TIDMSECN

RNS Number : 3641Z

SEC Newgate S.p.A.

21 May 2021

21 May 2021

SEC Newgate S.p.A.

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

Audited results for the year ended 31 December 2020

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

Financial Highlights

 
                          FY 2020       FY 2019 
                          EUR million   EUR million 
                         ------------  ------------ 
 Revenues                 65.33         47.55 
                         ------------  ------------ 
 Gross profit             56.11         37.60 
                         ------------  ------------ 
 Operating profit         4.18          1.81 
                         ------------  ------------ 
 Profit before tax        3.05          1.27 
                         ------------  ------------ 
 Net debt (1)             (13.03)       (17.21) 
                         ------------  ------------ 
 Net cash inflow from 
  operating activities    7.22          5.09 
                         ------------  ------------ 
 

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

   --      (1) including EUR5.63m leases in 2020 and EUR8.47m in 2019 

Operational and Strategic Highlights

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

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

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

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

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

Post year-end Highlights

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

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

   --    Declaration of maiden final dividend of 0.5p 

Commenting, John Foley, Chairman, said:

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

Fiorenzo Tagliabue, Group Chief Executive, said:

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

For further information please contact:

 
 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 338 339 
                                        emma.kane@secnewgate.co.uk 
 Sergio Penna (Group CFO)              Tel: +39 338 8357936 
                                        penna@secrp.com 
 
   Arden Partners (Nominated Adviser     Tel: +44 ( 0) 20 7614 5900 
   and Broker) 
 Richard Johnson 
 

Notes to Editors

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

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

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

Chairman's Statement

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

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

People

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

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

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

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

Financial & Operational Review

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

 
                            2020       2019 
                            EUR '000   EUR '000 
 Revenues                   65,332     47,550 
 Gross profit               56,111     37,605 
 Operating profit           4,183      1,812 
 Profit before tax          3.045      1,271 
 Net debt (excl. leases)    7,407      8,740 
 

Net Cash Inflow from Operating Activities

A more detailed commentary on the 2020 financial results can be found in the Group CFO's Review but the net cash inflow of EUR7.2m from operating activities has strengthened the Group's financial position. This was the result of a constant focus on both the Group's liquidity position and its cost base.

Dividends

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

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

Acquisitions & Disposals

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

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

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

Post Balance Sheet Events

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

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

Outlook

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

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

Group Chief Executive's Review

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

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

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

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

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

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

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

Specific performance against our Strategic Pillars

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

Financial:

-- Cash generation: excellent cash generation achieved at the operational level (inflow EUR7.2m)

-- Savings : EUR3.1m through the combined effect of local governments' assistance and operational cost reductions realised by the management

   --    Facilities :  during the year, the Group secured a EUR2.5m through a Convertible Bond 

Brand:

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

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

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

Expansion:

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

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

Innovation & Research:

-- AI : Launch of TRUE(R), SEC Newgate's Artificial Intelligence powered platform to continually gauge the reputation of brands and institutions . Following investment of EUR1.5m and development with Bocconi, Italy's leading business school, and Imperial College London. First commercial client, TreNord, secured.

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

ASIA PACIFIC

Brian Tyson, Deputy Group CEO

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

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

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

Individual market summaries follow:

Australia

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

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

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

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

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

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

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

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

Greater China

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

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

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

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

Singapore

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

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

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

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

EMEA Region (excluding Italy)

Tom Parker, Deputy Group CEO

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

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

Abu Dhabi

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

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

Belgium (Brussels)

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

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

France

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

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

Germany

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

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

Poland

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

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

Spain

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

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

SEC Newgate Italy

Paola Ambrosino, Partner e Direttore Generale

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

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

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

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

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

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

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

UK and The Americas

Emma Kane,

Deputy Group CEO

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

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

UK

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

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

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

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

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

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

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

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

The Americas

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

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

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

Colombia

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

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

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

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

US

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

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

Group CFO's Review

Sergio Penna

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

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

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

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

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

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

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

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

Key financials

   --    Gross profit was EUR56.1m (2019: EUR37.6m) 
   --    Operating Profit was EUR4.1m (2019: EUR1.8m) 
   --    PBT was EUR3.0m (2019: EUR1.3m) 

-- Net Debt Position was EUR13.0m, including EUR5.6m Lease Liabilities (2019: EUR17.2m, including EUR8.4m Lease Liabilities)

   --    Cash Balance was EUR12.1m (2019: EUR6.1m) 

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

Gross Profit was up by c. EUR18.5m with the increase mainly attributable to the following consolidation of the new Group from September 2019, with subsidiaries (mainly based in UK and Australia) reporting four months results in 2019 while a full year impact was included in 2020.

Employee expenses were up both in absolute terms (by c. EUR13.7m, partially related to the full consolidation effect mentioned above) and in relative terms when compared to GP (by 4%). In terms of total staff, the Group employed 600+ people at the end of 2020.

Amortisation of intangibles was higher than 2019 (by EUR300,000) mainly due to the investment in Artificial Intelligence performed over the last years, leading to the release in July 2020 of TRUE(R) , SEC Newgate's Artificial Intelligence powered platform to investigate the reputation of brands and institutions.

Depreciation is strongly influenced by the IFRS 16, that requests to consider every long-term rent as an investment in fixed assets supported by a financial lease, with monthly depreciation instead of the rent costs. The amount was EUR1.0m higher than in 2019 mainly due to the full consolidation of those subsidiaries (especially in UK) that were included only for four months in the previous year.

Regarding the goodwill, after performing impairment tests on each of our subsidiaries, we concluded that the only impairment needed was on ACH (EUR95,000), mainly due to the critical situation of the Spanish market strongly affected by Covid-19, that influenced the performance of the company.

Other operating costs were c. EUR11.6m (2019: EUR10.7m) and presented on a different and more transparent classification respect to last year, with focus on the nature of the costs. The increase by c EUR1.4m is mainly attributable to an increase in professional and consulting fees (by EUR1.5m) and office expenses (by EUR0.6m) partially offset by a decrease in marketing fees (by EUR0.5m) and other administrative expenses (by EUR0.2m).

Finance expenses were up in the year by EUR0.5m, of which EUR0.4m due to interest expense on financial loans and around EUR0.1m due on financial leases related to IFRS 16 implementation. The net loss on foreign exchange movements at the end 2020 was partially mitigated by a GBP vs Euro currency forward signed in November with the major Italian bank UniCredit to offset the exchange rate effect and neutralize the risk.

Adjusted Profit

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

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

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

 
                                                         Profit before 
                                    Operating profit      tax 
                                    2020       2019      2020      2019 
                                    EUR'000    EUR'000   EUR'000   EUR'000 
                                   ---------  --------  --------  -------- 
 
 Reported                           4,183      1,812     3,045     1,271 
 Impairment of goodwill             95         -         95        - 
 Acquisition costs (1)              -          455       -         455 
 COVID income (2)                   (850)      -         (850)     - 
 Share-based payments (3)           -          32        -         32 
 Loss on disposal of subsidiary 
  (4)                               2          -         2         - 
 Adjusted                           3,430      2,299     2,292     1,758 
 

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

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

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

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

Cash Flow

The cash balance of SEC Newgate is EUR12.1 at the end of 2020 (EUR6.1m in 2019), and it was constantly monitored during the year by weekly reports and monthly analysis reported to the Board of Directors.

In 2020, the Group generated an outstanding net cash inflow from operating activities of EUR7.2m (EUR5.1m in 2019). This positive performance was the result of efficient business and financial management. Since Covid-19 first outbreak, our team worked hard to adapt quickly to protect the Group's cash position and liquidity, secure savings, and take advantage of local government initiatives.

We secured EUR105,000 rent reductions, EUR566,000 of other permanent spending cuts and received the benefit of EUR850,000 non-refundable governmental assistance (including EUR590,000 of salary assistance and grant schemes and EUR260,000) and EUR578,000 of deferred VAT payments.

On the other side, the Group generated a net cash outflow from financial activities of EUR430,000 (outflow EUR5.3m in 2019).

During the year, SEC Newgate S.p.A. secured new bank loan facilities including EUR1.0m from Banca Carige and EUR1.0m from Banca Popolare di Milano, while other new borrowings include EUR2.5m convertible bonds issued in February 2020 by Inveready. Besides, the local finance teams worked on the government assistance obtaining available forms of support, including bounce-back loans and long-term loans renegotiation for a total of EUR700,000.

The Group acquisition structure for new investments is usually based on a three to five years Earn-out model. At the end of 2020, the most important provisions are related to the acquisition of the remaining part of the French subsidiary CLAI (EUR1.5m in 2021 and EUR4.4m in 2026), the investment in the Colombian subsidiary SEC Latam (EUR0.4m in 2022). The cash balance at the end of the year is sufficient to cover these expected payments.

Group Finance Operations

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

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

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

We have focused on improving the operating effectiveness of the financial reporting within the Group, to enable the Board of Directors and management to make better informed decisions based on true underlying performance and data.

Following the process after the acquisition at the end of 2019, the Group finance function has implemented a process that now works throughout the enlarged Group to align reporting and facilitate the collaboration among all the subsidiaries in sharing information and best practice.

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

Net Debt

The Net debt position as of 31 December 2020 was EUR13.0m (including EUR5.6m Lease Liabilities), with a positive EUR4.1m difference compared to 31 December 2019, reporting EUR17.2m (including EUR8.4m Lease Liabilities). Please refer to note 18 of the Consolidated Financial Statements for further details.

The EUR6m increase in cash and cash equivalents from EUR6.1m to EUR12.1m is mainly due to the quality of the management and its choices that ensured a strong cash inflow from operating activities, as mentioned above.

New bank loans and other borrowings increased by EUR4.7m during the year from EUR14.8m to EUR19.5m, Lease Liabilities decreased by EUR2.8m from EUR8.4m to EUR5.6m.

Regarding the most important new bank loans and borrowings:

-- on 20 February 2020 the Group signed a bank facility with Banca Popolare di Milano for EUR1.0m, at Euribor 3 month + 1.65 interest rate, payable in 36 months with maturity in 2023

-- on 25 February 2020, SEC Newgate S.p.A. secured a EUR2.5m convertible bond with the Spanish institutional investor Inveready which was subscribed on 4 March 2020, with a maturity of seven years from issuance (in 2027) and interest payable quarterly at 3.50%

-- on 4 March 2020 the Group signed a bank facility with Banca Carige for EUR1.0m, at Euribor 6 month + 1.20 interest rate, payable over 48 months starting June 2022 with maturity in 2026

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

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

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

Post Balance Sheet Events

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

During 2020, we united the teams of the main UK agencies in one premise, preparing the ground for the upcoming reorganisation and rebranding. On 15 January 2021, the Group acquired the 40% minority stake not already owned of Newington, taking the holding up from 40% to 100%. The total consideration for the acquisition was around EUR485,000, 30% satisfied by SEC Newgate issuing and allotting new ordinary shares to the vendors and the remaining 70% payable in over three years. The same day, the Group announced that the business and the assets of Newington were transferred to SEC Newgate UK Ltd (previously known as Newgate Communication Ltd).

Regarding the UK headquarters, we gave notice to both the previous offices based in Great Suffolk Street and Basinghall Street, with a total EUR300,000 saving expected in 2021 with respect to the previous year, and an additional saving of around EUR1.0m per annum from January 2022, once SEC Newgate UK Ltd officially moves to a new premise, with a 10-year lease (with a five year break clause) whose heads of terms were signed the on 9 April 2021.

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

On the other side, we included in the Business Plan c. EUR6.0m as capex in 2021 related to the new UK office (EUR5.0m of rent and EUR1.0m of fittings).

