Charles Jillings, CEO of Utilico, energized by strong economic momentum across Latin America. Watch the video here.

Less Ads, More Data, More Tools Register for FREE

Pin to quick picksSECG.L Regulatory News (SECG)

  • There is currently no data for SECG

Watchlists are a member only feature

Login to your account

Alerts are a premium feature

Login to your account

Final Results

2 Jun 2020 07:00

RNS Number : 6052O
SEC Newgate S.p.A.
02 June 2020
 

 

SEC Newgate S.p.A.

 

("SEC Newgate", "the Company" or "the Group")

 

Audited results for the year ended 31 December 2019

and

Notice of AGM

 

 

SEC Newgate S.p.A (AIM: SECG), the international communications, advocacy and research group, is pleased to announce its audited results for the year ended 31 December 2019.

 

2019 Highlights

· Revenues for the combined Group were €47.55 million (FY2018: €28.97 million)*

· Gross profit €37.6 million (FY 2018: €22.2 million)*

· Profit Before Tax €1.27 million (FY 2018: €2.21 million)*

· Net debt €8.7 million (FY 2018: €1.7 million)*

· Completed merger of SEC S.p.A and Porta Communications Plc in September 2019

· Creation of SEC Newgate S.p.A - a global group of 34 offices operating in 15 countries across 5 continents

· Group three-year Strategic Plan announced in November 2019

· New committed banking facility of €3m secured with Deutsche Bank S.p.A. on preferable terms and no financial covenants reflecting the improved financial stability of the Group

· Annualised cost savings of €0.5m achieved following merger

· Acquired a further 5% of the equity in Newgate Greater China

· Established a new office in Morocco under the brand Cambre Maroc

 

Post Year End Highlights

· €2.5 million convertible bond with the Spanish institutional investor Inveready, secured in February 2020

· Appointment of Sergio Penna as Group Financial Officer, effective 1 June 2020

· Q1 2020 profits ahead of budget

 

* Prior year comparisons include results of the previous SEC S.p.A Group; 2019 results include four months of the enlarged Group's trading performance. 2019 results also reflect the impact of IFRS16 from 1st January 2019. 

 

John Foley, Chairman, commented:

"2019 was truly a transformational year. The Group is now of a scale to provide research backed strategic consultancy and advocacy services seamlessly across five continents with 34 offices in 15 countries and nearly 600 people.

"The creation of the new Company, which is already within the top thirty global communications service providers, is a great opportunity to build a strong, profitable business for the benefit of all our stakeholders.

"The first quarter of 2020 started very well with the Group's profitability ahead of budget. The Company's liquidity position is strong enough to withstand uncertain business demand for the foreseeable future and we remain confident and enthusiastic about the prospects for the enlarged Group."

Fiorenzo Tagliabue, Group Chief Executive, further commented:

"The success of the most significant corporate event of 2019 is clear in our results and we continued to reap the benefits of the enlarged Group in the first four months of the current year. Despite the challenges of the coronavirus emergency the Group's performance is stable and remains in line with budget.

 

"This is not happening by chance; rather it is the result of significant work undertaken in merging two excellent businesses to create SEC Newgate; and secondly, it is the result of tremendous work at Group and subsidiary levels to cut costs, relaunching the business and telling the market the story of a new global player operating in 15 countries over 5 continents. Furthermore, the merger has been further validated by SEC Newgate being ranked as 26th in the PRovoke Global Top 250 PR Agency Rankings for 2020. This is just recognition of the work we have done so far and is a great stepping-stone as we prepare to achieve even more ambitious goals.

 

"Not only is the Group's financial performance encouraging but we also have a liquidity position that allows us to plan for future developments with confidence.

 

"All this is the output of a clear vision, strong management, a shared sense of ownership throughout the Group and an incredible team of world class professionals. All these strengths were immediately clear when the Coronavirus emergency struck. As a Group we initiated clear actions to protect the finances of the business and each or our subsidiary businesses developed effective commercial initiatives to retain existing clients and continue winning new mandates to expand the client base.

 

"I am confident that 2020 will confirm the consistent excellence of our work."

 

The 2019 Report and Accounts will be made available to shareholders shortly and may be viewed or downloaded from the Company's investor relations website (https://www.secnewgate.com/investors/).

 

The Company is today publishing a Notice of Annual General Meeting ("AGM"), to be held at the Company's registered office at Via Ferrante Aporti 8, 20125 Milan, Italy"), in ordinary and extraordinary session, in first call on 18 June 2020, at 11.00 CET, at the registered office, and, if necessary, in second call on 19 June 2020, at 11.00 CET, at the registered office. As detailed in the Notice of AGM, due to the present effects of COVID-19, including Italian Government restrictions on public gatherings, the participation and the exercise of the vote of those entitled to vote at the AGM will be allowed exclusively by means of telecommunications. The Company will provide shareholders' entitled to attend the AGM and exercise their voting rights with appropriate instructions to allow access to the meeting after identifying the participants. Those entitled to participate in the AGM and exercise their voting rights must send a request in any case by 15 June 2020 to the address secrp@legalmail.it enclosing relevant documentation certifying their entitlement to participate in the AGM and exercise their voting rights pursuant to Article 83-sexies of Legislative Decree no. 58/98. It is specified that the entitlement to participate in the AGM and to vote is subject to the receipt by the Company of a notice issued by an authorised intermediary attesting the ownership of the shares on the basis of the accounting records relating to the end of the accounting day of the seventh trading day prior to the date of the AGM in first call (i.e. 9 June 2020, the record date). Debit and credit entries made after that date will not be taken into account for the purpose of establishing the right to vote at the AGM. For detailed information please refer to the notice of call published on the Company's website https://www.secnewgate.com/investors/.

 

- ends -

For further information please contact:

SEC Newgate S.p.A.

 

Fiorenzo Tagliabue (Group CEO)

Tel: +39 335 6008858

tagliabue@secrp.com

 

Emma Kane (Deputy Group CEO, 

CEO Newgate Communications UK)

 

Tel: +44 (0) 7876 338339

emma.kane@newgatecomms.com

Federico Vecchio (Group CFO)

Tel: +44 (0) 20 7680 6500

federico.vecchio@secnewgate.com

 

Arden Partners (Nominated Adviser and Broker)

 

Richard Johnson / Benjamin Cryer 

 

Tel: +44 207 614 5900

 

 Notes to Editors about SEC Newgate

· Further information is available at www.secnewgate.com

· On 3 September 2019, SEC S.p.A. and Porta Communications Plc merged to create SEC Newgate S.p.A. 

· The Group's principal brands are: ACH SEC Global (Spain); Cambre Associates (Belgium); Cambre Maroc (Morocco); Clai (France); Kohl PR (Germany); Martis Consulting (Poland); Newgate Communications (Abu Dhabi, Australia, Greater China, Singapore, UK); Newington (UK); Publicasity (UK); SEC Latam (Colombia); SEC Newgate S.p.A. (Italy); and 2112 (UK).

 

Chairman's statement

For the year ended 31 December 2019

 

It is a rare opportunity to be able to bring together two like-minded groups with entirely complementary geographical footprints, products, services and client bases. It is even rarer to find that they share a similar culture, outlook and passion to succeed. This is what was achieved on 3 September 2019 through the merger of the two AIM-quoted companies, SEC S.p.A. and Porta Communications Plc (whose primary trading business was Newgate) and the creation of SEC Newgate S.p.A. 

 

2019 was truly a transformational year. The Group is now of a scale to provide research backed strategic consultancy and advocacy services seamlessly across our extensive, owned footprint in five continents with 34 offices in 15 countries and with the professional support of nearly 600 people - global excellence through local experts.

 

Financial and Operational Overview

 

Our 2019 results were in line with management's expectations which were formulated as part of the merger evaluation process. Prior year comparisons only include results of the previous SEC S.p.A Group; results for the year ended 31 December 2019 only contain four months of the enlarged Group's trading performance. Results for the year ended 31 December 2019 also reflect the impact of IFRS16. 

 

2019

2018

€' 000

€' 000

Revenues

47,550

28,972

Gross profit

37,605

22,192

Operating profit

1,812

2,309

Profit before Tax

1,271

2,211

Net debt (excl. leases)

8,740

1,743

 

· As at 31 December 2019, the Group's net debt was €8.7m

· Annualised cost savings of €0.5m achieved within first four months following merger

· New committed banking facility of €3m secured with Deutsche Bank S.p.A. to replace Revolving Credit Facility with Clydesdale Bank to Porta Communications in 2017; the new facility has preferable terms and no financial covenants reflecting the improved financial stability of the Group

 

Strategy

 

On 21 November 2019, we announced that the SEC Newgate Board had approved the new Group's Strategic Plan for the years 2020 to 2022. Our Plan will be updated annually and will be our navigation system to direct towards financial results which we are confident we can achieve. The core areas in our Plan are:

· Improved profitability and strengthening of the balance sheet

· Cultural integration and harmonisation of SEC and Porta organisations, now SEC Newgate

· Raising of the Group's visibility and reputation worldwide

· Developing a carefully selected acquisition plan to strengthen and increase capabilities in key markets

· Implementing incentives and reward schemes to retain key talent

· A focus on high margin and/or high growth opportunities across our global footprint, as defined by service offering and geography

· Establishing centres of excellence around practice areas where the Group has market distinguishing expertise or where we anticipate significant growth opportunity - (social and market research, global 24/7 crisis communications offering)

· Investing across the Group in our digital offering with a particular focus on AI, hiring people with non-traditional communication backgrounds and expanding our digital toolkit

· Seeking to lead the market at the interface of business, politics, markets and media, our proven methodology is based around objective research, which guides strategy and campaign development and implementation

 

Acquisitions & Disposals

 

On 15 November 2019, SEC Newgate, via subsidiary Newgate PR Holdings Limited, acquired a further 5% of the equity in Newgate Greater China under the terms of the shareholders' agreement for that business.

 

On 4 December 2019, SEC Newgate established a new office in Morocco under the brand Cambre Maroc.

 

Markets and the Environment

 

There were a number of external national factors during the year that impacted our agencies such as Brexit, Elections and the ongoing civil unrest in Hong Kong. Our businesses have, however, showed their resilience, as evidenced by Newgate Australia where the business experienced a significant uplift in trading at the conclusion of the May 2019 Federal election. 

 

Board Changes

 

Following completion of the merger, the Board now comprises, six executive and four non-executive directors; a full list of directors who were all appointed to the board in September, is set out in the 2019 Report and Accounts which are available on the company's investor relations website (https://www.secnewgate.com/investors/).

 

Subsequent to this, Federico Vecchio was appointed as non-board Group CFO with effect from 30 September and Andrea Cornelli was appointed to the board as Chief Innovation Officer with effect from 9 December 2019.

 

People

 

I would like to thank our wonderful team whose hard work is equally matched by their ambitions. It has been a year of positive change and our success would not be possible without the commitment of everyone across the organisation at every level. We are proud of the diversity we benefit from across our teams and are committed to ensuring that our team reflects the diversity of the communities we are communicating with.

 

Post Balance Sheet Events

 

On 25 February 2020, SEC Newgate secured a €2.5 million convertible bond with the Spanish institutional investor Inveready which was subscribed on 4 March 2020. Additionally, the subscription of another €1 million facility with a leading Italian bank in February 2020 and the refinancing of Clydesdale facility in December 2019, the Group has committed banking facilities available with maintainable covenants and continues to enjoy excellent relationships with its lenders to support the Group through this difficult period.

 

Since the outbreak of the global pandemic, Covid-19, the Group's agencies have all implemented business continuity plans, working remotely under varying levels of lockdowns in their markets around the world. The Group has taken all necessary steps to reduce any discretionary spend and ensure strong cashflow generation whilst ensuring it continues to develop and support its 600 people around the world, service its clients and build market share. The Group continues to operate profitably with teams working collaboratively and sharing best practice initiatives and experiences. All businesses have quickly adapted to the changed working environment and continue to provide first class service to clients through online and digital engagement capabilities.

 

On 6 April 2020, the Group announced the appointment of Sergio Penna as Group Financial Officer. This followed the decision of Federico Vecchio to step down from the role for personal reasons. Mr Vecchio was not a member of the Group Board. Mr Penna will join the Group on 1 June 2020 in order to ensure an effective handover with Mr Vecchio, who will be leaving on 30 June 2020. It is intended Mr Penna will join the Board of SEC Newgate during the Autumn of 2020. Mr Penna qualified as a chartered auditor in 2005 with Mazars S.p.A. and holds a degree in economics from Luigi Bocconi University in Milan. He brings to the Group extensive financial experience gained in a number of multinational organisations.

 

Outlook

 

The Group formulated its three-year Strategic Plan after extensive dialogue had taken place amongst our senior management team. The creation of a new Group, which is already within the top 30 global communications service providers, is a great opportunity to build a strong, profitable Group for the benefit of all our stakeholders.

 

Covid-19 certainly makes it harder to achieve our goals and we recognise that timescales may need to change from the original plan. However, the direction of travel is clear to us and that certainty will prove to be of great benefit especially in uncertain economic times.

 

The first quarter of 2020 started very well, and the Group's profitability was ahead of our budget. The Group's liquidity position is strong enough to withstand uncertain business demand for the foreseeable future. Our acquisition plans can be scaled accordingly to reflect the availability of finance. We therefore remain confident and enthusiastic about the prospects for the recently enlarged Group.

 

 

John Foley

Chairman

28 May 2020

 

 

Group Chief Executive's Review

For the year ended 31 December 2019

 

4 September 2019 was a historic milestone marking the creation of a fresh and exciting entity in strategic communications on the world stage. SEC Newgate, the merger of SEC S.p.A. and Porta Communications Plc, brought together two strong and successful businesses with complementary skill sets to create a top 30 global brand with ambitions to become a world leader.

 

As the Chairman has noted in his introduction, 2019 was indeed a crucial and very significant year in our combined history. As a consequence, today SEC Newgate ranks 26th in the PRovoke (formerly Holmes Report) 2020 Global Top 250 PR Agency Rankings which was released at the beginning of May. It is an impressive result that exceeds the estimate we made at the time of the merger in September last year. Since we began working as a combined group, both former entities have benefitted through increased scale and reach, as well as shared experience and expanded services in every region. Reaching the 26th position from 53rd in 2019, is a long journey to have made within a single year. Today's table, in fact, demonstrates that all the potential we identified in the merger is already bearing fruition, turning the rationale and reasons behind the deal into concrete facts and growth.

 

After successfully bringing together the two entities and some early achievements as a united group, within months the world was hit by Covid-19. As a result, it would be remiss of me not to reference the current year, at the start of my statement, given its significance to us will undoubtedly be as crucial as the prior year, given it is the greatest crisis the whole world has faced in decades.

 

Covid-19 outbreak and our business

 

The Covid-19 outbreak has refocused our attention and efforts from our original plan onto delivering the best response and preparing the Group for the aftermath of the pandemic. Whilst, at this stage, it is almost impossible to predict and measure with any certainty what the overall impact of this emergency will have on our industry and more specifically on our business, across our agencies, we responded quickly and implemented a consistent set of protective measures and new initiatives.

 

These measures were our top priority and once we had achieved our primary objective of ensuring the safety and wellbeing of our people, I am pleased to say all operations successfully applied technology and embraced home working with positivity and a significant amount of creativity.

 

The main goal of our emergency measures programme was to define a strategy to put a 'handbrake' on spending across all our operations. The aim was to secure savings, protect the Group's cash position and liquidity, assess costs and renegotiate payment schedules wherever possible. Moreover, we are taking advantage of all the initiatives offered by different national governments to help companies facing this crisis with the objective of reducing costs, preserving liquidity and being well positioned for the recovery. This sound strategy was also underpinned by a number of key principles such as enhancing our service delivery levels to support our clients while protecting jobs to maintain a focus on commercial opportunities for both the crisis and recovery period ahead.

 

I am confident the Group will navigate these difficult times safely and with a united and shared vision. It is clear the quality and level of our response has benefitted from the strong foundations established as a result of the incredibly positive work during Q4 of 2019, shortly after the merger was completed.

 

The scale of our efforts has prepared us well to tackle 2020 - the first full operational year for the new Group. We have in place a clear vision and sound foundation to move forward.

 

2019: preparing for the future of our new Group

 

From 4 September, the new governance structure became effective: the board of directors comprises four non-executive directors, including the Chairman, John Foley, and six executive directors, some of the key Group's managers: Emma Kane, Tom Parker, Brian Tyson were appointed Deputy Group CEOs and Mark Glover, Andrea Cornelli and Anna Milito as Executive Directors. Eric Giuily, Chairman of CLAI, the French partner, now chairs the Group's Management Committee on which all the regional Managing Directors sit.

 

Our senior team was ready to hit the ground running in 2020, our first full year together, and roll out our business strategy and engage with the market. During the last quarter of 2019, the management team focused on three areas of activity:

· Drafting a three-year strategic plan for the years 2020-2022

· Identifying all synergies and savings to be implemented within the shortest timeframe

· Setting a development plan to improve the Group's footprint in strategic markets that were missing at the time of the merger

 

The Strategic Plan was approved on 5 November after extensive discussion with the management team. The Plan provides the Group and its subsidiaries with a roadmap to establish SEC Newgate in the top 20 global PR groups in the world. The Plan's main focus is increasing profitability from the first full financial year. The Plan includes detailed targets, the strategy by which we meet those targets, namely organic growth, improved efficiency and acquisitions, and the human resources policies by which we manage and reward our staff. Outside the company it will be the main tool used to promote a new offering to the market. The majority of the Plan is in the process of being implemented and is driving the Group's activities, despite the Covid-19 emergency.

 

On the synergies and savings side, the work was immediate and extensive. Results were not limited to short term savings, with emphasis also on medium term issues in order to generate the greatest possible impact. In the short term, the substitution of the Porta credit facility with Clydesdale to a new one secured with Deutsche Bank S.p.A. that offered lower interest rates, cancelled all covenants and released security over Porta subsidiaries' shares, is worthy of mention. In the medium term, an example worth mentioning is the proposed merger of our UK operations Newgate and Newington into the Group's primary London offices in Basinghall Street. This will be executed once the Covid-19 lockdown is behind us.

 

Finally, regarding the acquisition strategy, the aim is to fill in gaps in SEC Newgate's global footprint, beginning with the US, key markets in the Far East and expanding into Africa, which has commenced with the establishment of a new entity in Morocco. In addition to these targets, the strategy seeks to improve and strengthen the Group's presence in several of our existing key geographic areas such as Latin America, the Middle East and Greater China.

 

Due to Covid-19 investments have, however, been put on hold with the significant exception of the US given the crucial strategic nature of this market. Discussions are consequently still ongoing with potential partners there.

 

 For our Greater China offering, we are continuing our search for a potential key individual to enable the business to fully exploit our well-established presence in Hong Kong, Shanghai and Beijing.

 

A distinctive business model

 

Across our global footprint we are building a distinctive business model that creates value within our group, while recognising that our world of peer-to-peer communication requires flexible partnership and networks to mobilise the expertise our clients need. Based on the peer-to-peer relationships with our clients, we seek to be advisors and partners rather than just another service provider. Coupled with our unique culture, we are a group of entrepreneurs and local business leaders that value difference and embrace diversity. Our focus on building leadership in emerging areas that are profoundly changing communication e.g. AI, market research and political risk puts us on an exciting and ambitious path that differentiates ourselves in the market.

 

We have prioritised the development of proprietary technologies, research and analytics in which we have made significant investments over the recent years, such as:

 

· The Artificial intelligence platform in Milan

· The new release of the "EUessential" app in Brussels

· The rollout of Australia's Newgate Research business into the UK and Europe

 

The intelligence and the broader tool base that these have generated will further strengthen our competitive edge. In particular, the application of Artificial Intelligence models to our core services, are now going through the pre-sale testing phase and are already beginning to generate promising results. 

