Jtc Plc Regulatory News (JTC)

17 September 2019

JTC PLC

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

Interim results for the six months ended 30 June 2019

JTC reports H1 adjusted EBITDA up 35.2% with a positive outlook for growth

* Adjusted underlying EBITDA is the EBITDA for the period after removing the impact of non-underlying items within EBITDA as disclosed in note 8 and is also adjusted to remove the impact of IFRS 16.

Alternative Performance Measures - see note (a) on page 2

H1 2019 Highlights

revenue and profit momentum

·; Revenue up 32% to £46.6m (H1 2018: £35.3m), reflecting a combination of good net organic growth (+8.2%) and growth from acquisitions (+23.8%)

·; Adjusted underlying EBITDA up 35.2% to £14.3m (H1 2018: £10.5m)

·; Adjusted underlying EBITDA margin increased to 30.6% (H1 2018: 29.9%)

·; EBIT for the period is £10.6m compared to a loss (£7.7m) for H1 2018 (H1 2018 was before the impact of IFRS 16 and after the high level of costs associated with the IPO)

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

·; Cash conversion of 101% (H1 2018: 56%)

continued organic and inorganic growth

·; 8.2% net organic growth

·; £5.9m annualised value of new business won in H1 2019 from existing and new clients (H1 2018: £4.8m)

·; Organic new business enquiry pipeline of £33.1m at 30 June 2019 (H1 2018: £25.8m)

·; Acquired Exequtive Partners, a Luxembourg based provider of corporate and related fiduciary services, broadening and deepening our proposition in a key ICS jurisdiction

·; Healthy M&A deal pipeline that remains subject to disciplined acquisition criteria and positions us well to take advantage of further consolidation opportunities

well-invested Scalable global platform

·; Enhancements made to senior management team, including appointment of new Group Head of ICS and Chief Commercial Officer

·; Integration of Minerva, Van Doorn and Exequtive Partners progressing

·; The Group remains well invested in terms of people, processes, systems and premises to deliver on its targets

Outlook

·; The Group is trading in line with Board expectations and is confident that this momentum will be carried into H2

·; Guidance of full year net organic growth in the range 8-10% is on track supported by a particularly strong pipeline of new work won since period end

·; Adjusted underlying EBITDA margin in H1 was within the guidance range and management expects to see another small improvement for the full year 

·; Net debt (proforma) at 1.9 times and expected to fall if no further acquisitions in H2

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

·; The ongoing resolution of Brexit remains an important consideration for the Board

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

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

"We have carried the momentum from our strong first set of full year results into H1 2019. We saw good growth in revenue (+32%) and adjusted underlying EBITDA (+35.2%) compared to the same period last year and delivered net organic growth (8.2%) and adjusted underlying EBITDA margin (30.6%) in line with guidance given for the full year. Both Divisions have performed well as we continue to take a balanced approach to servicing the market. Integration of Van Doorn, Minerva and Exequtive Partners is progressing as planned. As the sector continues to consolidate, we have maintained an active M&A pipeline, but will remain disciplined in our approach.

Consistent investment in our scalable global platform remains focused on continuous operational improvement and the senior leadership team has been strengthened through a number of appointments, including a new Group Head of ICS and Chief Commercial Officer.

Looking ahead, there are a number of structural growth opportunities in our sector, which we believe the Group is well positioned to take advantage of. As ever, shared ownership remains at the heart of our business and I thank all members of the JTC team for their ongoing contribution."

Note (a): In order to assist the reader's understanding of the financial performance of the Group, alternative performance measures ("APM's") 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 8.

Enquiries:

JTC PLC +44 (0) 1534 700 000

Nigel Le Quesne, Chief Executive Officer

Martin Fotheringham, Chief Financial Officer

David Vieira, Chief Communications Officer

Camarco +44(0)20 3757 4985

Geoffrey Pelham-Lane

Kimberley Taylor

Monique Perks

A presentation for analysts will be held at 09:30 today (09:00 arrival) at the offices of Numis Securities, 10 Paternoster Square, London, EV4M 7LT.

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

Forward Looking Statements

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

About JTC

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

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

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

www.jtcgroup.com

Strategic ReportChIEf executive Officer's review

Growth momentum

The first half of 2019 saw us maintain the positive momentum of 2018 and we are pleased with the levels of growth in revenue and profitability. We have delivered good net organic growth, as well as growth from recent acquisitions. Both divisions performed well and we continued to invest in our operating platform to support business goals and deliver client service excellence. The outlook for the remainder of 2019 and beyond is positive for our sector with opportunities for both organic and inorganic growth.

We often highlight that while JTC is relatively new to the public markets, we have a proven track record spanning more than 30 years. The transition from 2018, our first year as a PLC, to 2019 is a good example of our 'evolution, not revolution' approach and how it works to drive long-term value for all our stakeholders.

At JTC our goal continues to be the development of an outstanding business where high standards are coupled to entrepreneurial spirit and the commitment to become a better company every day.

