TIDMSECG

RNS Number : 6052O

SEC Newgate S.p.A.

02 June 2020

SEC Newgate S.p.A.

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

Audited results for the year ended 31 December 2019

and

Notice of AGM

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

2019 Highlights

   --      Revenues for the combined Group were EUR47.55 million (FY2018: EUR28.97 million)* 
   --      Gross profit EUR37.6 million (FY 2018: EUR22.2 million)* 
   --      Profit Before Tax EUR1.27 million (FY 2018: EUR2.21 million)* 
   --      Net debt EUR8.7 million (FY 2018: EUR1.7 million)* 
   --      Completed merger of SEC S.p.A and Porta Communications Plc in September 2019 

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

   --      Group three-year Strategic Plan announced in November 2019 

-- New committed banking facility of EUR3m secured with Deutsche Bank S.p.A. on preferable terms and no financial covenants reflecting the improved financial stability of the Group

   --      Annualised cost savings of EUR0.5m achieved following merger 
   --      Acquired a further 5% of the equity in Newgate Greater China 
   --      Established a new office in Morocco under the brand Cambre Maroc 

Post Year End Highlights

-- EUR2.5 million convertible bond with the Spanish institutional investor Inveready, secured in February 2020

   --      Appointment of Sergio Penna as Group Financial Officer, effective 1 June 2020 
   --      Q1 2020 profits ahead of budget 

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

John Foley, Chairman, commented:

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

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

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

Fiorenzo Tagliabue, Group Chief Executive, further commented:

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

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

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

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

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

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

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

- ends -

For further information please contact:

 
 SEC Newgate S.p.A. 
 Fiorenzo Tagliabue (Group CEO)        Tel: +39 335 6008858 
                                        tagliabue@secrp.com 
 Emma Kane (Deputy Group CEO,          Tel: +44 (0) 7876 338339 
  CEO Newgate Communications UK)        emma.kane@newgatecomms.com 
 Federico Vecchio (Group CFO)          Tel: +44 (0) 20 7680 6500 
                                        federico.vecchio@secnewgate.co 
                                        m 
 
   Arden Partners (Nominated Adviser 
   and Broker) 
 Richard Johnson / Benjamin Cryer      Tel: +44 207 614 5900 
 

Notes to Editors about SEC Newgate

   --      Further information is available at   www.secnewgate.com 

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

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

Chairman's statement

For the year ended 31 December 2019

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

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

Financial and Operational Overview

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

 
                                2019       2018 
-------------------------  ---------  --------- 
                            EUR' 000   EUR' 000 
-------------------------  ---------  --------- 
 Revenues                     47,550     28,972 
 Gross profit                 37,605     22,192 
 Operating profit              1,812      2,309 
 Profit before Tax             1,271      2,211 
 Net debt (excl. leases)       8,740      1,743 
-------------------------  ---------  --------- 
 
   --    As at 31 December 2019, the Group's net debt was EUR8.7m 
   --    Annualised cost savings of EUR0.5m achieved within first four months following merger 

-- New committed banking facility of EUR3m secured with Deutsche Bank S.p.A. to replace Revolving Credit Facility with Clydesdale Bank to Porta Communications in 2017; the new facility has preferable terms and no financial covenants reflecting the improved financial stability of the Group

Strategy

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

   --    Improved profitability and strengthening of the balance sheet 
   --    Cultural integration and harmonisation of SEC and Porta organisations, now SEC Newgate 
   --    Raising of the Group's visibility and reputation worldwide 

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

   --    Implementing incentives and reward schemes to retain key talent 

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

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

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

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

Acquisitions & Disposals

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

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

Markets and the Environment

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

Board Changes

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

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

People

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

Post Balance Sheet Events

On 25 February 2020, SEC Newgate secured a EUR2.5 million convertible bond with the Spanish institutional investor Inveready which was subscribed on 4 March 2020. Additionally, the subscription of another EUR1 million facility with a leading Italian bank in February 2020 and the refinancing of Clydesdale facility in December 2019, the Group has committed banking facilities available with maintainable covenants and continues to enjoy excellent relationships with its lenders to support the Group through this difficult period.

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

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

Outlook

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

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

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

John Foley

Chairman

28 May 2020

Group Chief Executive's Review

For the year ended 31 December 2019

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

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

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

Covid-19 outbreak and our business

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

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

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

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

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

2019: preparing for the future of our new Group

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

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

   --    Drafting a three-year strategic plan for the years 2020-2022 
   --    Identifying all synergies and savings to be implemented within the shortest timeframe 

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

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

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

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

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

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

A distinctive business model

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

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

   --    The Artificial intelligence platform in Milan 
   --    The new release of the "EUessential" app in Brussels 
   --    The rollout of Australia's Newgate Research business into the UK and Europe 

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

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

   --    The commencement of a Group marketing plan 
   --    Growth in inter-company business and cross-selling 
   --    Raising awareness among larger potential clients at a global level 

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

Post Balance Sheet Events

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

   --    Restructuring its EUR3 million debt facility with Unicredit Bank 

-- Negotiating a new loan facility with BPM Bank, an Italian Financial institution, that is worth EUR1 million

-- On 25 February 2020, SEC Newgate secured a EUR2.5 million convertible bond with Inveready Convertible Finance Capital I FCR with a maturity of seven years from issuance, with interest payable quarterly at 3.50%

Outlook

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

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

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

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

Asia Pacific - Deputy Group CEO, Brian Tyson

Australia - Newgate

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

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

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

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

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

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

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

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

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

Greater China - Newgate

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

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

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

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

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

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

Singapore - Newgate

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

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

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

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

Abu Dhabi - Newgate

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

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

Belgium and EU - Cambre

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

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

France - CLAI

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

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

Germany - Kohl PR

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

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

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

Italy

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

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

2019 was also a crucial year with respect to the finalization of our Artificial Intelligence based proprietary tool to deliver new to market applications for reputation and advocacy services. Closing a very time-consuming project initiated nearly two years ago, and with an investment of nearly EUR1.5 million, we ended 2019 ready to pre-market test the first applications at the beginning on 2020.

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

Morocco

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

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

Poland - Martis Consulting

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

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

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

Spain - ACH

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

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

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

Colombia - SEC Newgate Colombia

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

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

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

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

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

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

United Kingdom

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

Newgate Communications

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

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

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

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

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

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

Newington Communications

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

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

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

2112

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

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

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

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

Group Chief Financial Officer's Review

For the year ended 31 December 2019

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

Following the merger, we have immediately focused on aligning reporting procedures throughout the enlarged Group and have worked towards achieving savings, especially with regards to the UK business and its headquarters, where, after the merger, EUR0.5m of net annualised costs were removed. Moreover, thanks to the restructuring, even before the merger, of the UK companies during 2019 (which led to EUR0.8m of net savings related to employment and other operating expenses), these entities were able to join SEC Newgate with a much stronger and more profitable position.

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

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

Key financials

   --    Gross profit was EUR37.6m (2018: EUR22.2m) 
   --    Operating profit was EUR1.8m (2018: EUR2.3m) 
   --    PBT was EUR1.3m (2018: EUR2.2m) 

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

Gross profit was up by c. EUR15.4m with the increase mainly attributable to the following:

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

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

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

Employee expenses were up both in absolute terms (by c. EUR10.8m, EUR8.8 of which related to the consolidation of Porta entities) and in relative terms when compared to GP (by 6%). This increase was partially due to the fact that on average former Porta entities had a much higher employee expense to GP ratio (c. 78%, including however some ceasing expenses as described in the section "Subsidiaries Restructuring") compared to SEC companies (c. 56%). In terms of total staff, the Group employed 592 people at the end of 2019 (327 at the end of 2018).

Service costs were up by EUR2.2.m (33%) even though this class of costs has been impacted by the implementation of IFRS 16 which has seen a decrease in rental expenses (since the long-term lease effect is now allocated to depreciation and interest expenses). Most of the increase in service costs is attributable to an increase in overhead expenses (which include items such as utilities, marketing expenses and staff travel) which increased by almost EUR2.3m in 2019. Also, other operating costs (which include, among the others, listing costs and software licences costs) have increased in 2019 by c. EUR1.0m.

Whilst amortisation of intangibles was in line with 2018 (EUR0.1m), depreciation was EUR1.9m higher than in 2018 mainly due to the implementation of IFRS 16. After performing impairment tests on each of our subsidiaries, we concluded that no impairment or write-off was needed.

Finance expenses were up in the year; however c. EUR0.5m of this increase was as a result of the implementation of IFRS 16. The other main reasons were a net loss on foreign exchange movements by c. EUR0.1m and an increase in Group financial debts (part of which was as a result of the merger). As part of the merger, there was a deed of variation with Hawk in relation to the deep discounted bond granted to Porta Communications extending the redemption date referred to in the bond from 14 April 2021 to 14 April 2023 and, as a consequence, to increase the nominal value of the Hawk Bond to GBP4.8m. Whilst this reduced the implied interest rate from 8% to 6% per annum the interest incurred on this bond is now consolidated within the Group's results. Moreover, in December 2019, SEC Newgate signed a new four-year EUR3.0m banking facility with Deutsche Bank S.p.A. which was used to replace the Revolving Credit Facility provided by Clydesdale Bank to Porta Communications Plc in 2017. There has been a significant saving in terms of interest expenses since the new facility has an interest rate of 3-month 1.70%+EURIBOR (while Clydesdale RCF had an interest rate of 3.85%+LIBOR). As a consequence of the comments highlighted above, the Group PBT in 2019 decreased to EUR1.3m (40% fall on 2018).

Also the total comprehensive income for the year, due to the items above and also due to losses on investments held at fair value (as a result of the revaluation of Porta Communications shares held by SEC before the merger) and losses on exchange rates movements, registered a decrease of c. EUR0.8m.

Subsidiaries restructuring

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

Among these subsidiaries includes Newgate Communications in the UK, which has undergone significant restructuring, started in 2018 (when the merger between Newgate Communications, Redleaf and Publicasity happened) and completed towards the end of 2019. In terms of net annualised savings for this company (related to staff costs, one-off expenses and other operating expenses), management has been able to save c. EUR0.8m in 2019, which, combined with the net annualised savings realised in 2018 (c. EUR2.9m), brings the total figure over the last two years to EUR3.7m.

2112, another UK subsidiary, has substantially completed its restructuring process, which has been an ongoing activity which started at the end of 2016. In particular, the company has completely reshuffled its management team and reduced its staff numbers from 44 to 28, which has led to a net annualised saving at the end of 2019 (compared to 2016 when the process started) equal to c. EUR0.6m while focusing on maintaining a constant level of fees.

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

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

Post-merger, Porta Communications has also undergone the first phase of its restructuring process, which led to net annualised savings of c. EUR0.45m. Management has decided to simplify the operations and activities of this company and this ongoing process, which will continue into 2020, has the clear goal to turn Porta Communications into a purely centralised finance function for the enlarged Group.

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

Group finance operations

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

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

Net debt

Following the merger in September 2019, the Group's debt position has reached a considerable level (c. EUR8.7m of net debt as at 31 December 2019), even though a relevant portion (GBP5.3m) of former Porta group's debt has been converted in shares upon completion of the merger.

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

The increase in debt outstanding, part of which, as explained above, was linked to the high level of Porta's net debt pre-merger, caused a negative net debt impact of EUR7.0m. From a total capital perspective, the merger and the movement in retained earnings in the year have resulted in an increase of c. 65% of total equity, which when taken in conjunction with the net debt movement, has caused the Group's debt to equity ratio to increase from 0.1 in 2018 to 0.4 at the end of 2019.

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

Post Balance Sheet Events

On 25 February 2020 SEC Newgate secured a EUR2.5 million convertible bond which was subscribed on 4 March 2020 by Inveready Convertible Finance Capital I FCR and Inveready Convertible Finance Capital SCR S.A., each a fund set up or managed by Inveready Asset Management S.G.E.I.C., S.A ("Inveready").

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

The convertible bond has a maturity of seven years from issuance, with interest payable quarterly at 3.50%. The bond, which has been issued as 25 bonds with a nominal value of EUR100,000 each and are freely transferable, may be converted (at a conversion price of approximately 55 pence per SEC Newgate share) starting from the 3rd anniversary from the issuance. If the conversion of any of the bonds does not occur prior to maturity, an additional non-conversion fee is payable by SEC Newgate equivalent to a 2.5% annual return on top of the interest paid.

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

As highlighted above, the Group has the benefit of the recently issued EUR2.5m Convertible Bond, together with available committed banking facilities, with maintainable covenants, and good relationships with its lenders, as highlighted by the new EUR3m four-year banking facility with Deutsche Bank S.p.A. announced in December 2019, to support the Group through this difficult time.

