SECN.L Regulatory News (SECN)

21 May 2021

SEC Newgate S.p.A. 

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

Audited results for the year ended 31 December 2020

SEC Newgate S.p.A (AIM:SECN)., the insight-driven global strategic communications group that works at the nexus of business, politics, communities, markets and media, today announces its audited final results for the year ended 31 December 2020.

Financial Highlights

· Prior year comparatives include the results of the previous SEC S.p.A. and for Porta Communications Plc and its subsidiaries from the date of acquisition 3 September 2019; 2020 results are for the enlarged SEC Newgate S.p.A. group

· (1) including €5.63m leases in 2020 and €8.47m in 2019

Operational and Strategic Highlights

· Launch of TRUE, our proprietary, innovative AI reputation monitoring and assessment system

· Establishment of SEC Newgate US LLC in the United States in partnership with Mike Holtzman, Bellwether Strategies

· Expansion into Greater China, led through appointment of James Hill as a new Managing Director in Hong Kong

· Agreement signed in December 2020 for acquisition of majority holding in Orca Affairs GmbH, Berlin, in line with the Group's acquisition strategy, recognised from April 2021

· top 30 global PR group ranking (PRovoke Awards, 2020)

Post year-end Highlights

· Development of a new brand identity and Group positioning launched January 2021

· Establishment of SEC Newgate CEE in March 2021, to accelerate the Group's development across the Eastern Europe Region

· Declaration of maiden final dividend of 0.5p

Commenting, John Foley, Chairman, said:

"The fact that the new Group delivered results in line with management expectations is a testament to the proactive steps taken to manage and mitigate the impact of the pandemic. The results demonstrate the power of the team's adaptive entrepreneurial spirit, collaborative approach and constant focus on the quality of the services we provide. The Group is in a strong financial position with a significant secured pipeline and a strong leadership team. The Group's turnover, profitability, margins and retention rates remain high. The outlook is, therefore, exciting despite the uncertainties caused by Covid-19 and we face the future with both confidence and enthusiasm."

Fiorenzo Tagliabue, Group Chief Executive, said:

"After the positive results of 2020, a strong start to the 2021, the financial consolidation of the Group, and achieving the targets in terms of savings and synergies after 2019's business combination, we are now ready for an even more demanding step forwards which will be to expand our geographical reach, our knowhow - above all in the digital environment - and our financial solidity. In other words, we are set to continue our transformational evolution and to achieve the new targets and objectives that would go with that."

For further information please contact:

Notes to Editors

· SEC Newgate is an award winning strategic communications firm, which ranks in the Top 30 groups in the world. The Agency's team consists of about 600 staff, working in 37 offices across five continents.

· SEC Newgate's focus is on achieving positive outcomes through communications, advocacy and research, helping clients clearly demonstrate their purpose, value, and impact locally, nationally and internationally.  

· Further information is available at the Group's website:  www.secnewgate.com

Chairman's Statement

2020 was the first full year of reporting for SEC Newgate S.p.A. following the acquisition and the creation of the enlarged group in September 2019. It is a year that started with great energy, a significant pipeline, and with all businesses performing in line with or ahead of budget and management expectations.

On 11 March 2020, the World Health Organization (WHO) declared the outbreak of Covid-19 a pandemic; its impact was felt across Group. Despite the huge challenge presented, we did not standstill. With a clear vision, the Group forged ahead achieving its strategic objectives for the year ended 31 December 2020. The fact that the new Group delivered results in line with management expectations is a testament to the proactive steps taken to manage and mitigate the impact of the pandemic. The results demonstrate the power of the team's adaptive entrepreneurial spirit, collaborative approach and constant focus on the quality of the services we provide.

People

This year, it is right that our people come first. I would like to thank every single member of our team for all that has been achieved. Their resilience has been fully tested and the excellent results are a testament to the diversified, dynamic group that we have created.

The Group's agencies quickly adapted to the changed working environment and all implemented business continuity plans, working remotely under varying levels of lockdowns in their markets around the world.

Our strength has been rooted in our collaborative approach, sharing best practice initiatives and experiences, cohesive culture, the quality of the service we provide, the innovation that has been applied, and the bond that has been created by supporting each other in these times of great adversity.

I would also like to thank our partners - some 1,500 clients - who we have worked with to find new ways to use communications, advocacy and research, to clearly demonstrate their purpose, value and impact locally, nationally and internationally. Never has it been more essential to be able to communicate effectively with every stakeholder - internally and externally.

Financial & Operational Review

Our financial results are reported in € '000; prior year comparisons only include results of the previous SEC S.p.A. Group.

Net Cash Inflow from Operating Activities

A more detailed commentary on the 2020 financial results can be found in the Group CFO's Review but the net cash inflow of €7.2m from operating activities has strengthened the Group's financial position. This was the result of a constant focus on both the Group's liquidity position and its cost base.

Dividends

Given the very positive result of end year 2020, the Board has recommended a final dividend of 0.5 pence per fully paid ordinary share to be approved at the General Assembly. The aggregate amount of the proposed dividend is GBP 123,554.61 out of retained earnings at 31 December 2020, the amount was not recognized as liability at year end.

The dividend reflects the growth of the Group and the Board's confidence in the outlook. If approved at the General Assembly to be held on 8 June 2021, the dividend will be paid on 25 June 2021 to those shareholders on the register at the close of business on 11 June 2021. The shares will become ex-dividend on 10 June 2021.

Acquisitions & Disposals

In line with the Group's Strategic Plan 2021/2023 and stated acquisition strategy, the Group took the following key strategic steps:

SEC Newgate US LLC - In July 2020, SEC Newgate was established, operating from New York and Washington. This represented the Group's first expansion into the North American market. The US is a key strategic market for the Group as it strengthens its geographic presence and ambitions to act as a global player in the communications market. The Group has a 55% ownership with the balance held by the US executive partner Bellwether Strategies.

Orca Affairs GmbH - On 23 December 2020, the Group committed to acquire a 60% shareholding in four tranches (15% per annum until 2024) in Orca Affairs GmbH ("Orca Affairs") Orca Affairs, based in Berlin, has a strong track record in public and corporate affairs at a national level. 

Post Balance Sheet Events

On 18 January 2021, the Group announced the restructuring and rebranding of its largest UK agencies; as part of this combination, SEC Newgate is increasing its stake in Newington from 60% to 100%, and the business and assets of Newington were transferred to SEC Newgate UK Ltd.

On 2 February 2021, Sergio Penna was appointed to the Board of SEC Newgate as Group CFO; Anna Milito, Deputy Group CFO, stepped down from the Board.

Outlook

The Group is in a strong financial position with a significant secured pipeline and a strong leadership team. There is no doubt that over one year on, the impact of Covid-19 continues to be felt both personally and professionally but the fear of uncertainty which was felt at the start of the pandemic has been replaced with a cautious sense of confidence that our business model is robust enough to withstand the worst effects of Covid-19.

The Group's senior leadership team continues to work tirelessly to protect the finances of the business and each of our subsidiary businesses and to ensure that service levels remain high. The team is winning exciting new mandates and is increasingly cross-selling services across its geographic footprint. The Group's turnover, profitability, margins and retention rates remain high. The outlook is, therefore, exciting despite the uncertainties caused by Covid-19 and we face the future with both confidence and enthusiasm.