We continue to apply our strengths and specific approach to take advantage of increasing global demand for our services and the ongoing consolidation opportunities we see in our sector in order to drive sustainable growth in the long term interests of all our stakeholders.

Financial Highlights

Our H1 2019 results are in line with our expectations. We have seen good momentum in the period across both divisions. In comparing to the same period last year, Group revenue increased by 32.0% to £46.6m and adjusted underlying EBITDA by 35.2% to £14.3m. Profit after tax was £7.9m (H1, 2018: Loss of £10.0m). Cash conversion for the period was 101% (H1, 2018: 56%).

These results were achieved through a combination of net organic growth of 8.2% and the continuing positive contribution of previous acquisitions as well as the part-year contribution from the Exequtive Partners acquisition made in the period.

These results and our outlook remain in line with the full year guidance previously provided.

Institutional Client Services (ICS) Division

In H1 2019 the ICS Division accounted for 54.4% of Group turnover (56.3% in H1 2018). Gross revenue showed a 27.6% increase in the period to £25.4m (H1 2018: £19.9m) and a 41% increase in adjusted underlying EBITDA year-on-year (H1 2019: £7.1m vs H1 2018: £5.0m). Adjusted underlying EBITDA margin increased to 27.8% (H1 2018: 25.2%).

Revenue growth was good across the division, with continued focus on key alternative asset classes, including real estate and private equity, as well as further development of our capabilities in the emerging FinTech space.

The ICS organic new business pipeline at 30 June 2019 was £22.1m (H1 2018: £20.2m) with the annualised value of new business won during the period standing at £3.2m (H1 2018: £3.1m). It has been particularly pleasing to see the number of larger (£500k - £1m+ pa) mandates won by the division during the period and post period end, indicating that the work to enhance our business development and marketing programmes is yielding results.

We aim to deliver incremental margin improvement in the ICS division through the refinement of our operating model and in particular, the optimal interaction between our Global Service Centre (GSC) in Cape Town and other ICS jurisdictions. Period on period, we have seen a positive trend in H1 and we expect to build on this in the second half of the year and beyond as we make consistent investments in technology, processes and our people as well as capturing economies of scale.

The dynamics of the Van Doorn and Exequtive Partners acquisitions are discussed in more detail in the inorganic growth section below and both businesses made an important contribution to the ICS division during the period, as well as strengthening the ICS leadership team. As integration of those businesses continues, we expect to see benefits in terms of organic new business pipeline, organic new business won and cross-selling and up-selling of solutions to existing clients.

In April, we were pleased to promote Jonathan Jennings from within the business to the role of Group Head of ICS. Jon has seamlessly picked up the reins from Tony Whitney, who at the same time moved into the new post of Chief Commercial Officer and continues to work closely with the ICS division.

Private Client Services (PCS) Division

In H1 2019 the PCS Division accounted for 45.6% of Group turnover (43.7% in H1 2018). Gross revenue showed a 37.7% increase in the period to £21.2m (H1 2018: £15.4m) and adjusted underlying EBITDA increased by 30% year-on-year (H1 2019: £7.2m vs H1 2018: £5.5m). Adjusted underlying EBITDA margin decreased to 33.9% (H1 2018: 35.9%).

Revenue growth was strong, driven in particular by the effect of the Minerva acquisition and good demand for our US service offering.

The PCS organic new business pipeline at 30 June 2019 was £11.0m (H1 2018: £5.6m) with the annualised value of new business won during the period standing at £2.7m (H1 2018: £1.7m). The first half of the year saw ongoing work to enhance the PCS business development function, including the adoption of a regional model based on client nexus and the establishment of a dedicated on-boarding team to provide a seamless client experience and generate internal efficiencies.

Adjusted underling EBITDA margin reduced by 2.0 percentage points to 33.9% and this was expected as we continued to invest in the PCS operating platform globally to support long-term growth. This included further investment in the JTC Private Office offering and the development of our Cayman office following the granting of a Cayman trust licence and the appointment of a new Managing Director, Michael Halsey.

inorganic Growth strategy in action

During the period, we acquired Exequtive Partners in Luxembourg and this strengthened our offering, capacity and network in a key ICS jurisdiction and one that we regard as having a higher than average growth potential over the medium to long-term. Integration continues as planned including a move to new premises in H2. Alongside core integration tasks in Luxembourg, we have also been working to create strong ties to our Netherlands, UK and Channel Islands offices in particular, to ensure that we maximise referral and cross selling opportunities. 

The two acquisitions completed in 2018, Van Doorn, an ICS focused business in the Netherlands, and Minerva, a predominantly PCS focused business with a multi-jurisdictional footprint, both continued to integrate as planned within our global platform.

In the case of Van Doorn, we have strengthened our presence in the Benelux region (which further links to the Exequtive Partners acquisition). We see an opportunity to build a mid-size Netherlands business that is able to grow organically, in particular by winning market share from larger incumbents, while at the same time expanding inorganically through good value bolt-on or similar deals that are driven by the twin trends of sector consolidation and increasing regulation. While we do not regard the Netherlands to be as high growth as markets such as Luxembourg, we still see it as a growth territory for JTC in the medium term.