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

On 22 March 2021, the Group announced the establishment of a new commercial venture, SEC Newgate CEE, in Poland, to accelerate the business development across the Central Eastern Europe Region; the cost for the operation was represented by an intercompany loan of EUR200,000 in favour of the start-up.

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

On 14 April 2021, SEC Newgate performed the first payment of EUR700,000 to Orca Affairs GmbH, as part of the agreement signed on 23 December 2020; the initial consideration comprises the 15% of the issued share capital of the target, with attached voting rights of 60% passing to SEC Newgate (sufficient to guarantee the control and full consolidation of the results). In 2019, Orca Affairs' turnover was around EUR10.5m, in part influenced by extraordinary business. The acquisition will be earnings enhancing in 2021.

Conclusion

Thanks to the actions promptly implemented in March 2020 and following months, SEC Newgate was able to overcome with impressive results the Covid-19 pandemic outbreak, which affected markets all across the world.

The Group and its subsidiaries, after a good start to the year in line with management expectations, have inevitably been impacted by this. It was the most difficult challenge of the year in terms of business development, execution, client management and financial strategy.

All of the companies in the Group have implemented specific actions to reduce the impact of Covid-19 by using measures such as reducing all discretionary spend in order to cope with this extraordinary situation, as well as taking advantage of all possible measures provided by the governments around the world.

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

At the end of the year, the Group is well positioned to deliver operationally and financially and, whilst Group management is aware of the further improvements needed in terms of processes and systems and of the ongoing work needed to drive bottom line growth together with top line growth, the operating foundations of the Group are firm, and the vision of the Board of Directors is clear.

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

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

SEC Newgate Corporate Purpose and Responsibility Statement

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

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

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

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

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

Purpose and governance

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

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

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

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

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

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

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

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

People

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

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

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

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

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

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

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

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

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

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

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

Planet

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

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

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

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

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

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

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

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

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

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

Corporate Governance Statement

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

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

Details of how SEC Newgate addresses the QCA Code's ten key governance principles are published on the Investors section of the SEC Newgate website, which can be found at

secnewgate.com/investors

Principal Risks and Uncertainties

For the year ended 31 December 2020

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

The Directors identified a number of key risks and uncertainties which they believe may affect the Group's ability to deliver its strategic goals in the future. The Covid pandemic presented an unprecedented global challenge in 2020, which continues to impact many of the Group's key risks and uncertainties. The Directors have made the decision to present the pandemic as a separate strategic risk, as a way of highlighting its direct consequences but also to show how the Group has been able to successfully understand and quickly adapt to mitigate risks arising in this challenging environment. A list of these risks is summarised below. This list does not purport to be an exhaustive summary of the risks affecting the Group, is given in no particular order of priority and contains risks considered to be outside the control of the Directors.

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

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

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

 
 Level   Risk              Potential impact                                                  Key mitigations 
 of      description 
 risk 
        ================  ================================================================ 
 Covid-19 pandemic (strategic risk) 
         The Covid-19      As the global                                                     Throughout the pandemic 
         pandemic           rollout of the                                                    the Group has adhered 
         (current           vaccination campaign                                              to local government regulation 
         and/or future      progresses, we                                                    and advise, developing 
         waves) may have    expect to see                                                     robust procedures and 
         a long-term        a lowering of                                                     controls for managing 
    4    negative           this risk level.                                                  the risks associated with 
         macroeconomic      However, due to                                                   the pandemic, including: 
         impact or          current uncertainty                                                *    The Executive Committee regularly monitors the 
         impact             and differing                                                           economic environment and reviews our strategic 
         the Group's        rollout timetables                                                      objectives and cash flow projections to identify 
         operations,        across our different                                                    opportunities, protect critical services and to 
         growth             international                                                           mitigate against the adverse impact of the pandemic 
         opportunities      markets, we may 
         or ability to      still experience 
         fulfil our         the impact of                                                      *    Regular cash monitoring and management, and vetting 
         strategic          a short-term increased                                                  the creditworthiness of potential clients mitigates 
         objectives         risk level, including:                                                  against the negative impact to sales activity 
                             *    A prolonged negative impact on the global economy may 
                                  impact profitability and strategic delivery 
                                                                                               *    The Group's large and diverse client base avoids any 
                                                                                                    dependency on any individual client, particular 
                             *    The increased potential for client contract deferrals             market sector or geographical territory 
                                  or cancellations to impact liquidity 
 
                                                                                               *    Implementing business continuity plans which allowed 
                             *    The potential for high employee absence disrupting                our people to continue operational activities while 
                                  day-to-day operations                                             working remotely 
 
 
                             *    Operational challenges associated with increased             *    Encouraging practices that promote and protect the 
                                  health and safety risks for staff                                 health and wellbeing of our people during the 
                                                                                                    prolonged periods of remote working, as well as 
                                                                                                    supporting their return to the office 
        ================  ================================================================  ====================================================================== 
 M&A activity (strategic risk) 
         The risk that 
         rapid expansion     *    Reputational damage                                              *    The Group's focus is both on organic growth and 
         into new                                                                                       acquisitions. In the event of a new acquisition, 
         geographical                                                                                   rigorous internal and external due diligence is 
         territories         *    Difficulties integrating new subsidiaries increases                   performed on the company and its market in order to 
         or market                pressure on Group financial and operational support                   identify potential risks and to ensure the 
         sectors                                                                                        acquisition complements and does not compete directly 
         might have a                                                                                   with the existing businesses in a geographical 
         negative impact     *    Increased pressure on cash resources to find                          territory 
         on the Group's           sufficient funds for new acquisitions 
         financial 
    3    performance                                                                               *    Where a new service of integrated offering is 
         and result on       *    Management's focus is divided if new acquisitions or                  required, the Group would initially look to hire key 
         a strain on              markets do not fit in with the Group's ability to                     staff and to develop the service internally before 
         resources                deliver its strategic objectives                                      considering the acquisition of an external company 
 
 
                             *    Withdrawal from markets where expansion has been                 *    Earn-out mechanisms will be used in the majority of 
                                  undertaken too hastily resulting in loss of sunk                      future acquisitions in order to assist cash 
                                  costs and market opportunities                                        management 
 
 
                                                                                                   *    Should a company no longer fit in with the Group's 
                                                                                                        Strategic Plan, the company may be considered for 
                                                                                                        sale, following careful analysis as to the impact of 
                                                                                                        the divestment 
        ================  ================================================================  ====================================================================== 
 Management of growth (strategic risk) 
         Failure to 
         manage                 *    Hiring decisions that lead to the recruitment of          *    Processes and systems in place to help identify need 
         growth in line              staff misaligned with strategy or ahead of revenue             and fulfilment of resource 
         with the 
         Group's 
    3    Strategic Plan         *    Staff leave through lack of support and/or resources      *    The production and monitoring of budgets against 
         resulting in                                                                               performance and hiring plans 
         additional and 
         unnecessary            *    Inadequate systems and processes leading to 
         costs                       inefficiencies and inaccurate management reporting        *    Targeted and specific staff training 
 
 
                                                                                               *    Systems implemented to support staff in maintaining 
                                                                                                    visibility on key metrics 
 
 
                                                                                               *    Company and Group KPIs monitored by Executive 
                                                                                                    Directors on a monthly and, where possible, weekly 
                                                                                                    basis 
        ================  ================================================================  ====================================================================== 
 New markets and channels of service offering (strategic risk) 
         Lack of 
         understanding          *    Reputational and brand damage where the new offering      *    Fully research and market test any new services 
         of new market               is not complimentary to other Group services                   before formally launching 
         and/or channels 
         of service 
         offering               *    Lower than expected sales revenues coupled with           *    The Board pursues a strategy of organic growth in 
         prior to entry              higher cost requirements of setting up new operations          existing companies 
    2                                have a negative impact on the Group's cash position 
 
                                                                                               *    Entry into a new market would be with the support of 
                                                                                                    local expertise 
 
 
                                                                                               *    Use of qualified and experienced advisers where 
                                                                                                    necessary 
 
 
                                                                                               *    Continuously assessing performance in new markets and 
                                                                                                    their related opportunities and risks 
        ================  ================================================================  ====================================================================== 
 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              *    Creates a problematic platform from which to grow 
         of the Group's                                                                            *    Costs are closely managed, helping to de-risk the 
         performance                                                                                    Group and to create a more manageable platform from 
                             *    Working capital diverted to interest payments                         which to drive profitability 
 
 
                             *    Failing bank covenants may result in debts being                 *    Improve the internal structure and strategic 
                                  recalled and/or higher cost of debt                                   direction of the business to make it more investable 
 
 
                             *    Difficulty finding further funding at a competitive              *    Where further financing is required, the Board looks 
                                  rate or without restrictive covenants                                 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                                                                                     *    Any restructurings undertaken are signed off by the 
         cost base are                                                                                  Executive Board and/or company boards after detailed 
         exited from                                                                                    discussions and presentation of analysis with the 
         the business                                                                                   support of external consultants where necessary 
         without 
         sufficient 
         analysis being                                                                            *    Group seeks to remain fair towards all members of 
         undertaken                                                                                     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             *    The Group maintains a balanced portfolio in terms of 
         the Group's              sanctions, terrorism and local or national strikes or             geographical locations to minimise the negative 
    3    revenues is              labour unrest in any of the overseas locations in                 impact of any one jurisdiction on the Group's overall 
         generated                which the Group operates may disrupt or permanently               results 
         overseas.                prevent the Group from operating in these locations 
         The Group's              or from recovering its investment in whole or in part 
         business is                                                                           *    The Board performs a thorough analysis of economic, 
         therefore                                                                                  political and social conditions before entering new 
         susceptible         *    Currency fluctuations may have a negative impact on               markets to minimise the impact of any unexpected 
         to adverse               the Group's cross-border cash flows and profits                   turmoil 
         changes 
         in local and 
         regional                                                                              *    The majority of foreign currency transactions are 
         economic,                                                                                  carried out by businesses with the same reporting 
         political and                                                                              currency 
         social 
         conditions 
         as well as the                                                                        *    The Group uses a limited number of financial 
         policies of                                                                                instruments to hedge currency fluctuations in 
         the relevant                                                                               intergroup loan notes. The Group continues to review 
         government,                                                                                its currency exposure to identify ways to mitigate 
         including                                                                                  currency risk 
         changes 
         in laws and 
         regulations, 
         taxation and 
         the imposition 
         of restrictions 
         on currency 
         conversion 
        ================  ================================================================  ====================================================================== 
 Global economic trends and political instability (economic 
  risk) 
         Economic and 
         political           *    A reduction in new client contracts                          *    The Group disperses its risk and reliance on any 
         landscape                                                                                  particular economic environment through a wide and 
         causes a                                                                                   diverse client base in both industry and geography 
         slowdown            *    Resource heavy procurement processes 
         in client 
    4    spending                                                                              *    Significant local economic and political events are 
                             *    Margin pressure                                                   monitored and factored into budgets and reforecasts 
                                                                                                    as they emerge 
 
                             *    Regulatory changes 
                                                                                               *    The Group and subsidiary boards monitor new business 
                                                                                                    wins/losses and track committed fees and new business 
                             *    New tax and other legislation                                     pipeline against budgets on a monthly and, where 
                                                                                                    possible, a weekly basis and manage expenditure 
                                                                                                    accordingly 
                             *    Fall in market confidence 
 
                                                                                               *    The Group has in place business continuity plans 
                             *    A reduction in client contracts                                   including remote working, reducing discretionary 
                                                                                                    spend, and assessing the appropriateness of local 
                                                                                                    government incentives 
                             *    A reduction in new client contracts 
 
