L G R A Y N O M I N A T I O N C O M M I T T E E C H A I R M A N 2 April 2019 A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 7 0 7 1 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSA C C O U N T A B I L I T Y : A U D I T A N D R I S K C O M M I T T E E C H A I R O F T H E A U D I T A N D R I S K C O M M I T T E E D E R M O T M A T H I A S M E M B E R S H I P O F T H E C O M M I T T E E T H E R O L E O F T H E C O M M I T T E E The Committee is satisfied that the Group has robust internal controls. However, The Committee’s members are all Non-Executive Directors, and therefore the The Board has delegated to the Committee responsibility for overseeing financial given the growth in scale and geographic range of its operations the Group will Committee make-up complies with the Code. There have been no changes reporting, review and assessment of the effectiveness of the internal control and be reviewing the need for a dedicated internal control function during the course in Committee membership since the IPO in March 2018. Members’ skills and risk management systems and maintaining an appropriate relationship with the of the year. experience are documented on page 58 and 59. The Board is satisfied that External Auditor. the Committee meets the requirement to have recent and relevant financial E X T E R N A L A U D I T experience and that as a whole we have sufficient experience of the sector. In order to fulfil these responsibilities, the Committee’s duties include the following: The Group’s auditors are PricewaterhouseCoopers CI LLP, and they were re- C O M M I T T E E M E M B E R S > Monitoring the integrity of the consolidated financial statements 2018. The Committee has recommended to the Board that a resolution to Dermot Mathias – Committee Chairman, Senior Independent > Reviewing and challenging the application of accounting policies, reappoint PwC for the 2019 financial period be prepared and presented to Non-Executive Director Mike Liston – Non-Executive Chairman including estimates and judgements made by management, and the shareholders. The audit partner is Mike Byrne, who has been the partner on the clarity and completeness of disclosures engagement since 2016. The Committee has reviewed the quality of the audit Michael Gray – Independent Non-Executive Director > Reviewing and assessing the internal audit function including approval of plan and related reports for the 2018 audit and is satisfied with the quality of C O M M I T T E E M E E T I N G S I N 2 0 1 8 > Overseeing the relationship with the External Auditor The Committee met four times during the year. Attendance by the Committee > Monitoring the effectiveness of the Company’s internal financial controls The Committee will review the effectiveness and quality of PwC’s 2018 year-end members at these meetings is shown below: and risk management systems > Giving due consideration to applicable laws and regulations 2 May 20 Jul 17 Sep 15 Nov audit, which will be the first year-end audit following the Listing. This review is intended to cover the quality of the service being provided, the competence of the staff and their understanding of the business and related financial risks. any appointments and the scope of their remit these documents. appointed as statutory auditor to the Group for the year ended 31 December A U D I T A N D R I S K C O M M I T T E E Dermot Mathias (Chair) Mike Liston Michael Gray D E A R S H A R E H O L D E R S On behalf of the Board I am pleased to present this Audit and Risk Committee Report for the year ended 31 December 2018 which summarises our activities since the Committee was formed in March 2018, as well as setting out intended key areas of focus in 2019. Since formation, the Committee’s primary focus has been to ensure the integrity and transparency of external financial reporting as a public company, as we published the interim condensed consolidated financial statements in September 2018, and to put in place a work plan for the year ahead. D E R M O T M A T H I A S C H A I R O F T H E A U D I T A N D R I S K C O M M I T T E E At my request, meetings are attended by the External Auditor and members of the Senior Management team. The Committee met separately with the Auditors without Executive Management being present. I have met privately with the External Auditor and to discuss any matters they may wish to raise. The Committee is satisfied that the External Auditor remains independent and objective in their work. During the year the Executive Directors attended Committee meetings by invitation, together with other Senior Managers to discuss matters such as internal control and IT controls security. Meeting agendas are linked to the financial calendar and to an annual plan which was prepared prior to the Listing. The annual plan was devised to ensure that we cover the requirements as documented in our Terms of Reference. This annual plan is dynamic and therefore will evolve when the Committee feels that there is a need for greater focus on a specific area. JTC (Jersey) Limited, our corporate Company Secretary, acts as Secretary to the Committee and I am satisfied that the Committee received information on a timely basis and that meetings were scheduled adequately to allow members to have an informed debate. In 2019, we would expect the Chief Risk Officer to attend all Audit and Risk Committee meetings. Further details on the Committee’s roles and responsibilities can be found in our The Committee has reviewed the independence of the External Auditor and Terms of Reference on our website at jtcgroup.com. concluded that it complies with UK regulatory and professional requirements R I S K A S S E S S M E N T and that its objectivity is not compromised. As a Jersey incorporated company JTC is not required to comply with the Competition and Markets Authority The principal risks and uncertainties facing the Company are set out in the Risk requirement in relation to audit tenders every 10 years. The Committee Management report section of the Strategic Report on pages 33 to 34. will, however, continue to keep this under review as part of their review of effectiveness of the External Auditor . The Board has delegated the day-to-day responsibility for designing, operating and monitoring the internal control and risk management framework and The Committee ensures that the auditors are not awarded non-audit work if systems to the senior management team. The Committee evaluates the risk and there is a risk that it might impair the objectivity and independence of the audit. control arrangements, reporting to the Board. The Committee is satisfied that The award of non-audit work to the External Auditor s of £10,000 or more there is robust review of the risks and that controls of significant risks operate is subject to the prior approval of the Committee. Other than in exceptional effectively. Based on the review performed, the Board has concluded that they circumstances non-audit fees should not exceed 50% of audit and assurance fees have not identified any significant failings or weaknesses during the year over a 3 year rolling period. I N T E R N A L C O N T R O L S A U D I T F E E S The Group does not have a formal internal audit function and the Group Risk Fees payable to the Auditor for audit and non-audit services are set out in note 8 Committee is responsible for overseeing the Group’s internal risk audit and to the Financial Statements on page 116. Total fees related to non-audit services accreditation arrangements. It manages the remit of the Group Risk Function’s audit of each regulated jurisdiction’s risk management and compliance processes, as part of the JTC Compliance Monitoring Plan. The Group Risk Function also routinely carries out spot checks on the different jurisdictions to ensure compliance and adherence to these procedures. JTC has been ISAE 3402 Type I certified since 2013 and in 2016 the Jersey head office and Global Service Centre in South Africa were both awarded ISAE 3402 Type II certification. represented 9.8% of the total fees for audit services A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 7 2 7 3 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS A C C O U N T A B I L I T Y : A U D I T A N D R I S K C O M M I T T E E C O N T I N U E D H I G H L I G H T S F R O M T H E Y E A R P R I O R I T I E S F O R T H E C O M I N G Y E A R The Committee’s key activities during year included the following: The Committee’s priorities for 2019 include the following: > The Committee reviewed the content and tone of the half year and > Assessing the effectiveness of key controls annual results. The Chief Financial Officer provided a commentary on > Review of the Whistleblowing Policy the draft results, financial position and key estimates and judgements. > Consider need for internal audit function The Executive Directors confirmed to the Committee that they were > Cyber-security update not aware of any material misstatements in the half year and annual results, and the Auditors confirmed that they had found no material The Committee recognises that it is imperative JTC remains aligned with relevant misstatements in the course of their work. After reviewing the reports IT security regulations and rules to ensure that the risk to JTC’s information from management and, following discussions with the External Auditor systems posed by a variety of cyber threats is minimized. In 2019 our IT security and valuers, the Committee was satisfied that: the financial statements strategy will be further enhanced by the employment of an IT security specialist, appropriately addressed the critical judgements and key estimates, both with specific qualifications and experience providing an additional layer of in- in respect of the amounts reported and the disclosures; and the Group house expertise. We have successfully recruited an individual to perform that has adopted appropriate accounting policies. role and they started with us in March 2019. > Reviewing and then reporting to the Board on the audit plan and strategy, the effectiveness of the External Auditor , the appropriateness of non-audit fees, risk management and controls, the viability statement Moving into 2019, we will continue to discuss and give appropriate challenge to management on their key judgements and estimates in relation to financial and going concern. reporting, and to review and assess the risk management systems and processes > Reviewing the extent to which the Annual Report is fair balanced and and cyber security arrangements to ensure that they are appropriately robust understandable. This involved reviewing whether the Report was honest and aligned with the growth of the business. The Committee will also review the about successes and failures, balances Alternative Performance Measures requirement for an enhanced internal audit function. with IFRS disclosures and has been written in a straightforward manner > The Group has implemented a whistleblowing policy and procedure E F F E C T I V E N E S S which is designed to encourage staff to report suspected wrongdoing The performance of the Committee will be formally considered as part of the as soon as possible, in the knowledge that their concerns will be taken wider Board effectiveness review in 2019. In the meantime we believe that the A C C O U N T I N G F O R A C Q U I S I T I O N S seriously and investigated as appropriate. The policy ensures that their Committee continues to operate effectively. confidentiality will be respected and reassures staff that they should be able to raise genuine concerns in good faith without fear of reprisals, S H A R E H O L D E R E N G A G E M E N T even if they turn out to be mistaken. It also provides staff with guidance I welcome questions from shareholders on the Committee’s activities. If you on how to raise those concerns. The Committee is scheduled to review wish to discuss any aspect of this report, please contact me via the Company the whistleblowing policy and procedure in May 2019. Secretary. I will be attending the 2019 AGM and look forward to meeting 2 0 1 8 D E V E L O P M E N T S Steven Bowen was appointed to the role of Chief Risk Officer in November. Steven joined the Group as part of the Minerva acquisition having been Minerva’s Group Managing Director. As Chief Risk Officer Steven has responsibility for oversight and the day to day management of the Risk, Compliance and Treasury functions across the Group, reporting directly to the Committee. you there. I would like to thank the other members of the Committee, management and our External Auditor s for their support during the year. D E R M O T M A T H I A S C H A I R M A N – A U D I T A N D R I S K C O M M I T T E E 2 April 2019 S I G N I F I C A N T I S S U E S A N D A C C O U N T I N G J U D G E M E N T S R E V E N U E R E C O G N I T I O N , A C C R U E D I N C O M E A N D T R A D E R E C E I VA B L E S A C T I O N T A K E N B Y T H E C O M M I T T E E / B O A R D Management maintains key controls over the largely quarterly billing cycles. The timings of the billing cycle are arranged to minimise accrued income balances at key reporting dates and thus give greater certainty over income which is still to be converted into cash. Management assesses the recoverability of all receivables at the year end and attest to the quality of assets considering past experience of the client, client type and liquidity issues of the client. We agreed with management’s assessment that no additional provision for losses or impairment either to accrued income or trade receivables was needed. E VA L U A T I O N We considered the results of Management’s impairment assessment which reviews triggers for impairment around O F I M P A I R M E N T asset lives, valuation and verification of assets. We considered the judgements taken in relation to asset lives and the O F I N T A N G I B L E methodology applied to consider asset verification and we were satisfied that no changes in treatment were needed. A S S E T S I N C L U D I N G With regards to Goodwill, we consider the judgements taken in relation to short and long term growth rates and discount G O O D W I L L A N D rates used and we were again satisfied that no changes in treatment were needed. U S E F U L L I F E O F I N T A N G I B L E A S S E T S H A R E B A S E D P A Y M E N T S We have reviewed the methodology used for the accounting of share based payments and are comfortable with the assessment by management as to the number of shares expected to vest under the terms of the Performance Share Plan and Restricted Stock Awards. In doing so we have reviewed and are satisfied with management judgements and expectations around the achievement of performance targets. We have reviewed the judgements made and used by management in the allocation of the purchase price of the acquisition completed during the year. We are satisfied that the overall allocations between goodwill and identifiable intangible assets are reasonable and also the estimated useful lives of customer and contract intangibles. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 7 4 7 5 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSE N G A G I N G W I T H O U R O T H E R S T A K E H O L D E R S 1 3 5 O U R S T A K E H O L D E R S A N D H O W W E R E S P O N D T O T H E I R N E E D S 1 . C L I E N T S 3 . I N T E R M E D I A R I E S 5 . R E G U L A T O R S W H Y I T I S I M P O R T A N T T O E N G A G E W H Y I T I S I M P O R T A N T T O E N G A G E W H Y I T I S I M P O R T A N T T O E N G A G E Clients are the lifeblood of the business. The nature of our service offering As an independent administrator, we are able to offer best-in-class services We operate in a highly regulated market on a global scale and are means that we nurture and value long-term relationships, partnering with to the clients of intermediary partners that are complementary to their currently registered, regulated or licensed by fourteen different regulatory our clients to help them grow and achieve their aims. Client relationships own services. We seek to form long-term relationships with intermediaries, bodies. We believe it is important to work collaboratively with regulators typically last at least five years, with many lasting well over a decade and working to achieve mutually beneficial commercial growth. to help secure a positive and sustainable future for the industry. can even be multi-generational. 2 O U T C O M E O F E N G A G E M E N T By working with a range of high quality intermediaries we are able to grow By forming appropriate and engaged relationships with our regulators By taking an entrepreneurial approach and delivering a first class service the business organically, especially in terms of winning new clients and we are able to offer an even better and more informed service to our with a can-do attitude, we are able to retain and grow our clients in a way also offer our clients access to a wide range of ancillary services from top- clients, mitigating risk by ensuring compliance with all relevant standards, O U T C O M E O F E N G A G E M E N T O U T C O M E O F E N G A G E M E N T that adds value and is mutually beneficial. class providers. H O W W E E N G A G E H O W W E E N G A G E regulations and laws. H O W W E E N G A G E We take a Director-led approach to client requirements and assemble We proactively develop, manage and monitor relationships with our We take a disciplined, timely and proactive approach in monitoring bespoke teams to meet the individual needs of each client. We pro-actively intermediary partners, focussing on relationships and complementary regulatory updates and responding to any regulatory requests and monitor service levels and seek direct feedback through mechanisms such services and using technology, such as Salesforce CRM, to make our requirements. We work closely and transparently with regulators as client testimonials, client referrals and our JTC Ambassador Programme. engagement as efficient as possible. as circumstances dictate, including on convened working parties and through local professional associations. 4 2 . E M P L O Y E E S 4 . C H A R I T I E S 6 . G O V E R N M E N T B O D I E S W H Y I T I S I M P O R T A N T T O E N G A G E W H Y I T I S I M P O R T A N T T O E N G A G E W H Y I T I S I M P O R T A N T T O E N G A G E Our people are our most valuable asset and sit at the heart of the business. The jurisdictions and countries where we operate are more than just the JTC has a global footprint and currently operates 20 offices in 17 different They hold the talent, expertise and energy to meet and exceed our clients’ homes of our clients, they are the homes of our employees, their families jurisdictions and we market our services in many more countries. expectations and help the Group achieve its long-term goals. and their communities. Engaging with charities around the world, and in The long-term success of our business is enhanced through engagement particular in the markets where our operations are most substantial, is an with relevant government bodies, including promotional bodies for the O U T C O M E O F E N G A G E M E N T important way of giving back to those communities. financial services sector, as well as bodies that relate to employment, Through our Shared Ownership culture and Guiding Principles we aim to environmental, social and governance matters. help every member of the team maximise their individual potential, enjoy O U T C O M E O F E N G A G E M E N T a balanced life and have the opportunity to share directly in the long-term Engaging directly with charities, both as JTC and where relevant on behalf O U T C O M E O F E N G A G E M E N T growth and success of JTC. H O W W E E N G A G E of our clients, allows us to support the communities where we operate and make a difference to people’s lives. We believe in maximising the potential By engaging directly with government bodies we are able to contribute to the countries and markets where we operate and positively represent the of the individual and this provides a focus for our charitable engagement interests of JTC and its clients. We take a long-term partnership approach 6 Our engagement is supported by three constantly evolving programmes. and giving. JTC Academy for learning and development, JTC Gateway for global mobility opportunities and JTC Wellbeing for physical, emotional and H O W W E E N G A G E and respect the value and opportunity that comes from participating in each market where we do business. mental good health. All of these are supported and underpinned by our We take an employee-led approach to charitable giving and seek to get H O W W E E N G A G E Ownership for All programmes. involved with both international and local organisations that benefit the We engage directly through membership of government trade bodies as people and communities where we work. We also recognise the value of well as contributing both time, expertise and experience to groups such as our client and intermediary relationships and where appropriate seek to policy working parties. We also directly contribute to the public finances support their charitable endeavours also. of the countries where we operate by ensuring timely payment of our relevant tax liabilities A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 7 6 7 7 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS R E L A T I O N S W I T H S H A R E H O L D E R S R E M U N E R A T I O N C O M M I T T E E : C H A I R M A N ’ S L E T T E R O V E R V I E W O F T H E A C T I O N S T A K E N R E S E A R C H C O V E R A G E T O E N G A G E W I T H S H A R E H O L D E R S Currently, five analysts are actively tracking us and they regularly publish equity > Over 90 meetings with investors and potential investors in the year, research reports on JTC: Numis, Zeus, Citi, HSBC and N+1 Singer. Their details including portfolio tours can be found at: jtcgroup.com > Chairman and Senior Independent Director available to Shareholders > Regular updates on shareholder meetings provided to Board A N N U A L A N D H A L F - Y E A R R E P O R T I N G > Accessible AGM with voting on a poll, separate resolutions and proxy JTC’s financial year runs from 1 January to 31 December. We provide trading voting (for, against or withheld) updates for the first half of each year, interim financials for the half year and full > Committee Chairs available at AGM to answer questions audited financial statements for year end. > Notice sent out at least 21 clear days before meeting The aim of JTC’s investor relations programme is to maintain open, transparent calls/webcasts for Shareholders , analysts and financial journalists that can be When publishing financial results and trading updates, JTC holds conference and timely communication with our current and prospective Shareholders . accessed through our website: jtcgroup.com The foundations for this ongoing dialogue were laid through the listing process and we look to enhance this in 2019 and beyond. F I N A N C I A L C A L E N D A R 2 0 1 9 C H A I R O F T H E R E M U N E R A T I O N C O M M I T T E E M I C H A E L G R A Y M E M B E R S H I P O F T H E C O M M I T T E E In compliance with the Code, the Committee’s membership is limited to the Non-Executive Directors of the Company. There have been no changes in Committee membership since Admission. JTC (Jersey) Limited, the corporate Company Secretary, acts as secretary to the Committee. C O M M I T T E E M E M B E R S Michael Gray – Committee Chairman, Independent Non-Executive Director Michael Liston – Non-Executive Chairman Dermot Mathias – Senior Independent Non-Executive Director C O M M I T T E E M E E T I N G S I N 2 0 1 8 The Committee met three times during the year. Attendance by the Committee members at these meetings is shown below: The Group’s financial calendar showing all key events may be viewed at: jtcgroup.com 2 May 17 Sep 15 Nov We aim to provide all relevant information to assist investors in making well- informed investment decisions and every effort is made to ensure that the information disclosed is accurate, complete and timely. M A J O R S H A R E H O L D E R S Rank Shareholder Briefing meetings have been held with analysts and institutional Shareholders, primarily following the announcement of the interim results but also at other times during the year. JTC is committed to maintaining a strong relationship with our Shareholders and the wider investment community. Our communication and engagement with Shareholders over the last 12 months included investor roadshows. All Shareholders had the opportunity to engage with senior management either at these events, directly or at our Annual General Meeting. 