Group Chief Executive's Review

The worldwide pandemic catapulted almost everyone in business into a very tough year. For SEC Newgate, there was the added complexity that 2020 was our first full year following 2019's business combination and therefore a period during which we would be testing how well the two groups could work together as one entity.

The results, as evidenced by our numbers, are more than satisfactory, indeed they are brilliant: we achieved the Profit Before Tax targets that we forecast before the Covid-19 emergency struck. Above all, the Group has demonstrated great resilience, and a strong ability to react to the crisis by developing new opportunities within the market, getting closer to our clients without putting the health and safety of our colleagues at risk.

For this reason, the first word I wish to share here is gratitude: to all our people, regardless of their seniority or age, who accepted the challenge with bravery and positivity; and, to all our clients which have continued to trust us and our work.

As significant, is the route we have taken (and continue to take) in order to integrate our culture and vision and establish a more solid market position.

The quarterly meetings of our Managers' Committee (comprising all the agencies' managing directors), and the experience of our monthly Executive Committee (our executive Board sessions), have all contributed to a constant exchange of ideas and sharing of projects. These have in turn improved our culture and allowed us to fine-tune our governance at the end of the year. This now comprises: three regional areas, each managed by one of the three Deputy Group CEOs (UK and Americas, APAC and EMEA), and the constitution of the Senior Leadership Team (SLT) composed of the three Deputies, the Chairman of the Managers' Committee and the General Manager of our business in Italy.

The work undertaken on our positioning and the resultant rebranding - which will be fully rolled out by the end of 2021 - will provide greater visibility of the Group on the market and an improved awareness of our brand, highlighting even more effectively our business model that is unique at a worldwide level.

In spite of the pandemic and the consequent "handbrake strategy" (in terms of costs) that we initiated as soon as Covid-19 cases started soaring, the Group grew significantly in 2020.

Specific performance against our Strategic Pillars

Despite the impact of Covid-19, the Group successfully achieved the goals set out in its Strategic Plan, unveiled in November 2019. The steps taken since have put the Group on a stronger and more sustainable financial foundation.

Financial:

· Cash generation: excellent cash generation achieved at the operational level (inflow €7.2m)

· Savings:  €3.1m through the combined effect of local governments' assistance and operational cost reductions realised by the management

· Facilities: during the year, the Group secured a €2.5m through a Convertible Bond

Brand:

· Branding: Developed new SEC Newgate brand identity which will be adopted by all Group agencies by the end of 2021

· Rankings: Ranked 30th in the PRovoke Global Top 250 PR Agency Ranking 2020, rising from 53rd in 2019; placing the business 7th in Europe

· Awards: The Group's agencies won many awards including Best Integrated Campaign (PRCA DARE Awards 2020) and Planning Campaign of the Year (PRCA Public Affairs Awards 2020)

Expansion:

· United States: launch of SEC Newgate US, our start up based in New York and Washington.

· Germany: committed to acquire Orca Affairs in April 2021, an important acquisition in Germany making that market the Group's third largest, after UK and Australia. Following this acquisition, Italy, which was the Group's initial market, is expected to account for 15.6% of the Group's total turnover. We now have a truly international identity. 

Innovation & Research:

· AI: Launch of TRUE®, SEC Newgate's Artificial Intelligence powered platform to continually gauge the reputation of brands and institutions. Following investment of €1.5m and development with Bocconi, Italy's leading business school, and Imperial College London. First commercial client, TreNord, secured.

After the positive results of 2020, a strong start to the 2021, the financial consolidation of the Group, and achieving the targets in terms of savings and synergies after 2019's business combination, we are now ready for an even more demanding step forwards which will be to expand our geographical reach, our knowhow - above all in the digital environment - and our financial solidity. In other words, we are set to continue our transformational evolution and to achieve the new targets and objectives that would go with that.

ASIA PACIFICBrian Tyson, Deputy Group CEO

Despite the extraordinary challenges wrought by the Covid pandemic, the APAC region of SEC Newgate more than weathered the storm and recorded its strongest ever performances as a group.

Our three key markets of Greater China (including Hong Kong), Singapore and Australia faced different challenges throughout the year but combined to deliver a 13% increase in revenue year-on-year over 2019 and increased profit before tax by 100% year-on-year.

In our Greater China business, we successfully transitioned the leadership of the group to welcome on board James Hill from Sandpiper group who hit the ground running and produced a resilient end to the year to set up a strong foundation for 2021. In Singapore, Terence Foo and his team produced their highest profit since inception back in 2013 while our Australian business overcame both the pandemic disruption but also the worst bushfire season in Australian history to report a record result.

Individual market summaries follow:

Australia

Newgate Australia continued its strong track record of performance achieving its higher ever revenues, a 13.5% increase on 2019's year-on-year performance which itself was a record revenue figure. The margin achieved was also significant ahead of forecasts, and, while this was boosted by a saving of in travel and marketing costs linked to the Covid lockdowns, the result was nevertheless a highlight within the group.

All six offices and our practice areas of financial and corporate communications, public affairs, community engagement and the research business all contributed to the performance as the business quickly adjusted to the new environment which saw all staff working from home for extended periods.

A key feature of the year was the instigation of a weekly Covid sentiment community Tracker research study which kicked off in mid-March just as the virus was starting to take hold and continued each week right up until Christmas - a total of 42 weeks. The tracker research was market leading and provided great insights for government and the corporate sector into how community sentiment was trending on a weekly basis.

Another highlight for the year involved our crisis communications and advocacy work to government and health authorities on behalf of a number of leading Australian businesses including Bunnings Hardware, Officeworks Thrifty and the Star Group seeking to obtain "Economy Essential" status and successfully avoid being shut down in the early months of the pandemic.

Our engagement team was deeply involved in the government bushfire recovery works assisting Laing O'Rourke which won the tender to manage large components of the clean-up of towns and communities ravaged by the unprecedented fire season in NSW. Our financial comms team enjoyed another busy year which included work on a number of significant transactions such as the Resolution Life/AMP deal and the Village Roadshow acquisition by private equity firm BGH Capital along with the regular financial calendar reporting for many of our listed clients.

Other highlights included our ongoing work supporting Google, Minderoo, Luerssen, Snowy Hydro, Amex, Mondelez, the Heart Foundation and Diageo in the media, stakeholder and public affairs space.

EngageComm, our conflict brand in the engagement field was very busy working on a project for LendLease around remediation works for a housing development throughout 2020, with consultants from both Newgate and EngageComm working across briefs of both businesses.

2021, which could be an election year in Australia, has commenced in the same vein as 2020 and the group is gearing up for the transition of its brand from Newgate to SEC Newgate by year end and a new focus on targeting corporate clients at the Board and Executive level with new offerings in the risk management, trust and reputation space.

Greater China

2020 was a year of transition for the business in Greater China. Its proximity to the epicentre of the Covid-19 pandemic, continuing political uncertainty in Hong Kong and escalating trade tensions between the United States of America and China, coupled with senior departures at the business, significantly weighed on its performance. These factors resulted in a reduction in revenues and a widening of losses on a pre-tax basis, as a number of clients deferred spending or brought public relations activities in-house.

