PTCM.L Regulatory News (PTCM)

28 May 2015

Porta Communications PLC

("Porta" or "the Porta Group")

Preliminary audited results for the year ended 31 December 2014

Porta Communications PLC, the AIM quoted international marketing and communications business, is pleased to announce its preliminary audited results for the year ended 31 December 2014.

Financial Highlights from continuing operations

¹ Headline EBITDA excludes start-up losses, acquisition and restructuring costs, exceptional legal and professional costs, share based payments, gain on acquisition and non-recurring, double property costs.

² Headline EBITDA margin is headline EBITDA as a percentage of Gross Profit

³ Restated figure excludes TTMV which has since been closed.

Highlights

· Gross profit (fee income) up 135% to £19.4 million

· Average gross profit per employee £100,000 against £75,000 in 2013

· Organic growth in gross profit strong again in H2, with organic growth for the year at 75%

· Substantial turnaround to achieve maiden positive EBITDA after all costs

· Excluding acquisitions, client base has grown by approximately 140 to over 450 in the year

· Adjusted Headline EBITDA nearly three times higher than previous year

Outlook

· Strong first five months trading

· Organic growth expected to comfortably outperform sector in 2015

· Exceptional costs to be significantly lower in the current year

· Recent acquisitions fully integrated and making excellent contributions to Group

Commenting on the results, David Wright, Chief Executive of Porta, said:

"The Group has achieved strong organic growth in the second half in gross income (fee income) for the year, which at around 75% on a continuing operations basis, is considerably higher than the sector average of single digit growth. Trading in the first five months would suggest that the Group is heading for another strong year and the board remains optimistic about future prospects, particularly with all the 2014 acquisitions performing very strongly."

Issue of Shares

Today Porta Group completed the reorganisation of the Newgate companies and as part of this reorganisation the 49% minority interest in Newgate Communications LLP (and one other LLP) was bought out in consideration for the issue of 9,754,000 Porta Ordinary Shares. The Porta Ordinary Shares remain subject to a minimum 12 month lock-in period with a further 12 month orderly market period.

Application has been made to AIM for the Porta Ordinary Shares to be admitted to trading and admission is expected to take place on 3 June 2015. On admission of the Porta Ordinary Shares the Company will have 277,327,895 shares in issue. For the purposes of the Financial Conduct Authority's Disclosure and Transparency Rules ("DTRs"), the issued ordinary capital of the Company following this allotment consists of 277,327,895 ordinary shares with voting rights attached (one vote per share). There are no shares held in treasury. This total voting rights figure may be used by shareholders as the denominator for the calculations by which they will determine whether they are required to notify their interests in, or a change to their interest in, the Company under the DTRs.

Enquiries

Notes to Editors:

§ Porta has two divisions:

§ Communications - financial, corporate and consumer public relations, investor relations, public affairs and researchMarketing & Advertising - marketing communications, digital services and media planning and buying

§ The Group currently has offices in Aberdeen, Abu Dhabi, Beijing, Brisbane, Bristol, Brussels, Canberra, Cardiff, Edinburgh, Frankfurt, Hong Kong, London, Manchester, Melbourne, Singapore and Sydney

§ The brands and companies it owns are: Newgate Communications, Newgate Threadneedle, PPS Group, Publicasity, Redleaf Polhill, Thirteen Communications, 2112 Communications and Summit

§ Further information is available at www.portacommunications.plc.uk 

Chief Executive Report

The growing maturity of all our start-up companies, together with the success achieved by marketing Porta as a fully integrated group, has again produced outstanding growth, particularly in the communications division.

Gross profit, excluding TTMV (since closed), for the year ended 31 December 2014 rose from £8.3 million to £19.4 million, a gain of over 130% while organic growth (stripping out first time contributions from acquisitions) was 75% higher compared with single digit growth in the sector.