1 2 3 4 5 6 7 8 9 Mr Nigel Le Quesne Fidelity Management & Research Aberdeen Standard Investments (Standard Life) Merian Global Investors 12 West Capital Management Invesco Perpetual Asset Management Franklin Templeton Investments Slater Investments FIL Investment International 10 Liontrust Asset Management The CEO and CFO provide the Board with feedback from investor and analyst meetings, in addition to the formal feedback obtained from analysts and * As at 31 December 2018 institutional Shareholders via our brokers and PR advisors. No. of Shares* 10,444,128 8,501,232 7,723,972 6,752,250 6,305,270 6,067,915 5,319,564 4,406,280 4,362,463 3,903,737 % 9.42 7.67 6.97 6.09 5.69 5.47 4.80 3.97 3.93 3.52 Michael Gray (Chair) Michael Liston Dermot Mathias R E M U N E R AT I O N C O M M I T T E E The key aims of the Group’s remuneration policy are to: D E A R S H A R E H O L D E R S , As Chair of the Remuneration Committee, I am pleased to present our report covering JTC’s Remuneration Policy and practice since becoming a listed company. Prior to Admission, the Group undertook a review of JTC’s senior executive remuneration policy (including the Executive Directors). This review paid particular regard to practice in the listed company environment, and in undertaking the review the Remuneration Committee sought independent, specialist advice. The Committee has reviewed and built on the remuneration work undertaken by the Board in the lead up to the IPO, as published in the prospectus. The Remuneration Policy set out in this Annual Report is intended to incentivise and motivate the Executives to achieve the Company’s strategic goals. We also believe the approach is structured to encourage the leadership team to act in your best interests as shareholders. M I C H A E L G R A Y C H A I R O F T H E R E M U N E R A T I O N C O M M I T T E E > Promote the long-term success of the Company > Attract, retain and motivate high calibre senior management and to focus them on the delivery of the Group’s long-term strategic and business objectives > Be simple and understandable, both externally and to colleagues > Achieve consistency of approach across the senior management population to the extent appropriate and informed by relevant market benchmarks > Encourage widespread equity ownership across the executive team to ensure a long-term focus and alignment of interest with Shareholders The Remuneration Policy came into force with effect from Admission and is structured broadly in line with those of other UK listed companies of a similar size and complexity, whilst seeking to avoid making unnecessary changes to the Group’s established remuneration arrangements where this was not warranted. The Remuneration Committee has decided, as a matter of good corporate governance, to adhere to the requirements of the UK remuneration reporting regulations whenever practicable although, as a Jersey registered company, the Company is not technically required to do so. At the Company’s first Annual General Meeting there will be a single advisory vote on the Remuneration Policy and the Annual Report on Remuneration as the Remuneration Policy will continue to apply in 2019. This Report lays out the principles of our proposed Remuneration Policy, how we have operated it since the IPO and how we plan to operate it in future. The Annual Statement sets out an overview of 2018. This is followed by the Remuneration Policy and, finally, the Annual Report on Remuneration, set out on pages 81 to 85 to this Annual Report, which provides greater detail of the amounts paid in 2018 and how the Remuneration Policy is intended to be implemented in 2019. I hope you find the information contained in the Report to be clear and informative. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 7 8 7 9 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS R E M U N E R A T I O N C O M M I T T E E : C H A I R M A N ’ S L E T T E R C O N T I N U E D R O L E O F T H E C O M M I T T E E Shareholders should note that the Committee will closely monitor the salary and The Committee’s primary role is to review and set the Remuneration Policy for total remuneration for the CEO and CFO and reserves the right to make increases the Executive Directors and certain other members of senior management. It also in excess of typical market practice if it considers it necessary and appropriate. approves discretionary performance-related awards to Executive Directors and senior management. The Committee’s full Terms of Reference may be viewed Salary for the CEO in 2018 was set at £360,000 per annum and at £275,000 per on JTC’s website. The CEO, CFO and other senior members of JTC’s management annum for the CFO. Increases of 9% are proposed for 2018 to £392,400 for the team may attend by invitation. CEO and £300,000 for the CFO. R E M U N E R A T I O N P O L I C Y I N T R O D U C T I O N A P P O I N T M E N T O F E X T E R N A L A D V I S E R S E M P L O Y E E S H A R E O W N E R S H I P This section sets out JTC’s Remuneration Policy for Executive and Non-Executive KPMG was appointed as external adviser to the Committee to provide Widespread employee share ownership has always been and remains an integral Directors. The policy will be subject to a binding shareholder vote at the 2019 independent support and information as required. KPMG’s fees for 2018 part of JTC’s culture. All JTC employees contribute to our success and we believe AGM and, subject to Shareholder approval, will become effective from the amounted to £120,000. In addition, KPMG have provided tax advisory services that extending share ownership throughout the Company enhances engagement date of the AGM. Subject to Shareholder approval, the Remuneration Policy is to the Group. and performance. In keeping with this ethos, the Committee approved the budget intended to remain in effect for three years from the 2019 AGM. P R I N C I P A L A C T I V I T I E S I N 2 0 1 8 of JTC team members with an aggregate value of £150,000. These awards are The Remuneration Committee has decided, as a matter of good corporate In the lead-up to Admission, in anticipation of becoming a PLC, the Board expected to be made in April 2019. reviewed certain aspects of senior remuneration to ensure an appropriate remuneration structure and strategy was in place. F O C U S F O R 2 0 1 9 governance, to adhere to the requirements of the UK remuneration reporting regulations whenever practicable although, as a Jersey registered company, the Company is not technically required to do so. The UK remuneration reporting In the coming year the Remuneration Committee will consider a number of regulations contain provisions which make Shareholder approval of the policy for a grant of discretionary nil cost share awards under the DBSP to a wide range Following the listing, the principal activities were as follows: matters including: of UK-incorporated companies binding. As the Company is not UK incorporated those provisions have no legal effect. However, the Company has taken steps > Reviewed and approved the Terms of Reference of the Committee > Assessment of Group performance against 2019 budget and to limit the power of the Remuneration Committee so that, with effect from > Reviewed the JTC Remuneration Policy determination of bonus awards the date on which the policy on remuneration is approved by Shareholders, the > Reviewed the annual salaries for the Executive Directors for 2018 and > Approval of bonus performance measures and targets for 2019 Committee may only authorise payments to Directors that are consistent with approved increases for 2019 > Approval of performance conditions and awards under the 2019 PSP the policy as approved by Shareholders. In that way the Company considers the > Reviewed the annual bonus targets for the Executive Directors for 2018 > Review of any issues raised by shareholders in relation to remuneration vote of Shareholders on the policy to be binding in its application. and measured performance against them and the Remuneration Policy > Agreed the annual bonus targets for the Executive Directors for 2019 > Assessment of the ongoing appropriateness of the remuneration The Policy explains the purpose and principles underlying the structure > Approved awards to employees under the Long-Term Incentive Plans arrangements in light of remuneration trends and market practice of remuneration packages and how the Policy links remuneration to the (LTIP), with appropriate performance measures, bonus deferral shares and achievement of sustained high performance and long-term value creation. malus and claw-back provision The Committee believes that the total remuneration package for each R E M U N E R A T I O N P O L I C Y O V E R V I E W remuneration. It will seek to reward personal and corporate outperformance retain high calibre colleagues necessary for business success whilst ensuring that: Executive Director represents an appropriate balance between fixed and variable Overall remuneration is structured and set at levels to enable JTC to recruit and The principal objectives of the Company’s Remuneration Policy are to attract, whilst ensuring overall awards are broadly in line with FTSE 350 levels. retain and motivate the Group’s Executive Directors and senior management, provide incentives that align with, and support, the Group’s business strategy as R E S O L U T I O N S A T T H E A G M > Our reward structure, performance measures and mix between fixed and variable elements is comparable with similar organisations it evolves, and align incentives with the creation of long-term Shareholder value. Shareholders will be asked to vote on our Remuneration Policy on page 81 > Rewards are aligned to the strategy and aims of the business The Remuneration Committee oversees the implementation of this policy and seeks to ensure that the Executive Directors are fairly rewarded for the Group’s to 85 of this Annual Report, which will remain in place for three years from the date of approval, and on the Annual Report on Remuneration at the 2019 > The approach is simple to communicate to participants and Shareholders > Particular account has been taken of structures used within FTSE 350 performance over the short, medium and long term. Taking typical practice into AGM. The vote on the Remuneration Policy will be binding and the vote on companies, and other comparable organisations account, the Committee has decided that a significant proportion of potential the Remuneration Report will be advisory. I look forward to your support on total remuneration should therefore be performance-related. In readiness for both resolutions. Admission, the Committee approved the rules for a Performance Share Plan (“PSP”), a Deferred Bonus Share Plan (“DBSP”) and an Employee Incentive Plan I would like to thank the other members of the Committee, management and (“EIP”). Basic salary, bonus and PSP levels were agreed for the Executive Directors the Group’s employees for their support during the year. taking into account their service with JTC and experience in the role. Prior to Admission a benchmarking exercise was conducted to establish expected remuneration for both executive positions. It was concluded that the proposed salaries were low in comparison to the market and the nature and complexity of the business and their roles. It was agreed, therefore, that the salaries would be reviewed following the first year of trading as a listed company, with any disparity being addressed by way of incremental increases over the next two years in accordance with the standard JTC salary review cycle. M I C H A E L G R A Y C H A I R O F T H E R E M U N E R A T I O N C O M M I T T E E 2 April 2019 A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 8 0 8 1 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS R E M U N E R A T I O N P O L I C Y C O N T I N U E D F I X E D E L E M E N T S O F R E M U N E R A T I O N F O R E X E C U T I V E D I R E C T O R S E L E M E N T O F R E M U N E R A T I O N P U R P O S E A N D L I N K T O C O M P A N Y S T R A T E G Y O P E R A T I O N M A X I M U M O P P O R T U N I T Y E L E M E N T O F R E M U N E R A T I O N P U R P O S E A N D L I N K T O C O M P A N Y S T R A T E G Y O P E R A T I O N M A X I M U M O P P O R T U N I T Y P E R F O R M A N C E M E T R I C S Provides a set level of The Committee takes into account a number There is no set maximum to salary levels Variable remuneration that Objectives are set annually Up to 50% of salary in Awards are based on financial, remuneration sufficient to of factors when setting and reviewing salaries, or salary increases. Account will be taken rewards the achievement of based on the achievement 2018 for the CEO and CFO. operational and individual attract and retain Executives including: with the appropriate of increases applied to colleagues as a whole when determining salary increases annual financial, operational of strategic goals. In the event the Executive goals set at the start of the and individual objectives At the end of the year, Directors are in receipt of year. The Committee reserves experience and expertise. > Scope and responsibility of the role for the Executive Directors. However, integral to Company strategy. the Committee meets to a bonus equating to more the right to make an award of S A L A R Y > Any changes to the scope or size of the role the Committee retains the discretion > The skills and experience of the individual to award higher increases where it > Salary levels for similar roles within considers it appropriate, especially appropriate comparators where salary at the outset has been set > Value of the remuneration package at a relatively low level. as a whole A N N U A L B O N U S Provides benefits sufficient to Executive Directors are entitled to the The Committee recognises the need attract and retain Executives following benefits: with the appropriate experience and expertise. > Life assurance B E N E F I T S > Pension contributions > Private medical insurance to maintain suitable flexibility in the benefits provided to ensure it is able to support the objective of attracting and retaining personnel in order to deliver the Company strategy. The maximum review performance against than 50% of their base a different amount produced the agreed objectives and salary then this additional by achievement against the determines payout levels. amount will be deferred measures if it believes the into the DBSP for a further outcome is not a fair reflection three years. of Company performance. The split between these performance measures will be determined annually by the Committee. Variable remuneration Awards granted under Up to 75% of salary Performance measures are designed to incentivise and the PSP vest subject in 2018 for the CEO currently EPS and relative reward the achievement to achievement of and CFO. Up to 25% TSR, with equal weighting > Certain de minimis benefits in kind will be set at the cost of providing the of long-term targets performance conditions of salary in 2018 for given to each measure. Executive Directors are also eligible to participate in the annual bonus plan and long term incentive plan. benefits described. One-off payments such as legal fees or outplacement costs may also be paid if it is considered appropriate. aligned with shareholder measured over a three-year Senior Management. The Committee reserves the interests. The LTIP also period. PSP awards may be right to adjust the measures provides flexibility in the made as conditional share In any financial year, the before awards are granted retention and recruitment of awards or in other forms total market value of to reflect relevant strategic P E R F O R M A N C E Executive Directors. (e.g. nil cost options) if it shares over which awards targets. The Committee Provides pension Executive Directors are eligible to receive Up to 10% of salary per annum. P E N S I O N S attract and retain Executives Occupational Retirement plan. contributions sufficient to employer contributions to the Group S H A R E P L A N ( “ P S P ” ) with the appropriate experience and expertise. is considered appropriate. can be made under the PSP reserves the right to adjust Accrued dividends may to any participant cannot the outcome produced by be paid in cash or shares, normally exceed 150% of achievement against the to the extent that awards their annual base salary, measures if it believes the vest. The Committee but the plan rules will outcome is not a fair reflection may adjust and amend allow the Remuneration of Company performance. awards in accordance Committee the discretion with the PSP rules, malus to award up to 250% and clawback provisions. of annual base salary in may be applied in exceptional circumstances. exceptional circumstances. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 8 2 8 3 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSR E M U N E R A T I O N P O L I C Y C O N T I N U E D E L E M E N T O F R E M U N E R A T I O N P U R P O S E A N D L I N K T O C O M P A N Y S T R A T E G Y O P E R A T I O N M A X I M U M O P P O R T U N I T Y P E R F O R M A N C E M E T R I C S The Company attaches All employees of the The DBSP is designed The vesting of an award considerable importance to Company and its to incentivise high and receipt of shares may be the role of performance- subsidiaries including performance and may subject to the achievement of based bonuses to drive Executive Directors will include further financial other conditions to be set by profitability and business be eligible to participate and non-financial the Remuneration Committee growth and to the importance in the DBSP. It is currently performance measures, at the date of grant. of the senior managers’ intended that Executive the precise measures and interests being aligned with Directors, Senior Managers targets will be reviewed the interests of shareholders. and certain managers by the Remuneration Executive Directors and Senior below Senior Manager level Committee each year. D E F E R R E D B O N U S S H A R E P L A N ( “ D B S P ” ) Management are eligible for will participate. an annual bonus designed to incentivise high performance The Executive Directors will based on financial and participate to the extent non-financial performance that their annual bonus measures. In line with market exceeds 50% of their base practice, a portion of the year annual salary. bonus due, as determined by the Remuneration Committee, may be required to be deferred into shares before it is paid. In addition, certain managers below Executive Director and Senior Management level may be selected to participate in the DBSP. E M P L O Y E E I N C E N T I V E P L A N The Company attaches All employees of the The EIP will not include The EIP is designed to considerable importance to Company and its any individual limits but incentivise high performance the role of performance- subsidiaries (excluding all it is intended that, except and may include financial and based bonuses to drive Executive Directors and potentially in exceptional non-financial performance profitability and business Senior Managers) will cases, awards would measures, the precise growth and to the importance be eligible to be granted typically be a fraction of measures and targets will be of wider all employee share an award under the the participant’s salary. reviewed by the Committee and/or performance based EIP at the discretion of incentives to align employees’ the Committee. interests with the interests of shareholders. The EIP has Executive Directors and been adopted to further Senior Managers are not those aims. be eligible to participate in the EIP. each year. N O T E S T O T H E P O L I C Y T A B L E The Remuneration Committee recognises that it may be necessary in some All PSP awards made in respect of the 2018 financial year onwards to Executive circumstances to provide compensation for amounts foregone from a previous Directors are subject to malus and claw-back provisions. The Committee may, employer (‘buyout awards’). Any buyout awards would be limited to what is felt in its absolute discretion, determine to reduce the number of shares to which to be a fair estimate of the value of remuneration foregone when leaving the an award or option relates or cancel it altogether. Alternatively, the Committee former employer and would be structured so as to be, to the extent possible, no could impose further conditions on the vesting or exercise of an award or option. more generous in terms of the fair value and other key terms (e.g. time to vesting and performance targets) than the incentives it is replacing. R E M U N E R A T I O N P O L I C Y F O R O T H E R E M P L O Y E E S As with the Executive Directors, salary for other employees is set at a level T E R M I N A T I O N P O L I C Y sufficient to attract and retain them, taking into account their experience and In the event of termination, service contracts provide for payments of base salary, expertise. Remuneration packages comprise salaries plus cash bonuses and/or pension and benefits only over the notice period. There is no contractual right to employee share awards. any bonus payment in the event of termination although in certain “good leaver” circumstances the Remuneration Committee may exercise its discretion to pay The Group regards membership of its share plans (as described at pages 83 and a bonus for the period of employment and based on performance assessed after 84) as a key part of its reward strategy which also aligns with the interests of the end of the financial year. employees and other stakeholders. Most employees receive benefits such as individual medical cover, permanent health insurance and life assurance. The default treatment for any share-based entitlements under the Share Plans is that any outstanding awards lapse on cessation of employment. However, in certain P E R C E N T A G E C H A N G E I N C E O R E M U N E R A T I O N prescribed circumstances, or at the discretion of the Remuneration Committee, C O M P A R E D W I T H E M P L O Y E E S “good leaver” status can be applied. In these circumstances a participant’s awards The Committee acknowledges the introduction of new regulations requiring UK will, ordinarily, vest subject to the satisfaction of the relevant performance criteria incorporated quoted companies with more than 250 UK employees to publish and on a time pro-rata basis, with the balance of the awards lapsing. their CEO pay ratios and its relevance to reviewing remuneration levels in the wider workforce when setting executive pay. Notwithstanding that, as a non-UK S H A R E O W N E R S H I P G U I D E L I N E S incorporated company with fewer than 250 UK employees, JTC is not required In accordance with good practice and further aligning Executive Directors with to adhere to the CEO pay regulations, the Committee is keen to ensure that the long-term interests of the Company, Executive Directors are required to disclosure in relation to executive pay is consistent with the UK Corporate build or maintain a shareholding equivalent to 150% of their annual base salary. Governance Code. Over the course of the remainder of 2019, the Committee Both Executive Directors will hold a significant shareholding, as detailed at page 87. will be exploring the regulations in detail in readiness for making an appropriate voluntary disclosure in the 2019 report and accounts. A P P O I N T M E N T O F D I R E C T O R S R E C R U I T M E N T P O L I C Y At every AGM, each of the Directors on the Board will retire. A Director who retires at an Annual General Meeting may be re-appointed if they are willing to Consistent with best practice, new senior management hires (including those act as a Director. promoted internally) will be offered packages in line with the Remuneration Policy in force at the time. It is the Remuneration Committee’s policy that no special This Annual Report sets out how the Directors’ Remuneration Policy of the arrangements will be made, and in the event that any deviation from standard Company has been applied since Admission and how the Committee intends to policy is required to recruit a new hire, approval would be sought at the AGM. apply the policy going forward. An advisory shareholder resolution to approve this Report will be proposed at the AGM. F I X E D E L E M E N T S O F R E M U N E R A T I O N F O R E X E C U T I V E D I R E C T O R S E L E M E N T O F R E M U N E R A T I O N P U R P O S E A N D L I N K T O C O M P A N Y S T R A T E G Y O P E R A T I O N M A X I M U M O P P O R T U N I T Y N O N - E X E C U T I V E D I R E C T O R F E E S Fees are set at a level to reflect the The fees paid to the Non-Executive Fee levels are set by reference amount of time and level of involvement Directors are determined by the Board to Non-Executive Director fees required in order to carry out their as a whole. Additional fees are payable at companies of similar size and duties as members of the Board and its for acting as Senior Independent Director complexity and general increases Committees, and to attract and retain and as Chair of the Board’s Audit and Risk for salaried employees within Non-Executive Directors of the highest Committee and Remuneration Committee. the Company. calibre with relevant commercial and other experience. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 8 4 8 5 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSA N N U A L R E P O R T O N R E M U N E R A T I O N A L I G N I N G R E M U N E R A T I O N T O T H E L O N G - T E R M S U C C E S S O F T H E C O M P A N Y For 2018 the award parameters are: Floor (25% award) 80% * 20.59 pence = 17.03 pence 100% award would be earned for EPS of 20.59 pence A ) A U D I T E D S E C T I O N O F T H E R E M U N E R A T I O N R E P O R T S I N G L E T O T A L F I G U R E O F R E M U N E R A T I O N – E X E C U T I V E D I R E C T O R S The following tables set out the aggregate emoluments earned by the Directors in the year ended 31 December 2018. R E M U N E R A T I O N P A Y A B L E T O E A C H D I R E C T O R F O R S E R V I C E I N 2 0 1 8 . The table below sets out the remuneration payable to each Executive Director for the period from Admission (14 March 2018) to 31 December 2018. The disclosures are in respect of qualifying services and are based on full financial years (1 January to 31 December). It should be noted that salary increases received during the year took effect from 1 April 2018. The remuneration for each Executive Director in 2018 excludes share awards and EBT distributions payable for the period prior to Admission (14th March 2018). Executive Directors CEO CFO Salary* Benefits Pension** Bonuses PSP Total 288,986 220,753 15,228 5,376 28,899 144,000 0 110,000 61,126 46,693 538,239 382,822 The performance measures associated with each award are clear and no conclusions will be made until vesting. Such awards are subject to final approval by the Remuneration Committee. P E R F O R M A N C E S H A R E P L A N A W A R D S 2 0 1 9 PSP awards with a face value of 75% of salary will be granted to Executive Directors in 2019. The Remuneration Committee reviewed the choice of measures and in light of the Company’s strategic outlook has set a stretching range of adjusted underlying EPS growth targets required to be achieved in the year ending 31 December 2021 as set out below: 50% TSR target is set by the Remuneration Committee on the basis of performance against an agreed comparator group / 50% EPS target based upon consensus broker forecasts. Upon achieving consensus target of 27.04 pence 100% of the awards vests. On achievement of 21.63 pence (80% of 27.04 pence) 25% of the award will vest. Between 21.63 pence and 27.04 pence awards will increase linearly from 25% to 100%. A two year post-vest holding period will apply, creating a five year period between the grant of an award and the first opportunity to sell (net of tax) the vested shares. B ) U N A U D I T E D S E C T I O N O F T H E R E M U N E R A T I O N R E P O R T * Effective as of 1 April 2018 the CEO and CFO’s salaries were £360,000 per annum and £275,000 per annum respectively. E X T E R N A L A P P O I N T M E N T S ** An employer’s pension contribution of 10% is included in the CFO’s salary. The CFO has elected permanently to opt-out of the Company’s pension scheme. Executive Directors are permitted to accept appointments outside the Company, with the prior approval of the Board. Any fees may be retained by the Director, although this is at the discretion of the Board. During 2018 and at the date of this Report, none of the Executive Directors hold external appointments for which they 2 0 1 8 A N N U A L B O N U S retain a fee. JTC operates an annual discretionary performance incentive award, this is separate to the Deferred Bonus Share plan detailed in this report. Employees are assessed against financial and non-financial performance measures through JTC’s annual appraisal process. Our three year Business Plan provides due clarity for Group, F E E S F O R T H E N O N - E X E C U T I V E C H A I R M A N A N D D I R E C T O R S divisional and departmental goals, which is supplemented by individual performance and development priorities. While continuous performance monitoring is The Company’s Chairman and the other Non-Executive Directors do not participate in any of the Company’s incentive arrangements or receive any pension provision. conducted, success against objectives (or goals as we prefer to call them) and behaviours (JTC values) are assessed annually. Each are graded out of a possible score of 5 (10 in total). The fees were agreed on appointment of the Non-Executive Directors on 19 February 2018. A summary of current fees is shown below for the period from The 2018 annual bonus performance measures were selected to reflect JTC’s annual and long-term objectives and reflect financial and strategic priorities, as appropriate. Performance targets are set to be stretching and achievable, taking into account a range of reference points including the strategic plan and broker forecasts, as well as the Group’s strategic priorities and the external context. A critical element of our appraisal process is moderation. The science behind the bonus awards is to ensure that the individual performance ratings are as fair and consistent as possible. To eliminate bias a rigorous moderation process is carried out at all levels of the Company. Executives are subject to an internal moderation process before a second moderation is conducted by the Remuneration Committee. A performance = reward grid is used as a fair measure for cash awards to be allocated as a % of salary. appointment to 31 December 2018: Non-Executive Directors Michael Liston Dermot Mathias Michael Gray Annual Fee 100,000 75,000 70,000 Fees Paid 2018 Benefits Pension Bonuses PSP Total Paid 2018 79,589 70,583 60,506 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 79,589 70,583 60,506 D I R E C T O R S ’ I N T E R E S T S I N S H A R E S Following Admission in March 2018 the Executive Directors have significant shareholdings in the Company, as follows: P E R F O R M A N C E S H A R E P L A N A W A R D S W I T H P E R F O R M A N C E P E R I O D E N D I N G D U R I N G T H E Y E A R 2 0 1 8 P E R F O R M A N C E S H A R E P L A N G R A N T S Legally owed as at 31 December 2018 Subject to Restriction Period (to 14 March 2020) Unvested PSP awards % interest in voting rights Executive Directors CEO CFO CEO CFO No. of shares awarded Fair value of Award Expensed 31.12.18 Annual Financial Statements 68,182 £229,432 £61,126 52,083 £175,259 £46,693 Annual Salary Max. Award (%) Max. Award (£) Share Price Share Award (100%) Performance Measures Vesting Date £360,000 £275,000 75 75 £270,000 £206,250 £3.96 £3.96 68,182 TSR (50%) EPS (50%) 52,083 TSR (50%) EPS (50%) Dec-20 Dec-20 Executive Directors Nigel Le Quesne* Martin Fotheringham Non-Executive Directors Michael Liston Dermot Mathias Michael Gray 10,444,128 718,586 32,797 25,863 17,242 10,444,128 671,786 32,797 25,863 17,242 61,126 46,693 N/A N/A N/A 9.42% 0.65% 0.03% 0.02% 0.02% * Includes Ordinary Shares held by Ocean Drive Holdings Limited, a company in which Nigel Le Quesne is beneficially interested. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 8 6 8 7 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS D I R E C T O R S ’ R E P O R T The Directors of JTC present their Report and the audited financial statements C O M P A N Y S T A T U S D I R E C T O R S for the period ended 31 December 2018. JTC PLC is public company incorporated in Jersey. It is listed on the London Stock The Directors of the Company who were in office during the year, and up to Additional information which is incorporated by reference into this Directors’ Report, including information required in accordance with the Listing Rules 9.8.4R S U B S I D I A R Y C O M P A N I E S Exchange main market with a premium listing. the date of the signing of the financial statements, are set out on pages 58 to 59. The Board shall consist of no fewer than two Directors. Copies of the Executive Directors’ service contracts are available to Shareholders for inspection of the UK Financial Conduct Authority’s listing rules, can be located as follows: JTC operates through a number of subsidiaries in various different countries. at the Company’s registered office and at the Annual General Meeting (AGM). Standard Life Aberdeen plc Franklin Templeton Fund Management Limited Quilter PLC Old Mutual Global Investors (UK) Limited As at 8 March 2019 % interest in voting rights 7.75 4.91 0 0 Statutory information Section Employee Involvement Strategic Report Employee Diversity and Strategic Report Page 35 – 40 40, 71 The list of subsidiaries is available at note 35 to the Financial Statements on Details of the Directors’ remuneration and service contracts and their interests pages 151 to 152 . in the shares of the Company are set out on page 87. S H A R E C A P I T A L C O M P L I A N C E W I T H T H E U K C O R P O R A T E A P P O I N T M E N T A N D R E P L A C E M E N T O F D I R E C T O R S capital during the year are shown in the Consolidated Statement of Changes in The issued share capital of the Group and the details of movements in share Disabilities Strategic Report Nomination Committee Report G O V E R N A N C E C O D E Directors may be appointed by ordinary resolution of the Shareholders , or by the Equity shown on page 103 of the Financial Statements. The holders of the shares It is a requirement of Listing Rule 9.8.7R that as an overseas company with a Board. Appointment of a Director from outside the Group is on the recommendation are entitled to receive dividends when declared, to receive a copy of the Annual Executive Share Ownership Annual Report on 83 – 84 premium listing JTC must comply with the Code or explain in its Annual Report of the Nomination Committee, whilst internal promotion is a matter decided by Report and accounts, to attend and speak at general meetings of the Company, and Benefit Plans Remuneration and accounts any areas of non-compliance and the Company’s reasons for this. the Board unless it is considered appropriate for a recommendation to be requested to appoint proxies and to exercise voting rights. Employee Long-Term Annual Report on 83 – 84 As at the date of this Report, the Company complies with the UK Corporate from the Nomination Committee. At every AGM of the Company, any of the Incentive Plans Remuneration Community Strategic Report 16 – 17, 35, Corporate Governance Report 42 – 43, 76 – 77 Directors’ Biographies Corporate Governance Report 58 – 59 – Board of Directors Executive Share Plans Annual Report on 81 – 85 Remuneration Future Developments Strategic Report 14 – 15, 18 -22 of the Business Financial position of CFO’s Review the Group, its cash flow, Financial Statements 46 – 49 100 – 152 liquidity position and borrowing facilities Governance Code published by the Financial Reporting Council (the “Code”) to Directors who have been appointed by the Board since the last AGM shall seek The rights attached to the shares are provided by the Company’s Articles of the extent applicable to “smaller companies” (being those outside the FTSE 350) other than the following exception: election by the members. Notwithstanding provisions in the Company’s Articles of Association, the Board has agreed, in accordance with the UK Corporate Governance Association, which may be amended or replaced by means of a special resolution of the Company in a general meeting. The Directors’ powers are conferred on Provision B.6.1 of the Code states that the Board should report in the Annual eligible, offer themselves for re-election by the Shareholders at the 2018 AGM. admitted to trading on the London Stock Exchange and may be traded through Code (Provision B.7.1) all of the Directors wishing to continue will retire and, being them by Jersey company law and by the Articles of Association. Shares are Report how performance evaluation of the Board, its Committees and its the CREST system. individual directors has been conducted. As the Board was only appointed in D I R E C T O R S ’ I N D E M N I T Y March 2018 a formal performance evaluation was not undertaken during the Directors’ and officers’ liability insurance is maintained by the Company. A L L O T M E N T O F S H A R E S year. The effectiveness of the Board and of the Board and Committee Meetings is a standing agenda items at the Board’s six scheduled meetings a year. A formal P O W E R S O F T H E D I R E C T O R S The Shareholders have generally and unconditionally authorised the Directors to allot relevant securities up to two-thirds of the nominal authorised share capital. performance evaluation of the Board, its Committees and its individual directors Subject to the Company’s Articles of Association, the Companies (Jersey) Law It is the Directors’ intention to seek the renewal of this authority in line with the will be conducted in 2019 in accordance with the three year evaluation cycle 1991, as amended, and any directions given by special resolution, the business guidance issued by the Investment Association. The resolution will be set out in detailed at page 70 of the Nomination Committee’s report. of the Company will be managed by the Board who may exercise all the powers the notice of the AGM. of the Company, whether relating to the management of the business of the Human Rights and Modern Strategic Report 40 F O R W A R D - L O O K I N G S T A T E M E N T S Company or not. In particular, the Board may exercise all the powers of the In 2018 JTC agreed to acquire Van Doorn CFS B.V. (“Van Doorn”) and Minerva Anti-Slavery Statement This annual report contains certain forward-looking statements. By their nature, Company to borrow money, to guarantee, to indemnify, to mortgage or charge Holdings Limited and MHL Holdings SA (together with its subsidiaries “Minerva”) Independent Auditor Audit and Risk 72 – 74, 94 – 99 any statements about the future outlook involve risk and uncertainty because they any of its undertakings, property, assets (present and future) and uncalled capital as part of these transactions it agreed to pay part of the consideration in shares. Committee Report Audit Opinion Internal Controls and Risk Strategic Report 30 – 37 Management Corporate Governance Report 73 Significant related Note 34.2 to the consolidated 151 party transactions financial statements Subsidiary and Associated Note 35 to the consolidated 151 – 152 Undertakings financial statements Statement of Corporate Corporate Governance Report 54, 88 Governance Directors’ Report Audit and Risk Committee Report Corporate Governance Report 72 – 75 relate to events and depend on circumstances that may or may not occur in the and to issue debentures and other securities and to give security for any debt, The Van Doorn transaction completed on 28 September 2018 and Minerva on future. Actual results, performance or outcomes may differ materially from any liability or obligation of the Company or of any third party. 