The Minerva acquisition was larger in scale. It added new capabilities in Mauritius and Dubai, and deepened our presence in Jersey, London, Geneva and Singapore. A high degree of cultural alignment has supported the integration of Minerva and we have been particularly pleased with the response of clients and intermediaries, as well as flows of business between our European, African and Asian offices. In addition, the Minerva acquisition has allowed us to accelerate the development of our global treasury services offering, the positive impact of which we expect to see materialise in the next 12-18 months.

More generally, we continue to regard the sector as being in a period of consolidation and have an active global pipeline of M&A opportunities of varying sizes and stages of development. We are particularly focused on opportunities in the alternatives market and specifically a number of regions including the US and Europe. However, we are mindful of the impact that demand is having on pricing for such assets and will maintain our disciplined approach to evaluating opportunities that fit with our strategy and are in the best long-term interests of the Group. We also believe that there may be opportunities to increase our range of services through the acquisition of 'first cousin' businesses (e.g. regulatory compliance services) that align with our core fund, corporate and private client services and would enable an increased share of wallet in a manner that adds genuine value and convenience for clients.

Our People and Culture

Our shared ownership philosophy remains at the heart of our culture and continues to be an important factor in attracting and retaining talent. It is also a key part of our proposition for acquisitions. The new 'Advance to Buy' programme launched at the beginning of 2019 has been well received, with around 10% of staff using the scheme to increase their direct holding in the Company.

Following the release of our maiden Annual Report, one area of focus for 2019 has been to consider the skills, experience and diversity of our Board and post period end we were pleased to announce the appointment of Wendy Holley, Chief Operating Officer, as an Executive Director of the Group. Wendy joined JTC over 10 years ago and has been an integral part of the senior management team as we have grown the business. She is a leading advocate of our shared ownership culture and will help the Board to even better connect with all our people, across our global network of offices. As noted by our Chairman at the time of Wendy's appointment, we will actively seek to appoint an additional non-executive director in the near future.

The development of our people is facilitated through the JTC Academy and the first half of the year saw us roll out the latest in a series of structured management development programmes. The 'Leaders In Our Name' (LION) initiative is a 12 month programme designed specifically for our 34 most senior leaders. Over a series of eight modules it will help to refine and develop the commercial, risk and leadership skills of the management team with cohorts deliberately blended together from across all offices, both divisions and different operational functions to encourage collaboration, relationship building and the sharing of best practice across the Group. In addition, the LION programme, along with our established annual performance appraisal process, will support our long-term succession planning in a way that is designed to encourage the meritocratic promotion of individuals from within the business to the most senior executive roles within the Group over time.

Our people continue to be our most important asset and on behalf of the Board, I would like to thank all members of the team for their hard work and contribution in the period.

Risk

The principal risks facing the Group remain as set out in our 2018 Annual Report. Material risks include acquisition risk, competition risk, data protection and cyber security risk, staff resourcing risk, political and regulatory change risk, and regulatory and procedural compliance risk. We remain satisfied as to the effectiveness of the Group's risk analysis, management and culture, developed over more than 30 years of JTC operations.

Dividend

The Board has recommended an interim dividend of 1.7p per share (H1 2018: 1.0p) in line with our progressive dividend policy. The interim dividend will be paid on 25 October 2019 to shareholders on the register as at close of business on the record date of 27 September 2019.

Outlook

We are pleased with the results delivered in the period and these build on the performance of 2018. We are confident in the ability of the Group to continue making progress towards its goals and in line with management expectations.

We see good organic growth opportunities in both Divisions and are pleased with the scale of our new business pipeline as well as our ability to generate opportunities as a result of the structured integration of acquisitions. Post-period end we have seen strong new business flows, especially in the ICS division, and will continue to target organic growth, net of attrition, in the range 8-10% for the full year at Group level.

In terms of profitability, we continue to target steady incremental improvement in our ICS division and for the PCS division we have made investments in the operating platform that are aligned with long-term growth objectives while continuing to support an adjusted underlying EBITDA target margin in the range 30-35% for the full year at Group level.

We will maintain our disciplined approach to M&A activity, working to progress a range of opportunities that we believe are in the best long-term interests of the Group, with particular focus on opportunities connected to the ICS division and certain geographic markets, including the US and Europe.

Our people and culture remain an important differentiator for JTC and we will continue to make investments in the JTC Academy as part of our talent management and succession planning programmes. We will also remain well invested in technology, processes and premises to ensure that our global platform delivers client service excellence and is configured to capture economies of scale as the Group grows.

We believe the macro environment remains favourable overall for the business, with the Company well organised and positioned to take advantage of opportunities that may arise as a result of changes in the geo-political and economic landscape.

The Group remains confident for the remainder of 2019 and beyond.