 

More broadly, the commercial strategy is being implemented across three parallel pillars:

 

· The commencement of a Group marketing plan

· Growth in inter-company business and cross-selling

· Raising awareness among larger potential clients at a global level

 

At the end of November 2019, the first Management Committee took place at the Group's Milan headquarters, bringing together managing directors from across the Group's operations. At the summit, internal discussions were held with the aim of refining the position and mission for the Group, to set commercial strategy and build a plan to leverage all the skills and know-how across our 34 offices, in the 15 countries where we operate.

 

Post Balance Sheet Events

 

Since the year end, in line with the objectives set out at the time of the merger and reiterated in the Strategic Plan, the Group has been successful in:

 

· Restructuring its €3 million debt facility with Unicredit Bank

· Negotiating a new loan facility with BPM Bank, an Italian Financial institution, that is worth €1 million

· On 25 February 2020, SEC Newgate secured a €2.5 million convertible bond with Inveready Convertible Finance Capital I FCR with a maturity of seven years from issuance, with interest payable quarterly at 3.50%

Outlook

 

The Group's growth plans, both organic and by acquisition, remain contingent on the Group's ability to achieve the positive results expected from the implementation of its Strategic Plan in the year ahead.

 

Q1 2020 numbers are positive, but as with the wider economy Covid-19 will have an impact on the business. Steps to reduce our exposure and reposition our offering within this context have been proactively taken as previously mentioned.

 

As we grow, our vision is getting more clearly focused: to build a worldwide group that pairs the skills of our talent with the strength of technology to be at the side of our customers to increase, measure and defend their reputation.

 

We believe that the Covid-19 crisis will bring significant and lasting changes impacting everyday life, the way we work, as well as the communications industry itself. However, with our strength of culture and resilient attitude, openness to change and innovation, and forward-thinking business model, we are confident we will not only cope with this change but will be ready to move forward with strength and a positive outlook.

 

Asia Pacific - Deputy Group CEO, Brian Tyson

 

Australia - Newgate

 

Newgate Australia achieved its highest ever net revenue of AUD 21.4 million in the sixth year of its operation as the leading integrated communications company in the Australian market.

 

With the addition of an Adelaide office, the business now operates out of six offices across the continent (Sydney, Melbourne, Canberra, Brisbane, Perth and Adelaide) with total staff numbers now over 90.

 

On the business front, providing communications for the delivery of large infrastructure projects continued to be a significant part of the business - Sydney Metro, Cleanaway Energy from Waste, Snowy Hydro 2.0, one of the world's largest pumped hydro renewable energy projects amongst our biggest clients of 2019. After a slow start leading up to the two major elections (NSW in March and Federal in May), the return of the incumbent political parties signalled a back to business surge in new client projects and increased activity on those that were in a pre-election holding pattern.

 

The Financial Communications team had a very strong year as well taking advantage of an uptick in M&A activity post the elections. A key cross border transaction that reflected the benefit both of our network as well as our integrated offering was a highlight of the year. Working for Mengui, a Hong Kong listed Chinese company with significant state-owned shareholding, we managed to gain FIRB approval for the takeover of two Australian companies in the beverage industry. Continuing from our 2018 performance we were again represented (alongside our colleagues in Singapore and Hong Kong/China) in the Holmes Report APAC Financial Communications and Merger Market awards.

 

Newgate Research continued to develop new products, with a specialised social media audit product and undertook a large piece of research into the ABC, Australia's national broadcaster.

 

A large crisis brief for one of the major domestic banks in November and December turned a historically breakeven summer Christmas period profitable.

 

Looking forward, the strong finish to 2019 has led to a strong new business pipeline into 2020 with a large stakeholder engagement project for Air Services Australia and the opening of a new stadium in North Queensland.

 

We assisted the Minderoo Foundation, which is independent, forward thinking and seeks effective, scalable solutions and one of Asia's largest philanthropies, with AUD $1.5 billion committed to a range of global initiatives. We also supported a number of companies advancing the Uluru Statement on constitutional recognition of Aboriginal and Torres Strait Islanders.

 

On the pro-bono front, we continued to support a number of organisations including Thrive, Ovarian Cancer Australia, Aurora and the Clontarf Foundation.

 

Greater China - Newgate

Newgate's business in Greater China had a slow start to 2019, as trade tensions between the US and China noticeably impacted corporate investment activity and decision making. This situation worsened in the middle of the year when protests in Hong Kong cast a further shadow over investment decisions involving assets or businesses in the city. In particular this caused much work on M&A deals and lucrative brand-building mandates, which the company had won, either to be halted mid-process or indefinitely postponed. 

 

Notwithstanding this exceptionally tough trading environment the Hong Kong business achieved a single digit profit margin for the full year, particularly benefitting from a marked improvement in performance in the second half when it won several new retainer and project mandates, across a diverse range of areas including litigation, private equity and government relations.

 

Notable new mandates for the Hong Kong office included work for funds in connection with a fraudulent creditor default in Vietnam, litigation support for a global fashion brand around intellectual property abuse in China, work in China for insurance group AXA, whom the company supported on its acquisition of Tianping and with a major corporate brand-building campaign, research work for Apple, as well as a variety of projects in the technology and fintech sectors.

 

In Shanghai, however, the business was unable to gain traction beyond a few small mandates and consequently incurred significant losses. Since the year end this situation has resolved itself with the departure of the Shanghai office head, allowing the company to stem those losses and focus on identifying new leadership for that business with the necessary network, skills and experience required to establish a successful offering. 

 

With the advent of Covid-19 and an effective shut-down of all relevant business activity in China the timing of this significant reduction in cost has enabled the firm to avoid the significant losses being experienced by many others operating in that market.

 

From a broader regional perspective Newgate continues to be recognised for the quality of its work, being shortlisted for the PR Week Asia-Pacific PR Consultancy of the Year award.

 

Singapore - Newgate

In 2019, Newgate Singapore continued to build on its track record as the leading communications advisor on capital markets transactions, advising on a number of high-profile M&A, fundraising and shareholder engagement mandates during the year. Towards the end of 2019, we decided to consolidate some of our service and product offerings, as well as restructure part of our team, with a view to increasing our digital and research capabilities and staffing in 2020.

 

Building on the experience we gained from advising on the first, ground-breaking merger of two Singapore-listed REITs in 2018, we won two additional mandates during 2019 for mergers of other Singapore-listed REITs, which were amongst the largest M&A transactions for the year. We also advised on a number of privatisation bids, as well as on the successful restructuring of one of the largest regional property groups. Also building on experience from the past year, we advised on another successful bond issuance during the middle of 2019.

 

On the corporate communications front, we further diversified our service offering to our core groups of real estate and financial services. During the year, we also won a number of new litigation support and crisis communications mandates.

 

Europe, Middle East, Africa - Deputy Group CEO, Tom Parker

 

Abu Dhabi - Newgate

Newgate Abu Dhabi, in its sixth year, experienced a shifting market environment in the Middle East region. Despite this, the agency was successful in winning some prestigious client accounts: United Nations/World Urban Forum, the UAE Embassy to China and Abu Dhabi Securities Exchange.

 

These client wins resulted from a concerted effort emanating from a strategic plan focused on driving growth and profitability in areas where the agency has true expertise and a proven track record - expanding the agency's core business with Government entities; developing business opportunities cross border; and, consolidation of the agency's team of experts.

 

Belgium and EU - Cambre

2019 was a year of consolidation for Cambre, after a challenging 2017 and recovery in 2018. Cambre experienced a steady flow of new business across sectors and retained or grew existing client assignments (notably in the external relations and trade areas). The tech, trade and energy practices gained market recognition and association management services are back on track. Sustainability and competition practices are emerging and look promising for 2020. The SEC Newgate launch upped the agency's profile and drew attention to its global footprint.

 

The consultancy's fee income was significantly ahead of the prior year and ahead of forecast; EBITDA also almost doubled. Covid-19 aside, the outlook for 2020 is good and the focus will be on reviving Cambre's healthcare practice, showcasing its climate/sustainability expertise, including strengthening its chemical industry practice and enhancing its digital capabilities.

 

France - CLAI

Despite a slow start to 2019, activity levels for the last nine months of the year rose and the recovery was such that the last quarter was 40% ahead of the first quarter. The decisive action taken by the team to reduce costs resulted in significant improvements year on year at both EBITDA and gross margin levels. Key highlights for the year included winning long-term contracts from Acoss (the financial agency for all public welfare institutions in France), ANSM (the public agency controlling medicines), and being hired by prestigious international clients such as Amazon, International Papers and Bridgestone. 

 

"How to make others speak for yourself", a book written by Elisabeth Coutureau and Eric Giuily, which explains and develops their specific strategic approach to communication, the "Corporate Advocacy ®", was published in April and received widespread, positive endorsements in the media. It is now the key element of the agency's marketing strategy with a "Monthly point of view" published on the agency's blog.

 

Germany - Kohl PR

2019 marked the turnaround of the agency following a difficult situation in 2018. The agency was repositioned with the change of its General Manager, a new corporate design and the recruitment of new high-profile senior consultants. These actions laid the foundations for positive developments in 2019 and triggered new business opportunities.

 

A number of important new assignments were secured and the financial situation recovered despite the strained economic situation in Germany due to market insecurities relating to Brexit and strained international trade relations. 

 

New client wins included Edwards Lifesciences and Blauer Engel and 12 project assignments. As a result, the consultancy was profitable on revenues significantly ahead of the prior year supported by a reduction in operating expenses.

 

Italy

SEC celebrated its 30th anniversary in 2019, in the same year that the group merged to create SEC Newgate whilst retaining its premium market positioning in Italy and with revenues significantly ahead of the previous year. Across the different local businesses highlights included: SEC Mediterranea S.r.l saw significant improvement in top and bottom line financials through projects such as the Edison Group IGI Poseidon gas pipeline project; SEC and Partners S.r.l worked on major projects including LVMH, the ongoing dispute between Vivendi and Telecom Italia and the acquisition of ABB solar inverter business by Fimer; SEC & Associati S.r.l delivered a positive performance from both ongoing and new clients, much of this growth coming from the agency's expansion in the ICT and Health sectors; Finally, HIT S.r.l. significantly improved performance in 2019 with activities including ongoing work at Milan Malpensa and Linate airports and services in La Triennale.

 

Other key highlights during the year included: Management of significant infrastructure (Terna, A2A) and urban requalification projects including being appointed by AC Milan and FC Inter to advise on community relations; handling major crisis communication situations such as restructuring at Ikea and the rail disaster for Trenord; financial communications for organisations such as the Chartered Accountant fund; and client wins for brands such as Maxi Zoo and Autotorino. Our events business successfully handled the Linate Air Show on behalf of SEA, the airport management company in Milan, attended by over 200,000 people.

 

2019 was also a crucial year with respect to the finalization of our Artificial Intelligence based proprietary tool to deliver new to market applications for reputation and advocacy services. Closing a very time-consuming project initiated nearly two years ago, and with an investment of nearly €1.5 million, we ended 2019 ready to pre-market test the first applications at the beginning on 2020.

 

Along the same path of innovation and digital integration, at the end of 2019 a dedicated team of PR, digital and visual professionals underpinned by software engineers was incorporated to create a new business division named Accelerate. The team took on board staff and know-how from our existing event division which had, earlier in 2019, incorporated the staff and business of Curious Design, our visual and content agency which was liquidated at the end of the year. This large and multidisciplinary team will work across all divisions to develop innovative integrated solutions in the digital, brand experience and e-marketing fields for organisations that aim to improve their engagement capabilities.

 

Morocco

Cambre Advocacy Maroc was established on 4 December 2019 following a successful initial project with Cambre supporting the Kingdom of Morocco in engaging with the European Union. The new agency is owned by SEC Newgate and AvantScene, the leading event and communications agency in Morocco. The agency is led by Driss Benhima, former member of the Moroccan Government and former CEO of some of the biggest state-owned companies in Morocco.

 

The agency is focused on strategic communications and advocacy for public and private decision makers in Morocco as well as consultancy services to foreign investors and organisations wishing to focus on Morocco, the wider French speaking Africa market and those who need assistance with their stakeholder engagement programmes.

 

Poland - Martis Consulting

 

In 2019 Martis focused on crisis consultancy in relation to the deepening decline in trust in institutions and companies operating on Polish capital markets. In the wake of this crisis, which started with the Get Back scandal, all those investing in shares, bonds and investment fund units suffered considerable losses. The agency's consultants provided communications support to both banks and investment fund companies, as well as distressed businesses.

 

The Company continued to develop its research and market analysis activities and published a report "Analysis of European Public Listed Companies with (Partial) State Ownership" in May 2019. The report was very well received by the market and commentators. It was published in both Polish and English and included comments of experts representing different SEC Newgate Group companies.

 

In December 2019, Martis Consulting presented the results of its second report "Valuation of Polish Managers". The publication of this edition of the report was widely covered in the nationwide media, including on the front pages of two leading general and business dailies "Rzeczpospolita" and "Gazeta Parkiet".

 

Spain - ACH

During 2019, ACH focused on restructuring the business including the creation of a market leading Digital & Creative team focused on social media, influencer campaigns, advertising and reputation management. The agency continued to be highly regarded for its Public Affairs and institutional and media relations skills.

 

The agency was successful in securing new client project mandates from organisations such as Afinity, Knight Frank, ProColombia, and Silicones.

 

UK and AMER (North, Central and South America) - Deputy Group CEO, Emma Kane

 

Colombia - SEC Newgate Colombia

The agency is now the second largest PR agency in the country and, in 2019, was successful in sustaining the growth it had achieved in 2018. 

 

Revenues were positively impacted by the consolidation of the healthcare practice with the entry of Sanofi Pasteur and Cruz Verde which is one of the most important pharmacy networks in the region.

 

The agency's expertise in the extractive industry was also strengthened as AngloGold Ashanti and Continental Gold joined our portfolio in the second semester.

 

The Brand PR business unit delivered strong results through key clients such as Diageo, Huawei and AB Inbev, with an increased scope during the year.

 

In addition, the Creative and Digital unit led important projects complementing our service offer in the market.

 

The agency's focus on generating new business through international clients with pan regional potential was successful and will be a key focus for the business going forward. 

 

United Kingdom

 

The UK market remained challenging during 2019 due to the uncertainty surrounding the timing of Britain's exit from the European Union. Despite this, the overall performance of the majority of the UK agencies was significantly improved on the prior year.

 

Newgate Communications

 

2019 was the first full year for combined entities of the former Redleaf Communications, Publicasity and Newgate Communications which were all merged under Newgate Communications in November 2018. 

 

The focus during the year was very much on improving bottom line performance rather than purely on fees billed. A fundamental branch and root review was undertaken across all areas of the business following the merger. 

 

A new way of working, under one P&L was implemented to ensure that the best team for the client challenge is always used which often comprises people working together from across the agency, in different teams, with different skill sets. This approach coupled with investment in more sophisticated management information systems has significantly enhanced the quality of the work delivered and improved the profitability of the business - the combined business is now trading profitably and margins are improving.

 

A strategic review was undertaken of Newgate's community engagement business and new leadership was also put in place. This business areas has since gone from strength to strength winning numerous important mandates included several significant Development Consent Orders, an area in which the agency has significant expertise.

 

New mandates secured during the year included: Ballymore, JM Finn, Jury's Inn, Leonardo Hotels, Openreach, Urban & Civic, and Vanguard.

 

The business is now trading profitably and has a clear path continuing to drive performance over the coming year.

 

Newington Communications

 

Newington's revenues and thus profitability were impacted by wider market issues and a major client's decision, at the start of the year, to take its public affairs activity in-house. The agency's management team took the necessary steps to reduce its costs commensurate with the reduction in fees. By the end of the year, fees had risen to their target levels as a result of the team securing significant new mandates across all consultancy practice areas - for both retained and project work.

 

New clients include Energy Networks Association, Cadent Gas, Harlow and Gilston Garden Town, Office of the Rail Regulator, Keolis, Sodexo, Swansea University, Transport for London and Taylor Woodrow.

 

Newington won the Public Affairs Europe Award 2019 for its campaign with the Crisis Prevention Institute.

 

2112

 

During 2019, 2112 Communications continued to strengthen relationships with key clients, attract new clients, build reputation and expand capabilities to be able to deliver exceptional creative solutions. The agency's client base was solidified by blue chip clients such as HSBC Asset Management, Lombard International Assurance, Alliance Bernstein, T Rowe Price and The United Nations all engaging 2112 during the year.

 

The senior management team was strengthened with the appointment of Andrew Golding in November 2019. Andrew joined the agency as Head of Strategy and Innovation and has been appointed to the Board.

 

2112 continued to expand its reach and increase its revenues from international activities with the establishment of 2112 Asia, a joint venture with Hong Kong based agency, Chord Asia.

 

The quality of 2112's work was recognised by receiving the award for best content at The Financial Services Forum Awards for Marketing Effectiveness 2019.

 

Group Chief Financial Officer's Review

For the year ended 31 December 2019

 

This year, the creation of SEC Newgate, which is the result of the merger of leading European communications firm SEC with Porta, has represented a turning point for the entire Group, which can now rely on c.600 people working out of 15 countries and five continents.

 

Following the merger, we have immediately focused on aligning reporting procedures throughout the enlarged Group and have worked towards achieving savings, especially with regards to the UK business and its headquarters, where, after the merger, €0.5m of net annualised costs were removed. Moreover, thanks to the restructuring, even before the merger, of the UK companies during 2019 (which led to €0.8m of net savings related to employment and other operating expenses), these entities were able to join SEC Newgate with a much stronger and more profitable position.

We have also worked on our three-year Strategic Plan, focusing on key goals for the coming years including, but not limited to, a return to profitability for the former Porta group, cultural integration of the enlarged Group and increased visibility and reputation on the market which will represent our main guidance for the coming years.

 

For the year ended 31 December 2019, the Group delivered another year of positive Operating Profits and Profit before Tax (PBT). These figures are not easily comparable to the prior year due to the implementation of IFRS 16, the consolidation of the Porta Group from 4 September 2019 and the full-year contribution of our French subsidiary CLAI (which was acquired in November of 2018).

 

Key financials

 

· Gross profit was €37.6m (2018: €22.2m)

· Operating profit was €1.8m (2018: €2.3m)

· PBT was €1.3m (2018: €2.2m)

In 2019 we updated the Consolidated Income Statement to disclose gross profit as this is a measure used internally to monitor our performance at a Group and subsidiary level (please refer to the explanatory note included in the Consolidated Income Statement). Furthermore, we have moved away from using EBITDA as a performance metric since the transition to IFRS 16 on 1 January 2019. The main impact of IFRS 16 is to increase EBITDA in 2019 as the rental expenses have now been replaced by depreciation and interest which falls below EBITDA. Given that the Group has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions, EBITDA is less comparable between the years. For this reason, and given that EBITDA no longer includes a key operating expense (rentals), our focus has shifted towards PBT. Further details on the impact of IFRS 16 can be found in note 33.

 

Gross profit was up by c. €15.4m with the increase mainly attributable to the following:

· Consolidation of the newly acquired Porta group and its subsidiaries from September 2019 (explaining c.70% of the increase)

· Full year consolidation of CLAI (acquired in November 2018) (explaining c.20% of the increase)

· Organic growth of the other companies within our Group (explaining c. 10% of the increase)

Employee expenses were up both in absolute terms (by c. €10.8m, €8.8 of which related to the consolidation of Porta entities) and in relative terms when compared to GP (by 6%). This increase was partially due to the fact that on average former Porta entities had a much higher employee expense to GP ratio (c. 78%, including however some ceasing expenses as described in the section "Subsidiaries Restructuring") compared to SEC companies (c. 56%). In terms of total staff, the Group employed 592 people at the end of 2019 (327 at the end of 2018).

