Final Results

10 April 2019

Porta Communications Plc

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

Final Results for the year ended 31 December 2018andNotice of AGM

Porta Communications Plc (AIM: PTCM), the international communications and marketing group, today announces its final audited results for the year ended 31 December 2018. A summary of the results is set out below.

Financial

· Revenue was £35.9m (2017: £40.3m)

· Gross profit was £31.2m (2017: £34.2m)

· Reported EBITDA was £0.4m (2017: £2.2m)

· Adjusted EBITDA1 was £1.9m (2017: £2.8m)

· Loss before tax on continuing operations of £4.1m (2017: £3.0m)

· Loss per share of 0.9p (2017: loss of 1.4p)

· Net debt of £10.0m (2017: £8.4m)

· Further annualised net cost savings of approximately £1.7m were implemented in the UK

· 53% of revenue was from non-UK clients

1Adjusted EBITDA excludes acquisition and reorganisation costs, non-recurring property costs, exceptional legal and consultancy costs, share based payments, security impairment, revaluation of contingent consideration and provision of vendor loan guarantee.

Operational

· Strong financial performances from Newgate Australia, Newgate Singapore, Newgate Hong Kong and Redleaf Communications - Porta acquired further interests in all of these companies during the year

· Shanghai office opened

· Divestment of Capital Access and cancellation of guarantee up to £1.0m

· Emma Kane and Brian Tyson appointed as Joint Group CEOs on 27 April 2018

· Redleaf Communications and Publicasity merged into Newgate Communications UK on 1 November 2018

Post Balance Sheet Events

· The Group's performance in the first two months of the year has been in line with the Board's expectation and was better than the prior year equivalent; however, given the current political environment, there is no guarantee that this trend will continue

· To support the Group's funding going forwards, on 10 April 2019 the Company:

o Refinanced the 2017 Retro Grand Limited convertible loan with a new convertible loan from Retro Grand Limited and wrote off the default interest of £0.5m on the former loan;

o Entered into a convertible loan of up to £1.0m with SEC S.p.A ("SEC"). Draw down of the loan is conditional, among other things, upon shareholder approval of certain resolutions being proposed at a general meeting to be held on 26 April 2019;

o Entered into an agreement with Hawk Investment Holdings Limited to provide a facility of £1.0m in the event that the SEC Loan Agreement lapses due to its conditions not being met; and

o Announced that it has entered into discussions with SEC to examine the potential of an all-share merger to combine Porta and SEC into a larger entity with a scale and capacity across an enlarged international network.

John Foley, Chairman, commented:

"In April 2018, the Board took decisive action to appoint two of its most successful business operators, Emma Kane and Brian Tyson, as Joint Group Chief Executives. The 2018 results reflect the move to focus on delivering sustainable growth and putting in systems and processes to streamline activities, improve forecasting and minimise wastage.

With the funding secured to support the Group's working capital needs, we now have the opportunity to examine a potential merger with our strategic investor, SEC, on which we will keep shareholders updated. We are pleased with the positive position the Group is now in and excited about the opportunities we believe we now have. We look forward to the future with renewed energy and confidence."

Posting of Annual Report and Notice of Annual General Meeting

The Company's Annual General Meeting will be held at the offices of Porta Communications Plc, Sky Light City Tower, 50 Basinghall Street, London, EC2V 5DE, at 2 p.m. on 29 May 2019. The Annual Report containing the Notice of the Annual General Meeting will be posted to shareholders by 26 April 2019 and will be available on the Company's website from today.

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

Enquiries to:

Porta Communications Plc

Brian Tyson, Joint CEO

Emma Kane, Joint CEO

Rhydian Bankes, CFO

www.portacomms.com

+44 (0) 20 7680 6500

Newgate Communications (Media Enquiries)

Bob Huxford

Adam Lloyd

+44 (0) 20 7680 6550

porta@newgatecomms.com

Grant Thornton UK LLP (Nominated Adviser)

Samantha Harrison

Ben Roberts

Seamus Fricker

+44 (0) 20 7383 5100

N+1 Singer (Broker)

Mark Taylor

Lauren Kettle

+44 (0) 20 7496 3000

Notes to Editors:

· Porta is a fully integrated communications and marketing group, operating locally, nationally and internationally, with specialisms including financial, corporate and consumer public relations, public affairs and research and multi-capability marketing, brand and creative communications

· The Group has offices in Abu Dhabi, Beijing, Brisbane, Bristol, Canberra, Cardiff, Edinburgh, Hong Kong, Leeds, London, Manchester, Melbourne, Perth, Shanghai, Singapore and Sydney

· Further information on Porta Communications is available at www.portacomms.com 

· Further information on Newgate Communications is available at www.newgatecomms.com 

Chairman's Statement

For the year ended 31 December 2018

Introduction

2018 was a pivotal point in the transformation of the Group. 