Nigel Le Quesne

Chief Executive Officer

Chief financial officer's review

Delivering in line with guidance

Financial Review

The Board is pleased with H1 2019 performance, which has seen JTC continue in the same vein as previous years. Revenue grew by 32% and adjusting for the impact of IFRS 16, underlying EBITDA grew in absolute terms and increased relative to performance in H1 2018. A primary focus for the Board is to ensure that the quality of client service is maintained and to do this the business continues to invest in its infrastructure and people.

Revenue

In H1 2019, revenue was £46.6m, an increase of £11.3m (32.0%) compared to H1 2018.

Period on period growth was driven by net last twelve months (LTM) organic growth of 8.2% and inorganic growth from acquisitions of 23.8%.

LTM Revenue growth, on a constant currency basis is summarised below.

Note: presented as constant currency using H1, 2019 Consolidated Income Statement exchange rates.

LTM client attrition is 5.6%, a significant drop from 8.9% reported at the end of 2018. Attrition is broken down into three principal categories as shown in the table above. 99.0% of revenues that are not end of life were retained in the period (98.2% at 31 December 2018).

Acquisitions contributed £16.5m of new revenue in the LTM period broken down as follows:

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

New Business / Pipeline

The enquiry pipeline increased by 28.3% from £25.8m at 30 June 2018 to £33.1m at 30 June 2019. During H1 2019 JTC secured new work with an annualised value of £5.9m (H1 2018: £4.8m). Typically this revenue will have an average lifespan of approximately 10 years.

Underlying Profit and Margin Performance

Adjusted underlying EBITDA in H1 2019 was £14.3m, an increase of £3.8m and 35.2% from H1 2018. The reconciliation of the improvement in the underlying EBITDA is shown below.

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

The adjusted underlying EBITDA margin % is the primary KPI used by the business and is a key measure of management's ability to run the business effectively and in line with competitors and historical performance levels. For the year ending 31 December 2018, we improved the underlying EBITDA margin to 30.9% from 24.1% in the previous year. In H1 2019 the margin was 30.6% against 29.9% for the same period in 2018. We continue to focus on improving operational efficiency in both divisions as well as continuing cost control whilst making sure that we are appropriately invested in people, systems, processes and premises.

The above table excludes the impact of IFRS 16 and is how management assesses the performance of the business. ICS's underlying EBITDA margin improved from 25.2% in H1 2018 to 27.8% for the same period in 2019. We have continued to invest in the divisional operating model and utilisation of the Cape Town GSC. In addition, we have invested in new service lines including Transfer Agency and Custody Services (Luxembourg) as well as upgrading our Treasury offering. PCS's underlying EBITDA margin fell from 35.9% in H1 2018 to 33.9% in H1 2019 due to the ongoing investment in the business. We benefitted in H1 2018 from the swift and effective integration of the BAML business as well as the benefits that accrued from the operational changes made in the latter part of 2017. However, we recognised that to sustain our business growth in PCS we required further investment in this period and this is reflected in the lower margin.

The Group reported EBIT in the period of £10.6m. This is not directly comparable with the result of H1 2018 (loss of £7.7m) due to the impact of IFRS 16 and the high level of non-underlying costs associated with the IPO.

profit Before Tax

The reported profit before tax for the six month period ended 30 June 2019 was £9.0m (H1 2018: £9.2m loss).

Earnings Per Share

Basic EPS was 7.09p in the period (H1 2018: (10.97p) loss per share). Underlying EPS was 7.52p (H1 2018: 7.29p). Adjusted underlying basic EPS was 7.82p (H1 2018: 7.29p). Adjusted underlying basic EPS is the profit/(loss) for the year adjusted to remove the impact of non-underlying items within profit and to remove the impact of IFRS 16.

Cash Flow and Debt

Cash generated from underlying operating activities in the six month period was £16.1m representing a 101% conversion of underlying EBITDA (H1 2018: 56%).

The 2018 conversion rate was adversely impacted due to the billing and payment cycle associated with the BAML acquisition. Cash conversion is typically in the range 85 - 90% but we outperformed in the period due to strong performance within the PCS division and improvements made in the billing process.

Note: Cash Conversion = Underlying Cash Flow from Operating Activities / Underlying EBITDA. All figures exclude IFRS 16 impact.

Net debt at the period end was £60.9m compared to £23.7m at 30 June 2018. Underlying H1 2019 EBITDA does not include the full year impact of the profit of the Van Doorn, Minerva or Exequtive Partners acquisitions in this calculation. On a proforma basis, net debt as a proportion of underlying EBITDA is 1.9 times.

Martin Fotheringham

Chief Financial Officer

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

For the 6 month period ended 30 June 2019

"The directors' confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

·; an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·; material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report."

Nigel Le Quesne Martin Fotheringham

Chief Executive Officer Chief Financial Officer

16 September 2019 16 September 2019

Independent review report to JTC PLC

We have reviewed the accompanying condensed consolidated interim financial information of JTC PLC (the "Company") and its subsidiaries (together the "Group") as of 30 June 2019. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial information is not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

The accompanying condensed consolidated interim financial information comprise:

·; the condensed consolidated interim balance sheet as of 30 June 2019;

·; the condensed consolidated interim income statement for the six month period then ended;

·; the condensed consolidated interim statement of comprehensive income for the six month period then ended;

·; the condensed consolidated interim statement of changes in equity for the six month period then ended;

·; the condensed consolidated interim statement of cash flows for the six month period then ended; and

·; the notes, comprising a summary of significant accounting policies and other explanatory information.