 

Service costs were up by €2.2.m (33%) even though this class of costs has been impacted by the implementation of IFRS 16 which has seen a decrease in rental expenses (since the long-term lease effect is now allocated to depreciation and interest expenses). Most of the increase in service costs is attributable to an increase in overhead expenses (which include items such as utilities, marketing expenses and staff travel) which increased by almost €2.3m in 2019. Also, other operating costs (which include, among the others, listing costs and software licences costs) have increased in 2019 by c. €1.0m. 

 

Whilst amortisation of intangibles was in line with 2018 (€0.1m), depreciation was €1.9m higher than in 2018 mainly due to the implementation of IFRS 16. After performing impairment tests on each of our subsidiaries, we concluded that no impairment or write-off was needed.

 

Finance expenses were up in the year; however c. €0.5m of this increase was as a result of the implementation of IFRS 16. The other main reasons were a net loss on foreign exchange movements by c. €0.1m and an increase in Group financial debts (part of which was as a result of the merger). As part of the merger, there was a deed of variation with Hawk in relation to the deep discounted bond granted to Porta Communications extending the redemption date referred to in the bond from 14 April 2021 to 14 April 2023 and, as a consequence, to increase the nominal value of the Hawk Bond to £4.8m. Whilst this reduced the implied interest rate from 8% to 6% per annum the interest incurred on this bond is now consolidated within the Group's results. Moreover, in December 2019, SEC Newgate signed a new four-year €3.0m banking facility with Deutsche Bank S.p.A. which was used to replace the Revolving Credit Facility provided by Clydesdale Bank to Porta Communications Plc in 2017. There has been a significant saving in terms of interest expenses since the new facility has an interest rate of 3-month 1.70%+EURIBOR (while Clydesdale RCF had an interest rate of 3.85%+LIBOR). As a consequence of the comments highlighted above, the Group PBT in 2019 decreased to €1.3m (40% fall on 2018).

 

Also the total comprehensive income for the year, due to the items above and also due to losses on investments held at fair value (as a result of the revaluation of Porta Communications shares held by SEC before the merger) and losses on exchange rates movements, registered a decrease of c. €0.8m.

 

Subsidiaries restructuring

 

We are aware that some of our subsidiaries have a huge growth potential and, throughout 2019, we have been working on setting up a clear strategy and the necessary resources in order to deliver it.

 

Among these subsidiaries includes Newgate Communications in the UK, which has undergone significant restructuring, started in 2018 (when the merger between Newgate Communications, Redleaf and Publicasity happened) and completed towards the end of 2019. In terms of net annualised savings for this company (related to staff costs, one-off expenses and other operating expenses), management has been able to save c. €0.8m in 2019, which, combined with the net annualised savings realised in 2018 (c. €2.9m), brings the total figure over the last two years to €3.7m.

 

2112, another UK subsidiary, has substantially completed its restructuring process, which has been an ongoing activity which started at the end of 2016. In particular, the company has completely reshuffled its management team and reduced its staff numbers from 44 to 28, which has led to a net annualised saving at the end of 2019 (compared to 2016 when the process started) equal to c. €0.6m while focusing on maintaining a constant level of fees.

 

Another company which has faced a profound restructuring is our Spanish subsidiary ACH SEC Newgate. Indeed, starting from mid-2019, the local management has implemented a strong reduction of the company's labour costs (which are now c. 23% lower), incurring one-off costs in terms of compensations. However, also thanks to the creation of a Digital & Creative department during 2019, the company is now better positioned to be able to return to profitability going forward.

 

2019 has also marked the turnaround for our German subsidiary Kohl, which, thanks to the change of its General Manager, a new corporate design and the recruitment of a new high-profile senior consultant has been able to secure important new assignments and recover its financial situation, delivering a positive PBT in 2019 despite the strained economic prospect in Germany due to insecurities of the markets regarding Brexit and burdened international trade relations.

 

Post-merger, Porta Communications has also undergone the first phase of its restructuring process, which led to net annualised savings of c. €0.45m. Management has decided to simplify the operations and activities of this company and this ongoing process, which will continue into 2020, has the clear goal to turn Porta Communications into a purely centralised finance function for the enlarged Group.

 

Finally, in Italy the Group also streamlined its activities during 2019, with Della Silva (which has not traded throughout 2019) and Curious' (which has stopped its business activity in the second half of 2019) operations and activities now transferred to SEC Newgate.

 

Group finance operations

 

Following the merger, we have focused on improving the operating effectiveness of the financial reporting within the Group to enable the board of directors and management to make quicker informed decisions based on true underlying performance and data. On top of that, the Group finance function has immediately started to work on the implementation of new processes throughout the enlarged Group in order to align reporting and facilitate the collaboration among all the subsidiaries in sharing information and best practice.

 

Whilst a significant amount of work has already been done in terms of aligning the management accounts reported monthly by each subsidiary, the next step, in terms of Group reporting, is to implement a new consolidation system for the enlarged Group in order to produce timely consolidated reports and KPIs whilst also ensuring the consistent use of the same chart of accounts across the Group. This will result in a quicker turnaround of information enabling decisions, both internally and externally, to be made more efficiently and timely. 

 

Net debt

 

Following the merger in September 2019, the Group's debt position has reached a considerable level (c. €8.7m of net debt as at 31 December 2019), even though a relevant portion (£5.3m) of former Porta group's debt has been converted in shares upon completion of the merger.

 

Besides what has been highlighted above in relation with the Hawk discounted capital bond, after the completion of the merger, the Group has also focused on refinancing the Clydesdale facility and it has been able to do so in December 2019 thanks to a new financing facility from Deutsche Bank S.p.A., which also allowed SEC Newgate to obtain important savings in terms of interest. The new facility has an interest rate of 3-month EURIBOR (with a floor at 0%) + 1.70%, while the previous revolving credit facility with Clydesdale Bank included a margin of 3.85% over a 3-month LIBOR.

 

The increase in debt outstanding, part of which, as explained above, was linked to the high level of Porta's net debt pre-merger, caused a negative net debt impact of €7.0m. From a total capital perspective, the merger and the movement in retained earnings in the year have resulted in an increase of c. 65% of total equity, which when taken in conjunction with the net debt movement, has caused the Group's debt to equity ratio to increase from 0.1 in 2018 to 0.4 at the end of 2019.

 

Whilst the Group is now in a better position to compete in international markets, the condition of the net debt position cannot be ignored, and now that the merger is effective it is the immediate focus of management to improve and strengthen the Group's capital structure.

 

Post Balance Sheet Events

 

On 25 February 2020 SEC Newgate secured a €2.5 million convertible bond which was subscribed on 4 March 2020 by Inveready Convertible Finance Capital I FCR and Inveready Convertible Finance Capital SCR S.A., each a fund set up or managed by Inveready Asset Management S.G.E.I.C., S.A ("Inveready").

 

This convertible bond, together with the further financing from an Italian bank secured in February 2020, will help the Group in financing the implementation of its strategic plan, announced in November 2019, as well as in supporting the Company's working capital requirements.

 

The convertible bond has a maturity of seven years from issuance, with interest payable quarterly at 3.50%. The bond, which has been issued as 25 bonds with a nominal value of €100,000 each and are freely transferable, may be converted (at a conversion price of approximately 55 pence per SEC Newgate share) starting from the 3rd anniversary from the issuance. If the conversion of any of the bonds does not occur prior to maturity, an additional non-conversion fee is payable by SEC Newgate equivalent to a 2.5% annual return on top of the interest paid.

 

Another important event which has impacted the Group in the first few months of 2020 is the Covid-19 outbreak, which affected markets all across the world. The Group and its subsidiaries, after a good start to the year in line with management expectations, have inevitably been impacted by this, mainly in terms of delays in cash receipts and temporary suspension of contracts by clients, even though normal origination and execution activity has continued throughout all the offices as far as possible. All of the companies in the Group have implemented specific actions to reduce the impact of Covid-19 by using measures such as reducing all discretionary spend in order to cope with this extraordinary situation, as well as taking advantage of all possible measures provided by the governments around the world.

 

As highlighted above, the Group has the benefit of the recently issued €2.5m Convertible Bond, together with available committed banking facilities, with maintainable covenants, and good relationships with its lenders, as highlighted by the new €3m four-year banking facility with Deutsche Bank S.p.A. announced in December 2019, to support the Group through this difficult time.

 

Conclusion

 

Thanks to the actions already implemented at the end of 2019, the Group is well positioned to deliver operationally and financially and, whilst Group management is aware of the further improvements needed in terms of processes and systems and of the ongoing work needed to drive bottom line growth together with top line growth, the operating foundations of the Group are firm, despite the short-term issues caused by the Covid-19 outbreak.

 

In the short-term, our focus will be to implement all necessary processes to make the Group operate smoothly and to potentially review the Group's capital structure to provide a solution that works for both shareholders and other stakeholders so that the performance and quality of the underlying businesses can be converted in a stronger bottom line. 

 

Following the merger, we are confident that the newly established Group is now in a much stronger position to improve operating performances going forward than it has ever been before. 

 

Federico Vecchio

Group CFO

28 May 2020

 

Corporate Governance Statement

 

AIM companies are required to comply with a recognized corporate governance code. SEC Newgate has chosen the Quoted Companies Alliance ("QCA") Corporate Governance Code published in April 2018 for this purpose.

 

High standards of corporate governance are a priority for the Board. A prescribed set of rules does not itself determine good governance or stewardship of a company and, in fulfilling their responsibilities, the Directors believe that they govern the Company in the best interests of the shareholders, whilst having due regard to the interests of all the 'stakeholders' in the Group.

 

Details of how SEC Newgate addresses the QCA Code's ten key governance principles are published on the Investors section of the SEC Newgate website, which can be found at: www.secnewgate.com/investors.

 

Principal Risks and Uncertainties

 

The Group is exposed to various risks which may affect its performance. The Group's management team performs regular exercises to identify and evaluate new risks facing the business as well as reviewing the appropriateness and progress of previously identified risks. The process is designed to manage these risks and ensure all necessary steps taken to mitigate them are considered and undertaken in a timely manner. However, no system of control or mitigation can completely eliminate the risks inherent in achieving the Group's business objectives. The existing risk management process adopted by the Board of Directors can therefore provide only reasonable, and not absolute, assurance against material misstatement or potential loss.

 

The Directors identified a number of risks and uncertainties which they believe may affect the Group's ability to deliver its strategic goals in the future. A list of these risks is summarised below. This list does not purport to be an exhaustive summary of the risks affecting the Group, is given in no particular order of priority and contains risks considered to be outside the control of the Directors.

 

Additionally, there may be risks not mentioned in this document of which the board are not aware or believe to be immaterial, but which may, in the future, adversely affect the Group's business and the market price of the Company's ordinary shares.

 

Before making a final investment decision, prospective investors should consider carefully whether an investment in the Company is suitable for them and, if they are in any doubt, should consult with an independent financial adviser authorised under FSMA which specialises in advising on the acquisition of shares and other securities in the UK or another appropriate financial adviser in the jurisdiction in which such investor is located who specialises in advising on the acquisition of shares and other securities.

 

Level of risk

Risk description

Potential impact

Key mitigations

Acquisitions and disposals (strategic risk)

 

 

 

 

 

 

 

 

 

 

 

3

The Group acquires companies which are not complementary and/or result in a negative impact to the Group once integrated

 

Potential strain on the Group's financial resources as a result of acquisitions

 

Companies are disposed of, leaving the Group exposed to gaps in its service offering

· Reputational damage

· Negative impact on the Group's financial performance

· Additional support and funding being required

· Unable to raise sufficient funds for the acquisition

· Diversion of management resources whilst integrating new subsidiaries

· Loss of clients and negative impact on revenue and profitability due to disposal

 

· The Group's focus is both on organic growth and acquisitions. In the event of a new acquisition, rigorous internal and external due diligence would be performed on the company and its market in order to identify potential risks and to ensure the acquisition is complementary and in markets where the Group is currently not present or underperforming

· Where a new service of integrated offering is required, the Group would initially look to hire key staff and to develop the service internally before considering the acquisition of an external company

· Earn-out mechanisms will be used in the majority of future acquisitions made by the Group in order to reduce cash tensions

· Only non-core or risk exposed companies would be considered for sale, and only done so after careful analysis as to the impact of divestment

 

Management of growth (strategic risk)

 

 

 

 

 

3

The Group is unable to support the growth areas of the business sufficiently, through either lack of funds, resources or focus

 

 

· Hiring decisions that lead to the recruitment of staff misaligned with strategy or ahead of revenue

· Staff leave through lack of support and/or resources

· Incur unnecessary costs

· Required systems and processes aren't in place leading to inefficiencies and inaccurate information reported to management

 

· Processes and systems in place to help identify need and fulfilment of resource

· The production and monitoring of budgets against performance and hiring plans

· Targeted and specific staff training

· Systems implemented to support staff in maintaining visibility on key metrics

· Company and Group KPIs monitored by Executive Directors on a monthly and, where possible, weekly basis

 

New markets and channels of service offering (strategic risk)

 

 

 

 

 

 

 

2

New market and/or channel of service offering isn't sufficiently understood or researched prior to entry

 

Achieving lower than expected revenues and/or higher costs and resource requirements when setting up new operations

 

A new offering doesn't gain sufficient traction, is loss making or not complementary to other Group services

 

 

 

· Negative impact on Group profitability and cash flows

· Negative impact on integrated offering

· Reputational and brand damage

 

· Fully research and market test any new services before formally launching

· The Board pursues a strategy of organic growth in existing companies

· Any entry into a new market would be with the support of local expertise

· Use of qualified and experienced advisers where necessary

· Continuously assess performance in new markets and the related opportunities and risks

 

Future funding and existing debt (strategic risk)

 

4

The Group net debt position increases at a rate in excess of the Group's performance

· Unattractive for subordinated debt or equity funding

· Creates a problematic platform from which to grow

· Working capital diverted to interest payments

· Difficult to find further funding at a competitive rate or without restrictive covenants

 

· Executive Directors closely monitor net debt position and continue negotiations with lenders

· Closely manage costs so to de-risk the Group creating a more manageable platform from which to drive profitability

· Improve the internal structure and strategic direction of the business to make it more investable

· Where further financing is required, the Board looks to achieve this in a manner that is best suited to the Group and shareholders

 

Restructuring activities (strategic risk)

 

 

2

Business units, teams or individuals deemed not to be adequately supporting their cost base are exited from the business without sufficient analysis being undertaken

· Incorrect decisions are made in the restructuring process causing a negative impact on revenues and/or staff morale, as well as incurring unnecessary additional costs

· The Group performs ongoing detailed analysis of companies, business units and individuals' performance against approved budgets and KPIs

· Any restructurings undertaken are signed off by the Group and/or company boards after detailed discussions and presentation of analysis and with the support of external consultants where necessary

· Group seeks to remain fair towards all members of staff affected by the changes through transparent and regular consultation

 

 

 

Overseas operation (strategic and economic risk)

 

 

 

3

A significant proportion of the Group's revenues is generated overseas. The Group's business is therefore susceptible to adverse changes in local and regional economic, political and social conditions as well as the policies of the relevant government, including changes in laws and regulations, taxation and the imposition of restrictions on currency conversion

 

· The occurrence of war, public disorder, economic sanctions, terrorism and local or national strikes or labour unrest in any of the overseas locations in which the Group operates may disrupt or permanently prevent the Group from operating in these locations or from recovering its investment in whole or in part

 

· SEC Newgate maintains a balanced portfolio in terms of geographical locations to minimise the impact on the Group's overall results

· Group performs a thorough analysis of economic, political and social conditions before entering new markets to minimise any unexpected turmoil

 

Global economic trends and political instability (economic risk)

 

 

 

 

 

 

4

Local and political landscape causes a slowdown in client spending

 

In 2020 particularly, Brexit in the UK, the political tensions in the Middle East and the trade war between the USA and China could contribute to significant uncertainty in key markets for the Group

 

Covid-19

The pandemic which impacted businesses and their employees around the world

 

 

· A reduction in new client contracts

· Resource heavy procurement processes

· Margin pressure

· Regulatory changes

· New tax and other legislation

· Fall in market confidence

 

 

 

 

 

· A reduction in client contracts

· A reduction in new client contracts

· Fall in market confidence

· Significant disruption to operations

· The Group disperses its risk and reliance on any particular economic environment through a wide and diverse client base in both industry and geography

· Significant political events have been factored into 2020 budgets and company strategies have been re-focussed as a result

· The Group and subsidiary boards monitor new business wins/losses and track committed fees and new business pipeline against budgets on a monthly and, where possible, a weekly basis and manage expenditure accordingly

 

 

· The Group has business continuity plans in place

· All employees are able to work remotely

· All discretionary spend cancelled

· All government schemes accessed where appropriate

Client dependency (economic risk)

 

 

 

 

 

 

2

 

 

 

 

That the Group, or any subsidiary, is overly dependent upon fees from a single client

· Loss of a client materially impacts overall profitability

· Company becomes too focussed or specialised in a single industry

· The client monopolises company resources

 

· The Group performs weekly reviews of new business wins/losses across all Group companies which highlights any client dependencies

· Systems have been put in place to enable staff to monitor profitability, servicing and staffing of clients

· Continued diversification of industry expertise across the Group resulting in specialisms but no reliance on a single sector

· No single client represents more than 5% of the Group's total Gross Profit

 

Competition (economic risk)

 

 

2

The Group may face significant competition from both domestic and international

competitors who have greater capital, greater resources and superior brand recognition and who may be able to provide better services, adopt more aggressive pricing policies or pay higher prices to acquire businesses and resources. There is no assurance that the Group will be able to compete successfully in such an environment

 

· Lower margins and profitability

· Loss of key employees and/or clients

· Inability to provide appealing services

· The Group provides tailored and highly value-added services in order to minimise the pricing competition from bigger players

· SEC Newgate focuses on retaining employees and is constantly committed to enhancing retention by employing the key mitigations discussed below under the retention of key employees risk

· The Group focuses on anticipating major trends in the industry and on being among the first players in the industry to invest in new services and technologies (evidenced by the investment and development of its AI platform)

Revenue growth and profitability (economic and operational risk)

 

 

3

The Group cannot guarantee that it will be able to achieve or sustain revenue growth and/or profitability in the future

· Fluctuation of operating results as a result of a number of factors, many of which are beyond Group's control (growth rate of markets in which the Group operates, market acceptance of and demand of its services and products and those of its customers, problems in the introduction of its services or products)

· Requirement of additional working capital and financing in the medium term, which may not be available on attractive terms or at all

· The Group has budgeting and reforecasting processes in place and continually monitors expectations highlighting any cost control or financing needs

· As soon as results, and especially fees, appear to be lower than budgeted, Group and local management immediately implements specific actions in order to drive business (for instance encouraging new pitches, training and hiring of new staff) and, when necessary, reviews the cost structure in order to minimise the impact on Group's profitability

 

Attraction and retention of key employees (operational risk)

 

 

 

3

The key to a Group of communications, marketing and advertising businesses is its employees. An inability to successfully attract and/or retain key staff is therefore fundamental to the Group's longevity

· High staff turnover impacting client service

· Additional unplanned cost and time incurred to replace staff

· Competitors benefit through staff moving

· Loss of key staff-client relationships and resulting impact on revenue

· Loss of key skills, knowledge and expertise

· Recruit senior management and staff of the highest quality through a robust and thorough process, and remunerate them accordingly and, where possible, succession plans are developed in advance

· Create an ethos of being "proud to work for" the Group

· Promotion opportunities and long-term career plans are available

· Continued review of all employment benefits and training and development needs

· Mental and physical health is taken seriously, with appropriate resources and processes in place to monitor and address any issues accordingly

 

Working capital (operational risk)

 

 

3

 

Poor or delayed cash collections from clients

 