During the year, we simplified the business, reduced its exposure to risk, and drove operational efficiencies and performance in order to deliver powerful, sustainable, positive results to shareholders.

In April 2018, the Board took decisive action to appoint two of its most successful business operators, Emma Kane and Brian Tyson, as Joint Group Chief Executives; at the same time, Emma Kane was also appointed Chief Executive of Newgate Communications Limited in the UK. This news was very well received internally and externally and I am pleased to report that they are successfully leading the overhaul of the Group culturally, operationally and financially.

Financial and Operational Overview

Transformation is not achieved overnight and the 2018 results reflect the move to focus on delivering sustainable growth and putting in systems and processes to streamline activities, improve forecasting and minimise wastage.

· Revenue was £35.9m (2017: £40.3m) 

· Gross profit decreased by 8.8% to £31.2m (2017: £34.2m)

· Adjusted EBITDA decreased by 32.1% to £1.9m (2017: £2.8m)

· Reported EBITDA decreased by 81.8% to £0.4m (2017: £2.2m) 

· The loss before taxation was £4.1m (2017: £3.0m)

The new Joint Group CEOs immediately focused on establishing a cohesive and aligned management team both at the Group and company operational levels. The first step was presenting and seeking endorsement for the strategic plan for the Group. In June 2018, the inaugural international summit was held in London, and the operational and strategic alignment commenced.

The UK business restructuring that began in 2017 was required as there had been little integration of acquired businesses. This, coupled with a top-heavy cost base, had resulted in a reliance on securing large one-off projects to cover costs; in 2017, two projects alone had delivered £1.7m of gross profit. I am pleased to report that this restructuring is now drawing to a close, with the full effect of the net annualised £3.6m of savings delivered only truly expected to become clear at a reported EBITDA level in 2019.

The APAC businesses continue to develop and gain a strong foothold in the region delivering a combined EBITDA of £1.7m in the year. Likewise, prior to its integration into the Newgate operating company in the UK, Redleaf was delivering EBITDA margins of 19.6% and a reported EBITDA of £713k for the first 10 months of 2018.

Group operational cash flow was positive in the year, delivering a £0.7m inflow in stark contrast to the £1.1m outflow in 2017, reflecting the stronger operational control at the company level, which continues to be a focus across the Group.

During the year, the Company finalised the installation of a consistent Group-wide accounting and job costing platform from which the profitability taskforce has performed a full review over job costing throughout the international network. I am also pleased to report that the Group consolidation and reporting platform, Oracle's FCCS, is now in full use for all month end and statutory financial reporting, delivering a robust, efficient and controlled tool for the management of the Group numbers.

Strategy

The new leadership team put in place a detailed strategic plan, developed in conjunction with the senior leadership team from across the Group. It is focused on driving growth and profitability, developed against a strong understanding of the Group's Purpose, Values and Vision. The plan revolves around:

· Operating seamlessly as an integrated, strategic communications business locally, nationally and internationally;

· Maximising the Group's productivity and profitability;

· Building a motivated, talented team that is passionate about being the best; and

· Focusing our resources on delivering the optimum result for our clients, our shareholders and our employees.

Three core priority focus areas were identified in order to deliver this plan and drive the implementation from across the Newgate international footprint:

· Building critical mass by integrating our UK businesses, investing in our teams, focusing on core sectors, to focus on successful organic growth and establishing additional business offerings and affiliates in key strategic locations locally and internationally;

· Rolling out and developing new products and services to complement our integrated model such as social market research from Australia and insight and digital from the UK;

· Driving cross-selling and collaboration opportunities including the proposed establishment of a global crisis communications product taking advantage of our network and geographical spread and crisis expertise to provide 24/7 crisis support to organisations anywhere around the world; and

· Setting up inter-office taskforces to drive best practice in financial management and profitability, culture and talent development, and to build brand equity and familiarity/favourability in Newgate.