Porta is pleased to report positive EBITDA for the first time, which has been achieved despite the Group incurring higher property costs, with the acquisitions taking longer to complete than anticipated and almost £0.4 million of additional costs associated with the termination of the previous LLP structures which we had to close in line with HMRC guidance. Headline EBITDA was nearly three times higher at £2.2 million once the exceptional costs, particularly start-ups, are added back. Many of these exceptional costs will be eliminated in the current year.

With the exception of France and China, the Group has now completed its phase of start-ups with future growth expected to be from a mixture of organic and acquisition. Given the size of Porta and restricted access to funds, this strategy was the right course for the Group in the early years. Indeed these assets have been developed, albeit over a longer period, for a fraction of their present value if acquired today.

Communications

Trading during 2014 was particularly strong in Newgate globally, with organic growth of well over 70%. Newgate Australia, helped by the privatisation of Medibank, was the star performer. Fee income was up by nearly 200% in its first full year of operating. However, the weakness of the Australian dollar reduced Group EBITDA by £0.16 million in the year. Both Newgate Hong Kong and Newgate Singapore were profitable in very difficult markets, reflecting the quality of the teams in both areas.

In London, Newgate continued to show strong growth helped by the strength of the IPO market particularly at the beginning of the year. The former Threadneedle business has been restructured under new management and is now fully integrated into the Newgate capital markets offering. It is pleasing to see that Newgate maintains its position as the number one agency for number of AIM clients that it is retained by. Given the success of recent pitches, Newgate should not only maintain its strong ranking but also enjoy further success this year. Pitching with other disciplines in the Group has been a contributing factor behind the strong results showing elsewhere in Newgate globally.

Redleaf Polhill, of which 51% was acquired in the first half of 2014, has benefitted significantly from its strengthening reputation, evidenced by the number of awards that it has won during the year. Under its impressive management team, the agency goes from strength to strength and is expected to become increasingly important to the Group's overall performance.

On the consumer PR side, the start-up 13 Communications suffered from an initial lack of critical mass and has taken longer than anticipated to become profitable. However, with new client wins, including one large project, this business is now profitable.

The Group's consumer PR business has been bolstered by the acquisition of Publicasity at the end of 2014. Under its young and very enthusiastic management team, the company has won a number of new clients since becoming part of the Group which augurs well for 2015.

PPS, of the other acquisition made by Porta towards the end of 2014, is also making a major contribution to both Newgate and the Group. Ranked number one by fee income in the PR Week Public Affairs league table, PPS has not only become a major contributor to Group profits but has also materially strengthened the Newgate management structure including its accounting, marketing and HR functions.

Today Porta Group completed the reorganisation of the Newgate companies and as part of this reorganisation the 49% minority interest in Newgate Communications LLP (and one other LLP) was bought out in consideration for the issue of 9,754,000 Porta Ordinary Shares. The Porta Ordinary Shares remain subject to a minimum 12 month lock-in period with a further 12 month orderly market period.

Marketing and advertising

2112, the multi-media creative communications agency, has built a very impressive client base which has taken longer than expected to be reflected on the bottom line. More recently, however, the quality of the work and the quick turnaround of each project have led to a major upswing in the volume of business being generated from its key clients. The business is now trading profitably and a much better performance is expected in the current year.

TTMV, the media buying agency based in Tunbridge Wells, struggled as a result of the loss of its two major accounts and the Group took the view towards the end of the financial year that it could no longer continue to support the company financially. A decision was therefore taken to close the company.

Summit, the design studio also based in Tunbridge Wells, has always been profitable. Since the closure of TTMV, Summit has expanded its operation picking up new clients and making five new hires. We are anticipating an even better performance from Summit this year.

Outlook

Looking to the immediate future, the priority is to build on a very stable platform of businesses which the Board is confident will continue to generate strong organic growth. The main emphasis will be to:

· Widen the range of services and products

· Improve geographical coverage

· Double the size of the business through organic and acquisition growth

· Improve the market perception and rating

As for the current year, the performance in the first five months gives the Board every confidence that all the growth trends seen in 2014 will continue.