 
                             *    Fall in market confidence 
 
 
                             *    Significant disruption to operations 
        ================  ================================================================  ====================================================================== 
 Client dependency (economic risk) 
         That the Group, 
         or any                  *    Loss of a client materially impacts overall                  *    The Group performs regular reviews of new business 
         subsidiary,                  profitability                                                     wins/losses across all Group companies which 
         is overly                                                                                      highlights any client dependencies 
         dependent 
         upon fees from          *    Company becomes too focussed or specialised in a 
    2    a single client              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                *    Lower margins and profitability                              *    The Group provides tailored and highly value-added 
    2    significant                                                                                services in order to minimise the pricing competition 
         competition                                                                                from bigger players 
         from both           *    Loss of key employees and/or clients 
         domestic 
         and                                                                                   *    Focus remains on retaining employees and the Group is 
         international       *    Inability to attract new clients and further                      constantly committed to enhancing retention by 
         competitors              diversify client base                                             employing the key mitigations discussed below under 
         who have                                                                                   the retention of key employee risk 
         greater 
         capital, 
         greater                                                                               *    The Group focuses on anticipating major trends in the 
         resources and                                                                              industry and on being among the first players in the 
         superior brand                                                                             industry to invest in new services and technologies 
         recognition 
         and who may 
         be able to 
         provide 
         better 
         services, 
         adopt more 
         aggressive 
         pricing 
         policies 
         or pay higher 
         prices to 
         acquire 
         businesses and 
         resources. 
         There 
         is no assurance 
         that the Group 
         will be able 
         to compete 
         successfully 
         in such an 
         environment. 
        ================  ================================================================  ====================================================================== 
 Revenue growth and profitability (economic and operational 
  risk) 
   3     The Group 
         cannot              *    Fluctuation of operating results may be caused by a                    *    The Group has budgeting and reforecasting processes 
         guarantee that           number of factors, many of which are beyond Group's                         in place and continually monitors expectations 
         it will be able          control (growth rate of markets in which the Group                          highlighting any cost control or financing needs 
         to achieve or            operates, market demand volatility, or difficulties 
         sustain revenue          encountered launching new services or products) 
         growth and/or                                                                                   *    Where budget shortfalls consistently occur, Group an 
         profitability                                                                                  d 
         in the future       *    Requirement of additional working capital and                               local management work together to develop actions to 
                                  financing in the medium term, which may not be                              improve financial performance (for instance 
                                  available on attractive terms or at all                                     encouraging new pitches, training and hiring of new 
                                                                                                              staff) and, should it be necessary, review the cost 
                                                                                                              structure of the business in order to minimise the 
                                                                                                              impact on Group's profitability 
        ================  ================================================================  ====================================================================== 
 Attraction and retention of key employees (operational risk) 
         An inability 
         to attract,         *    High staff turnover impacting client service                     *    Recruit senior management and staff of the highest 
         develop or                                                                                     quality through a robust and thorough process, and 
    3    retain                                                                                         remunerate them accordingly and, where possible, 
         key employees       *    Additional unplanned cost and time incurred to                        succession plans are developed in advance 
         could adversely          replace staff 
         affect the 
         Group's                                                                                   *    Create an ethos of being "proud to work for" the 
         business            *    Competitors benefit through staff moving                              Group 
         performance 
 
                             *    Loss of key employee-client relationships and                    *    Promotion opportunities and long-term career plans 
                                  resulting impact on revenue                                           are available 
 
 
                             *    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 
 
 
                                                                                                   *    Promote a culture of diversity and inclusion in the 
                                                                                                        workforce 
        ================  ================================================================  ====================================================================== 
 Working capital (operational risk) 
         Failure to 
         adequately          *    Reduced liquidity                                            *    Ensure strict credit terms as part of contract 
    3    manage cash                                                                                negotiations and agree advanced billing terms 
         flow                                                                                       whenever possible 
         requirements        *    Working capital shortfalls in the short-term 
         due to falls 
         in debt                                                                               *    Strong credit control processes are in place with 
         recoveries          *    Difficulty in maintaining supplier terms                          dedicated credit controllers 
         or rapid 
         organic 
         growth placing      *    Breach bank covenants                                        *    Suspend or end working relationships where the client 
         pressures on                                                                               has a history of non-payment 
         working capital 
         demands 
                                                                                               *    The Group monitors and manages cash flow on a weekly 
                                                                                                    basis and for some of the subsidiaries a 13-week 
                                                                                                    rolling forecast is performed and submitted on a 
                                                                                                    weekly basis. Where potential shortfalls are 
                                                                                                    identified, the Group will work with the relevant 
                                                                                                    finance team to help ensure sufficient funds are 
                                                                                                    available 
        ================  ================================================================  ====================================================================== 
 Reliance on subcontractors (operational risk) 
 2       An 
         over-dependence        *    Non-performance may result in time and/or cost            *    Group minimises reliance on subcontractors by 
         or inability                over-runs on projects reducing expected margins                utilising internal staff where possible and by hiring 
         to adequately                                                                              full time employees as replacements where feasible 
         manage the 
         contributions          *    Lowering of quality of service or product provided 
         of                          adversely impacting market competitiveness                *    Subcontractors are carefully selected (in most cases 
         subcontractors                                                                             through tender processes) with their performance 
         were used to                                                                               being periodically reviewed 
         fulfil the             *    Reputational damage which could lead to client and/or 
         performance                 staff losses 
         obligations 
         of client 
         contracts 
        ================  ================================================================  ====================================================================== 
 Timing of large contracts (operational risk) 
 2       The timing of 
         order placement        *    Material fluctuations in actual results compared with         *    The Group's revenues are generated from a mix of 
         and delivery                expectations                                                       longer and shorter lead times providing flexibility 
         of the larger                                                                                  to manage demand 
         orders are 
         inherently             *    Adverse impact on cash collectability, profitability 
         difficult to                and staff utilisation                                         *    The Group constantly monitors its project pipeline in 
         predict; hence                                                                                 order to avoid an excessive reliance on large 
         the Group may                                                                                  projects 
         experience             *    Employees being overworked to meet demands impacting 
         downtime                    staff welfare and potential reputational damage if 
         between orders              performance is poor                                           *    Periodic assessment of internal resources to assess 
         and/or receive                                                                                 capacity within teams, bringing work forward where 
         an abundance                                                                                   possible during quiet periods, and alternatively 
         of orders at           *    Alternatively, a loss of clients due to internal                   using subcontractors during busy periods 
         once                        capacity not being able to satisfy demands 
        ================  ================================================================  ====================================================================== 
 Information systems (IT) and data security (operational and 
  business risks) 
         A cyber-attack 
         or IT failure       *    Delays to client work and compromise to client               *    Third party IT specialists, monitored by internal 
         could result             relationships                                                     resources maintain Group IT systems 
    3    in major 
         operational 
         and business        *    Opportunity for potential fraud                              *    Business and IT disaster recovery plans exist in each 
         disruption and                                                                             company and are tested frequently to minimise any 
         loss of                                                                                    disruption in the event of an IT failure 
         customer            *    Data loss 
         and business 
         data                                                                                  *    Anti-malware and other IT security software is used 
                             *    Confidentiality breaches                                          to prevent cyberattacks and computer viruses. This 
                                                                                                    software is constantly updated and tested 
 
                             *    Reputational damage as a result of loss of client 
                                  confidence                                                   *    Regular staff training is provided, and IT updates 
                                                                                                    are communicated to all 
 
 
                                                                                               *    Access to data is restricted internally on a 
                                                                                                    person-by-person basis as appropriate 
        ================  ================================================================  ====================================================================== 
 Failure to maintain an acceptable standard of business ethics 
  (business risk) 
         Failure to 
         continually            *    External reputational damage which could affect               *    New business opportunities are shared with all, 
         maintain an                 future and existing client relationships                           creating a culture of openness and transparency 
    2    acceptable 
         level 
         of business            *    Staff dissatisfaction if clients' work is not aligned         *    Code of Business Conduct and Ethics is communicated 
         ethics by                   with their personal ethics                                         to all employees, in addition to having appropriate 
         engaging                                                                                       training programmes in place 
         in actual or 
         perceived 
         unethical                                                                                 *    Confidential communication channels to management or 
         client work                                                                                    Group HR are in place to support staff reporting 
         or by employees                                                                                violations 
         violating the 
         Group's Code 
         of Business                                                                               *    Any perception or questions over ethical standards in 
         Conduct and                                                                                    relation to potential client work or behaviour is 
         Ethics                                                                                         immediately raised to the relevant company board, and 
                                                                                                        if deemed relevant, the Group board also 
        ================  ================================================================  ====================================================================== 
 Legal and regulatory compliance (compliance risk) 
         Failure to 
         comply              *    Financial penalties and fines                                          *    External legal counsel in each country is sought as 
    2    with Italian,                                                                                        necessary 
         UK or 
         international       *    Reputational damage which could lead to client and/or 
         law, AIM                 staff losses                                                           *    A SEC Newgate staff handbook and share dealing code 
         listing                                                                                              is in place and is communicated to all staff 
         rule or other 
         applicable          *    Suspension of trading of AIM securities 
         regulation                                                                                      *    Regular staff training is provided on compliance 
                                                                                                              issues 
 
 
                                                                                                         *    Nominated advisors are consulted with respect to any 
                                                                                                              actions taken which are regulated by the AIM listing 
                                                                                                              rules 
        ================  ================================================================  ====================================================================== 
 

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

Opinion

We have audited the financial statements of SEC Newgate S.p.A. and its subsidiaries (The "Group") for the year ended 31 December 2020 which comprise the consolidated statement of comprehensive income, the consolidated statement of changes in equity, the consolidated statement of financial position, the consolidated cash flow statement and notes to the financial statements, including a summary of significant accounting policies.

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

In our opinion:

-- the Group financial statements give a true and fair view of the state of the Group's affairs as at 31 December 20 20 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 
 9).                                                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. 
 
                                                    During our work, we were assisted 
                                                    by our valuation experts. They were 
                                                    called upon to perform an independant 
                                                    calculation and to conduct a sensitivity 
                                                    analysis on the key assumptions 
                                                    in order to determine whether any 
                                                    changes to these assumptions could 
                                                    significantly affect the measurement 
                                                    of recoverable amount. 
 
                                                    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". 
-----------------------------------------------  -------------------------------------------------------------- 
 

Our application of materiality

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

We determined materiality for the Group financial statements as a whole to be Euro 817 thousands which represents 1.25% of revenues. We agreed with the audit committee that we would report to them misstatements identified during our audit above Euro 41 thousands.

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

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

An overview of the scope of our audit

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

In establishing the overall approach to the Group audit, we assessed the audit significance of each reporting unit in the Group by reference to both its financial significance and other indicators of audit risk, such as the complexity of operations and the degree of estimation and judgement in the financial results.