Notwithstanding this very challenging trading environment, the business secured a number of high-profile fundraising, shareholder activist and restructuring projects, including work for 8F Asset Management, Green Monday, Third Point and Qiming Venture Partners. In addition, the business expanded its scope of work with its two largest retained clients in the technology and professional services sectors.

During the year, the business successfully focused on implementing tighter cost controls, stabilising its client base and retaining its core team. Late in the third quarter, the business appointed a new Managing Partner, based in Hong Kong, to oversee the firm's expansion in Greater China.

This year has started well, with the business extending the scope of work and fee levels for three major clients, including a leading Asia based private equity firm, and securing a significant new government affairs mandate with leading US technology and mobility firm.

Singapore

2020 was a challenging year, but the Newgate Singapore team acquitted itself well, managing a sustained high volume of work and producing the highest level of profitability since inception.

The first quarter of the year was a difficult time, with client projects delayed as the Covid-19 pandemic started to take root and we moved to remote working from the beginning of February. Fortunately, the team was able to adjust quickly to the challenges of working from home by March, when Singapore implemented a "circuit breaker" with heightened restrictions on movements and requiring most residents to stay at home most of the time.

Work volume ramped up quickly during the second quarter and remained high for the rest of the year. We handled a wide diversity of projects, winning several new M&A, fund raising and litigation support mandates, as well as interesting crisis communications briefs related to Covid-19.

2020 also led to a renewed focus and commitment to staff well-being and team cohesiveness, as well as to training and development going forward.

EMEA Region (excluding Italy)Tom Parker, Deputy Group CEO

Consistent with the wider Group, the performance of the EMEA region was marked by the uncertainty created by the Covid-19 pandemic and determination, resilience and a spirit of entrepreneurship in adapting to the new reality. By the end of the first quarter 2020 forecasts were rapidly being reassessed and practical steps taken to move client servicing and business development online and realign costs.

Our businesses in Abu Dhabi, Germany, Poland and Spain were rapidly confronted with the reality of projects being put on standby, clients cancelling contracts, and the new business pipeline slowing. Market conditions in France were less dramatic but sluggish in the first half of the year while Brussels experienced sustained client demand, driven primarily by its sustainability, digital and trade practices. In the second semester business conditions remained difficult in Abu Dhabi, Germany, Poland and Spain but picked up significantly in France, as a result of crisis communication and training missions. Brussels continued its strong performance and enjoyed PBT at record levels.

Abu Dhabi

At the start of the 2020, the outlook was extremely positive with open tenders, promising leads and positive feedback from existing clients looking to renew contracts. Then in mid-March with the outbreak of the Covid-19, UAE Governments immediately stopped their budgets and the communications business in the region went into lockdown.

Measures were immediately taken to reduce costs with a view to dealing with the situation both in the short term but also with a longer-term outlook, as little perspective was given as to when the UAE would exit the lockdown. The region continued to be paralysed by the pandemic to the end of the financial year which had a significant impact on the agency's financial performance.

Belgium (Brussels)

Thanks to a very strong start to 2020 and a prudent approach to costs, the impact of the Covid-19 pandemic was not as severe as initially feared. Robust client demand was experienced through the year and, with careful ongoing cost management, Cambre posted financial results which were well above 2020 forecast.

Cambre adapted swiftly to the new virtual reality, moving client servicing and business development online and extending our impact beyond Brussels. Bright spots in 2020 were sustainability, trade, and tech, and Cambre has a robust pipeline in these sectors, as well as in healthcare, going into 2021. Investment in our digital offer, new hires and smart tools, positions well Cambre for another positive year in the competitive Brussels market.

France

CLAI saw its best year in 2020 in terms of Gross Profit with PBT also ahead of budget. Following a slow start in the first semester, complicated by the first lock down, activity was boosted in the second half of the year, with crisis communication missions, training sessions and a lot of work for ACOSS, (the public national Health financial agency).

The migration to new ways of working internally and with clients was key to the success in 2020 and bodes positively for 2021, with 60% of the 2021 budget already confirmed, interesting tenders ahead, and a market situation where many competing agencies have been seriously impacted during the crisis.

Germany

In Germany, as with other markets, the Covid crisis had a dramatic impact on business sentiment and the pipeline. A cost saving program and work plan for new business were rapidly put in place to boost agency growth in the fields of social media, health care, education, transformation and finance. New business activities were difficult in the first semester but in the second half of the year prospects were converted into new clients, providing a more positive outlook for 2021.

Further to the investment in Orca Affairs in the autumn of 2020, SEC Newgate's position on the German market has been significantly boosted. Both agencies will benefit from complementary expertise and networks in the public and governmental sphere and will work closely together to further strengthen SEC Newgate's position on the German market in 2021.

Poland

Company Gross Profit was in line with the budget despite Martis falling victim to major cost-cutting amongst its clients, with cancelled contracts and others significantly reducing their budgets. In response, the company reduced direct costs.

Despite the pandemic, the Warsaw office remained open and operated normally throughout the year, with consultants making little use of the possibility to work remotely. In the second half of the year, business started to pick up with new clients and some existing clients returning to pre-pandemic levels of service. The turn of the year has marked an improvement in financial performance and with the expected economic recovery in 2021, the outlook for the year ahead is optimistic.

Spain

2020 was a challenging year in Spain. The Covid pandemic had a dramatic impact on the domestic Spanish market, however in the last three months of the year, business did pick up, with a number of client wins including Campinggaz, grupo SICOR and Bodegas Yzaguirre.

With the ongoing pandemic uncertainty in Spain, the market conditions continue to look difficult in 2021. Strong focus will need to be given to consolidating existing clients such as Acciona, John Deere and Edwards but opportunities for growth will be focused on potential new business from the SEC Newgate international footprint.

SEC Newgate ItalyPaola Ambrosino, Partner e Direttore Generale

2020 started with three lines of development: the new digital and creative area called "Accelerate"; the presentation to the public of TRUE, the platform that monitors reputation; and, the enhancement of the international dimension consolidated in 2019 with the establishment of SEC Newgate. The outbreak of the pandemic in Italy and then in the world has not held these challenges back but has instead strengthened them and immersed them in a more complex horizon, which however provided more opportunities.

For instance, Accelerate immediately offered a significant contribution to the immense effort that the whole agency made, from the months of the lockdown onwards, to imagine new ways of communicating, to provide consultancy in areas complementary to PR and advocacy, and to gain accreditation in less-traveled product sectors. This is the case with our event streaming platform LiveeXperience, which has enabled us to enhance our thirty years of experience in event planning thanks to the digital skills provided by Accelerate. This solution has been chosen by many of our clients, but has also enabled us to find new ones, such as CGIL, Italy's largest trade union, which selected it for its most important events. It is also emblematic that an exclusive luxury brand such as Vhernier, a long-standing client of the agency, entrusted Accelerate with its transition to e-commerce, with the design of a new website as well as innovative storytelling and shopping experiences for its jewels, in order to tackle the impasse of the closure of its showrooms around the world.

As for TRUE, the presentation to the public on 9 July was a moment of extraordinary visibility not only for the Italian agency, but for the entire Group, as the rise in the stock price demonstrated. The meetings that took place in the following months with high-profile companies confirmed that today there is no other similar profound vision of reputation and allowed us to receive valuable indications in order to make our product closer to budgets and operational needs. For this reason, in January we started working on the new release with a team from the University of Milano-Bicocca, and we expect to market it in the summer.