20 November 2018. results, performance or outcomes expressed or implied by such forward-looking statements. Each forward looking statement speaks only as of the date of that S T A T E M E N T O F D I R E C T O R S ’ R E S P O N S I B I L I T I E S It is the Board’s intention to propose that an additional special resolution be particular statement. No representation or warranty is given in relation to any Our statement on Director’s Responsibilities has been provided on page 91 of passed at the AGM to allow the Company to allot equity securities up to a forward-looking statements made by JTC, including as to their completeness or accuracy. Nothing in this Report and accounts should be construed as a profit this Report. forecast. Both the Strategic Report and the Directors’ Report have been drawn up M A T E R I A L I N T E R E S T I N S H A R E S further 5% of the Company’s issued share capital for transactions which the Board determines to be an acquisition or other capital investment. and presented in accordance with and in reliance upon applicable Jersey Company Up to year-end being 31 December 2018 and as at 8 March 2019, being the latest P U R C H A S E O F S H A R E S law, and the liabilities of the Directors in connection with these Reports shall be practicable date before the publication of the report, the following disclosures The Shareholders approved the authority for the Company to buy back up to subject to the limitations and restrictions provided by such law. of major holdings in voting rights have been made to the Group pursuant to 10% of its own ordinary shares by market purchase until the conclusion of the R E S U L T S A N D D I V I D E N D S Rule 5 DTR. Governance Report Corporate Governance Report 50 – 91 The financial statements set out the results of the Group for the financial year Directors’ Remuneration Corporate Governance Report 86 – 87 ended 31 December 2018 and are shown on page 92. The Directors recommend Report Nomination Committee Report Nomination Committee Report 69 – 71 Strategic Report Strategic Report Viability Statement Strategic Report 50 – 91 63 a final dividend of 2 pence per ordinary share for the year ended 31 December 2018. Taken together with the interim dividend of 1 pence per ordinary share paid in October 2018, makes a total dividend for the year of 3 pence per ordinary share. Subject to approval by Shareholders of the recommended final dividend, the dividend to Shareholders for 2018 will total £2.25m. If approved, the Company will pay the final dividend on 21 June 2019 to Shareholders on the register of members at 31 May 2019. AGM to be held this year. The Directors will seek to renew this authority for up to 10% of the Company’s issued share capital at the forthcoming AGM. This power will only be exercised if the Directors are satisfied that any purchase will increase the earning per share of the ordinary share capital in issue after the purchase and accordingly, that the purchase is in the interest of Shareholders. A R T I C L E S O F A S S O C I A T I O N The Company’s Articles of Association set out its internal regulations and cover the rights of Shareholders , the appointment of Directors and the conduct of Board and general meetings. Copies of the Articles of Association are available upon request from the Group Company Secretary, and at JTC’s AGM. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 8 8 8 9 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSD I R E C T O R S ’ R E P O R T C O N T I N U E D S T A T E M E N T O F D I R E C T O R S ’ R E S P O N S I B I L I T I E S S H A R E D E A L I N G C O D E D I S C L O S U R E T O T H E A U D I T O R S D I R E C T O R S ’ R E S P O N S I B I L I T Y S T A T E M E N T R E S P O N S I B I L I T Y S T A T E M E N T O F T H E D I R E C T O R S I N JTC has adopted a share dealing code which applies to the Company’s Directors, The Directors who held office at the date of the approval of this Directors’ report The Directors are responsible for preparing the Annual Report and the Group R E S P E C T O F T H E A N N U A L F I N A N C I A L R E P O R T its other PDMRs and certain persons deemed insiders. In accordance with the confirm that so far as they are aware, there is no relevant audit information of financial statements in accordance with applicable laws and regulations. We confirm that to the best of our knowledge: Market Abuse Regulation, the Directors and PDMRs are responsible for procuring which the Company’s Auditor is unaware and each Director has taken all the the compliance of their respective connected persons with the JTC share dealing necessary steps to make themselves aware of any relevant audit information and Company law requires the Directors to prepare Group financial statements for > The Financial Statements, prepared in accordance with the applicable set code. The share dealing code has been published on the JTC intranet and further to establish that the Company’s Auditor is aware of that information. each financial year. Under that law they are required to prepare the financial of accounting standards, give a true and fair view of the assets, liabilities, training will be provided on an ongoing basis to all of the JTC team. statements in accordance with International Financial Reporting Standards financial position and profit or loss of the Company and the undertakings P O S T B A L A N C E S H E E T E V E N T S The Board and the Chairman of each of the Board’s Committees will be present > The Strategic Report (contained on pages 50 to 91) includes a fair review Details of post-balance sheet events are given in note 36 of the financial to answer questions put to them by Shareholders . Proxy appointment forms for Under company law the Directors must not approve the financial statements of the development and performance of the business and the position of statements at page 152. each resolution provide Shareholders with the option to direct their proxy vote unless they are satisfied that they give a true and fair view of the state of affairs the issuer and the undertakings included in the consolidation taken as a on resolutions or to withhold their vote. All votes are counted by JTC’s Registrars of the Group and of their profit or loss for that period. In preparing each of the whole, together with a description of the principal risks and uncertainties P O L I T I C A L D O N A T I O N S and the voting results will be announced through the RNS, and made available Group financial statements, the Directors are required to: that they face; and JTC has not made any donations to any political party. on our website www.jtcgroup.com. > The directors consider the Annual Report, taken as a whole, is fair, A N N U A L G E N E R A L M E E T I N G (IFRSs) as adopted by the European Union and applicable law. included in the consolidation taken as a whole; A U D I T O R S Notice of the first AGM to be held on 21 May 2019 at 10.30am at our offices in > Make judgements and estimates that are reasonable and prudent shareholders to assess the Group’s position, performance, business model PricewaterhouseCoopers CI LLP, which was re-appointed in 2018, has expressed its willingness to continue in office as the Group’s Auditor and accordingly, resolutions JTC House, 28 Esplanade, St. Helier, Jersey, JE2 3QA can be viewed or downloaded from the Company’s website, jtcgroup.com. At that meeting, Shareholders will > State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the and strategy. to reappoint it and to authorise the Directors to determine its remuneration will be be asked to vote separately on the Annual Report and on the Report on Directors’ Financial Statements Approved by the Board on 2 April 2019 and signed on its behalf by: > Select suitable accounting policies and then apply them consistently balanced and understandable and provides the information necessary for proposed at the AGM. These are resolutions 5 and 6 set out in the Notice of Meeting. Remuneration. Separate resolutions will also be proposed on every substantive > Prepare the financial statements on the going concern basis unless it is issue. A poll will be held on each resolution to ensure that the votes of the inappropriate to presume that the Group and the parent company will G O I N G C O N C E R N Shareholders unable to attend the meeting are taken into account, and results of continue in business Under Provision C.1.3 of the UK Corporate Governance Code, the Board is the voting will be placed on our website as soon as possible after the meeting. required to report whether the business is a going concern. In considering this requirement, the Directors have taken into account the following: The Directors confirm that they have applied with all the above requirements in preparing the Financial Statements. M I R A N D A L A N S D O W N E J O I N T C O M P A N Y S E C R E T A R Y J T C ( J E R S E Y ) L I M I T E D , C O M P A N Y S E C R E T A R Y > The Group’s latest rolling forecast for the next three years, in particular the cash flows, borrowings and undrawn facilities. Sensitivity analysis is included within these forecasts; N I G E L L E Q U E S N E , C H I E F E X E C U T I V E O F F I C E R On behalf of the Board of JTC plc > The headroom under the Group’s financial covenants; and 2 April 2019 > The risks included on the Group’s risk register that could impact on the Group’s liquidity and solvency over the next 12 months. Having due regard to these matters and after making appropriate enquiries, the Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence until at least April 2020. Therefore, the Board continues to adopt the going concern basis in preparing the financial statements. The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that its financial statements comply with the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 9 0 9 1 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSS H A R P E R T O G E T H E R The complexity faced by our clients is immense and ever-increasing. Our vision enables us to bring distant issues into sharp focus and we apply our formidable collective experience to navigate a path to the right answer for each and every client. Formidable. Experienced. Focused. Sharp. F I N A N C I A L S T A T E M E N T S : 100 Consolidated Income Statement 101 Consolidated Statement of Comprehensive Income 102 Consolidated Balance Sheet 103 Consolidated Statement of Changes in Equity 104 Consolidated Cash Flow Statement 105 Notes to the Consolidated Financial Statements A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 9 2 9 3 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSI N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S O F J T C P L C R E P O R T O N T H E A U D I T O F T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S O U R O P I N I O N In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of JTC PLC (the “Company”) and its subsidiaries (together the “Group”) as at 31 December 2018, and of their consolidated financial performance and their consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and have been properly prepared in accordance with the requirements of the Companies (Jersey) Law 1991. W H A T W E H A V E A U D I T E D The Group’s consolidated financial statements comprise: > the consolidated balance sheet as at 31 December 2018; > the consolidated income statement for the year then ended; > the consolidated statement of comprehensive income for the year then ended; > the consolidated statement of changes in equity for the year then ended; > the consolidated cash flow statement for the year then ended; and > the notes to the consolidated financial statements, which include a summary of significant accounting policies. B A S I S F O R O P I N I O N A U D I T S C O P E As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates. M A T E R I A L I T Y The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the consolidated financial statements as a whole. We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. O V E R A L L G R O U P M A T E R I A L I T Y £623,850 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. I N D E P E N D E N C E We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements of the Group, as required by the Crown Dependencies’ Audit Rules and Guidance. We have fulfilled our other ethical responsibilities in accordance with these requirements. O U R A U D I T A P P R O A C H O V E R V I E W M A T E R I A L I T Y H O W W E D E T E R M I N E D I T 5% of Group loss before tax adjusted for one-off costs relating to the IPO of the Group as set out in note 10. R A T I O N A L E F O R T H E The determination of materiality and the benchmark used is a matter of professional judgement. Following the listing of M A T E R I A L I T Y B E N C H M A R K JTC PLC on the London Stock Exchange, loss before tax adjusted for one-off costs relating to the IPO is considered to be the most appropriate benchmark to assess materiality, as this is the measure used by management to assess performance and to communicate results to the market. The IPO costs are deducted as we do not see these expenses as representative of the underlying performance of the Group. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £31,192 (de minimis posting level calculated as 5% of overall materiality), as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. > Overall Group materiality for the consolidated financial statements was £623,850 which represents 5% of the K E Y A U D I T M A T T E R S Group loss before tax adjusted for one-off costs relating to the initial public offering (“IPO”) of the Group as set Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current Materiality out in note 10. A U D I T S C O P E Audit scoping > Group audit scoping was performed based on loss before tax which identified fifteen significant components, covering 95% of Group loss before tax. > We conducted the majority of our audit work in Jersey, with audit work also undertaken by component auditors in Jersey, Luxembourg, Cayman Islands, South Africa, Switzerland and the Isle of Man. > In determining the significant components we also considered total revenue and total net assets of the Group, Areas of focus ensuring that the fifteen identified significant components also covered 95% of these criteria. Additional factors were also considered, including new acquisitions, common reporting processes and regulatory requirements to identify whether additional components should be considered. > The Group is based primarily in Jersey, where the major financial reporting functions are located. Trading subsidiaries are based in Africa, Americas, Caribbean, Middle East, Asia and Europe. K E Y A U D I T M A T T E R S > Revenue recognition including valuation of work in progress (“WIP”) > Impairment of intangible assets, specifically goodwill > Accounting for acquisitions year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 9 4 9 5 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSI N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S O F J T C P L C Key audit matter How our audit addressed the Key audit matter Key audit matter How our audit addressed the Key audit matter R E V E N U E R E C O G N I T I O N I N C L U D I N G VA L U A T I O N O F W O R K I N   P R O G R E S S ( “ W I P ” ) Revenue recognition, in particular where services are provided on a time spent basis for client matters which has not been billed is considered a key audit matter. WIP is required to be stated at the amount which is recoverable. There is a significant level of judgement applied by management in assessing and determining the value of WIP at the year end. Therefore, there is a risk of material misstatement that WIP as at year end may not be recoverable and that revenue could be overstated. Accounting policies and disclosures in respect of revenue and WIP are set out in notes 5 and 12 of the annual report respectively. We evaluated the design and implementation of controls around the billing and A C C O U N T I N G F O R A C Q U I S I T I O N S We evaluated the design and implementation of controls around the preparation, quarterly valuation of WIP; The Group has acquired a number of subsidiaries during the year. review and accounting for acquisitions. For a sample of clients where WIP has been recognised, we reviewed the billing assets and the allocation of the purchase price to customer contracts. We challenged the assumptions of the valuation models and purchase price and amounts recovered post year end; allocations through reviewing comparable data and the most significant The judgements arise from the fact that there are a number of assumptions challenges were around attrition rates, useful economic life and future Where WIP was not billed post year end, we challenged management’s included in the valuation model used to determine the fair values and the projections of revenue / EBITDA margins; judgement and rationale around the recoverability of the amounts through allocation of the values between goodwill and customer contract intangible reviewing client agreements, communication with clients, past billing and assets. These include estimates for the economic useful lives of the assets, We performed sensitivity analysis on the key assumptions used in the model, payment history on a sample basis to support judgements where required; and projected future earning levels, growth rates, client attrition rates and including discount rates, useful economic life and revenue growth rates; Significant judgement is involved in calculating the fair value of acquired We also reviewed the level of WIP write-offs and credit notes raised post year We reconciled source data used in the models to underlying accounting records; end and, on a sample basis, assessed the rationale for these being raised and Accounting policies and disclosures relating to the acquisitions are disclosed in and reviewed any impact on WIP as a result of these. note 17 of the annual report. discount rates. As a result of the procedures performed we have not identified a material misstatement in respect of the WIP balance. I M P A I R M E N T O F I N T A N G I B L E A S S E T S , S P E C I F I C A L L Y G O O D W I L L We evaluated the design and implementation of controls around the preparation Various acquisitions by the Group have generated a significant amount of and review of impairment calculations; goodwill being recognised on the consolidated balance sheet. The initial allocation of goodwill (calculated as the fair value of the consideration paid We evaluated and challenged management’s future cash flow forecasts for less the fair value of net assets acquired, less corresponding valuation of the material CGUs and the process by which they were prepared, testing the customer contract intangible assets) is determined in the year of acquisition. underlying value in use calculation and compared this to management’s forecasts Management is required to perform annual impairment reviews in respect of and budgets; the carrying value of goodwill on a cash generating unit (“CGU”) basis. A risk of misstatement in the impairment of goodwill exists, to the extent rates in the forecasts by comparing them to historical results. We challenged future developments negatively deviate from the assumptions applied during the discount rates used in the calculation by considering the cost of capital for the acquisition of the Group entities. the Group; We challenged management’s key assumptions for short and long term growth The annual impairment tests performed were significant to our audit because We performed sensitivity analysis to identify the key assumptions used in the the assessment process is complex and judgemental, and based on estimates value in use calculation and then evaluated management’s rationale for the that are affected by expected future economic and market conditions. applied rates; and Accounting policies and disclosures relating to impairment of intangibles are We assessed the mathematical accuracy of the goodwill impairment model and set out in note 19 of the annual report. assessed whether the calculated present value in use is higher / lower than the carrying amount. Based on the testing performed we have not identified a material misstatement in respect of the impairment of intangible assets, specifically goodwill. We reviewed management’s accounting assessment to whether the valuations performed are appropriate and in accordance with applicable financial reporting standards. Based on the testing performed we have not identified a material misstatement in respect of the accounting for acquisitions. O T H E R I N F O R M A T I O N The directors are responsible for the other information. The other information comprises all the information included in the 2018 Annual Report but does not include the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. R E S P O N S I B I L I T I E S O F T H E D I R E C T O R S F O R T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union, the requirements of Jersey law and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 9 6 9 7 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSI N D E P E N D E N T A U D I T O R ’ S R E P O R T T O T H E M E M B E R S O F J T C P L C A U D I T O R ’ S R E S P O N S I B I L I T I E S F O R T H E A U D I T O F T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S R E P O R T O N O T H E R L E G A L A N D R E G U L A T O R Y R E Q U I R E M E N T S Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether Under the Companies (Jersey) Law 1991 we are required to report to you if, in our opinion: due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered > we have not received all the information and explanations we require for our audit; material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated > proper accounting records have not been kept; or financial statements. > the consolidated financial statements are not in agreement with the accounting records. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: We have no exceptions to report arising from this responsibility. > Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit We have nothing to report in respect of the following matters which we have reviewed: procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional > the directors’ statement set out on page 90 and 91 in relation to going concern. As noted in the directors’ statement, the directors have concluded that omissions, misrepresentations, or the override of internal control. it is appropriate to adopt the going concern basis in preparing the consolidated financial statements. The going concern basis presumes that the Group > Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not has adequate resources to remain in operation, and that the directors intend it to do so, for at least one year from the date the consolidated financial for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. statements were signed. As part of our audit we have concluded that the directors’ use of the going concern basis is appropriate. However, because not > Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s ability to continue as a going concern; > Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we > the directors’ statement that they have carried out a robust assessment of the principal risks facing the Group and the directors’ statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated the directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the Governance Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit; and date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. For example, the terms > the part of the Corporate Governance Statement relating to the parent Company’s compliance with the ten further provisions of the UK Corporate on which the United Kingdom may withdraw from the European Union are not clear, and it is difficult to evaluate all of the potential implications on the Governance Code specified for our review. Group’s trade, customers, suppliers and the wider economy. > Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated This report, including the opinion, has been prepared for and only for the members as a body in accordance with Article 113A of the Companies (Jersey) Law 1991 and financial statements represent the underlying transactions and events in a manner that achieves fair presentation. for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or > Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an into whose hands it may come save where expressly agreed by our prior consent in writing. opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. M I C H A E L B Y R N E F O R A N D O N B E H A L F O F P R I C E W A T E R H O U S E C O O P E R S C I L L P C H A R T E R E D A C C O U N T A N T S A N D R E C O G N I Z E D A U D I T O R J E R S E Y , C H A N N E L I S L A N D S 2 April 2019 From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 9 8 9 9 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSC O N S O L I D A T E D I N C O M E S T A T E M E N T F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 8 C O N S O L I D A T E D S T A T E M E N T O F C O M P R E H E N S I V E I N C O M E F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 8 Revenue Staff costs Establishment costs Other operating expenses Credit impairment losses Other operating income Notes 2018 £’000 2017 £’000 5 6 8 13 77,254 59,792 (50,703) (32,006) (4,705) (4,082) (15,638) (13,134) (1,285) (1,357) 343 434 Loss for the year Other comprehensive income/(loss): Items that may be subsequently reclassified to profit or loss: Exchange differences on translation of foreign operations Total comprehensive loss for the year 2018 £’000 2017 £’000 (3,857) (4,645) 1,334 (716) (2,523) (5,361) Earnings before interest, taxes, depreciation and amortisation (“EBITDA”) 5,266 9,647 The notes on pages 105 to 152 are an integral part of these consolidated financial statements. Comprising: Underlying EBITDA Non-underlying items Depreciation and amortisation Profit from operating activities Other gains Finance income Finance cost Share of profit/(loss) of equity-accounted investee Loss before tax Comprising: Underlying profit/(loss) before tax Non-underlying items Tax Loss for the year Earnings per ordinary share (“EPS”) (expressed in pence per ordinary share) Basic and diluted EPS (pence) Underlying EPS (pence) The notes on pages 105 to 152 are an integral part of these consolidated financial statements. 23,837 10 (18,571) 5,266 20 (4,637) 629 522 103 9 25 25 14,422 (4,775) 9,647 (2,894) 6,753 1,833 73 (3,475) (12,215) 92 (6) (2,129) (3,562) 16,990 10 (19,119) (2,129) (858) (2,704) (3,562) 28 (1,728) (1,083) (3,857) (4,645) 11 11 (3.87) 15.32 (6.98) (2.92) A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 0 0 1 0 1 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS C O N S O L I D A T E D B A L A N C E S H E E T A S A T 3 1 D E C E M B E R 2 0 1 8 C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 8 Assets Property, plant and equipment Goodwill Other intangible assets Investment in equity-accounted investee Other receivables Deferred tax assets Other non-current financial assets Total non-current assets Trade receivables Other receivables Work in progress Accrued income Current tax receivables Cash and cash equivalents Total current assets Total assets Equity Share capital Share premium Own shares Capital reserve Translation reserve Accumulated profits Total equity Liabilities Loans and borrowings Other financial liabilities Provisions Deferred tax liabilities Trade and other payables Total non-current liabilities Loans and borrowings Other financial liabilities Deferred income Provisions Current tax liabilities Trade and other payables Total current liabilities Total equity and liabilities Notes 18 19 19 21 16.1 29 24.1 13 16.1 12 14 27.1 27.1 27.2 27.3 27.3 27.3 23 24.2 30 29 16.2 23 24.2 15 30 16.2 Notes Share capital £’000 10 Own shares £’000 (1) Capital reserve £’000 (2,349) Translation reserve £’000 Accumulated profits/ (losses) £’000 Total equity £’000 1,826 (24,010) (24,441) Share premium £’000 83 – – – 155 – – – – – 238 238 – 238 – – – – – – – – – – – – 10 10 – 10 – – – – – – – – – – – – – – – – 517 (636) 1,255 – – (1) (1,213) 1,110 (1,213) 1,110 – – (1,213) 1,110 – (4,645) (716) (716) – (4,645) – – – – – – (4,645) (716) (5,361) 155 517 (636) 1,255 – – – – 31,038 31,038 501 2,884 2,884 (168) 2,716 501 3,028 3,028 (168) 2,860 – – – – – 443 658 – – – – (3,857) (3,857) 1,334 1,334 – 1,334 (3,857) (2,523) – – – – – – – – – – – – 96,202 (742) 443 658 (2,564) 15,641 15,641 (1,074) (1,074) (1) – (1) – – – – – – – (2,564) – – 1,109 94,599 (2,565) (112) 2,444 13,426 108,901 2018 £’000 2017 £’000 6,406 104,835 41,835 978 1,536 135 244 5,504 76,183 21,761 886 940 61 64 155,969 105,399 16,142 10,862 3,884 7,084 9,309 453 32,457 69,329 2,575 5,855 8,052 24 16,164 43,532 Balance at 1 January 2017 Loss for the year Other comprehensive loss for the year Total comprehensive loss for the year Issue of share capital Share-based payment expense Sale and purchase of own shares Own shares movement Shareholder loan note interest waived 23 Fair value of loan notes Balance at 31 December 2017 Balance at 1 January 2018 as originally presented Adoption of new standards 3.1(C) Restated total equity at 1 January 2018 225,298 148,931 Loss for the year 1,109 94,599 (2,565) (112) 2,444 13,426 108,901 10 238 (1) (1,213) 1,110 2,884 3,028 Other comprehensive income for the year Total comprehensive loss for the year Issue of share capital Cost of share issuance Share-based payment expense Movement in EBT and JSOPs Movement of own shares EBT12 gain on sale of shares Dividends paid Balance at 31 December 2018 27 1,099 95,103 7.2 27.2 27.2 27 – – – – – – (742) – – – – – 72,032 63,341 The notes on pages 105 to 152 are an integral part of these financial statements. 241 1,038 6,010 5,469 84,790 683 7,968 7,744 401 2,871 11,940 31,607 1,087 646 2,817 718 68,609 56,364 5,356 5,012 187 995 9,380 77,294 225,298 148,931 The notes on pages 105 to 152 are an integral part of these consolidated financial statements. The financial statements on pages 100 to 152 were approved by the Board of Directors on the 2 April 2019 and signed on its behalf by: N I G E L L E Q U E S N E C H I E F E X E C U T I V E O F F I C E R M A R T I N F O T H E R I N G H A M C H I E F F I N A N C I A L O F F I C E R A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 0 2 1 0 3 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS C O N S O L I D A T E D C A S H F L O W S T A T E M E N T F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 8 N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 8 Operating cash flows before movements in working capital Increase in receivables Increase in payables Cash generated by operations Income taxes paid Net cash from operating activities Comprising: Underlying net movement in cash from operating activities Non-underlying cash items Investing activities Interest received Purchase of property, plant and equipment Purchase of intangible assets Acquisition of associate Acquisition of subsidiaries Proceeds from sale of subsidiaries Net cash used in investing activities Financing activities Bank charges Interest on finance leases Interest on loans Facility fees Loan arrangement fees Share capital raised Share issuance costs Proceeds from sale of EBT12 shares Redemption of loan notes Sale and purchase of own shares Redemption of bank loans Redemption of other borrowings Bank loan drawn down Other loan drawn down Finance lease payments Dividends paid Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effect of foreign exchange rate changes Cash and cash equivalents at end of year The notes on pages 105 to 152 are an integral part of these consolidated financial statements. Notes 33 2018 £’000 6,266 (3,436) 4,565 7,395 (907) 6,488 2017 £’000 10,421 (2,687) 3,461 11,195 (1,175) 10,020 19,158 33 (12,670) 6,488 12,229 (2,209) 10,020 18 19 103 (1,175) (1,024) – 56 (4,080) (425) (218) 17 (31,176) (4,482) – 135 (33,272) (9,014) (146) (3) (98) (16) (1,572) (2,349) (93) (1,318) 20,000 (742) 27.2 15,641 27.2 23.1 (2,161) (2,565) (55,836) (853) 23.1 72,960 – (18) (1,074) 42,220 (109) (38) – – – – (636) – (959) 1,790 3,017 (57) – 545 15,436 1,551 16,164 857 32,457 15,765 (1,152) 16,164 S E C T I O N 1 – B A S I S F O R R E P O R T I N G S E C T I O N 5 – F I N A N C I N G , F I N A N C I A L R I S K A N D G E N E R A L I N F O R M A T I O N M A N A G E M E N T A N D F I N A N C I A L I N S T R U M E N T S 1. Reporting entity 2. Basis of preparation 22. Cash and cash equivalents 23. Loans and borrowings 3. Significant accounting policies 24. Other financial assets and other financial liabilities 4. Critical accounting estimates and judgements 25. Finance income and finance cost S E C T I O N 2 – R E S U L T F O R T H E Y E A R 26. Financial instruments 5. Segmental reporting 27. Share capital and reserves 6. Staff costs S E C T I O N 6 – O T H E R D I S C L O S U R E S 7. Share-based payments 28. Income tax expense 8. Other operating expenses 9. Other gains 10. Non-underlying items 11. Earnings per share 29. Deferred taxation 30. Provisions 31. Operating leases 32. Foreign currency S E C T I O N 3 – W O R K I N G C A P I T A L 33. Cash flow information 34. Related party transactions 35. Group entities 36. Events occurring after the reporting period 12. Work in progress 13. Trade receivables 14. Accrued income 15. Deferred income 16. Other receivables and other payables S E C T I O N 4 – I N V E S T M E N T S 17. Acquisition of subsidiaries 18. Property, plant and equipment 19. Intangible assets and goodwill 20. Depreciation and amortisation 21. Investment in equity-accounted investee A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 0 4 1 0 5 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D S E C T I O N 1 – B A S I S F O R R E P O R T I N G A N D G E N E R A L I N F O R M A T I O N 2 . 3 . F U N C T I O N A L A N D P R E S E N T A T I O N C U R R E N C Y 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 The financial statements are presented in pounds sterling, which is the functional 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. and reporting currency of the Company, and the presentation currency of 1 . R E P O R T I N G E N T I T Y the consolidated financial statements. All amounts disclosed in the financial 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 JTC PLC (“the Company”) was incorporated on 2 January 2018 and is domiciled statements and notes have been rounded to the nearest thousand (‘000) unless effect on the Group’s accounting policies related to financial liabilities. in Jersey, Channel Islands. The address of the Company’s registered office is 28 otherwise stated. Esplanade, St Helier, Jersey. M O D I F I C A T I O N The financial statements of the Company for the year ended 31 December 2018 3 . 1 . C H A N G E S I N A C C O U N T I N G P O L I C I E S 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 comprise the Company and its subsidiaries (together “the Group” or “JTC”) and A N D N E W S T A N D A R D S A D O P T E D 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 the Group’s interest in an associate. The accounting policies set out in these consolidated financial statements have 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 3 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S 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 The Company was admitted to the London Stock Exchange on 14 March 2018 (“the Group entities, with the exception of IFRS 9 and IFRS 15 as set out below. IPO”) having obtained control of the entire share capital of JTC Group Holdings I M P A I R M E N T O F F I N A N C I A L A S S E T S been applied consistently to both year ends and have been applied consistently by substantial modifications to financial assets or financial liabilities in the year. Limited (“JTCGHL”) via a share exchange, and thus control of the Group, see note 27. In the current year, to the extent they are relevant to its operations, the Group 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 has adopted all IFRS standards and interpretations including amendments expected credit losses and changes in these at each reporting date to reflect changes in credit risk since initial recognition. Although the share exchange resulted in a change of legal ownership, in substance that were in issue and effective for accounting periods beginning on these financial statements reflect the continuation of the pre-existing Group, 1 January 2018. formerly headed by JTCGHL. As a result, the comparatives for 31 December 2017 ( I ) T R A D E R E C E I V A B L E S 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 presented in these consolidated financial statements are the consolidated results ( A ) I F R S 9 ‘ F I N A N C I A L I N S T R U M E N T S ’ basis, the total loss allowance as at 1 January 2018 was determined for trade receivables as follows: of JTCGHL. The impact on the Earnings Per Share calculation, is detailed in note 11. In July 2014, IFRS 9 ‘Financial Instruments’ was issued, replacing IAS 39 ‘Financial Instruments: Recognition and Measurement’. IFRS 9 brings together The consolidated balance sheet at 31 December 2017 reflects the share capital all three aspects of the accounting for financial instruments; classification and structure of JTCGHL. The consolidated balance sheet at 31 December 2018 measurement, impairment and hedge accounting. 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 adoption of IFRS 9 by the Group from 1 January 2018 resulted in changes The Group provides fund, corporate and private wealth services to institutional financial statements following the provision for additional loss allowances for to accounting policies and adjustments to the amounts recognised in the and private clients. trade receivables, work in progress and accrued income. The Group has applied IFRS 9 retrospectively but has elected not to restate comparative information. <30 days 30 – 60 days 61 – 120 days >120 days Total Gross trade receivables £’000 Loss allowance as % of trade receivables Loss allowance for trade receivables £’000 4,215 2,149 1,360 5,774 1.92% 4.00% 8.97% 44.74% 13,498 21.28% 81 86 122 2,583 2,872 2 . B A S I S O F P R E P A R A T I O N As a result the comparative information continues to be accounted for with ( I I ) W O R K I N P R O G R E S S A N D A C C R U E D I N C O M E 2 . 1 . S T A T E M E N T O F C O M P L I A N C E the Group’s previous accounting policies. 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 A N D B A S I S O F M E A S U R E M E N T 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 The consolidated financial statements have been prepared in accordance with C L A S S I F I C A T I O N A N D M E A S U R E M E N T progress and accrued income of £49k and £15k respectively at 1 January 2018. International Financial Reporting Standards (“IFRS”) as adopted by the European IFRS 9 introduces a single classification and measurement model for financial Union, the interpretations of the IFRS Interpretations Committee (“IFRS IC”) and assets, depending on both the entity’s business model for managing financial Companies (Jersey) Law 1991. The financial statements comply with IFRS as assets and the contractual cash flow characteristics of financial assets. Based on issued by the International Accounting Standards Board (“IASB”) and have been these, financial assets are classified as either amortised cost, fair value through prepared under the historical cost convention. profit or loss (“FVTPL”) or fair value through other comprehensive income 2 . 2 . G O I N G C O N C E R N (“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 The Group continues to adopt the going concern basis in preparing its financial of this note. 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. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 0 6 1 0 7 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSN O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 3 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S C O N T I N U E D 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 3 . 1 . C H A N G E S I N A C C O U N T I N G P O L I C I E S A N D N E W S T A N D A R D S A D O P T E D C O N T I N U E D of £133k: S U M M A R Y O F T H E I M P A C T O F A D O P T I O N > Within trade and other payables; accrued commissions payable of £106k were reversed, and other payables of £292k were recognised, split between 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 current and non-current, £167k and £125k (giving a net adjustment to current trade and other payables of £61k), 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 > Within other receivables; contract assets of £319k were recognised, split between current and non-current, £92k and £227k. to the new impairment requirements. Financial assets Trade receivables Other receivables Work in progress Accrued income Other financial assets Cash and cash equivalents Total financial assets Financial liabilities Loans and borrowings Trade and other payables Other financial liabilities Total financial liabilities Notes 13 16.1 12 14 24.1 23 16.2 24.2 Classification under IAS 39 Classification under IFRS 9 Carrying amount under IAS 39 £’000 Carrying amount under IFRS 9 £’000 Adjustment for ECL £000 Loans and receivables Amortised cost 10,862 10,625 237 Loans and receivables Amortised cost Loans and receivables Amortised cost Loans and receivables Amortised cost Loans and receivables Amortised cost 3,515 5,855 8,052 64 3,515 5,806 8,037 64 Loans and receivables Amortised cost 16,164 16,164 – 49 15 – – 44,512 44,211 301 Other financial liabilities Amortised cost 119,705 119,705 Other financial liabilities Amortised cost 10,098 10,098 Other financial liabilities Amortised cost 6,443 6,443 136,246 136,246 – – – – ( B ) I F R S 1 5 ‘ R E V E N U E F R O M C O N T R A C T S W I T H C U S T O M E R S ’ 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. A C C O U N T I N G F O R C O S T S T O O B T A I N A C O N T R A C T 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. Non-current other receivables Current other receivables Non-current trade and other payables Current trade and other payables Total Notes 16.1 16.1 16.2 16.2 ( C ) R E S T A T E D O P E N I N G E Q U I T Y F O L L O W I N G A D O P T I O N O F N E W S T A N D A R D S 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 Additional loss allowance (adoption of IFRS 9) Recognition of asset for costs to obtain a contract (adoption of IFRS 15) Total adoption of new standards Opening retained earnings at 1 January 2018 Carrying amount under IAS 18 £’000 Reclassification £’000 Carrying amount under IFRS 15 £’000 940 2,575 (718) (9,380) (6,583) 227 92 (125) (61) 133 £’000 (301) 133 1,167 2,667 (843) (9,441) (6,450) £’000 2,884 (168) 2,716 3 . 2 . N E W S T A N D A R D S A N D I N T E R P R E T A T I O N S N O T Y E T A D O P T E D 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 ) I F R S 1 6 ‘ L E A S E S ’ 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. T R A N S I T I O N A P P R O A C H 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 has 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. D A T E O F A D O P T I O N B Y G R O U P 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). Q U A N T I F I C A T I O N O F E S T I M A T E D I M P A C T 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. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 0 8 1 0 9 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSN O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 3 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S C O N T I N U E D When the Group loses control over a subsidiary, it derecognises the assets and 4 . 1 . C R I T I C A L J U D G E M E N T S I N A P P L Y I N G 3 . 2 . N E W S T A N D A R D S A N D I N T E R P R E T A T I O N S N O T Y E T A D O P T E D C O N T I N U E D liabilities of the subsidiary, and any related non-controlling interest and other T H E G R O U P ’ S A C C O U N T I N G P O L I C I E S 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. components of equity. Any resulting gain or loss is recognised in the consolidated The following are the critical judgements, apart from those involving estimations Underlying EBITDA used to measure segmental results is expected to increase by approximately £3 million, as long-term operating lease payments were included in income statement. EBITDA, but the amortisation of the right-of-use assets and interest on the lease liability are excluded from this measure. (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 Where necessary, adjustments are made to the financial statements of significant effect on the amounts recognised in the financial statements. 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 subsidiaries to bring their accounting policy in line with the Group. All inter- 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. company transactions and balances, including unrealised gains and losses, arising R E C O G N I T I O N O F C U S T O M E R C O N T R A C T I N T A N G I B L E S from transactions between Group companies are eliminated. In 2018, the Group acquired Minerva and Van Doorn, see notes 17.1 and 17.2. C O M P A N Y O N L Y F I N A N C I A L S T A T E M E N T S IFRS 3 ‘Business Combinations’ requires Management to identify assets and liabilities purchased including intangible assets. Following their assessment, ( B ) O T H E R S T A N D A R D S Under Article 105(11) of the Companies (Jersey) Law 1991, the Directors Management concluded that the only material intangible asset meeting the The following new or amended standards are not expected to have a significant impact on the consolidated financial statements: of a holding company need not prepare separate financial statements (i.e. recognition criteria is customer contracts. The customer contract intangible > 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 > IFRS 17 Insurance Contracts company only financial statements). Separate financial statements for the assets recognised through these acquisitions were £13.88 million and Company are not prepared unless required to do so by the members of the £7.72 million respectively. Company by ordinary resolution. The members of the Company had not passed a resolution requiring separate financial statements and, in the Directors’ opinion, 4 . 