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

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

Summary of audit scope

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

Other information

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

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

Responsibilities of directors

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

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

Auditor's responsibilities for the audit of the financial statements

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

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

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

Alessandro Fabiano (Partner - Chartered Accountants)

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

Milan, 20 May 2021

Consolidated Income Statement

For the year ended 31 December 2020

 
                                                        2020         2019 
                                            Notes   EUR' 000     EUR' 000 
-----------------------------------------  ------  ---------  ----------- 
 Continuing operations 
 Revenue                                      3       65,332       47,550 
 Cost of sales                                       (9,221)      (9,945) 
-----------------------------------------  ------  ---------  ----------- 
 Gross profit                                         56,111       37,605 
 Operating costs                              4     (52,829)     (35,957) 
 Other income                                            901          164 
 Operating profit                                      4,183        1,812 
 Net finance costs                            6      (1,138)        (541) 
-----------------------------------------  ------  ---------  ----------- 
 Profit before taxation                                3,045        1,271 
 Taxation                                     7      (1,669)      (1,271) 
-----------------------------------------  ------  ---------  ----------- 
 Profit for the year                                   1,376            - 
-----------------------------------------  ------  ---------  ----------- 
 
 (Loss)/profit for the year attributable 
  to: 
     Owners of the Company                               813         (99) 
     Non-controlling interests               25          563           99 
-----------------------------------------  ------  ---------  ----------- 
                                                       1,376            - 
-----------------------------------------  ------  ---------  ----------- 
 
 (Loss)/Earnings per share attributable 
  to the equity shareholders of the 
  Company 
-----------------------------------------  ------  ---------  ----------- 
 Basic, per share                            22     EUR0.034   (EUR0.006) 
 Diluted, per share                          22     EUR0.030   (EUR0.005) 
-----------------------------------------  ------  ---------  ----------- 
 

There were no discontinued operations in the year.

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

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2020

 
                                                            2020       2019 
                                                Notes   EUR' 000   EUR' 000 
---------------------------------------------  ------  ---------  --------- 
 Continuing operations 
 
 Profit for the year                                       1,376          - 
 Items that may be subsequently reclassified 
  to profit or loss: 
 Loss on revaluation of investments 
  held at fair value through profit 
  or loss                                                   (16)      (625) 
 Equity component of convertible loan 
  notes                                          17           34          - 
 Exchange losses/(gains) arising on 
  translation of foreign operations                          223      (346) 
 Items that will not be reclassified 
  to profit or loss: 
 Actuarial loss on defined benefit 
  pension plans                                  21         (16)       (84) 
---------------------------------------------  ------  ---------  --------- 
 Total comprehensive income, net of 
  tax                                                      1,601    (1,055) 
---------------------------------------------  ------  ---------  --------- 
 
 
 Total comprehensive income for the 
  year attributable to: 
     Owners of the Company                                 1,041    (1,120) 
     Non-controlling interests                               560         65 
---------------------------------------------  ------  ---------  --------- 
                                                           1,601    (1,055) 
---------------------------------------------  ------  ---------  --------- 
 

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

Consolidated Statement of Financial Position

As at 31 December 2020

 
                                                 2020       2019 
                                     Notes   EUR' 000   EUR' 000 
----------------------------------  ------  ---------  --------- 
 Non-current assets 
 Intangible assets                     9       30,524     30,768 
 Tangible assets                      10        6,000      8,984 
 Investments                          11           16         16 
 Other assets                         12        2,806      3,511 
----------------------------------  ------  ---------  --------- 
 Total non-current assets                      39,346     43,279 
----------------------------------  ------  ---------  --------- 
 
 Current assets 
 Trade and other receivables          13       17,425     19,656 
 Financial investments                14            -        280 
 Cash and cash equivalents            15       12,036      6,138 
----------------------------------  ------  ---------  --------- 
 Total current assets                          29,461     26,074 
----------------------------------  ------  ---------  --------- 
 Total assets                                  68,807     69,353 
----------------------------------  ------  ---------  --------- 
 
 Current liabilities 
 Trade and other payables             16       14,857     16,861 
 Borrowings                           17        2,449      2,447 
 Lease liabilities                    19        2,217      2,861 
 Provisions                           20        1,981      1,645 
----------------------------------  ------  ---------  --------- 
 Total current liabilities                     21,504     23,814 
----------------------------------  ------  ---------  --------- 
 
 Non-current liabilities 
 Employee benefits                    21        2,152      2,013 
 Borrowings                           17       17,138     12,431 
 Lease liabilities                    19        3,410      5,607 
 Other non-current liabilities        20        5,076      5,637 
----------------------------------  ------  ---------  --------- 
 Total non-current liabilities                 27,776     25,688 
----------------------------------  ------  ---------  --------- 
 Total liabilities                             49,280     49,502 
----------------------------------  ------  ---------  --------- 
 
 Net assets                                    19,527     19,851 
----------------------------------  ------  ---------  --------- 
 
 Equity 
 Share capital                        22        2,452      2,425 
 Share premium                        23       12,456     12,456 
 Legal reserve                        23          187        148 
 Revaluation reserve                  23      (3,202)    (3,076) 
 Retained earnings                    23        6,630      6,222 
 Total equity shareholders' funds              18,523     18,175 
----------------------------------  ------  ---------  --------- 
 
 Non-controlling interests            25        1,004      1,676 
----------------------------------  ------  ---------  --------- 
 Total equity                                  19,527     19,851 
----------------------------------  ------  ---------  --------- 
 

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

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

Fiorenzo Tagliabue

Director

SEC Newgate S.p.A. (09628510159)

Consolidated Statement of Changes in Equity

For the year ended 31 December 2020

 
 
                      Share     Share      Legal   Revaluation   Retained            Total   Non-controlling     Total 
                    capital   premium    reserve      reserves   earnings           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 
  2020                2,425    12,456        148       (3,076)      6,222           18,175             1,676    19,851 
 
 Total 
 comprehensive 
 income 
 Profit for the 
  year                    -         -          -             -        813              813               563     1,376 
 Other 
  comprehensive 
  income                  -         -          -           216         12              228               (3)       225 
-----------------  --------  --------  ---------  ------------  ---------  ---------------  ----------------  -------- 
 Total 
  comprehensive 
  income                  -         -          -           216        825            1,041               560     1,601 
-----------------  --------  --------  ---------  ------------  ---------  ---------------  ----------------  -------- 
 
 Transactions 
 with 
 owners 
 Issue of 
  Ordinary 
  shares                 27         -          -             -      (27 )                -                 -         - 
 Dividends 
  declared 
  to 
  non-controlling 
  interests               -         -          -             -          -                -             (918)     (918) 
 Dividends 
  declared 
  to 
  non-controlling 
  interests 
  (CLAI)(1)               -         -          -             -      (515)            (515)                 -     (515) 
 Transfer between 
  reserves                -         -         39         (342)        303                -                 -         - 
 Disposal of 
  non-controlling 
  interest                -         -          -             -          -                -                21        21 
 Acquisition of 
  non-controlling 
  interest 
  without 
  a change in 
  control                 -         -          -             -      (178)            (178)             (335)     (513) 
-----------------  --------  --------  ---------  ------------  ---------  ---------------  ----------------  -------- 
 Total 
  transactions 
  with owners            27         -         39         (342)      (417)            (693)           (1,232)   (1,925) 
-----------------  --------  --------  ---------  ------------  ---------  ---------------  ----------------  -------- 
 
 At 31 December 
  2020                2,452    12,456        187       (3,202)      6,630           18,523             1,004    19,527 
-----------------  --------  --------  ---------  ------------  ---------  ---------------  ----------------  -------- 
 
 
 
                      Share     Share      Legal   Revaluation   Retained            Total   Non-controlling     Total 
                    capital   premium    reserve      reserves   earnings           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       (2,030)      6,913           10,032             1,933    11,965 
 
 Total 
 comprehensive 
 income 
 Profit for the 
  year                    -         -          -             -       (99)             (99)                99         - 
 Other 
  comprehensive 
  income                  -         -          -       (1,046)         25          (1,021)              (34)   (1,055) 
-----------------  --------  --------  ---------  ------------  ---------  ---------------  ----------------  -------- 
 Total 
  comprehensive 
  income                  -         -          -       (1,046)       (74)          (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       (3,076)      6,222           18,175             1,676    19,851 
-----------------  --------  --------  ---------  ------------  ---------  ---------------  ----------------  -------- 
 
 

(1) SEC Newgate S.p.A. holds preferred shares in CLAI SAS which represent 10% of the ordinary share capital and 50% + 0.1 of the voting rights. SEC Newgate also holds options which would allow the company to acquire the remaining 90% of the share capital in CLAI SAS within the earn out period. The financial statements of the subsidiary have been consolidated at 100% on this basis. Given that there is no non-controlling equity interests attributable to CLAI, the dividend declared to the 90% minority has been allocated to retained earnings. See note 24 for more details.

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

Consolidated Statement of Cash Flows

For the year ended 31 December 2020

 
                                                            2020       2019 
                                                Notes   EUR' 000   EUR' 000 
---------------------------------------------  ------  ---------  --------- 
 Cash flows from operating activities 
 Profit before tax on continuing activities                3,045      1,271 
 Adjusted for: 
 Net finance costs                                6        1,138        541 
 Net exchange differences                                     59          - 
 Amortisation of intangible assets                4          407         95 
 Depreciation of tangible assets                  4        3,121      2,059 
 Impairment of intangible assets                              95          - 
 Impairment of trade receivables                  4          485        243 
 Pension provisions                                          118       (69) 
 Provision and other liabilities                              78          - 
 Share based payment expense                                   -         32 
 Loss on disposal of tangible assets                           9          6 
 
 Disposal and revaluation of lease                          (27)          - 
  liabilities 
 Changes in working capital: 
 Decrease/(increase) in trade and 
  other receivables                                        2,202      (460) 
 (Decrease)/Increase in trade and 
  other payables                                         (1,823)      2,525 
---------------------------------------------  ------  ---------  --------- 
 Cash generated from operating activities                  8,886      6,243 
---------------------------------------------  ------  ---------  --------- 
 Interest received                                           133         49 
 Income tax paid                                         (1,804)    (1,149) 
---------------------------------------------  ------  ---------  --------- 
 Net cash inflow from operating activities                 7,215      5,143 
---------------------------------------------  ------  ---------  --------- 
 
 Cash flows from investing activities 
 Acquisition of intangible assets                          (149)       (94) 
 Acquisition of tangible assets                            (181)      (355) 
 Proceeds from sale of tangible assets                         -          8 
 Acquisition and earn-out payments                          (62)      (577) 
 Cash from (disposal)/acquisitions                          (25)      1,824 
 Acquisition of non-controlling interests        24        (514)      (121) 
 Proceeds from sale of financial investments                 260        409 
 Net cash inflow/(outflow) from investing 
  activities                                               (538)      1,264 
---------------------------------------------  ------  ---------  --------- 
 
 Cash flows from financing activities 
 Payments of finance lease liabilities                   (2,818)    (1,907) 
 Interest paid                                             (864)      (248) 
 Proceeds from loans and borrowings                        6,270      7,323 
 Repayment of loans and borrowings                       (1,585)    (7,414) 
 Dividends paid to non-controlling 
  interests                                              (1,433)      (835) 
 Loan issued to related company                                -    (1,160) 
 Issue costs relating to business 
  combinations                                                 -    (1,155) 
 Net cash outflow from financing activities                (430)    (5,517) 
---------------------------------------------  ------  ---------  --------- 
 
 Net cash increase in cash and cash 
  equivalents                                              6,114        841 
 Cash and cash equivalents at 1 January                    6,138      5,220 
 Effect of exchange rate changes                           (144)         77 
---------------------------------------------  ------  ---------  --------- 
 Cash and cash equivalents at 31 December        18       12,108      6,138 
---------------------------------------------  ------  ---------  --------- 
 

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

Notes to the Financial Statements

For the year ended 31 December 2020

   1.   Accounting policies 

a. Basis of preparation

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

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

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

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

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

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

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

New and amended standards adopted by the Group

The Group has applied the following standards, amendments and interpretations for the first time for their annual reporting period commencing 1 January 2020:

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

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

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

   --    Revisions to the Conceptual Framework for Financial Reporting. 

The adoption of the above did not have a significant impact on reported results or amounts recognised in prior periods.