The pandemic, due to its global nature, has made our international dimension much more pressing and "hot". The crisis allowed us to share with our colleagues of other Group agencies in an easier way our choices, numbers, information and knowledge and it intensified inter-group business opportunities.

Our international position and innovation have further consolidated SEC Newgate's reputation and visibility in Italy. And in a difficult context, which has nevertheless brought out the necessary, if not indispensable, nature of communications and in particular of PR and advocacy (considered in the emergency decree as "strategic professions"), expanding and intensifying demand for them, they have made possible an extraordinary growth in clients and opportunities.

Crisis and reputation recovery, national and local advocacy, marketing, and corporate communication are the areas of greatest growth. In terms of product communication, it is mainly the food industry that is driving the demand, while in the corporate sector an important impulse comes from banks and financial services, legal profession, and high-tech. The trend in infrastructure and urban redevelopment projects is stable: in the recent weeks SEC Newgate has been chosen in Milan by the owners of a railway area, including Prada Holding, for the public consultation ("débat publique").

As a result, we were able to end 2020 with gross profit ahead of the prior year.

UK and The Americas

Emma Kane,

Deputy Group CEO

There has never been a time when a clear vision and strong values have been needed more. For the agencies and their clients, the need to communicate clearly, regularly and to ensure that every member of the team is supported has been essential. I would like to thank the almost two hundred people who have given so much to each other, their clients and the Group over the year under review.

Decisions have been taken with all stakeholders' needs being taken into consideration. They have been taken with a medium-term view not as a short-term, knee-jerk reaction and always through the lens of our purpose, vision and values.

UK

In 2020, the UK agencies comprised 2112, Newgate Communications and Newington Communications.

The start of the new decade delivered UK businesses not only with the intense challenge that was inextricably linked to the coronavirus pandemic but also the impact of the uncertainty surrounding Brexit.

All SEC Newgate's UK agencies had enjoyed a strong, in most cases record, first quarter. When the pandemic hit and the first lockdown was enforced, their prior investment in infrastructure, particularly in the IT required to work remotely, enabled them all to transition seamlessly to an alternate working environment. The challenges that came along with this change of environment were met with enthusiasm by the teams, and ultimately contributed to the great client work delivered during the year, as well as the overall financial performance.

All UK agencies benefit from a strong retainer base which provides good visibility of revenues and the ability to control costs accordingly. This, coupled with the significant focus on the improvement of margins over the prior year put them in a strong position to withstand the impact of the turmoil that they all found themselves in.

Of particular note, was 2112 which delivered its best financial performance since its inception in 2012. The Agency benefits from established clients such as Federated Hermes International, T Rowe Price International, BNY Mellon and Janus Henderson all of which pushed forward with additional projects during the year. The Agency also launched a new brand positioning, "work with purpose", as well as a new website and was the beneficiary of an increased demand for digital advertising and web-based media. This provided a great platform to drive new business with a focus across Asset and Investment Management spaces and a new business drive which attracted a number of new, significant clients - these included Nuveen Real Estate, Mirabuad Asset Management, Metfriendly and Pacific Asset Management amongst others.

Newgate Communications delivered a very strong performance with PBT significantly ahead of the prior year. The results achieved during the year under review reflect the restructuring of the business and an intense focus on margin improvement.

Newington Communications had its high-quality work focused on corporate and public affairs with local, national and European representation recognised during the year with two PRCA Public Affairs Awards. Whilst the Agency managed to maintain its fee levels in line with the prior year, its pipeline was significantly impacted by pandemic.

As of the 1 January 2021, Newington Communications became a wholly owned Group subsidiary and was merged with Newgate Communications to create a single entity - SEC Newgate UK. The combined force will now offer its clients a seamless and fully integrated service across Communications, Advocacy and Research.

The Americas

2020 was a year of change and adaptation in the region.

In both North and South America, the communications industry largely ground to a halt during the pandemic. In North America, the pandemic coincided with the US elections whilst Colombia was subject to a widespread lockdown from March to August.

Despite the challenging economic and political climate, SEC Newgate S.p.A. pushed ahead with its strategic plan and entered the North American market, opening SEC Newgate US offices in New York and Washington DC in July 2020. This was a fundamental move by the Group to strengthen its geographic presence and ambitions to act as a global player in the communications market.

Colombia

SEC Newgate Colombia is a long-established business that had enjoyed four years of sustained growth. Its 2020 results were affected by the pandemic which had a serious effect on the local and global economy and on the creation of jobs, a situation that was aggravated by limited public resources to provide significant support to the business sector. 

Despite this difficult juncture, the agency managed to retain more than 90% of its clients and generate new business opportunities, mainly by offering additional services to existing clients. In fact, the agency was at its most proactive in terms of sales since its creation.

As a result, the scopes of work with Didi, Adidas and Diageo were expanded during the second half of the year. The agency also led and executed campaigns that involved creativity, design, and digital work, such as the Crea Sonidos campaign carried out together with Fundación Barco and Innpulsa (a public entity attached to the Ministry of Trade, Industry and Tourism).

Costs were tightly controlled, and a number of significant cost savings were secured.

US

SEC Newgate US was launched in July 2020 creating a platform for further expansion over the coming years. The new entity, led by Michael Holtzman, is a commercial venture with Bellwether Strategies, in which the Group has 55% ownership. This structure has enabled SEC Newgate to have a low risk, local presence with well-established key professionals in a market which is of paramount importance to the Group.

While the "start-up" nature of the operation was undeniable, the US team nonetheless found themselves part of a dynamic, global network of colleagues that created new opportunities for growth. The close connection with international colleagues and the ability to provide seamless working relationships across the global network resulted in new business and a pipeline of new business for the year ahead which was important as the domestic US market was not only impacted by the pandemic and the dramatic scaling back of budgets but also the long shadow cast by the US presidential elections over public affairs work with many foreign embassies taking a "wait and see approach" towards communications in the US. Traditional sources of international accounts - such as tourism and direct investment - evaporated. The nature of consultancy work during the second half of 2020 was more project orientated with short-term projects than the team would typically do.

Group CFO's Review

Sergio Penna

2020 was the first full year of trading for the newly merged SEC Newgate Group, and of course, it was also a notable year because of the outbreak of the worldwide Covid-19 pandemic. Both events presented the Group with new and unexpected challenges resulting in a unified global business focused on achieving its strategic goals and positive about its future under the new SEC Newgate brand.

The finance team ensured the coordination of the reporting of the single units, the delivery of internal and external high-quality reports and analysis, as well as the support for many extraordinary operations worldwide.

The most relevant operations in terms of acquisitions and start-up were in line with the Group's Strategic Plan 2020/2022, with a focus on North American, Asian and European markets:

· In July 2020, the Group established SEC Newgate US LLC, a new commercial venture based in New York City and Washington D.C. in which the Group has a 55% ownership, expanding the footprint in the United States for the first time,

· In September, the Group hired a new Managing Partner in Newgate Greater China in charge of the Far East business development,

· In December, the Group signed an agreement to acquire a 60% shareholding in four tranches (15% per annum until 2024) in Orca Affairs GmbH, based in Berlin, with a strong track record in public and corporate affairs in Germany. 