2 . C R I T I C A L A C C O U N T I N G the Company meets the definition of a holding company. As permitted by law, E S T I M A T E S A N D A S S U M P T I O N S the Directors have elected not to prepare separate financial statements. F A I R VA L U E O F C U S T O M E R C O N T R A C T I N T A N G I B L E S The customer contract intangible assets are valued using the multi-period excess 3 . 3 . S U M M A R Y O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S 4 . C R I T I C A L A C C O U N T I N G E S T I M A T E S earnings method (“MEEM”) financial valuation model. Cash flow forecasts and The basis of consolidation is described below, otherwise significant accounting policies related to specific items are described under the relevant note. The description A N D J U D G E M E N T S projections are produced by Management and form the basis of the valuation 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 In the application of the Group’s accounting policies, the Directors are required analysis. The key estimates and assumptions used in the modelling to derive the applied to all the years presented. Revenue Employee benefits Share-based payments Work in progress Trade receivables Accrued and deferred income Business combinations and goodwill Property, plant and equipment Intangible assets, including impairment of non-financial assets Investment in equity-accounted investee Cash and cash equivalents Finance income and finance costs Financial instruments Capital, reserves and dividends Taxation Provisions Operating leases Foreign currency B A S I S O F C O N S O L I D A T I O N Notes 5 6 7 12 13 14, 15 17 18 19 21 22 25 26 27 28 30 31 32 to make judgements, estimates and assumptions about the carrying amounts fair values include: year on year growth rates, client attrition rates, EBIT margins, of assets and liabilities that are not readily apparent from other sources. the useful economic life of the customer contracts and the discount rate applied The estimates and associated assumptions are based on historical experience to free cash flow. See note 19.1 for the sensitivity analysis. and other factors that are considered to be relevant. Actual results may differ from these estimates. R E C O V E R A B I L I T Y O F W O R K I N P R O G R E S S ( “ W I P ” ) To assess the fair value of consideration received for services rendered, The estimates and underlying assumptions are reviewed on an ongoing basis. Management is required to make an assessment of the net unbilled amount Revisions to accounting estimates are recognised in the year in which the expected to be collected from clients for work performed to date. To make this estimate is revised if the revision affects only that year, or in the year of the assessment, WIP balances are reviewed regularly on a by-client basis and the revision and future years if the revision affects both current and future years. 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. 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. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 1 0 1 1 1 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D S E C T I O N 2 – R E S U L T F O R T H E Y E A R 5 . 1 . B A S I S O F S E G M E N T A T I O N 5 . 2 . S E G M E N T A L I N F O R M A T I O N The Group has a multi-jurisdictional footprint and the core focus of 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. 5 . S E G M E N T A L R E P O R T I N G R E V E N U E 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. P R I N C I P A L V E R S U S A G E N T C O N S I D E R A T I O N 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. O T H E R R E V E N U E 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. 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. B U S I N E S S A C T I V I T I E S I N C L U D E : F U N D S E R V I C E S 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). C O R P O R A T E S E R V I C E S 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. P R I V A T E W E A L T H S E R V I C E S 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 Revenue Direct staff costs Other direct costs Underlying gross profit Underlying gross profit margin % Indirect staff costs Other operating expenses Other income Underlying EBITDA Underlying EBITDA margin % ICS 2018 £’000 2017 £’000 PCS 2018 £’000 2017 £’000 Total 2018 £’000 2017 £’000 43,362 36,071 33,892 23,721 77,254 59,792 (16,465) (15,541) (10,782) (8,816) (27,247) (24,357) (416) (199) (2,046) (1,444) (2,462) (1,643) 26,481 20,331 21,064 13,461 47,545 33,792 61.1% 56.4% 62.2% 56.7% 61.5% 56.5% (4,169) (10,043) 219 12,488 28.8% (4,078) (8,429) 280 (3,600) (6,240) 125 (2,346) (7,769) (6,424) (4,951) (16,283) (13,380) 154 344 434 8,104 11,349 6,318 23,837 14,422 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 . S T A F F C O S T S E M P L O Y E E B E N E F I T S S H O R T - T E R M B E N E F I T S Operating Decision Makers of the Group and determine the appropriate business 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 segments to monitor financial performance. Each segment is defined as a set 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. of business activities generating a revenue stream determined by divisional responsibility and the Management information reviewed by the Board of D E F I N E D C O N T R I B U T I O N P L A N S Directors. They determined the Group has two reportable segments: these are Payments to defined contribution retirement benefit schemes are recognised as an expense when employees have rendered services entitling them to contributions. Institutional Client Services (“ICS”) and Private Client Services (“PCS”). T E R M I N A T I O N B E N E F I T S 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. E M P L O Y E E B E N E F I T T R U S T ( “ E B T ” ) 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”). A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 1 2 1 1 3 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSN O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 6 . S T A F F C O S T S C O N T I N U E D Details of the number of shares awarded but not vested are as follows: Salaries and Directors’ fees Capital distribution from EBT12 Other short-term employee benefits Defined contribution pension costs Share-based payments Training and other staff-related costs 2018 £’000 2017 £’000 31,925 27,172 13,211 986 1,355 443 2,783 – 761 993 517 2,563 50,703 32,006 Outstanding at the start of the year Awarded Exercised Forfeited Converted at the IPO Outstanding at the end of the year No. 8,168 9,013 2018 £’000 800 300 No. 8,974 3,134 (8,168) (800) (3,408) – 643,385 652,398 – – (532) – 300 8,168 2017 £’000 774 351 (278) (47) – 800 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 ( B ) P O S T - I P O 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 Following Admission to the London Stock Exchange, the Company has implemented and made awards to eligible employees under two equity-settled share-based (2017: £993k). 7 . S H A R E - B A S E D P A Y M E N T S payment plans: P E R F O R M A N C E S H A R E P L A N ( “ P S P ” ) 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 . D E S C R I P T I O N O F S H A R E - B A S E D P A Y M E N T A R R A N G E M E N T S ( A ) P R E - I P O Prior to Admission to the London Stock Exchange, the Group operated a number of equity-settled share-based remuneration schemes. These were as follows: 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: Awarded Outstanding at the end of the year No. 160,638 160,638 2018 £’000 549 549 B L U E S K Y 1 S C H E M E 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. D E F E R R E D B O N U S S H A R E P L A N ( “ D B S P ” ) B L U E S K Y 2 S C H E M E 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. B L U E I S L A N D 1 S C H E M E 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 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. 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. 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, 7 . 2 . E X P E N S E S R E C O G N I S E D D U R I N G T H E Y E A R for employees joining the business, for the retention of key employees following acquisition and to incentivise key employees. The equity-settled share-based payment expenses recognised during the year, per plan and in total are as follows: 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. PSP Awards DBSP Awards Other Awards Total share-based payments expense 2018 £’000 142 50 251 443 2017 £’000 – – 517 517 A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 1 4 1 1 5 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSN O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 8 . O T H E R O P E R A T I N G E X P E N S E S 1 0 . N O N - U N D E R L Y I N G I T E M S Third party administration fees Commissions paid Legal and professional fees Auditor’s remuneration for audit services Auditor’s remuneration for other services: – Acquisitions – IPO Insurance Travelling Marketing IT expenses Other expenses 2018 £’000 2,518 – 4,140 795 78 285 593 961 715 3,565 1,988 2017 £’000 1,472 269 3,050 538 18 605 480 552 460 2,955 2,735 Other operating expenses 15,638 13,134 9 . O T H E R G A I N S Loan written back/(off) Foreign exchange gains Net loss on disposal of property, plant and equipment Loss on disposal of subsidiary Gain on derivative forward contract Gain on bargain purchase (see note 17.3) Other gains 2018 £’000 30 558 (523) – – 457 522 2017 £’000 (490) 257 (2) (53) 50 2,071 1,833 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 Non-underlying items within EBITDA: Capital distribution from EBT12(i) (vi) IPO costs(vi) Acquisition and integration costs(ii) Office closures One-off costs to reorganise senior Management team Other Total non-underlying items within EBITDA Underlying EBITDA Loss before tax Non-underlying items within EBITDA Gain on bargain purchase(iii) Loss on disposal of acquired fixed assets(iv) Unwinding of discount on capital distribution(vi) Accelerated amortisation of loan arrangement fees(v) (vi) Total non-underlying items within loss before tax Underlying profit/(loss) before tax 2018 £’000 5,266 13,211 954 4,257 56 93 – 2017 £’000 9,647 – 1,768 1,995 625 200 187 18,571 23,837 4,775 14,422 (2,129) (3,562) 18,571 4,775 (457) (2,071) 564 190 251 – – – 19,119 16,990 2,704 (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. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 1 6 1 1 7 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 1 1 . E A R N I N G S P E R S H A R E S E C T I O N 3 – W O R K I N G C A P I T A L 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 1 2 . W O R K I N P R O G R E S S assume conversion of all dilutive potential ordinary shares. 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. Loss for the year Non-underlying items: – included within operating expenses – included within other gains – included within finance costs Underlying profit/(loss) for the year Weighted average number of ordinary shares in issue: Original shareholder exchange New issue to original shareholders Primary raise Loan note conversion Issue of share consideration for Van Doorn Issue of share consideration for Minerva 2018 £’000 2017 £’000 (3,857) (4,645) 18,571 107 441 4,775 (2,071) – 15,262 (1,941) No. No. 66,534,213 66,534,213 798,586 5,536,136 26,139,903 291,787 331,132 – – – – – Total Loss allowance (IFRS 9) Net 2018 £’000 7,132 (48) 2017 £’000 5,855 – 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. S E N S I T I V I T Y A N A L Y S I S 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. 1 3 . T R A D E R E C E I VA B L E S 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). Weighted average number of ordinary shares for the purpose of diluted EPS 99,631,757 66,534,213 Basic and diluted EPS (pence) Underlying EPS (pence) (3.87) 15.32 (6.98) (2.92) 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 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 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 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- 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 underlying items in the year (see note 10). 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 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 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 be anti-dilutive. receivable is uncollectable, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against credit 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 impairment losses. following the Group’s reconstruction and share reorganisation, the number of ordinary shares issued to the original shareholders in exchange for their shareholding in 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 JTCGHL has been used to best indicate the share capital in existence at that time and provide EPS information on a consistent basis. 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) <30 days 30 – 60 days 61 – 90 days 91 – 120 days 121 – 180 days 180> days Total Gross £’000 Loss allowance £’000 10,048 (213) 1,214 1,090 996 256 (38) (41) (96) (89) Net £’000 9,835 1,176 1,049 900 167 6,197 (3,182) 3,015 19,801 (3,659) 16,142 A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 1 8 1 1 9 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSN O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 1 3 . T R A D E R E C E I VA B L E S C O N T I N U E D 2017 (IAS 39) <30 days 30 – 60 days 61 – 90 days 91 – 120 days 121 – 180 days 180> days Total The movement in the allowances for trade receivables is as follows: Balance at the beginning of the year IFRS 9 opening balance adjustment Impairment losses recognised in the consolidated income statement Amounts written off (net of any unused amounts reversed) Total allowance for doubtful debts 1 4 . A C C R U E D I N C O M E Gross £’000 4,214 2,149 689 671 739 Loss allowance £’000 (25) (26) (40) (38) (115) Net £’000 4,189 2,123 649 633 624 5,035 (2,391) 2,644 13,497 (2,635) 10,862 2018 £’000 2017 £’000 (2,635) (2,455) (301) (1,285) 562 (3,659) – (1,357) 1,177 (2,635) 1 6 . O T H E R R E C E I VA B L E S A N D O T H E R P A Y A B L E S 1 6 . 1 . O T H E R R E C E I VA B L E S Current Prepayments Other receivables Contract assets Total current Non-current Prepayments Contract assets Total non-current Total other receivables For other receivables, Management concluded the expected credit loss would have an immaterial impact on the financial statements. 1 6 . 2 . T R A D E A N D O T H E R P A Y A B L E S 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. Total Loss allowance (IFRS 9) Net 2018 £’000 9,334 (25) 2017 £’000 8,052 – 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. 1 5 . D E F E R R E D I N C O M E 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. Current Trade payables Other taxation and social security Other payables Accruals Total current Non-current Other payables Total non-current Total trade and other payables 2018 £’000 2017 £’000 2,054 1,335 495 3,884 693 843 1,536 5,420 1,298 1,277 – 2,575 940 – 940 3,515 2018 £’000 2017 £’000 1,008 210 5,449 5,273 11,940 415 145 4,133 4,687 9,380 5,469 5,469 718 718 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. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 2 0 1 2 1 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSN O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D S E C T I O N 4 – I N V E S T M E N T S 1 7 . A C Q U I S I T I O N O F S U B S I D I A R I E S B U S I N E S S C O M B I N A T I O N S 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. G O O D W I L L 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 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. 1 7 . 1 . M I N E R VA H O L D I N G S L I M I T E D A N D M H L H O L D I N G S S A ( “ M I N E R VA ” ) 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. 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 Cash consideration ( A ) I D E N T I F I A B L E A S S E T S A C Q U I R E D A N D L I A B I L I T I E S A S S U M E D O N A C Q U I S I T I O N The following table shows, at fair value, the recognised of assets acquired and liabilities assumed at the acquisition date: Property, plant and equipment Intangible assets Trade receivables Work in progress Accrued income Other receivables Cash and cash equivalents Assets Deferred income Finance lease Deferred tax liabilities Current tax liabilities Trade and other payables Liabilities Total identifiable net assets £’000 884 13,879 932 1,027 863 810 4,068 22,463 1,476 50 1,396 63 1,663 4,648 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 ) C O N S I D E R A T I O N Total consideration is satisfied by the following: Equity instruments (2,877,698 ordinary shares issued at fair value) Contingent consideration (discounted to fair value) Fair value of total consideration 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. £’000 19,608 11,200 1,958 32,766 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 ( C ) G O O D W I L L Goodwill arising from the acquisition has been recognised as follows: £1.66 million respectively. Total consideration Less: Fair value of identifiable net assets Goodwill £’000 32,766 (17,815) 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. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 2 2 1 2 3 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSN O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 1 7 . A C Q U I S I T I O N O F S U B S I D I A R I E S C O N T I N U E D 1 7 . 1 . M I N E R VA H O L D I N G S L I M I T E D A N D M H L H O L D I N G S S A ( “ M I N E R VA ” ) C O N T I N U E D ( D ) I M P A C T O N C A S H F L O W Cash consideration Less: cash balances acquired Net cash outflow from acquisition ( E ) A C Q U I S I T I O N - R E L A T E D C O S T S £’000 (19,608) 4,068 (15,540) 1 7 . A C Q U I S I T I O N O F S U B S I D I A R I E S C O N T I N U E D ( B ) C O N S I D E R A T I O N Total consideration is satisfied by the following: Cash consideration Equity instruments (1,121,077 ordinary shares issued at fair value) Contingent consideration (discounted to fair value) Fair value of total consideration ¤’000 £’000 11,258 10,093 5,000 5,352 4,482 4,798 21,610 19,373 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). Contingent consideration of £5 million (¤5.5 million) was paid in February 2019 as the business performed successfully, exceeding the Revenue and underlying EBITDA 1 7 . 2 . VA N D O O R N C F S B . V . ( “ VA N D O O R N ” ) 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 ( C ) G O O D W I L L provider of corporate and fiduciary services. Goodwill arising from the acquisition has been recognised as follows: targets set for 2018. 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. Total consideration Less: Fair value of identifiable net assets Goodwill ( A ) I D E N T I F I A B L E A S S E T S A C Q U I R E D A N D L I A B I L I T I E S A S S U M E D O N A C Q U I S I T I O N ¤’000 £’000 21,610 19,373 (6,931) (6,214) 14,679 13,159 The following table shows, at fair value, the recognised of assets acquired and liabilities assumed at the acquisition date: 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 Property, plant and equipment Intangible assets Trade receivables Work in progress Other receivables Cash and cash equivalents Assets Deferred income Deferred tax liabilities Current tax liabilities Trade and other payables Liabilities Total identifiable net assets ¤’000 54 £’000 48 8,616 7,724 342 346 42 547 307 311 38 490 9,947 8,918 177 2,154 468 217 159 1,931 420 194 3,016 2,704 6,931 6,214 assembled workforce and synergies from combining operations of the acquiree and the acquirer. ( D ) I M P A C T O N C A S H F L O W Cash consideration Less: cash balances acquired Net cash outflow from acquisition ( E ) A C Q U I S I T I O N - R E L A T E D C O S T S ¤’000 £’000 (11,258) (10,093) 547 490 (10,711) (9,603) 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). 1 7 . 3 . I N T E R N A T I O N A L T R U S T A N D W E A L T H S T R U C T U R I N G B U S I N E S S O F B A N K O F A M E R I C A C O R P O R A T I O N ( “ B A M L ” ) 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. 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. 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. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 2 4 1 2 5 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSN O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 1 7 . A C Q U I S I T I O N O F S U B S I D I A R I E S C O N T I N U E D 1 7 . 4 . N E W A M S T E R D A M C I T I T R U S T B . V . ( “ N A C T ” ) 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. 1 8 . P R O P E R T Y , P L A N T A N D E Q U I P M E N T 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 Computer equipment Office furniture and equipment over the period of the lease 4 years 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. Cost At 1 January 2017 Additions Transfers Additions through acquisitions Disposals Exchange differences At 31 December 2017 Additions Additions through acquisitions Disposals Exchange differences At 31 December 2018 Accumulated depreciation At 1 January 2017 Charge for the year Disposals Exchange differences At 31 December 2017 Charge for the year Disposals Exchange differences At 31 December 2018 Carrying amount At 31 December 2018 At 31 December 2017 Computer equipment £’000 Office furniture and equipment £’000 Leasehold improvements £’000 Assets under construction £’000 2,352 40 – 286 (27) (12) 2,639 372 114 (372) 6 858 121 – 9 (62) 1 927 256 277 (254) – 1,694 3,420 1,016 – (68) 9 6,071 843 514 (581) 42 2,759 1,206 6,889 1,557 404 (20) (3) 1,938 423 (327) 4 2,038 702 80 (46) (1) 735 99 (217) 3 620 919 568 (28) 1 1,460 420 (119) 29 1,790 721 701 586 192 5,099 4,611 1,016 – (1,016) – – – – – – – – – – – – – – – – – – – – Total £’000 5,920 3,581 – 295 (157) (2) 9,637 1,471 905 (1,207) 48 10,854 3,178 1,052 (94) (3) 4,133 942 (663) 36 4,448 6,406 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. 