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

The Directors are responsible for the preparation and presentation of this condensed consolidated interim financial information in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

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

We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of interim financial information performed by the independent auditor of the entity' issued by the International Auditing and Assurance Standards Board. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

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

We have read the other information contained in the Interim Financial Report 30 June 2019 and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers CI LLP

Chartered Accountants

Jersey, Channel Islands

16 September 2019

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

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

Financial statements

JTC PLC

INTERIM FINANCIAL REPORT 30 JUNE 2019

UNAUDITED

Condensed consolidated interim income statement

Condensed consolidated interim statement of comprehensive income

Condensed consolidated interim balance sheet

Condensed consolidated interim statement of changes in equity

Condensed consolidated interim statement of cash flows

Notes to the condensed consolidated interim financial statements

1 Reporting entity

2 Significant changes in the current reporting period

3 Basis of preparation

4 Significant accounting policies and standards

5 Critical accounting estimates and judgements

6 Segmental reporting

7 Staff expenses

8 Non-underlying items

9 Earnings per share

10 Business combinations

11 Share capital and reserves

12 Loans and borrowings

13 Financial instruments

14 Change in accounting policy for IFRS 16

15 Cash flow information

16 Related party transactions

CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT

The results for the period ended 30 June 2019 have been prepared including the impact of IFRS 16; prior period amounts have not been restated (see note 14).

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

CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE

INCOME

The results for the period ended 30 June 2019 have been prepared including the impact of IFRS 16; prior period amounts have not been restated (see note 14).

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

CONDENSED CONSOLIDATED INTERIM BALANCE SHEET

* Cash balance includes £2.79m for pending EBT12 capital distributions (30 June 18: £6.92m).

The results for the period ended 30 June 2019 have been prepared including the impact of IFRS 16; prior period amounts have not been restated (see note 14).

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

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN

EQUITY

The results for the period ended 30 June 2019 have been prepared including the impact of IFRS 16; prior period amounts have not been restated (see note 14)

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

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS

* Cash balance includes £2.79m for pending EBT12 capital distributions (30 June 18: £6.92m).

The results for the period ended 30 June 2019 have been prepared including the impact of IFRS 16; prior period amounts have not been restated (see note 14).

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

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL

STATEMENTS

1. REPORTING ENTITY

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

In the prior period, on 14 March 2018, the Company obtained control of the entire share capital of JTC Group Holdings Limited ("JTCGHL") via a share exchange, and thus control of the Group. Although the share exchange resulted in a change of legal ownership, in substance this is a continuation of the pre-existing Group, formerly headed by JTCGHL. As a result, an element of the comparatives for 30 June 2018 presented in these condensed financial statements are the consolidated results of JTCGHL. The condensed consolidated balance sheet at 30 June 2018 and 31 December 2018 presents the legal change in ownership of the Group, including the share capital of JTC PLC and the effects of the share exchange transactions.

The condensed consolidated interim financial statements of the Company for the period from 1 January 2019 to 30 June 2019 comprise the Company and its subsidiaries (together "the Group" or "JTC") and the Group's interest in an associate.

2. SIGNIFICANT CHANGES IN THE CURRENT REPORTING PERIOD

During the first half of 2019 the Group maintained the positive momentum of 2018, both reportable segments performed well with growth in revenue and profitability (see note 6). The Group has reviewed its exposure to changes in the geo-political and economic landscape (including Brexit) and believe the macro-economic environment remains favourable overall for the business and that the business is well-organised and positioned to take advantage of opportunities that may arise. It has sufficient headroom to meet covenants on its existing borrowings and has sufficient working capital and undrawn facilities to service its operating activities and ongoing investments.

The financial position and performance of the Group was affected by the following events and transactions during the six months to 30 June 2019:

·; the acquisition of Exequtive Partners S.A. ("Exequtive") (see note 10)

·; the draw down of £15.5 million (€17.9 million) from our existing loan facility to partially fund the acquisition of Exequtive (see note 12)

·; the adoption of the new leasing standard IFRS 16 'Leases' (see note 14)

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

3. BASIS OF PREPARATION

These condensed consolidated interim financial statements for the six months to 30 June 2019 have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union ("EU") and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. They are presented in pounds sterling (£), which is the functional currency of the Group. They do not include all the information required for a complete set of IFRS financial statements. Accordingly, the condensed consolidated interim financial statements should be read in conjunction with the annual consolidated financial statements for the year ended 31 December 2018, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual consolidated financial statements as at and for the year ended 31 December 2018.

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

These financial statements were approved by the board of directors on 16 September 2019 and have been reviewed but not audited by the Group's external auditors.