David Wright

Chief Executive Officer

Chairman's Statement

Performance

I am pleased to report that 2014 was an extremely exciting year in the relatively short history of the Porta Group. The consolidation of the Corporate and Capital Markets PR businesses under the single Newgate brand, with a strong and growing international footprint, has been particularly positive as it benefits from scale and brings together some of the best people in the industry.

Our consumer PR capabilities ramped up dramatically in the year with the acquisition of Publicasity. Both Redleaf and PPS, welcomed during the year, helped significantly to strengthen the Public Affairs, Corporate and crisis offer in the UK.

These acquisitions, together with WSM Print & Design and Digital, mean that Porta is successfully progressing its acquisition strategy to supplement the strong organic growth in our existing dynamic businesses. It also means that our London headquarters is near capacity, delivering clear benefits to the integrated offering as well as to the profitability, discussed later in this Report.

The Board and Governance

The Board has been active and efficient during the year, assessing the opportunities presented by management and assisting in the strategic direction of the Group and by referring new businesses to Porta companies. The overall contribution continues to be invaluable.

The Board in 2014 has focused upon the Group's strategic direction and performance particularly against challenging markets. We will continue to develop the Group's strategy and report upon progress. The Board has determined that the 2014 Annual Report as a whole is fair, balanced and understandable. It provides the information necessary for shareholders to assess the performance and the strategy of the Group.

Annual General Meeting

The Company's Annual General Meeting will be held on 11:00am, 25 June 2015 and the Notice of Meeting and explanatory notes which accompany this Annual Report can also be found on our website.

Our people

Finally, on behalf of the Board, I would like to thank all of our people for their significant contribution to our success over the past year. I would like to take this opportunity to welcome our new colleagues to Porta. Our people are our biggest asset so during the year the management team appointed a Group Head of Human Resources from within the Group to help with their personal development as well as strengthening our compliance. We also promoted a Group Head of Marketing and added capacity in the IT, accounting and front-of-house functions. Overall we have implemented major restructuring initiatives during 2014 and the successful and timely delivery of these as well as the financial performance of the Company has been down to the passion, hard work and effort of all our people.

Bob Morton

Chairman

Consolidated Statement of Comprehensive Income

Comparative amounts, including loss per share, have been restated to reflect classification of activities between continuing and discontinued operations.

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

Consolidated Statement of Financial Position

Consolidated Statement of Cash Flows

Consolidated Statement of Changes in Equity

1. Accounting policies

The financial information set out in this announcement does not comprise the Group's statutory accounts as defined in section 434 of the Companies Act 2006 for the year ended 31 December 2014 or 31 December 2013. The financial information has been extracted from the statutory accounts for the years ended 31 December 2014 and 31 December 2013. The auditors reported on those accounts; their reports were unqualified and did not contain a statement under either Section 498(2) or Section 498(3) of the Companies Act 2006 in respect of the years ended 31 December 2014 and 31 December 2013 and did not include references to any matters to which the auditor drew attention by way of emphasis.

The Group's statutory accounts for the year ended 31 December 2013 have been delivered to the Registrar of Companies, whereas those for the year ended 31 December 2014 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The accounting policies are consistent with those applied in the preparation of the interim results for the period ended 30 June 2014 and the statutory accounts for the year ended 31 December 2013, which have been prepared in accordance with International Financial Reporting Standards ("IFRS").

The financial information is for the year ended 31 December 2014 and the comparatives are for the year ended 31 December 2013. The Group's statutory accounts incorporate the financial statements of Porta Communications plc and other entities controlled by the company ("the subsidiaries"). Control is achieved where the company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities

The financial information is presented in Pounds Sterling which is the Company's functional currency.

2. Segmental reporting

Business segments

The Group has three reportable segments, as described below, which are the Group's strategic divisions. The strategic divisions offer different products and services and are managed separately because they require different resources and strategies. For each of the strategic divisions, the Group's CEO (the chief operating decision maker) reviews internal management reports on a monthly basis. The following summary describes the operations in each of the Group's reportable segments.