Progress of the business plan against objectives and KPIs, is monitored and evaluated by the Board on an ongoing basis.

Acquisitions & Disposals

During the year, Porta acquired the remaining 19% of Redleaf Communications, and a further 4.43% of Newgate Australia, 20% of Newgate Hong Kong and 6% of Newgate Singapore.

On 11 December 2018, the Group entered into an agreement with Industrial Lending 1 ('IL1') to dispose of its entire 39.5% holding in Capital Access Holdings Limited ('Capital Access'), which was loss making at the time, to IL1. Porta's guarantee of up to £1.0m to IL1 in respect of Capital Access was extinguished when Porta disposed of its full shareholding.

Restructuring

In November 2018, the three UK limited companies of Newgate, Redleaf and Publicasity were merged into one - Newgate Communications Limited. This has simplified the Group's structure and facilitates building one brand that provides seamless communications across the international footprint. The Group's consumer-focused communications business, Publicasity, will continue to operate under that brand for pure consumer briefs. 

Markets and the Environment

The Board does not underestimate the potential impact on our business of events such as Brexit and the disruption caused by elections in Australia. However, the Board closely monitors risk and is reassured by the fact that no more than 5% of revenue is represented by one client. Our activities are also spread across approximately ten core industry sectors.

Board Changes

On the 27 April 2018, Emma Kane and Brian Tyson were appointed Joint Group Chief Executives and Emma Kane joined the Board. On the same date, Steffan Williams, who was previously Group Chief Executive, left the Company and ceased to be a Director of the Company on 4 May 2018.

People

I would like to take this opportunity to thank the 271 people across our Group who have shown such passion, dedication and excellence during the year under review. We are proud of our team, its diversity, and the results they have achieved. Our culture and our people are at the heart of everything we do and we are committed to investing in them to ensure that they are able to remain best in class and feel that they are building meaningful careers.

Corporate Governance

The Board is of the opinion that the measures of governance in place within the Group are appropriate for its size.

Post Balance Sheet Events

On 10 April 2019 the Company:

o Refinanced the 2017 Retro Grand Limited convertible loan with a new convertible loan from Retro Grand Limited and wrote off the default interest of £0.5m on the former loan;

o Entered into a convertible loan of up to £1.0m with SEC S.p.A ("SEC"). Draw down of the loan is conditional, among other things, upon shareholder approval of certain resolutions being proposed at a general meeting to be held on 26 April 2019;

o Entered into an agreement with Hawk Investment Holdings Limited to provide a facility of £1.0m in the event that the SEC Loan Agreement lapses due to its conditions not being met; and

o Announced that it has entered into preliminary discussions with SEC to examine the potential of an all-share merger to combine Porta and SEC into a larger entity with a scale and capacity across an enlarged international network.

Outlook

The restructured UK business has performed in line with the Board's expectations in the first two months of 2019 and the Group's performance was ahead of the equivalent period in 2018. However, there can be no certainty that this trend will continue as our major markets of the UK and Australia both face some immediate political uncertainty which could affect demand for our services during 2019. It is the Board's belief that we now have a business which is better able to operationally withstand such external pressures.

Operationally and structurally the Group is greatly improved, and, with the funding secured to support the Group's working capital needs, we now have the opportunity to examine a potential merger with our strategic investor, SEC, on which we will keep shareholders updated. We are pleased with the positive position the Group is now in and excited about the opportunities we believe we now have. We look forward to the future with renewed energy and confidence.

John Foley

Chairman

10 April 2019

Consolidated Statement of Comprehensive Income

There were no discontinued operations in the year.

The Group has initially applied IFRS 15 and IFRS 9 at 1 January 2018 and the impact on comparative information can be found in note 27. The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statement of Financial Position

The financial statements were approved by the Board of Directors and authorised for issue on 10 April 2019.

Emma Kane Rhydian Bankes Directors

Porta Communications Plc (company registration number: 05353387)

The Group has initially applied IFRS 15 and IFRS 9 at 1 January 2018 and the impact on comparative information can be found in note 27. The accompanying notes are an integral part of these consolidated financial statements.