Rapid organic growth at Group or subsidiary level leading to the tying up of working capital

· Reduced liquidity

· Working capital shortfalls in the short-term

· Difficulty in maintaining supplier terms

· Breach bank covenants

· Ensure strict credit terms as part of contract negotiations and agree advanced billing terms whenever possible

· Strong credit control processes are in place with dedicated credit controllers

· The Group monitors and manages cash flow on a weekly basis and for some of the subsidiaries a 13-week rolling forecast is performed and submitted on a weekly basis. Where potential shortfalls are identified, the Group will work with the relevant finance team to help ensure sufficient funds are available

 

Reliance on subcontractors (operational risk)

 

 

2

The Group utilises subcontractors on a project-by-project basis to meet its contractual obligations. Such projects rely on subcontractors to perform in a timely manner and in line with the project's performance obligations. There is a risk of this not being met

 

· Non-performance may result in time and/or cost over-runs on projects reducing expected margins

· Reputational damage which could lead to client and/or staff losses

 

· Group minimises reliance on subcontractors by utilising internal staff where possible and by hiring full time employees as replacements where feasible

· Subcontractors are carefully selected (in most cases through tender processes) with their performance being periodically reviewed

Timing of large contracts (operational risk)

 

 

2

The Group's revenues are generated from a mix of longer and shorter lead time orders

 

The timing of order placement and delivery of the larger orders are inherently difficult to predict; hence the Group may experience downtime between orders and/or receive an abundance of orders at once

 

· Material fluctuations in actual results compared with expectations

· Adverse impact on cash collectability, profitability and staff utilisation

· Employees being overworked to meet demands impacting staff welfare and potential reputational damage if performance is poor

· Alternatively, a loss of clients due to internal capacity not being able to satisfy demands

 

· The Group constantly monitors its project pipeline in order to avoid an excessive reliance on large projects

· Periodic assessment of internal resources to assess capacity within teams, bringing work forwards where possible during quiet periods, and alternatively using subcontractors during busy periods

Information systems (IT) and data security (operational and business risks)

 

 

 

3

The Group's business operations, like most other businesses, are highly dependent upon IT. Therefore, any IT failure could present a considerable risk

 

Access to confidential information due to inadequate security of data by unauthorised persons either internally or externally

 

· Delays to client work and compromise to client relationships

· Opportunity for potential fraud

· Data loss

· Confidentiality breaches

 

 

 

· Third party IT specialists, monitored by internal resources maintain Group IT systems

· Business and IT disaster recovery plans exist in each company and are tested frequently to minimise any disruption in the event of an IT failure

· Anti-malware and other IT security software is used to prevent cyberattacks and computer viruses. This software is constantly updated and tested

· Staff training is provided, and IT updates communicated to staff

· Access to data is restricted internally on a person by person basis as appropriate

Failure to maintain an acceptable standard of business ethics (business risk)

 

 

 

2

The Group engaging in actual or perceived unethical client work

 

Staff violating the Group's Code of Business Conduct and Ethics

· External reputational damage which could affect future and existing client relationships

· Staff dissatisfaction if clients' work is not aligned with their personal ethics

 

· New business opportunities are shared with all, creating a culture of openness and transparency

· Code of Business Conduct and Ethics is communicated to all employees, in addition to having appropriate training programmes in place

· Confidential communication channels to management or Group HR are in place to support staff reporting violations

· Any perception or questions over ethical standards in relation to potential client work or behaviour is immediately raised to the relevant company board, and if deemed relevant, the Group board also

 

Legal and regulatory compliance (compliance risk)

 

 

2

The risk of breaching an Italian, UK or international law, AIM listing rule or any regulatory rules to which the Group, or any of its subsidiaries, must adhere to

· Penalties and fines

· Reputational damage which could lead to client and/or staff losses

 

 

· External legal counsel in each country is sought as necessary

· A SEC Newgate staff hand-book and share dealing code is in place and is communicated to all staff

· Regular staff training is provided

· Nominated advisors are consulted with respect to any actions taken which are regulated by the AIM listing rules

 

 

Financial risk management

 

Details of the Group's approach to financial risk management are disclosed in detail in note 10 to the financial statements.

 

Consolidated financial statements - SEC Newgate S.p.A. and subsidiaries

 

Company information

 

SEC Newgate S.p.A. (the "Company") was incorporated in March 1989 and is based in Milan. On 4 September 2019, the Company name was changed from SEC S.p.A to SEC Newgate S.p.A. The registered office and principal executive office of SEC Newgate S.p.A. is located at Via Ferrante Aporti 8, Milano 20125. 

 

The Consolidated financial statements for the two years ended 31 December 2019, represent the result of the Company and its subsidiaries (together referred to as "Sec Newgate Group" or the "Group").

 

The principal business of the Group is a comprehensive range of public relations, advocacy, communications and public affairs services provided to national and multinational clients.

 

The subsidiaries of the Company included in the Consolidated financial information, can be found in note 29.

 

Independent Auditor's Report to the members of SEC Newgate S.p.A.

 

Opinion

We have audited the financial statements of SEC Newgate S.p.A. and its subsidiaries (The "Group") for the year ended 31 December 2019 which comprise the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of financial position, the consolidated cash flow statement and notes to the financial statements, including a summary of significant accounting policies.

The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In our opinion:

· the Group financial statements give a true and fair view of the state of the Group's affairs as at 31 December 2019 and of the Group's profit for the year then ended; and

· the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union.

 

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Use of our report

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

· the directors' use of the going concern basis of accounting in the preparation of the financial

statements is not appropriate; or

· the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group's or the parent company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

 

 

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

This is not a complete list of all risks identified by our audit.

 

Key audit matter

How we addressed the matter in our audit

Revenues

See accounting policy in note G, and Revenues note (note 3).

We considered there to be a significant audit risk arising from inappropriate or incorrect recognition of revenue, including relating to management override, appropriate application of agent verses principal accounting, cut-off of revenue transactions at the year end and whether the accounting policy is not aligned with IFRS. Furthermore, the presumed risk of improper recognition of revenue due to fraud has also been identified as a significant risk.

Revenue recognition is one of the primary focuses of the engagement team. Due to this focus, revenue recognition is considered to be a key audit

matter.

 

 

Our procedures included reviewing the group's adopted revenue recognition policy to ensure that it complies with accounting standards and has been consistently applied throughout the year giving particular attention to IFRS 15.

We tested material revenue transactions recorded near the end of the year and subsequent to the year end to confirm appropriate recognition in the year under audit.

We selected a sample of key contracts for testing. We assessed whether the revenue recognised was in line with the contractual terms, the group's revenue recognition policy and the relevant accounting standards.

 

Impairment of goodwill

See accounting policy in note H, and the Intangibles Assets note (note 11).

The group has material intangible assets, mainly goodwill, arising from acquisitions as part of business combinations. The group has determined that the single subsidiaries that generated goodwill are a single cash generating unit.

We considered there to be a significant audit risk arising in relation to the accuracy and valuation of all intangibles.

The group is required to assess, at each reporting date, such assessment should include consideration of information from both internal and external sources.

Further, notwithstanding whether indicators exist, the recoverability of Goodwill and intangible assets with indefinite useful lives are required to be tested at least annually.

Due to the inherent uncertainty involved in forecasting and discounting future cash flows, we therefore identified the impairment of goodwill as a Key audit matter.

Our audit procedures over the impairment of goodwill included general procedures on the methodology adopted and the related controls, in addition to substantive testing:

General procedures included, but were not limited to:

§ review of the methodology used by the Directors for the impairment review, and

§ consideration of the review and approval processes adopted.

Substantive procedures included, but were not limited to:

§ review of the financial projections underpinning the impairment review, including consideration of the key assumptions on revenue and cost, and the discount rate used;

§ testing, on a sample basis the calculations;

§ sensitivity analysis.

 

We also evaluated the Group's disclosures relating to its evaluation of impairment indicators and the annual impairment testing as provided in "Note 11 - Intangible assets".

Business Combination

See accounting policy in note E and H, and the Intangibles Assets note (note 11)

The management reported that in September 2019 SEC Newgate ("SEC"), who previously held 16,9% of Porta Communication PLC (*Porta"), purchased the remaining share capital resulting in 100% of Porta. As a result, SEC Newgate, also indirectly controls the subsidiaries of Porta which have been consolidate at the year end.

As said by the management of the group, the consideration transferred consists entirely of SEC issuing equity interests to Porta shareholders calculated at the fair value of the SEC equity interests transferred. On 3 September 2019, n. 420.810.829 Porta shares were exchanged at a rate of 88.495 into n. 4.755.162 new SEC shares as well as

n. 5.993.212 SEC shares being issued to Retro Grand Limited ("RGL"), a shareholder of Porta, following the conversion of a convertible loan currently owned by RGL. In total, n. 10.748.374 SEC shares were issued as a result of the acquisition at a fair value of Euro 1,0174 per share.

Our audit procedures regarding the business combination included:

§ analysis of all the relevant documents about the transaction;

§ discussions with the company's management regarding the valuation methods used to determine the fair value of the net assets transferred;

§ assessment of the valuation methods used by the company to identify the fair value of the net assets transferred;

§ the analysis of the transaction's accounting treatment and of the related notes as required by IFRS 3;

§ check on the adequacy and appropriateness of the information provided in the Notes to the Consolidated Financial Statements.

The management said that goodwill of Euro 14.995 thousands arising on the acquisition of the Porta group represents the strategic benefits of the acquisition that will help to enhance the Group's ability to strengthen its media presence through expansion into other geographical areas as well as the economies of scale expected from combining the operations of the group. Goodwill has been attributed by the management to each CGU of the Porta Group based on the anticipated future profitability of each CGU. The mentioned business combination represented a key audit matter due to the complexity of the valuation methods adopted and the consequent accounting treatment.

 

Our application of materiality

We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take into account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole

We determined materiality for the Group financial statements as a whole to be Euro 713 thousands which represents 1.5% of revenues. We agreed with the audit committee that we would report to them misstatements identified during our audit above Euro 36 thousands.

Revenue has been concluded as the most relevant performance measure to the stakeholders of the Group, while also providing a more stable measure year on year when compared to the Group profit before tax.

Performance materiality is the application of materiality at the individual account or balance level set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. Performance materiality was set as a percentage of materiality. In setting the level of performance materiality we considered a number of factors including the expected total value of known and likely misstatements (based on past experience and other factors) and management's attitude towards proposed adjustments.

 

An overview of the scope of our audit

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the Group operates.

In establishing the overall approach to the Group audit, we assessed the audit significance of each reporting unit in the Group by reference to both its financial significance and other indicators of audit risk, such as the complexity of operations and the degree of estimation and judgement in the financial results. We also considered the changes to the overall Group because of the acquisition of Porta Communication PLC and where the key business activities and transactions reside.

We instructed BDO UK, BDO Poland, BDO Colombia, BDO Germany, BDO Spain, BDO Belgium, ESV Business Advice and Accounting, Karen Chung & CO., Rohan Mah & Partners LLP, Mrs Naulin - Chartered Certified Accountants and Hewitt Card - Chartered Certified Accountants as component auditors, to perform full scope audits of financial information of the significant components accounted for locally in those territories.

We performed specific procedures of financial information of the non-significant reporting units accounted for locally in Italy. This, together with the additional procedures performed at Group level over the acquisition accounting and consolidation process gave us the evidence we needed for our opinion on the financial statements as a whole.

 

Summary of audit scope

Based on the above scope we were able to conclude that sufficient and appropriate audit evidence had been obtained as a basis to form our opinion on the Group financial statements as a whole.

 

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

 

Responsibilities of directors

As explained more fully in the directors' responsibilities statement the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

 

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

 

Alessandro Fabiano (Partner - Chartered Accountatns)

For and on behalf of BDO Italia S.p.A., Statutory Auditor

Milan, 28 May 2020

 

 

 

 

Consolidated Income Statement

For the year ended 31 December 2019 

 

Restated1

2019

2018

Notes

€' 000

€' 000

Continuing operations

Revenue

3

47,550

28,972

Cost of sales

(9,945)

(6,780)

Gross profit

37,605

22,192

Employees expenses

4

(23,386)

(12,560)

Service costs

5

(8,982)

(6,749)

Depreciation & amortisation

6

(2,154)

(260)

Other operating costs

7

(1,271)

(314)

Operating profit

1,812

2,309

Finance income

8

188

97

Finance expense

8

(729)

(195)

Profit before taxation

1,271

2,211

Taxation

9

(1,271)

(639)

Profit for the year

-

1,572

(Loss)/profit for the year attributable to:

Owners of the Company

(99)

1,232

Non-controlling interests

30

99

340

-

1,572

(Loss)/Earnings per share attributable to the equity holders of the Company

Basic, per share

27

(€0.006)

€0.091

Diluted, per share

27

(€0.005)

€0.083

 

1As a result of the acquisition of Porta Communications Plc detailed in note 29, the Board has decided to report cost of sales and gross profit as a separate line item going forwards. This is to ensure consistent reporting across all group entities and as a result the comparative has been restated. Costs recharged to clients are now recorded within cost of sales. Costs recharged to clients at the same rate as the cost incurred were previously recorded in revenue (4,378 €'000). Costs recharged to clients at a different rate than the cost incurred were previously recorded in service costs (1,829 €'000) and other operating costs (573 €'000). These costs have been reclassified to cost of sales (6,780 €'000). Historically, 'other operating income and charges' and 'other operating costs' were disclosed separately. Going forward these amounts will be combined within the single line item 'other operating costs' above. The breakdown of this figure can still be found within note 7.

 

There were no discontinued operations in the year.

 

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

The Group has initially applied IFRS 16 at 1 January 2019 and the impact on comparative information can be found in note 33. The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statement of Comprehensive IncomeFor the year ended 31 December 2019 

 

 

2019

2018

Notes

€' 000

€' 000

Continuing operations

Profit for the year

-

1,572

Items that may be subsequently reclassified to profit or loss:

Loss on revaluation of investments held at FVOCI

(625)

(1,747)

Loss on exchange rates

(346)

(44)

Items that will not be reclassified to profit or loss:

Actuarial (loss)/gain on defined benefit pension plans

25

(84)

1

Total comprehensive income, net of tax

(1,055)

(218)

Total comprehensive income for the year attributable to:

Owners of the Company

(1,120)

(551)

Non-controlling interests

65

333

(1,055)

(218)

 

The Group has initially applied IFRS 16 at 1 January 2019 and the impact on comparative information can be found in note 33. The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

Consolidated Statement of Financial Position

As at 31 December 2019

 

 

 

Restated1

2019

2018

Notes

€' 000

€' 000

Non-current assets

Intangible assets

11

30,768

15,614

Tangible assets

12

8,984

780

Investments

13

16

1,252

Other financial assets

14

21

66

Other assets

15

3,490

971

Total non-current assets

43,279

18,683

Current assets

Trade receivables

16

15,094

9,630

Other receivables

17

4,562

1,822

Financial investments

18

280

583

Cash and cash equivalents

19

6,138

5,220

Total current assets

26,074

17,255

Total assets

69,353

35,938

Current liabilities

Trade payables

20

7,462

4,953

Other payables

21

9,399

2,739

Borrowings

22

2,447

2,371

Lease liabilities

23

2,861

-

Provisions

24

1,645

565

Total current liabilities

23,814

10,628

Non-current liabilities

Employee benefits

25

2,013

1,950

Borrowings

22

12,431

4,592

Lease liabilities

23

5,607

-

Other non-current liabilities

26

5,637

6,803

Total non-current liabilities

25,688

13,345

Total liabilities

49,502

23,973

Net assets

19,851

11,965

Equity

Share capital

27

2,425

1,350

Share premium

28

12,456

3,741

Legal reserve

28

148

58

Revaluation reserve

28

(3,076)

(2,030)

Retained earnings

28

6,321

5,681

(Loss)/profit for the year

(99)

1,232

Total equity shareholders' funds

18,175

10,032

Non-controlling interests

30

1,676

1,933

Total equity

19,851

11,965

 

1 Previously share premium, legal reserve, other reserves and retained earnings were all combined within one line item called 'Reserves'. Going forward these reserves will be shown separately in the Consolidated Statement of Financial Position.

 

The Group has initially applied IFRS 16 at 1 January 2019 and the impact on comparative information can be found in note 33. The accompanying notes are an integral part of these consolidated financial statements.

 

The financial statements were approved by the Board of Directors on 28 May 2020 and authorised for issue on 1 June 2020.

 

Fiorenzo Tagliabue

Director

SEC Newgate S.p.A. (09628510159)

Consolidated Statement of Changes in EquityFor the year ended 31 December 2019 

 

Share capital

Share premium

Legal reserve

Retained earnings

Other reserves

Total equity share-holders' funds

Non-controlling interests

Total equity

€' 000

€' 000

€' 000

€' 000

€' 000

€' 000

€' 000

€' 000

At 1 January 2019

1,350

3,741

58

6,913

(2,030)

10,032

1,933

11,965

Total comprehensive income

Profit for the year

-

-

-

(99)

-

(99)

99

-

Other comprehensive income

-

-

-

25

(1,046)

(1,021)

(34)

(1,055)

Total comprehensive income

-

-

-

(74)

(1,046)

(1,120)

65

(1,055)

Transactions with owners

Issue of Ordinary shares in relation to business combinations

1,075

9,861

-

-

-

10,936

-

10,936

Issue costs

-

(1,146)

-

-

-

(1,146)

-

(1,146)

Dividends declared to non-controlling interests

-

-

-

-

-

-

(406)

(406)

Dividends declared to non-controlling interests (CLAI)1

-

-

-

(429)

-

(429)

-

(429)

Share based payments

-

-

-

32

-

32

-

32

Transfer between reserves

-

-

90

(90)

-

-

-

-

Acquisition of non-controlling interest

-

-

-

-

-

-

98

98

Acquisition of non-controlling interest without a change in control

-

-

-

(130)

-

(130)

(14)

(144)

Total transactions with owners

1,075

8,715

90

(617)

-

9,263

(322)

8,941

At 31 December 2019

2,425

12,456

148

6,222

(3,076)

18,175

1,676

19,851

 

 

Share capital

Share premium

Legal reserve

Retained earnings

Other reserves

Total equity share-holders' funds

Non-controllinginterests

Total equity

€' 000

€' 000

€' 000

€' 000

€' 000

€' 000

€' 000

€' 000

At 1 January 2018

1,222

2,627

58

5,693

(246)

9,354

2,042

11,396

Total comprehensive income

Profit for the year

-

-

-

1,232

-

1,232

340

1,572

Other comprehensive income

-

-

-

-

(1,784)

(1,784)

(7)

(1,791)

Total comprehensive income

-

-

-

1,232

(1,784)

(552)

333

(219)

Transactions with owners

Proceeds from shares issued

128

1,114

-

-

-

1,242

-

1,242

Dividends declared to non-controlling interests

-

-

-

-

-

-

(444)

(444)

Others

-

-

-

(12)

-

(12)

2

(10)

Total transactions with owners

128

1,114

-

(12)

-

1,230

(442)

788

At 31 December 2018

1,350

3,741

58

6,913

(2,030)

10,032

1,933

11,965

1 SEC Newgate S.p.A holds preferred shares in CLAI SAS which represent 10% of the ordinary share capital and 50% + 0.1 of the voting rights. SEC Newgate also holds options which would allow the company to acquire the remaining 90% of the share capital in CLAI SAS within the earn out period. The financial statements of the subsidiary have been consolidated at 100% on this basis. Given that there is no non-controlling equity interests attributable to CLAI, the dividend declared to the 90% minority has been allocated to retained earnings. See note 29 for more details.

 

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

 Consolidated Statement of Cash FlowsFor the year ended 31 December 2019

 

 

 

 

2019

2018

Notes

€' 000

€' 000

Cash flows from operating activities

Profit before tax on continuing activities

1,271

2,211

Adjusted for:

Changes in fair value investments to profit or loss

8

(119)

(55)

Finance expense

8

729

195

Finance income

8

(69)

(43)

Depreciation of tangible assets

6

2,059

142

Amortisation of intangible assets

6

95

118

Impairment of trade receivables

7

243

123

Pension provisions

(69)

351

Long-term provisions

-

4,668

Share based payment expense

4

32

-

Other non-cash movements

-

(44)

Loss on disposal of tangible assets

6

-

Changes in working capital:

Decrease in trade and other receivables

(460)

(1,589)

Increase in trade and other payables

2,525

44

Cash generated from operating activities

6,243

6,121

Income tax paid

(1,149)

(753)

Net cash inflow from operating activities

5,094

5,368

Cash flows from investing activities

Acquisition of tangible assets

(355)

(427)

Proceeds from sale of tangible assets

8

-

Acquisition of intangible assets

(94)

(892)

Acquisition and earn-out payments

(577)

(5,359)

Cash from acquisitions

1,824

999

Proceeds from sale of financial assets

-

2,131

Proceeds from sale/(acquisition) of investments

409

(1,191)

Interest received

49

-

Net cash inflow/(outflow) from investing activities

1,264

(4,739)

Cash flows from financing activities

Interest paid

(248)

(152)

Acquisition of non-controlling interests

29

(121)

-

Payments of finance lease liabilities

(1,907)

-

Proceeds from loans and borrowings

7,323

984

Repayment of loans and borrowings

(7,414)

(1,701)

Dividends paid to non-controlling interests

(835)

(444)

Loan issued to related company

(1,160)

-

Proceeds from issue of share capital

-

1,242

Issue costs relating to business combinations

(1,155)

-

Minorities

-

(10)

Net cash outflow from financing activities

(5,517)

(81)

Net cash increase in cash and cash equivalents

841

548

Cash and cash equivalents at 1 January

5,220

4,672

Effect of exchange rate changes

77

-

Cash and cash equivalents at 31 December

19

6,138

5,220

 

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

 

Notes to the Financial Statements

For the year ended 31 December 2019

 

 

1. Accounting policies

 

a. Basis of preparation

 

The principal accounting policies adopted in the preparation of the financial information are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.

 

The financial information has been prepared in accordance with International Financial Reporting Standards and International Accounting Standards and Interpretations (collectively "IFRSs") issued by the International Accounting Standards Board (IASB) and adopted by the European Union ("adopted IFRSs").

 

The financial information has been prepared under the historical cost convention, except for financial instruments that have been measured at fair value.

 

The Consolidated financial statements are presented in Euros (EUR), the Company's functional and presentation currency.

 

The financial statements have been prepared on a going concern basis in accordance with IFRS and IFRIC interpretations issued and effective or issued and early adopted as at the time of preparing these statements.

 

The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the Consolidated financial statements are disclosed under accounting policy (u).

 

New and amended standards adopted by the Group

 

The Group has applied the following standards, amendments and interpretations for the first time for their annual reporting period commencing 1 January 2019:

 

· IFRS 16 Leases - replacing IAS 17 Leases: The Group has amended its accounting policies following the adoption of IFRS 16 and has provided additional disclosures, as required, which can be found in note 23. The impact of adopting IFRS 16 has been further explained in note 33.

 

The adoption of the above did not have any impact on the amounts recognised in prior periods.

 

Standards, interpretations and amendments to published standards that are not yet effective and have not been adopted early by the Group

 

Certain new standards, amendments to standards and interpretations have been published that are effective for annual periods beginning after 1 January 2020, and have not been applied in preparing these Consolidated financial statements. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

 

b. Going concern

 

The Directors are required to consider whether it is appropriate to prepare the financial statements on the basis that the Group is a going concern. As part of its normal business practice, the Group prepares annual plans and Directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future. Notwithstanding the impact of Covid-19 the Group continues to adopt the going concern basis in preparing the Consolidated financial statements.

 

c. Basis of consolidation

 

The Consolidated Statement of Comprehensive Income and Consolidated Statement of Financial Position include the financial statements of the Company and its subsidiary undertakings made up to 31 December 2019 and present comparative information for the year ended 31 December 2018.

 

Subsidiaries are all entities over which the Group has control. A company is classified as a subsidiary when the Group has the following:

 

· power over the investee;

· exposure, or rights, to variable returns from its involvement with the investee;

· the ability to use its power over the investee to affect the amount of the investor's returns.

 

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The financial information includes the results of the Company and its subsidiary undertakings made up to the same accounting date.

 

Profit or loss and each component of other comprehensive income ('OCI') are attributed to the equity holders of the parent of the Group and to non-controlling interests. All intra-group assets, liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

 

A change in ownership interest of a subsidiary without a loss of control is accounted for as an equity transaction.

 

d. Foreign currency translation

 

Amounts included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency).

 

The Consolidated financial statements are presented in Euros, the Company's functional and presentation currency. Transactions in foreign currencies are translated into the functional currency using the exchange rate prevailing at the date of the transaction. Foreign exchange gains and losses resulting from settlement of such transactions, and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognised in the Consolidated Statement of Comprehensive Income.

The results and financial position of all Group companies that have a functional currency other than euros are translated as follows:

· income and expenses are translated at average exchange rates;

· assets and liabilities are translated at the closing exchange rate at the Consolidated Statement of Financial Position date; and

· all resulting exchange differences are recognised as other comprehensive income which is a separate component of equity.

 

e. Business combinations

 

The results of subsidiary undertakings acquired during the period are included in the Consolidated Income Statement from the effective date of acquisition.

 

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at fair value at the date of acquisition, and the amount of any non-controlling interest in the acquired entity. 

 

Non-controlling interest are initially measured at the non-controlling interests' proportionate share of the recognized amounts of the acquiree's identifiable net assets. Acquisitions costs incurred are expensed and included in operating expenses except where they relate to the issue of debt or equity instruments in connection with the acquisition.

 

When the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss. It is then considered in determination of goodwill.

 

f. Segment reporting

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Board of Directors that makes strategic decisions.

 

The Board considers that the Group's activity constitutes one operating and one reporting segment, as defined under IFRS 8. Management reviews the performance of the Company and its subsidiaries by reference to total results against budget.

 

g. Revenue

 

Revenue is recognized to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. Revenue represents the fees derived from services provided to clients and is reported net of discounts, VAT and other taxes.

 

Revenue is recognized in the period in which the service is performed, in accordance with the terms of the contractual arrangements. Income billed in advance of the performance of the service is deferred and recognized in the Consolidated Income Statement when the service takes place. Income in respect of work carried out but not billed at period end is accrued.

 

h. Intangible assets

 

Intangible assets comprise goodwill, website development costs, software and licences.

 

Goodwill

 

Goodwill represents the excess of fair value attributed to investments in businesses or subsidiary undertakings over the fair value of the identifiable assets, liabilities and contingent liabilities acquired at the date of acquisition. Goodwill on acquisition of an entity is included in intangible assets.

 

Goodwill has an indefinite useful life and therefore not amortized. Impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the net present value of future cash flows derived from the underlying assets using a projection period of up to five years for each cash-generating unit. After the projection period a steady growth rate representing an appropriate long-term growth rate for the industry is applied. Any impairment in carrying value is recognized as an expense and is not subsequently reversed.

 

Website development costs and software

 

Expenditure on website development and software is initially stated at cost. Amortisation is calculated to write down the cost of these assets to their estimated residual value over their expected useful lives of 3 years on a straight-line basis.

 

Licenses: Research and development costs

 

Expenditure on internally developed products is capitalised if it can be demonstrated that:

· it is technically feasible to develop the product for it to be available for use or sold;

· adequate technical, financial and other resources are available to complete the development;

· there is an intention to complete and sell or use the product;

· there is an ability for the Group to sell the product;

· sale of the product will generate future economic benefits;

· expenditure on the project can be measured reliably.

 

Capitalised development costs are amortised over 3 years. The amortisation expense is included within the depreciation and amortisation expenses line in the Consolidated Income Statement. 

 

Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in the Consolidated Income Statement as incurred.

 

Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in the Consolidated Income Statement.

 

Licenses: Other

 

Externally acquired intangible assets are initially recognized at cost and subsequently amortized on a straight-line basis over their useful economic lives. Licenses are amortized over the term of the license agreement.

 

i. Tangible assets

 

Property, furniture and equipment are initially recognized at cost and subsequently stated at cost less accumulated depreciation and, where appropriate, impairment losses.

 

Depreciation is calculated to write down the cost of all tangible fixed assets to estimated residual value over their expected useful lives as follows:

 

· Furniture and machinery 12%

· Office equipment 20%

· Computer equipment 20%

 

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying value is greater than its estimated recoverable amount.

 

Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are recognized within "other operating costs" in the Consolidated Income Statement.

 

For right-of-use assets recognised see accounting policy (n) for details on initial and subsequent recognition.

 

j. Investment in subsidiaries, associates and joint ventures

 

Investments included in non-current assets are stated at cost less any impairment charges.

 

k. Financial assets

 

Recognition and initial measurement

 

Trade receivables are initially recognised when they originate. All other financial assets are initially recognised when the Group becomes a party to the contractual provisions of the instrument.

 

A financial asset (unless it is a trade receivable without a significant financing component) is initially measured at fair value plus, for an item not at fair value through profit or loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

 

Classification and subsequent measurement

 

Financial assets are classified on initial recognition and subsequently measured at amortised cost, fair value through other comprehensive income (FVOCI), or fair value through profit or loss.

 

Financial assets at amortised cost - these assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.

 

Financial assets at FVTPL - these assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss.

 

Equity investments at FVOCI - these assets are subsequently measured at fair value. Dividends are recognised as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in OCI and are never reclassified to profit or loss.

 

The Group classifies its financial assets into one of the categories above, depending on the purpose for which the asset was acquired. The Group has not classified any of its financial assets at fair value through profit or loss, except for financial investments.

 

Investments

 

Financial investments (note 18) are categorised as a Level 1 investment for the purpose of the IFRS 13 fair value hierarchy and are valued using quoted prices in active markets for these investments at the reporting date.

 

IFRS 13 sets out the framework for determining the measurement of fair value and the disclosure of information relating to fair value measurement, when fair value measurements are required/used.

 

IFRS 13 requires certain disclosures which require the classification of assets and liabilities measured at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurement.

 

Other investments (note 13) are designated as FVOCI and are shown at fair value with any movements in fair value taken to equity. On disposal, the cumulative gain or loss previously recognized in this equity reserve is not recycled to retained earnings.

 

Trade and other receivables

 

Trade receivables arise through the provision of services to customers. Other receivables incorporate other types of contractual monetary assets. These assets are initially recognized at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently measured at amortized cost using the effective interest rate method, less any provision for impairment.

 

Impairment of financial assets

 

Impairment provisions are recognized when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms of the receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable.

 

For trade receivables, which are reported net of any provision for impairment, the provision is recorded in a separate allowance account with the loss being recognized within other operating costs in the Consolidated Income Statement. Trade receivables are written off when there is no reasonable expectation of recovery. The gross carrying value of the asset is written off against the associated provision. Subsequent recoveries of amounts previously written off are credited against the same line item.

 

l. Cash and equivalents

 

Cash and cash equivalents comprise cash, deposits held at call with banks and other short-term liquid investments with an original maturity of up to three months or less.

 

In the Consolidated Statement of Financial Position, bank overdrafts are shown within borrowings in current liabilities.

 

m. Financial liabilities

 

Recognition and initial measurement

 

Financial liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instrument.

 

A financial liability is initially measured at fair value plus, for an item not at fair value through profit or loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue.

 

Classification and subsequent measurement

 

Financial liabilities are classified as measured at amortised cost or fair value through the profit or loss (FVTPL). A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss.

 

The Group's loans and trade and other payables are measured at amortized cost using the effective interest method.

 

The fair value of financial liabilities of the Group together with their carrying values can be found in note 10.

 

n. Leases

 

The Group has applied IFRS 16 using the modified retrospective approach and therefore comparative information has not been restated and continues to be reported under IAS 17. The details of accounting policies under IAS 17 are disclosed separately below. The effect of initially applying IFRS 16 is described in note 33.

 

The Group leases various offices and equipment. Rental contracts are typically for fixed periods of 1 to 10 years but may have extension and termination options.

 

Policy applicable from 1 January 2019

 

At the inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys, throughout the period of use, the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset.

 

This policy is applied to contracts entered into, on or after 1 January 2019.

 

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The cost of the right-of-use asset is comprised of the amount of the initial measurement of the lease liability adjusted for any lease payments made at or before the commencement date plus any initial direct costs incurred by the Group and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset and site on which it is located, less any lease incentives received.

 

The right-of-use asset is subsequently depreciated over the length of the lease term from the commencement date if the asset is not retained by the Group. Otherwise the estimated useful lives of the right-of-use assets are determined on the same basis as tangible assets (see accounting policy (i)). The right-of-use assets are periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

 

The lease liability is initially measured at the present value of the lease payments that are unpaid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate.

 

Lease payments included in the measurement of the lease liability comprise the following:

· fixed payments, including in-substance fixed payments;

· variable lease payments that depend on an index or a rate initially measured using the index or rate as at the commencement date;

· amount expected to be payable under a residual value guarantee; and

· the exercise price under a purchase option that the Group is reasonably certain to exercise;

· payments of penalties for terminating the lease, if the lease term reflects the Group exercising an option to terminate the lease.

 

The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its original assessment of whether it will exercise a purchase, extension or termination option.

 

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

 

The Group presents right-of-use assets within "Tangible assets". Lease liabilities are presented in its own separate line item in the Consolidated Statement of Financial Position.

 

Lease payments for short-term leases, leases payments for leases of low-value assets and variable lease payments not included in the measurement of the lease liability are classified as cash flows from operating activities. For all other lease liability payments, the Group has classified the principal portion of lease payments within financing activities and the interest portion within operating activities.

 

Short-term leases and leases of low value

 

The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months of less and leases of low-value assets. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

 

Policy applicable before 1 January 2019

 

For contracts entered into before 1 January 2019, leases where the lessor retains a significant portion of the risks and rewards of ownership were classified as operating leases. Rentals payable under operating leases (net of any incentives received) were charged as operating costs to the Consolidated Statement of Comprehensive Income on a straight-line basis over the lease term.

 

o. Share capital and share premium

 

SEC Newgate S.p.A.'s Ordinary shares are classified as equity. Share premium represents the amounts received in excess of the nominal value of the Ordinary shares less costs of the shares issued and is classified as equity.

 

p. Dividends

 

Dividends are recognized when they become legally payable, which is when they are approved for distribution. In the case of interim dividends to equity shareholders, this is when declared by the Directors and paid.

 

q. Taxation

 

The tax expense for the period comprises current and deferred tax.

 

Current income tax

 

The current tax is based upon the taxable profit for the year together with adjustments, where necessary, in respect of prior periods, and calculated using tax rates that have been enacted or substantively enacted at the end of the financial year. Italian Corporate entities are subject to a corporate income tax (IRES) and to a regional production tax (IRAP).

 

Current tax is recognized in the Consolidated Income Statement, except to the extent that it relates to items recognized in other comprehensive income or directly in equity.

 

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted at the reporting date in the countries where the Group operates and generates taxable income.

 

Deferred tax

 

Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability in the Consolidated Statement of Financial Position differs from its tax base.

 

Deferred tax assets are recognised to the extent that the Group believes it is probable that future taxable profit will be available against which temporary timing differences and carry forward of unused tax credits/losses can be utilised.

 

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/assets are settled/recovered.

 

r. Employee benefits

 

The only form of post-employment benefit provided to staff by Group companies is represented by Staff Termination Benefits "TFR". In light of the amendments made to the relevant regulations by the "2007 Finance Act" (law no. 296 of 27 December 2006) with regard to enterprises with more than 50 employees, staff termination benefits are accounted for in accordance with the following rules:

 

1. For defined benefit plans, as regards the portion of staff termination benefits accrued as at 31 December 2006, through actuarial calculations which do not include the item related to future salary increases;

2. For defined contribution plans, as regards the portion of staff termination benefits accrued from 1 January 2007, both in case of election of supplementary pension scheme, and in the event of allocation to the INPS Treasury Fund.

 

Staff termination benefits for Group companies with fewer than 50 employees are recognized in accordance with the regulations for defined benefit plans in accordance with IAS 19; liabilities are measured on an actuarial basis using the projected unit method and discounted at a rate equivalent to the current rate of return on a high-quality corporate bond of equivalent currency and term to the plan liabilities.

 

s. Provisions

 

Provisions comprise liabilities where there is uncertainty about the timing of settlement, but where a reliable estimate can be made of the amount.

 

t. Share based payments

 

The cost of stock options, together with the corresponding increase in shareholders' equity, is recognized under personnel costs over the period in which the conditions relating to the achievement of objectives and / or provision of the service are met. The cumulative costs recognized for these operations at the end of each year up to the vesting date are commensurate with the expiry of the vesting period and with the best estimate of the number of participating instruments that will actually mature. The cost or revenue in the Consolidated Income Statement for the year represents the change in the cumulative cost recorded at the beginning and end of the year.

 

Service or performance conditions are not taken into consideration when the fair value of the plan is defined at the grant date. However, the probability that these conditions will be satisfied in defining the best estimate of the number of capital instruments that will accrue is taken into account. Market conditions are reflected in the fair value at the grant date. Any other condition related to the plan, which does not involve an obligation of service, is not considered as a condition of vesting. The non-vesting conditions are reflected in the fair value of the plan and involve the immediate accounting of the cost of the plan, unless there are also conditions of service or performance.

 

u. Critical accounting estimates and judgements

 

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Areas subject to estimation uncertainty and judgments that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are combined and discussed below.

 

Impairment of goodwill

 

The carrying value of goodwill is subject to an impairment review both annually and when there are indications that the carrying value may not be recoverable, in accordance with accounting policies (h) stated above. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations which require the use of estimates. See note 11 for further details.

 

Impairment of trade receivables

 

Management performs an assessment of the recoverability of debtors when evidence arises that demonstrates the collection is uncertain. Management periodically reassesses the adequacy of the allowance for doubtful debts in conjunction with its credit policy and discussions with each specific customer. Judgement is applied at the point where recoverability is deemed uncertain and thus when a provision is to be recognized (see note 16).

 

Fair value measurements and valuation processes

 

Some of the Group's assets and liabilities are measured at fair value for financial reporting purposes. In estimating the fair value of an asset or a liability, the Group uses market observable data to the extent it is available (see note 10).

 

Useful lives of depreciable assets

 

Useful lives of depreciable assets are based on the expected utilization of each asset. Changes to estimates can result in significant variations in the carrying value and amounts charged to the Consolidated Statement of Comprehensive Income in specific periods (see notes 11 and 12).

 

Employee benefits

 

For actuarial assumptions on severance indemnity refer to note 25.

 

Lease liabilities

 

Lease payments are discounted at the incremental borrowing rate where the interest rate implicit in the lease cannot be readily determined. To determine the incremental borrowing rate, the Group:

· where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received

· uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by the Group, which does not have recent third party financing, and

· makes adjustments specific to the lease, e.g. term, country, currency and security.

 

For further details on lease liabilities refer to note 23.

 

 

2. Segmental reporting

 

Business segments

The Board considers that the principal activity of the SEC Newgate Group constitutes one operating and one reporting segment, as defined under IFRS 8. Management reviews the performance of the SEC Newgate Group by reference to total actual result against the total budgeted result in order to make strategic decisions.