1 9 . I N T A N G I B L E A S S E T S A N D G O O D W I L L G O O D W I L L 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. I N T A N G I B L E A S S E T S A C Q U I R E D S E P A R A T E L Y 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 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 4 years 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. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 2 6 1 2 7 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 1 9 . I N T A N G I B L E A S S E T S A N D G O O D W I L L C O N T I N U E D 1 9 . 1 . I N T A N G I B L E A S S E T S A C Q U I R E D I N A B U S I N E S S C O M B I N A T I O N I N T A N G I B L E A S S E T S A C Q U I R E D I N A B U S I N E S S C O M B I N A T I O N 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. In 2018, the Group acquired Minerva and Van Doorn and recognised customer contract intangible assets of £13.88 million and £7.72 million respectively. K E Y A S S U M P T I O N S The fair value at acquisition was derived using the MEEM valuation model. Management considers the key assumptions used in this model to be: 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. > Year on year revenue growth 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: Cost At 1 January 2017 Additions Transfers Additions through acquisitions Disposals Exchange differences At 31 December 2017 Adjustments Additions Additions through acquisitions Disposals Exchange differences At 31 December 2018 Accumulated amortisation At 1 January 2017 Charge for the period Exchange differences At 31 December 2017 Charge for the period Prior period adjustment Disposals Exchange differences At 31 December 2018 Carrying amount At 31 December 2018 At 31 December 2017 Goodwill £’000 Customer contracts £’000 Regulatory licence £’000 Software £’000 Assets under construction £’000 Total £’000 74,022 10,935 237 2,110 – – – – 2,001 12,591 – 160 – (252) – – – – 8 282 394 – (1) 1 76,183 23,274 245 2,786 27 – – – 28,110 21,604 – 515 – 1,155 – – – – 6 – 623 45 (40) 22 250 144 (394) – – – – – 81 – – – 87,554 426 – 14,592 (1) (83) 102,488 27 704 49,759 (40) 1,698 104,835 46,033 251 3,436 81 154,636 – – – – – – – – – 1,429 1,326 (25) 2,730 2,743 – – 157 5,630 10 21 (2) 29 20 – – 3 1,289 495 1 1,785 484 – (7) 22 52 2,284 – – – – – – – – – 2,728 1,842 (26) 4,544 3,247 – (7) 182 7,966 104,835 40,403 76,183 20,544 199 216 1,152 1,001 81 146,670 – 97,944 > The discount rate applied to free cash flow S E N S I T I V I T Y A N A L Y S I S 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. 1 9 . 2 . I M P A I R M E N T O F N O N - F I N A N C I A L A S S E T S 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 N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 2 8 1 2 9 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 1 9 . I N T A N G I B L E A S S E T S A N D G O O D W I L L C O N T I N U E D 1 9 . 2 . I M P A I R M E N T O F N O N - F I N A N C I A L A S S E T S C O N T I N U E D ( A ) G O O D W I L L I M P A I R M E N T The aggregate carrying amounts of goodwill allocated to each CGU are as follows: CGU Jersey Guernsey BVI Switzerland Cayman Luxembourg Netherlands Minerva Dubai Minerva Mauritius Total CGU Jersey Guernsey BVI Switzerland Cayman Luxembourg Netherlands Total Balance at 1 Jan 2018 £’000 54,337 10,598 752 1,077 225 7,204 1,990 – – Post- acquisition adjustments £’000 – – – – – – Business combinations £’000 9,669 – – 1,208 – – 27 13,159 – – 1,761 2,313 Exchange differences £’000 Balance at 31 Dec 2018 £’000 – – – 64 12 69 105 115 150 64,006 10,598 752 2,349 237 7,273 15,281 1,876 2,463 76,183 27 28,110 515 104,835 Balance at 1 Jan 2017 £’000 Business combinations £’000 Exchange differences £’000 Balance at 31 Dec 2017 £’000 54,337 10,598 752 1,077 245 7,013 – 74,022 – – – – – – 2,001 2,001 – – – – (20) 191 (11) 160 54,337 10,598 752 1,077 225 7,204 1,990 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. K E Y A S S U M P T I O N S U S E D I N D I S C O U N T E D C A S H F L O W P R O J E C T I O N C A L C U L A T I O N S 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 prepares 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% S E N S I T I V I T Y A N A L Y S I S 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 ) C U S T O M E R C O N T R A C T I N T A N G I B L E S I M P A I R M E N T The carrying amount of the identifiable customer contract intangible assets acquired is as follows: Acquisition Signes(i) KB Group(i) S&GFA(i) BAML NACT Van Doorn Minerva Jersey Minerva Mauritius Minerva Dubai Minerva Switzerland Total Carrying amount Notes Useful economic life 10 years 12 years 10 years 10 years 12 years 11.4 years 11.8 years 10 years 10 years 8.7 years 17.3 17.4 17.2 17.1 17.1 17.1 17.1 2018 £’000 1,853 2,965 2,666 9,100 2,582 7,539 9,736 1,801 1,418 743 2017 £’000 2,107 3,314 2,890 9,392 2,841 – – – – – 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. 2 0 . D E P R E C I A T I O N A N D A M O R T I S A T I O N Amortisation of intangible assets Depreciation of property, plant and equipment Amortisation of contract assets Depreciation and amortisation 2018 £’000 3,247 942 448 2017 £’000 1,842 1,052 – 4,637 2,894 A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 3 0 1 3 1 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 2 1 . I N V E S T M E N T I N E Q U I T Y - A C C O U N T E D I N V E S T E E S E C T I O N 5 – F I N A N C I N G , F I N A N C I A L R I S K M A N A G E M E N T A N D F I N A N C I A L I N S T R U M E N T S 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. 2 2 . C A S H A N D C A S H E Q U I VA L E N T S 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 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. Cash attributable to the Company Committed EBT capital distributions Total 2018 £’000 2017 £’000 26,354 16,164 6,103 – 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. 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 2 3 . L O A N S A N D B O R R O W I N G S Current Bank loans Finance leases Other loans Total current Non-current Bank loans Investor loan notes Management loan notes Finance leases Other loans Total non-current Total loans and borrowings 2018 £’000 2017 £’000 – 5 678 683 71,494 – – 30 508 55,522 – 842 56,364 – 28,126 34,029 – 1,186 72,032 63,341 72,715 119,705 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 Gross profit (Loss)/profit for the year Other comprehensive income for the year Total comprehensive (loss)/income for the year SUMMARISED BALANCE SHEET Total non-current assets Total current assets Total assets Total current liabilities Net assets less current liabilities RECONCILIATION OF SUMMARISED FINANCIAL INFORMATION Opening net assets (Loss)/profit for the year Other comprehensive income Increase in equity Foreign exchange differences Closing net assets Group’s share of closing net assets Goodwill Carrying value of investment in associate 2018 £’000 3,639 2,762 (47) 15 (32) 2018 £’000 516 2,133 2,649 1,572 1,077 2018 £’000 813 (47) 15 225 71 1,077 456 522 978 2017 £’000 2,822 2,178 103 3 106 2017 £’000 460 1,524 1,984 1,171 813 2017 £’000 816 103 3 – (109) 813 344 542 886 A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 3 2 1 3 3 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSN O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 2 3 . L O A N S A N D B O R R O W I N G S C O N T I N U E D 2 3 . 1 . B A N K L O A N S The terms and conditions of outstanding bank loans are as follows: Facility Term facility B Acquisition facility Term facility Revolving facility Revolving facility Total principal value Issue costs Total bank loans Currency Termination Date Initial interest rate (i) GBP GBP GBP GBP EUR 31 December 2018 LIBOR + 4.5% 31 December 2018 LIBOR + 4% 8 March 2023 8 March 2023 8 March 2023 LIBOR + 2% LIBOR + 2% EURIBOR + 2% 2018 £’000 – – 45,000 19,000 9,014 2017 £’000 47,500 8,336 – – – 73,014 55,836 (1,520) (314) 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: Principal value Issue costs Total At 1 January 2018 £’000 Repayments £’000 Drawdowns £’000 Amortisation release £’000 55,836 (55,836) 72,960 (314) – (1,750) 55,522 (55,836) 71,210 – 544 544 Effect of foreign exchange £’000 54 – 54 At 31 December 2018 £’000 73,014 (1,520) 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. 2 3 . 3 . O T H E R L O A N S 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. 2 4 . O T H E R F I N A N C I A L A S S E T S A N D O T H E R F I N A N C I A L L I A B I L I T I E S 2 4 . 1 . O T H E R F I N A N C I A L A S S E T S Non-current Loans receivable from related undertakings – Northpoint Byala IC – Northpoint Finance IC Loan receivable from employee Total other financial assets 2018 £'000 2017 £'000 53 11 180 244 53 11 – 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. 2 4 . 2 . O T H E R F I N A N C I A L L I A B I L I T I E S Current Deferred consideration Total current Non-current Deferred consideration Total non-current 2018 £'000 2017 £'000 7,968 7,968 5,356 5,356 241 241 8,209 1,087 1,087 6,443 At 31 December 2018, the Group had available £27 million of committed facilities currently undrawn (2017: £1.7 million). Total other financial liabilities 2 3 . 2 . L O A N N O T E S The Investor (CBPE Capital LLP “CBPE”) and Management were issued 12% Fixed Rate Unsecured loan notes with an aggregate principal 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). 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). A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 3 4 1 3 5 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSN O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 2 5 . F I N A N C E I N C O M E A N D F I N A N C E C O S T L O A N S A N D R E C E I VA B L E S 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 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 Group and the amount of revenue can be measured reliably. value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective 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 Loans and receivables comprise loans, trade receivables and other receivables. on a straight-line basis over the contractual term. interest method, less any impairment losses. Bank interest Loan interest Finance income Bank loan interest Loan note interest Amortisation of loan arrangement fees Unwinding of net present value discounts Other finance expense Finance cost 2 6 . F I N A N C I A L I N S T R U M E N T S C L A S S I F I C A T I O N A N D M E A S U R E M E N T The Group has applied IFRS 9 as of 1 January 2018, the impact is disclosed in note 3.1. 2018 £’000 90 13 103 1,611 48 555 986 275 2017 £’000 56 17 73 2,348 9,202 322 119 224 N O N - D E R I VA T I V E F I N A N C I A L L I A B I L I T I E S 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. I M P A I R M E N T N O N - D E R I VA T I V E F I N A N C I A L A S S E T S 3,475 12,215 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, IFRS 9 introduces a single classification and measurement model for financial assets, depending on both the entity’s business model objective for managing 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, financial assets and the contractual cash flow characteristics of financial assets. Based on this, there are three principal classification categories, these are: a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. amortised cost, fair value through profit or loss (“FVTPL”) and fair value through other comprehensive income (“FVOCI”). N O N - D E R I VA T I V E F I N A N C I A L A S S E T S The Group considers evidence of impairment for financial assets measured at amortised cost (loans and receivables) at both a specific asset and collective level. The Group initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at All individually significant assets are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment 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 that has been incurred but not yet identified. Assets that are not individually significant are collectively assessed for impairment by grouping together assets with the instrument. similar risk characteristics. F I N A N C I A L A S S E T S M E A S U R E D A T A M O R T I S E D C O S T 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 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 financial asset that is created or retained by the Group is recognised as a separate asset or liability. by historical trends. 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 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 to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. liquidity risk. The Group classifies non-derivative financial assets into the following categories: loans and receivables. 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. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 3 6 1 3 7 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSN O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 2 6 . F I N A N C I A L I N S T R U M E N T S C O N T I N U E D 2 6 . 1 . M A R K E T R I S K 2 6 . 1 . M A R K E T R I S K C O N T I N U E D I N T E R E S T R A T E R I S K M A N A G E M E N T 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 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 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. 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. F O R E I G N C U R R E N C Y R I S K M A N A G E M E N T 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, 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. 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’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. The Group entities maintain assets in foreign currencies sufficient for regulatory capital purposes in each jurisdiction. The carrying amounts of the Group’s material I N T E R E S T R A T E R I S K E X P O S U R E foreign currency denominated monetary assets and monetary liabilities at the period end are as follows: The following sensitivity analysis has been determined based on the floating rate liabilities. Euro United States Dollar South African Rand Swiss Franc New Zealand Dollars Singaporean Dollars Pound Sterling Total (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. F O R E I G N C U R R E N C Y R I S K E X P O S U R E Monetary Assets(i) Monetary Liabilities(ii) 2018 £'000 10,459 7,746 1,192 745 13 – 29,602 49,757 2017 £'000 3,786 3,720 792 653 – – 2018 £'000 (3,020) (1,484) – 2017 £'000 (2,984) (552) (379) (580) (2,562) – (31) – – 18,040 (86,163) (119,982) 26,991 (91,278) (126,459) 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). 2 6 . 2 . C R E D I T R I S K M A N A G E M E N T 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 > General creditworthiness, including past default experience of the customer, and customer types 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 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 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, management. Outstanding customer receivables are monitored and followed up continuously. Provisions are made when there is objective evidence that the Group New Zealand Dollar and Singaporean Dollar exchange rates, with all other variables, particularly interest rates, remaining constant. A strengthening or weakening of 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 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. 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 Euro United States Dollars South African Rand Swiss Franc New Zealand Dollars Singaporean Dollars Total Euro United States Dollars South African Rand Swiss Franc New Zealand Dollars Singaporean Dollars Total Strengthening/ (weakening) of pound sterling Effect on comprehensive income and net assets 2018 £’000 2017 £’000 +15% +15% +15% +15% +15% +15% (15%) (15%) (15%) (15%) (15%) (15%) 1,116 939 179 25 2 (5) 2,256 (1,116) (939) (179) (25) (2) 5 120 475 62 (286) – – 371 (120) (475) (62) 286 – – (2,256) (371) 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. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 3 8 1 3 9 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSN O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 2 6 . F I N A N C I A L I N S T R U M E N T S C O N T I N U E D 2 6 . 2 . C R E D I T R I S K M A N A G E M E N T C O N T I N U E D C R E D I T R I S K E X P O S U R E 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: Trade receivables Other receivables Work in progress Accrued income Other financial assets Cash and cash equivalents Total 2018 £’000 Loss allowance 2018 £’000 Net 2018 £’000 Total 2017 £’000 Loss allowance 2017 £’000 Net 2017 £’000 19,801 (3,659) 16,142 13,497 (2,635) 10,862 5,420 7,132 9,334 244 32,457 – (48) (25) – – 5,420 7,084 9,309 244 3,515 5,855 8,052 64 32,457 16,164 – – – – – 3,515 5,855 8,052 64 16,164 74,388 (3,732) 70,656 47,147 (2,635) 44,512 2018 Loans and borrowings(i) Trade payables and accruals Deferred consideration for acquisitions 2017 Loans and borrowings(i) Trade payables and accruals Deferred consideration for acquisitions <3 months £’000 3 – 12 months £’000 1 – 5 years £’000 >5 years £’000 390 1,952 78,685 15,903 5,925 22,218 – 2,065 4,017 – 242 78,927 – – – – <3 months £’000 3 – 12 months £’000 1 – 5 years £’000 >5 years £’000 587 58,770 64,151 10,190 – – – 5,478 1,379 10,777 64,248 65,530 – – – – Total contractual cash flow £’000 81,027 15,903 8,232 105,162 Total contractual cash flow £’000 123,508 10,190 6,857 140,555 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 (i) This includes the future interest payments not yet accrued and the repayment of capital upon maturity. results in an additional allowance for impairment of £301k (see note 3.1.). 2 6 . 4 . C A P I T A L R I S K M A N A G E M E N T For the ageing of trade receivable and the provisions thereon at the year end, including the movement in the provision, see note 13. to continue as going concerns while maximising the return to shareholders through the optimisation of the debt and equity balance. 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 2 6 . 3 . L I Q U I D I T Y R I S K M A N A G E M E N T As disclosed in note 23, the Group has a bank loan which requires it to meet leverage and interest cover covenants. In order to achieve the Group’s capital risk 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 management objective, the Group aims to ensure that it meets financial covenants attached to bank borrowings. Breaches in meeting the financial covenants would by regular review around the working capital cycle using information on forecast and actual cash flows. 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. Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity risk management framework Individual regulated entities within the Group are subject to regulatory requirements to ensure adequate capital and liquidity to meet local requirements in Jersey, for the Management of the Group’s short, medium and long-term funding and liquidity Management requirements. Regulation in most jurisdictions also requires the Guernsey, Isle of Man, UK, USA, Switzerland, Netherlands, Luxembourg, Mauritius, South Africa and the Caribbean; all are monitored regularly to ensure compliance. Group to maintain a level of liquidity so the Group does not become exposed. There have been no breaches of applicable regulatory requirements during the year. L I Q U I D I T Y A N D I N T E R E S T R I S K T A B L E S The Directors continue to review and improve the Group’s objectives, policies and processes for managing capital. 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 2 6 . 5 . C A R R Y I N G A M O U N T O F F I N A N C I A L A S S E T S A N D L I A B I L I T I E S 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. Financial assets measured at amortised cost: Trade receivables Other receivables Work in progress Accrued income Other financial assets Cash and cash equivalents Financial liabilities measured at amortised cost: Loans and borrowings Trade and other payables Other financial liabilities Notes 13 16.1 12 14 24.1 22 23 16.2 24.2 2018 £’000 2017 £’000 16,142 10,862 5,420 7,084 9,309 244 32,457 70,656 3,515 5,855 8,052 64 16,164 44,512 72,715 119,705 17,409 10,098 8,209 6,443 98,333 136,246 A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 4 0 1 4 1 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 2 7 . S H A R E C A P I T A L A N D R E S E R V E S O R D I N A R Y S H A R E S 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. D I V I D E N D S 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. O W N S H A R E S 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. 2 7 . 1 . S H A R E C A P I T A L Authorised 300,000,000 Ordinary shares of £0.01 each Called up, issued and fully paid 110,895,327 Ordinary shares of £0.01 each £’000 3,000 1,109 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 Balance at the end of the year Movements in share premium Balance at the beginning of the year Issue of shares Balance at the end of the year 2 7 . 2 . O W N S H A R E S 2018 £’000 – 1,109 1,109 2018 £’000 – 94,599 94,599 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 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 £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 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. capital) with a cost of £2.564 million (2017: £1k). 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. At 1 January 2017 Movement At 31 December 2017 Movement At 31 December 2018 2 7 . 