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FT SPECIAL REPORT

Doing Business in JerseyFriday September 20 2013 www.ft.com/reports | @ftreports

Along St Helier’s Esplanade,the brass plaques read like adirectory of internationalfinance. Global banks, trustcompanies and professional

services groups have been finding afoothold in Jersey’s prime financialdistrict ever since this 45 sq mileisland began building its reputationas an offshore centre in the 1960s.

The influx of international invest-ment has brought considerable wealth– with well-funded public services andhigh standards of living – but alsoconcentrated economic activity infinancial services, and, in particular,on the cornerstones of banking andwealth management.

Now its leaders are taking steps toexpand beyond their core territorywith a concerted effort to strengthenthe economy through diversification.

Digital and technology services,mining and intellectual property aresome of the sectors seen as offeringthe highest potential for growth.Finance, too, is part of the plan, withpriorities for expanding the industry’sfootprint in the Gulf, Asia and Africa.

Philip Ozouf, treasury and resourcesminister, says: “We are a centre thatneeds to be at the cutting edge ofinnovation. As a small economy youhave a disadvantage because of yoursize but you need to play to yourstrengths . . . you should be able tomove quicker than larger countries.”

The financial crisis brought signifi-

cant challenges. Banking profits –which account for 80 per cent of thosegenerated by the financial servicesindustry – roughly halved after 2008,when interest rate margins fell andhead offices sought savings at off-shore divisions. Painful public spend-ing cuts followed and jobs were lost.

Since 2011 the banking decline has

flattened, and signs of recovery in theUK, Jersey’s biggest trading partner,give some islanders cause to believe afresh phase of growth is around thecorner.

Geoff Cook, chief executive of Jer-sey Finance, which represents theisland’s finance industry, says the cri-sis has not made a “structural

change” in the ability of the industryto make profits. The island’s assetbase remains healthy, with £1.2tn inits custody. “My prediction is it willcome bounding back once interestrates normalise,” he says. “We think 2per cent base rates will largely restorethe profit model.”

His organisation has spent the past

six years expanding Jersey’s presencein emerging markets, opening officesin Hong Kong, Delhi, Mumbai andAbu Dhabi. Shanghai will join the ros-ter in 2014. “We’ve also ramped up ouractivity in Russia,” Mr Cook says,with visits every three to fourmonths.

Attracting new business to theisland is one of the motives behind aprospective waterfront development,the Jersey International Finance Cen-tre. With six standalone buildingsamounting to half a million squarefeet of office space, the zone will offerthe kind of flexible, high qualitypremises familiar to global banks incities like London and Singapore.

Lee Henry, managing director of theStates of Jersey Development Com-pany, owner of the site, says: “Wehave 2.8m sq ft of office space in Jer-sey but very little categorised asGrade A [prime]. We’re hopeful thatby creating this dedicated district forfinance we will attract a flow of newtenants.”

The island will reinforce the impor-tance of its political and economicrelationship with Britain next yearwhen it opens a representative officein Westminster. Along with Guernseyand the Isle of Man, its fellow CrownDependencies, Jersey was pressed bythe Treasury to sign up to measureson the automatic exchange of taxinformation following a similar agree-ment with the US. The episode cameamid hardening international atti-tudes towards offshore centres, aslarger countries sought to shore uptheir revenues by clamping down ontax avoidance. As part of its response,Jersey points to a report it commis-sioned from Capital Economics, a UKconsultancy, which calculated thathalf of the assets held in Jersey werefunnelled into British investments,

Continued on Page 2

Small island spreads its wingsCrown dependencyplans to strengtheneconomy throughdiversification, writesJames Pickford

Taking off: the ‘Jersey Girl’ sculpture at the heart of the island’s financial hub in Castle Street, St Helier Alamy

Video onlinetomorrowJames Pickfordtalks to AlanMaclean, economicdevelopment chief

On FT.com»

2 ★ FINANCIAL TIMES FRIDAY SEPTEMBER 20 2013

Doing Business in Jersey

bolstering the City of Lon-don and the UK economy.The island had a “symbioticrelationship” with the UK,it said, earning the excheq-uer £2bn more in tax reve-nues than it lost in taxavoidance or evasion.

Ian Gorst, Jersey’s chiefminister, comments: “We’remarketing ourselves as aquality jurisdiction, want-ing to be involved in thedevelopment of new stand-ards and proving the bene-fit we are to the Europeaneconomy.”

Some believe its case wasstrengthened by the recentfurore over transfer pricing,with global companies such

Continued from Page 1 as Amazon, Starbucks andGoogle under attack overtheir UK taxes – but wherecountries such as Luxem-bourg, rather than offshorejurisdictions, bore the bruntof the accusations.

David Cameron thismonth gave the island avote of confidence on thetax issue when, in answerto a question in the Houseof Commons, the primeminister said:

“I do not think it is fairany longer to refer to any ofthe overseas territories orCrown Dependencies as taxhavens. They have takenaction to make sure thatthey have fair and open taxsystems.”

One question thatremains is the impact on

Jersey of UK plans to intro-duce a ringfence betweenbanks’ investment andretail arms.

Mr Cook says details areyet to be finalised, but heexpects some banks willwant to operate two models:a branch for local retail cli-ents and a subsidiary forinternational business.“The principle is accepted,”he says.

In its public finances, Jer-sey’s position is relativelyencouraging. It has no debt,and has pumped moneyinto a programme of fiscalstimulus, as well as putting£20m into schemes torelieve youth unemploy-ment. The strategic reserve,a rainy-day fund approach-ing £700m, is untouched

even after the shakedownin global finance.

In spite of these signs ofoptimism, politicians andbusiness leaders remainconvinced the island needsto broaden its economicbase. A drive to build up

the digital sector is one ofthe brightest prospects.

As part of this initiative,the government is investing£41m in replacing theisland’s copper wire net-work with fibre-optic cablethat by 2016 will give every-one access to superfast

broadband speeds of 1 giga-bit per second.

Hanuman Tripathi, groupmanaging director andfounder of Infrasoft, a Mum-bai-based software and ITservices company that setup a Jersey arm in 2005,said the initiative would be“immensely beneficial” inattracting businesses to theisland by allowing them towork seamlessly with itsfinancial and professionalservices industry. Jerseycould become an interna-tional data hub, storinginformation in a secure andhigh-bandwidth environ-ment. “It puts Jersey two tothree years ahead of otheroffshore centres.”

Diversification is seen asa way of making new career

options available to island-ers for whom financial serv-ices have been the primeroute on leaving school orgraduating from university.

Mr Gorst says the initia-tive is partly “about mak-ing sure there are appropri-ate and broad opportunitiesfor members of our commu-nity to go into”.

For Eliot Lincoln, manag-ing director of Greenlight, amanagement consultancy,the digital initiative was “aballsy move”. He says: “Itwould have been very easyfor them to say ‘the econ-omy’s going to recover andeverything will be fine’.Instead they’re enablingsomething new – they’resetting the conditions forbusiness to flourish.”