Geographical segments

Services provided by Group entities located in each of the following countries are as follows:

 

2019

2018

€' 000

%

€' 000

%

Italy

16,879

35%

12,838

44%

United Kingdom

9,111

19%

4,441

15%

Belgium

4,205

9%

4,064

14%

Colombia

4,052

9%

4,347

15%

Spain

941

2%

1,204

4%

Poland

965

2%

1,080

4%

France

4,148

9%

545

2%

Germany

674

1%

453

2%

Australia

5,152

11%

-

0%

Hong Kong

651

1%

-

0%

China

42

0%

-

0%

Singapore

431

1%

-

0%

Abu Dhabi

299

1%

-

0%

Morocco

-

0%

-

0%

47,550

100%

28,972

100%

 

No individual client sales were greater than 10% of Group revenue (2018: none).

 

 

3. Revenue

 

The nature of services provided can vary significantly depending on the requirements of the customer. The Group provides a range of communications, public affairs and integrated services specialising in corporate and financial communications, consumer PR, investor relations, financial communications, B2B PR, public affairs, digital services, research, analytics and media planning and buying.

 

Services provided by Group entities has been split into the following categories:

Restated1

2019

2018

€' 000

€' 000

Communications

23,678

14,467

Advocacy and public affairs

13,038

7,946

Integrated services

10,834

6,559

47,550

28,972

 

1 As a result of the acquisition of Porta Communications Plc detailed in note 29, the Board has decided to report cost of sales and gross profit as a separate line item going forwards. This is to ensure consistent reporting across all group entities and as a result the comparative has been restated. Costs recharged to clients are now recorded within cost of sales. Costs recharged to clients at the same rate as the cost incurred were previously recorded in revenue (4,378 €'000). These costs have been reclassified to cost of sales.

 

Communications and public relations revenue includes services relating to mergers and acquisitions, crisis communications and planning, corporate positioning, consumer PR, IPOs, investor relations and media training to name a few.

 

Advocacy and public affairs revenue relates to positioning events and strategies, policy development, government relations and national and local government coverage amongst other services offered.

 

Integrated services revenue which includes research, innovation and digital relates to a number of services including reputation research, advanced modelling and analytics, creative design and concepts, digital development and video animation and production.

 

The split of client based revenue as a percentage of Group revenue for the year was as follows:

 

 

2019

 Client based revenue

€' 000

%

Europe

35,418

74%

Australia & Oceania

4,914

10%

South America

3,669

8%

Asia

2,232

5%

North America

944

2%

Africa

373

1%

47,550

100%

 

 

4. Employee expenses

2019

2018

€' 000

€' 000

Wages, salaries and non-executive fees

18,414

10,059

Social security costs

3,087

1,924

Severance indemnity and pension contributions

1,473

461

Share based payments1

32

37

Other employment related welfare costs

380

79

23,386

12,560

 

1 On 28 March 2018, the Board of Directors, in line with resolutions passed at the shareholders' meeting on 27 October 2017, established a stock option plan for managers of the investee companies and the parent company. Stock option costs, previously included in 'other employment related welfare costs', of circa 32 €'000 (2018: 37 €'000) above have a corresponding tax impact of 8 €'000 (2018: 9 €'000).

 

The average monthly number of employees during the year, including Executive Directors, was as follows:

 

2019

2018

Number

Number

Fee earners

464

250

Management

44

28

Administration

84

49

592

327

 

Salaries to key managers of the Group, including the Board of Directors' fees, was:

 

2019

2018

€' 000

€' 000

Salaries of key managers

1,010

3,611

End of mandate allowance

18

45

1,028

3,656

 

In the prior year key managers included a number of managers from each subsidiary, however given the growth of the Group and the recent acquisition (see note 29) key managers who have the responsibility of directing the Group are now considered to be the Board of Directors seen below.

 

Directors' remuneration

 

31 December 2019

Fees and Salaries

Pension Contributions

Bonus

Other benefits2

Total

€' 000

€' 000

€' 000

€' 000

€' 000

Executive Directors

Fiorenzo Tagliabue

145

23

-

-

168

Emma Kane1

152

7

-

1

160

Brian Tyson1

124

4

-

-

129

Anna Milito

76

29

-

-

104

Thomas Parker

140

-

25

-

165

Mark Glover1

160

-

-

-

160

Andrea Cornelli

5

-

-

-

5

Non-executive Directors

John Foley1

11

-

-

-

11

Luigi Roth

38

1

-

-

39

David Mathewson

34

-

-

-

34

Paola Bruno

35

-

-

-

35

920

63

25

1

1,010

31 December 2018

Fees and Salaries

Pension Contributions

Bonus

Other benefits2

Total

€' 000

€' 000

€' 000

€' 000

€' 000

Executive Directors

Fiorenzo Tagliabue

145

23

-

-

168

Cesare Valli

202

97

-

-

299

Anna Milito

65

26

-

-

92

Thomas Parker

139

-

40

-

179

Mark Glover

216

-

38

-

254

Non-executive Directors

Luigi Roth

42

-

-

-

42

David Mathewson

34

-

-

-

34

Paola Bruno

34

-

-

-

34

877

146

77

-

1,100

 

1 Remunerated in British pounds and Australian dollars, figures above have been translated into euros at the year to date average exchange rate.

2 Other benefits comprise of payments in respect of healthcare, life insurance and other similar benefits.

 

 

5. Service costs

Restated1

2019

2018

€' 000

€' 000

Consulting

1,645

1,488

Internal Consulting and Directors

908

1,105

Overheads

4,030

1,688

Rental expenses

721

1,287

Services

1,678

1,181

8,982

6,749

 

1 As a result of the acquisition of Porta Communications Plc detailed in note 29, the Board has decided to report cost of sales and gross profit as a separate line item going forwards. This is to ensure consistent reporting across all group entities and as a result the comparative has been restated. Costs recharged to clients are now recorded within cost of sales. Costs recharged to clients at a different rate than the cost incurred were previously recorded in service costs (1,829 €'000). These costs have been reclassified to cost of sales.

 

Overheads principally comprise costs incurred with subcontractors in order to manage extraordinary workload activity not directly provided internally, as well as other costs such as utilities, insurance, subscriptions and general office costs.

 

Services comprise professional fees, marketing and advertising, travel expenses, phone costs, office maintenance expenses, car expenses and bank charges.

 

6. Depreciation and amortisation

 

2019

2018

€' 000

€' 000

Amortisation of intangible assets

95

118

Depreciation of tangible assets

2,059

142

2,154

260

 

7. Other operating costs

Restated1

2019

2018

€' 000

€' 000

Impairment of trade receivables

243

123

Tax local

139

113

Other operating costs

1,004

790

Other operating income

(164)

(733)

Other operating charges

49

21

1,271

314

 

1 As a result of the acquisition of Porta Communications Plc detailed in note 29, the Board has decided to report cost of sales and gross profit as a separate line item going forwards. This is to ensure consistent reporting across all group entities and as a result the comparative has been restated. Costs recharged to clients are now recorded within cost of sales. Costs recharged to clients at a different rate than the cost incurred were previously recorded in other operating costs (573 €'000). These costs have been reclassified to cost of sales.

 

Other operating costs include subscriptions, magazines, books and newspapers, consumption of materials.

 

Other operating income and charges in 2019 and 2018 are mainly generated by non-recurring adjustments and miscellaneous items. In 2018, other operating income includes an extraordinary income for 502 €'000 tax credit reimbursement on the investment made from SEC in an Artificial Intelligence project.

 

Tax local primarily includes chamber of trade costs and stamp duty taxes; the remaining costs comprise waste tax, motor vehicle tax and irrecoverable VAT.

 

8. Finance expense and finance income

 

2019

2018

€' 000

€' 000

Interest income on bank deposits

68

-

Dividend income

1

11

Fair value gains on financial assets at fair value through profit or loss

119

86

Finance income

188

97

 

Interest expense

337

151

Interest on lease liabilities

265

-

Fair value losses on financial assets at fair value through profit or loss

-

43

Net foreign exchange loss

127

1

Finance expense

729

195

Net finance expense

541

98

 

 

9. Taxation

 

 2019

2018

€' 000

€' 000

Current tax charge

1,366

596

Deferred tax credit

(95)

43

Total income tax charge

1,271

639

 

The activities of the Group are located across a number of geographical locations including Italy, UK, Spain, Germany, Belgium, Poland, Columbia, France, Australia, Hong Kong, China, Singapore and Abu Dhabi. Activities within Italy are subject to the two following corporate taxation regimes:

 

· IRES is the state tax which was levied at 24% of taxable income

· IRAP is a regional income tax, for which the standard rate is 3.9%, with certain local variations permitted.

 

The tax assessed for the year differs from the standard rate of tax in Italy at 24% (2018: 24%) for the reasons set out in the following table.

2019

2018

€' 000

€' 000

Profit before taxation on continuing activities

1,271

2,211

Income tax expense computed at the statutory tax rate on loss before taxation on all activities

(305)

(508)

Temporary differences subject to tax @ 24.0%

(533)

(126)

Non-deductible expenses subject to tax @ 24.0%

(411)

(88)

Non-taxable incomes subject to tax @ 24.0%

31

240

Tax loss carry forward (use) subject to tax @ 24.0%

254

120

Tax loss carry forward (set-up) subject to tax @ 24.0%

(225)

-

Recovery of IRAP taxable amounts on IRES purposes subject to tax @ 24.0%

7

11

Tax incentives (tax allowance on retained earnings increases - ACE)

17

33

IRAP on Italian entities

(94)

(105)

Non-Italian jurisdictions tax rates reconciliation

(12)

(7)

Differences on non-Italian jurisdictions taxable loss

-

(166)

Total current income taxation

(1,271)

(596)

Deferred tax charge

-

(43)

Total tax charge for the year

(1,271)

(639)

 

 

Deferred tax balances were as follows:

 2019

2018

Notes

€' 000

€' 000

Deferred tax assets

15

2,053

483

Deferred tax liabilities

21

(224)

605

 

 

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

 

2019

2018

€' 000

€' 000

At 1 January

1,088

267

Recognised in income statement

95

37

Acquisition through business combination

456

-

Other movements

155

35

Translation differences

35

-

At 31 December

1,829

339

 

 

10. Financial instruments and risk management

 

Financial instruments

 

Financial assets are classified on initial recognition and subsequently measured at amortised cost, fair value through other comprehensive income (OCI), or fair value through profit or loss depending on the purpose for which the asset was acquired. The Group has classified its financial investments (note 18) as fair value through profit or loss, its other investments (note 13) as fair value through OCI and all other financial assets are held at amortised cost.

 

Financial liabilities are classified as measured at amortised cost or fair value through profit or loss (FVTPL). A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition.

 

Financial investment at fair value

 

IFRS 13 sets out the framework for determining the measurement of fair value and the disclosure of information relating to fair value measurement, when fair value measurements are required/used.

 

IFRS 13 requires certain disclosures which require the classification of assets and liabilities measured at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurement.

 

The fair value used for evaluating the financial investments are based on quoted prices in an active market (level 1). The Group has estimated relevant fair values on the basis of publicly available information from outside sources.

 

 

Other investments are designated as fair value through other comprehensive income and are shown at fair value with any movements in fair value taken to equity. On disposal, the cumulative gain or loss previously recognized in equity is included in the profit or loss for the year.

 

The Group's financial assets and liabilities, as defined by IAS 32, are as follows:

 

2019

2018

Carrying

Fair

Carrying

Fair

Value

Value

Value

Value

Notes

€' 000

€' 000

Financial assets

Investments

13

16

16

1,252

1,252

Other financial assets

14

21

21

66

66

Other assets

15

1,437

1,437

488

488

Trade and other receivables

16, 17

16,467

16,467

9,720

9,720

Financial investments

18

280

280

583

583

Cash and cash equivalents

19

6,138

6,138

5,220

5,220

24,359

24,359

17,329

17,329

Financial liabilities

Trade and other payables

20, 21

8,876

8,876

5,173

5,173

Lease liabilities

23

8,468

8,468

-

-

Provisions

24

1,645

1,645

565

565

Other non-current liabilities

26

5,344

5,344

6,786

6,786

Borrowings

22

14,878

14,878

6,963

6,963

39,211

39,211

19,487

19,487

 

Management have assessed that the fair value of cash and short term deposits, trade receivables, trade payables, bank overdrafts and other current liabilities approximate to their carrying amounts as those items have short term maturities.

 

 

 

 

 

2019

2018

 Maturity profile of financial liabilities

€'000

€'000

Due in six months or less

13,221

7,132

Due between six months and 1 year

2,609

977

Due between 1 year and 2 years

3,741

4,905

Due between 2 and 5 years

16,041

1,664

Due in 5 years or more

3,599

4,809

39,211

19,487

 

 

Financial risk management

 

The Group's activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core to the financial business, and the operational risks are an inevitable consequence of being in business. The Group's aim is therefore to achieve an appropriate balance between risk and return and minimise potential adverse effects on the Group's financial performance.

 

The Group's risk management policies are designed to identify and analyse these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The Group regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice.

 

Risk management is carried out by the Board of Directors. The Board is responsible for the identification of the major business risks faced by the Group and for determining the appropriate courses of action to manage those risks. The most important types of risk are credit risk, liquidity risk, and market risk. Market risk includes currency risk, interest rate and other price risk.

 

Credit risk

 

Credit risk is the risk of financial loss to the Group if a client or counterparty to a financial instrument fails to meet its contractual obligation and arises principally from the Group's trade receivables. As at 31 December 2019, the Group had amounts due from sixteen major customers amounting to 20% (2018: ten amounting to 20%) of the trade receivables balance.

 

The Group is exposed to credit risk in respect of these balances such that, if one or more of these customers encounters financial difficulties, this could materially and adversely affect the Group's financial results. Management addresses the Group's exposure to credit risk by assessing the credit rating of new customers prior to entering contracts and by entering contracts with customers on agreed terms. Management consider all relevant facts and circumstances, including past experiences with a customer or customer class when assessing the credit risk of clients. See accounting policy (k) for details on the impairment methodology of trade receivables. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed above. Management reviews the recoverability of trade receivables regularly and based on this analysis a provision for trade receivables is recognised to cover any expected credit loss. Details of exposure to trade receivables is given in note 16.

 

Liquidity risk

 

Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its financial liabilities when they fall due. The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this, the Group finances its operations through a mix of equity and borrowings. The Group's objective is to provide funding for future growth and to achieve a balance between continuity and flexibility through its bank facilities and future intergroup loans.

 

The Board receives cash flow projections on a regular basis as well as information regarding cash balances. At the end of the financial year, these projections indicated that the Group is expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances.

 

Market risk

 

(a) Currency translation risk

 

The Group's subsidiaries operate in Europe, Australia, Singapore, Hong Kong, Columbia, Poland and Abu Dhabi and revenues and expenses are denominated in Euro (EUR), Pound Sterling (GBP), Australian Dollar (AUD), Singapore Dollar (SGD), Hong Kong Dollar (HKD), United Arab Emirates Dirham (AED), Colombian Peso (COP), Polish Zloty (PLN) and United States Dollar (USD). The Group's Euro (EUR) Consolidated Statement of Financial Position is not protected from movements in the exchange rate between these currencies and Euros. The overall exposure to foreign currency risk is considered by management to be low.

 

The following table demonstrates the sensitivity to reasonable possible change in significant currencies to the Group such as GBP, AUD, SGD, HKD, AED, COP, PLN and USD to EUR exchange rates, with all other variables held constant. The impact on the Group profit before tax is due to changes in the fair value of monetary assets and liabilities. The Group exposure to possible changes in all other foreign exchange currencies is not deemed material.

2019

Effect on profit before tax

+5%

-5%

€' 000

€' 000

British Pound

(56)

56

Australian Dollar

55

(55)

Singapore Dollar

2

(2)

Hong Kong Dollar

(8)

8

UAE Dirham

1

(1)

Colombian Peso

6

(6)

Polish Zloty

4

(4)

Chinese Yuan

1

(1)

US Dollar

19

(19)

2019

Effect on equity

+5%

-5%

€' 000

€' 000

British Pound

1,311

(1,311)

Australian Dollar

78

(78)

Singapore Dollar

61

(61)

Hong Kong Dollar

7

(7)

UAE Dirham

8

(8)

Colombian Peso

12

(12)

Polish Zloty

7

(7)

Chinese Yuan

(2)

2

US Dollar

29

(29)

 

(b) Interest rate risk

 

SEC Newgate Group has previously been funded through borrowings from UBS (Italy) S.p.A., Deutsche Bank S.p.A., Unicredit S.p.A., BPM Banco Popolare di Milano, Carige. Please refer to note 22 for details of the facilities including interest rates, repayment dates and repayment terms.

 

Capital Management

 

The capital structure of the Group comprises the equity attributable to equity holders of the parent company, which includes issued share capital, reserves and retained earnings. Quantitative data on these is set out in the Consolidated Statement of Changes in Equity.

 

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

 

 

11. Intangible assets

 

 

Goodwill

Websites, software and licences

Total

Cost

€' 000

€' 000

€' 000

At 1 January 2018

9,205

322

9,527

Additions in the year

5,154

1,176

6,330

At 31 December 2018

14,359

1,498

15,857

Additions in the year

14,995

94

15,089

Acquisition through business combination

-

568

568

Disposals in the year

-

(4)

(4)

Translation differences

-

37

37

At 31 December 2019

29,354

2,193

31,547

Amortisation and impairment

At 1 January 2018

-

(125)

(125)

Charge for the year

-

(118)

(118)

At 31 December 2018

-

(243)

(243)

Charge for the year

-

(95)

(95)

Acquisition through business combination

-

(417)

(417)

Eliminated on disposal

-

4

4

Translation differences

-

(28)

(28)

At 31 December 2019

-

(779)

(779)

Net book value

At 1 January 2018

9,205

197

9,402

At 31 December 2018

14,359

1,255

15,614

At 31 December 2019

29,354

1,414

30,768

 

Refer to note 29 for details of business acquisitions during the year.

 

Impairment testing for cash-generating units containing goodwill

 

For the purpose of impairment testing, the aggregate carrying amount of goodwill is allocated to each cash generating unit (CGU). Management identifies each subsidiary as a single CGU. The carrying value of goodwill is compared to the net present value of future cash flows derived from the underlying assets for each CGU.

 

The aggregate carrying amount of goodwill is allocated to each CGU as follows:

 

 

 

Entity

2019

2018

acquired

€' 000

€' 000

ACH Sec Global (previously known as ACH Cambre SL)

2014

492

492

CLAI SAS

2018

5,010

5,010

Cambre Associates SA

2013

1,548

1,548

Kohl PR & Partners GMBH

2015

761

761

Martis Consulting Sp. z o.o.

2017

1,196

1,196

Newington Communications Limited1

2016

2,058

2,058

Sec & Partners S.r.l.

2014

100

100

SEC+Latam Communications Estrategica SAS

2017

2,143

2,143

Newgate Communications Pty Limited

2019

8,235

-

Newgate Communications Limited

2019

4,411

-

Newgate Communications (HK) Limited

2019

976

-

21:12 Communications Limited

2019

713

-

Newgate Communications (Singapore) Pte. Ltd

2019

617

-

Newgate Communications FZ-LLC

2019

43

-

CLAI SAS (local ledger goodwill)2

N/A

418

418

Martis Consulting Sp. z o.o. (local ledger goodwill)

N/A

1

1

Sec & Partners S.r.l. (local ledger goodwill)

N/A

632

632

29,354

14,359

 

1Goodwill relating to the Newington acquisition of 1,806 €'000 in 2016 was revised to 2,058 €'000 in 2017 based on the second earn-out.

 

2Additions in 2018 also included local goodwill in CLAI of 418 €'000 resulting from a previous acquisition.

 

Additions in 2014 also included goodwill in ACH of 275 €'000 resulting from a previous merger. This was fully impaired in 2018.

 

The information required by paragraph 134 of IAS 36 is provided below. The recoverable amount of each CGU has been verified by comparing its net assets carrying amount to its value in use calculated using the Discounted Cash Flow method. The main assumptions for determining the value in use are reported below:

 

ACH

CLA

CAM

KOHL

MRT

NEW

SEC-P

Average market rate

8.8%

8.8%

8.8%

8.8%

8.8%

8.8%

8.8%

Discount rate

6.4%

5.3%

5.5%

5.5%

8.0%

8.2%

8.2%

SEC-L

NGAS

NGCL

NGHK

2112

NGSN

NGAD

Average market rate

8.8%

8.8%

8.8%

8.8%

8.8%

8.8%

8.8%

Discount rate

15.6%

7.8%

8.2%

8.7%

8.2%

8.4%

48.6%

 

The discount rate has been determined on the basis of market information on the cost of money and the specific risk of the industry. In particular, the Group used a methodology to determine the discount rate which considered the average capital structure of a group of comparable companies.

 

The recoverable amount of CGUs has been determined by utilizing cash flow forecasts based on the 2020 to 2024 five year plan approved by management, on the basis of the results attained in previous years as well as management expectations regarding future trends in the public relations market. At the end of the five-year projected cash flow period, a terminal value was estimated in order to reflect the value of the CGUs in future years. The terminal values were calculated as a perpetuity at the same growth rate as described above and represent the present value, in the last year of the forecast, of all future perpetual cash flows. The impairment test performed as of the balance sheet date resulted in a recoverable value greater than the carrying amount (net operating assets) of the above-mentioned CGUs.

 

Acquisition of SEC Latam is subject to an earn-out based on company EBITDA over three years (2018 - 2019 - 2020); total consideration for the acquisition of the 51% share of the company has been calculated based on conservative and reasonable estimates, consequently an earn-out liability for 408 €'000 was accrued as of 31 December 2019 (see note 24 and note 26). The final total consideration is subject to uncertainty and depends on the company performance over the ongoing financial year.

 

Acquisition of CLAI is subject to an earn out based on company EBITDA over seven years (2019 - 2020 - 2021 - 2022 - 2023 - 2024- 2025); SEC holds preferred shares in Clai that represent the 10% of the share capital that allow 50% + 0.1 voting rights and a set of options allows SEC Newgate to escalate to 100% of Clai within the end of the earn out period; total consideration for the acquisition of 100% share of the company has been calculated based on conservative and reasonable estimates, consequently an earn-out liability for 5,962 €'000 was accrued as of 31 December 2019 (see note 24 and note 26). The final total consideration is subject to uncertainty and depends on the company performance over the ongoing financial year.

 

 

12. Tangible assets

 

Leasehold property

Leasehold improvements

Equipment

Furniture and fittings

Total

Cost

€' 000

€' 000

€' 000

€' 000

€' 000

At 1 January 2018

-

379

161

767

1,307

Additions in the year

-

325

14

114

453

Acquisition through business combination

-

-

107

153

260

Disposals in the year

-

(1)

-

(76)

(77)

At 31 December 2018

-

703

282

958

1,943

Adjustment on transition to IFRS 16

5,375

-

143

231

5,749

Additions in the year

68

351

75

329

823

Acquisition through business combination

4,049

1,549

713

468

6,779

Transfers between categories

-

-

113

(113)

-

Disposals in the year

-

(557)

(162)

16

(703)

Revaluation increase

56

-

-

-

56

Translation differences

194

67

29

32

322

At 31 December 2019

9,742

2,113

1,193

1,921

14,969

Depreciation

At 1 January 2018

-

(227)

(106)

(561)

(894)

Charge for the year

-

(59)

(15)

(68)

(142)

Acquisition through business combination

-

-

(67)

(136)

(203)

Eliminated on disposal

-

-

-

76

76

At 31 December 2018

-

(286)

(188)

(689)

(1,163)

Charge for the year

(1,614)

(122)

(134)

(189)

(2,059)

Acquisition through business combination

(993)

(1,026)

(537)

(348)

(2,904)

Transfers between categories

-

-

(62)

62

-

Eliminated on disposal

-

148

159

(18)

289

Translation differences

(53)

(50)

(23)

(22)

(148)

At 31 December 2019

(2,660)

(1,336)

(785)

(1,204)

(5,985)

Net book value

At 1 January 2018

-

152

55

207

412

At 31 December 2018

-

417

94

269

780

At 31 December 2019

7,082

777

408

717

8,984

 

Included in the amounts above are the following in relation to right-of-use assets:

 

 

Depreciation charge for the year

Net book value

2019

2018

2019

2018

€' 000

€' 000

€' 000

€' 000

Leasehold property

1,594

-

7,082

-

Leasehold improvements

31

-

47

-

Equipment

41

-

87

-

Furniture and fittings

59

-

206

-

1,725

-

7,422

-

 

Additions to the right-of-use assets during the year were 68 € '000.

 

Amounts included in revaluations above relates to an adjustment to office leases recognised under IFRS 16. See note 23 for the lease liability revaluation.

 

For further details on the adoption of IFRS 16 on 1 January 2019, please refer to note 33.

 

 

13. Investments

 

Owned

Ownership

2019

2018

by

%

€' 000

€' 000

Porta Communications Plc

SEC Newgate

16.9

-

1,245

Sec & Partners S.r.l.

SEC Newgate

95.0

5

5

Other equity investments

-

11

2

16

1,252

 

 

14. Other financial assets

 

2019

2018

€' 000

€' 000

Rental deposits

21

56

Other financial investments

-

10

21

66

 

Rental deposits include bank deposits to guarantee office leases. Rental deposits directly held by the landlord can be found in note 15.

 

 

15. Other assets

 

2019

2018

€' 000

€' 000

Deferred tax assets

2,053

483

Rental deposits

1,076

149

Directors benefits

361

339

3,490

971

 

Director benefits is the asset coverage provided by an external insurance company in order to fulfil the end of mandate obligations for a Board Director (see note 26).

 

16. Trade receivables

 

2019

2018

€' 000

€' 000

Trade receivables

15,685

10,063

Less: provision for impairment

(591)

(433)

15,094

9,630

 

Management considers that the carrying amount of trade receivables approximates to their fair values due to their short-term nature.

 

A summary of trade receivables, excluding impaired balances, categorised by due date for payment is as follows:

 

2019

2018

€' 000

€' 000

Neither past due nor impaired

6,874

5,603

Past due but not impaired:

Past due up to 3 months

6,466

2,283

Past due more than 3 months not more than 6 months

680

219

Past due more than 6 months not more than 1 year

357

620

Past due more than 1 year

717

905

15,094

9,630

 

The following analysis was made in order to estimate unexpected credit losses:

 

Maturity analysis €'000s

0 - 365

365 -730

730 - 1826

1826

Expected credit loss rate

0%

30%

70%

80%

Estimated carrying value amount at default

-

443

224

391

Lifetime ECL

-

133

157

313

 

The movement on impairment for the year in respect of trade receivables was as follows:

2019

2018

€' 000

€' 000

At 1 January

433

365

Provision made during the year

126

123

Acquired on business combinations

131

-

Amounts written off during the year

(2)

(55)

Amounts recovered during the year

(106)

-

Translation differences

9

-

At 31 December

591

433

 

 

17. Other receivables

 

2019

2018

€' 000

€' 000

Accrued income

1,373

90

Prepayments

1,915

520

Tax on income

478

503

VAT receivable

574

41

Other receivables

222

668

4,562

1,822

 

Management considers that the carrying amount of other receivables approximates to their fair values due to their short-term nature.

 

In 2018, other receivables included tax credits receivable of 502 €'000 relating to the development of artificial intelligence software by SEC Newgate. There is no such receivable in 2019.

 

 

18. Financial investments

 

2019

2018

€' 000

€' 000

UBS S.A. investment

280

583

 

The table below provides an analysis of financial instruments that are initially recognised at fair value (level 1) based on the degree to which the fair value is observable.

 

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.

2019

Purchasecost

Fair value against P&L

Accruedinterest

Total

€' 000

€' 000

€' 000

€' 000

Bonds

170

280

-

280

Equities

-

-

-

-

Other

-

-

-

-

 Investments

170

280

-

280

 

2018

Purchasecost

Fair value against P&L

Accruedinterest

Total

€' 000

€' 000

€' 000

€' 000

Bonds

63

59

-

59

Equities

458

500

-

500

Other

30

24

-

24

Investments

 

551

583

-

583

 

Debtsecurities

Equities

Funds

Loans

Total

€' 000

€' 000

€' 000

€' 000

€' 000

At 1 January 2018

53

-

1,068

-

1,121

Acquisitions

-

-

-

-

-

Disposals during the year

(53)

-

(461)

-

(514)

Changes in fair value

-

(24)

-

(24)

At 31 December 2018

-

-

583

-

583

Acquisitions

-

-

-

-

-

Disposals during the year

-

-

(379)

-

(379)

Changes in fair value

-

-

76

-

76

At 31 December 2019

-

-

280

-

280

 

 

19. Cash and cash equivalents

 

2019

2018

€' 000

€' 000

Cash at bank and in hand

5,817

5,220

Restricted cash

321

-

6,138

5,220

 

Cash at bank and in hand are included in cash and cash equivalents disclosed above and in the Consolidated Statement of Cash Flows. These balances have an original maturity of 90 days or less.

 

The restricted cash deposits above are restricted cash amounts and are included within cash and cash equivalents disclosed above and in the Consolidated Statement of Cash Flows. These deposits are subject to restrictions and therefore not available for general use by the Group.

 

 

20. Trade payable

 

2019

2018

€' 000

€' 000

Trade payables

7,462

4,953

 

 

21. Other payables

 

Restated1

2019

2018

€' 000

€' 000

Accrued expenses

1,414

220

Income received in advance

1,412

1

Employee and payroll-related liabilities

2,699

1,507

Government institutions

368

367

Tax on income

397

191

Deferred tax liabilities

224

(605)

VAT payable

1,466

349

Other payables

1,419

709

9,399

2,739

 

1 Deferred tax liabilities have been disclosed as a separate line item. This was previously included within tax on income.

 

Management considers that the carrying amount of other payables approximates to their fair values due to their short-term nature.

 

Other payables includes 142 €'000 (2018: 142 €'000) due to a Director of SEC and Partners.

 

 

22. Borrowings

 

This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings, which are measured at amortised cost. The Group has both long-term borrowings in order to fund business acquisitions and short-term credit facilities for working capital requirements.

 

2019

2018

€' 000

€' 000

Deutsche Bank

784

459

Banco Popolare di Milano

57

199

Unicredit

919

1,031

Carige

401

391

KBC Bank

141

88

Bankinter

100

81

Itau Corpbanca

2

-

National Westminster Bank PLC

-

33

Banco Colpatria Red Multibanca SA

-

50

 Total loans

2,404

2,332

 Interest payable

43

39

Total current liabilities

2,447

2,371

UBS

1,762

1,762

Deutsche Bank

2,242

56

Banco Popolare di Milano

-

200

Unicredit

3,275

2,173

Carige

-

401

Hawk Investment Holdings

4,703

-

Retro Grand Limited

449

-

Total non-current liabilities

12,431

4,592

Total borrowings

14,878

6,963

 

Details of bank loans

Currency

Outstanding€'000

Total facility€'000

Interest rate

Maturity date

Repayment term

Security

UBS (Italy) S.p.A

EUR

1,762

1,762

Euribor +1.25%

 Open ended

Open ended

Pledge on Silvia Anna Mazzucca financial instruments

Deutsche Bank

EUR

56

1,000

Euribor +1%

March 2020

Monthly

None

Deutsche Bank

EUR

2,970

3,000

Euribor 3 months +1.7%

November 2023

Every three months

None

Banco Popolare di Milano

EUR

43

1,000

1.1%

February 2020

Monthly

None

Unicredit

EUR

200

1,000

1.2%

December 2020

Monthly

None

Unicredit

EUR

3,966

4,000

Euribor 3 months +1.95%

March 2025

Three months

None

Carige

EUR

401

1,000

1.4%

December 2020

Every six months

None

KBC Bank

EUR

29

29

0.95%

July 2020

Monthly

None

KBC Bank

EUR

42

42

0.95%

October 2020

Monthly

None

KBC Bank

EUR

70

70

0.95%

December 2020

Monthly

None

Itau Corpbanca

COP

2

54

DTF + 9.5%

March 2020

Monthly

None

 

Details of other borrowings

Currency

Type of borrowing

Face Value€'000

Carrying amount€'000

Interest rate

Maturity date

Repayment term

Hawk Investment Holdings

GBP

Deep Discounted bond

5,673

4,703

5.87%

14 April 2023

Lump sum at maturity date

Retro Grand

GBP

Convertible loan

449

449

0%

10 April 2024

Lump sum at maturity date

 

Further details of the above loans can be found below;

a) UBS (Italy) S.p.A. - an open-ended revolving credit facility of 1,762 € '000 was obtained during the year ended 31 December 2013 at an interest rate of Euribor 12 month plus a margin of 1.25 per cent.

b) Deutsche Bank S.p.A. - a loan of 1,000 € '000 at an interest rate of 1-month Euribor plus a margin of 1,00 per cent. Repayments are on a monthly basis between April 2017 and March 2020.

c) Deutsche Bank S.p.A - new of 3,000 € '000 was obtained during 2019 at an interest rate of Euribor 3 months repayable every three months between November 2019 and November 2023.

d) BPM Banco Popolare di Milano - a loan of 1,000 € '000 at an interest rate of 1,1% repayable in monthly instalments between February 2016 and February 2020.

e) Unicredit S.p.A -a loan of 1,000 € '000 at an interest rate of 1.2% repayable every six months between June 2016 and December 2020.

f) Unicredit S.p.A - a loan of 4,000 € '000 was obtained during 2019 at an interest rate of Euribor 3 months repayable every three months between October 2019 and March 2025.

g) Carige - a loan of 1,000 € '000 at an interest rate of 1.20% with instalments payable every six months between December 2018 and January 2021

h) KBC bank - a loan of 29 € '000 at an interest rate of 0.95% repayable monthly until July 2020.

i) KBC bank - a loan of 42 € '000 at an interest rate of 0.95% repayable monthly until October 2020.

j) KBC bank - a loan of 70 € '000 at an interest rate of 0.95% repayable monthly until December 2020.

k) Itau Corpbanca - a revolving credit facility of 54 € '000 at an interest rate of DTF+9.5% repayable monthly until March 2020.

l) Hawk Investment Holdings - a deep discounted bond with an effective interest rate of 5.87% repayable in April 2023 with a redemption amount of £4,841,748.

m) Retro Grand - a convertible loan at 0% interest of £383,600 repayable in April 2024.

 

 

23. Leases

 

This note provides information for leases where the group is a lessee.

 

Lease liabilities

2019

2018

€'000

€'000

Current

2,861

-

Non-current

5,607

-

8,468

-

 

Additions and carrying amount for right-of-use assets included in the Consolidated Statement of Financial Position has been disclosed in note 12.

 

Depreciation charged on right-of-use assets in the Consolidated Statement of Comprehensive Income has also been disclosed in note 12. The Consolidated Statement of Comprehensive Income also shows the following amounts relating to leases:

 

2019

2018

€'000

€'000

Interest expense

265

-

Expense relating to short-term leases

20

-

Expense relating to leases of low value assets

2

-

 

Total cash outflows for leases can be found as a separate line item in the Consolidated Statement of Cash Flows.

 

2019

2018

Maturity profile of lease liabilities

€'000

€'000

Due in six months or less

1,405

-

Due between six months and 1 year

1,456

-

Due between 1 year and 2 years

2,268

-

Due between 2 and 5 years

1,879

-

Due in 5 years or more

1,460

-

8,468

-

 

 

24. Provisions

2019

2018

€' 000

€' 000

Earn out provisions

1,645

565

 

The current earn out provision relates to SEC Latam and CLAI.

 

 

25. Employee benefits

 

2019

2018

€' 000

€' 000

Severance indemnity

2,013

1,950

 

The liability represents the amount for future severance payments to employees. Movements relating to the severance indemnity provision can be found below:

€' 000

At 1 January 2018

1,680

Service cost

228

Net interest

21

Benefit paid

(73)

Actuarial loss

(1)

Additions through business combinations

94

At 31 December 2018

1,950

Service cost

97

Net interest

29

Benefit paid

(196)

Actuarial gain

133

Translation differences

-

At 31 December 2019

2,013

 

 

26. Other non-current liabilities

 

2019

2018

€' 000

€' 000

Directors benefits

397

375

Earn out liability

4,754

6,411

Dilapidation provisions

293

-

Other non-current liabilities

193

17

5,637

6,803

Directors benefits above relate to an obligation that SEC Newgate S.p.A. has for the end of mandate allowance in relation to a Board Director. This obligation is covered by an insurance asset (see note 15).

The non-current earn out provision relates to the acquisitions of SEC Latam and CLAI.

Other non-current liabilities relates to a long service leave accrual required by certain Australian states and territories for long serving employees.

 

 

27. Share capital

Authorised, issued and fully paid capital

At 31 December 2019

Number

Ordinary shares of 0.10 EUR each

24,250,907

2,425,090.70

At 31 December 2018

Number

Ordinary shares of 0.10 EUR each

13,502,533

1,350,253.30

All shares are fully issued and paid up. The ordinary shareholders are then entitled to receive dividends in proportion to their percentage ownership in the Company.

On 17 July 2018 (closed on the 3rd August 2018), SEC Newgate issued 1,280,558 Ordinary shares of 0.10 EUR each following the announcement of a shareholder offer and placing made.

On 3 September 2019, SEC Newgate issued 10,748,374 Ordinary shares as detailed:

(a) 4,755,162 ordinary shares for a total value of €4,837,902, were issued in exchange for the 420,810,829 shares of Porta Communications Plc. Per the Scheme of Arrangement a ratio of 1 newly issued share for each 88.495575 shares of Porta Communications Plc was agreed;

(b) 5,993,212 ordinary shares for a total value of €6,097,494, were issued in exchange for the 530,372,743 shares of Porta Communications Plc held by Retro Grand Limited at the date of execution of the capital increase, following the conversion of a convertible loan currently owned by Retro Grand Limited.

The Transaction was carried out by means of a Scheme of Arrangement as provided for in Part 26 of the Companies Act 2006 of the United Kingdom to acquire Porta Communications Plc.

The movement in Ordinary shares for the year reconciles as follows:

 

Number

At 1 January 2018

12,221,975

1,222,197.50

Additions during the year

1,280,558

128,055.80

At 31 December 2018

13,502,533

1,350,253.30

Additions during the year

10,748,374

1,074,837.40

At 31 December 2019

24,250,907

2,425,090.70

 

Earnings per share

The basic and diluted earnings per share are determined by dividing the profit attributable to the equity holders of the parent by the number of shares outstanding during the period. Earnings per share, basic, is determined as follows:

2019

2018

Profit for the year attributable to owners of the company

(€99,000)

€1,232,000

Weighted average number of shares

17,036,245

13,502,533

Earnings per share, basic

(€0.006)

€0.091

On 9 June 2016 the General Assembly resolved to issue a maximum of 134,000 shares to be assigned to WH Ireland Limited as a warrant, and a maximum of 675,000 shares as part of a stock grant plan to the employees.

On 28 March 2018, the Board of Directors, in line with resolutions passed at the shareholders' meeting on 27 October 2017, established a stock option plan for managers of the investee companies and the parent company. A maximum of 480,000 shares could be issued.

As of today, neither warrant nor stock grant plan were subscribed, however the potential additional shares should be considered as dilutive instruments. Earnings per share, diluted, is determined as follows:

Restated1

2019

2018

Profit for the year attributable to owners of the company

(€99,000)

€1,232,000

Weighted average number of shares

18,325,245

14,791,533

Earnings per share, diluted

(€0.005)

€0.083

1 The prior year comparative has been updated to include the potential 480,000 shares that could be issued as a result of the stock option plan granted in 2018 as mentioned above.