Company Statement of Financial Position

As permitted under Section 408 of the Companies Act 2006, the Statement of Comprehensive Income for the Company

is not presented as part of these financial statements. The Company's loss for the year, after tax, was £2,233,250 (2017:

£4,490,656).

The financial statements were approved by the Board of Directors and authorised for issue on 10 April 2019.

Emma Kane Rhydian Bankes Directors

Porta Communications Plc (company registration number: 05353387)

The Group has initially applied IFRS 15 and IFRS 9 at 1 January 2018 and the impact on comparative information can be found in note 27. The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statement of Cash Flows

The Group has initially applied IFRS 15 and IFRS 9 at 1 January 2018 and the impact on comparative information can be found in note 27. The accompanying notes are an integral part of these consolidated financial statements.

Company Statement of Cash Flows

The Group has initially applied IFRS 15 and IFRS 9 at 1 January 2018 and the impact on comparative information can be found in note 27. The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statement of Changes in Equity

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

Company Statement of Changes in Equity

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

Notes to the Financial Statements

1. Accounting policies

The financial information presented herein does not constitute full statutory accounts under section 434 of the Companies Act 2006. The Group's Independent Auditor's report on these accounts was unmodified, did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498 (2) or 498 (3) of the Companies Act 2006.

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

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

Consistent with previous years, adjusted EBITDA is included as a key metric for understanding the Group's performance. Adjusted EBITDA is the results of the Group before start-up losses, acquisition costs, restructuring costs, non-recurring property costs, legal and other consultancy costs, share based payment expense and security impairment. Impairments of goodwill and other intangibles are deducted after EBITDA.

(a) Basis of preparation of the financial statements

The Consolidated and Company financial statements of Porta Communications Plc have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union, IFRIC Interpretations and parts of the Companies Act 2006 applicable to Companies reporting under IFRS.

The Consolidated and Company financial statements have been prepared under the historical cost convention, except for financial instruments that have been measured at fair value.

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

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

 New and amended standards adopted by the Group

The Group has applied the following standards, amendment and interpretation for the first time for their annual reporting period commencing 1 January 2018:

· IFRS 15 Revenue from Contracts with Customers - replacing IAS 18 Revenue Recognition. The Group has amended its accounting policies following the adoption of IFRS 15 and has provided additional disclosures, as required, which can be found in note 3. The impact of adopting IFRS 15 has been further explained in note 27.

· IFRS 9 Financial Instruments - replacing IAS 39 Financial Instruments: Recognition and Measurement. The Group has amended its accounting policies and reclassified financial assets and liabilities following the adoption of IFRS 9. The impact of adopting IFRS 9 has been further explained in note 27.

· Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions - the Group has no cash-settled share based payments nor share-based payment transactions settled net of withholding tax. Therefore, these amendments do not have any impact on the Group's Consolidated financial statements.

· Interpretation 22 Foreign Currency Transactions and Advance consideration - this interpretation does not have a material impact on the Group's Consolidated financial statements.

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

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

Certain new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2019, and have not been applied in preparing these Consolidated financial statements. Those which are/may be relevant to the Group and are expected to have a significant effect on the Consolidated financial statements of the Group are set out below.

· IFRS 16 Leases requires that operating leases be capitalised and an asset and a financial liability recognised in respect of those leases.

As a result of the Group's diverse geographic business portfolio, the Group has a significant number of leases which are currently being assessed individually against the requirements of the standard. Therefore the Group is yet to assess the full impact of IFRS 16 on the Consolidated financial statements, however the Group expects EBITDA to increase since the amortisation of the right-of-use assets and interest on the lease liability are excluded from this metric. Operating cash outflows are expected to decrease, and financing cash outflows increase, since the repayment of the principal portion of lease liabilities will be classified as cash flows from financing activities.

The standard will be applied from its mandatory adoption date of 1 January 2019. The Group intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to first adoption.

There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

(b) 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 2018 and present comparative information for the year ended 31 December 2017.

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

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. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. 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. If the Group loses control over a subsidiary, it:

· derecognises the assets (including goodwill) and liabilities of the subsidiary

· derecognises the carrying amount of any non-controlling interests

· derecognises the cumulative translation differences recorded in equity

· recognises the fair value of the consideration received

· recognises the fair value of any investment retained

· recognises any surplus or deficit in the Consolidated Statement of Comprehensive Income

· reclassifies the parent's share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities.