Small island spreads its wings in cause of diversification

£41mGovernment investment infibre-optic cable

For an island that pridesitself on the stability andlongevity of its institutions,the past decade stands outas a period of considerableupheaval in Jersey politics.

For 800 years, the islandhas had autonomy from theUnited Kingdom, maintain-ing its own system of gov-ernment, collecting its owntaxes and dispensing justiceby its own legal system.

As a Crown Dependency,it declares allegiance to theBritish sovereign and relieson the UK for defence, butmakes its own laws throughthe 51 elected members ofits legislature, the States of

Jersey. The island’s leadersbelieve its constitutionalindependence is one of itschief attractions as an off-shore financial centre.

It has nonetheless felt thepressure for reforms thatwould raise the efficiencyand responsiveness of gov-ernment, allowing it to takeadvantage of changing eco-nomic conditions.

In 2005, a slow-movingsystem of government bycommittee was swept awayin favour of executiveresponsibility wielded by achief minister and nineministers. This has broughtmore rapid decision-makingand improved accountabil-ity, politicians say.

The new system only goesso far. The chief ministerdoes not have the power toappoint or dismiss minis-ters, nor reshuffle them.

If a minister is not per-forming, the chief ministermust table a proposal to

force a debate on the issue,with no certainty as to theoutcome. In the absence ofpolitical parties, ministersare free to adopt potentiallycountervailing positions onmatters of policy.

Sir Philip Bailhache,assistant minister for exter-nal affairs and a proponentof further reform, says:“The chief minister canonly get his own way bypersuasion or force of char-acter, because he has abso-lutely no political weaponsat his disposal . . . [The sys-tem] requires consensus,but consensus is not alwayspossible.”

This was demonstratedthis year, when islandersvoted in a referendum tocut the number of deputiesfrom 51 to 42 and abolishthe position of senator.Their call was rejected bydeputies, who voted downthe changes saying theywould put voters in St Hel-

ier at a disadvantage. IanGorst, chief minister, saidthe system had itsstrengths. “It does taketime to get political changebut that also means dueconsideration is givenbefore any change is rushedthrough. People like to con-sider the long-term implica-tions of the decisionsthey’re making.”

Other reforms have comeabout. The tax regime wasrestructured in the 2000safter pressure from the EUfor fiscal reform among off-shore centres forced theCrown Dependencies toadopt the so-called zero-10system – under which thegeneral rate of tax on com-panies is zero and certainfinancial institutions pay 10per cent.

This reduced Jersey’s sub-stantial corporate tax reve-nues, forcing it to introducean unpopular 3 per centgoods and services tax

(GST) – later rising to 5 percent – to plug an £80m gapthat opened up in thebooks. While this was not apolicy that Jersey’s leadershad sought out, somebelieve it inadvertentlyhelped them weather thestorm of the subsequentfinancial crisis, which fur-ther hit the tax take.

Philip Ozouf, treasuryand resources minister,says the GST enabled thegovernment to build a stabi-lisation fund which it spenton fiscal stimulus. Itappears to have paid off.

The budget has beenlargely balanced, publicspending cuts pushedthrough and the govern-ment has not needed to tapa strategic reserve thatstood at £651m at the end of2012.

“We took money out ofthe economy on the risingtide and deployed it withsome vigour when the crisis

hit,” says Mr Ozouf. Jer-sey’s relationship withGuernsey has changed intone. Despite a history ofrivalry, the two are workingcloser together after findingcommon cause on issuesincluding foreign policy, taxand public spending.

Jersey’s health, treasuryand social security minis-ters talk monthly to theiropposite numbers in Guern-sey. The islands run a jointBrussels office and last yearbegan holding joint meet-ings at UK party confer-ences. “We’ve really uppedthe pace of discussion andnegotiation,” says Mr Gorst.

Talk of introducing a con-federated structure betweenthe islands to formalisethese links – particularly inforeign affairs – has beenaccelerating in recent years.

Decisions would bepassed up to a joint bodyfeaturing an equal numberof representatives from the

islands. Where consensuscould not be found, policymaking would fall back tothe individual island level.

Mr Gorst said he was a“strong proponent” of suchthinking. “We are able tomake joint decisions – we’realready doing it. We justdon’t have the formal struc-ture in place.”

In the longer term,some believe Jerseywill face anothermodernising trend: amove to party poli-tics. Sir Philip saidpublic lack of interestin politics – the recentreferendum, forinstance, had a turnoutof just 26 per cent – waspartly attributable to thelack of a firm programmeamong candidates.

He says: “It’sa beautyparade. Nocandidatep u t t i n g

themselves forward can say‘this is what I will achieveif you elect me’.

“The best he or she cansay is ‘this is what I believein’. People want more thanthat. They want a pro-gramme, and a governmentthat can deliver it.”

Leaders feel under pressure to reform system of governmentPolitics

Change has comeand politicianswelcome it, writesJames Pickford

PhilipOzouf:economicvigour

There is no rest for anisland intent on convincingother countries that itsfinancial regulation isamong the world’s tightest.After more than 15 years ofrapid developments, Jerseyfaces a new wave of regula-tory changes from jurisdic-tions including the UK, EUand US.

All three Crown Depend-encies – Jersey, Guernseyand the Isle of Man – arenegotiating an automaticexchange of informationdeal with HM Revenue &Customs under whichdetails of potentially taxa-ble income earned by Brit-ish taxpayers with accountson the island will be sup-plied to HMRC. But themove will raise the costs ofcompliance.

“There are voices that say‘Jersey has been more co-operative than most, if notthan any, over the last sev-eral years, but where’s thedividend?’” says John Har-ris, director-general of theJersey Financial ServicesCommission, the regulator.

Sir Philip Bailhache,assistant chief minister,says: “I don’t think we canhave any objection togreater regulation providedthat the regulation isapplied fairly.”

Jersey set the pace in reg-ulation when it created theindependent regulator in1998, made tax evasion acriminal offence as part ofanti-money laundering leg-islation in 1999 and intro-duced regulation of its trustand corporate services sec-tor in 2001, putting it on apar with banks and invest-ment businesses.

The latter was a toughand groundbreaking movethat led to several weakertrusts either withdrawingapplications or havinglicences removed. It haspaid dividends, says HelenHatton, a former regulatorwho runs Sator RegulatoryConsulting. The trust sec-tor, which brings clients toother parts of the industry,has been winning moresophisticated business.

It is no longer enoughfor Jersey to point to the

quality of its regulation,however. Since the finan-cial crisis onshore jurisdic-tions, such as France, havesought to shift attentionfrom their problems byattacking offshore centres.