3 . O T H E R R E S E R V E S C A P I T A L R E S E R V E JSOPs No. EBT12 No. PLC EBT No. 36,602 84,000 (7,480) – 29,122 84,000 – – – (29,122) (84,000) 741,345 – – 741,345 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 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 JTCGHL were transferred to the Company and the Company issued an additional 99,097,573 Ordinary Shares to such shareholders and noteholders following which transactions with employees or owners of the Group. 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 The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations. T R A N S L A T I O N R E S E R V E 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 accumulated profit and loss reserve includes all current and prior year accumulated profits and losses and share-based employee remuneration. A C C U M U L A T E D P R O F I T S 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. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 4 2 1 4 3 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D S E C T I O N 6 – O T H E R D I S C L O S U R E S 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: 2 8 . I N C O M E T A X E X P E N S E C U R R E N T T A X Loss on ordinary activities before 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 Tax on loss on ordinary activities at standard Jersey income tax rate of 10% (2017: 10%) sheet date, and any adjustment to tax payable in respect of previous years. D E F E R R E D T A X 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 Effects of: Results from tax exempt entities (Jersey company) Results from tax exempt entities (Foreign company) Foreign taxes not at Jersey rate 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 Depreciation in excess of capital allowances (Jersey company) 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. Depreciation in excess of capital allowances (Foreign company) Temporary difference arising on amortisation of customer contracts Non-deductible expenses Additional provisions Consolidation adjustments Other differences Total tax charge for the year C U R R E N T T A X A N D D E F E R R E D T A X F O R T H E Y E A R Reconciliation of effective tax rates Current and deferred tax are recognised in the consolidated income statement, except when they relate to items that are recognised in other comprehensive income Tax on loss on ordinary activities 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 Effect of: 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 Foreign company taxes on current year profits Deferred tax expense (see note 29) Jersey origination and reversal of temporary differences Temporary movements in relation to customer contracts Foreign company origination and reversal of temporary differences Total tax charge for the year 2018 £’000 2017 £’000 587 1,463 2,050 110 (389) (43) (322) 300 982 1,282 7 (172) (34) (199) 1,728 1,083 Results from tax exempt entities (Jersey company) Results from tax exempt entities (Foreign company) Foreign taxes not at Jersey rate Depreciation in excess of capital allowances (Jersey company) Depreciation in excess of capital allowances (Foreign company) Temporary difference arising on amortisation of customer contracts Non-deductible expenses Additional provisions Consolidation adjustments Other differences Effective tax rate A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 4 4 1 4 5 2018 £’000 2017 £’000 (2,129) (3,562) (213) (356) 1,073 1,280 (87) 788 110 (43) (389) 72 200 173 44 1,728 (144) 569 6 (34) (172) 17 – (101) 18 1,083 2018 £’000 2017 £’000 10.00% 10.00% (50.67%) (35.93%) 4.11% 4.05% (37.19%) (15.96%) (5.19%) (0.17%) 18.36% 2.02% 0.95% 4.82% (3.36%) (0.49%) (9.44%) (8.15%) 0.00% 2.82% (2.06%) (0.51%) (81.58%) (30.42%) 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. STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 2 9 . D E F E R R E D T A X A T I O N The deferred taxation (assets) and liabilities recognised in the financial statements are set out below: Intangible assets Other origination and reversal of temporary differences Deferred tax assets Deferred tax liabilities The movement in the year is analysed as follows: Intangible assets Balance at the beginning of the year Recognised through acquisitions Recognised in income statement Foreign exchange (to other comprehensive income) Balance at 31 December Other origination and reversal of temporary differences Balance at the beginning of the year Recognised in income statement Balance at 31 December At 31 December 2018 and 31 December 2017 the Group recognised all material deferred tax assets and liabilities. 2018 £’000 5,869 6 2017 £’000 2,817 (61) 5,875 2,756 (135) 6,010 5,875 2018 £'000 2,817 3,327 (389) 114 (61) 2,817 2,756 2017 £'000 1,022 1,947 (172) 20 5,869 2,817 (61) 67 6 (33) (28) (61) 3 0 . P R O V I S I O N S 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. O N E R O U S C O N T R A C T S 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. D I L A P I D A T I O N S 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. At 1 January 2017 Additions Unwind of discount Amounts utilised At 31 December 2017 Additions Unwind of discount Amounts utilised Impact of foreign exchange At 31 December 2018 Analysis of total provisions: Amounts falling due within one year Amounts falling due after more than one year Total D I L A P I D A T I O N S P R O V I S I O N Dilapidation provisions £’000 Onerous lease provisions £’000 159 471 – (159) 471 422 28 – 7 928 186 223 8 (55) 362 334 12 (210) 13 511 2018 £’000 401 1,038 1,439 Total £’000 345 694 8 (214) 833 756 40 (210) 20 1,439 2017 £’000 187 646 833 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. O N E R O U S L E A S E P R O V I S I O N S 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. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 4 6 1 4 7 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 3 1 . O P E R A T I N G L E A S E S 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 2018 £’000 2017 £’000 3,587 3,188 3 3 . C A S H F L O W I N F O R M A T I O N O P E R A T I N G C A S H F L O W S Operating profit Adjustments for: Depreciation of property, plant and equipment Amortisation of intangible assets Share-based payment expense Foreign exchange 2018 £'000 629 943 3,694 443 557 2017 £'000 6,753 1,052 1,842 517 257 Operating cash flows before movements in working capital 6,266 10,421 N O N - U N D E R L Y I N G I T E M S W I T H I N N E T C A S H F R O M O P E R A T I N G A C T I V I T I E S Net cash from operating activities Non-underlying items: Capital distribution from EBT12 IPO costs Acquisition and integration costs Office closures Other Total non-underlying items within net cash from operating activities Underlying net cash from operating activities 2018 £'000 2017 £'000 6,488 10,020 7,543 954 4,024 56 93 – 54 1,142 625 388 12,670 2,209 19,158 12,229 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 In the second to fifth years inclusive After five years 2018 £'000 3,499 10,109 24,090 37,698 2017 £'000 3,196 10,736 19,159 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. 3 2 . F O R E I G N C U R R E N C Y 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. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 4 8 1 4 9 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSN O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D 3 3 . C A S H F L O W I N F O R M A T I O N C O N T I N U E D F I N A N C I N G A C T I V I T I E S Changes in liabilities arising from financing activities: At 1 January 2018 Cash flows: Acquired on acquisition Drawdowns Repayments Loan notes settled on IPO Accrual of loan note interest Other non-cash movements(i) At 31 December 2018 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 – 5 – – – – – 5 – 56,364 63,341 119,705 48 – – – – 53 72,960 72,960 (18) (56,000) (689) (56,707) – – – 30 – – 314 678 (62,202) (62,202) 48 48 (1,456) (1,142) 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. N E T D E B T Bank loans Finance leases Other loans Trapped cash(i) Committed capital distributions(ii) Less: Cash and cash equivalents Total net debt Notes 23 23 23 2018 £'000 2017 £'000 (71,494) (55,522) (35) (1,186) (2,294) (6,103) – (2,028) (1,127) – 32,457 16,164 (48,655) (42,513) 3 4 . R E L A T E D P A R T Y T R A N S A C T I O N S 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. 3 4 . 1 . K E Y M A N A G E M E N T P E R S O N N E L 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 Capital distribution from EBT12 Post-employment and other long-term benefits Share-based payments Total payments 2018 £'000 2017 £'000 1,795 1,217 841 66 194 2,896 – 60 218 1,495 3 4 . 2 . O T H E R R E L A T E D P A R T I E S T R A N S A C T I O N S 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). (i) Trapped cash represents the minimum cash balance to be held to meet regulatory capital requirements. (ii) Committed capital distribution from EBT12 to employees. 3 4 . 3 . P A R E N T A N D U L T I M A T E C O N T R O L L I N G P A R T Y 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. 3 5 . G R O U P E N T I T I E S 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 JTC Group Holdings Limited JTC Group Limited JTC (Jersey) Limited JTC Fund Solutions (Jersey) Limited JTC Trust & Corporate Services Limited JTC (UK) Limited JTC Fund Services (UK) Limited JTC Fiduciary Services (UK) Limited JTC Miami Corporation JTC Trustees (USA) Ltd Jersey Jersey Jersey Jersey Jersey United Kingdom United Kingdom United Kingdom United States United States JTC Fund Solutions (Guernsey) Limited Guernsey, Channel Islands Activity Holding Head office services Trading Trading Trading Trading Trading Trading Trading Trading Trading A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 5 0 1 5 1 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSN O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C O N T I N U E D I N V E S T O R R E L A T I O N S I N F O R M A T I O N 3 5 . G R O U P E N T I T I E S C O N T I N U E D Name of subsidiary Country of incorporation and place of business JTC Global AIFM Solutions Limited Guernsey, Channel Islands JTC Fund Solutions RSA (Pty) Ltd Caledonia Accounting Services Pte Ltd South Africa Singapore JTC Fiduciary Services (Singapore) Pte Limited Singapore JTC (BVI) Limited JTC (Luxembourg) S.A. JTC Luxembourg Holdings S.à r.l. JTC Signes Services SA JTC Signes S.à r.l. JTC Global AIFM Solutions SA JTC (Geneva) Sàrl JTC (Suisse) SA JTC Trustees (Suisse) Sàrl JTC Trust Company (Switzerland) SA JTC Trustees (IOM) Limited JTC (Netherlands) B.V. Autumn Productions B.V. JTC Holdings (Netherlands) B.V. Van Doorn CFJ B.V. British Virgin Islands Luxembourg Luxembourg Luxembourg Luxembourg Luxembourg Switzerland Switzerland Switzerland Switzerland Isle of Man Netherlands Netherlands Netherlands Netherlands JTC Trust Company (New Zealand) Limited New Zealand JTC (Cayman) Limited JTC Fund Services (Cayman) Ltd JTC (Mauritius) Limited JTC Fiduciary Services (Mauritius) Limited JTC Corporate Services (DIFC) Limited Cayman Islands Cayman Islands Mauritius Mauritius Dubai Activity Trading Trading Trading Trading Trading Trading Holding Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Holding Trading Trading Trading Trading Trading Trading Trading C O M P A N Y I N V E S T O R R E L A T I O N S David Vieira Chief Communications Officer JTC House 28 Esplanade St Helier Jersey JE4 2QP Email David.vieira@jtcgroup.com Call +44 1534 816 246 M E D I A R E L A T I O N S David Vieira Chief Communications Officer JTC House 28 Esplanade St Helier Jersey JE4 2QP Email David.vieira@jtcgroup.com Call +44 1534 916 246 C O M P A N Y S E C R E T A R Y JTC (Jersey) Limited JTC House 28 Esplanade St Helier Jersey JE4 2QP Email jtc@jtcgroup.com Call +44 1534 700 000 R E G I S T R A R 3 6 . E V E N T S O C C U R R I N G A F T E R T H E R E P O R T I N G P E R I O D Computershare Investor Services (Jersey) Limited 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. Queensway House Hilgrove Street St Helier Jersey JE1 1ES Call +44 370 707 4040 A D V I S O R S F I N A N C I A L A D V I S O R S Zeus Capital Limited 10 Old Burlington Street Mayfair London W1S 3AG United Kingdom Email info@zeuscapital.co.uk Call +44 203 829 5000 Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT Email mail@numis.com Call +44 20 7260 1000 A U D I T O R S PricewaterhouseCoopers CI LLP 37 Esplanade St Helier Jersey JE1 4XA Call +44 1534 838200 F I N A N C I A L P U B L I C R E L A T I O N S Camarco 107 Cheapside London EC2V 6DN United Kingdom Email info@camarco.co.uk Call +44 20 3757 4980 B A N K E R S The Royal Bank of Scotland International Limited 71 Bath Street St Helier Jersey JE4 8PJ Call +44 1534 285200 A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 5 2 1 5 3 G L O S S A R Y D E F I N E D T E R M S B O A R D C O S O - E R M F R A M E W O R K E U R I B O R G F S C L S E The following list of defined terms is not intended The Board of JTC PLC The Committee of Sponsoring Organisation’s Euro Interbank Offered Rate The Guernsey Financial Services Commission London Stock Exchange to be an exhaustive list of definitions, but provides a list of the defined terms used in this B R E X I T Enterprise Risk Management-Integrated Framework Annual Report Brexit is the withdrawal of the United Kingdom C R S from the European Union Common Reporting Standard A D VA N C E T O B U Y Advance to Buy, or the ‘A2B’ programme has been C A G R created to help staff purchase JTC shares directly, Compounded Annual Growth Rate independent of eligibility or participation in other C R O Chief Risk Officer F A T C A G S C The Foreign Account Tax Compliance Act Global Service Centre L T I P Long-Term Incentive Plan F C A H N W / U H N W L T M Financial Conduct Authority High Net Worth individual(s) / Ultra High Net Last twelve months F D I Worth individual(s) parts of the Ownership for All programme (e.g. C A P I T A L E M P L O Y E D C S R Foreign Direct Investment I A S B the EBT, DBSP or PSP) Total of Working Capital (WC) in the Balance Corporate Social Responsibility International Accounting Standards Board A D J U S T E D D I L U T E D E P S Intangibles (including acquisition related and C S S F Sheet, Property, Plant and Equipment and F I R S T T R A D I N G D A T E 14 March 2018, the date on which trading in the I C S Underlying EPS is adjusted to remove the charge other assets) The Luxembourg Commission for the Supervision of Offer Shares of the Company on the premium Institutional Client Services the Financial Sector or Commission de Surveillance listing segment of the Official List of the FCA and for amortisation of customer contracts, other gains and losses, share of profits from equity accounted investees, amortisation of loan arrangement fees C A P I T A L E X P E N D I T U R E ( C A P E X ) du Secteur Financier Investment in property, plant, equipment and and unwinding of NPV discounts on liabilities software not related to acquisitions D B S P trading on the main market of the London Stock Exchange commenced I F R S International Financial Reporting Standards as adopted by the European Union M & A Merger and acquisition M A N A G E M E N T The Directors of JTC Group Holdings Limited M E E M Multi-period excess earnings method financial valuation model Deferred Bonus Share Plan F R C M I N E R VA A E O I C A S H C O L L E C T I O N / Automatic Exchange of Information C O N V E R S I O N E B I T A I F M D compared with EBITDA The Alternative Investment Fund Managers E B I T D A The ratio of net cash from operating activities Profit / (loss) before interest and tax Financial Reporting Council I F R S I C Minerva Holdings Limited and MHL Holdings SA F T Es Full-Time Equivalents IFRS Interpretations Committee I L M M L R O / M L C O Money Laundering Reporting Officer / Money The organisation formerly known as the Institute of Laundering Compliance Officer Directive (2011/61/EU) C B P E C A P I T A L L L P Profit / (loss) from operating activities before F V O C I Leadership and Management A M L Anti-Money Laundering partner from 2012 to 2018) E B T 1 2 F V T P L I P O Initial Public Offering Close Brothers Private Equity (JTC’s private equity depreciation, amortisation, interest and tax Fair value through other comprehensive income C C O Jersey Trust Company Employee Benefit Trust 2012 Fair value through profit and loss N A C T New Amsterdam Cititrust B.V. N E T D E B T A L T E R N A T I V E P E R F O R M A N C E Chief Commercial Officer M E A S U R E ( A P M ) A financial measure of historical or future financial C E O performance, financial position or cash flows, other Chief Executive Officer than a financial measure defined or specified in the applicable financial reporting framework C F O E C L Expected Credit Loss E 4 A F X Foreign exchange I S A E 3 4 0 3 Total debt and total committed capital Assurance standard developed by the International distributions less cash and cash equivalents Auditing and Assurance Standards Board and supported by the International Federation N E T L E V E R A G E G B P , £ O R S T E R L I N G of Accountants. Total net debt divided by underlying EBITDA (for the LTM at average FX rates) adjusted for proforma ‘Equity for All’ – JTC’s programme to promote wide The lawful currency of the United Kingdom A R T I C L E S O F A S S O C I A T I O N G D P R organisation’s controls The Articles of Association of the Company C F T E P S The General Data Protection Regulation N P V Combatting the Financing of Terrorism Earnings Per Share (2016/679) on data protection and privacy for all Type II: Documenting over a period of time Net Present Value Chief Financial Officer employee share ownership in the Company Type I: Documenting a ‘snapshot’ of the contribution from acquisitions and synergies A U D I T A N D R I S K C O M M I T T E E The Audit and Risk Committee of the Board of C G U E S G the European Economic Area. managed over time. for all individuals within the European Union and (typically 6 months) showing controls have been the Company B A M L Cash Generating Unit Environmental, Social and Governance C I M A E U R O R ¤ The general meeting of the Company The Jersey Financial Services Commission G E N E R A L M E E T I N G J F S C the Company N O M I N A T I O N C O M M I T T E E The Nomination Committee of the Board of Bank of America Merrill Lynch Wealth The Cayman Islands Monetary Authority The single currency introduced at the start of Management’s International Trust and Wealth Structuring business C O Compliance Officer B E P S The Base Erosion and Profit Shifting Project of C O M P A N Y the OECD JTC PLC the third stage of the European Economic and Monetary Union pursuant to the Treaty on the functioning of the European Community, as amended from time to time G R O U P L I B O R N O N - U N D E R L Y I N G I T E M S These are certain one-off charges or non-recurring The Company and its subsidiaries from time The London Inter-bank Offered Rate is an average credits that have a material impact on the Group’s to time G H B Group Holdings Board value of the interest-rate which is calculated from estimates submitted by the leading global banks on financial results. They represent items of income or expenditure that are not of an operational a daily basis nature do not represent the core operating results and based on their significance in size or nature and are presented separately to provide further understanding about the performance of the Group. A N N U A L R E P O R T 2 0 1 8 | J T C P L C A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 5 4 1 5 5 G L O S S A R Y C O N T I N U E D O E C D T S R Organisation for Economic Co-operation Total Shareholder Return and Development O 4 A U N D E R L Y I N G E B I T D A EBITDA excluding one-off charges or non-recurring Ownership for All, the evolution of JTC’s shared credits within operating expenses that are non- ownership programme for all employees post IPO underlying P I I U N D E R L Y I N G E B I T D A M A R G I N Professional Indemnity Insurance Underlying EBITDA divided by revenue, and is expressed as a percentage P L C E B T JTC PLC Employee Benefit Trust U N D E R L Y I N G E A R N I N G S P C S Private Client Services P D M R P E R   S H A R E Underlying profit / (loss) for the year divided by the weighted-average number of basic shares for the period Person Discharging Managerial Responsibility U N D E R L Y I N G G R O S S P R O F I T P R O F O R M A Gross profit (being revenue less direct staff and other direct costs) excluding one-off charges or Taking into account a full year’s trading non-recurring credits that are non-underlying P S P Performance Share Plan P W C PricewaterhouseCoopers CI LLP U N D E R L Y I N G G R O S S P R O F I T   M A R G I N Underlying gross profit divided by revenue, and is expressed as a percentage U N D E R L Y I N G P R O F I T / ( L O S S ) R E C O M M E N D A T I O N F O R F O R T H E Y E A R S I G N I N G   ( R F S ) Loss for the year excluding one-off charges or non- JTC internal control tool ensuring that decisions recurring credits within operating expenses, other made by the business are thoroughly documented, gains and finance costs that are non-underlying reviewed and approved at an appropriate level on a ‘six-eyes’ basis U B O Ultimate Beneficial Owner R E M U N E R A T I O N C O M M I T T E E The Remuneration Committee of the Board of the Company U S D O R $ The lawful currency of the United States S H A R E S U K C O R P O R A T E G O V E R N A N C E The Ordinary Shares in the capital of the Company C O D E O R T H E C O D E The UK Corporate Governance Code 2016 S H A R E H O L D E R Any holder of Ordinary Shares at any time VA N D O O R N Van Doorn CFS B.V. S M E Small and Medium sized Enterprise W A C C Weighted Average Cost of Capital S T E P Society of Trust and Estate Practitioners A N N U A L R E P O R T 2 0 1 8 | J T C P L C 1 5 6 Consultancy, design and production www.luminous.co.uk Design and production www.luminous.co.uk A N N U A L R E P O R T 2 0 1 8 | J T C P L C S T R O N G E R T O G E T H E R J T C P L C J T C H O U S E 2 8 E S P L A N A D E S T H E L I E R J E R S E Y J E 2 3 Q A C H A N N E L I S L A N D S J T C G R O U P . C O M 

Continue reading text version or see original annual report in PDF format above