When the Group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may require that the amounts previously recognised in other comprehensive income be reclassified to profit or loss.

(c) Going concern

The Group's forecast and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current and future known finance facilities, as detailed further in note 28 subsequent events. Further, the Directors have sought and received assurance from the Group's major lenders that they will continue to provide financial support beyond the expiry of the existing loan facilities sufficient to enable the Board to conclude that the Group and the Company are going concerns.

Therefore, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Therefore, the Company and the Group continue to adopt the going concern basis in preparing the Consolidated financial statements.

(d) Business combinations

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 interests ('NCI') may be initially measured either at fair value or at the NCI's proportionate share of the recognised amounts of the acquiree's identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Acquisition costs incurred are expensed and included in administrative expenses except for legal costs in relation to the issue of equity instruments, in connection with an acquisition, which are capitalised and net off against share premium.

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.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Any subsequent changes to the fair value of the contingent consideration are adjusted against the cost of the acquisition if they occur within the measurement period of 12 months following the date of acquisition. Any subsequent changes to the fair value of the contingent consideration after the measurement period are recognised in the Consolidated Statement of Comprehensive Income. Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity.

When the Group enters into options and forward contracts over shares relating to NCIs at the same time as the business combination, the NCI is recognised to the extent the risk and rewards of ownership of those shares remain with them.

Irrespective of whether the NCI is recognised, a financial liability (redemption liability) is recorded to reflect the forward or put option. All subsequent changes to the liability are recognised in profit or loss. Where the risks and rewards of ownership remain with the NCIs, the recognised financial liability is a reduction in the controlling interest equity. The NCI is then recognised and is allocated its share of profits and losses accordingly. Where significant risks and rewards of ownership reside with the NCIs, the difference between the financial liability and the NCI balance is debited to controlling interest equity if the liability is greater than the carrying value of the NCI, otherwise the difference is attributed to NCI. Dividends paid to the NCIs that do not reduce the contracted purchase price are deducted from the NCI carrying value. Profits and losses are allocated to NCI to the extent it is necessary to cover the dividend payment so that NCI does not become negative. In those situations, when forward or put options state that dividend payments reduce the contracted future purchase price, then the dividend amount is deducted from the redemption liability.

Transactions with NCIs that do not result in a loss of control are accounted for as equity transactions - that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains and losses on disposal of NCIs are also recorded in equity.

(e) 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 Pounds Sterling, 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 except when deferred in equity as qualifying cash flow and net investment hedges.

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

· income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rate prevailing on the transaction date, in which case income and expenses are translated at the date of the transaction);

· 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.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and from borrowings, are taken to equity. When a foreign operation is sold such exchange differences are recognised in the Consolidated Statement of Comprehensive Income as part of the gain or loss on sale. Goodwill and fair value adjustments on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing exchange rate. Exchange differences arising are recognised in other comprehensive income.

(f) Revenue from contracts with customers

The Group has initially applied IFRS 15 from 1 January 2018. The effect of initially applying IFRS 15 is described in note 27.

Revenue is measured based on the consideration specified in a contract with a customer and represents the fees, commissions and disbursements, net of discounts, derived from services provided to a customer.

Where a contract contains an element of variable consideration, on a contract by contract basis, the amount to be included in the transaction price and recognised in revenue is estimated. Variable consideration typically relates to success fees which are awarded upon achievement of certain performance criteria or milestones. Variable consideration is included in revenue as services are performed only to the extent that it is highly probable that the amount will not be subject to significant reversal when the uncertainty is resolved.

A performance obligation is a distinct service or distinct bundle of services. Many customer contracts include a single performance obligation. However, where a contract has multiple performance obligations, management allocate a proportion of the total transaction price to each obligation. The standalone selling price for each obligation will be determined based on the amount of input expected to be performed to complete each obligation relative to the total expected inputs to satisfy the contract.

Revenue, in relation to each performance obligation, is recognised over time as the services are rendered because there is a continuous transfer of control to the customer. The customer typically controls the work in progress as evidenced by the Group's enforceable right to payment for work completed to date to deliver services that do not have an alternative use to the Group. Revenue is recognised based on the extent of progress towards completion of performance obligations. Progress towards completion is measured using a number of different methods which best depict the transfer of services including recoverable hours performed.