Conclusion

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

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

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

Federico Vecchio

Group CFO

28 May 2020

Corporate Governance Statement

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

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

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

Principal Risks and Uncertainties

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

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

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

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

 
 Level   Risk description     Potential impact                                                  Key mitigations 
 of 
 risk 
        ===================  ================================================================ 
 Acquisitions and disposals (strategic risk) 
         The Group acquires 
         companies which            *    Reputational damage                                          *    The Group's focus is both on organic growth and 
         are not                                                                                           acquisitions. In the event of a new acquisition, 
         complementary                                                                                     rigorous internal and external due diligence would be 
         and/or result              *    Negative impact on the Group's financial performance              performed on the company and its market in order to 
         in a negative                                                                                     identify potential risks and to ensure the 
         impact to the                                                                                     acquisition is complementary and in markets where the 
         Group once                 *    Additional support and funding being required                     Group is currently not present or underperforming 
         integrated 
 
         Potential strain           *    Unable to raise sufficient funds for the acquisition         *    Where a new service of integrated offering is 
    3    on the Group's                                                                                    required, the Group would initially look to hire key 
         financial                                                                                         staff and to develop the service internally before 
         resources                  *    Diversion of management resources whilst integrating              considering the acquisition of an external company 
         as a result                     new subsidiaries 
         of acquisitions 
                                                                                                      *    Earn-out mechanisms will be used in the majority of 
         Companies are              *    Loss of clients and negative impact on revenue and                future acquisitions made by the Group in order to 
         disposed of,                    profitability due to disposal                                     reduce cash tensions 
         leaving the 
         Group exposed 
         to gaps in its                                                                               *    Only non-core or risk exposed companies would be 
         service offering                                                                                  considered for sale, and only done so after careful 
                                                                                                           analysis as to the impact of divestment 
        ===================  ================================================================  ======================================================================= 
 Management of growth (strategic risk) 
         The Group is 
          unable to support        *    Hiring decisions that lead to the recruitment of          *    Processes and systems in place to help identify need 
          the growth areas              staff misaligned with strategy or ahead of revenue             and fulfilment of resource 
          of the business 
          sufficiently, 
    3     through either           *    Staff leave through lack of support and/or resources      *    The production and monitoring of budgets against 
          lack of funds,                                                                               performance and hiring plans 
          resources or 
          focus                    *    Incur unnecessary costs 
                                                                                                  *    Targeted and specific staff training 
 
                                   *    Required systems and processes aren't in place 
                                        leading to inefficiencies and inaccurate information      *    Systems implemented to support staff in maintaining 
                                        reported to management                                         visibility on key metrics 
 
 
                                                                                                  *    Company and Group KPIs monitored by Executive 
                                                                                                       Directors on a monthly and, where possible, weekly 
                                                                                                       basis 
        ===================  ================================================================  ======================================================================= 
 New markets and channels of service offering (strategic risk) 
         New market and/or 
         channel of service     *    Negative impact on Group profitability and cash flows        *    Fully research and market test any new services 
         offering isn't                                                                                before formally launching 
         sufficiently 
         understood or          *    Negative impact on integrated offering 
         researched prior                                                                         *    The Board pursues a strategy of organic growth in 
         to entry                                                                                      existing companies 
    2                           *    Reputational and brand damage 
         Achieving lower 
         than expected                                                                            *    Any entry into a new market would be with the support 
         revenues and/or                                                                               of local expertise 
         higher costs 
         and resource 
         requirements                                                                             *    Use of qualified and experienced advisers where 
         when setting                                                                                  necessary 
         up new operations 
 
         A new offering                                                                           *    Continuously assess performance in new markets and 
         doesn't gain                                                                                  the related opportunities and risks 
         sufficient 
         traction, 
         is loss making 
         or not 
         complementary 
         to other Group 
         services 
        ===================  ================================================================  ======================================================================= 
 Future funding and existing debt (strategic risk) 
         The Group net 
    4     debt position         *    Unattractive for subordinated debt or equity funding             *    Executive Directors closely monitor net debt position 
          increases at                                                                                     and continue negotiations with lenders 
          a rate in excess 
          of the Group's        *    Creates a problematic platform from which to grow 
          performance                                                                                 *    Closely manage costs so to de-risk the Group creating 
                                                                                                           a more manageable platform from which to drive 
                                *    Working capital diverted to interest payments                         profitability 
 
 
                                *    Difficult to find further funding at a competitive               *    Improve the internal structure and strategic 
                                     rate or without restrictive covenants                                 direction of the business to make it more investable 
 
 
                                                                                                      *    Where further financing is required, the Board looks 
                                                                                                           to achieve this in a manner that is best suited to 
                                                                                                           the Group and shareholders 
        ===================  ================================================================  ======================================================================= 
 Restructuring activities (strategic risk) 
         Business units, 
         teams or               *    Incorrect decisions are made in the restructuring                *    The Group performs ongoing detailed analysis of 
    2    individuals                 process causing a negative impact on revenues and/or                  companies, business units and individuals' 
         deemed not to               staff morale, as well as incurring unnecessary                        performance against approved budgets and KPIs 
         be adequately               additional costs 
         supporting their 
         cost base are                                                                                *    Any restructurings undertaken are signed off by the 
         exited from                                                                                       Group and/or company boards after detailed 
         the business                                                                                      discussions and presentation of analysis and with the 
         without sufficient                                                                                support of external consultants where necessary 
         analysis being 
         undertaken 
                                                                                                      *    Group seeks to remain fair towards all members of 
                                                                                                           staff affected by the changes through transparent and 
                                                                                                           regular consultation 
        ===================  ================================================================  ======================================================================= 
 Overseas operation (strategic and economic risk) 
         A significant 
         proportion of          *    The occurrence of war, public disorder, economic             *    SEC Newgate maintains a balanced portfolio in terms 
         the Group's                 sanctions, terrorism and local or national strikes or             of geographical locations to minimise the impact on 
    3    revenues is                 labour unrest in any of the overseas locations in                 the Group's overall results 
         generated                   which the Group operates may disrupt or permanently 
         overseas.                   prevent the Group from operating in these locations 
         The Group's                 or from recovering its investment in whole or in part        *    Group performs a thorough analysis of economic, 
         business is                                                                                   political and social conditions before entering new 
         therefore                                                                                     markets to minimise any unexpected turmoil 
         susceptible 
         to adverse changes 
         in local and 
         regional economic, 
         political and 
         social conditions 
         as well as the 
         policies of 
         the relevant 
         government, 
         including changes 
         in laws and 
         regulations, 
         taxation and 
         the imposition 
         of restrictions 
         on currency 
         conversion 
        ===================  ================================================================  ======================================================================= 
 Global economic trends and political instability (economic risk) 
         Local and 
         political              *    A reduction in new client contracts                          *    The Group disperses its risk and reliance on any 
         landscape causes                                                                              particular economic environment through a wide and 
         a slowdown in                                                                                 diverse client base in both industry and geography 
         client spending        *    Resource heavy procurement processes 
 
    4    In 2020                                                                                  *    Significant political events have been factored into 
         particularly,          *    Margin pressure                                                   2020 budgets and company strategies have been 
         Brexit in the                                                                                 re-focussed as a result 
         UK, the political 
         tensions in            *    Regulatory changes 
         the Middle East                                                                          *    The Group and subsidiary boards monitor new business 
         and the trade                                                                                 wins/losses and track committed fees and new business 
         war between            *    New tax and other legislation                                     pipeline against budgets on a monthly and, where 
         the USA and                                                                                   possible, a weekly basis and manage expenditure 
         China could                                                                                   accordingly 
         contribute to          *    Fall in market confidence 
         significant 
         uncertainty 
         in key markets 
         for the Group                                                                            *    The Group has business continuity plans in place 
 
         Covid-19 
         The pandemic                                                                             *    All employees are able to work remotely 
         which impacted         *    A reduction in client contracts 
         businesses and 
         their employees                                                                          *    All discretionary spend cancelled 
         around the world       *    A reduction in new client contracts 
 
                                                                                                  *    All government schemes accessed where appropriate 
                                *    Fall in market confidence 
 
 
                                *    Significant disruption to operations 
        ===================  ================================================================  ======================================================================= 
 Client dependency (economic risk) 
         That the Group, 
         or any subsidiary,         *    Loss of a client materially impacts overall                  *    The Group performs weekly reviews of new business 
         is overly                       profitability                                                     wins/losses across all Group companies which 
         dependent                                                                                         highlights any client dependencies 
         upon fees from 
         a single client            *    Company becomes too focussed or specialised in a 
    2                                    single industry                                              *    Systems have been put in place to enable staff to 
                                                                                                           monitor profitability, servicing and staffing of 
                                                                                                           clients 
                                    *    The client monopolises company resources 
 
                                                                                                      *    Continued diversification of industry expertise 
                                                                                                           across the Group resulting in specialisms but no 
                                                                                                           reliance on a single sector 
 
 
                                                                                                      *    No single client represents more than 5% of the 
                                                                                                           Group's total Gross Profit 
        ===================  ================================================================  ======================================================================= 
 Competition (economic risk) 
         The Group may 
         face significant       *    Lower margins and profitability                              *    The Group provides tailored and highly value-added 
    2    competition                                                                                   services in order to minimise the pricing competition 
         from both domestic                                                                            from bigger players 
         and international      *    Loss of key employees and/or clients 
         competitors 
         who have greater                                                                         *    SEC Newgate focuses on retaining employees and is 
         capital, greater       *    Inability to provide appealing services                           constantly committed to enhancing retention by 
         resources and                                                                                 employing the key mitigations discussed below under 
         superior brand                                                                                the retention of key employees risk 
         recognition 
         and who may 
         be able to provide                                                                       *    The Group focuses on anticipating major trends in the 
         better services,                                                                              industry and on being among the first players in the 
         adopt more                                                                                    industry to invest in new services and technologies 
         aggressive                                                                                    (evidenced by the investment and development of its 
         pricing policies                                                                              AI platform) 
         or pay higher 
         prices to acquire 
         businesses and 
         resources. There 
         is no assurance 
         that the Group 
         will be able 
         to compete 
         successfully 
         in such an 
         environment 
        ===================  ================================================================  ======================================================================= 
 Revenue growth and profitability (economic and operational risk) 
         The Group cannot 
          guarantee that        *    Fluctuation of operating results as a result of a                      *    The Group has budgeting and reforecasting processes 
    3     it will be able            number of factors, many of which are beyond Group's                         in place and continually monitors expectations 
          to achieve or              control (growth rate of markets in which the Group                          highlighting any cost control or financing needs 
          sustain revenue            operates, market acceptance of and demand of its 
          growth and/or              services and products and those of its customers, 
          profitability              problems in the introduction of its services or                        *    As soon as results, and especially fees, appear to be 
          in the future              products)                                                                   lower than budgeted, Group and local management 
                                                                                                                 immediately implements specific actions in order to 
                                                                                                                 drive business (for instance encouraging new pitches, 
                                *    Requirement of additional working capital and                               training and hiring of new staff) and, when necessary 
                                     financing in the medium term, which may not be                        , 
                                     available on attractive terms or at all                                     reviews the cost structure in order to minimise the 
                                                                                                                 impact on Group's profitability 
        ===================  ================================================================  ======================================================================= 
 Attraction and retention of key employees (operational risk) 
         The key to a 
         Group of               *    High staff turnover impacting client service                     *    Recruit senior management and staff of the highest 
         communications,                                                                                   quality through a robust and thorough process, and 
    3    marketing and                                                                                     remunerate them accordingly and, where possible, 
         advertising            *    Additional unplanned cost and time incurred to                        succession plans are developed in advance 
         businesses is               replace staff 
         its employees. 
         An inability                                                                                 *    Create an ethos of being "proud to work for" the 
         to successfully        *    Competitors benefit through staff moving                              Group 
         attract and/or 
         retain key staff 
         is therefore           *    Loss of key staff-client relationships and resulting             *    Promotion opportunities and long-term career plans 
         fundamental                 impact on revenue                                                     are available 
         to the Group's 
         longevity 
                                *    Loss of key skills, knowledge and expertise                      *    Continued review of all employment benefits and 
                                                                                                           training and development needs 
 