4. SIGNIFICANT ACCOUNTING POLICIES AND STANDARDS

The accounting policies applied in these condensed consolidated interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 December 2018 except for the adopted new standards.

To the extent relevant, all IFRS standards and interpretations including amendments that were in issue and effective from 1 January 2019, have been adopted by the Group from 1 January 2019. These standards and interpretations had no material impact for the Group except for IFRS 16 'Leases'. This standard replaces IAS 17 'Leases' and 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. The Group has a number of operating leases, mainly for real estate and has adopted IFRS 16 retrospectively from 1 January 2019, but has not restated comparative figures for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The transition to IFRS 16 has had a significant impact on the balance sheet, on disclosure of items within the income statement and to opening equity. The impact of the adoption of this standard and the new accounting policy is disclosed in note 14.

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of these condensed consolidated interim financial statements requires management to make certain assumptions, estimates and judgements that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

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

For areas involving a higher degree of judgement or areas where assumptions and estimates are significant to the condensed consolidated interim financial statements, reference is made to Note 4.1 and 4.2 of the Group's consolidated financial statements as at and for the year ended 31 December 2018.

In addition to this, following the adoption of IFRS 16, the directors have determined that significant estimates and judgements were made when determining the right-of-use assets and lease liabilities to recognise upon transition. These are disclosed in note 14.

6. SEGMENTAL REPORTING

6.1. BASIS OF SEGMENTATION

The Group operates in multiple jurisdictions and the core focus of operations is on providing services to its institutional and private client base, with revenues from alternative asset managers, financial institutions, corporate entities and family office clients. Declared revenue is generated from external customers.

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

6.2. SEGMENTAL INFORMATION

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

The Board evaluates segmental performance based on revenue, underlying gross profit and underlying EBITDA. Profit before income tax is not used to measure the performance of the individual segments as items 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.

6.3. SEASONALITY

The business of the Group does not show material changes for seasonality in the condensed consolidated interim income statement, however working capital is generally higher at 30 June compared to 31 December due to the billing of annual responsibility fees at the end of Q4 and the start of Q1 each year.

7. STAFF EXPENSES

7.1. SHARE-BASED PAYMENT ARRANGEMENTS

In April 2019, the Group granted 253,518 shares under the PSP. The 2019 awards have the same performance conditions as the 2018 awards (TSR and EPS performance) and also vest over a performance period of three consecutive accounting periods.

For further information on our share-based compensation, see note 7 of the 2018 Annual Report.

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

8. NON-UNDERLYING ITEMS

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

(i) During the period ended 30 June 2019, the Group expensed £600k (30 June 18: £2,094k) in relation to the following acquisitions; Exequtive Partners S.A. ("Exequtive") £261k, Minerva £248k, Van Doorn £73k and NACT £18k.

(ii) During six months ended 30 June 2019, the credit is for leavers who forfeited their distribution.

(iii) During six months ended 30 June 2019, one-off costs relating to other items not considered to represent the ongoing operations of the business included £27k of fees relating to terminated projects.

9. EARNINGS PER SHARE

9.1. BASIC EARNINGS PER SHARE

The calculation of basic earnings per share is based on the profit for the period ended 30 June 2019 of £7,869k (period ended 30 June 2018: loss £9,985k) divided by the weighted-average number of ordinary shares of 110,956,207 for the same period (period ended 30 June 2018: 90,990,388).

9.2. DILUTED EARNINGS PER SHARE

The calculation of diluted earnings per share is based on 9.1 above after adjusting for the potentially dilutive effect of 460,224 ordinary shares that have been granted. For the six months ended 30 June 2018, as the Group made a loss for the period, the potential impact of any dilutive ordinary shares is not calculated as the impact would be anti-dilutive.

9.3. UNDERLYING BASIC EARNINGS PER SHARE

The calculation of underlying basic earnings per share was based on the profit for the period ended 30 June 2019 adjusted for non-underlying items (see note 8) of £8,350k (period ended 30 June 2018: £6,634k) divided by the weighted-average number of ordinary shares of 110,956,207 for the same period (period ended 30 June 2018: 90,990,388).

9.4. ADJUSTED UNDERLYING BASIC EARNINGS PER SHARE

The calculation of adjusted underlying basic earnings per share is calculated on the same basis as in 9.3 but with profit for the period ended 30 June 2019 being adjusted to remove the effect of IFRS 16.

10. BUSINESS COMBINATIONS

10.1. EXEQUTIVE PARTNERS S.A. ("Exequtive")

On 25 March 2019, JTC entered into an agreement to acquire 100% of the share capital of Exequtive from Primitivo SARL, De Gorzen SARL, Tika Holdings SARL, Pimpiri SARL and Stichting Administratiekantoor Employee Benefit Jomaroma. Exequtive is a privately owned Luxembourg-based provider of domiciliation and corporate administration services.

The acquired business contributed revenues of £1.36 million and profit before tax of £0.56 million to the Group for the period from 1 April to 30 June 2019. If the business had been acquired on 1 January 2019, the consolidated pro-forma revenue and profit for the period for the Group would have been £48.05 million and £9.6 million respectively.

