Directors’ report

The Directors present their report and consolidated financial statements for the year ended 31 December 2020.

Incorporation

JT Group Limited (the “company”) was incorporated in Jersey, Channel Islands on 22 October 2002.

Principal activities

The principal activity of the company and its subsidiaries (the “group”) is the supply of telecommunications services and equipment.

The principal place of the company’s business is Jersey, Channel Islands.

Results

The group is presenting its annual report which includes the group’s first set of financial statements reported under International Financial Reporting Standards (IFRS). The effective transition date to IFRS was 1 January 2018. Refer to note 2 for more information on the financial impact resulting from the adoption on the group’s consolidated financial statements. The results are set out on pages 10 to 13.

2020 was a challenging year for JT Group, some of the group’s business lines suffered due to COVID-19 whilst others proved robust and, in some cases, significantly exceeded expectations.

The group’s core business, which includes the Channel Islands and International IoT businesses, have shown strong resilience as telecommunication services have been in high demand during the pandemic. Revenue and margin for these business areas have grown despite a significant decrease in roaming revenue from reduced travel. Relying on its full-fibre broadband network in Jersey, JT was able to further support the community during the ‘Stay at Home’ policy issued by the Government of Jersey by doubling the minimum available speed for all Jersey broadband customers from 500Mb/s to 1Gb/s, at no cost. JT also provided free local landline calls to its customers during this period and supported its more vulnerable customers by not charging overages and suspending late payment charges.

In response to the Covid-19 outbreak, the group put in place immediate measures to preserve cash, enhancing cost control and debt collection, focusing on priority projects and exiting businesses that were higher risk and not expected to drive significant value to the group in the current economic climate. This led to the sale of the Corporate Communications Holdings (CCH) Group (“Worldstone Group” or “Worldstone”) and the termination of the Voice Trading business. As a result of these measures the group was able to improve its net cash position whilst maintaining dividend payments to the Shareholder.

Despite the measures put in place and the improved net cash position, the group suffered net losses for the year, mainly caused by losses in Worldstone and the trade receivables impairment loss recognised against the Voice Trading customer receivables recognised in the balance sheet of ekit.com Inc., which could not be entirely offset by the good performance of the group’s core businesses.

Revenue

Revenue reduced by 13% (£25.0m) to £170.0m in 2020 compared to 2019. The ceased Voice Trading business reduced revenues in 2020 by £40.8m. This was partially offset by strong growth in International and more moderate growth in the Channel Islands, despite reduced roaming revenues in all markets.

Gross Profit

Gross Profit increased by 8% (£7.2m) to £98.6m in 2020 compared to 2019 due to growth in higher margin products in International and Channel Islands markets and partially offset due to a reduction in low margin Voice Trading products.

Operating Profit

Operating Profit decreased by £0.1m to a profit of £6.4m in 2020 compared to 2019. The increase in Gross Profit was offset by an increase in operating expenses, mainly driven by additional allowance for the Voice Trading receivables impairment loss.

Profit from continuing operations

Profit from continuing operations decreased by £1.3m to a profit of £0.9m in 2020 compared to 2019. Income tax expense increased by £1.9m, driven by strong profits in the Channel Islands and an impairment of deferred tax assets previously recognised in the balance sheet of ekit.com Inc.

Profit/(loss) for the year

The profit/(loss) for the year decreased by £5.6m to a loss of £4.1m in 2020 compared to a profit of £1.5m in 2019. The increase in gross profit was more than offset by the Voice Trading receivables impairment loss included in operating expenses and the loss from discontinued operations from Worldstone’s operational losses as well as the loss on its disposal.

Net Cashflow for the year

Net cash inflow from operating activities increased by £9.9m to £39.0m in 2020 compared to 2019, underscoring the strong performance of the group’s core activities. £13.3m was spent in investing activities (net of £2.6m proceeds from disposal of Worldstone), a reduction of £6.9m compared to 2019. This strong net cash inflow allowed the group to pay the 2019 final and 2020 interim ordinary dividends of £4.1m (2019: £4.8m) and reduce borrowings by £12m, whilst maintaining available cash at £10.6m as at 31 December 2020.

The Directors have approved the payment of a final ordinary dividend for 2020 of £2.0m (2019: £2.2m). Further details on dividends are included in note 17.

Directors’

report (continued)

Going concern

The group’s business activities, together with the factors likely to affect its future development, performance and financial position are described in the notes to the consolidated financial statements. Note 16 and 17 describes the group’s policies and processes to manage its financial risk management objectives and capital, provides details of financial instruments and hedging activities and the group’s exposures to risks.

Management has assessed the group’s financial stability and liquidity over the next 18 months from the reporting year end. Additional funding was secured in May 2020 through the accordion clause within the group’s existing Revolving Credit Facility (“RCF”), resulting in a £50m facility. The group has a strong recurring revenue stream but expects inbound and outbound roaming to continue to be impacted by the pandemic with supply chain delays as a result of Covid-19 and Brexit impacting equipment sales in the short term. A reasonably plausible downside scenario to 31 December 2022 has been modelled and applies a reduction in revenue based on a risk assessment of revenue segments and an increased trade receivables impairment loss The outcome of the downside scenario provides sufficient headroom between forecasted net borrowing requirements and available funding.

Extra steps to provide additional headroom, not yet factored into the model, include cost reductions in all cost lines within operating profit and capital expenditure.

Consequently, the Directors are confident that the group and company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis.

Directors

The executive and non-executive Directors of the group who served during the year and subsequently are:

Non-executive

Phil Male Sean Collins Meriel Lenfestey Joe Moynihan Mark Shuttleworth appointed 1 September 2020 Angus Flett appointed 1 December 2020

Executive

Graeme Millar Helene Narcy appointed as CFO on 27 April 2020 and as statutory director on 14 May 2020 John Kent retired as CFO on 27 April 2020 and as statutory director on 14 May 2020

Changes in Director

The Directors of the group for the financial year ended 31 December 2020 are detailed in the above section titled “Directors”.

Directors’ interests

The Directors of the group had no interests, beneficial or otherwise, in the shares of the group.

Insurance of Directors and officers

The group maintains an insurance policy on behalf of all Directors and officers of the group against liability arising from neglect, breach of duty and breach of trust in relation to their activities as Directors and officers of the group.

Independent auditor

KPMG LLP have indicated their willingness to continue in office as auditor.

By order of the board

H Narcy Director