Jersey has escaped someof this. Unlike Ireland, Lux-embourg and the Nether-lands, it does not attractmultinationals seeking tominimise corporate tax billsbecause among other thingsit does not have the neces-sary range of double taxa-tion agreements.

It is well ahead of thegame on the push withinthe G8 group of developednations for registers of thebeneficial owners of compa-nies. Declaration of benefi-cial ownership has beenrequired for years.

“It is not a public registerbut it is available to assistlaw enforcement and taxauthorities if they wantinformation on a Jerseycompany,” says Colin Pow-ell, States of Jersey adviseron international affairs.

A harder issue is “aggres-sive tax avoidance”, exem-plified by the outcry in theUK over comedian JimmyCarr’s use of the K2scheme, which transferredearnings into a Jersey-based trust, which lentinvestors back the money.As the loan could techni-cally be recalled, it was notsubject to income tax.

That scheme was devisedand promoted in the UK butJersey’s reputation was hit.

Ministers have made clearthat the island does notwant such business, thoughwhere schemes are legal itis hard to eliminate them. Asound business practicecommittee has been formed.

Moral issues aside, Jerseyhas had to cope with thepost-crisis wave of financialregulations from the BaselIII capital regime for banksto the EU’s AlternativeInvestment Fund ManagersDirective and the UK’splanned ringfence of retailand investment banking.The expectation is that itwill be available to Jerseybranches, though not allmay want to be inside it.

Mr Harris says: “If eco-nomic conditions doimprove, maybe the freneticpace of activity on re-regu-lating the world will sub-side a little and a bit morereflection will be possibleon what these measuresactually do.”

Rule changesset stiff agendaRegulation

Compliance impliesbenefits and costs,says Brian Groom

What offshore financialcentres lack in size, theytry to make up for inagility. Jersey is noexception. Its history

shows a willingness to move on fromindustries once their commercial logicfades, and exploit emerging opportuni-ties more nimbly than larger, lumber-ing neighbours.

With an economy dominated byfinancial services, Jersey’s leaders arelooking for new avenues both withinand outside the industry. Theseinclude opening up new markets inAsia and Africa, as well as forays intodigital services, intellectual propertyand playing host to mining andenergy companies.

Ian Gorst, chief minister, says theisland’s strategy of diversification isabout “planning for the future andwondering what the next opportunitymight be”. He adds that the govern-ment was “far from pessimistic”about financial services.

The industry appears to have recov-ered some of its poise following pres-sures imposed by the financial crisis.Jersey’s gross value added (GVA), ameasure of overall economic activity,stood at £3.8bn in 2011 – a 1 per centfall from 2010. While this was thefourth consecutive year of decline, itfell significantly less than in the pre-vious three years, largely because ofbetter figures from finance, whichaccounts for 41 per cent of economicactivity on the island.

The dominance of financial services,and within that, banking and wealth

management, means economic cycleshave played a less prominent rolethan Bank of England base rates. Netinterest income, the bread and butterof banking before the crisis, halvedafter 2008.

While banks have lost around 1,000jobs in the past six years, employmentin financial services remains high ataround 12,000. Despite this, productiv-ity in the sector has not recovered topre-crisis levels, with GVA per full-time employee declining by almosttwo-fifths between 2000 and 2011, from£160,000 to £100,000.

Some believe finance’s deep-rootedconnections with the UK economy –through the channelling of Jerseyfunds to the City of London – givereason for optimism as Britain’s out-look improves.

Philip Ozouf, treasury and resourcesminister, says: “We think we aregoing to be on a beneficial rising tideas the UK recovers and we think wehave a role in helping the UK to somesmall extent in that recovery.”

The broader island economypresents a mixed picture. Unemploy-ment reached record highs this year,with 1,860 actively seeking work atthe end of July. The decision by theUK Treasury in 2012 to close down aVAT loophole on low-value goods soldby mail order to the UK, such as CDsand greetings cards, added about 800to the jobless figures after groups thatgrew up around the trade moved outor closed.

Yet by international standardsthe jobless rate remains low, at

4.7 per cent by the InternationalLabour Organisation standard, com-pared with 7.7 per cent in the UK.

The island’s public finances are inbetter shape than might be expectedfor a finance-heavy economy, with nopublic debt and a balanced budget. MrOzouf said long-term planning – and awillingness to make tough choices –had been instrumental in this.

“We’ve restructured spending. Wehave avoided deficits and invested fis-cal stimulus money to keep the econ-omy going. We have not shied fromtaking difficult decisions,” he says.

Population growth remains a politi-cally charged issue. Numbers havecrept steadily up over the past decade– through immigration and a highernumber of births – and stand at99,000. Like many western communi-ties, Jersey is subject to the health-care and social care pressures of anageing population, with the number ofover-65s expected to double by 2040.

Mr Ozouf says he is confident theisland can ride out the demographicshift, as the island’s leaders had beenputting in place measures to addressthe change for the past 15 years. “Wehave a pay-as-you-go social securitysystem that ministers in the UK couldonly dream of. We have a pension ratemore generous than the UK, whichrises every year by average earnings.”

One type of immigrant that Jerseywelcomes with open arms is thewealthy entrepreneur. Its efforts tobuild new businesses beyond theworld of high finance include meas-ures to attract more such individuals.

The longstanding absence of capitalgains tax and inheritance tax are partof this appeal; recently the island alsosimplified the tax requirements for so-called “high-value residents” to qual-ify for permission to purchase or renta house on the island. They must gen-erate a minimum of £625,000 in annualincome before being considered. Thisis taxed at 20 per cent – equivalent to£125,000 – with any income above thattaxed at 1 per cent.

The first port of call for wealthyindividuals considering a move to theisland is the office of Kevin Lemas-ney, director of high value residencyfor Locate Jersey. He says there hasbeen a shift among new arrivals awayfrom those entering retirement or ex-City types to younger business peopleand entrepreneurs seeking a betterquality of life.

Mr Lemasney says: “Why do theycome? As in most cases, it’s the sumof the parts. Our climate is nice, theeducation system is very good andthey have access to all the profes-sional services they need.”

Jersey has welcomed fewer than 10such people annually in recent years –a decline from the double-digit ratesof before the crisis. This may makeLemasney’s target of 15 a year ambi-tious but he believes, if it is achieved,it will not be because of tax, butbecause of Jersey’s more roundedappeal. “These people could go to anyof 10 to 15 offshore jurisdictions.They could go to Monte Carlo and payno tax. What we offer here is alifestyle.”

Tough choicesin crisis pavedway for newopportunities

EconomyDeep-rooted linkswith the City ofLondon could put financial industry on a risingtide as theUK recovers, writes James Pickford

Open season:entrepreneurs areattracted by theJersey lifestyle

‘We haveavoideddeficits andinvestedmoney tokeep theeconomygoing’

FINANCIAL TIMES FRIDAY SEPTEMBER 20 2013 ★ 3

Doing Business in Jersey

The last period of austerityproved a purple patch for theJersey tourist industry. Inthe postwar period, thou-sands of impecunious British

holidaymakers were drawn to theisland by a combination of a gentleclimate, rolling beaches, cheap traveland inexpensive, tax-free shopping.