(A) IDENTIFIABLE ASSETS ACQUIRED AND LIABILITIES ASSUMED ON ACQUISITION

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

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

(B) CONSIDERATION

Total consideration is satisfied by the following:

Contingent consideration of €9 million is payable within 20 business days of the adoption of the 2019 audited financial statements and is contingent on Exequtive maintaining an underlying EBITDA and achieving Revenue targets as agreed in the SPA. 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 €8.9 million.

(C) GOODWILL

Goodwill arising from the acquisition has been recognised as follows:

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

(D) IMPACT ON CASH FLOW

*Net debt and net working capital adjustment of €297k was paid on 18 July 19.

(E) ACQUISITION RELATED COSTS

The Group incurred acquisition-related costs of £261k for professional, legal and advisory fees. These costs have been recognised in other operating expenses in the Group's consolidated income statement and are treated as non-underlying items to calculate underlying EBITDA (see note 8).

11. SHARE CAPITAL AND RESERVES

11.1 SHARE CAPITAL AND SHARE PREMIUM

At 31 December 2018, 110,895,327 Ordinary shares of £0.01 each were held at a cost of £1,109k with share premium of £94,599k.

On 29 March 2019, as part consideration for the acquisition of Exequtive (see note 10), the Company issued 1,925,650 Ordinary shares of £0.01 each with a share premium of £5,663k.

11.2 OWN SHARE RESERVE

The Group holds own shares as it operates an employee share ownership plan for the benefit of its employees, the PLC EBT. As this reserve comprises the cost of the Company's shares held by the Group, these are treated as own shares in accordance with IAS 32 "Financial Instruments".

Following the IPO and as at 31 December 2018, 741,345 shares were held at a cost of £2.565m. During the six months to 30 June 2019, the number of own shares held increased by 246,512 to 987,857 shares at a cost of £285k.

Own shares have been excluded from the weighted average number of ordinary shares for the purpose of calculating EPS as they are not outstanding.

11.3. RETAINED EARNINGS

The retained earnings include accumulated profits and losses and equity-settled share-based payments

The final dividend for the year 2018 of £0.02 per ordinary share was paid on 21 June 2019.

An interim dividend of £0.017 pence per ordinary share (2018: £0.01 per ordinary share) was declared by the Directors on 17 September 2019 and will be payable on 25 October 2019 to shareholders on the record on 27 September 2019. The interim dividend has not been recognised as a liability as at 30 June 2019.

12. LOANS AND BORROWINGS

The Group has a loan facility of £100 million with HSBC Bank Plc, Barclays Bank Plc, Santander UK Plc and the Bank of Ireland which consists of a term loan of £45 million and a revolving facility commitment of £55 million. All drawn facilities are due to be repaid on or before the Termination Date of 8 March 2023.

A withdrawal was made on 22 March 2019 for £15.5 million (€17.9 million) to partially fund the acquisition of Exequtive, see note 10.

At 30 June 2019, the Group had available undrawn committed facilities of £11 million (31 Dec 2018: £27 million).

13. FINANCIAL INSTRUMENTS

FOREIGN CURRENCY RISK

The Group's exposure to the risk of changes in exchange rates relates primarily to the Group's operating activities when the revenue or expenses are denominated in a different currency from the Group's functional and presentation currency of pounds sterling ('£'). For the material trading entities the exposure is mainly from EUR, USD and ZAR. The loans and borrowings of the group are denominated in GBP and EUR. Following the acquisition of Exequtive, the Group has increased its exposure to EUR and the Group will assess if a foreign currency hedge is appropriate on this and other currency exposures in the remaining part of the financial year.

INTEREST RATE RISK

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

Net Leverage is 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. Following a withdrawal of £15.5 million (€17.9 million) from the facility to partially fund the acquisition of Exequtive (see note 10), the margin applied to LIBOR and/or EURIBOR increased as a result of our net leverage calculation, from 1.5% to 1.75% (on 21 February 2019) to 2% (on 21 May 2019).

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

The following sensitivity analysis has been determined based on the floating rate liabilities. The Group considers a reasonable interest rate movement in LIBOR to be 50 basis points based on recent historical changes to interest rates. If interest rates had been higher/lower by 50 basis points and all other variables were held constant, the Group's profit for the period ended 30 June 2019 would decrease/increase by £438k (31 December 2018: £357k).

CREDIT RISK

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. Our internal credit risk management as set out in note 26.2 of the 2018 Annual Report remains unchanged. There are no indications as of the reporting date that the any net positions for financial assets are irrecoverable.

LIQUIDITY RISK 

There has been no change in our liquidity risk assessment compared to our disclosure in note 26.3 of the 2018 Annual Report.

As at 30 June 2019, the contractual maturities of the Group's financial liabilities were as follows:

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

CAPITAL RISK

The capital structure of the Group consists of shares, share premium and borrowing. As disclosed in note 12, the Group has a bank loan which requires it to meet leverage and interest cover covenants. Following the acquisition of Exequtive (see note 10) our borrowing increased. To meet the Group's capital risk management objective, the Group aims to meet its financial covenants with sufficient head room.

At 30 June 2019, the Net Leverage ratio was 1.94x underlying EBITDA (Net Leverage covenant is 3.50x) and Interest Cover was 14.32x (Interest Cover covenant is 4.00x).

14. CHANGE IN ACCOUNTING POLICY FOR IFRS 16

The Group has adopted IFRS 16 'Leases' retrospectively from 1 January 2019, but has not restated comparative figures for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019.

14.1. ADJUSTMENTS RECOGNISED UPON ADOPTION

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principals of IAS 17 'Leases'. The liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as at 1 January 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 3.12%.

For those leases previously classified as finance leases, the right-of-use asset and lease liability are measured at the date of initial application at the same amounts as under IAS 17 immediately before the date of initial application. The measurement principals of IFRS 16 are only applied after that date.

The right-of-use assets recognised related to property leases only, other right-of-use assets were all considered to be low-value or short-term. Right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet as at 31 December 2018. There were also onerous lease contracts that required adjustment to the right-of-use asset at the date of initial application.

The following is a reconciliation of total operating lease commitments at 31 December 2018 to the lease liabilities recognised at 1 January 2019:

The change in accounting policy affected the following items in the balance sheet on 1 January 2019:

·; Property, plant and equipment increased by £29.1 million for right-of-use assets

·; Prepayments decreased by £0.1 million

·; Provisions for onerous leases decreased by £0.1 million

·; Provisions for rent-free periods decreased by £1.6 million

·; Lease liabilities increased by £29.2 million; £26.6 million is shown in non-current other financial liabilities and £2.6 million in current other financial liabilities.

The net impact on retained earnings on 1 January 2019 was an increase of £2 million.EBITDA for the six month period to 30 June 2019 increased by £1.7 million.Profit after tax for the six month period to 30 June 2019 decreased by £0.3m.The carrying value of right-of-use assets is £28.7m at 30 June 2019.The carrying value of non-current lease liabilities is £26.7m and £2.5m for current lease liabilities at 30 June 2019.Basic and underlying basic earnings per share have decreased by 0.3p per share for the six months to 30 June 2019 as a result of the adoption of IFRS 16.

In applying IFRS 16 for the first time, the Group used the following practical expedients permitted by the standard:

·; the exclusion of initial direct costs in the measurement of the right-of-use asset for operating leases at the date of initial application

·; reliance on previous assessments on whether leases are onerous

·; for operating leases with a remaining lease term of less than 12 months and for leases of low-value assets, accounting for the lease expense on a straight-line basis over the remaining lease term,

·; the use of hindsight in determining the lease term where the contract contains options to extend or terminate leases.

The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the Group relied on the assessment it made in applying IAS 17 and IFRIC 4 'Determining whether an Arrangement contains a lease'.

14.2. THE GROUP'S LEASING ACTIVITIES AND HOW THESE ARE ACCOUNTED FOR

The Group enters into leases for rental of office space 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.

Until the 2018 financial year, leases of property, plant and equipment were classified as either finance or operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.

From 1 January 2019, leases are recognised as a right-of-use asset with a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

·; fixed payments, less any lease incentives receivable

·; variable lease payments that are based on an index or a rate

·; amounts expected to be payable by the lessee under residual value guarantees

·; the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and

·; payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.

Right-of-use assets are measured at cost comprising of the following:

·; the amount of the initial measurement of lease liability

·; any lease payments made at or before the commencement date less any lease incentives received

·; any initial direct costs, and

·; restoration costs.

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment, motor cars and small items of office furniture.

14.3. SIGNIFICANT ESTIMATES AND JUDGEMENTS

Many of the leases for office space contain extension options as these provide operational flexibility. The Group will assess at each reporting period if they are reasonably certain that an extension option will be exercised. Such assessment involves management judgement and estimates based on the information available at the time the assessments are made. As at the reporting date, management has assessed the extension options available in its leases and have deemed they cannot be reasonably certain at this time that they would exercise the extension options.

The Group has measured the lease liability at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate at the date of transition and right-of-use assets at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments recognised in the balance sheet before transition. The discount rate determined on a lease by lease basis is a significant estimate. The incremental borrowing rate for each lease has been determined by considering the term of the arrangement, the value of the lease liability and the economic environment specific to the jurisdiction. Should the discount rate used for the calculation on each lease arrangement be increased by 1%, the right-of-use asset and liability recognised upon transition would be £2 million lower.

15. CASH FLOW INFORMATION

OPERATING CASH FLOWS

NON-UNDERLYING ITEMS WITHIN NET CASH FROM OPERATING ACTIVITIES

16. RELATED PARTY TRANSACTIONS

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

The Group's associate KIG has provided £375k of services to Group entities during the six month period to 30 June 2019 (six months to 30 June 2018: £468k).

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

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