- Corporate Communications includes public relations, public affairs and other corporate communication services.

- Marketing & Advertising includes media buying, creative advertising, marketing and corporate branding services.

- Head office includes services provided by the Group's corporate function, including group treasury and finance and management services.

The Board considers the Group to have three reportable segments. Information regarding the results of each reportable segment is included below.

Inter-segment pricing is determined on an arm's length basis. Segment result represents operating profit, which is the measure reported to the chief operating decision maker. All assets and liabilities are allocated to reportable segments with the exception of tax and other centrally managed balances. Goodwill is allocated to segments.

1. No discontinued operations are presented within Other/Consol. in the table above.

2. The Marketing & Advertising segment for the year ended 31 December 2013 includes the results of Twenty20 Media group which have been treated as discontinued operations for the year ended 31 December 2014.

Geographical segments

The analysis of results and assets by geographic region, based on the location of operating company, is as follows:

1. The UK geographical segment for the year ended 31 December 2013 includes the results of Twenty20 Media group which have been treated as discontinued operations for the year ended 31 December 2014.

Sales to customers based in the UK amounted to 64% (2013 restated: 57%) of Group revenue. Australian and USA based customers accounted for more than 10% of Group revenue however no individual customer sales were greater than 5% of Group revenue. Geographical split of the customer based revenue is presented below:

1. Assets and liabilities for the year ended on 31 December 2013 have been restated to disclose the gross amounts payable and receivable. In the previous years' financial statements these figures were shown net.

3. Income tax

Group

The total tax credit for the year on all activities is as follows:

The tax assessed for the year differs from the standard rate of corporation tax in the UK at 21.5% (2013: 23.25%) for the reasons set out in the following table:

Unrecognised deferred tax assets

The Group has tax losses of approximately £3,400,000 (2013: £2,500,000) available to be utilised against future taxable profits in the relevant companies in their countries of operation.

Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

Movements in the deferred tax balances during the year were as follows:

* £739,158 of deferred tax credit recognised in the profit and loss relates to continuing operations and £49,032 to discontinued activities.

4. Discontinued operations

On 1 December 2014 the Board committed to a plan to discontinue the trading of Twenty20 Media group ('TTMG'), which was 90% owned by the Group. At 31 December 2014, TTMG, historically representing the major part of the media and advertising operating segment within the Porta Group, was classified as a disposal group and discontinued operations and therefore is excluded from the analysis of continuing operations in the Statement of Comprehensive Income and related notes.

The results of the discontinued operations for the year are as follows:

*Expenses include cost of sales which for 2014 amounted to £8,426,177 or 17.96% of total revenue (2013: £12,244,428 or 19.25%).

The assets and liabilities of Twenty 20 Media group classified as discontinued operations as at 31 December 2014 were as follows:

Net cash flow incurred by TTMG is as follows:

Earnings per share (EPS):

Whilst the activities of TTMG were discontinued by 31 December 2014, final insolvency procedures relating to the remaining liabilities of the business were not entered into until shortly after the year end. In view of the timing of the formal procedures relating to extinguishing the debt and in order to comply with the derecognition criteria of IAS 39 'Financial Instruments: Recognition and Measurement' the Group has written down the net assets of TTMG to zero but continued to reflect the gross assets and liabilities in the Consolidated Statement of Financial Position.

Since the year end and until the date of this financial information no additional losses or gains have occurred.

5. Acquisition of subsidiaries and non-controlling interests

On 28 March 2014, the Group announced the acquisition of the entire issue share capital of two businesses from WSM Communications Group Limited - WSM Digital Communications Limited ('WSM Digital') and WSM Print Management and Creative Services Limited ('WSM Print'). The deal was financed by the issue of 7,500,000 ordinary shares of 10p each in Porta at a price of 14.075p per share (the "Consideration Shares"), with 5,723,802 of the Consideration Shares subject to a 12 month lock-in agreement and a further 12 month orderly market agreement. The remainder of the Consideration Shares were subject to a three month orderly market agreement.