A gradual decline in tourist num-bers over subsequent decades – con-trasted with the rise of financialservices – has left this sector with asingle-digit share of annual output.

But politicians and business leadersare showing renewed interest in tour-ism, identifying fresh opportunitiesfor expansion ranging from upmarketbreaks, conferencing and event tour-ism to the island’s prehistoric andwartime heritage.

One industry observer says: “We’renot the bucket and spade destinationwe were in the 1950s. But we do havea strong brand as a short stay destina-tion with unrivalled airline connec-tions to cities across the UK.”

The government this year set up theTourism Shadow Board, an independ-ent body, to devise a new strategy formarketing Jersey as a leisure destina-tion. John Henwood, its chairman,said the island had greatly improved

the standards and range of its touristoffering in recent years, with £200minvested in the sector’s infrastructuresince the 1980s.

While the advent of no-frills flightsto the Mediterranean undercut Jer-sey’s mass market appeal, a new gen-eration of customers had been drawnby the advent of Michelin-starredrestaurants, boutique hotels andrevamped attractions on the island.

“We now have a great product. Wewere slow to adapt, but we’ve done alot of catching up,” says Mr Henwood,former chief executive of the ChannelTelevision Group.

Tourism staged something of arecovery for nearly a decade from 1982– a phenomenon locals called the“Bergerac effect”, after the BBC televi-sion series of the time. But thenumber of visitors then fell from800,000 a year in the late 1980s to333,000 in 2012. Supply has followedsuit, with registered bed spaces fallingby more than two-fifths since 1998.

In recent years, business and gov-ernment have become adept atattracting niche groups to Jersey.

When Jersey Rugby Football Clubwas elevated to the Championship inthe last season, the governmentinvested in improvements to the

club facilities and marketed the islandto Championship cities in the UK,drawing groups of first-time visitorsfor away fixtures.

Alan Maclean, economic develop-ment minister, says the rugby promo-tion was a success but could pay evengreater dividends. “We want them tocome back with their families. They’rerelatively high-spending visitors – andnot just on beer,” he says.

Big draws for tourists are the JerseyWar Tunnels, which portray the occu-pation of the Channel Islands by Ger-man troops in the second world war,and the Durrell Wildlife ConservationTrust park, which gives a home toendangered species including Sumat-ran orang-utans. Medieval castles andisland fortifications are also high onthe list.

New discoveries are sparking fur-ther ideas for development. In June2012 the largest Celtic coin hoard,containing 70,000 silver and copperpieces, was unearthed in a field bytwo metal detector enthusiasts.Jonathan Carter, director of JerseyHeritage, said the find had sparked“immense” interest with worldwidecoverage. Mr Carter says the heritagebody had also recently acquired a mil-itary bunker built by the Germans

during the war that was only recentlydecommissioned as a civil defenceshelter.

Much was preserved from its sec-ondary use, such as blackboards onthe wall, radiation drift maps, civildefence leaflets and an emergencyradio station with thousands of vinylrecords. “It’s frozen in the late 1970sand early 1980s at the height of thecold war,” Mr Carter says.

But he is most excited by theisland’s Ice Age heritage. An archaeo-logical team from a consortium of UKinstitutions including the BritishMuseum, University College Londonand the University of Wales are work-ing on six digs across the island, with£1m of UK research funding.

Matt Pope, an archaeologist fromUCL, says just one well-known site atSt Brelade had produced the largestcollection of Neanderthal tools in

northwest Europe – more Neanderthalartefacts than had been found in therest of the British Isles put together.“It’s an incredible archive and a rareoccurrence to find that degree of pres-ervation,” he said.

Mr Carter says the heritage body is“just beginning” to explore the possi-bilities for turning this historicaltreasure trove into a tourist offering.But he added: “This is going to be abig story for Jersey in the future.”

Tourism receives a high proportionof the island’s budget for economicdevelopment compared with its shareof output – 37 per cent of spendingversus 6.2 per cent in gross valueadded. By comparison, spending onfinancial services, which accounts for41 per cent of GVA, is 20 per cent.

But Mr Maclean says the touristtrade has a wider impact. “We recog-nise that sectors such as tourismmean far more to the community thantheir economic return. They feed intothe small business sector and areimportant for jobs.”

Some said politicians had paid aprice for neglecting the tourist indus-try during the financial boom years.But Mr Henwood now detects achanging mood. “Politically, I believethere is the will to turn it round.”

Historyadds a freshdimension toattractions

Tourism Neanderthal tools and a Celtic coinhoardmay draw visitors, says James Pickford

Looking ahead: a couple admire theview at Devil’s Hole, St Mary; and,below, an exhibit from the Jersey WarTunnels Danny Evans

FactsWave power●Jersey is small, but has some ofthe biggest tides in the world – whenthe tide is out the island grows byone fifth.

4 ★ FINANCIAL TIMES FRIDAY SEPTEMBER 20 2013

Doing Business in Jersey

An island of granite andshale situated 14 miles offNormandy would seem anunlikely location for miningcompanies in search of pre-cious natural resources.

Yet in recent years Jerseyhas provided the base foran emerging mini-cluster ofmining groups, with half adozen companies choosingto locate their headquarterson the island.

Now, the authorities arecourting further expansionof the sector, sending dele-gations to the leading min-ing conferences to woopotential movers.

Tim Coughlin is president

and chief executive ofLydian International, anexploration company withgold-mining projects inArmenia and Georgia.

“The location is perfectfor us,” he says “becauseour operations are in theCaucasus and we’re listedon the Toronto stockexchange. Here, we’re rightin the middle.”

Other groups on theisland include Randgold,Bellzone, Centamin andConsolidated Minerals.

While a low corporate taxrate does not come intoplay for exploration compa-nies that generate no reve-nues, there are other advan-tages to being in Jersey.

“Exploration and develop-ment companies tend toremunerate their staff witha mix of stock options andsalary,” says Mr Coughlin.

“Most of our employeesare happier here because

there’s no capital gains taxon their stock.”

Lydian, which employssome 200 people worldwide,has heavyweight sharehold-ers in the shape of theInternational Finance Cor-poration, part of the WorldBank, and the EuropeanBank of Reconstruction andDevelopment, with holdingsof 9 per cent and 7 per centrespectively.

The company is in theprocess of securing govern-ment permits for its Arme-nian gold project, estimatedto contain 4.3m ounces witha net present value in 2012of C$646m. When up andrunning, it will employ 450locally.

“Responsible mining isgreat for these countries. Itdecentralises the economyand provides a lot of jobs,”says Mr Coughlin.