 

28. Reserves

The following table describes the nature of each reserve:

Restated1

2019

2018

€'000

€'000

Share premium reserve

12,456

3,741

Legal reserve

148

58

Revaluation reserve

(3,076)

(2,030)

Retained earnings

6,222

6,913

15,750

8,682

1 The prior year comparative has been restated to ensure that both the legal reserve and retained earnings agrees to the carry forward position stated in the Consolidated Statement of Changes in Equity.

Share premium reserves

€'000

At 1 January 2018

2,627

New issues during the year

 1,261

Issue costs

(147)

At 31 December 2018

3,741

New issues during the year

 9,861

Issue costs

(1,146)

At 31 December 2019

12,456

On 17 July 2018, SEC Newgate S.p.A issued 1,280,558 Ordinary shares for proceeds in excess of the nominal value by 1,261 €'000. The company incurred issue costs of 147 €'000 (net of taxes) in relation to the issue of shares which has been deducted from share premium in the year.

On 3 September 2019, SEC Newgate S.p.A issued 10,748,374 Ordinary shares as detailed in note 27. The fair value of consideration paid resulted in share premium of 9,861 €'000. The company incurred issue costs of 1,146 €'000 in relation to the issue of shares which has been deducted from share premium in the year.

Legal reserve

This reserve is required by law, and is not distributable.

Revaluation reserve

Gains/losses arising on financial assets classified as FVOCI, actuarial evaluation on pension allowance and exchange rates differences.

Retained earnings

Retained earnings includes all current and prior period net gains and losses attributable to the owners of the company which are not recognised elsewhere. This includes a Stock Option reserve dedicated to the managers of the subsidiaries and the parent company.

 

29. Interests in subsidiaries

Summary of acquisitions

Acquisitions over the two-year period are as follows:

· In November 2018, SEC Newgate acquired 10% of the share capital of CLAI SAS.

· In September 2019, SEC Newgate, who previously held 16.9% of Porta Communications Plc ("Porta"), purchased the remaining share capital resulting in 100% ownership of Porta. As a result, SEC Newgate, also indirectly controls the subsidiaries of Porta which have been consolidated at year end.

The consideration transferred consists entirely of SEC issuing equity interests to Porta shareholders calculated at the fair value of the SEC equity interests transferred. On 3 September 2019, 420,810,829 Porta shares were exchanged at a rate of 88.4955752 into 4,755,162 new SEC shares as well as 5,993,212 SEC shares being issued to Retro Grand Limited ("RGL"), a shareholder of Porta, following the conversion of a convertible loan currently owned by RGL. In total, 10,748,374 SEC shares were issued as a result of the acquisition at a fair value of €1.0174 per share.

Goodwill of 14,995 €'000 (note 11) arising on the acquisition of the Porta group represents the strategic benefits of the acquisition that will help to enhance the Group's ability to strengthen its media presence through expansion into other geographical areas as well as the economies of scale expected from combining the operations of the group. Goodwill has been attributed to each CGU of the Porta Group based on the anticipated future profitability of each CGU. Management identifies each subsidiary as a single CGU and the split of goodwill can be found in note 11.

Details surrounding the acquisitions can be found below:

 

2019

2018

Porta Group

CLAI

Notes

€' 000

€' 000

Trade receivables

5,413

478

Cash and cash equivalents

1,824

999

Other assets

7,935

661

Trade payables

(870)

(148)

Other liabilities

(17,864)

(548)

Net (liabilities)/assets acquired

(3,562)

1,442

% acquired

100%

10%

Fair value of consideration

10,935

6,452

Fair value of previously held equity interests

423

-

Net assets attributable to non-controlling interests

74

-

Goodwill

11

14,995

5,010

Further details can be found in note 11.

Details surrounding further acquisitions of interests in existing subsidiaries can be found below:

Company

Date of-acquisition

% acquired in year

% owned at year end

Consideration

Newgate Hong Kong

15/11/2019

5%

85%

148,324

In addition to the above acquisitions, on 4 December 2019, Cambre Maroc Advocacy was set up in Morocco. The cost of the 51% equity interest held by SEC Newgate was 24 €'000.

Set out below are details of the subsidiaries held directly, unless otherwise stated, by the Group at 31 December 2019:

 

Name

Key

Country of incorporation

Percentage held

Principal activity

13 Communications Limited

13CO

London (UK)

100%*

Dormant

21:12 CommunicationsLimited

2112

London (UK)

100%* A Ordinary35%* B Ordinary

Marketing & advertisingagency

ACH Sec Global SL (previously known as ACH Cambre SL)

ACH

Madrid (Spain)

65.7%

Public relations & corporateaffairs consultancy

Cambre Associates SA

CAM

Bruxelles (Belgium)

76%

Public relations & corporateaffairs consultancy

Cambre Advocacy Maroc

MAR

Rabat (Morocco)

51%

Corporate advocacy & Communications consultancy

CLAI SAS

CLA

Paris (France)

10%

Corporate advocacy & public affairs consultancy

Curious Design S.r.l.

CUR

Milano (Italy)

75%

Marketing & advertisingagency

Della Silva Communication Consulting S.r.l.

DS

Milano (Italy)

51%

Dormant

EngageComm Pty Limited

ENG

Sydney (Australia)

51%*

Public relations & corporateaffairs consultancy

HIT S.r.l.

HIT

Milano (Italy)

57.71%

Events management & human resources provider

ICAS Limited

ICAS

London (UK)

100%*

Public relations consultancy

Impact PR Limited

IMPA

London (UK)

100%*

Public relations & corporateaffairs consultancy

Kohl PR und Partner GMBH

KOHL

Berlin (Germany)

75%

Public relations & corporateaffairs consultancy

Martis Consulting Sp. z o.o.

MRT

Warsaw (Poland)

60%

Public relations & corporateaffairs consultancy

Newgate Brussels SPRL

NGBR

Bruxelles (Belgium)

100%*

Non-trading

Newgate Communications (HK) Limited

NGHK

Hong Kong

85%*

Public relations & corporateaffairs consultancy

Newgate Communications (Singapore) Pte. Ltd

NGSN

Singapore

51%*

Public relations & corporateaffairs consultancy

Newgate Communications Germany GmbH

NGGE

Hamburg (Germany)

100%*

Non-trading

Newgate Communications Pty Limited

NGAS

Sydney (Australia)

66.72%*

Public relations, corporate affairs & research consultancy

Newgate Communications(Beijing) Limited

NGCB

Beijing (China)

85%*

Public relations & corporateaffairs consultancy

Newgate CommunicationsFZ-LLC

NGAD

AbuDhabi (United Arab Emirates)

76%*

Public relationsconsultancy

Newgate CommunicationsLimited

NGCL

London (UK)

100%*

Public relations, corporate affairs & research consultancy

Newgate Media Holdings Limited

NMHL

London (UK)

100%*

Intermediate holding company

Newgate PR Holdings Limited

NPRH

London (UK)

100%*

Intermediate holding company

Newgate Public Affairs Limited

NGPA

London (UK)

100%*

Dormant

Newgate Public Relations Limited

NGPR

London (UK)

100%*

Dormant

Newgate Sponsorship Limited

NGSL

London (UK)

85%*

Non-trading

Newington Communications Limited

NEW

London (UK)

60%

Public relations & corporateaffairs consultancy

Porta Australia Holdings Pty Limited

PAHP

Sydney (Australia)

51%*

Intermediate holding company

Porta Communications Midco Holdings Limited

MIDC

London (UK)

100%*

Intermediate holding company

Porta Communications Plc

PORT

London (UK)

100%

Intermediate holding company

PPS (Local and Regional) Limited

PPS

London (UK)

100%*

Dormant

Redleaf Polhill Limited

REDL

London (UK)

100%*

Public relations consultancy

Sec & Associati S.r.l.

SEC-A

Torino (Italy)

51%

Public relations & corporateaffairs consultancy

Sec & Partners S.r.l.

SEC-P

Roma (Italy)

50.5%

Public relations & corporateaffairs consultancy

Sec Mediterranea S.r.l.

MED

Bari (Italy)

51%

Public relations consultancy

SEC+Latam Communications Estrategica SAS

SEC-L

Bogota (Colombia)

51%

Public relations & corporateaffairs consultancy

Springall Gbr

SPRG

Hamburg (Germany)

100%*

Dormant

Velvet Consultancy Limited

VELV

London (UK)

100%*

Dormant

*Indirectly held

Significant judgements and assumptions

SEC Newgate S.p.A holds preferred shares in CLAI SAS which represent 10% of the ordinary share capital and 50% + 0.1 of the voting rights. SEC Newgate also holds options which would allow the company to acquire the remaining 90% of the share capital in CLAI SAS within the earn out period. The financial statements of the subsidiary have been consolidated at 100% on this basis.

Audit exemptions

The following Group entities are exempt from audit by virtue of Section 479A of the Companies Act 2006:

13 Communications Limited

Impact PR Limited

Newgate Media Holdings Limited

Newgate PR Holdings Limited

Porta Communications Midco Holdings Limited

ICAS Limited

Newgate Public Affairs Limited

Newgate Public Relations Limited

Newgate Sponsorship Limited

PPS (Local and Regional) Limited

Redleaf Polhill Limited

Preparation & filing exemptions

The following Group entity is exempt from preparing/filing individual accounts by virtue of Sections 394A or 448A of the Companies Act 2006:

Velvet Consultancy Limited

Statutory guarantees

SEC Newgate S.p.A has provided statutory guarantees to the following entities in accordance with Section 479C of the Companies Act 2006:

13 Communications Limited

Impact PR Limited

Newgate Media Holdings Limited

Newgate PR Holdings Limited

Porta Communications Midco Holdings Limited

ICAS Limited

Newgate Public Affairs Limited

Newgate Public Relations Limited

Newgate Sponsorship Limited

PPS (Local and Regional) Limited

Redleaf Polhill Limited

SEC Newgate S.p.A has provided a statutory guarantee to the following entity in accordance with Section 394C of the Companies Act 2006:

Velvet Consultancy Limited

 

 

30. Non-controlling interests

Set out below is summarised financial information for each subsidiary that has non-controlling interests that are material to the group. The amounts disclosed for each subsidiary are before inter-company eliminations.

Summarised statements of financial position

At 31 December 2019

€'000

ACH

CAM

CLA

HIT

KOHL

MRT

NEW

NGSN

NGHK

NGAS

SEC-L

SEC-P

2112

Non-current assets

89

557

849

670

77

163

678

951

292

1,593

206

1,021

200

Current assets

372

1,628

2,358

405

160

236

1,371

526

345

5,164

852

1,173

992

Non-current liabilities

(156)

(497)

(111)

(139)

(57)

(131)

(423)

(76)

(58)

(1,936)

(84)

(129)

(4,392)

Current liabilities

(324)

(866)

(1,399)

(270)

(103)

(136)

(1,017)

(170)

(258)

(3,877)

(631)

(644)

(764)

Net assets/(liabilities)

(19)

822

1,697

666

77

132

609

1,231

321

944

343

1,421

(3,964)

Non-controlling interest

(7)

197

-

282

19

53

244

603

48

314

168

703

(1,031)

 

At 31 December 2018

€'000

ACH

CAM

CLA

HIT

KOHL

MRT

NEW

SEC-L

SEC-P

 

Non-current assets

79

78

549

9

24

17

251

84

762

 

Current assets

399

1,656

1,918

941

85

259

1,679

1,163

1,486

 

Non-current liabilities

-

-

(111)

(88)

(14)

-

-

(42)

(98)

 

Current liabilities

(313)

(626)

(784)

(203)

(50)

(174)

(1,103)

(802)

(733)

 

Net assets/(liabilities)

165

1,108

1,572

659

45

102

827

403

1,417

 

Non-controlling interest

57

266

-

279

11

41

331

198

701

 

 

Summarised income statements

At 31 December 2019

€'000

ACH

CAM

CLA

HIT

KOHL

MRT

NEW

NGSN

NGHK

NGAS

SEC-L

SEC-P

2112

Revenue

988

4,229

4,162

1,633

678

969

3,508

431

667

5,141

4,052

1,682

1,318

(Loss)/Profit for the period

(202)

364

548

53

32

70

(248)

5

44

341

261

129

(818)

(Loss)/Profit attributable to non-controlling interest

(69)

87

-

22

8

28

(99)

2

7

113

128

64

(213)

 

At 31 December 2018

€'000

ACH

CAM

CLA

HIT

KOHL

MRT

NEW

SEC-L

SEC-P

 

Revenue

902

4,064

545

1,112

401

1,080

4,100

2,618

1,388

 

(Loss)/Profit for the period

(94)

351

129

39

(254)

20

42

345

299

 

(Loss)/Profit attributable to non-controlling interest

(32)

84

-

16

(63)

8

17

169

148

 

 

 

31. Related parties

From time to time the Group enters into transactions with its associate undertakings. For amounts paid to key managers please refer to the table within note 4. For payables to related parties, please refer to note 21; for borrowings please refer to note 22.

During the year, Newgate Communications Limited paid Barbican Centre Trust Ltd, a registered charity and a company of which Emma Kane is the Chairman, 14 €'000 (£12,000) for corporate membership. As at 31 December 2019, this amount was due to the Barbican Centre Trust Ltd.

During the year, the Group was invoiced 6 €'000 (A$10,000) for flowers by Buds and Poppies, a florist company owned by the wife of Brian Tyson. An annual membership fee of 5 €'000 (A$8,000) was paid to the Committee for Sydney, of which Brian Tyson is also a Director. No amounts were outstanding to either party at the year end.

All related party transactions were on normal commercial terms.

 

 

32. Ultimate controlling party

There is no ultimate controlling party. At 1 January 2019, SEC Newgate S.p.A was 66.06% controlled by Fiorenzo Tagliabue. Following the acquisition of Porta Communications Plc, SEC Newgate S.p.A is 36.03% controlled by Fiorenzo Tagliabue.

33. Impact of adopting IFRS 16 Leases

This note explains the impact of the adoption of IFRS 16 Leases on the Group's financial statements.

Cumulative effect of initially applying IFRS 16

The Group has adopted IFRS 16 from 1 January 2019 which resulted in changes to the accounting policies and adjustments to the amounts recognised in the financial statements. The Group has applied the cumulative effect method in accordance with IFRS 16.C5(b) and has elected to apply IFRS 16 retrospectively with the cumulative effect of initially applying the Standard recognised at the date of initial application.

The Group has not restated comparatives for the 2018 reporting period, as permitted under the specific transition provisions in the Standard.

For additional information about the Group's current and historical accounting policies relating to leases see note 1.

Impact of adoption

The following summarises the impact of adopting IFRS 16 on the Consolidated Statement of Financial Position and the Consolidated Statement of Comprehensive Income.

(i) Adjustments to assets and liabilities related to adoption of IFRS 16

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. Theses liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 3%.

The Group did not recognise any finance leases in accordance with IAS 17 in the previous accounting period. Therefore lease liabilities at the date of initial application were recognised for leases previously classified as operating leases in accordance with IAS 17.

The associated right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet as at 31 December 2018. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.

(ii) Explanation of adjustment to profit or loss

EBITDA, amortisation and depreciation, and finance expense have all increased as a result of the change in accounting policy. Rental costs relating to operating leases under IAS 17 were previously included in rental expenses (note 5). These are no longer expensed under IFRS 16 and the costs are accounted for through the lease liability and associated interest expenses, which have been included in finance costs. Amortisation and depreciation has increased due to the additional right-of-use assets recognised under IFRS 16.

(iii) Practical expedients applied

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

· the use of a single discount rate to a portfolio of leases with reasonably similar characteristics;

· reliance on previous assessments on whether leases are onerous;

· the accounting for operating leases with a remaining term of less than 12 months as at 1 January 2019 as short-term leases; the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application, and;

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

 

 

34. Subsequent events

There are no significant subsequent events which require disclosure up to the date that the financial statements were approved 28 May 2020.

Please refer to the Post Balance Sheet Events in the Chief Executive's Review for further details on the impact of Covid-19 on the Group.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
FR UAORRRKUNRUR
Date   Source Headline
23rd Dec 20207:00 amRNSAcquisition of majority stake in German Consultant
25th Sep 20204:22 pmRNSDirector Dealing
21st Sep 20209:35 amRNSDirector Dealing
21st Sep 20207:00 amRNSInterim Results
18th Sep 20208:00 amRNSNew managing partner appointed in Greater China
3rd Sep 20207:00 amRNSConfirmation of stated post-offer intentions
17th Aug 20207:00 amRNSFirst contract on new TRUE® AI platform
13th Aug 20201:47 pmRNSDirector Dealing
10th Aug 20207:00 amRNSTrading Update
15th Jul 20207:00 amRNSLaunch of Artificial Intelligence TRUE platform
13th Jul 20207:00 amRNSStrategic new market expansion
19th Jun 20201:35 pmRNSResult of AGM - Replacement
19th Jun 202010:48 amRNSResult of AGM
18th Jun 202010:18 amRNSAdjournment of General Meeting
2nd Jun 20207:00 amRNSFinal Results
19th May 20207:00 amRNS2019 Results Update
5th May 20207:00 amRNSTrading Update
24th Apr 20203:09 pmRNSDirector Dealing
9th Apr 202012:42 pmRNSDirector Dealing
7th Apr 202010:07 amRNSDirector Dealing
6th Apr 20208:15 amRNSReplacement - Group CFO Change and Business Update
6th Apr 20207:00 amRNSDirectorate Change and Business Update
9th Mar 20209:05 amRNSCompany Update
4th Mar 20202:33 pmRNSCompletion of Convertible Bond Issue
25th Feb 202010:50 amRNSResult of Extraordinary Shareholders Meeting
24th Feb 202010:15 amRNSAdjournment of General Meeting
6th Feb 202012:43 pmRNSEuro 2.5m Convertible Bond and Notice of EGM
4th Feb 20207:00 amRNSTrading Update
10th Jan 20207:00 amRNSExtension of Porta Bare Trust
17th Dec 20195:20 pmRNSDirector/PDMR Shareholding
13th Dec 20191:13 pmRNSDirector Share Purchase
12th Dec 20197:00 amRNSNew Banking Facility
6th Dec 20197:00 amRNSMain Board Appointment
21st Nov 20197:00 amRNSStrategic Plan 2020-2022
7th Oct 20197:00 amRNSDirector Share Purchase
3rd Oct 20194:23 pmRNSDirector Share Purchase
30th Sep 20194:15 pmRNSInterim Results
27th Sep 20197:00 amRNSExtension of Porta Bare Trust
12th Sep 20194:24 pmRNSHolding(s) in Company
4th Sep 20197:00 amRNSLaunch of SEC Newgate S.p.A.
3rd Sep 201910:28 amRNSScheme Becomes Effective
2nd Sep 20194:29 pmRNSCourt Sanction of Scheme Arrangement
29th Aug 201910:30 amRNSDirector Update
29th Aug 201910:30 amRNSSchedule One update - SEC S.p.A.
30th Jul 201910:23 amRNSResults of Court Meeting and General Meeting
29th Jul 20191:51 pmRNSResults of Court Meeting and General Meeting
24th Jul 201910:45 amRNSSchedule One - SEC S.p.A.
22nd Jul 201912:13 pmRNSResult of General Meeting
5th Jul 20195:30 pmRNSFurther re Recommended Merger of Porta and SEC
5th Jul 20195:30 pmRNSPublication of Scheme Document

Due to London Stock Exchange licensing terms, we stipulate that you must be a private investor. We apologise for the inconvenience.

To access our Live RNS you must confirm you are a private investor by using the button below.

Login to your account

Don't have an account? Click here to register.

Quickpicks are a member only feature

Login to your account

Don't have an account? Click here to register.