 
                                                                                                      *    Mental and physical health is taken seriously, with 
                                                                                                           appropriate resources and processes in place to 
                                                                                                           monitor and address any issues accordingly 
        ===================  ================================================================  ======================================================================= 
 Working capital (operational risk) 
         Poor or delayed 
          cash collections      *    Reduced liquidity                                            *    Ensure strict credit terms as part of contract 
    3     from clients                                                                                 negotiations and agree advanced billing terms 
                                                                                                       whenever possible 
          Rapid organic         *    Working capital shortfalls in the short-term 
          growth at Group 
          or subsidiary                                                                           *    Strong credit control processes are in place with 
          level leading         *    Difficulty in maintaining supplier terms                          dedicated credit controllers 
          to the tying 
          up of working 
          capital               *    Breach bank covenants                                        *    The Group monitors and manages cash flow on a weekly 
                                                                                                       basis and for some of the subsidiaries a 13-week 
                                                                                                       rolling forecast is performed and submitted on a 
                                                                                                       weekly basis. Where potential shortfalls are 
                                                                                                       identified, the Group will work with the relevant 
                                                                                                       finance team to help ensure sufficient funds are 
                                                                                                       available 
        ===================  ================================================================  ======================================================================= 
 Reliance on subcontractors (operational risk) 
         The Group utilises 
         subcontractors            *    Non-performance may result in time and/or cost            *    Group minimises reliance on subcontractors by 
    2    on a                           over-runs on projects reducing expected margins                utilising internal staff where possible and by hiring 
         project-by-project                                                                            full time employees as replacements where feasible 
         basis to meet 
         its contractual           *    Reputational damage which could lead to client and/or 
         obligations.                   staff losses                                              *    Subcontractors are carefully selected (in most cases 
         Such projects                                                                                 through tender processes) with their performance 
         rely on                                                                                       being periodically reviewed 
         subcontractors 
         to perform in 
         a timely manner 
         and in line 
         with the project's 
         performance 
         obligations. 
         There is a risk 
         of this not 
         being met 
        ===================  ================================================================  ======================================================================= 
 Timing of large contracts (operational risk) 
         The Group's 
         revenues are              *    Material fluctuations in actual results compared with     *    The Group constantly monitors its project pipeline in 
    2    generated from                 expectations                                                   order to avoid an excessive reliance on large 
         a mix of longer                                                                               projects 
         and shorter 
         lead time orders          *    Adverse impact on cash collectability, profitability 
                                        and staff utilisation                                     *    Periodic assessment of internal resources to assess 
         The timing of                                                                                 capacity within teams, bringing work forwards where 
         order placement                                                                               possible during quiet periods, and alternatively 
         and delivery              *    Employees being overworked to meet demands impacting           using subcontractors during busy periods 
         of the larger                  staff welfare and potential reputational damage if 
         orders are                     performance is poor 
         inherently 
         difficult to 
         predict; hence            *    Alternatively, a loss of clients due to internal 
         the Group may                  capacity not being able to satisfy demands 
         experience 
         downtime 
         between orders 
         and/or receive 
         an abundance 
         of orders at 
         once 
        ===================  ================================================================  ======================================================================= 
 Information systems (IT) and data security (operational and business 
  risks) 
         The Group's 
         business               *    Delays to client work and compromise to client               *    Third party IT specialists, monitored by internal 
         operations,                 relationships                                                     resources maintain Group IT systems 
    3    like most other 
         businesses, 
         are highly             *    Opportunity for potential fraud                              *    Business and IT disaster recovery plans exist in each 
         dependent                                                                                     company and are tested frequently to minimise any 
         upon IT.                                                                                      disruption in the event of an IT failure 
         Therefore,             *    Data loss 
         any IT failure 
         could present                                                                            *    Anti-malware and other IT security software is used 
         a considerable         *    Confidentiality breaches                                          to prevent cyberattacks and computer viruses. This 
         risk                                                                                          software is constantly updated and tested 
 
         Access to 
         confidential                                                                             *    Staff training is provided, and IT updates 
         information                                                                                   communicated to staff 
         due to inadequate 
         security of 
         data by                                                                                  *    Access to data is restricted internally on a person 
         unauthorised                                                                                  by person basis as appropriate 
         persons either 
         internally or 
         externally 
        ===================  ================================================================  ======================================================================= 
 Failure to maintain an acceptable standard of business ethics (business 
  risk) 
         The Group engaging 
         in actual or              *    External reputational damage which could affect               *    New business opportunities are shared with all, 
         perceived                      future and existing client relationships                           creating a culture of openness and transparency 
    2    unethical 
         client work 
                                   *    Staff dissatisfaction if clients' work is not aligned         *    Code of Business Conduct and Ethics is communicated 
         Staff violating                with their personal ethics                                         to all employees, in addition to having appropriate 
         the Group's                                                                                       training programmes in place 
         Code of Business 
         Conduct and 
         Ethics                                                                                       *    Confidential communication channels to management or 
                                                                                                           Group HR are in place to support staff reporting 
                                                                                                           violations 
 
 
                                                                                                      *    Any perception or questions over ethical standards in 
                                                                                                           relation to potential client work or behaviour is 
                                                                                                           immediately raised to the relevant company board, and 
                                                                                                           if deemed relevant, the Group board also 
        ===================  ================================================================  ======================================================================= 
 Legal and regulatory compliance (compliance risk) 
         The risk of 
         breaching an           *    Penalties and fines                                                     *    External legal counsel in each country is sought as 
    2    Italian, UK                                                                                              necessary 
         or international 
         law, AIM listing       *    Reputational damage which could lead to client and/or 
         rule or any                 staff losses                                                            *    A SEC Newgate staff hand-book and share dealing code 
         regulatory rules                                                                                         is in place and is communicated to all staff 
         to which the 
         Group, or any 
         of its                                                                                              *    Regular staff training is provided 
         subsidiaries, 
         must adhere 
         to                                                                                                  *    Nominated advisors are consulted with respect to any 
                                                                                                                  actions taken which are regulated by the AIM listing 
                                                                                                                  rules 
        ===================  ================================================================  ======================================================================= 
 

Financial risk management

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

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

Company information

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

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

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

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

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

Opinion

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

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

In our opinion:

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

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

Basis for opinion

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

Use of our report

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

Conclusions relating to going concern

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

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

statements is not appropriate; or

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

Key audit matters

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

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

 
Key audit matter                                  How we addressed the matter in our 
                                                   audit 
---------------------------------------------  -------------------------------------------- 
Revenues 
 See accounting policy in note G, and 
 Revenues note (note 3).                            Our procedures included reviewing 
 We considered there to be a significant            the group's adopted revenue recognition 
 audit risk arising from inappropriate              policy to ensure that it complies 
 or incorrect recognition of revenue,               with accounting standards and has 
 including relating to management override,         been consistently applied throughout 
 appropriate application of agent verses            the year giving particular attention 
 principal accounting, cut-off of revenue           to IFRS 15. 
 transactions at the year end and whether           We tested material revenue transactions 
 the accounting policy is not aligned               recorded near the end of the year 
 with IFRS. Furthermore, the presumed               and subsequent to the year end to 
 risk of improper recognition of revenue            confirm appropriate recognition in 
 due to fraud has also been identified              the year under audit. 
 as a significant risk.                             We selected a sample of key contracts 
 Revenue recognition is one of the                  for testing. We assessed whether 
 primary focuses of the engagement                  the revenue recognised was in line 
 team. Due to this focus, revenue recognition       with the contractual terms, the group's 
 is considered to be a key audit                    revenue recognition policy and the 
 matter.                                            relevant accounting standards. 
 
 
Impairment of goodwill                             Our audit procedures over the impairment 
 See accounting policy in note H, and               of goodwill included general procedures 
 the Intangibles Assets note (note                  on the methodology adopted and the 
 11).                                               related controls, in addition to 
 The group has material intangible                  substantive testing: 
 assets, mainly goodwill, arising from              General procedures included, but 
 acquisitions as part of business combinations.     were not limited to: 
 The group has determined that the                   *    review of the methodology used by the Directors for 
 single subsidiaries that generated                       the impairment review, and 
 goodwill are a single cash generating 
 unit. 
 We considered there to be a significant             *    consideration of the review and approval processes 
 audit risk arising in relation to                        adopted. 
 the accuracy and valuation of all 
 intangibles. 
 The group is required to assess, at                Substantive procedures included, 
 each reporting date, such assessment               but were not limited to: 
 should include consideration of information         *    review of the financial projections underpinning the 
 from both internal and external sources.                 impairment review, including consideration of the key 
 Further, notwithstanding whether indicators              assumptions on revenue and cost, and the discount 
 exist, the recoverability of Goodwill                    rate used; 
 and intangible assets with indefinite 
 useful lives are required to be tested 
 at least annually.                                  *    testing, on a sample basis the calculations; 
 Due to the inherent uncertainty involved 
 in forecasting and discounting future 
 cash flows, we therefore identified                 *    sensitivity analysis. 
 the impairment of goodwill as a Key 
 audit matter. 
 
                                                    We also evaluated the Group's disclosures 
                                                    relating to its evaluation of impairment 
                                                    indicators and the annual impairment 
                                                    testing as provided in "Note 11 
                                                    - Intangible assets". 
-----------------------------------------------  ------------------------------------------------------------------- 
Business Combination                                    Our audit procedures regarding the 
 See accounting policy in note E and                     business combination included: 
 H, and the Intangibles Assets note                       *    analysis of all the relevant documents about the 
 (note 11)                                                     transaction; 
 The management reported that in September 
 2019 SEC Newgate ("SEC"), who previously 
 held 16,9% of Porta Communication                        *    discussions with the company's management regarding 
 PLC (*Porta"), purchased the remaining                        the valuation methods used to determine the fair 
 share capital resulting in 100% of                            value of the net assets transferred; 
 Porta. As a result, SEC Newgate, also 
 indirectly controls the subsidiaries 
 of Porta which have been consolidate                     *    assessment of the valuation methods used by the 
 at the year end.                                              company to identify the fair value of the net assets 
 As said by the management of the group,                       transferred; 
 the consideration transferred consists 
 entirely of SEC issuing equity interests 
 to Porta shareholders calculated at                      *    the analysis of the transaction's accounting 
 the fair value of the SEC equity interests                    treatment and of the related notes as required by 
 transferred. On 3 September 2019,                             IFRS 3; 
 n. 420.810.829 Porta shares were exchanged 
 at a rate of 88.495 into n. 4.755.162 
 new SEC shares as well as                                *    check on the adequacy and appropriateness of the 
 n. 5.993.212 SEC shares being issued                          information provided in the Notes to the Consolidated 
 to Retro Grand Limited ("RGL"), a                             Financial Statements. 
 shareholder of Porta, following the 
 conversion of a convertible loan currently 
 owned by RGL. In total, n. 10.748.374 
 SEC shares were issued as a result 
 of the acquisition at a fair value 
 of Euro 1,0174 per share. 
 

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

Our application of materiality

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

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

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

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

An overview of the scope of our audit

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

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

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

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

Summary of audit scope

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

Other information

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

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

Responsibilities of directors

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

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

Auditor's responsibilities for the audit of the financial statements

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

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

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

Alessandro Fabiano (Partner - Chartered Accountatns)

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

Milan, 28 May 2020

Consolidated Income Statement

For the year ended 31 December 2019

 
                                                                 Restated(1) 
                                                          2019          2018 
                                            Notes     EUR' 000      EUR' 000 
-----------------------------------------  ------  -----------  ------------ 
 Continuing operations 
 Revenue                                      3         47,550        28,972 
 Cost of sales                                         (9,945)       (6,780) 
-----------------------------------------  ------  -----------  ------------ 
 Gross profit                                           37,605        22,192 
 Employees expenses                           4       (23,386)      (12,560) 
 Service costs                                5        (8,982)       (6,749) 
 Depreciation & amortisation                  6        (2,154)         (260) 
 Other operating costs                        7        (1,271)         (314) 
-----------------------------------------  ------  -----------  ------------ 
 Operating profit                                        1,812         2,309 
 Finance income                               8            188            97 
 Finance expense                              8          (729)         (195) 
-----------------------------------------  ------  -----------  ------------ 
 Profit before taxation                                  1,271         2,211 
 Taxation                                     9        (1,271)         (639) 
-----------------------------------------  ------  -----------  ------------ 
 Profit for the year                                         -         1,572 
-----------------------------------------  ------  -----------  ------------ 
 
 (Loss)/profit for the year attributable 
  to: 
     Owners of the Company                                (99)         1,232 
     Non-controlling interests               30             99           340 
-----------------------------------------  ------  -----------  ------------ 
                                                             -         1,572 
-----------------------------------------  ------  -----------  ------------ 
 
 (Loss)/Earnings per share attributable 
  to the equity holders of the Company 
-----------------------------------------  ------  -----------  ------------ 
 Basic, per share                            27     (EUR0.006)      EUR0.091 
 Diluted, per share                          27     (EUR0.005)      EUR0.083 
-----------------------------------------  ------  -----------  ------------ 
 

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

There were no discontinued operations in the year.