Alan Maclean, ministerfor economic development,

says the island did notseek out the first wave ofmining companies but wasnow making efforts toattract the sector interna-tionally.

“For mining, we’re welllocated and accessible totheir operations. You cansee how it’s ticked theboxes and, of course, onceyou get one or two comingit spreads through the net-work,” he says.

Glenn Baldwin, chiefexecutive of Bellzone,which has iron ore projectsin Guinea, west Africa, saysthe motive for moving theheadquarters from Perth,Australia, to Jersey was tobe nearer its investors onAim in London. But theisland had other attrac-tions.

“We looked at the fiscalterms and they’re quiteattractive for a mining com-pany. There’s a very strong

legal system here, with alink back to the Englandand Wales legal system. It’salso in the same timezoneas our project in Guinea.And, given the tyranny ofdistance in business, if youcan mitigate it, you mightas well do so.”

Mr Baldwin says thatwhile the authoritiesdemand a high level ofdetail about the business,there has been little to fearfrom such disclosure.

“There’s an exceptionallyhigh degree of confidential-ity that’s very comforting

with respect to businessplans and personnel.”

A central question forbusinesses making themove to Jersey is the pro-portion of local workersthey employ versus thosethey may bring from out-side when skills are notavailable on the island.

For mining groups, thiswill often mean seekingwork permits for metallur-gists or specialised resourcegeologists. But for adminis-trative or professionalservices, the Jersey authori-ties will hope to see jobsgoing to locals.

“There’s no fixed ratio.But there is a recognitionthat if the skills are on theisland, the authoritieswould prefer you to beemploying those people,”Mr Baldwin says.

Bellzone has six staff onthe island and about 120worldwide. For some profes-

sional services roles, min-ing experience can be rele-vant, Mr Baldwin says.

“In financial accountingit’s a lot easier to fill roleswithin the island, asopposed to a managementaccountant, who needs a lotmore knowledge of the min-ing business,” he says.

Jersey’s robust corporateregulatory requirements arealso viewed by some as anadvantage for companiesultimately eyeing a listingon an international stockexchange.

Mining exploration com-panies tend to accumulateshareholders at a steadyrate as their projects cometo fruition. Above 50 share-holders, though, regulationsrequire a full, legally veri-fied prospectus to be issued.

“It’s almost like yourtraining wheels,” says MrCoughlin, who wentthrough the process for

Tigris, a second Jersey-registered company he runsalongside Lydian.

Tigris has raised C$6m forits exploration work insoutheast Turkey. “Lots ofguys in the office gotinvolved in doing the pro-spectus. We think of it asgood practice,” he says.

The travel connectionsare vital for far-flung min-ing groups.

As chief executive of aLondon-listed company, MrBaldwin travels frequentlyto the UK capital to meetinvestors and lawyers, aswell as flying to Asia andAfrica on operational busi-ness.

But while the Londonconnections are frequent,he says the internationaloptions could be better.

“If you had direct flightsbetween here and Heathrowthat would make a huge dif-ference,” says Mr Baldwin.

Mineral groups discover a rock-solid base for their operationsMining

Companies like fiscaland legal regime,says James Pickford

Jersey will hope tosee administrativeor professionalwork going to locals

James PickfordLondon and southeastcorrespondent

Brian GroomBusiness andemployment editor

Ian MossCommissioningeditor

Liz DurnoProduction

Andy MearsPicture editor

Steven BirdDesigner

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Royal Bank of Canada’s trust businesswas a pioneer of Jersey’s expansionas an international finance centre.Royal Trust, which later merged

with the bank, opened an office withfour staff in St Helier in 1962. Itmarked the occasion by presenting apair of rare Trumpeter swans to theJersey Wildlife Preservation Sanctuary.RBC now employs 900 in Jersey,

half in trust-related activities and therest in banking, investment and safecustody. It is thought to be theisland’s largest trust business afteracquisitions in the past 15 years.The trust sector is one of Jersey’s

strengths, combining stability for assetprotection with growth opportunities inemerging markets.“The economic environment has

made business more challenging,”admits Steve Romeril, head of trustfor the British Isles at RBC WealthManagement. “We have forwardmomentum in the business, but not atthe rate we have seen in the past andnot at the level we would like.”But, he adds: “I think things are

turning a corner. We feel we havegood momentum in our salespipeline.” RBC is looking for highsingle-digit growth in revenues, hesays.Trust clients are making fewer

transactions than in the past, whilewinning new business can be hard.But RBC, which has an internationalclient base in Canada, the US and theMiddle East, sees Latin America andthe former Soviet Union as promisingareas.RBC is serving fewer clients, but

they are richer: the wealth thresholdneeded to justify the cost andcomplexity of creating a trust ishigher. Costs imposed as a result ofregulation have risen since Jerseybegan regulating the industry in 2001.“Trust is a sophisticated product,”

Mr Romeril says. “The delivery costsare high and it needs to containsufficient wealth to make iteconomically viable.”Many clients use Jersey trusts

because they are looking for a safeplace to house their wealth, orbecause they are moving assetsacross borders or want to pass onwealth within their family in acontrolled way.“Jersey has been successful in

ensuring the market recognises thereis political and financial stability onthe island,” Mr Romeril says. Hethinks RBC has also benefited from itsCanadian heritage and a conservativeapproach: it was more cautious thanother banks before the crisis, but hassince then risen up the global table ofmarket capitalisation.Although regulatory costs have

grown, Mr Romeril says that is notnecessarily a bad thing. “RBC is highlyprotective of its reputation and so isJersey.” The island, he says, needs tomaintain its political and financialstability. “People are also looking forconfidence in the rule of law, so thecourt and everything needs to beconsistent and have quality people init to ensure high standards of rulings.”But, he concedes: “As a small

jurisdiction, it’s quite challenging tostay at the leading edge in terms ofdevelopment.”

Brian Groom

RBC Facing up to toughmarket challenges

Jersey came though the globalfinancial crisis better thanmany offshore and onshorecentres, suffering no bankingcollapses. Now, it is seeking to

expand its international reach ingrowing markets such as Asia, theMiddle East and Africa.

Despite the island’s push to diver-sify into areas such as digital indus-tries, financial services – built aroundbanking, trusts and investment funds– remain the bedrock of its economy,employing more than 12,000 or a quar-ter of the workforce and accountingfor 41 per cent of economic activity.

Jersey is custodian of £1.2tn ofwealth, according to research by Capi-tal Economics for Jersey Finance, thepromotional body: £200bn in banks,£400bn in trusts established by privateindividuals, £400bn in specialist struc-tures for businesses and institutions,and £200bn in administered or man-aged funds.

Geoff Cook, Jersey Finance’s chiefexecutive, says: “The things thatmake it stand out are its history, lon-gevity and stability. All those thingsprovide an accumulation of expertise.Things such as the legal system, therefinement of how we regulate, thefinancial architecture have been builthere in the modern finance industryover the past 60 years.”