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

Certain new standards, amendments to standards and interpretations have been published that are effective for annual periods beginning after 1 January 2021, and have not been applied in preparing these consolidated financial statements:

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

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

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

   --    Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37); 
   --    Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16); 

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

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

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

b. Going concern

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

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

c. Basis of consolidation

The Consolidated Statement of Comprehensive Income and Consolidated Statement of Financial Position include the financial statements of the Company and its subsidiary undertakings made up to 31 December 2020 and present comparative information for the year ended 31 December 2019.

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

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

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

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

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

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

d. Foreign currency translation

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

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

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

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

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

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

e. Business combinations

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

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

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

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

f. Revenue

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

Revenues recognised in any period are based on the delivery of performance obligations and an assessment of when control is transferred to the customer. Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. Income billed in advance of the performance of the service is deferred and recognised in the Consolidated Income Statement when the service takes place. Income in respect of work carried out but not billed at period end is accrued.

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

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

g. Other income

Other income includes local geographical governments Covid-19 support payments, Covid income. These payments have been received in respect of employment costs and are accounted for as grants as they are not repayable. Grants are accounted for under the accruals model as permitted by IAS 20. Grants of a revenue nature are recognised in other income in the Consolidated Income Statement in the same period as the related expenditure. In 2020 Covid income recognised in other income amounted to EUR850,000 (2019: EURnil).

h. Intangible assets

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

Goodwill

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

Goodwill has an indefinite useful life and therefore not amortised. Goodwill is carried at cost less accumulated impairment losses. Impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. An impairment loss is recognised when the carrying value exceeds the recoverable amount. The recoverable amount is the higher of value-in-use measured as the net present value of future cash flows derived from the underlying asset and the fair value less cost of disposal for each cash-generating unit. Any impairment in carrying value is recognised as an expense and is not subsequently reversed.

Website development costs and software

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

Licenses: Research and development costs

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

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

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

Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in the Consolidated Income Statement as incurred.

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

Licenses: Other

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

i. Tangible assets

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

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

   --    Equipment: 2 - 5 years 
   --    Furniture and fittings5 - 10 years 

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

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

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

j. Investment in subsidiaries, associates and joint ventures

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

k. Financial assets

Recognition and initial measurement

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

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

Classification and subsequent measurement

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

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

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

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

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

Investments

Financial investments (note 11) are categorised as a Level 1 investment for the purpose of the IFRS 13 fair value hierarchy and are valued using quoted prices in active markets for these investments at the reporting date.

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

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

Trade and other receivables

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

Impairment of financial assets

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

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

l. Cash and equivalents

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

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

m. Financial liabilities

Recognition and initial measurement

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

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

Classification and subsequent measurement

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

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

The fair value of financial liabilities of the Group together with their carrying values can be found in note 8.

n. Leases

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

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

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

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

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

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

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

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

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

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

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

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

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

The Group presents right-of-use assets within tangible assets, and lease liabilities are presented in its own separate line item in the Consolidated Statement of Financial Position.

For all other lease liability payments, the Group has classified the principal portion of lease payments within financing activities and the interest portion within operating activities in the Consolidated Statement of Cash Flows.

Short-term leases and leases of low value

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

Covid 19 rent concessions

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

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

o. Share capital and share premium

The Company's Ordinary shares are classified as equity. Share premium represents the amounts received in excess of the nominal value of the Ordinary shares less costs of the shares issued and is classified as equity.

p. Dividends

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

q. Taxation

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

Current income tax

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

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

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

Deferred tax

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

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

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

r. Employee benefits

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

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

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

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

s. Provisions

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

t. Share based payments

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

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

u. Critical accounting estimates and judgements

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

Impairment of goodwill

The carrying value of goodwill is subject to an impairment review both annually and when there are indications that the carrying value may not be recoverable, in accordance with accounting policies (h) stated above. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations which require the use of estimates. See note 9 for further details.

Recoverability of trade receivables

Management performs an assessment of the recoverability of debtors when evidence arises that demonstrates the collection is uncertain. Management periodically reassesses the adequacy of the allowance for doubtful debts in conjunction with its expected credit loss policy and discussions with each specific customer. Judgement is applied at the point where recoverability is deemed uncertain and thus when a provision is to be recognised (see note 13).

Fair value measurements and valuation processes

Some of the Group's assets and liabilities are measured at fair value for financial reporting purposes. In estimating the fair value of an asset or a liability, the Group uses market observable data to the extent it is available (see note 8).

Employee benefits

For actuarial assumptions on severance indemnity refer to note 21.

Lease liabilities

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

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

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

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

For further details on lease liabilities refer to note 19.

2. Segmental reporting

Business segments

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

Geographical segments

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

 
                              2020              2019 
                  ---------  -----  ---------  ----- 
                   EUR' 000      %   EUR' 000      % 
----------------  ---------  -----  ---------  ----- 
 Italy               11,470    18%     16,879    35% 
 United Kingdom      19,162    29%      9,111    19% 
 Belgium              4,218     6%      4,205     9% 
 Colombia             3,326     5%      4,052     9% 
 Spain                  829     1%        941     2% 
 Poland                 642     1%        965     2% 
 France               4,614     7%      4,148     9% 
 Germany                512     1%        674     1% 
 Australia           17,320    27%      5,152    11% 
 Hong Kong            1,047     2%        651     1% 
 China                   22     0%         42     0% 
 Singapore            1,390     2%        431     1% 
 Abu Dhabi              391     1%        299     1% 
 United States           70     0%          -     0% 
 Morocco                319     0%          -     0% 
----------------  ---------  -----  ---------  ----- 
                     65,332   100%     47,550   100% 
----------------  ---------  -----  ---------  ----- 
 

No individual client sales were greater than 10% of Group revenue (2019: none).

   3.   Revenue 

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

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

 
 
                                      2020       2019 
                                  EUR' 000   EUR' 000 
  -----------------------------  ---------  --------- 
 Communications                     35,092     23,678 
 Advocacy and public affairs        18,716     13,038 
 Integrated services                11,524     10,834 
-------------------------------  ---------  --------- 
                                    65,332     47,550 
  -----------------------------  ---------  --------- 
 

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

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

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

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

 
                                        2020                 2019 
                           -------  --------  ---------  -------- 
                              EUR' 
  Client based revenue         000         %   EUR' 000         % 
-------------------------  -------  --------  ---------  -------- 
 Europe                     39,191       60%     35,418       74% 
 Australia & Oceania        17,498       27%      4,914       10% 
 South America               3,119        5%      3,669        8% 
 Asia                        3,297        5%      2,232        5% 
 North America               1,499        2%        944        2% 
 Africa                        728        1%        373        1% 
-------------------------  -------  --------  ---------  -------- 
                            65,332      100%     47,550      100% 
  -----------------------  -------  --------  ---------  -------- 
 
   4.   Operating costs 
 
 
                                                 2020    2019(1) 
                                     Notes   EUR' 000   EUR' 000 
 ---------------------------------  ------  ---------  --------- 
 Employee expenses                             37,322     23,386 
 Amortisation of intangible 
  assets                               9          407         95 
 Depreciation of tangible 
  assets                              10        3,121      2,059 
 Impairment of goodwill                9           95          - 
 Impairment of trade receivables                  485        243 
 Loss on disposal of subsidiary                     2          - 
 Professional and consulting 
  fees                                          4,161      2,827 
 Marketing and advertising                      1,565      2,486 
 Establishment costs                            1,426        721 
 Other administrative and 
  operating expenses                            4,245      4,140 
----------------------------------  ------  ---------  --------- 
                                               52,829     35,957 
 ---------------------------------  ------  ---------  --------- 
 

(1) The operating cost note is a new note in the consolidated financial statements, combining totals of the following notes previously disclosed in the SEC Newgate S.p.A. Annual Report & Accounts for the year ending 31 December 2019. 2019 comparative combines employee expenses (EUR23,386,000), service costs (EUR8,982,000), depreciation and amortisation (EUR2,154,000) and other operating costs (EUR1,271,000) notes, excluding other operating income (164,000) which is presented on the face of the Group's Consolidated Income statement. The new operating cost disclosure is considered by the Board to be a more transparent and simplified reflection of the SEC Newgate Group's operating activities. The 2019 disclosure changes have no impact on the Group's profit presented in the Consolidated Income statement.

   5.   Employee expenses 
 
                                            2020       2019 
                                        EUR' 000   EUR' 000 
  -----------------------------------  ---------  --------- 
 Wages, salaries and non-executive 
  fees                                    31,380     18,414 
 Social security costs                     3,855      3,087 
 Severance indemnity and pension 
  contributions                            1,748      1,473 
 Share based payments(1)                       -         32 
 Other employment related welfare 
  costs                                      339        380 
------------------------------------   ---------  --------- 
                                          37,322     23,386 
  -----------------------------------  ---------  --------- 
 

(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 EURnil (2019: EUR32,000) above have a corresponding tax impact of EURnil (2019: EUR8,000).

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

 
                       2020     2019 
                     Number   Number 
----------------    -------  ------- 
 Fee earners            460      464 
 Management              30       44 
 Administration          79       84 
------------------  -------  ------- 
                        570      592 
  ----------------  -------  ------- 
 

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

 
                                2020    2019 
                                EUR'    EUR' 
                                 000     000 
  --------------------------  ------  ------ 
 Salaries of key managers      1,860   1,010 
 End of mandate allowance          -      18 
----------------------------  ------  ------ 
                               1,860   1,028 
  --------------------------  ------  ------ 
 

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 2020            Fees and          Pension   Bonus          Other   Total 
                             Salaries    Contributions            benefits(2) 
                                                  EUR'    EUR'           EUR'    EUR' 
                             EUR' 000              000     000            000     000 
-------------------------  ----------  ---------------  ------  -------------  ------ 
 Executive Directors 
 Fiorenzo Tagliabue               109                -       -              -     109 
 Emma Kane(1)                     476               20       -              6     502 
 Brian Tyson(1)                   375               13       -              -     388 
 Anna Milito                       85                -       -              -      85 
 Thomas Parker                    244                -     144              -     388 
 Mark Glover(1)                   134                -       -              -     134 
 Andrea Cornelli                  128                -       -              -     128 
 Non-executive Directors 
 John Foley(1)                     25                -       -              -      25 
 Luigi Roth                        33                -       -              -      33 
 David Mathewson                   34                -       -              -      34 
 Paola Bruno                       34                -       -              -      34 
-------------------------  ----------  ---------------  ------  -------------  ------ 
                                1,677               33     144              6   1,860 
-------------------------  ----------  ---------------  ------  -------------  ------ 
 
 31 December 2019            Fees and          Pension   Bonus          Other   Total 
                             Salaries    Contributions            benefits(2) 
                                                  EUR'    EUR'           EUR'    EUR' 
                             EUR' 000              000     000            000     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 
-------------------------  ----------  ---------------  ------  -------------  ------ 
 

(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.

   6.   Net finance costs 
 
 
                                             2020   2019 
                                             EUR'   EUR' 
                                              000    000 
 -----------------------------------------  -----  ----- 
 Interest income on bank deposits             104     68 
 Dividend income                                -      1 
 Fair value gains on financial assets at 
  fair value through profit or loss            22    119 
 Net gain on modifying lease assets             7      - 
-----------------------------------------   -----  ----- 
 Finance income                               133    188 
------------------------------------------  -----  ----- 
 
 
 
 Interest expense                    (735)   (337) 
 Interest on lease liabilities       (348)   (265) 
 Net foreign exchange loss           (188)   (127) 
--------------------------------  --------  ------ 
 Finance expense                   (1,271)   (729) 
--------------------------------  --------  ------ 
 Net finance expense               (1,138)   (541) 
--------------------------------  --------  ------ 
 
   7.   Taxation 
 
 
                                              2020       2019 
                                          EUR' 000   EUR' 000 
 --------------------------------------  ---------  --------- 
 Current tax charge                        (1,814)    (1,366) 
 Adjustment in respect of prior years            8          - 
 Deferred tax credit                           137         95 
---------------------------------------  ---------  --------- 
 Total tax charge for the year             (1,669)    (1,271) 
---------------------------------------  ---------  --------- 
 

The activities of the Group are located across a number of geographical locations including Italy, UK, Spain, Germany, Belgium, Poland, Columbia, US, 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 effective tax rate for the Group is 50% (2019:100%) and is the taxation charge for the year recognised in the Income Statement expressed as a percentage of profit before taxation. The significantly higher tax rate in 2019 primarily related to tax incurred on the acquisition of the Porta Group (see note 24 for details of the acquisition).

The tax assessed for the year differs from the standard rate of tax in Italy at 24% (2019: 24%) for the reasons set out in the following table.

 
                                                            2020       2019 
                                                            EUR' 
                                                             000   EUR' 000 
  ----------------------------------------------------  --------  --------- 
 Profit before taxation on continuing activities           3,045      1,271 
------------------------------------------------------  --------  --------- 
 
 Tax using the Company's domestic tax rate 
  of 24% (2019: 24%)                                       (731)      (305) 
 Tax effect of: 
   Temporary timing differences                            (506)      (533) 
   Non-deductible expenses                                 (175)      (411) 
   Non-taxable income                                       (69)         31 
   Utilisation of tax losses in current period               251        254 
   Tax losses carried forward                              (250)      (225) 
   Recovery of IRAP taxable amounts on IRES 
    purposes                                                (94)          7 
   Tax incentives                                              -         17 
 IRAP on Italian entities                                   (15)       (94) 
 Adjustment in respect of prior years                        (8)          - 
 Non Italian jurisdictions tax rates reconciliation         (93)       (12) 
 Taxable profits allocated to partnership interests           21          - 
----------------------------------------------------    --------  --------- 
 Total tax charge for the year                           (1,669)    (1,271) 
------------------------------------------------------  --------  --------- 
 

Deferred tax balances were as follows:

 
 
                                         2020       2019 
                             Notes   EUR' 000   EUR' 000 
--------------------------  ------  ---------  --------- 
 Deferred tax assets          12        2,213      2,053 
 Deferred tax liabilities     16        (188)      (224) 
--------------------------  ------  ---------  --------- 
 

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

 
                                                  2020       2019 
                                              EUR' 000   EUR' 000 
 ------------------------------------------  ---------  --------- 
 At 1 January                                    1,829      1,088 
 Recognised in income statement                    137         95 
 Acquisition through business combination            -        456 
 Other movements                                    45        155 
 Translation differences                            45         35 
-------------------------------------------  ---------  --------- 
 At 31 December                                  2,025      1,829 
-------------------------------------------  ---------  --------- 
 

The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience.

   8.   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 14) as fair value through profit or loss, its other investments (note 11) 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 recognised 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:

 
                                           2020     2019(1) 
                                        ---------  --------- 
                                         Carrying   Carrying 
                                          Value      Value 
                                           EUR' 
                                 Notes      000     EUR' 000 
   ---------------------------  ------  ---------  --------- 
 Financial assets 
 Investments                      11           16         16 
 Other assets                     12          593      1,458 
 Trade and other 
  receivables                     13       15,150     16,467 
 Financial investments            14            -        280 
 Cash and cash equivalents        15       12,036      6,138 
------------------------------  ------  ---------  --------- 
                                           27,795     24,359 
   ---------------------------  ------  ---------  --------- 
 
 Financial liabilities 
 Trade and other 
  payables                        16        6,632      8,876 
 Lease liabilities                19        5,627      8,468 
 Earn out liabilities(1)          20        6,337      6,399 
 Other liabilities                20          365        590 
 Borrowings(2)                    17       19,587     14,878 
------------------------------  ------  ---------  --------- 
                                           38,548     39,211 
   ---------------------------  ------  ---------  --------- 
 
 

(1) Earn out liabilities (current and non-current) have been aggregated. 2019 comparatives have been restated to ensure consistent reporting. Earn out liabilities of EUR4,754,000 have been reclassified from other liabilities (reducing 2019 balance of EUR5,344,000 non-current liabilities) to earn out liabilities (increasing 2019 balance of EUR1,645,000).

(2) Borrowings include overdrafts of EUR72,000 (2019: EUR31,000).

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.

 
                                      2020      2019 
  Maturity profile 
   of financial liabilities        EUR'000   EUR'000 
--------------------------------  --------  -------- 
 Due in six months 
  or less                           10,591    13,221 
 Due between six 
  months and 1 year                  2,610     2,609 
 Due between 1 year 
  and 2 years                        7,879     3,741 
 Due between 2 and 
  5 years                           12,207    16,041 
 Due in 5 years or 
  more                               5,261     3,599 
-------------------------------- 
                                    38,548    39,211 
    ----------------------------  --------  -------- 
 

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 2020, the Group had amounts due from 12 major customers amounting to 14% (2019: 16 amounting to 20%) of the trade receivables balance. Major customers are defined as customers with outstanding trade receivable balances of more than EUR100,000.

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 13.

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. Generally the Group maintains long-term borrowing facilities to fund acquisition activity and short term borrowing facilities for working capital requirements.

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.

 
 Effect on profit/(loss) 
  before tax                              +5%       -5%        +5%        -5% 
                                         2020      2020       2019       2019 
                                         EUR'      EUR' 
                                          000       000   EUR' 000   EUR' 000 
  -----------------------------------  ------  --------  ---------  --------- 
 British Pound                             56      (56)       (56)         56 
 Australian Dollar                        243     (243)         55       (55) 
 Singapore Dollar                          24      (24)          2        (2) 
 Hong Kong Dollar                        (16)        16        (8)          8 
 UAE Dirham                              (10)        10          1        (1) 
 Colombian Peso                             -         -          6        (6) 
 Polish Zloty                             (2)         2          4        (4) 
 Chinese Yuan                               -         -          1        (1) 
 US Dollar                                 11      (11)         19       (19) 
-------------------------------------  ------  --------  ---------  --------- 
 
 Effect on equity                         +5%       -5%        +5%        -5% 
                                         2020      2020       2019       2019 
                                         EUR'      EUR' 
                                          000       000   EUR' 000   EUR' 000 
  -----------------------------------  ------  --------  ---------  --------- 
 British Pound                          1,952   (1,952)      1,311    (1,311) 
 Australian Dollar                        107     (107)         78       (78) 
 Singapore Dollar                          43      (43)         61       (61) 
 Hong Kong Dollar                           7       (7)          7        (7) 
 UAE Dirham                               (2)         2          8        (8) 
 Colombian Peso                            15      (15)         12       (12) 
 Polish Zloty                               6       (6)          7        (7) 
 Chinese Yuan                               -         -        (2)          2 
 US Dollar                                 28      (28)         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 17 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.

   9.   Intangible assets 
 
                              Goodwill       Websites,      Total 
                                              software 
                                          and licences 
 Cost                         EUR' 000        EUR' 000   EUR' 000 
---------------------------  ---------  --------------  --------- 
 At 1 January 2019              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 
 Additions in the 
  year                               -             241        241 
 Disposals in the 
  year                               -             (8)        (8) 
 Translation differences             -            (34)       (34) 
---------------------------  ---------  --------------  --------- 
 At 31 December 
  2020                          29,354           2,392     31,746 
---------------------------  ---------  --------------  --------- 
 
 Amortisation and 
  impairment 
 At 1 January 2019                   -           (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) 
 Charge for the 
  year                               -           (407)      (407) 
 Impairment                       (95)               -       (95) 
 Eliminated on 
  disposal                           -              31         31 
 Translation differences             -              28         28 
---------------------------  ---------  --------------  --------- 
 At 31 December 
  2020                            (95)         (1,127)    (1,222) 
---------------------------  ---------  --------------  --------- 
 
 Net book value 
 At 1 January 2019              14,359           1,255     15,614 
 At 31 December 
  2019                          29,354           1,414     30,768 
---------------------------  ---------  --------------  --------- 
 At 31 December 
  2020                          29,259           1,265     30,524 
---------------------------  ---------  --------------  --------- 
 

Refer to note 24 for details of business acquisitions and disposals 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         2020       2019 
                        acquired                       EUR' 000   EUR' 000 
   -------------------------------------------------  ---------  --------- 
 ACH Sec Global SL                            2014          397        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      8,235 
 Newgate Communications Limited               2019        4,411      4,411 
 Newgate Communications (HK) Limited          2019          976        976 
 21:12 Communications Limited                 2019          713        713 
 Newgate Communications (Singapore) 
  Pte. Ltd                                    2019          617        617 
 Newgate Communications FZ-LLC                2019           43         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 
----------------------------------------    --------  ---------  --------- 
                                                         29,259     29,354 
   -------------------------------------------------  ---------  --------- 
 

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              7.3%   7.3%     7.3%   7.3%   7.3%   7.3%    7.3% 
 Discount rate      4.5%   3.5%     4.0%   3.9%   5.2%   4.0%    5.4% 
----------------  ------  -----  -------  -----  -----  -----  ------ 
 
                   SEC-L   NGAS   SEC UK   NGHK   2112   NGSN    NGAD 
----------------  ------  -----  -------  -----  -----  -----  ------ 
 Average market 
  rate              7.3%   7.3%     7.3%   7.3%   7.3%   7.3%    7.3% 
 Discount rate     11.0%   7.8%     4.0%   7.2%   4.0%   7.1%    4.9% 
----------------  ------  -----  -------  -----  -----  -----  ------ 
 

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 2021 to 2025 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 to 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 EUR348,000 was accrued as of 31 December 2020 (2019: EUR408,000) (see note 20).

Acquisition of CLAI is subject to an earn out based on company EBITDA over seven years (2019 to 2025); SEC holds preferred shares in CLAI that represent the 10% of the share capital and entitling the Group to 51% of voting rights with the option to increase ownership to 100% 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 EUR5,989,000 was accrued as of 31 December 2020 (2019: EUR5,962,000) (see note 20). The final total consideration is subject to uncertainty and depends on the company performance over the ongoing financial year.

10. Tangible assets

 
                                 Leasehold       Leasehold   Equipment       Furniture      Total 
                                  property    improvements                and fittings 
                                      EUR' 
 Cost                                  000        EUR' 000    EUR' 000        EUR' 000   EUR' 000 
------------------------------  ----------  --------------  ----------  --------------  --------- 
 At 1 January 2019                       -             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) 
 Revaluations                           56               -           -               -         56 
 Translation differences               194              67          29              32        322 
------------------------------  ----------  --------------  ----------  --------------  --------- 
 At 31 December 2019                 9,742           2,113       1,193           1,921     14,969 
 Additions in the year                 310              15         328              61        714 
 Disposals in the year               (354)               -        (53)           (278)      (685) 
 Revaluations                         (84)               -           -             (3)       (87) 
 Translation differences             (254)            (61)        (46)            (47)      (399) 
------------------------------  ----------  --------------  ----------  --------------  --------- 
 At 31 December 2020                 9,369           2,067       1,422           1,654     14,512 
------------------------------  ----------  --------------  ----------  --------------  --------- 
 
 Depreciation 
------------------------------  ----------  --------------  ----------  --------------  --------- 
 At 1 January 2019                       -           (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) 
 Charge for the year               (2,441)           (251)       (217)           (212)    (3,121) 
 Eliminated on disposal                223               -          44             110        377 
 Translation differences               105              46          33              33        217 
------------------------------  ----------  --------------  ----------  --------------  --------- 
 At 31 December 2020               (4,773)         (1,541)       (925)         (1,273)    (8,512) 
------------------------------  ----------  --------------  ----------  --------------  --------- 
 
 Net book value 
 At 1 January 2019                       -             417          94             269        780 
 At 31 December 2019                 7,082             777         408             717      8,984 
------------------------------  ----------  --------------  ----------  --------------  --------- 
 At 31 December 2020                 4,596             526         497             381      6,000 
------------------------------  ----------  --------------  ----------  --------------  --------- 
 

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

 
                             Depreciation charge      Net book value 
                                 for the year 
                                 2020        2019       2020       2019 
                             EUR' 000    EUR' 000   EUR' 000   EUR' 000 
 ------------------------  ----------  ----------  ---------  --------- 
 Leasehold property             2,445       1,594      4,596      7,082 
 Leasehold improvements            30          31        200         47 
 Equipment                        135          41        238         87 
 Furniture and fittings            13          59         24        206 
-------------------------  ----------  ----------  ---------  --------- 
                                2,623       1,725      5,058      7,422 
 ------------------------  ----------  ----------  ---------  --------- 
 

Additions to the right-of-use assets during the year were EUR533,000 (2019: EUR68,000).

Amounts included in revaluations above relates to an adjustment to office leases recognised under IFRS 16.

11. Investments

 
                             Owned          Ownership       2020       2019 
  by                                                %   EUR' 000   EUR' 000 
 ----------------------------------------  ----------  ---------  --------- 
 Sec & Partners S.r.l.       SEC Newgate         95.0          5          5 
 Other equity investments    Various              n/a         11         11 
--------------------------  -------------  ----------  ---------  --------- 
                                                              16         16 
 ----------------------------------------  ----------  ---------  --------- 
 

12. Other assets

 
                              2020       2019 
                          EUR' 000   EUR' 000 
  ---------------------  ---------  --------- 
 Deferred tax assets         2,213      2,053 
 Rental deposits               564      1,097 
 Directors benefits             29        361 
-----------------------  ---------  --------- 
                             2,806      3,511 
  ---------------------  ---------  --------- 
 

Rental deposits include bank deposits of EUR59,000 (2019: EUR21,000) to guarantee office leases.

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 20).

13. Trade and other receivables

 
                                         2020       2019 
                                     EUR' 000   EUR' 000 
  --------------------------------  ---------  --------- 
 Trade receivables                     14,463     15,685 
 Less: provision for impairment         (840)      (591) 
----------------------------------  ---------  --------- 
                                       13,623     15,094 
  --------------------------------  ---------  --------- 
 Accrued income                         1,527      1,373 
 Prepayments                            1,170      1,915 
 Tax on income                            458        478 
 VAT receivables                           79        574 
 Other receivables                        568        222 
----------------------------------  ---------  --------- 
                                       17,425     19,656 
  --------------------------------  ---------  --------- 
 

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:

 
                                                  2020       2019 
                                              EUR' 000   EUR' 000 
  -----------------------------------------  ---------  --------- 
 Neither past due nor impaired                   6,787      6,874 
 Past due but not impaired: 
    Past due up to 3 months                      5,388      6,466 
    Past due more than 3 months not more 
     than 6 months                                 654        680 
    Past due more than 6 months not more 
     than 1 year                                   410        357 
    Past due more than 1 year                      384        717 
-------------------------------------------  ---------  --------- 
                                                13,623     15,094 
  -----------------------------------------  ---------  --------- 
 

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

 
                                        Maturity analysis EUR'000s 
                                   ----------------------------------- 
                                                         730 - 
                                    0 - 365   365 -730    1826   1826+ 
---------------------------------  --------  ---------  ------  ------ 
 Expected credit loss rate               0%        30%     70%     80% 
 Estimated carrying value amount 
  at default                              -        403      99     367 
 Lifetime ECL                             -        121      69     367 
---------------------------------  --------  ---------  ------  ------ 
 

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

 
                                            2020       2019 
                                        EUR' 000   EUR' 000 
  -----------------------------------  ---------  --------- 
 At 1 January                                591        433 
 Provision made during the 
  year                                       409        126 
 Acquired on business combinations             -        131 
 Amounts written off during 
  the year                                 (171)        (2) 
 Amounts recovered during the 
  year                                        21      (106) 
 Translation differences                    (10)          9 
-------------------------------------  ---------  --------- 
 At 31 December                              840        591 
-------------------------------------  ---------  --------- 
 

14. Financial investments

 
                                         2020       2019 
 Level 1 fair value investments 
  - measured FVTPL                   EUR' 000   EUR' 000 
----------------------------------  ---------  --------- 
 UBS S.A. investment (bonds)                -        280 
----------------------------------  ---------  --------- 
 

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

 
                                  Funds 
                               EUR' 000 
     -----------------------  --------- 
 At 1 January 2019                  583 
 Acquisitions                         - 
 Disposals during 
  the year                        (379) 
 Changes in fair value               76 
----------------------------  --------- 
 At 31 December 2019                280 
 Acquisitions                         - 
 Disposals during 
  the year                        (302) 
 Changes in fair value               22 
----------------------------  --------- 
 At 31 December 2020                  - 
----------------------------  --------- 
 

15. Cash and cash equivalents

 
                                   2020       2019 
                               EUR' 000   EUR' 000 
  --------------------------  ---------  --------- 
 Cash at bank and in hand        11,738      5,817 
 Restricted cash                    298        321 
----------------------------  ---------  --------- 
                                 12,036      6,138 
  --------------------------  ---------  --------- 
 

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.

16. Trade and other payables

 
                                               Restated(1) 
                                        2020          2019 
                                    EUR' 000      EUR' 000 
  -------------------------------  ---------  ------------ 
 Trade payables                        4,464         7,462 
 Accrued expenses                      2,168         1,414 
 Deferred income                       1,527         1,412 
 Deferred tax liabilities                188           224 
 VAT payable                           2,014         1,466 
 Other taxes and institutional 
  payables                             3,561         3,464 
 Other payables                          935         1,419 
---------------------------------  ---------  ------------ 
                                      14,857        16,861 
  -------------------------------  ---------  ------------ 
 

(1) 2019 comparatives have been restated to aggregate employee and payroll related liabilities EUR2,699,000, government institutions EUR368,000 and tax on income EUR397,000 and disclose as other taxes and institutional payables.

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

Other payables includes EURnil (2019: EUR142,000) due to a Director of SEC and Partners.

17. 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.

 
                               2020          2020     2020      2019          2019     2019 
                            Current   Non-current    Total   Current   Non-current    Total 
                                             EUR'     EUR'      EUR'          EUR'     EUR' 
                           EUR' 000           000      000       000           000      000 
 -----------------------  ---------  ------------  -------  --------  ------------  ------- 
 UBS                              -         1,762    1,762         -         1,762    1,762 
 Deutsche Bank                  742         2,054    2,796       784         2,242    3,026 
 Banco Popolare di 
  Milano                        298           669      967        57             -        - 
 Inveready convertible 
  bonds                           -         2,457    2,457         -             -        - 
 UniCredit                      948         3,109    4,057       919         3,275    4,194 
 Banca Carige                   134         1,317    1,451       401             -      401 
 Hawk Investment 
  Holdings                        -         4,702    4,702         -         4,703    4,703 
 Retro Grand Limited              -           432      432         -           449      449 
 CommBank                         -           313      313         -             -        - 
 KBC Bank                       140             -      140       141             -      141 
 Bankinter                       18            82      100       100             -      100 
 Itau Corpbanca                   -             -        -         2             -        2 
 Intesa Sanpaolo                 22            30       52         -             -        - 
 Banco de Bogatá            41            61      102         -             -        - 
 Banco Agrario                   12            35       47         -             -        - 
 Bancoomeva                       6             5       11         -             -        - 
 Scotiabank Colpatria             2             -        2         -             -        - 
 NatWest                          -           110      110         -             -        - 
 Total loans                  2,363        17,138   19,501     2,404        12,431   14,835 
 Transaction costs(1)            86             -       86        43             -       43 
------------------------  ---------  ------------  -------  --------  ------------  ------- 
 Total borrowings(2)          2,449        17,138   19,587     2,447        12,431   14,878 
------------------------  ---------  ------------  -------  --------  ------------  ------- 
 

(1) Transaction costs relate to bank borrowings

(2) Total borrowings includes overdrafts.

Analysed as below, excluding transaction costs:

Details of bank borrowings

 
                                                          Total 
                                          Type of        facility   Balance     Interest      Maturity      Repayment 
                           Currency       borrowing      EUR'000     EUR'000      rate           date          term 
------------------------  ----------  ---------------  ----------  ---------  -----------  --------------  ----------- 
 UBS (Italy)                                                                      Euribor 
  S.p.A(1)                    EUR           Bank loan       1,762      1,762       +1.25%      Open ended   Open ended 
                                                                                  Euribor          August 
 Deutsche Bank                EUR           Bank loan       3,000      2,796        +1.7%            2024    Quarterly 
 Banco Popolare                                                                   Euribor        December 
  di Milano                   EUR           Bank loan       1,000        967       +1.65%            2023      Monthly 
 UniCredit                    EUR           Bank loan       4,000      3,804      Euribor       July 2026    Quarterly 
 UniCredit                    EUR           Bank loan       1,000        200         1.2%       June 2022      Monthly 
                                                                                  Euribor 
 Banca Carige(2)              EUR           Bank loan       1,000        993          +1%        May 2026      Monthly 
                                                                                  Euribor 
 Banca Carige                 EUR           Bank loan       1,000        458        +1.2%        May 2023   Biannually 
 Bank Inter                   EUR           Bank loan         100        100         1.7%      April 2025      Monthly 
                                                                                            June-December 
 KBC Bank                     EUR          Bank loans         140        143        0.85%            2021      Monthly 
 Intesa Sanpaolo              EUR           Bank loan          30         30        1.13%      April 2026      Monthly 
                                                                                                 December 
 Scotiabank Colpatria         COP           Bank loan         126          2           0%            2021      Monthly 
 Banco Agrario                COP           Bank loan          47         47   DTF +6.57%       June 2023      Monthly 
 Banco de Bogatá         COP           Bank loan         102        102    DTF +4.3%       June 2023      Monthly 
                                                                                                 November 
 Bancoomeva                   COP           Bank loan         117         11   DTF +8.58%            2022      Monthly 
 Commonwealth                                                                                    November 
  Bank of Australia           AUD           Bank loan         313        313         6.0%            2025      5 years 
                                             Business 
                                         interruption 
 NatWest                      GBP                loan         110        110           0%       July 2026      Monthly 
 Overdrafts                   EUR           Overdraft           -         72           0%             N/A          N/A 
------------------------  ----------  ---------------  ----------  ---------  -----------  --------------  ----------- 
 Total bank borrowings(3)                                             11,910 
-----------------------------------------------------  ----------  ---------  -----------  --------------  ----------- 
 

(1) Pledge on Silvia Anna Mazzucca financial instruments has been provided as security

(2) 90% guaranteed by Guarantee Fund as determined by "Decreto Liquidità" for Coronavirus disease

(3) Total bank borrowings includes overdrafts and excludes transaction costs

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                                          April    at maturity 
  Holdings                 GBP     bond                   5,673      4,702      5.87%       2023           date 
                                                                                                       Lump sum 
 Inveready convertible            Convertible                                              March    at maturity 
 bonds                     EUR     bonds                  2,500      2,457      3.50%       2027           date 
                                                                                                       Lump sum 
                                  Convertible                                           10 April    at maturity 
 Retro Grand               GBP     loan                     432        432         0%       2024           date 
------------------------  -----  -----------------  -----------  ---------  ---------  ---------  ------------- 
 
 

The Group's principal borrowing activity is set out below:

In March 2020 the Group issued convertible bonds to Inveready Convertible Finance (Inveready), a Spanish joint venture, in a single tranche of EUR2,500,000 of 25 bonds with a nominal value of EUR100,000 each. The bonds are convertible into a maximum of 3,821,375 Ordinary shares representing 152,855 Ordinary shares per bond in March 2027 at the option of the holder. Any unconverted bond notes become payable on demand. The equity component of EUR34,000 (net of transaction costs of EUR63,000) is recognised in the Statement of Comprehensive Income.