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

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

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2019

 
                                                            2019       2018 
                                                Notes   EUR' 000   EUR' 000 
---------------------------------------------  ------  ---------  --------- 
 Continuing operations 
 
 Profit for the year                                           -      1,572 
 Items that may be subsequently reclassified 
  to profit or loss: 
 Loss on revaluation of investments 
  held at FVOCI                                            (625)    (1,747) 
 Loss on exchange rates                                    (346)       (44) 
 Items that will not be reclassified 
  to profit or loss: 
 Actuarial (loss)/gain on defined benefit 
  pension plans                                  25         (84)          1 
---------------------------------------------  ------  ---------  --------- 
 Total comprehensive income, net of 
  tax                                                    (1,055)      (218) 
---------------------------------------------  ------  ---------  --------- 
 
 
 Total comprehensive income for the 
  year attributable to: 
     Owners of the Company                               (1,120)      (551) 
     Non-controlling interests                                65        333 
---------------------------------------------  ------  ---------  --------- 
                                                         (1,055)      (218) 
---------------------------------------------  ------  ---------  --------- 
 

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

Consolidated Statement of Financial Position

As at 31 December 2019

 
                                                        Restated(1) 
                                                 2019          2018 
                                     Notes   EUR' 000      EUR' 000 
----------------------------------  ------  ---------  ------------ 
 Non-current assets 
 Intangible assets                    11       30,768        15,614 
 Tangible assets                      12        8,984           780 
 Investments                          13           16         1,252 
 Other financial assets               14           21            66 
 Other assets                         15        3,490           971 
----------------------------------  ------  ---------  ------------ 
 Total non-current assets                      43,279        18,683 
----------------------------------  ------  ---------  ------------ 
 
 Current assets 
 Trade receivables                    16       15,094         9,630 
 Other receivables                    17        4,562         1,822 
 Financial investments                18          280           583 
 Cash and cash equivalents            19        6,138         5,220 
----------------------------------  ------  ---------  ------------ 
 Total current assets                          26,074        17,255 
----------------------------------  ------  ---------  ------------ 
 Total assets                                  69,353        35,938 
----------------------------------  ------  ---------  ------------ 
 
 Current liabilities 
 Trade payables                       20        7,462         4,953 
 Other payables                       21        9,399         2,739 
 Borrowings                           22        2,447         2,371 
 Lease liabilities                    23        2,861             - 
 Provisions                           24        1,645           565 
----------------------------------  ------  ---------  ------------ 
 Total current liabilities                     23,814        10,628 
----------------------------------  ------  ---------  ------------ 
 
 Non-current liabilities 
 Employee benefits                    25        2,013         1,950 
 Borrowings                           22       12,431         4,592 
 Lease liabilities                    23        5,607             - 
 Other non-current liabilities        26        5,637         6,803 
----------------------------------  ------  ---------  ------------ 
 Total non-current liabilities                 25,688        13,345 
----------------------------------  ------  ---------  ------------ 
 Total liabilities                             49,502        23,973 
----------------------------------  ------  ---------  ------------ 
 
 Net assets                                    19,851        11,965 
----------------------------------  ------  ---------  ------------ 
 
 Equity 
 Share capital                        27        2,425         1,350 
 Share premium                        28       12,456         3,741 
 Legal reserve                        28          148            58 
 Revaluation reserve                  28      (3,076)       (2,030) 
 Retained earnings                    28        6,321         5,681 
 (Loss)/profit for the year                      (99)         1,232 
----------------------------------  ------  ---------  ------------ 
 Total equity shareholders' funds              18,175        10,032 
----------------------------------  ------  ---------  ------------ 
 
 Non-controlling interests            30        1,676         1,933 
----------------------------------  ------  ---------  ------------ 
 Total equity                                  19,851        11,965 
----------------------------------  ------  ---------  ------------ 
 

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

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

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

Fiorenzo Tagliabue

Director

SEC Newgate S.p.A. (09628510159)

Consolidated Statement of Changes in Equity

For the year ended 31 December 2019

 
 
                       Share      Share      Legal   Retained       Other            Total   Non-controlling     Total 
                     capital    premium    reserve   earnings    reserves           equity         interests    equity 
                                                                            share-holders' 
                                                                                     funds 
                        EUR'       EUR'       EUR'       EUR'        EUR'             EUR'                        EUR' 
                         000        000        000        000         000              000          EUR' 000       000 
-----------------  ---------  ---------  ---------  ---------  ----------  ---------------  ----------------  -------- 
 
 At 1 January 
  2019                 1,350      3,741         58      6,913     (2,030)           10,032             1,933    11,965 
 
 Total 
 comprehensive 
 income 
 Profit for the 
  year                     -          -          -       (99)           -             (99)                99         - 
 Other 
  comprehensive 
  income                   -          -          -         25     (1,046)          (1,021)              (34)   (1,055) 
-----------------  ---------  ---------  ---------  ---------  ----------  ---------------  ----------------  -------- 
 Total 
  comprehensive 
  income                   -          -          -       (74)     (1,046)          (1,120)                65   (1,055) 
-----------------  ---------  ---------  ---------  ---------  ----------  ---------------  ----------------  -------- 
 
 Transactions 
 with 
 owners 
 Issue of 
  Ordinary 
  shares in 
  relation 
  to business 
  combinations         1,075      9,861          -          -           -           10,936                 -    10,936 
 Issue costs               -    (1,146)          -          -           -          (1,146)                 -   (1,146) 
 Dividends 
  declared 
  to 
  non-controlling 
  interests                -          -          -          -           -                -             (406)     (406) 
 Dividends 
  declared 
  to 
  non-controlling 
  interests 
  (CLAI)(1)                -          -          -      (429)           -            (429)                 -     (429) 
 Share based 
  payments                 -          -          -         32           -               32                 -        32 
 Transfer between 
  reserves                 -          -         90       (90)           -                -                 -         - 
 Acquisition of 
  non-controlling 
  interest                 -          -          -          -           -                -                98        98 
 Acquisition of 
  non-controlling 
  interest 
  without 
  a change in 
  control                  -          -          -      (130)           -            (130)              (14)     (144) 
-----------------  ---------  ---------  ---------  ---------  ----------  ---------------  ----------------  -------- 
 Total 
  transactions 
  with owners          1,075      8,715         90      (617)           -            9,263             (322)     8,941 
-----------------  ---------  ---------  ---------  ---------  ----------  ---------------  ----------------  -------- 
 
 At 31 December 
  2019                 2,425     12,456        148      6,222     (3,076)           18,175             1,676    19,851 
-----------------  ---------  ---------  ---------  ---------  ----------  ---------------  ----------------  -------- 
 
 
 
                       Share      Share      Legal   Retained       Other            Total   Non-controlling     Total 
                     capital    premium    reserve   earnings    reserves           equity         interests    equity 
                                                                            share-holders' 
                                                                                     funds 
                        EUR'       EUR'       EUR'       EUR'        EUR'             EUR'                        EUR' 
                         000        000        000        000         000              000          EUR' 000       000 
-----------------  ---------  ---------  ---------  ---------  ----------  ---------------  ----------------  -------- 
 
 At 1 January 
  2018                 1,222      2,627         58      5,693       (246)            9,354             2,042    11,396 
 
 Total 
 comprehensive 
 income 
 Profit for the 
  year                     -          -          -      1,232           -            1,232               340     1,572 
 Other 
  comprehensive 
  income                   -          -          -          -     (1,784)          (1,784)               (7)   (1,791) 
-----------------  ---------  ---------  ---------  ---------  ----------  ---------------  ----------------  -------- 
 Total 
  comprehensive 
  income                   -          -          -      1,232     (1,784)            (552)               333     (219) 
-----------------  ---------  ---------  ---------  ---------  ----------  ---------------  ----------------  -------- 
 Transactions 
 with 
 owners 
 Proceeds from 
  shares 
  issued                 128      1,114          -          -           -            1,242                 -     1,242 
 Dividends 
  declared 
  to 
  non-controlling 
  interests                -          -          -          -           -                -             (444)     (444) 
 Others                    -          -          -       (12)           -             (12)                 2      (10) 
-----------------  ---------  ---------  ---------  ---------  ----------  ---------------  ----------------  -------- 
 Total 
  transactions 
  with owners            128      1,114          -       (12)           -            1,230             (442)       788 
-----------------  ---------  ---------  ---------  ---------  ----------  ---------------  ----------------  -------- 
 
 At 31 December 
  2018                 1,350      3,741         58      6,913     (2,030)           10,032             1,933    11,965 
-----------------  ---------  ---------  ---------  ---------  ----------  ---------------  ----------------  -------- 
 
 

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

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

Consolidated Statement of Cash Flows

For the year ended 31 December 2019

 
                                                           2019       2018 
                                               Notes   EUR' 000   EUR' 000 
--------------------------------------------  ------  ---------  --------- 
 Cash flows from operating activities 
 Profit before tax on continuing activities               1,271      2,211 
 Adjusted for: 
 Changes in fair value investments 
  to profit or loss                              8        (119)       (55) 
 Finance expense                                 8          729        195 
 Finance income                                  8         (69)       (43) 
 Depreciation of tangible assets                 6        2,059        142 
 Amortisation of intangible assets               6           95        118 
 Impairment of trade receivables                 7          243        123 
 Pension provisions                                        (69)        351 
 Long-term provisions                                         -      4,668 
 Share based payment expense                     4           32          - 
 Other non-cash movements                                     -       (44) 
 Loss on disposal of tangible assets                          6          - 
 Changes in working capital: 
 Decrease in trade and other receivables                  (460)    (1,589) 
 Increase in trade and other payables                     2,525         44 
--------------------------------------------  ------  ---------  --------- 
 Cash generated from operating activities                 6,243      6,121 
--------------------------------------------  ------  ---------  --------- 
 Income tax paid                                        (1,149)      (753) 
--------------------------------------------  ------  ---------  --------- 
 Net cash inflow from operating activities                5,094      5,368 
--------------------------------------------  ------  ---------  --------- 
 
 Cash flows from investing activities 
 Acquisition of tangible assets                           (355)      (427) 
 Proceeds from sale of tangible assets                        8          - 
 Acquisition of intangible assets                          (94)      (892) 
 Acquisition and earn-out payments                        (577)    (5,359) 
 Cash from acquisitions                                   1,824        999 
 Proceeds from sale of financial assets                       -      2,131 
 Proceeds from sale/(acquisition) 
  of investments                                            409    (1,191) 
 Interest received                                           49          - 
--------------------------------------------  ------  ---------  --------- 
 Net cash inflow/(outflow) from investing 
  activities                                              1,264    (4,739) 
--------------------------------------------  ------  ---------  --------- 
 
 Cash flows from financing activities 
 Interest paid                                            (248)      (152) 
 Acquisition of non-controlling interests       29        (121)          - 
 Payments of finance lease liabilities                  (1,907)          - 
 Proceeds from loans and borrowings                       7,323        984 
 Repayment of loans and borrowings                      (7,414)    (1,701) 
 Dividends paid to non-controlling 
  interests                                               (835)      (444) 
 Loan issued to related company                         (1,160)          - 
 Proceeds from issue of share capital                         -      1,242 
 Issue costs relating to business                       (1,155)          - 
  combinations 
 Minorities                                                   -       (10) 
--------------------------------------------  ------  ---------  --------- 
 Net cash outflow from financing activities             (5,517)       (81) 
--------------------------------------------  ------  ---------  --------- 
 
 Net cash increase in cash and cash 
  equivalents                                               841        548 
 Cash and cash equivalents at 1 January                   5,220      4,672 
 Effect of exchange rate changes                             77          - 
--------------------------------------------  ------  ---------  --------- 
 Cash and cash equivalents at 31 December       19        6,138      5,220 
--------------------------------------------  ------  ---------  --------- 
 

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

Notes to the Financial Statements

For the year ended 31 December 2019

   1.   Accounting policies 

a. Basis of preparation

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

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

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

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

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

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

New and amended standards adopted by the Group

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

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

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

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

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

b. Going concern

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

c. Basis of consolidation

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

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

   --    power over the investee; 
   --    exposure, or rights, to variable returns from its involvement with the investee; 

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

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

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

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

d. Foreign currency translation

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

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

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

   --    income and expenses are translated at average exchange rates; 

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

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

e. Business combinations

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

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

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

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

f. Segment reporting

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

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

g. Revenue

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

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

h. Intangible assets

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

Goodwill

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

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

Website development costs and software

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

Licenses: Research and development costs

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

   --    it is technically feasible to develop the product for it to be available for use or sold; 
   --    adequate technical, financial and other resources are available to complete the development; 
   --    there is an intention to complete and sell or use the product; 
   --    there is an ability for the Group to sell the product; 
   --    sale of the product will generate future economic benefits; 
   --    expenditure on the project can be measured reliably. 

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

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

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

Licenses: Other

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

i. Tangible assets

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

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

   --    Furniture and machinery                       12% 
   --    Office equipment                                    20% 
   --    Computer equipment                            20% 

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

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

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

j. Investment in subsidiaries, associates and joint ventures

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

k. Financial assets

Recognition and initial measurement

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

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

Classification and subsequent measurement

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

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

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

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

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

Investments

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

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

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

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

Trade and other receivables

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

Impairment of financial assets

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

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

l. Cash and equivalents

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

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

m. Financial liabilities

Recognition and initial measurement

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

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

Classification and subsequent measurement

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

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

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

n. Leases

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

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

Policy applicable from 1 January 2019

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

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

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

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

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

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

   --    fixed payments, including in-substance fixed payments; 

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

   --    amount expected to be payable under a residual value guarantee; and 
   --    the exercise price under a purchase option that the Group is reasonably certain to exercise; 

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

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

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

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

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

Short-term leases and leases of low value

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

Policy applicable before 1 January 2019

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

o. Share capital and share premium

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

p. Dividends

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

q. Taxation

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

Current income tax

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

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

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

Deferred tax

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

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

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

r. Employee benefits

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

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

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

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

s. Provisions

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

t. Share based payments

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

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

u. Critical accounting estimates and judgements

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

Impairment of goodwill

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

Impairment of trade receivables

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

Fair value measurements and valuation processes

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

Useful lives of depreciable assets

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

Employee benefits

For actuarial assumptions on severance indemnity refer to note 25.

Lease liabilities

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

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

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

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

For further details on lease liabilities refer to note 23.