He believes Jersey is stronger thanmost competitors. “In a world whereclients are worried about the safetyand security of their money, they

want to associate with a centre with asound reputation.”

Revenues and profits have stabi-lised since 2010 and are showing signsof picking up, but Jersey cannotafford to stand still. Armed with rec-ommendations by McKinsey, the con-sultancy, the island is seeking newbusiness in China, the Middle Eastand Africa as well as innovation inproducts and services. Bank deposits,affected by low interest rates, remaina quarter below their 2007 peak, butrose recently to £155bn.

Banking employs 4,800 and accountsfor three-quarters of finance industryprofits. Banks have sought to increasefee income from wealth managementadvice to offset low deposit rates.

“The banking market is about sav-ings and wealth and investment flowsthat are on-lent to the UK, primarily,”says Nick Winsor, HSBC’s chief execu-tive for the Channel Islands and Isleof Man. The bank’s 700 staff on theisland has come down by about 10 percent since 2008, but it is seeing somegrowth in revenue.

Jersey has 42 banks. Dutch-ownedABN Amro, which has been on theisland since the early 1970s, is increas-ing revenues and remains solidly prof-itable, says Bilal Majid, its chief exec-utive in Jersey. It has increased mar-ket share against its peers, partly byexploiting expertise in other parts ofthe group.

Coutts, the private banking arm ofRoyal Bank of Scotland, has decided

to centre its international trust busi-ness on Jersey, which will add 15 tothe bank’s 120 employees on theisland. But Philip Taylor, regionalchairman, says growth in Jersey’sfinancial sector is likely to remainslow: “It needs to be continuouslyresponsive to changes in marketforces.”

The trust and company administra-tion sector, which employs 3,900, hasbeen one of the best-performing partsof the industry: average net profitswere up 6 per cent in 2012 after risingby more than a quarter in 2011. Jerseyhas been administering trusts forinternational clients since at least the1920s, ranging from people wanting topreserve family wealth to those wish-ing to secure assets from confiscationby unstable regimes.

Hawksford, one of the largest inde-pendent trusts, has increased its stafffrom 120 three years ago to more than170. But, says Peter Murley, chiefexecutive: “We are sharply increasingour revenue, largely by acquisition,because organic growth in the privateclient market has been difficultbecause of the economic environ-ment.”

There has been consolidationamong trusts, as regulatory costshave grown. Mr Murley plans anacquisition in Singapore, foreseeinggrowth both there and in Hong Kong.He expects revenues to double byabout 2017 and staff to reach 400.

Guernsey’s funds industry, which

saw asset values dip after the crisis, isalso recovering: the total net assetvalue of funds under administrationsurpassed £200bn recently for the firsttime since March 2009.

Alternative investments, includingprivate equity and property funds forinstitutional investors, have been itsmainstay in recent years: some arebranching out into infrastructure,green technology and credit funds,filling lending gaps left by banks.Much of the island’s business is infund administration, but it also has agrowing number of private equity andhedge fund managers.

Nigel Strachan, chairman of JerseyFunds Association, says: “We are see-ing some managers able to get awayfunds in areas where they havelaunched in the past and have arecord.” Ben Robins, head of funds atlaw firm Mourant Ozannes, says histeam, which does legal work for fund

launches, is working flat out: “We arerapidly returning to conditions simi-lar to those in 2006-07.”

Jersey has a formidable legal sector,which employs 1,700 and includessome of the biggest offshore lawfirms. Ogier, which has a presence in11 jurisdictions and employs 850 peo-ple, 500 of them in Jersey, believes itsgeographical spread has given it anadvantage, because clients with cross-border needs – such as someone set-ting up a Jersey fund with a Luxem-bourg holding company – can getadvice from a single company.

Ogier’s revenues were growing at20 per cent a year up to the crisis andhave since slowed to 5-10 per cent.But, says Nick Kershaw, chief execu-tive: “We think there has now been aperiod of traction in terms of stabilityin the markets where we operate andlevels of activity are beginning toincrease.”

Carey Olsen, another law firm, hasbeen winning work on company list-ings and trust company consolida-tions as well as advising trustees con-cerned about the security of invest-ments. It sees the island’s well estab-lished legal system as a bigadvantage.

Among the island’s main challengesnow, says Alex Ohlsson, CareyOlsen’s managing partner, is tochange the “misperception” in theoutside world that it engages in activi-ties such as tax evasion and harmfultax competition.

Eastward pushseeks to givefirm foundationgreater depth

Financial services History, longevity andstability, plus a honed regulatory set-up, offeran attractive proposition, saysBrianGroom First impression: Jersey’s financial groups are aiming to change the image of the island as a hub of tax evasion Alamy

FactsBig numbers●The value of banking depositsheld in Jersey was £152.1bn, at theend of 2012.●The number of regulated fundswas 1,388, with a net asset value offunds under administration of£192.8bn, at the end of 2012.

FINANCIAL TIMES FRIDAY SEPTEMBER 20 2013 ★ 5

Doing Business in Jersey

Jersey did not stick to itsknitting in the end, thoughthe woollen garmentsindustry served it well inthe 17th and 18thcenturies.

Like many islands, it hasrelied on a succession ofdominant industries:fishing, knitting,shipbuilding and, in thepast century, agricultureand tourism.

In recent decades thedominant industry – themost lucrative in Jersey’shistory – has beeninternational finance, builtup since the early 1960s.

History suggests this willeventually be superseded,but no one is rushing toditch a sector thatgenerates 41 per cent ofeconomic activity.

After the worst globalfinancial crisis of modern

times, however, Jersey issensibly looking to addmore strings to its bow,diversifying into the digitaland technology industries,along with mining andintellectual property, aswell as strengtheningtourism and agriculture.

The biggest effort isgoing into the digital area,says Jason Laity, chairmanof the local Institute ofDirectors, who believes itwill provide a platform forthe rest of the economy,enabling new growth infinancial services.

Jersey is far from theonly island seeking toattract businesses ine-commerce, software anddata hosting – high-valueactivities that do not needa lot of land or large staffs.

But, as Mr Laity puts it:“All the economies thatare growing are ones thathave a technologicalbedrock to them.”

This strategy does not

mean ignoring financialservices. Alan Maclean,minister for economicdevelopment, says:“Diversification isimportant for a balancedeconomy, but we are notlooking to diversify awayfrom financial services.The industry has itselfdiversified in terms ofproducts and reach.”

The finance sector, builtaround banking, trusts andfunds, has not beenuntouched by the crisis:banking deposits inparticular have sufferedfrom the ultra-low interestrate environment.

But it has avoidedbanking collapses, helpedby a policy of allowingonly banks from theworld’s top 500 by capitalto operate, introduced aftertwo small local banksfailed in 1970.