For the year ended 31 December 2020, the Group delivered its first full year of positive Operating Profits and Profit before Tax (PBT). These figures are not easily comparable to the prior year, due the consolidation of the Group signed on 4 September 2019, partially affecting the financial results.

Despite the impact of Covid-19, the Group successfully achieved the goals set out in its Strategic Plan 2020/2022 released before the pandemic outbreak, an impressive result made possible by the reaction of the Group in term of business development and costs control. On the revenue side, the Group provided a full spectrum of high-quality additional services, while on the costs the "handbrake strategy" guaranteed a strong basis, partially forced by external factors in terms of travel, entertaining and office costs, but primarily due to the proactive steps taken to manage and mitigate the problem, proving the vision and the commitment of the SEC Newgate team.

Key financials

· Gross profit was €56.1m (2019: €37.6m)

· Operating Profit was €4.1m (2019: €1.8m)

· PBT was €3.0m (2019: €1.3m)

· Net Debt Position was €13.0m, including €5.6m Lease Liabilities (2019: €17.2m, including €8.4m Lease Liabilities)

· Cash Balance was €12.1m (2019: €6.1m)

Gross Profit is used to monitor our performance at a Group and subsidiary level, netting the effect of the pass-through costs that could be differently reported at local level (please refer to the explanatory note included in the Consolidated Income Statement).

Gross Profit was up by c. €18.5m with the increase mainly attributable to the following consolidation of the new Group from September 2019, with subsidiaries (mainly based in UK and Australia) reporting four months results in 2019 while a full year impact was included in 2020.

Employee expenses were up both in absolute terms (by c. €13.7m, partially related to the full consolidation effect mentioned above) and in relative terms when compared to GP (by 4%). In terms of total staff, the Group employed 600+ people at the end of 2020.

Amortisation of intangibles was higher than 2019 (by €300,000) mainly due to the investment in Artificial Intelligence performed over the last years, leading to the release in July 2020 of TRUE®, SEC Newgate's Artificial Intelligence powered platform to investigate the reputation of brands and institutions.

Depreciation is strongly influenced by the IFRS 16, that requests to consider every long-term rent as an investment in fixed assets supported by a financial lease, with monthly depreciation instead of the rent costs. The amount was €1.0m higher than in 2019 mainly due to the full consolidation of those subsidiaries (especially in UK) that were included only for four months in the previous year.

Regarding the goodwill, after performing impairment tests on each of our subsidiaries, we concluded that the only impairment needed was on ACH (€95,000), mainly due to the critical situation of the Spanish market strongly affected by Covid-19, that influenced the performance of the company.

Other operating costs were c. €11.6m (2019: €10.7m) and presented on a different and more transparent classification respect to last year, with focus on the nature of the costs. The increase by c €1.4m is mainly attributable to an increase in professional and consulting fees (by €1.5m) and office expenses (by €0.6m) partially offset by a decrease in marketing fees (by €0.5m) and other administrative expenses (by €0.2m).

Finance expenses were up in the year by €0.5m, of which €0.4m due to interest expense on financial loans and around €0.1m due on financial leases related to IFRS 16 implementation. The net loss on foreign exchange movements at the end 2020 was partially mitigated by a GBP vs Euro currency forward signed in November with the major Italian bank UniCredit to offset the exchange rate effect and neutralize the risk.

Adjusted Profit

Since 2019, once IFRS 16 became effective, the Group moved away from using EBITDA as a performance metric, now that rental expenses have been replaced by depreciation and interest which falls below EBITDA. For this reason, our focus has shifted towards PBT which remains the main performance indicator.

This year the Group would like to introduce the use of the non-GAAP measurement of adjusted profit. The Group believes that the consistent presentation of adjusted profit, operating profit and profit before tax provides a clearer representation of the Group's business performance.

Adjusted profit is defined as profit after adding back exceptional and/or non-operational items including amortisation of acquired intangible assets (excluding software) and share-based payment adjustments, as well as items considered exceptional due to size or nature including business combination acquisition costs, restructuring costs, impairment of goodwill, intangible assets and investments and profit or loss arising on disposal of subsidiaries. In 2020 the "Covid-19 income" is considered exceptional, and for this reason excluded from the Group's adjusted profits:

(1) Acquisition costs include legal and advisory costs relating to business combinations, earn-out acquisitions, and other similar operations. In 2019 acquisition costs related to the acquisition of the Porta Group.

(2) Covid income (reported within Other Income in the Consolidated Financial Statements, see details in accounting policy note g. Other income) is the income received as a direct consequence of the Covid pandemic, comprising government salary assistance and grants.

(3) Share-based payments relates to the impact of the accounting stand for share-based compensations.

(4) Loss on disposal of subsidiary relates to the loss recognised in 2020 as a result of the disposal of Cambre Advocacy Maroc.

Cash Flow

The cash balance of SEC Newgate is €12.1 at the end of 2020 (€6.1m in 2019), and it was constantly monitored during the year by weekly reports and monthly analysis reported to the Board of Directors.

In 2020, the Group generated an outstanding net cash inflow from operating activities of €7.2m (€5.1m in 2019). This positive performance was the result of efficient business and financial management. Since Covid-19 first outbreak, our team worked hard to adapt quickly to protect the Group's cash position and liquidity, secure savings, and take advantage of local government initiatives.

We secured €105,000 rent reductions, €566,000 of other permanent spending cuts and received the benefit of €850,000 non-refundable governmental assistance (including €590,000 of salary assistance and grant schemes and €260,000) and €578,000 of deferred VAT payments.

On the other side, the Group generated a net cash outflow from financial activities of €430,000 (outflow €5.3m in 2019).

During the year, SEC Newgate S.p.A. secured new bank loan facilities including €1.0m from Banca Carige and €1.0m from Banca Popolare di Milano, while other new borrowings include €2.5m convertible bonds issued in February 2020 by Inveready. Besides, the local finance teams worked on the government assistance obtaining available forms of support, including bounce-back loans and long-term loans renegotiation for a total of €700,000.

The Group acquisition structure for new investments is usually based on a three to five years Earn-out model. At the end of 2020, the most important provisions are related to the acquisition of the remaining part of the French subsidiary CLAI (€1.5m in 2021 and €4.4m in 2026), the investment in the Colombian subsidiary SEC Latam (€0.4m in 2022). The cash balance at the end of the year is sufficient to cover these expected payments.

Group Finance Operations

During the first half of the year, the Group appointed the current Group Finance Controller (in April 2020) and the current Group CFO (in June), which worked together since the release of the Consolidated Half Year results.

In addition to that, due to Covid-19 restrictions, starting March 2020 the finance management of the Group was entirely performed in remote working.

I personally wish to thank all the people involved in the 15 countries and 37 offices where we operate, starting from the local CFOs and their teams, for delivering such a great effort and results despite the critical situation, accepting the challenge with positive attitude.

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 better informed decisions based on true underlying performance and data.

Following the process after the acquisition at the end of 2019, the Group finance function has implemented a process that now works throughout the enlarged Group 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 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

The Net debt position as of 31 December 2020 was €13.0m (including €5.6m Lease Liabilities), with a positive €4.1m difference compared to 31 December 2019, reporting €17.2m (including €8.4m Lease Liabilities). Please refer to note 18 of the Consolidated Financial Statements for further details.