Estimates of revenue and the extent of progress toward completion are revised if circumstances change. Any resulting increases or decreases in estimated revenue are reflected in the Consolidated Statement of Comprehensive Income in the period in which the circumstances that give rise to the revision become known by management. Where the contract outcome cannot be measured reliably, revenue is recognised only to the extent of expenses incurred which are recoverable.

(g) Property, plant and equipment

Property, plant and equipment are stated at cost, net of depreciation and provision for any impairment. Depreciation is calculated to write down the cost of all tangible fixed assets to estimated residual value over their expected useful lives as follows:

Office improvements 5 years, straight line (for leases see accounting policy (u))

Fittings and equipment 5 years, straight line

Computer equipment 3 years, straight line

Motor vehicles 5 years, straight line

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each Consolidated Statement of Financial Position date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount 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 included in the Consolidated Statement of Comprehensive Income.

(h) Intangible assets

Intangible assets comprise goodwill, certain corporate brand names and customer relationships acquired in business combinations, website development costs, software and other licences.

Goodwill represents the excess of fair value attributed to investments in businesses or subsidiary undertakings over the fair value of the underlying net assets, including intangible assets, at the date of their acquisition. Goodwill on acquisition of an entity is included in intangible assets. Gains and losses on disposal of an entity include the carrying amount of goodwill relating to the entity sold.

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

Corporate brand names and customer relationships acquired as part of acquisitions of businesses are capitalised separately from goodwill as intangible assets if their value can be measured reliably on initial recognition and it is probable that the expected future economic benefits that are attributable to the asset will flow to the Group.

Expenditure on website development, software and licences is initially stated at cost.

Amortisation is provided at rates calculated to write off the cost less estimated residual value of each asset, other than goodwill, on a straight-line basis over the estimated life of the asset. Estimated life and estimated residual value are calculated on an asset by asset basis having regard to the nature of the asset, and the cash flows generated, or to be generated, by the asset historically and projected.

Amortisation is calculated to write down the cost of these assets to their estimated residual value over their expected useful lives as follows:

Brands 10 years, straight line

Customer relationships 5 years, straight line

Websites, software and licences 3 years, straight line

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each Consolidated Statement of Financial Position date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount 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 included in the Consolidated Statement of Comprehensive Income.

(i) Impairment of non-current assets

Non-current assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying value exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. Value in use is based on the present value of the future cash flows relating to the asset, and is determined over periods which are deemed to appropriately reflect the minimum expected period that the cash generating unit will operate for. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cashflows (cash generating units). Any impairment loss is immediately recognised as an expense in the Consolidated Statement of Comprehensive Income.

(j) Non-current assets held for sale and discontinued operations

The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Discontinued operations may include abandoned or closed operations which will not meet the held for sale criteria as they are not recovered principally through sale and therefore balance sheet presentation requirements will not be applicable to them.

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the Consolidated Statement of Comprehensive Income.

Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.

(k) Investments

Fixed asset investments in subsidiaries are shown in the Company Statement of Financial Position at cost less any provision for impairment.

Investments in associate entities over which the Group has significant influence are accounted for using the equity method. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control and/or joint control over those policies.

Under the equity method, the investment in an associate is initially recognised at cost and is adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses of the associate in the profit or loss, and the Group's share of movements in other comprehensive income of the associate in other comprehensive income. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment.

The aggregate of the Group's share of profit or loss of an associate is shown on the face of the Consolidated Statement of Comprehensive Income, outside operating profit, and represents profit or loss after tax and non-controlling interest in the subsidiaries of the associates. Where the Group's share of losses equals or exceeds its interest in the entity the Group does not recognise further losses.

At each reporting date, the Group determines whether it is necessary to recognise an impairment loss of its investment in its associates through examination of any objective evidence. The Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value. The impairment of associate is shown on the face of the Consolidated Statement of Comprehensive Income outside operating profit. 