Since 2010, the sector hasstabilised and some partsare seeing signs of an

upturn. Diversification hasincluded introducing a lawenabling the creation offoundations, the civil lawequivalent of trusts.

Some private equity andhedge funds are branchingout into clean technology,infrastructure and debt orcredit funds, filling a gapleft by shrinking banklending in many countries.

Jersey is also working toexpand markets in Asia,Russia, the Middle Eastand Africa. The Gulf,where it has beenpromoting itself for adecade, seems likely toyield the earliest results.

The key lies ininnovation and being fleetof foot, as a small islandmust always be. “We’vehad to listen to whatcustomers want and find away to deliver that,” saysJames Filleul, chairman ofJersey Chamber ofCommerce.

Mr Filleul acknowledges

that the recession has beentough for some companies,notably in constructionand retail. But, he says:“We are ready to come outof the most challengingphase of the currenteconomic problemsstrongly and quickly.”

Prudent fiscalmanagement has been animportant part of Jersey’sapproach, with the islandcutting spending andavoiding deficits.

In 2008, it introduced azero-10 corporate taxregime, under whichfinancial servicesbusinesses paid 10 per centand other companiesnothing: many had paid 20per cent. At the same timeit introduced a 3 per centgoods and sales tax, laterraised to 5 per cent. Themove was controversial butimproved competitiveness.

The island’s biggest tasknow is to fight for itsreputation as a well-

regulated jurisdiction inthe face of global demandsfor action against taxhavens. Jersey rejects thelabel, arguing that its aimis tax neutrality, a policyof not adding an extralayer of tax to that due inan individual or corporateclient’s home country.

This is not an easy task,even though Jersey hasavoided some of themore controversialissues.

It does not, forexample, enticemultinationalsseeking tominimise theirtax bills becauseit does not havethe requisite doubletaxation agreements.And it is wellahead of G8countriespushingfor aregisterof

beneficial owners ofcompanies: disclosure ofbeneficial ownership haslong been a requirement ofJersey’s company registry.

A trickier issue to handleis legal but “aggressive”tax avoidance, such as theUK scheme that wasemployed by the comedianJimmy Carr and others,which involved a Jerseytrust. The island has madeclear it does not want suchbusiness, but it is hard tostamp out.

For 15 years Jersey hasbeen complying with thetightening internationalpressure on regulatorystandards and taxexchange arrangements inoffshore centres.

Some islanders wonderwhen the dividend willcome, but it is hard to seewhether the pressure willever end.

Jersey’s interestlies in continuing to

co-operate.

Innovation is vital to secure greater competitivenessCommentaryBRIAN GROOM

James Filleul,JerseyChamber ofCommercechairman

‘We saw a greatidea [but] we werequite naive in theearly days’

The succession of industriesby which Jersey has pros-pered during its long his-tory is about to be joined,its leaders hope, by a newarea of expertise: digitalenterprises and technology.

Politicians and industryfigures want to broaden thebase of the economy from areliance on financial serv-ices: digital activities,which do not require exten-sive manufacturing facili-ties or a large labour force,are seen as an ideal candi-date for diversification on asmall island.

The state-owned telecomscompany JT Global hasembarked on a project torip out the island’s existingcopper network and replaceit with state-of-the-art opti-cal fibre, delivering broad-band at 1Gbit/s to everyhome and business.

By drastically improvingthe network through the£41m Gigabit Jersey initia-tive, the authorities hopenot only to bring benefits toislanders but to attractcompanies wishing touse the island as a testbedfor digital products andservices.

Ted Ridgway Watt, chiefexecutive of Digital Jersey,set up this year by the gov-ernment to promote the sec-tor, says: “When the Giga-bit project is complete, itwill be highly attractive fordigital companies that wishto use the walled gardenapproach to test somethingover an entire jurisdiction.

“If you’ve developed asecurity platform, for exam-ple, you could plug it in andhave instant access acrossthe entire network. It’s anunusual position to be in.”

So far 4,000 properties –about 10 per cent – havebeen connected. About 10per cent of the cost will berecovered by selling the oldcopper wire as scrap.

Graeme Millar, chief exec-utive of JT Global, says thecost of replacing copperwith fibre was reduced by adecision in the 1960s tobury Jersey’s wiring inunderground ducts follow-ing a devastating stormthat brought down electric-ity and telephone polesacross the island.

“It’s both foresight andluck. It was ducted into peo-

ple’s homes, rather thancut-and-shut,” he says. “Itmeans we’ve been able towork very rapidly. Westarted last year and will becomplete by 2016.”

The idea of Jersey as anexperimental market hashistorical precedents. In the1990s, Italian confectionerFerrero Rocher came to tryout a new advertising cam-paign featuring the gildedparty guests of an ambassa-dor praising his “exquisitetaste” in chocolate.

Soft drink brands havealso been tested on theisland’s populace, whichhas a similar demographicto the average UK city,though wealthier.

Potential sectors for thedigital test market includee-health, retail, data man-agement and security. Butthe initiative is alsointended to encourageentrepreneurship, with theStates of Jersey in Julyagreeing the creation of aninnovation fund, initially of£5m, to boost small andmidsized businesses.

Digital Jersey intends tocreate a funding vehicle forearly and mid-stage growth,for investments between£500,000 and £10m. Mr Ridg-way Watt says: “There’s anappetite from some high networth individuals and insti-tutional investors on theisland to have a well man-aged vehicle for technologyinvestment.”

With few tech deals tak-ing place on Jersey, thefund would first build a rep-utation as a “funded fromJersey” brand looking atinvestments overseas.

“But that is likely to growin time to ‘funded in Jer-sey’,” says Mr RidgwayWatt. “It will be a factorthat stimulates enterprise.”

The most likely startingpoint for homegrown techbusinesses is as providers

to financial services. JasonLaity, chairman of the localInstitute of Directors, says:“We need to think aboutdigital as a platform for therest of the economy. Itmight be that it can enablegrowth in a particular areaof financial services.”

One newly hatched ITcompany that has demon-strated the potential isEpitomii, founded in 2011 asa technology provider, fur-nishing companies witheverything from printers tonetwork security. With 19employees, it turned over£2.6m in its first year oftrading. Stephen Moore,chief executive with a 90per cent stake, says thebusiness was pitched as aspecialist IT provider foroffshore financial centres,largely ignored by global ITgroups. “A global bank inLondon can do businessdirectly with Hewlett-Pack-ard, Dell and so on. Thatmodel doesn’t exist in off-shore markets.”

In Jersey, Epitomii hasselected 134 corporations onwhich to focus its energies.Mr Moore says: “Jersey isnot aiming to be a market-place for geeky, quirky soft-ware development. It ismore of a corporate envi-ronment. The objective forJersey is to be somewherebetween the two.”

One barrier to successremains the high cost ofconnectivity. Companiescomplain connections arebetween two and 20 timesmore expensive than on themainland, depending on theservice required.

Mr Ridgway Watt, whountil this year was anadviser to the Tech CityInvestment Organisation,which promotes east Lon-don’s digital cluster, says:“We need to ensure that theprice of telecoms to busi-ness is competitive.”

Diet of fibre promiseshealth for economyDigital

The island offers atestbed for newproducts, saysJames Pickford

Skills and education arecrucial to the success ofJersey’s digital push.Of a schools cohort of

about 1,000, about 25 Jerseystudents a year startuniversity courses incomputing – half the numberneeded by business. Givenrestrictions on bringing inworkers from outside, thatcan mean higher labourcosts for companies chasinga small pool of expertise.Digital Jersey is launching

a series of schools-basedprogrammes to encouragegreater take-up of scienceand IT among pupils, with atarget of quadrupling the

numbers within three years.Ted Ridgway Watt, chief

executive of Digital Jersey,aims to galvanise interestthrough an initiative bearingthe audacious title of theJersey Space Programme.Using a standard format

small satellite at a cost –including launch – of£150,000 to be fundedthrough private sponsorship,the three-year project isintended to prompt a waveof experimentation inJersey’s schools, as studentsare encouraged to designand test control andcommunications systems.“It’s a teaching aid, an

after-school club and aninspiration,” he says.There are precedents:

schools have used high-altitude weather balloons tocarry an egg into theatmosphere and track itsprogress using publiclyavailable meteorologicalmonitoring services.Mr Ridgway Watt says the

functions of the satellite willbe determined as the projecttakes shape, but it too willcarry a passenger – a JerseyRoyal potato. Which, headds, leads to an inevitablechoice of name for theputative spacecraft: Spudnik.

James Pickford

Skills Education project encourages pupils to reach for the stars

Wired: fibre optics are replacing copper

From an unprepossessingindustrial unit in the Jerseycountryside, Aaron Chatterleyand Richard Schiessl are aim-ing to create a global brand in

online beauty.These island-born entrepreneurs

have already made notable progress.Feelunique.com, the internet retailcompany they launched in 2005, lastyear sold 2.5m items of cosmetics, per-fume, skin and hair care products tocustomers in more than 60 countries.

With 140 staff in Jersey and the UK,Feelunique’s revenues hit £34.4m inthe year to March 2013, up from£26.7m in 2011-12 and £16.4m in theprevious year. Its website offers 18,000product lines from 500 brands, includ-ing Dior, Lancome, Kérastase andYSL.

The idea for the business came toMr Chatterley, the company’s chiefexecutive, when he was offered sam-ples of male skincare products at anairport. He realised no company hadyet made a name for itself as anonline purveyor of cosmetics. “Wesaw a great idea – to try and own thisvertical market that was previouslyunowned,” he says.

Establishing the company has notbeen without its challenges. Teamingup with his friend Mr Schiessl, chiefoperating officer, the pair began trad-ing in October 2005 from a small officein St Helier.

But they knew nothing of the selec-tive distribution agreements (SDA)that give brand owners control overwhere their products are sold. Turneddown by most of the big cosmeticscompanies, they were forced to sourcetheir goods from wholesalers. “Wewere quite naive in the early days,”says Mr Schiessl.

To put the business on a betterlong-term footing, they needed to for-malise relations with the brands. Thisthey did by selling a stake in thebusiness to a boutique hotel and spaowner in St Helier and by purchasinga hair salon, both with SDAs already

in place with brands such as Elemisspa range and GHD haircare products.

“We needed the bricks and mortarin order to have the online relation-ship,” says Mr Schiessl.

The business has now gained suffi-cient momentum to attract the atten-tion of private equity: Palamon Capi-tal Partners and Sirius Equityacquired a stake of just over 50 percent in a deal at the end of last yearthat valued the company at £26m.

Jersey has a history of logisticalexpertise that played to the com-pany’s advantage. But operating froma small island presents hurdles.Orders placed before 3pm can beloaded on to a boat for arrival on UKshores at 6am the next day. For UK-based companies, the same ordercould be taken at 10pm at night andbe with the customer the followingmorning – effectively a day earlier.

If it is a competitive disadvantage, itappears not to have affected perform-ance. For most customers, Mr Schiesslsays, the average delivery time of twoto three days was “not unreasonable”.The company offers free deliveryworldwide, and for urgent orders cus-tomers have the option of a paid-forspecial delivery.

As traffic to the site has grown, thefounders have felt the need to providecustomers with beauty advice, fea-tures and other content, and to forgerelationships with the beauty maga-zines that fuel interest in new prod-ucts. This has required the specialistskills of editorial director NewbyHands, formerly of Harpers Bazaar,beauty director Alice Manning, whojoined from InStyle magazine, andcommunications director VictoriaChalmers, formerly of public relationsfirm Modus, all recruited to the com-pany since 2012.

But these staff are based inFeelunique’s London office, alongwith about 20 other employees in edi-torial and specialist marketing func-tions. “We would not be able to findthose skills in Jersey,” says Mr Chat-

terley, who now spends an average oftwo days a week in London and islooking to expand to 40 staff in thecapital over the next year, recruitingweb developers and paid search spe-cialists among others. Palamon andSirius plan to inject £10m into thebusiness to fund expansion.

With finance, customer service,administration and operations re-maining on the island, Mr Chatterleysays managing the offices is “a realchallenge”. “It’s a tricky thing to dowhile retaining a common culture,not a ‘them and us’ environment.”

Every recruit spends a day in theJersey warehouse learning the nutsand bolts of the company’s operations,and communication is eased via openSkype links between the offices. InFebruary, Jersey will play host to thecompany’s annual get-together for allstaff, while individual teams acrossoffices hold regular gatherings.

Founded at a time when Jersey andits neighbour Guernsey were playinghost to a wave of companies takingadvantage of a controversial valueadded tax on low priced goods such asCDs and greetings cards, the companynonetheless stayed on the islandwhen the UK government closeddown the relief in 2012.

The founders are adamant that low-value consignment relief was neverthe motivation for the business, not-ing that perfumes – a significant sec-tion of their business – lay outside thescope of the relief. Mr Schiessl, says:“We never expected LVCR to be herefor long and the fact we’re still hereshows we weren’t here because of it.”

With young families, both say thedecision to be based in the islandwas strongly influenced by its qualityof life.

“I can work 10 hours a day and stillbe home to put my kids to bed and gofor a swim,” says Mr Chatterley, add-ing that if the traffic lights favourhim, he can get from the office to thebeach in exactly six minutes. “I workto live, not vice versa.”

Online beauty retailer intendsto clean up on a global scaleEntrepreneurship Private equity stake funds further expansion, writes James Pickford

Brand leaders: Aaron Chatterley (left) and Richard Schiessl’s Feelunique employs 140 on the island

6 ★ FINANCIAL TIMES FRIDAY SEPTEMBER 20 2013