The €6m increase in cash and cash equivalents from €6.1m to €12.1m is mainly due to the quality of the management and its choices that ensured a strong cash inflow from operating activities, as mentioned above.

New bank loans and other borrowings increased by €4.7m during the year from €14.8m to €19.5m, Lease Liabilities decreased by €2.8m from €8.4m to €5.6m.

Regarding the most important new bank loans and borrowings:

· on 20 February 2020 the Group signed a bank facility with Banca Popolare di Milano for €1.0m, at Euribor 3 month + 1.65 interest rate, payable in 36 months with maturity in 2023

· on 25 February 2020, SEC Newgate S.p.A. secured a €2.5m convertible bond with the Spanish institutional investor Inveready which was subscribed on 4 March 2020, with a maturity of seven years from issuance (in 2027) and interest payable quarterly at 3.50%

· on 4 March 2020 the Group signed a bank facility with Banca Carige for €1.0m, at Euribor 6 month + 1.20 interest rate, payable over 48 months starting June 2022 with maturity in 2026

Lease Liabilities are related to IFRS 16 application, effective since January 2019. IFRS 16 requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months; the lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.

SEC Newgate Group is strongly affected by the IFRS 16 that is applied to all the rent agreements related to office facilities worldwide; in 2021, due to a new contract signed for the UK headquarter, our Business Plan already included a strong increase of both right-of-use asset and lease liability that is going to decrease over the years in line with monthly lease payments.

Whilst the Group is now in a better position to compete in international markets, the condition of the net debt cannot be ignored, and now that the business combination is effective and the effect of the government support on Covid-19 is decreasing, it is the immediate focus of management to improve and strengthen the Group's capital structure.

Post Balance Sheet Events

The Strategic Plan 2021/2023 will represent our main guidance for the coming years, with key goals including, but not limited to, an increased visibility and reputation of the Group, a better level of profitability and cultural integration.

During 2020, we united the teams of the main UK agencies in one premise, preparing the ground for the upcoming reorganisation and rebranding. On 15 January 2021, the Group acquired the 40% minority stake not already owned of Newington, taking the holding up from 40% to 100%. The total consideration for the acquisition was around €485,000, 30% satisfied by SEC Newgate issuing and allotting new ordinary shares to the vendors and the remaining 70% payable in over three years. The same day, the Group announced that the business and the assets of Newington were transferred to SEC Newgate UK Ltd (previously known as Newgate Communication Ltd).

Regarding the UK headquarters, we gave notice to both the previous offices based in Great Suffolk Street and Basinghall Street, with a total €300,000 saving expected in 2021 with respect to the previous year, and an additional saving of around €1.0m per annum from January 2022, once SEC Newgate UK Ltd officially moves to a new premise, with a 10-year lease (with a five year break clause) whose heads of terms were signed the on 9 April 2021.

The IFRS 16 treatment of this operation was already included in the Business Plan 2021/2023: the cost of the rent is booked as depreciation, with an increase of this amount in Q4 2021 when a shot-term overlapping of the two contracts will occur - during the fit out of the new office - but with a strong decrease of the rent cost (therefore, the depreciations) from 2022 on.

On the other side, we included in the Business Plan c. €6.0m as capex in 2021 related to the new UK office (€5.0m of rent and €1.0m of fittings).

On 26 January 2021, our Nomad, Arden Partners, finalised and released to the market a Research Note on SEC Newgate; this analysis, along with other positive announcements in terms of M&A and estimated 2020 results, led to an increase in the SEC Newgate share price up to 95 pence at the end of the first quarter of 2021, compared to 43 pence at the beginning of 2020.

On 22 March 2021, the Group announced the establishment of a new commercial venture, SEC Newgate CEE, in Poland, to accelerate the business development across the Central Eastern Europe Region; the cost for the operation was represented by an intercompany loan of €200,000 in favour of the start-up.

On 29 March 2021, the Board of Directors approved the "Incentive Scheme Plan for Managers and key employees", with immediate effect for the beneficiaries included in the list. The Incentive is calculated on the next three years basis, in terms of both Group and local subsidiaries' results; the Incentive Plan was included in the Intention Statement announced after the acquisition in September 2019 and confirmed in September 2020.

On 14 April 2021, SEC Newgate performed the first payment of €700,000 to Orca Affairs GmbH, as part of the agreement signed on 23 December 2020; the initial consideration comprises the 15% of the issued share capital of the target, with attached voting rights of 60% passing to SEC Newgate (sufficient to guarantee the control and full consolidation of the results). In 2019, Orca Affairs' turnover was around €10.5m, in part influenced by extraordinary business. The acquisition will be earnings enhancing in 2021.

Conclusion

Thanks to the actions promptly implemented in March 2020 and following months, SEC Newgate was able to overcome with impressive results the Covid-19 pandemic 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. It was the most difficult challenge of the year in terms of business development, execution, client management and financial strategy.

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.

The Group closed the 2020 with some self-assurances in terms of costs control, spending review, internal organization of the offices, potential expansion in new countries, and excellent results on specific markets like Australia over the year. The key element for the finance team was a constant analysis of the cash balance.

At the end of the year, 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, and the vision of the Board of Directors is clear.

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 to a stronger bottom line.

We are confident that, approaching the second year of trading as an enlarged Group, based on the response to the challenges of this unique year and the recent results evidenced by the share price trend, SEC Newgate is now in a much stronger position to improve operating performances going forwards than it has ever been before.

SEC Newgate Corporate Purpose and Responsibility Statement

SEC Newgate's mission is to create positive outcomes for clients and communities in a connected world, where companies increasingly need communication partners with strong local roots, global reach and true entrepreneurial spirit, driven forward by talented people.

As such the integrity of our advice, the ethical approach of our people and our role as a purpose-driven business consultancy are critical to our success.

We have analysed the 17 Global UN Sustainable Development Goals and taken steps to ensure that the way we conduct our business, recruit and safeguard our people, ensure we play a positive role in our communities and drive sustainable behaviours through our business to reflect these objectives.

We are also currently making strong progress through the B Corp audit process with SEC Newgate UK seeking to achieve B Corp status as a foundation for wider uptake around the SEC Newgate group.

We have detailed our approach to delivering our corporate goals under the following headings of purpose and governance, people and planet:

Purpose and governance

SEC Newgate's purpose is to: Help our clients achieve positive outcomes through communications, advocacy and research and to help them to clearly demonstrate their purpose, value and impact locally, nationally and internationally.

Our 37 offices, based in 15 countries all adhere to our global standards for ethical consulting. All offices follow best practice in their markets, and we are members of the Public Relations Consultants Association. We have senior executives who sit on the PRCA Management Board and the PRCA Public Affairs Board and we are signed-up to the PRCA Public Affairs Register covering our advocacy activities. Similarly, Andrea Cornelli, the Group Chief Innovation Officer, is Vice President of UNA (the Association for the whole communications industry in Italy) and Chair of PRHub, the section dedicated to the PR business. We also helped to establish the APGRA (Australian Professional Government Relations Association) in Australia which has set the standard for ethical government relations practice. Feyi Akindoyeni from our Melbourne office is also on the global Board of the International Association of Political Consultants which supports democratic process including through the annual global Democracy Medal award.