Upon loss of significant influence over the associate, the Group measures and recognises any retained investments at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

(l) Financial instruments

Recognition and initial measurement

Trade receivables are initially recognised when they originate. All other financial assets and financial liabilities 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) or financial liability is initially measured at fair value plus, for an item not at fair value through profit or loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

Classification and subsequent measurement

Financial assets - Policy applicable from 1 January 2018

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

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.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

· it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

· its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment's fair value in OCI. This election is made on an investment-by-investment basis. The Group made this election for the quoted equity shares held at year end.

Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL.

Financial assets - Policy applicable before 1 January 2018

The Group classified its financial assets into one of the following categories:

· loans and receivables - measured at amortised cost using the effective interest method;

· held to maturity - measured at amortised cost using the effective interest method;

· available for sale - measured at fair value and changes therein, other than impairment losses, interest income and foreign currency differences on debt instruments, were recognised in OCI and accumulated in the fair value reserve. When these assets were derecognised, the gain or loss accumulated in equity was reclassified to profit or loss; and

· at fair value through profit or loss - measured at fair value and changes therein, including any interest or dividend income, were recognised in profit or loss.

Impairment of financial assets

From 1 January 2018, the Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables, see note 18 for further details.

Previously, up until 31 December 2017, the Group assessed at the end of each reporting period whether there was objective evidence that a financial asset or group of financial assets was impaired. A financial asset or a group of financial assets was impaired and impairment losses were incurred only if there was objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) had an impact on the estimated future cash flows of the financial asset or group of financial assets that could be reliably estimated. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost was considered an indicator that the assets are impaired.

Financial liabilities - Classification, subsequent measurement and gains and losses

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.

IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. The adoption of IFRS 9 has not had a significant effect on the Group's accounting policies related to financial liabilities.

(m) Contract assets, contract cost assets and contract liabilities

The timing of revenue recognition, invoicing and cash collections result in trade receivables (accounting policy (n)), contract assets and contract liabilities in the Consolidated Statement of Financial Position.

Contract assets, also known as unbilled receivables, relate to the Group's conditional right to consideration for performance completed under a contract. Performance measurement is explained in accounting policy (f). Revenue in respect of this unbilled work is therefore included as a contract asset at the end of the period. The Group's right to consideration is usually conditional upon completion of further performance obligations or the raising of an invoice. The contract assets are transferred to receivables when the right to consideration becomes unconditional.

Contract cost assets comprise of costs incurred to fulfil a contract and costs incurred to obtain a contract. Costs incurred to fulfil a contract are recognised as an asset where the costs relate directly to a contract, are incremental and are expected to be recovered. These costs include outlays incurred on behalf of a customer and are recognised as an asset when the third-party costs are incurred. The asset is amortised when the cost is billed to the customer, consistent with the pattern of the recognition of the associated revenue. A provision is made for irrecoverable costs where it is probable that such costs will not be recovered from future billing.

Contract liabilities consist of income billed in advance of the performance of services and are recognised as revenue as the contract obligations are performed.

Amounts are billed in accordance with agreed-upon contractual terms, either at periodic intervals (e.g. monthly) or upon achievement of contractual milestones. Billing can either occur subsequent to revenue recognition, resulting in contract assets or payments can be received in advance from customers, before revenue is recognised, resulting in contract liabilities. On occasion advanced payments from customers are received upon contract execution and then upon achievement of contractual milestones.

(n) Trade receivables

Trade receivables relate to contracts with customers and are recognised when the right to consideration is unconditional except for the passage of time. These are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less any provision for impairment. See accounting policy (l) for details on the impairment methodology. Any change in the provision for impairment of trade receivables and contract assets (see accounting policy (m)) are presented as net impairment losses within operating profit. Trade receivables and contract assets are written off when there is no reasonable expectation of recovery. Subsequent recoveries of amounts previously written off are credited against the same line item.

(o) Cash and cash equivalents

In the Consolidated Statement of Cash Flows, cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. In the Consolidated Statement of Financial Position, bank overdrafts and loans repayable within one year are shown within loans and borrowings in current liabilities.

(p) Trade payables

Trade payables are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

(q) Borrowings and compound instruments

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any differences between the proceeds (net of transaction costs) and the redemption value is recognised in the Consolidated Statement of Comprehensive Income over the period of the borrowings using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs. In cases where these costs are settled at the time of the borrowing maturity and was added to the principal subject to an additional interest charge, this fee is capitalised as prepayment for liquidity services and amortised over the period of the facility to which it relates.