2. Segmental reporting

Business segments

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

Geographical segments

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

 
                              2019              2018 
                  ---------  -----  ---------  ----- 
                   EUR' 000      %   EUR' 000      % 
----------------  ---------  -----  ---------  ----- 
 Italy               16,879    35%     12,838    44% 
 United Kingdom       9,111    19%      4,441    15% 
 Belgium              4,205     9%      4,064    14% 
 Colombia             4,052     9%      4,347    15% 
 Spain                  941     2%      1,204     4% 
 Poland                 965     2%      1,080     4% 
 France               4,148     9%        545     2% 
 Germany                674     1%        453     2% 
 Australia            5,152    11%          -     0% 
 Hong Kong              651     1%          -     0% 
 China                   42     0%          -     0% 
 Singapore              431     1%          -     0% 
 Abu Dhabi              299     1%          -     0% 
 Morocco                  -     0%          -     0% 
----------------  ---------  -----  ---------  ----- 
                     47,550   100%     28,972   100% 
----------------  ---------  -----  ---------  ----- 
 

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

   3.   Revenue 

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

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

 
                                             Restated(1) 
                                      2019          2018 
                                  EUR' 000      EUR' 000 
  -----------------------------  ---------  ------------ 
 Communications                     23,678        14,467 
 Advocacy and public affairs        13,038         7,946 
 Integrated services                10,834         6,559 
-------------------------------  ---------  ------------ 
                                    47,550        28,972 
  -----------------------------  ---------  ------------ 
 

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

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

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

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

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

 
                                          2019 
                           ---------  -------- 
  Client based revenue      EUR' 000         % 
-------------------------  ---------  -------- 
 Europe                       35,418       74% 
 Australia & Oceania           4,914       10% 
 South America                 3,669        8% 
 Asia                          2,232        5% 
 North America                   944        2% 
 Africa                          373        1% 
-------------------------  ---------  -------- 
                              47,550      100% 
  -----------------------  ---------  -------- 
 
   4.   Employee expenses 
 
                                            2019       2018 
                                        EUR' 000   EUR' 000 
  -----------------------------------  ---------  --------- 
 Wages, salaries and non-executive 
  fees                                    18,414     10,059 
 Social security costs                     3,087      1,924 
 Severance indemnity and pension 
  contributions                            1,473        461 
 Share based payments(1)                      32         37 
 Other employment related welfare 
  costs                                      380         79 
------------------------------------   ---------  --------- 
                                          23,386     12,560 
  -----------------------------------  ---------  --------- 
 

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

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

 
                       2019     2018 
                     Number   Number 
----------------    -------  ------- 
 Fee earners            464      250 
 Management              44       28 
 Administration          84       49 
------------------  -------  ------- 
                        592      327 
  ----------------  -------  ------- 
 

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

 
                                   2019       2018 
                               EUR' 000   EUR' 000 
  --------------------------  ---------  --------- 
 
 Salaries of key managers         1,010      3,611 
 End of mandate allowance            18         45 
----------------------------  ---------  --------- 
                                  1,028      3,656 
  --------------------------  ---------  --------- 
 

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

Directors' remuneration

 
 31 December 2019            Fees and          Pension      Bonus   Other benefits(2)      Total 
                             Salaries    Contributions 
                             EUR' 000         EUR' 000   EUR' 000            EUR' 000   EUR' 000 
-------------------------  ----------  ---------------  ---------  ------------------  --------- 
 Executive Directors 
 Fiorenzo Tagliabue               145               23          -                   -        168 
 Emma Kane(1)                     152                7          -                   1        160 
 Brian Tyson(1)                   124                4          -                   -        129 
 Anna Milito                       76               29          -                   -        104 
 Thomas Parker                    140                -         25                   -        165 
 Mark Glover(1)                   160                -          -                   -        160 
 Andrea Cornelli                    5                -          -                   -          5 
 Non-executive Directors 
 John Foley(1)                     11                -          -                   -         11 
 Luigi Roth                        38                1          -                   -         39 
 David Mathewson                   34                -          -                   -         34 
 Paola Bruno                       35                -          -                   -         35 
-------------------------  ----------  ---------------  ---------  ------------------  --------- 
                                  920               63         25                   1      1,010 
-------------------------  ----------  ---------------  ---------  ------------------  --------- 
 
 31 December 2018            Fees and          Pension      Bonus   Other benefits(2)      Total 
                             Salaries    Contributions 
                             EUR' 000         EUR' 000   EUR' 000            EUR' 000   EUR' 000 
-------------------------  ----------  ---------------  ---------  ------------------  --------- 
 Executive Directors 
 Fiorenzo Tagliabue               145               23          -                   -        168 
 Cesare Valli                     202               97          -                   -        299 
 Anna Milito                       65               26          -                   -         92 
 Thomas Parker                    139                -         40                   -        179 
 Mark Glover                      216                -         38                   -        254 
 Non-executive Directors 
 Luigi Roth                        42                -          -                   -         42 
 David Mathewson                   34                -          -                   -         34 
 Paola Bruno                       34                -          -                   -         34 
-------------------------  ----------  ---------------  ---------  ------------------  --------- 
                                  877              146         77                   -      1,100 
-------------------------  ----------  ---------------  ---------  ------------------  --------- 
 

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

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

   5.   Service costs 
 
                                                  Restated(1) 
                                           2019          2018 
                                       EUR' 000      EUR' 000 
 -----------------------------------  ---------  ------------ 
 Consulting                               1,645         1,488 
 Internal Consulting and Directors          908         1,105 
 Overheads                                4,030         1,688 
 Rental expenses                            721         1,287 
 Services                                 1,678         1,181 
------------------------------------  ---------  ------------ 
                                          8,982         6,749 
 -----------------------------------  ---------  ------------ 
 

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

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

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

   6.   Depreciation and amortisation 
 
 
                                           2019       2018 
                                       EUR' 000   EUR' 000 
 -----------------------------------  ---------  --------- 
 Amortisation of intangible assets           95        118 
 Depreciation of tangible assets          2,059        142 
------------------------------------  ---------  --------- 
                                          2,154        260 
 -----------------------------------  ---------  --------- 
 
   7.   Other operating costs 
 
                                                Restated(1) 
                                         2019          2018 
                                     EUR' 000      EUR' 000 
 ---------------------------------  ---------  ------------ 
 Impairment of trade receivables          243           123 
 Tax local                                139           113 
 Other operating costs                  1,004           790 
 Other operating income                 (164)         (733) 
 Other operating charges                   49            21 
----------------------------------  ---------  ------------ 
                                        1,271           314 
 ---------------------------------  ---------  ------------ 
 

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

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

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

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

   8.   Finance expense and finance income 
 
 
                                                 2019       2018 
                                             EUR' 000   EUR' 000 
 -----------------------------------------  ---------  --------- 
 Interest income on bank deposits                  68          - 
 Dividend income                                    1         11 
 Fair value gains on financial assets at 
  fair value through profit or loss               119         86 
------------------------------------------  ---------  --------- 
 Finance income                                   188         97 
------------------------------------------  ---------  --------- 
 
 
 Interest expense                             337   151 
 Interest on lease liabilities                265     - 
 Fair value losses on financial assets at 
  fair value through profit or loss             -    43 
 Net foreign exchange loss                    127     1 
-------------------------------------------  ----  ---- 
 Finance expense                              729   195 
-------------------------------------------  ----  ---- 
 Net finance expense                          541    98 
-------------------------------------------  ----  ---- 
 
   9.   Taxation 
 
 
                                 2019       2018 
                             EUR' 000   EUR' 000 
 -------------------------  ---------  --------- 
 Current tax charge             1,366        596 
 Deferred tax credit             (95)         43 
--------------------------  ---------  --------- 
 Total income tax charge        1,271        639 
--------------------------  ---------  --------- 
 

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

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

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

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

 
                                                              2019       2018 
                                                          EUR' 000   EUR' 000 
  -----------------------------------------------------  ---------  --------- 
 Profit before taxation on continuing activities             1,271      2,211 
-------------------------------------------------------  ---------  --------- 
 
 Income tax expense computed at the statutory 
  tax rate on loss before taxation on all activities         (305)      (508) 
 Temporary differences subject to tax @ 24.0%                (533)      (126) 
 Non-deductible expenses subject to tax @ 24.0%              (411)       (88) 
 Non-taxable incomes subject to tax @ 24.0%                     31        240 
 Tax loss carry forward (use) subject to tax 
  @ 24.0%                                                      254        120 
 Tax loss carry forward (set-up) subject to                  (225)          - 
  tax @ 24.0% 
 Recovery of IRAP taxable amounts on IRES purposes 
  subject to tax @ 24.0%                                         7         11 
 Tax incentives (tax allowance on retained 
  earnings increases - ACE)                                     17         33 
 IRAP on Italian entities                                     (94)      (105) 
 Non-Italian jurisdictions tax rates reconciliation           (12)        (7) 
 Differences on non-Italian jurisdictions taxable 
  loss                                                           -      (166) 
-------------------------------------------------------  ---------  --------- 
 Total current income taxation                             (1,271)      (596) 
-------------------------------------------------------  ---------  --------- 
 Deferred tax charge                                             -       (43) 
-------------------------------------------------------  ---------  --------- 
 Total tax charge for the year                             (1,271)      (639) 
-------------------------------------------------------  ---------  --------- 
 

Deferred tax balances were as follows:

 
 
                                         2019       2018 
                             Notes   EUR' 000   EUR' 000 
--------------------------  ------  ---------  --------- 
 Deferred tax assets          15        2,053        483 
 Deferred tax liabilities     21        (224)        605 
--------------------------  ------  ---------  --------- 
 

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

 
                                                  2019       2018 
                                              EUR' 000   EUR' 000 
 ------------------------------------------  ---------  --------- 
 At 1 January                                    1,088        267 
 Recognised in income statement                     95         37 
 Acquisition through business combination          456          - 
 Other movements                                   155         35 
 Translation differences                            35          - 
------------------------------------------   ---------  --------- 
 At 31 December                                  1,829        339 
-------------------------------------------  ---------  --------- 
 

10. Financial instruments and risk management

Financial instruments

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

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

Financial investment at fair value

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

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

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

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

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

 
                                         2019                2018 
                                  ------------------  ------------------ 
                                   Carrying    Fair    Carrying    Fair 
                                    Value     Value     Value     Value 
                          Notes        EUR' 000            EUR' 000 
-----------------------  -------  ------------------  ------------------ 
 Financial assets 
 Investments                13           16       16      1,252    1,252 
 Other financial 
  assets                    14           21       21         66       66 
 Other assets               15        1,437    1,437        488      488 
 Trade and other 
  receivables             16, 17     16,467   16,467      9,720    9,720 
 Financial investments      18          280      280        583      583 
 Cash and cash 
  equivalents               19        6,138    6,138      5,220    5,220 
-----------------------  -------  ---------  -------  ---------  ------- 
                                     24,359   24,359     17,329   17,329 
-----------------------  -------  ---------  -------  ---------  ------- 
 
 Financial liabilities 
 Trade and other 
  payables                20, 21      8,876    8,876      5,173    5,173 
 Lease liabilities          23        8,468    8,468          -        - 
 Provisions                 24        1,645    1,645        565      565 
 Other non-current 
  liabilities               26        5,344    5,344      6,786    6,786 
 Borrowings                 22       14,878   14,878      6,963    6,963 
-----------------------  -------  ---------  -------  ---------  ------- 
                                     39,211   39,211     19,487   19,487 
-----------------------  -------  ---------  -------  ---------  ------- 
 

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

 
                                      2019      2018 
  Maturity profile 
   of financial liabilities        EUR'000   EUR'000 
--------------------------------  --------  -------- 
 Due in six months 
  or less                           13,221     7,132 
 Due between six months 
  and 1 year                         2,609       977 
 Due between 1 year 
  and 2 years                        3,741     4,905 
 Due between 2 and 
  5 years                           16,041     1,664 
 Due in 5 years or 
  more                               3,599     4,809 
-------------------------------- 
                                    39,211    19,487 
    ----------------------------  --------  -------- 
 

Financial risk management

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

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

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

Credit risk

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

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

Liquidity risk

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

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

Market risk

(a) Currency translation risk

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

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

 
                               2019 
 Effect on profit 
  before tax                 +5%        -5% 
                        EUR' 000   EUR' 000 
  -------------------  ---------  --------- 
 British Pound              (56)         56 
 Australian Dollar            55       (55) 
 Singapore Dollar              2        (2) 
 Hong Kong Dollar            (8)          8 
 UAE Dirham                    1        (1) 
 Colombian Peso                6        (6) 
 Polish Zloty                  4        (4) 
 Chinese Yuan                  1        (1) 
 US Dollar                    19       (19) 
---------------------  ---------  --------- 
                               2019 
 Effect on equity            +5%        -5% 
                        EUR' 000   EUR' 000 
  -------------------  ---------  --------- 
 British Pound             1,311    (1,311) 
 Australian Dollar            78       (78) 
 Singapore Dollar             61       (61) 
 Hong Kong Dollar              7        (7) 
 UAE Dirham                    8        (8) 
 Colombian Peso               12       (12) 
 Polish Zloty                  7        (7) 
 Chinese Yuan                (2)          2 
 US Dollar                    29       (29) 
---------------------  ---------  --------- 
 