We have an Ethics Committee and compliance process to vet potential clients and ensure that we have transparency on their ownership structure, business operations and corporate and social purpose.

Our offices run community programmes and charity activities as set by local teams. We offer a range of initiatives including: Time off for charitable work, office charity events and nominated charities, pro-bono work for charities (including work undertaken in the past 12 months: for example, in the UK we provided pro-bono support to MicroLoan Foundation, HIV Commission and St Paul's Cathedral's Remember Me initiative). In Italy, we support "Parole Ostili", a non-profit association of researchers, communications professionals and social experts; the association is engaged in promoting a social and political reflection on the social effects of communications and banning hostile communications on the media. The team also provides some time consultancy time to support Portofranco, a famous initiative based in Milan dealing with the right to study and supporting disadvantaged young people in their studies. Newgate Australia is a strong supporter of the Clontarf Foundation, which aims to end indigenous disadvantage by encouraging Aboriginal children to attend and complete secondary education.

We have also continued to win and be shortlisted for numerous industry awards for the quality of our consulting, including: PR Week Awards Best Ethical Initiative During the Coronavirus Crisis; DARE Awards Best Integrated Campaign; PRCA City & Financial Awards Best Communications in Support of a Transaction. In addition, work we have undertaken for our clients has resulted in them winning the 2020 ESG Investment Awards, Best ESG Investment Fund, Private Capital and The IR Society 2020 for Best Communication of ESG.

In Italy in 2020 we were awarded Assorel Award in the Non-profit Organization category for the initiative we developed during the first wave of Covid "Primum Vivere" a space provided to institutions, companies and ONGs to tell their stories of resilience and positive response during the pandemic.

In 2021 we launched a new service, SEC Newgate UK Green & Good which advises a portfolio of clients in the sustainable industries and social enterprise and investment sectors. In addition, we work extensively with companies in the renewable energy sector.

The Holding Company is managed by the Board of Directors composed of 11 members, four of whom are independent (the rest all being executives). The Directors are drawn from backgrounds which the Board believes provides an appropriate mix to conduct the Company's business. The Company has adopted the Quoted Companies Alliance Corporate Governance Code.

People

Our people are the heart of our business and building a culture that places equality, inclusion and promotes a diverse, dynamic and merit-based culture is critical to our success.

All our people are empowered to speak up, contribute and challenge and our business model is based on the honesty and professional judgement that our teams bring to their work and our business.

We have whistle blowing policies in place covering all our teams and we regularly conduct staff surveys covering moral, what we can do better, ideas for building the business and feedback on ways of working.

We conduct 360 appraisals for staff at all levels of the business and use meetings, closed social media groups and regular team meetings and socials to communicate and bring people together.

The Group employed 580 people in 2020, of whom 348 identified as women (2019: 342). We seek to implement greater levels of equality and diversity at senior levels of our business and we currently have 39% of leaders at director level and above globally who identify as women, and 5% from non-white ethnic groups (7% Group-wide).

In seven countries out of the 15 across our footprint, women lead agencies that rank in the top positions in each local market such as in UK, Italy, Brussels, Germany, Poland, SEC Newgate CEE, and Colombia. In Australia, where Newgate is a market leader across sectors such as financial communication, public affairs and market research, the majority of partners are women and women lead four of six state offices.

While the Covid-19 pandemic has created significant challenges for our teams around the world, we have risen to that and found new ways of working that still maintain a strong, collaborative culture and recognise that many people want to work more flexibly. Despite the pandemic we have continued to provide good jobs and careers for our people.

We pay the living wage as a minimum for all members of our team, all members of our team have the ability to work flexibly and our ability to work remotely has been tested and proven to be highly successful throughout the pandemic.

We have introduced Mental Health First Aiders across a number of our offices to ensure that our people are able to seek appropriate support and help should they need to. In addition, all our offices have introduced localised programmes of social activities, sports and professional development programmes for our staff to provide the tools to enable them to fulfil their career ambitions.

We regularly review our diversity and recruitment policies and actively monitor both to ensure that we are providing equal opportunities.

Respect for human rights is a fundamental principle for our business and we aim to prevent, identify and address any negative impacts on human rights associated with our business activities. We look for opportunities to promote human rights, in areas such as our pro bono work. We reflect international standards and principles, including the International Bill of Human Rights, the UN Guiding Principles on Business and Human Rights. We do not tolerate any form of modern slavery in our business or supply chain. We aim to implement appropriate measures to mitigate the risk of modern slavery occurring, either in our own operations or those of our partners.

Planet

As a professional services business our environmental impact is relatively low, however we encourage all our people to take staps to reduce the impact that they and our operations have on the planet.

We have 37 offices globally with each taking local responsibility for reducing their carbon footprint and boosting sustainability. Initiatives undertaken within our office network include: Recycling points for paper, printer cartridges, plastics and food wherever possible; low energy and timed lighting, rainwater harvesting systems in key offices; cycle to work schemes and changing and shower facilities. We also take steps to manage our server capacity and use to reduce the footprint of our IT operations. We source our energy from renewable tariffs where possible.

We work with a large number of clients within the environmental and sustainability industries sectors and actively promote the benefits of sustainable living and a sustainable lifestyle through our activities and through staff training and our core marketing activities, including the SEC Newgate newsletter.

We aim to identify and report on our carbon footprint and publish a plan for how we will reduce and off-set our carbon output, in line with ambitions to achieve NetZero by 2050.

As communications advisers our key stakeholders are our staff, our suppliers, our clients and the communities around our offices.

We regularly survey our staff for their opinions on the way we are conducting our business and for their views on how we can do better. Alternatively, their feedback is collected through forums such as team meetings, personal development meetings and team reviews. All decisions are taken by the senior leadership team in consultation with any affected staff members and communicated to our people through a variety of means: All-team meetings, Workspace, specialist team meetings, and one-on-one meetings with managers.

We have a relatively small group of suppliers who provide services in each of our countries of operation including media and political monitoring, office supplies, catering, energy and venue services. We have contractual relationships with our suppliers and regularly review their activities and the contractual relationship we have with them. The financial and operational managers in each office provide a point of contact for all suppliers and we engage with them on any decision that will impact them or the services they provide to us.

All our clients have a client relationship management team that will be headed by a senior consultant (usually at MD or Director level). We have contracts and scope of work covering the agreed communications programmes which have relevant break clauses and notice periods within them that enables clients to change the basis of our relationship if they wish. We also regularly hold review meetings with clients to review progress against agreed KPIs. Any changes to the service we provide (e.g. team members, programme delivery or fees) are discussed and agreed with clients before action is taken.

We remain fully committed to advancing the environmental, social and governance standards that we currently adhere to and to meeting our commercial and social purpose.

In response to the egregious incidents of racial injustice in 2020 we actively sought to elevate diversity and inclusion in the workplace. We held discussions with our colleagues and conducted independently accredited research to understand feelings and solicit suggestions on how we could do better. We shared thought leadership pieces with our clients, colleagues and contacts through our blogs. We provided pro bono consultancy services to charities providing support to black communities and in particular those empowering black women to set up their own business enterprises.