The two businesses acquired incorporated a digital team of 12 specialists and seven print management and design specialists, providing between them full studio design and art-working capabilities and a full digital design and production unit, servicing a range of blue-chip clients. The business units generated approximately £1.3 million of fee income and a small profit in aggregate in the 11 month period to February 2014.

The former shareholders of these acquired businesses were not the same individuals. The two businesses were acquired for individually defined purchase consideration in accordance with the Share Purchase Agreement ('SPA') and both businesses had a clearly distinguished set of integrated activities and assets that were/are capable of being conducted and managed individually and separately from each other for the purpose of providing economic benefits to the owners. Initially the Group had intended to purchase only the profit making WSM Print business however given an exceptionally favourable asking price for the WSM Digital business, the Board decided to proceed with the purchase of both businesses. On this basis for the acquisition accounting purposes as well as for monthly internal reporting purposes the management team of Porta Group views both acquired businesses as two separate business acquisitions in the Group's marketing and advertising segment.

Transaction costs of £73,732 relating to acquisition of these businesses were expensed and are included within administrative expenses.

The following table summarises the acquisition-date fair value of each major class of consideration transferred.

The following table shows the result of the acquired businesses since acquisition:

100% of total comprehensive income for the period generated by each of these acquired businesses is attributed to the equity shareholder.

If the acquisition of WSM Digital had occurred on 1 January 2014, management estimates that the Group's consolidated revenue would have been approximately £78,500 higher and the loss on continuing activities before taxation would increase by £131,900. If the acquisition of WSM Print had occurred on 1 January 2014, management estimates that the Group's consolidated revenue would have been approximately £186,400 higher and the loss on continuing activities before taxation would decrease by approximately £14,300.

In determining these amounts, it has been assumed that the fair value adjustments that arose on the date of acquisition would have been the same had the acquisition occurred on 1 January 2014.

The cash flows of the acquired business since acquisition were as follows:

The values of goodwill and other assets and liabilities relating to the acquisition of WSM Digital incorporated into these financial statements, using the acquisition method of accounting, are as follows:

The management has estimated that the skills and knowledge of the staff acquired in this deal and the synergies expected to be achieved incorporating the customer list and staff into the existing business resulted in a bargain purchase and therefore the gain on this acquisition in the amount of £475,394 has been recognised in the Statement of Comprehensive Income.

The goodwill is attributable mainly to the skills and knowledge of the staff acquired and the synergies expected to be achieved incorporating the customer list and staff into the existing business.

Newgate Communications (Singapore) Pte. Ltd ('Newgate Singapore') is a start-up PR consultancy firm specialising in corporate communications, financial communications and public affairs which has been operating under the 'Newgate' brand from the commencement of its trading activity in June 2013.

During 2013, the Group provided Newgate Singapore with a convertible loan facility of £531,066 for general working capital purposes. The loan facility is convertible into a maximum of 51% of the issued share capital of Newgate Singapore at the provider's discretion or repayable on demand.

On 1 March 2014, the Group acquired 45% ownership in Newgate Singapore through conversion of 88% of the outstanding loan. In view of the likelihood the Group will exercise its conversion rights over the remaining 12% of the loan, the Directors are of the opinion that the Group now exercises effective control over Newgate Singapore and accordingly its results have been consolidated within the Porta Communications group since the date of acquisition on 1 March 2014.

Fair value of net assets acquired was deemed to be equal to their book value. The following table summarises the recognised amounts of assets and liabilities assumed at the acquisition date.

The following table shows the result of the acquired businesses since acquisition:

If the acquisition of Newgate Singapore had occurred on 1 January 2014, management estimates that the Group's consolidated revenue would have been approximately £66,800 higher and the loss on continuing activities before taxation would have increased by £42,600.

In determining these amounts, it has been assumed that the fair value adjustments that arose on the date of acquisition would have been the same had the acquisition occurred on 1 January 2014.

The cash flows of the acquired business since acquisition were as follows: