PTCM.L Regulatory News (PTCM)

24 May 2016

Porta Communications Plc

("Porta" or "the Company" or "the Group")

Preliminary results for the year ended 31 December 2015

Financial Highlights

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 property costs. From 1 January 2015 management took a decision to no longer treat bad debt as an exceptional cost and therefore bad debt is ignored for the 2014 comparative period.

2 Headline EBITDA margin is headline EBITDA as a percentage of gross profit

3 Headline profit before tax is after adding back exceptional costs and amortisation of acquired intangibles

Highlights

· Gross profit (fee income) up 39%

· Organic growth in gross profit of 14% against a low single figure sector average

· Reported EBITDA after all costs up 447%

· Headline EBITDA 27% higher

· Number of clients up by 231 to 836 in the year

· Positive operating cash flow of £1.3m compared with negative £3.4m in 2014

· Renewed debt arrangements

Outlook

· Trading ahead of budget in first quarter of 2016

· Organic growth expected to comfortably outperform sector in 2016

· Exceptional costs expected to be significantly lower in the current year

· Further senior hires planned

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

"The strong momentum shown in the first half of 2015 continued throughout the year with gross profit (fee income) nearly 40 percent higher and organic growth at 14 percent - considerably higher than the sector average of low single figures. This strong trading performance together with a substantial reduction in exceptional costs has left reported EBITDA, after all costs, nearly 5.5 times higher than 2014. More importantly, operating cash flow was £1.3m, the first positive contribution since the formation of the Group, compared with a £3.4m negative figure in 2014.

"The current year has started well and the Group is running ahead of budget for the first quarter. New business throughout the whole of Newgate has been buoyant, although in the UK there has been some slowdown in project work ahead of the EU referendum.

"The Board remain confident that organic growth in fee income will remain strong, particularly as the planned recruitment of a number of high quality executives gains momentum, although these inevitably will have some impact on the bottom line in the short term."

-Ends-

Enquiries

Notes to Editors:

Porta has two divisions:

• Communications - financial, corporate and consumer public relations, public affairs and research;

• Marketing & Advertising - multi-capability marketing, brand and creative communications.

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

The brands and companies it owns are: Newgate Communications, PPS Group, Redleaf Communications, Publicasity, 13 Communications, Newgate Sponsorship, 2112 Communications and Summit Marketing Services.

Porta Communications' corporate website is - www.portacomms.com

Chief Executive Report

The success of the Group's integrated multi-service multi-product communications offering on a global basis continues to drive the growth at Porta. All aspects of the Group covering financial, corporate, consumer public relations, public affairs and research together with the multi-media creative communications agency are increasingly pitching together with very encouraging results. This is reflected in the 39 percent growth in gross profit (fee income) to £26.9m but more importantly the organic growth of 14 percent (stripping out first time contributions from acquisition) was considerably higher than the low single figure average for the sector.

Reported EBITDA at nearly £1.1m after all costs is nearly five and a half times higher than the £196k of 2014 maintaining the outstanding trend seen over the last four years. Exceptional costs continue to reduce in the absence of any start-up costs, while the level of reorganisation costs reflecting the closure of unprofitable offices and teams, is expected to be much lower in the current year. Operating cash flow of £1.3m in the year was positive for the first time since the formation of Porta.

In just over four years we have built a very exciting integrated business platform that will fuel continued growth in the Group. Our reputation is growing in the market place to the extent that we are attracting some of the best talent in our industry which augurs well for the future.

Communications

In the UK the acquisition of PPS at the end of 2014 gave Newgate access to a network of regional offices in Aberdeen, Bristol, Cardiff, Edinburgh and Manchester. In addition the management team of the enlarged company took the opportunity to undertake a strategic review of its operations and decided to close its Brussels and Frankfurt offices as they lacked critical mass to make an impact in these markets and they had been loss making. As part of the strategic review, the growth company team was completely restructured and fully integrated. The benefits from these measures are now starting to flow through. Client wins towards the end of 2015 confirmed the success of this approach.

The integration of PPS into Newgate was successfully completed although it was decided that the PPS name should be maintained (at least for the medium term) given the strong brand value. Trading at PPS in its first full year was in-line with management expectations but more encouraging was the number of joint pitches undertaken with other parts of the Group.

Outside of the UK Newgate has been particularly strong with Australia, Hong Kong and Singapore all enjoying a strong trading performance throughout the year.

Newgate Australia, in its second full year, had another exceptional 12 months expanding staff levels by around 30 percent while organic growth in fee income was over 12 percent and an EBITDA margin of 24 percent Project highlights for the year included advising on the successful A$10.2bn long-term lease of power transmission operator Transgrid. The sale represented the largest government trade sale in Australian history. In addition Newgate Australia advised on the biggest infrastructure project in Australia, the Sydney Metro Project. The Group is now planning to double the size of its Australian operation.

Newgate Hong Kong, another start-up, also had a very strong year generating an EBITDA margin of 34 percent. The office was appointed to advise on a number of high profile contested situations including hedge fund Elliot's proxy battle with Samsung in South Korea.

Despite a difficult year for the South East Asia economy the Singapore office successfully built on the strong foundation of 2014, its first full year of operations. The corporate communications practice saw rapid growth driven by several large new clients in the financial services, professional services and real estate sectors. Capital markets remained weak throughout the year, although the investor relations business still showed growth.

 Redleaf in its first full 12 months in the Porta stable reported a record year both in terms of fee income and profits. Strong growth was recorded across all of its three specialist teams, Capital Markets, Professional and Financial Services and Property. The success and quality of Redleaf was recognised with the agency winning Grant Thornton PR firm of the year and Best Adviser Financial PR in the KPMG UK Stock Market Awards.

In the current year Porta will be acquiring a further 15 percent of the Redleaf equity taking its stake up to 66 percent on terms outlined at the time of the acquisition in April 2014.

On the consumer PR side, Publicasity had a strong year under its new management team adding ten new brands to its client roster with an impressive conversion rate of 45 percent. The more noticeable wins included electronic cigarette brand Blu, the Caribbean tourist destination of St Lucia, and the German appliances manufacturer Bosch.

13 Communications increased fee income by over 50 percent, with a number of high profile new business wins but produced a loss on the year, albeit substantially down on the 2014 figure. Costs have now been brought in line with fees and the company is now trading profitably.

Marketing and Advertising

The multi-capability creative agency 2112 increased fee income by 27 percent in the year. BNY Mellon, the largest account in the agency, was developed further and now represents 30 percent of the agency's fee income. The relationship with Blind Veterans UK, the largest direct marketing client, has been particularly strong with the Christmas fundraising mailing achieving the best ever results in the charity's history. New business won included Henderson Global Investors, Pfizer and Towergate Insurance which are now making an impact in the current year.

Outlook

Although the current year has started well with growth ahead of budget in the first quarter a slowdown in project work in the UK ahead of the EU Referendum makes it difficult to predict the outcome for the next three or four months.

The Board remain confident that organic growth in fee income will remain strong, particularly as the planned recruitment of a number of high quality executives gains momentum, although these inevitably will have some impact on the bottom line in the short term.

1 Operating loss in 2014 excludes £475,394 gain on acquisition under IFRS 3 which has also been removed from the headline EBITDA adjustments for comparative purposes only.

2 From 1 January 2015 management took a decision to no longer treat bad debt as an exceptional cost and therefore bad debt is ignored for the 2014 comparative period.

1 Operating (loss)/profit and pre-tax profit in 2014 excludes £475,394 non-operating gain on acquisition under the IFRS 3 for comparative purposes only.

David Wright

Chief Executive Officer

Chairman's Statement

Performance

I am pleased to report that 2015 was a hugely productive and progressive year for the Porta Group. Our financial results for the year clearly demonstrate the further progress that has been achieved.

Our strategy of developing operational and geographical diversity delivered high levels of organic growth combined with a positive cash performance. Two metrics stand out: gross profit up at almost 40 percent to £26.9m and reported EBITDA nearly 5.5 times higher than in the previous year.

In essence, this was an important, pivotal period in which we saw the benefits of more internal integration of the acquired businesses coupled with cost optimisation achieved through a detailed revision and re-evaluation of each operational unit. As a result, we saw a significant improvement in operating cash inflow at £1.3m compared with an outflow the previous year of £3.4m. A more detailed picture appears later in this report.

There is clear evidence that Porta can continue to sustain high levels of organic growth and maintain its positive cash performance. Since the company was established in 2011, organic growth has averaged 105 percent, despite some underperforming operations. In 2015, for example, the client base grew by 231 or approximately 38 percent to 836 - testimony to our "buy, build and grow strategy" and to the talent of our people.

The arrival of Steffan Williams, as Group Managing Director, and the appointment of Gavin Devine, as Chief Operating Officer, has increased the focus on organic growth from existing operations while freeing management resources elsewhere to focus on strategic expansion.

As I write this report, the forthcoming Brexit vote looms large and this has certainly meant some temporary slowdown in several industries we service in the UK economy. Nevertheless, the Board is confident that it has established a strong platform with an operational structure and international footprint across strongly performing markets and is well placed to take advantage of its unique positioning in marketing and communications services.

Board and Governance

Membership of the board has been refreshed and during the year Steffan Williams joined us as a Group Managing Director. Steffan brings substantial experience working within the field of strategic communications both in the UK and internationally. The Board continued to be 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.

Annual General Meeting

The Company's Annual General Meeting will be held at 11:00am on 30 June 2016 and the Annual Report containing the Notice of the Annual General Meeting will be posted to shareholders shortly and will be available on our website thereafter.

Our people

Our people are our biggest asset. On behalf of the Board, I would like to thank all of our people for their loyalty, devotion, passion and the hard work over the past year.

I would also like to thank our shareholders for their continued support.

Bob Morton

Chairman

Renewed Debt Facilities and Related Party Transaction

As announced on 8 March 2013, the Company had entered into the discounted bond facility for £2 million with Hawk Investment Holdings Limited ("Hawk"), a company beneficially owned by Bob Morton (Non-Executive Chairman) and his wife. The bond had a redemption date of 26 February 2016 and the amount to be redeemed on that date was £2,862,000, including compound interest.

On 14 April 2016, the Company agreed the terms of a replacement secured discounted bond facility with Hawk (the "Bond"). The Bond has a redemption date of 14 April 2019 and the amount to be redeemed on that date will be £4,110,000, with an equivalent gross redemption yield of 12 per cent. per annum, and includes an arrangement fee of £28,600. At its request, Porta will be able to redeem the Bond early at a discount calculated on the date of redemption. As well as having the opportunity to repay the Bond at a discount, the Bond will help reduce the Company's monthly interest payments, as the redemption premium is only payable on the date of redemption. In the event that the Bond is not redeemed in full on or before the redemption date, interest shall accrue thereon at a rate of five per cent. above the base rate of National Westminster Bank plc for such time as it is inforce.

In addition, the Company entered into an additional secured loan agreement with Hawk on 14 April 2016 for a principal amount of £257,707.12 (the "Loan") and an arrangement fee of £2,577.07. The Loan replaced a previous short term loan which was due to mature in January 2016. Interest under the terms of the Loan will be charged at 12 per cent. per annum, with a repayment date on or before 13 April 2017. The interest and the arrangement fee are only payable at the date of redemption. The proceeds of the Loan are being used for working capital purposes.

The provisions of the Bond and the Loan, are classified as related party transactions under Rule 13 of the AIM Rules for Companies. The independent directors of Porta (being the Board of the Company with the exception of Bob Morton, who is excluded from such decisions being a related party in respect of the Bond and the Loan) consider, having consulted with the Company's nominated adviser, Allenby Capital Limited, that the terms of the Bond and the Loan are fair and reasonable insofar as the shareholders of Porta are concerned.

Consolidated Statement of Comprehensive Income

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

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 2015 or 31 December 2014. The financial information is for the year ended 31 December 2015 and the comparatives are for the year ended 31 December 2014.

The financial information for the year ended 31 December 2014 is derived from the statutory financial statements for that year which have been approved by the board of directors and delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified, did not contain a statement under either Section 498(2) or Section 498(3) of the Companies Act 2006 and did not include references to any matters to which the auditor drew attention by way of emphasis.

The financial information for the year ended 31 December 2015 is unaudited and has been prepared on a going concern basis and in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union. Statutory audited financial statements for that year will be finalised on the basis of the financial information presented by the directors in this preliminary results announcement and will be delivered to the Registrar of Companies and filed at Companies House following the Company's forthcoming annual general meeting.

The Group's statutory accounts incorporate the financial statements of Porta Communications Plc and other entities controlled by the Company ("the subsidiaries"). In making the judgement if control is achieved, the Directors assess the Group's power over the investee; its exposure and rights to various returns from its involvement with the investee; and its ability to use the power over the investee to affect the amount of investor's return.

The principal accounting policies used in preparing the preliminary results announcement are those that the Company will apply in its financial statements for the year ended 31 December 2015, are unchanged from those disclosed in the Company's Annual Report and Financial Statements for the year ended 31 December 2014.

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 Chief Executive Officer (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

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

Geographical segments

Results

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

Geographical split of the customer based revenue is presented below:

No individual customer sales were greater than 5% of Group revenue.

Assets and liabilities

3. Income Tax

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 20.25% (2014: 21.5%) for the reasons set out in the following table:

Unrecognised deferred tax assets

The Group has tax losses of approximately £3,400,000 (2014: £3,400,000) 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 the 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.

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 the end of February 2015. 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 wrote down the net assets of TTMG to zero but continued to reflect the gross assets and liabilities in the Consolidated Statement of Financial Position for the year to December 2014. This does not apply for the current reporting period.

In the course of the administration the Group incurred a number of unforeseen costs resulting in an additional loss from discontinued operations which was recognised in the current reporting period.

The assets and liabilities of TTMG classified as discontinued operations as at 31 December 2014 were as follows:

Net cash flow incurred by TTMG was as follows:

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

5. Acquisition of subsidiaries and non-controlling interests

Newgate Communications (HK) Limited ('Newgate Hong Kong') is a PR consultancy firm specialising in brand building and capital markets services and has been operating under the 'Newgate' brand from the commencement of its trading activity late in 2012.

On 1 November 2012, the Group provided Newgate Hong Kong with a revolving loan facility of up to £495,753 for general working capital purposes. On 1 January 2015, the Directors of both Porta and Newgate Hong Kong agreed to convert the full outstanding balance of the loan facility, including 1.5% annual interest accrued to that date, into a 51% stake of the issued share capital of Newgate Hong Kong.

The fair value of net assets acquired at 1 January 2015 has been determined as equal to their book value. The following table summarises the recognised amounts of assets and liabilities assumed at the acquisition date:

Goodwill

The goodwill arising on the transaction has been recognised as follows:

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

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

On 28 May 2015, the Group completed the reorganisation of Newgate Communications LLP ('Newgate') and 21:12 Direct LLP ('Direct') and, as part of this reorganisation, acquired the outstanding 49% interests in Newgate and the outstanding 30% interest in Direct, thereby increasing the Group's ownership interest in both businesses to 100%, for a total consideration of 9,754,000 Ordinary Shares of 10p each in Porta. The Ordinary Shares remain subject to a minimum 12 month lock-in period with a further 12 month orderly market period.

6. Investment in associates

The Group has a 29.5% interest in Capital Access Group Limited ("Capital Access"), a corporate communications, investor access and equity research provider, which was acquired in a non-cash acquisition on 28 July 2015. Under the acquisition agreement, the Group provides Capital Access with office services for 3 ½ years from acquisition and guarantees up to £2,000,000 of debt. Any calls on the guarantee will be satisfied by the issue of Ordinary Shares in Porta at the time. Porta has a call option over the remaining equity in Capital Access, exercisable in four tranches from 1 January 2018. The call option is payable in Ordinary Shares of Porta but Porta has no obligation to purchase the outstanding equity in the associate.

The Group also has a 25.1% interest in Team Darwin Limited, a community powered creative business, with a call option to purchase up to 40% of the outstanding share capital.

The following table summarises the financial information of the Group's investments in its associated companies at the end of the financial year.

7. Non-controlling interest

During the year ended 31 December 2015 the Group had two subsidiaries with material non-controlling interests: Redleaf Polhill Limited and Newgate Communications Pty Limited in both of which the Group has 51% ownership. Summarised financial information before intragroup eliminations in respect of these subsidiaries is presented in table below.