Corporate Governance Statement

AIM companies are required to comply with a recognised 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 atsecnewgate.com/investors

Principal Risks and Uncertainties

For the year ended 31 December 2020

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 key risks and uncertainties which they believe may affect the Group's ability to deliver its strategic goals in the future. The Covid pandemic presented an unprecedented global challenge in 2020, which continues to impact many of the Group's key risks and uncertainties. The Directors have made the decision to present the pandemic as a separate strategic risk, as a way of highlighting its direct consequences but also to show how the Group has been able to successfully understand and quickly adapt to mitigate risks arising in this challenging environment. 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.

The below scale (from Low-1 to High-5) has been used to indicate the estimated level associated with each specific risk:

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 2020 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 2020 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.

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 817 thousands which represents 1.25% of revenues. We agreed with the audit committee that we would report to them misstatements identified during our audit above Euro 41 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 instructed BDO UK, BDO Poland, BDO Colombia, BDO Germany, BDO Spain, BDO Belgium, BDO Australia, 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 Accountants)

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

Milan, 20 May 2021

Consolidated Income Statement

There were no discontinued operations in the year.

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

Consolidated Statement of Comprehensive Income

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

Consolidated Statement of Financial Position

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

The financial statements were approved by the Board of Directors on 4 May 2021 and authorised for announcement on 20 May 2021

Fiorenzo Tagliabue

Director

SEC Newgate S.p.A. (09628510159)

Consolidated Statement of Changes in Equity

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 24 for more details.

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

Consolidated Statement of Cash Flows

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

Notes to the Financial Statements

1. Accounting policies

a. Basis of preparation

SEC Newgate S.p.A. (the Company) is domiciled in Italy. These consolidated financial statements comprise the Company and its subsidiaries (together referred to as the 'Group' or 'SEC Newgate Group').

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 the consolidated 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 2020:

· Definition of a Business (Amendments to IFRS 3) - The Group applied the revised definition of a business for acquisitions occurring on or after 1 January 2020 in determining whether an acquisition is accounted for in accordance with IFRS 3 Business Combinations. The amendments do not permit the Group to reassess acquisitions occurring prior to 1 January 2020. See note 24 for details of the Group's business combinations.

· Covid-19-Related Rent Concessions (Amendments to IFRS 16) - Effective 1 June 2020, IFRS 16 was amended to provide a practical expedient for lessees accounting in certain circumstances where the rent concession had been awarded as a direct consequence of the Covid-19 pandemic. The Group elected to early adopt these amendments for leases that fulfil the specific criteria. The amendments did not have a material impact on the Group's results.

· IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment - Disclosure Initiative - Definition of Material); and

· Revisions to the Conceptual Framework for Financial Reporting.

The adoption of the above did not have a significant impact on reported results or 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 2021, and have not been applied in preparing these consolidated financial statements:

· Interest Rate Benchmark Reform - IBOR 'phase 2' (Amendments to IFRS 9, IAS 39 and IFRS 7);

The new standard is expected to impact the Group's borrowings detailed in note 17 with contractual terms based on EURIBOR. The impact of the new standard is under review and practical expedients to reduce the immediate impact are being considered.

The following amendments are effective for the period beginning 1 January 2022:

· Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37);

· Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);

· Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and

· References to Conceptual Framework (Amendments to IFRS 3).

These amendments to the standards are under review, but are not expected to have a material impact on the Group in the current or future reporting periods.

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.

Since the outbreak of the global pandemic, the Group's agencies have all implemented business continuity plans, working remotely under varying levels of lockdowns in their markets around the world. The aim of the Group was to secure savings, protect the cash position and liquidity, assess costs, renegotiate payment schedules and taking advantage of all the initiatives offered by different national governments. The Group continues to operate profitably. All businesses have quickly adapted to the changed working environment and continue to provide first class service to clients.

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 2020 and present comparative information for the year ended 31 December 2019.

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; or

· 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 recognised 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. Revenue

Revenue is recognised 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.

Revenues recognised in any period are based on the delivery of performance obligations and an assessment of when control is transferred to the customer. Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. Income billed in advance of the performance of the service is deferred and recognised 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.

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. Other income

Other income includes local geographical governments Covid-19 support payments, Covid income. These payments have been received in respect of employment costs and are accounted for as grants as they are not repayable. Grants are accounted for under the accruals model as permitted by IAS 20. Grants of a revenue nature are recognised in other income in the Consolidated Income Statement in the same period as the related expenditure. In 2020 Covid income recognised in other income amounted to €850,000 (2019: €nil).

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 amortised. Goodwill is carried at cost less accumulated impairment losses. Impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. An impairment loss is recognised when the carrying value exceeds the recoverable amount. The recoverable amount is the higher of value-in-use measured as the net present value of future cash flows derived from the underlying asset and the fair value less cost of disposal for each cash-generating unit. Any impairment in carrying value is recognised 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 three to five 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; and

· expenditure on the project can be measured reliably.

Capitalised development costs are amortised on a straight-line basis over their expected lives of three to five years. The amortisation expense is included within the depreciation and amortisation expenses line in the Consolidated Income Statement.

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 recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives. Licenses are amortised over the term of the license agreement.

i. Tangible assets

Property, furniture and equipment are initially recognised 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:

· Equipment: 2 - 5 years

· Furniture and fittings5 - 10 years

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 recognised within 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, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at its 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 (FVTPL).

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 11) 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.

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 recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently measured at amortised cost using the effective interest rate method, less any provision for impairment.

Impairment of financial assets

Impairment provisions are recognised 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.

The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade and other receivables.

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 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 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 amortised 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 8.

n. Leases

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

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.

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; and

· 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 subsequently 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, and lease liabilities are presented in its own separate line item in the Consolidated Statement of Financial Position.

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 in the Consolidated Statement of Cash Flows.

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.

Covid 19 rent concessions

The Group has elected to utilise the practical expedient for all rent concessions that meet the specific criteria of the practical expedient introduced in June 2020 (see accounting policy note (c)).

Accounting for the rent concessions as lease modifications would have resulted in the Group remeasuring the lease liability to reflect the revised consideration using a revised discount rate, with the effect of the change in the lease liability recorded against the right-of-use asset.

o. Share capital and share premium

The Company'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 recognised 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 recognised in the Consolidated Income Statement, except to the extent that it relates to items recognised 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 recognised 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 recognised 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 recognised 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 recognised 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 9 for further details.

Recoverability 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 expected credit loss 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 recognised (see note 13).

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 8).

Employee benefits

For actuarial assumptions on severance indemnity refer to note 21.

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 19.

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:

No individual client sales were greater than 10% of Group revenue (2019: 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:

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.

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:

4. Operating costs

1 The operating cost note is a new note in the consolidated financial statements, combining totals of the following notes previously disclosed in the SEC Newgate S.p.A. Annual Report & Accounts for the year ending 31 December 2019. 2019 comparative combines employee expenses (€23,386,000), service costs (€8,982,000), depreciation and amortisation (€2,154,000) and other operating costs (€1,271,000) notes, excluding other operating income (164,000) which is presented on the face of the Group's Consolidated Income statement. The new operating cost disclosure is considered by the Board to be a more transparent and simplified reflection of the SEC Newgate Group's operating activities. The 2019 disclosure changes have no impact on the Group's profit presented in the Consolidated Income statement.

5. Employee expenses

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 €nil (2019: €32,000) above have a corresponding tax impact of €nil (2019: €8,000).

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