(b) Interest rate risk

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

Capital Management

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

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

11. Intangible assets

 
                              Goodwill       Websites,      Total 
                                              software 
                                          and licences 
 Cost                         EUR' 000        EUR' 000   EUR' 000 
---------------------------  ---------  --------------  --------- 
 At 1 January 2018               9,205             322      9,527 
 Additions in the 
  year                           5,154           1,176      6,330 
---------------------------  ---------  --------------  --------- 
 At 31 December 2018            14,359           1,498     15,857 
 Additions in the 
  year                          14,995              94     15,089 
 Acquisition through 
  business combination               -             568        568 
 Disposals in the 
  year                               -             (4)        (4) 
 Translation differences             -              37         37 
---------------------------  ---------  --------------  --------- 
 At 31 December 2019            29,354           2,193     31,547 
---------------------------  ---------  --------------  --------- 
 
 Amortisation and 
  impairment 
 At 1 January 2018                   -           (125)      (125) 
 Charge for the year                 -           (118)      (118) 
---------------------------  ---------  --------------  --------- 
 At 31 December 2018                 -           (243)      (243) 
---------------------------  ---------  --------------  --------- 
 Charge for the year                 -            (95)       (95) 
 Acquisition through 
  business combination               -           (417)      (417) 
 Eliminated on disposal              -               4          4 
 Translation differences             -            (28)       (28) 
---------------------------  ---------  --------------  --------- 
 At 31 December 2019                 -           (779)      (779) 
---------------------------  ---------  --------------  --------- 
 
 Net book value 
 At 1 January 2018               9,205             197      9,402 
 At 31 December 2018            14,359           1,255     15,614 
---------------------------  ---------  --------------  --------- 
 At 31 December 2019            29,354           1,414     30,768 
---------------------------  ---------  --------------  --------- 
 

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

Impairment testing for cash-generating units containing goodwill

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

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

 
                                               Entity         2019       2018 
                         acquired                         EUR' 000   EUR' 000 
   ----------------------------------------------------  ---------  --------- 
 ACH Sec Global (previously known as 
  ACH Cambre SL)                                 2014          492        492 
 CLAI SAS                                        2018        5,010      5,010 
 Cambre Associates SA                            2013        1,548      1,548 
 Kohl PR & Partners GMBH                         2015          761        761 
 Martis Consulting Sp. z o.o.                    2017        1,196      1,196 
 Newington Communications Limited(1)             2016        2,058      2,058 
 Sec & Partners S.r.l.                           2014          100        100 
 SEC+Latam Communications Estrategica 
  SAS                                            2017        2,143      2,143 
 Newgate Communications Pty Limited             2019         8,235          - 
 Newgate Communications Limited                 2019         4,411          - 
 Newgate Communications (HK) Limited            2019           976          - 
 21:12 Communications Limited                   2019           713          - 
 Newgate Communications (Singapore) Pte.        2019           617          - 
  Ltd 
 Newgate Communications FZ-LLC                  2019            43          - 
 CLAI SAS (local ledger goodwill)(2)              N/A          418        418 
 Martis Consulting Sp. z o.o. (local 
  ledger goodwill)                                N/A            1          1 
 Sec & Partners S.r.l. (local ledger 
  goodwill)                                       N/A          632        632 
-------------------------------------------    --------  ---------  --------- 
                                                            29,354     14,359 
   ----------------------------------------------------  ---------  --------- 
 

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

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

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

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

 
                     ACH    CLA    CAM   KOHL    MRT    NEW   SEC-P 
 Average market 
  rate              8.8%   8.8%   8.8%   8.8%   8.8%   8.8%    8.8% 
 Discount rate      6.4%   5.3%   5.5%   5.5%   8.0%   8.2%    8.2% 
----------------  ------  -----  -----  -----  -----  -----  ------ 
 
                   SEC-L   NGAS   NGCL   NGHK   2112   NGSN    NGAD 
----------------  ------  -----  -----  -----  -----  -----  ------ 
 Average market 
  rate              8.8%   8.8%   8.8%   8.8%   8.8%   8.8%    8.8% 
 Discount rate     15.6%   7.8%   8.2%   8.7%   8.2%   8.4%   48.6% 
----------------  ------  -----  -----  -----  -----  -----  ------ 
 

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

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

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

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

12. Tangible assets

 
                 Leasehold                                          Leasehold                                          Equipment                                          Furniture      Total 
                  property                                       improvements                                                                                          and fittings 
 Cost             EUR' 000                                           EUR' 000                                           EUR' 000                                           EUR' 000   EUR' 000 
--------------  ----------  -------------------------------------------------  -------------------------------------------------  -------------------------------------------------  --------- 
 At 1 January 
  2018                   -                                                379                                                161                                                767      1,307 
 Additions in 
  the year               -                                                325                                                 14                                                114        453 
 Acquisition 
  through 
  business 
  combination            -                                                  -                                                107                                                153        260 
 Disposals in 
  the year               -                                                (1)                                                  -                                               (76)       (77) 
--------------  ----------  -------------------------------------------------  -------------------------------------------------  -------------------------------------------------  --------- 
 At 31 
  December 
  2018                   -                                                703                                                282                                                958      1,943 
 Adjustment on 
  transition 
  to IFRS 16         5,375                                                  -                                                143                                                231      5,749 
 Additions in 
  the year              68                                                351                                                 75                                                329        823 
 Acquisition 
  through 
  business 
  combination        4,049                                              1,549                                                713                                                468      6,779 
 Transfers 
  between 
  categories             -                                                  -                                                113                                              (113)          - 
 Disposals in 
  the year               -                                              (557)                                              (162)                                                 16      (703) 
 Revaluation 
  increase              56                                                  -                                                  -                                                  -         56 
 Translation           194                                                 67                                                 29                                                 32        322 
 differences 
--------------  ----------  -------------------------------------------------  -------------------------------------------------  -------------------------------------------------  --------- 
 At 31 
  December 
  2019               9,742                                              2,113                                              1,193                                              1,921     14,969 
--------------  ----------  -------------------------------------------------  -------------------------------------------------  -------------------------------------------------  --------- 
 
 Depreciation 
--------------  ----------  -------------------------------------------------  -------------------------------------------------  -------------------------------------------------  --------- 
 At 1 January 
  2018                   -                                              (227)                                              (106)                                              (561)      (894) 
 Charge for 
  the year               -                                               (59)                                               (15)                                               (68)      (142) 
 Acquisition 
  through 
  business 
  combination            -                                                  -                                               (67)                                              (136)      (203) 
 Eliminated on 
  disposal               -                                                  -                                                  -                                                 76         76 
--------------  ----------  -------------------------------------------------  -------------------------------------------------  -------------------------------------------------  --------- 
 At 31 
  December 
  2018                   -                                              (286)                                              (188)                                              (689)    (1,163) 
 Charge for 
  the year         (1,614)                                              (122)                                              (134)                                              (189)    (2,059) 
 Acquisition 
  through 
  business 
  combination        (993)                                            (1,026)                                              (537)                                              (348)    (2,904) 
 Transfers 
  between 
  categories             -                                                  -                                               (62)                                                 62          - 
 Eliminated on 
  disposal               -                                                148                                                159                                               (18)        289 
 Translation 
  differences         (53)                                               (50)                                               (23)                                               (22)      (148) 
--------------  ----------  -------------------------------------------------  -------------------------------------------------  -------------------------------------------------  --------- 
 At 31 
  December 
  2019             (2,660)                                            (1,336)                                              (785)                                            (1,204)    (5,985) 
--------------  ----------  -------------------------------------------------  -------------------------------------------------  -------------------------------------------------  --------- 
 
 Net book 
 value 
 At 1 January 
  2018                   -                                                152                                                 55                                                207        412 
 At 31 
  December 
  2018                   -                                                417                                                 94                                                269        780 
--------------  ----------  -------------------------------------------------  -------------------------------------------------  -------------------------------------------------  --------- 
 At 31 
  December 
  2019               7,082                                                777                                                408                                                717      8,984 
--------------  ----------  -------------------------------------------------  -------------------------------------------------  -------------------------------------------------  --------- 
 

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

 
                             Depreciation charge      Net book value 
                                 for the year 
                                 2019        2018       2019       2018 
                             EUR' 000    EUR' 000   EUR' 000   EUR' 000 
 ------------------------  ----------  ----------  ---------  --------- 
 Leasehold property             1,594           -      7,082          - 
 Leasehold improvements            31           -         47          - 
 Equipment                         41           -         87          - 
 Furniture and fittings            59           -        206          - 
-------------------------  ----------  ----------  ---------  --------- 
                                1,725           -      7,422          - 
 ------------------------  ----------  ----------  ---------  --------- 
 

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

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

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

13. Investments

 
                             Owned          Ownership       2019       2018 
  by                                                %   EUR' 000   EUR' 000 
 ----------------------------------------  ----------  ---------  --------- 
 Porta Communications Plc    SEC Newgate         16.9          -      1,245 
 Sec & Partners S.r.l.       SEC Newgate         95.0          5          5 
 Other equity investments                           -         11          2 
-----------------------------------------  ----------  ---------  --------- 
                                                              16      1,252 
 ----------------------------------------  ----------  ---------  --------- 
 

14. Other financial assets

 
                                     2019       2018 
                                 EUR' 000   EUR' 000 
 -----------------------------  ---------  --------- 
 Rental deposits                       21         56 
 Other financial investments            -         10 
------------------------------  ---------  --------- 
                                       21         66 
 -----------------------------  ---------  --------- 
 

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

15. Other assets

 
                              2019       2018 
                          EUR' 000   EUR' 000 
  ---------------------  ---------  --------- 
 Deferred tax assets         2,053        483 
 Rental deposits             1,076        149 
 Directors benefits            361        339 
-----------------------  ---------  --------- 
                             3,490        971 
  ---------------------  ---------  --------- 
 

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

16. Trade receivables

 
                                         2019       2018 
                                     EUR' 000   EUR' 000 
  --------------------------------  ---------  --------- 
 Trade receivables                     15,685     10,063 
 Less: provision for impairment         (591)      (433) 
----------------------------------  ---------  --------- 
                                       15,094      9,630 
  --------------------------------  ---------  --------- 
 

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

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

 
                                                  2019       2018 
                                              EUR' 000   EUR' 000 
  -----------------------------------------  ---------  --------- 
 Neither past due nor impaired                   6,874      5,603 
 Past due but not impaired: 
    Past due up to 3 months                      6,466      2,283 
    Past due more than 3 months not more 
     than 6 months                                 680        219 
    Past due more than 6 months not more 
     than 1 year                                   357        620 
    Past due more than 1 year                      717        905 
-------------------------------------------  ---------  --------- 
                                                15,094      9,630 
  -----------------------------------------  ---------  --------- 
 

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

 
                                          Maturity analysis EUR'000s 
                                   --------------------------------------- 
                                    0 - 365   365 -730   730 - 1826   1826 
---------------------------------  --------  ---------  -----------  ----- 
 Expected credit loss rate               0%        30%          70%    80% 
 Estimated carrying value amount 
  at default                              -        443          224    391 
---------------------------------  --------  ---------  -----------  ----- 
 Lifetime ECL                             -        133          157    313 
---------------------------------  --------  ---------  -----------  ----- 
 

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

 
                                            2019       2018 
                                        EUR' 000   EUR' 000 
  -----------------------------------  ---------  --------- 
 At 1 January                                433        365 
 Provision made during the 
  year                                       126        123 
 Acquired on business combinations           131          - 
 Amounts written off during 
  the year                                   (2)       (55) 
 Amounts recovered during the              (106)          - 
  year 
 Translation differences                       9          - 
-----------------------------------    ---------  --------- 
 At 31 December                              591        433 
-------------------------------------  ---------  --------- 
 

17. Other receivables

 
                            2019       2018 
                        EUR' 000   EUR' 000 
  -------------------  ---------  --------- 
 Accrued income            1,373         90 
 Prepayments               1,915        520 
 Tax on income               478        503 
 VAT receivable              574         41 
 Other receivables           222        668 
---------------------  ---------  --------- 
                           4,562      1,822 
  -------------------  ---------  --------- 
 

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

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

18. Financial investments

 
                              2019       2018 
                          EUR' 000   EUR' 000 
  ---------------------  ---------  --------- 
 UBS S.A. investment           280        583 
-----------------------  ---------  --------- 
 

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

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

 
                                                           2019 
                   Purchase   Fair value     Accrued      Total 
                       cost      against    interest 
                                     P&L 
                   EUR' 000     EUR' 000    EUR' 000   EUR' 000 
  --------------  ---------  -----------  ----------  --------- 
 Bonds                  170          280           -        280 
 Equities                 -            -           -          - 
 Other                    -            -           -          - 
--------------    ---------  -----------  ----------  --------- 
  Investments           170          280           -        280 
----------------  ---------  -----------  ----------  --------- 
 
 
                                                          2018 
                  Purchase   Fair value     Accrued      Total 
                      cost      against    interest 
                                    P&L 
                  EUR' 000     EUR' 000    EUR' 000   EUR' 000 
  -------------  ---------  -----------  ----------  --------- 
 Bonds                  63           59           -         59 
 Equities              458          500           -        500 
 Other                  30           24           -         24 
---------------  ---------  -----------  ----------  --------- 
 Investments           551          583           -        583 
---------------  ---------  -----------  ----------  --------- 
 
 
                                  Debt   Equities      Funds      Loans      Total 
                            securities 
                              EUR' 000   EUR' 000   EUR' 000   EUR' 000   EUR' 000 
 -----------------------  ------------  ---------  ---------  ---------  --------- 
 At 1 January 2018                  53          -      1,068          -      1,121 
 Acquisitions                        -          -          -          -          - 
 Disposals during the 
  year                            (53)          -      (461)          -      (514) 
 Changes in fair value                          -       (24)          -       (24) 
------------------------  ------------  ---------  ---------  ---------  --------- 
 At 31 December 2018                 -          -        583          -        583 
 Acquisitions                        -          -          -          -          - 
 Disposals during the 
  year                               -          -      (379)          -      (379) 
 Changes in fair value               -          -         76          -         76 
------------------------  ------------  ---------  ---------  ---------  --------- 
 At 31 December 2019                 -          -        280          -        280 
------------------------  ------------  ---------  ---------  ---------  --------- 
 

19. Cash and cash equivalents

 
                                   2019       2018 
                               EUR' 000   EUR' 000 
  --------------------------  ---------  --------- 
 Cash at bank and in hand         5,817      5,220 
 Restricted cash                    321          - 
--------------------------    ---------  --------- 
                                  6,138      5,220 
  --------------------------  ---------  --------- 
 

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

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

20. Trade payable

 
                         2019       2018 
                     EUR' 000   EUR' 000 
  ----------------  ---------  --------- 
 Trade payables         7,462      4,953 
------------------  ---------  --------- 
 

21. Other payables

 
                                              Restated(1) 
                                       2019          2018 
                                   EUR' 000      EUR' 000 
  ------------------------------  ---------  ------------ 
 Accrued expenses                     1,414           220 
 Income received in advance           1,412             1 
 Employee and payroll-related 
  liabilities                         2,699         1,507 
 Government institutions                368           367 
 Tax on income                          397           191 
 Deferred tax liabilities               224         (605) 
 VAT payable                          1,466           349 
 Other payables                       1,419           709 
--------------------------------  ---------  ------------ 
                                      9,399         2,739 
  ------------------------------  ---------  ------------ 
 

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

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

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

22. Borrowings

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

 
                                           2019       2018 
                                       EUR' 000   EUR' 000 
 -----------------------------------  ---------  --------- 
 Deutsche Bank                              784        459 
 Banco Popolare di Milano                    57        199 
 Unicredit                                  919      1,031 
 Carige                                     401        391 
 KBC Bank                                   141         88 
 Bankinter                                  100         81 
 Itau Corpbanca                               2          - 
 National Westminster Bank PLC                -         33 
 Banco Colpatria Red Multibanca SA            -         50 
------------------------------------  ---------  --------- 
  Total loans                             2,404      2,332 
  Interest payable                           43         39 
------------------------------------  ---------  --------- 
 Total current liabilities                2,447      2,371 
------------------------------------  ---------  --------- 
 UBS                                      1,762      1,762 
 Deutsche Bank                            2,242         56 
 Banco Popolare di Milano                     -        200 
 Unicredit                                3,275      2,173 
 Carige                                       -        401 
 Hawk Investment Holdings                 4,703          - 
 Retro Grand Limited                        449          - 
-----------------------------------   ---------  --------- 
 Total non-current liabilities           12,431      4,592 
------------------------------------  ---------  --------- 
 Total borrowings                        14,878      6,963 
------------------------------------  ---------  --------- 
 

Details of bank loans

 
                   Currency    Outstanding     Total     Interest    Maturity     Repayment term         Security 
                                 EUR'000      facility      rate        date 
                                              EUR'000 
----------------  ----------  ------------  ----------  ----------  ----------  ------------------  ------------------ 
 UBS (Italy)       EUR         1,762         1,762       Euribor      Open       Open ended          Pledge on Silvia 
  S.p.A                                                   +1.25%       ended                         Anna Mazzucca 
                                                                                                     financial 
                                                                                                     instruments 
                                                         Euribor     March 
 Deutsche Bank     EUR         56            1,000        +1%         2020       Monthly             None 
                                                         Euribor 
                                                          3 months   November    Every three 
 Deutsche Bank     EUR         2,970         3,000        +1.7%       2023       months              None 
 Banco Popolare                                                      February 
  di Milano        EUR         43            1,000       1.1%         2020       Monthly             None 
                                                                     December 
 Unicredit         EUR         200           1,000       1.2%         2020       Monthly             None 
                                                         Euribor 
                                                          3 months   March 
 Unicredit         EUR         3,966         4,000        +1.95%      2025       Three months        None 
                                                                     December 
 Carige            EUR         401           1,000       1.4%         2020       Every six months    None 
 KBC Bank          EUR         29            29          0.95%       July 2020   Monthly             None 
                                                                     October 
 KBC Bank          EUR         42            42          0.95%        2020       Monthly             None 
                                                                     December 
 KBC Bank          EUR         70            70          0.95%        2020       Monthly             None 
                                                         DTF +       March 
 Itau Corpbanca    COP         2             54           9.5%        2020       Monthly             None 
----------------  ----------  ------------  ----------  ----------  ----------  ------------------  ------------------ 
 

Details of other borrowings

 
                     Currency        Type of        Face Value   Carrying   Interest   Maturity    Repayment 
                                     borrowing        EUR'000     amount      rate       date         term 
                                                                  EUR'000 
-----------------  -----------  -----------------  -----------  ---------  ---------  ---------  ------------- 
                                                                                                  Lump sum 
 Hawk Investment                 Deep Discounted                                       14 April    at maturity 
  Holdings           GBP          bond              5,673        4,703      5.87%       2023       date 
                                                                                                  Lump sum 
                                 Convertible                                           10 April    at maturity 
 Retro Grand         GBP          loan              449          449        0%          2024       date 
------------------  ----------  -----------------  -----------  ---------  ---------  ---------  ------------- 
 
 

Further details of the above loans can be found below;

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

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

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

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

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

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

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

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

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

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

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

l) Hawk Investment Holdings - a deep discounted bond with an effective interest rate of 5.87% repayable in April 2023 with a redemption amount of GBP4,841,748.

   m)   Retro Grand - a convertible loan at 0% interest of GBP383,600 repayable in April 2024. 

23. Leases

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

 
 Lease liabilities           2019      2018 
                          EUR'000   EUR'000 
 Current                    2,861         - 
 Non-current                5,607         - 
-----------------------  --------  -------- 
                            8,468         - 
    -------------------  --------  -------- 
 

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

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

 
                                          2019           2018 
                                       EUR'000        EUR'000 
    --------------------------------  --------  ------------- 
 Interest expense                          265              - 
 Expense relating to short-term             20              - 
  leases 
 Expense relating to leases                  2              - 
  of low value assets 
------------------------------------  --------  ------------- 
 

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

 
                                     2019      2018 
 Maturity profile of lease 
  liabilities                     EUR'000   EUR'000 
-------------------------------  --------  -------- 
 Due in six months or               1,405         - 
  less 
 Due between six months             1,456         - 
  and 1 year 
 Due between 1 year and             2,268         - 
  2 years 
 Due between 2 and 5 years          1,879         - 
 Due in 5 years or more             1,460         - 
-------------------------------  --------  -------- 
                                    8,468         - 
    ---------------------------  --------  -------- 
 

24. Provisions

 
                             2019       2018 
                         EUR' 000   EUR' 000 
 ---------------------  ---------  --------- 
 Earn out provisions        1,645        565 
----------------------  ---------  --------- 
 

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

25. Employee benefits

 
                             2019       2018 
                         EUR' 000   EUR' 000 
 ---------------------  ---------  --------- 
 Severance indemnity        2,013      1,950 
----------------------  ---------  --------- 
 

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

 
                                              EUR' 000 
  -----------------------------------------  --------- 
 At 1 January 2018                               1,680 
 Service cost                                      228 
 Net interest                                       21 
 Benefit paid                                     (73) 
 Actuarial loss                                    (1) 
 Additions through business combinations            94 
-------------------------------------------  --------- 
 At 31 December 2018                             1,950 
 Service cost                                       97 
 Net interest                                       29 
 Benefit paid                                    (196) 
 Actuarial gain                                    133 
 Translation differences                             - 
-------------------------------------------  --------- 
 At 31 December 2019                             2,013 
-------------------------------------------  --------- 
 

26. Other non-current liabilities

 
                                       2019       2018 
                                   EUR' 000   EUR' 000 
 -------------------------------  ---------  --------- 
 Directors benefits                     397        375 
 Earn out liability                   4,754      6,411 
 Dilapidation provisions                293          - 
 Other non-current liabilities          193         17 
--------------------------------  ---------  --------- 
                                      5,637      6,803 
 -------------------------------  ---------  --------- 
 

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

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

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

27. Share capital

Authorised, issued and fully paid capital

 
 At 31 December 2019              Number            EUR 
-------------------------    -----------  ------------- 
 Ordinary shares of 0.10 
  EUR each                    24,250,907   2,425,090.70 
---------------------------  -----------  ------------- 
 
 At 31 December 2018              Number            EUR 
-------------------------    -----------  ------------- 
 Ordinary shares of 0.10 
  EUR each                    13,502,533   1,350,253.30 
---------------------------  -----------  ------------- 
 

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

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

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

(a) 4,755,162 ordinary shares for a total value of EUR4,837,902, were issued in exchange for the 420,810,829 shares of Porta Communications Plc. Per the Scheme of Arrangement a ratio of 1 newly issued share for each 88.495575 shares of Porta Communications Plc was agreed;

(b) 5,993,212 ordinary shares for a total value of EUR6,097,494, were issued in exchange for the 530,372,743 shares of Porta Communications Plc held by Retro Grand Limited at the date of execution of the capital increase, following the conversion of a convertible loan currently owned by Retro Grand Limited.

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

 
 The movement in Ordinary shares for the 
  year reconciles as follows: 
 
                                                  Number            EUR 
-----------------------------------------    -----------  ------------- 
 At 1 January 2018                            12,221,975   1,222,197.50 
 Additions during the year                     1,280,558     128,055.80 
-------------------------------------------  -----------  ------------- 
 At 31 December 2018                          13,502,533   1,350,253.30 
-------------------------------------------  -----------  ------------- 
 Additions during the year                    10,748,374   1,074,837.40 
-------------------------------------------  -----------  ------------- 
 At 31 December 2019                          24,250,907   2,425,090.70 
-------------------------------------------  -----------  ------------- 
 

Earnings per share

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

 
                                              2019           2018 
----------------------------------    ------------  ------------- 
 Profit for the year attributable 
  to owners of the company             (EUR99,000)   EUR1,232,000 
 Weighted average number 
  of shares                             17,036,245     13,502,533 
------------------------------------  ------------  ------------- 
 Earnings per share, basic              (EUR0.006)       EUR0.091 
------------------------------------  ------------  ------------- 
 

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

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

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

 
                                                      Restated(1) 
                                              2019           2018 
----------------------------------    ------------  ------------- 
 Profit for the year attributable 
  to owners of the company             (EUR99,000)   EUR1,232,000 
 Weighted average number 
  of shares                             18,325,245     14,791,533 
 Earnings per share, diluted            (EUR0.005)       EUR0.083 
------------------------------------  ------------  ------------- 
 

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

28. Reserves

The following table describes the nature of each reserve:

 
                                      Restated(1) 
                               2019          2018 
                            EUR'000       EUR'000 
  -----------------------  --------  ------------ 
 Share premium reserve       12,456         3,741 
 Legal reserve                  148            58 
 Revaluation reserve        (3,076)       (2,030) 
 Retained earnings            6,222         6,913 
-------------------------  --------  ------------ 
                             15,750         8,682 
  -----------------------  --------  ------------ 
 

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

Share premium reserves

 
                                          EUR'000 
  ----------------------------  ----------------- 
 At 1 January 2018                          2,627 
 New issues during the year                 1,261 
 Issue costs                                (147) 
------------------------------  ----------------- 
 At 31 December 2018                        3,741 
 New issues during the year                 9,861 
 Issue costs                              (1,146) 
------------------------------  ----------------- 
 At 31 December 2019                       12,456 
------------------------------  ----------------- 
 

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

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

Legal reserve

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

Revaluation reserve

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

Retained earnings

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

29. Interests in subsidiaries

Summary of acquisitions

Acquisitions over the two-year period are as follows:

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

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

The consideration transferred consists entirely of SEC issuing equity interests to Porta shareholders calculated at the fair value of the SEC equity interests transferred. On 3 September 2019, 420,810,829 Porta shares were exchanged at a rate of 88.4955752 into 4,755,162 new SEC shares as well as 5,993,212 SEC shares being issued to Retro Grand Limited ("RGL"), a shareholder of Porta, following the conversion of a convertible loan currently owned by RGL. In total, 10,748,374 SEC shares were issued as a result of the acquisition at a fair value of EUR1.0174 per share.

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

Details surrounding the acquisitions can be found below:

 
                                                                   2019       2018 
                                                            Porta Group       CLAI 
                                                    Notes      EUR' 000   EUR' 000 
 ------------------------------------------------  ------  ------------  --------- 
 Trade receivables                                                5,413        478 
 Cash and cash equivalents                                        1,824        999 
 Other assets                                                     7,935        661 
 Trade payables                                                   (870)      (148) 
 Other liabilities                                             (17,864)      (548) 
-------------------------------------------------  ------  ------------  --------- 
 Net (liabilities)/assets acquired                              (3,562)      1,442 
-------------------------------------------------  ------  ------------  --------- 
 % acquired                                                        100%        10% 
 Fair value of consideration                                     10,935      6,452 
 Fair value of previously held equity interests                     423          - 
 Net assets attributable to non-controlling                          74          - 
  interests 
 Goodwill                                            11          14,995      5,010 
-------------------------------------------------  ------  ------------  --------- 
 

Further details can be found in note 11.

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

 
 Company              Date of-acquisition    % acquired   % owned at   Consideration 
                                               in year     year end 
-------------------  ---------------------  -----------  -----------  -------------- 
 Newgate Hong Kong         15/11/2019            5%          85%          148,324 
-------------------  ---------------------  -----------  -----------  -------------- 
 

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

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

 
 Name                            Key     Country of           Percentage         Principal activity 
                                          incorporation        held 
------------------------------  ------  -------------------  -----------------  ------------------------ 
 13 Communications Limited       13CO    London (UK)          100%*              Dormant 
 21:12 Communications            2112    London (UK)          100%* A Ordinary   Marketing & advertising 
  Limited                                                      35%* B Ordinary    agency 
 ACH Sec Global SL (previously   ACH     Madrid (Spain)       65.7%              Public relations 
  known as ACH Cambre                                                             & corporate 
  SL)                                                                             affairs consultancy 
 Cambre Associates SA            CAM     Bruxelles            76%                Public relations 
                                          (Belgium)                               & corporate 
                                                                                  affairs consultancy 
 Cambre Advocacy Maroc           MAR     Rabat (Morocco)      51%                Corporate advocacy 
                                                                                  & Communications 
                                                                                  consultancy 
 CLAI SAS                        CLA     Paris (France)       10%                Corporate advocacy 
                                                                                  & public affairs 
                                                                                  consultancy 
 Curious Design S.r.l.           CUR     Milano (Italy)       75%                Marketing & advertising 
                                                                                  agency 
 Della Silva Communication       DS      Milano (Italy)       51%                Dormant 
  Consulting S.r.l. 
 EngageComm Pty Limited          ENG     Sydney (Australia)   51%*               Public relations 
                                                                                  & corporate 
                                                                                  affairs consultancy 
 HIT S.r.l.                      HIT     Milano (Italy)       57.71%             Events management 
                                                                                  & human resources 
                                                                                  provider 
 ICAS Limited                    ICAS    London (UK)          100%*              Public relations 
                                                                                  consultancy 
 Impact PR Limited               IMPA    London (UK)          100%*              Public relations 
                                                                                  & corporate 
                                                                                  affairs consultancy 
 Kohl PR und Partner             KOHL    Berlin (Germany)     75%                Public relations 
  GMBH                                                                            & corporate 
                                                                                  affairs consultancy 
 Martis Consulting Sp.           MRT     Warsaw (Poland)      60%                Public relations 
  z o.o.                                                                          & corporate 
                                                                                  affairs consultancy 
 Newgate Brussels SPRL           NGBR    Bruxelles            100%*              Non-trading 
                                          (Belgium) 
 Newgate Communications          NGHK    Hong Kong            85%*               Public relations 
  (HK) Limited                                                                    & corporate 
                                                                                  affairs consultancy 
 Newgate Communications          NGSN    Singapore            51%*               Public relations 
  (Singapore) Pte. Ltd                                                            & corporate 
                                                                                  affairs consultancy 
 Newgate Communications          NGGE    Hamburg (Germany)    100%*              Non-trading 
  Germany GmbH 
 Newgate Communications          NGAS    Sydney (Australia)   66.72%*            Public relations, 
  Pty Limited                                                                     corporate affairs 
                                                                                  & research consultancy 
 Newgate Communications          NGCB    Beijing (China)      85%*               Public relations 
  (Beijing) Limited                                                               & corporate 
                                                                                  affairs consultancy 
 Newgate Communications          NGAD    Abu                  76%*               Public relations 
  FZ-LLC                                  Dhabi (United                           consultancy 
                                          Arab Emirates) 
 Newgate Communications          NGCL    London (UK)          100%*              Public relations, 
  Limited                                                                         corporate affairs 
                                                                                  & research consultancy 
 Newgate Media Holdings          NMHL    London (UK)          100%*              Intermediate holding 
  Limited                                                                         company 
 Newgate PR Holdings             NPRH    London (UK)          100%*              Intermediate holding 
  Limited                                                                         company 
 Newgate Public Affairs          NGPA    London (UK)          100%*              Dormant 
  Limited 
 Newgate Public Relations        NGPR    London (UK)          100%*              Dormant 
  Limited 
 Newgate Sponsorship             NGSL    London (UK)          85%*               Non-trading 
  Limited 
 Newington Communications        NEW     London (UK)          60%                Public relations 
  Limited                                                                         & corporate 
                                                                                  affairs consultancy 
 Porta Australia Holdings        PAHP    Sydney (Australia)   51%*               Intermediate holding 
  Pty Limited                                                                     company 
 Porta Communications            MIDC    London (UK)          100%*              Intermediate holding 
  Midco Holdings Limited                                                          company 
 Porta Communications            PORT    London (UK)          100%               Intermediate holding 
  Plc                                                                             company 
 PPS (Local and Regional)        PPS     London (UK)          100%*              Dormant 
  Limited 
 Redleaf Polhill Limited         REDL    London (UK)          100%*              Public relations 
                                                                                  consultancy 
 Sec & Associati S.r.l.          SEC-A   Torino (Italy)       51%                Public relations 
                                                                                  & corporate 
                                                                                  affairs consultancy 
 Sec & Partners S.r.l.           SEC-P   Roma (Italy)         50.5%              Public relations 
                                                                                  & corporate 
                                                                                  affairs consultancy 
 Sec Mediterranea S.r.l.         MED     Bari (Italy)         51%                Public relations 
                                                                                  consultancy 
 SEC+Latam Communications        SEC-L   Bogota (Colombia)    51%                Public relations 
  Estrategica SAS                                                                 & corporate 
                                                                                  affairs consultancy 
 Springall Gbr                   SPRG    Hamburg (Germany)    100%*              Dormant 
 Velvet Consultancy Limited      VELV    London (UK)          100%*              Dormant 
------------------------------  ------  -------------------  -----------------  ------------------------ 
 *Indirectly held 
------------------------------  ------  -------------------  -----------------  ------------------------ 
 

Significant judgements and assumptions

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

Audit exemptions

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

 
 13 Communications Limited 
 Impact PR Limited 
 Newgate Media Holdings Limited 
 Newgate PR Holdings Limited 
 Porta Communications Midco Holdings 
  Limited 
 ICAS Limited 
 Newgate Public Affairs Limited 
 Newgate Public Relations Limited 
 Newgate Sponsorship Limited 
 PPS (Local and Regional) Limited 
 Redleaf Polhill Limited 
 

Preparation & filing exemptions

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

 
 Velvet Consultancy Limited 
 

Statutory guarantees

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

 
 13 Communications Limited 
 Impact PR Limited 
 Newgate Media Holdings Limited 
 Newgate PR Holdings Limited 
 Porta Communications Midco Holdings 
  Limited 
 ICAS Limited 
 Newgate Public Affairs Limited 
 Newgate Public Relations Limited 
 Newgate Sponsorship Limited 
 PPS (Local and Regional) Limited 
 Redleaf Polhill Limited 
 

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

 
 Velvet Consultancy Limited 
 

30. Non-controlling interests

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

Summarised statements of financial position

 
 
 At 31 December 2019 
 EUR'000                 ACH     CAM      CLA      HIT    KOHL     MRT      NEW     NGSN    NGHK     NGAS     SEC-L   SEC-P    2112 
---------------------  ------  ------  --------  ------  ------  ------  --------  ------  ------  --------  ------  ------  -------- 
 Non-current 
  assets                   89     557       849     670      77     163       678     951     292     1,593     206   1,021       200 
 Current 
  assets                  372   1,628     2,358     405     160     236     1,371     526     345     5,164     852   1,173       992 
 Non-current 
  liabilities           (156)   (497)     (111)   (139)    (57)   (131)     (423)    (76)    (58)   (1,936)    (84)   (129)   (4,392) 
 Current 
  liabilities           (324)   (866)   (1,399)   (270)   (103)   (136)   (1,017)   (170)   (258)   (3,877)   (631)   (644)     (764) 
---------------------  ------  ------  --------  ------  ------  ------  --------  ------  ------  --------  ------  ------  -------- 
 Net 
 assets/(liabilities)    (19)     822     1,697     666      77     132       609   1,231     321       944     343   1,421   (3,964) 
---------------------  ------  ------  --------  ------  ------  ------  --------  ------  ------  --------  ------  ------  -------- 
 Non-controlling 
  interest                (7)     197         -     282      19      53       244     603      48       314     168     703   (1,031) 
---------------------  ------  ------  --------  ------  ------  ------  --------  ------  ------  --------  ------  ------  -------- 
 
 
 
 At 31 December 2018 
 EUR'000                      ACH     CAM     CLA     HIT    KOHL    MRT      NEW     SEC-L   SEC-P 
--------------------------  ------  ------  ------  ------  -----  ------  --------  ------  ------ 
 Non-current 
  assets                        79      78     549       9     24      17       251      84     762 
 Current 
  assets                       399   1,656   1,918     941     85     259     1,679   1,163   1,486 
 Non-current 
  liabilities                    -       -   (111)    (88)   (14)       -         -    (42)    (98) 
 Current 
  liabilities                (313)   (626)   (784)   (203)   (50)   (174)   (1,103)   (802)   (733) 
--------------------------  ------  ------  ------  ------  -----  ------  --------  ------  ------ 
 Net assets/(liabilities)      165   1,108   1,572     659     45     102       827     403   1,417 
--------------------------  ------  ------  ------  ------  -----  ------  --------  ------  ------ 
 Non-controlling 
  interest                      57     266       -     279     11      41       331     198     701 
--------------------------  ------  ------  ------  ------  -----  ------  --------  ------  ------ 
 

Summarised income statements

 
 
 At 31 December 2019 
 EUR'000               ACH     CAM     CLA     HIT    KOHL   MRT    NEW    NGSN   NGHK   NGAS    SEC-L   SEC-P   2112 
-------------------  ------  ------  ------  ------  -----  ----  ------  -----  -----  ------  ------  ------  ------ 
 Revenue                988   4,229   4,162   1,633    678   969   3,508    431    667   5,141   4,052   1,682   1,318 
 (Loss)/Profit 
  for the 
  period              (202)     364     548      53     32    70   (248)      5     44     341     261     129   (818) 
-------------------  ------  ------  ------  ------  -----  ----  ------  -----  -----  ------  ------  ------  ------ 
 (Loss)/Profit 
 attributable 
 to non-controlling 
 interest              (69)      87       -      22      8    28    (99)      2      7     113     128      64   (213) 
-------------------  ------  ------  ------  ------  -----  ----  ------  -----  -----  ------  ------  ------  ------ 
 
 
 
 At 31 December 2018 
 EUR'000                ACH     CAM    CLA    HIT    KOHL     MRT     NEW    SEC-L   SEC-P 
---------------------  -----  ------  ----  ------  ------  ------  ------  ------  ------ 
 Revenue                 902   4,064   545   1,112     401   1,080   4,100   2,618   1,388 
 (Loss)/Profit 
  for the 
  period                (94)     351   129      39   (254)      20      42     345     299 
---------------------  -----  ------  ----  ------  ------  ------  ------  ------  ------ 
 (Loss)/Profit 
  attributable 
  to non-controlling 
  interest              (32)      84     -      16    (63)       8      17     169     148 
---------------------  -----  ------  ----  ------  ------  ------  ------  ------  ------ 
 

31. Related parties

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

During the year, Newgate Communications Limited paid Barbican Centre Trust Ltd, a registered charity and a company of which Emma Kane is the Chairman, 14 EUR'000 (GBP12,000) for corporate membership. As at 31 December 2019, this amount was due to the Barbican Centre Trust Ltd.

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

All related party transactions were on normal commercial terms.

32. Ultimate controlling party

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

33. Impact of adopting IFRS 16 Leases

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

Cumulative effect of initially applying IFRS 16

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

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

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

Impact of adoption

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

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

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

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

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

(ii) Explanation of adjustment to profit or loss

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

(iii) Practical expedients applied

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

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

   --      reliance on previous assessments on whether leases are onerous; 

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

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

34. Subsequent events

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

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

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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