In January 2020 the Group secured a new bank loan for EUR1,000,000 from Banco BPM S.p.A. In June 2020 a further EUR1,000,000 bank loan was secured from Banca Carige.

The UniCredit bank loans are subject to bank covenants, whereby the Group is required to meet certain key financial performance requirements in relation to debt/equity and debt/EBITDA ratios. In cases of a breach of these bank covenants the bank is entitled to demand immediate repayment of the outstanding loans. In June and December 2020 the Group reported a breach of the debt/EBITDA ratio. UniCredit did not request repayment of the outstanding loans, and has agreed to waive the breach. In 2021 the Group has renegotiated with UniCredit a revised covenant criteria more reflective of the Group's current situation. Based on these new criteria, no breach has been reported at 31 December 2020; the loans have been disclosed as non-current liabilities.

18. Consolidated reconciliation of net debt

 
                                        Net debt    Cash flow     Non-cash          Net debt 
                                           as at    movements    movements    at 31 December 
                                       1 January                                        2020 
                                            2020 
 2020                         Notes      EUR'000      EUR'000      EUR'000           EUR'000 
---------------------------  ------  -----------  -----------  -----------  ---------------- 
 Cash, cash equivalents        15          6,138        6,042            -            12,180 
 Overdraft                     17              -         (72)            -              (72) 
---------------------------  ------  -----------  -----------  -----------  ---------------- 
                                           6,138        5,970            -            12,108 
 Bank borrowing including 
  transaction costs            17        (9,726)      (2,008)        (190)          (11,924) 
 Other borrowings              17        (5,152)      (2,500)           61           (7,591) 
 Lease liabilities             19        (8,468)        3,166        (325)           (5,627) 
---------------------------  ------  -----------  -----------  -----------  ---------------- 
 Cash and cash equivalents 
  net of debt                           (17,208)        4,628        (454)          (13,034) 
---------------------------  ------  -----------  -----------  -----------  ---------------- 
 
 
 
                                     Net debt    Cash flow     Non-cash          Net debt 
                                        as at    movements    movements    at 31 December 
                                    1 January                                        2020 
                                         2020 
 2019                                 EUR'000      EUR'000      EUR'000           EUR'000 
---------------------------  ---  -----------  -----------  -----------  ---------------- 
 Cash, cash equivalents       15        5,220          918            -             6,138 
 Bank borrowing including 
  transaction costs           17      (6,963)      (2,672)         (91)           (9,726) 
 Other borrowings             17            -      (5,359)          207           (5,152) 
 Lease liabilities            19      (5,749)      (2,172)        (547)           (8,468) 
---------------------------  ---  -----------  -----------  -----------  ---------------- 
 Cash and cash equivalents 
  net of debt                         (7,492)      (9,285)        (431)          (17,208) 
---------------------------  ---  -----------  -----------  -----------  ---------------- 
 
 

19. Leases

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

 
 Lease liabilities           2020      2019 
                          EUR'000   EUR'000 
 Current                    2,217     2,861 
 Non-current                3,410     5,607 
-----------------------  --------  -------- 
                            5,627     8,468 
    -------------------  --------  -------- 
 

Additions and carrying amount for right-of-use assets included in the Consolidated Statement of Financial Position has been disclosed in note 10.

Depreciation charged on right-of-use assets in the Consolidated Statement of Comprehensive Income has also been disclosed in note 10. The Consolidated Statement of Comprehensive Income also shows the following amounts relating to leases:

 
                                        2020     2019 
                                     EUR'000  EUR'000 
Interest expense                         348      265 
Expense relating to short-term 
 leases                                  101       20 
Expenses related to variable 
 lease payments not included 
 in lease liabilities                     46        - 
Expense relating to leases 
 of low value assets                      39        2 
 

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

 
                                2020     2019 
Maturity profile of 
 lease liabilities           EUR'000  EUR'000 
Due in six months or 
 less                          1,251    1,405 
Due between six months 
 and 1 year                      966    1,456 
Due between 1 year 
 and 2 years                     953    2,268 
Due between 2 and 5 
 years                         1,391    1,879 
Due in 5 years or more         1,066    1,460 
                               5,627    8,468 
 

20. Provisions and other liabilities

 
                                                2020      2019 
                                            EUR' 000  EUR' 000 
Earn out liabilities                           1,903     1,645 
Dilapidation provisions                           78         - 
Current provisions and other liabilities       1,981     1,645 
Directors' benefits                               66       397 
Earn out liabilities                           4,434     4,754 
Dilapidation provisions                          277       293 
Other non-current liabilities                    299       193 
Non-current and other liabilities              5,076     5,637 
 

Directors' benefits above relates 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 12).

Non-current earn out liabilities relates to the acquisitions of SECL and CLAI and are valued at fair value through profit or loss (see note 8).

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

21. Employee benefits

 
                           2020      2019 
                       EUR' 000  EUR' 000 
Severance indemnity       2,152     2,013 
 

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 2019                               1,950 
Service cost                                       97 
Net interest                                       29 
Benefit paid                                    (196) 
Actuarial loss                                    133 
Additions through business combinations             - 
                                            --------- 
At 31 December 2019                             2,013 
Service cost                                      239 
Net interest                                       16 
Benefit paid                                    (137) 
Actuarial loss                                     21 
At 31 December 2020                             2,152 
 

22. Share capital

Authorised, issued and fully paid capital

 
At 31 December 2020              Number            EUR 
                            -----------  ------------- 
Ordinary shares of 0.10 
 EUR each                    24,516,707   2,451,670.70 
                            -----------  ------------- 
 
At 31 December 2019              Number            EUR 
                            -----------  ------------- 
Ordinary shares of 0.10 
 EUR each                    24,250,907   2,425,090.70 
                            -----------  ------------- 
 

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.

 
The movement in Ordinary shares for the 
 year reconciles as follows: 
 
                                                Number           EUR 
At 1 January 2019                           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 
Additions during the year                      265,800     26,580.00 
At 31 December 2020                         24,516,707  2,451,670.70 
 

On 3 September 2019, the Group 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 UKFH Limited, formerly Porta Communications Plc (""Porta""). Per the scheme of arrangement a ratio of 1 newly issued share for each 88.495575 shares of Porta 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 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.

On 9 June 2016 the General Assembly resolved to issue a maximum of 675,000 shares as part of a stock grant plan to the employees. In accordance with the approvals, on 26 December 2020, 265,800 shares were granted to the Group's employees for EUR0.10 each under the stock grant plan. A further 409,200 remained unsubscribed at 31 December 2020 (2019: 675,000 shares unsubscribed).

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:

 
                                           2020         2019 
Profit for the year attributable 
 to owners of the company            EUR813,000  (EUR99,000) 
Weighted average number 
 of shares                           24,255,264   17,036,245 
Earnings per share, basic              EUR0.034   (EUR0.006) 
 

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.

At 31 December 2020 only 265,800 shares under the stock grant plan had been granted (2019: none), with the remaining approved shares under the warrant and stock plans unsubscribed, representing dilutive shares of 1,023,200 (2019: 1,289,000 dilutive shares).

In addition, in March 2020 the Group issued 25 convertible bonds to Inveready Convertible Finance, see note 17 for details. The bonds are convertible into a maximum of 3,821,375 Ordinary shares representing 152,855 Ordinary shares per bond in March 2027 at the option of the holder.

For diluted earnings per share, the weighted average number of shares in issue is adjusted to assume conversion of dilutive shares. Earnings per share, diluted, is determined as follows:

 
                                            2019          2018 
                                     -----------  ------------ 
Profit for the year attributable 
 to owners of the company             EUR813,000   (EUR99,000) 
Weighted average number 
 of shares                            27,319,873    18,325,245 
Earnings per share, diluted             EUR0.030    (EUR0.005) 
 

23. Other equity and reserves

The following table describes the nature of each reserve:

 
                            2020      2019 
                         EUR'000   EUR'000 
Share premium             12,456    12,456 
Legal reserve                187       148 
Revaluation reserve      (3,202)   (3,076) 
Retained earnings          6,630     6,222 
                          16,071    15,750 
 

Share premium

 
                                         EUR'000 
                                        -------- 
At 1 January 2019                          3,741 
New issues during the year                 9,861 
Issue costs                              (1,146) 
                                        -------- 
At 31 December 2019 and 31 December 
 2020                                     12,456 
                                        -------- 
 

On 3 September 2019, SEC Newgate S.p.A. issued 10,748,374 Ordinary shares as detailed in note 22. The fair value of consideration paid resulted in share premium of EUR9,861,000. The company incurred issue costs of EUR1,146,000 in relation to the issue of shares which has been deducted from share premium in the year.

Legal reserve

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

Revaluation reserve

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

Retained earnings

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

Dividends not recognized at year end

Given the very positive result of financial year ended 31 December 2020, the Board has recommended a final dividend of 0.5 pence per fully paid ordinary share to be approved at the General Assembly. The aggregate amount of the proposed dividend is GBP 123,554.61.

24. Interests in subsidiaries

Summary of acquisitions

The effect of acquisitions and disposals on the in financial position of the Group:

 
                                                  Disposal  Acquisition 
                                                      2020         2019 
                                           Cambre Advocacy        Porta 
                                                     Maroc        Group 
                                    Notes         EUR' 000     EUR' 000 
Tangible assets                                         88            - 
Trade receivables                                      379        5,413 
Cash and cash equivalents                               25        1,824 
Other assets                                             -        7,935 
Trade payables                                       (155)        (870) 
Other liabilities                                    (380)     (17,864) 
Goodwill                              9                  -       14,995 
Loss on disposal                      4                (2)            - 
Gross consideration                                   (45)       11,433 
% acquired                                           (51%)         100% 
Fair value of consideration                              -       10,935 
Fair value of previously 
 held equity interests                                   -          423 
Deferred consideration 
 payable                                              (24)            - 
Net (liabilities)/assets 
 attributable to non-controlling 
 interests                                            (21)           74 
Cash consideration at                                    -            - 
 31 December 
 

In December 2020 the Group disposed of a small loss making subsidiary Cambre Advocacy Maroc. The Group invested in the start-up business in late 2019 and has agreed to pay the non-controlling interest 51% share of the losses incurred to the date of disposal.

In September 2019, the Company, who previously held 16.9% of UKFH Limited, formerly 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 EUR14,995,000 (note 9) 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 9.

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

 
Company                   Date of-acquisition  % acquired  % owned at  Consideration 
                                                  in year    year end 
Newgate Hong Kong                  09/04/2020       15.0%        100%             20 
Newgate Communications 
 Pty Limited                       01/07/2020        8.8%         76%        508,334 
 
 
Company                 Date of-disposal  % disposed   % owned  Consideration 
                                             in year   at year 
                                                           end 
21:12 Communications 
 Limited                      21/02/2020        7.0%       67%            460 
 

In addition to the above acquisitions, on 1 July 2020 the Group established SEC Newgate US LLC, a new commercial venture based in the USA in which the Group has a 55% interest.

Set out below are details of the subsidiaries held directly, unless otherwise stated, by the Group at 31 December 2020:

 
Name                                Key        Country of           Percentage  Principal activity 
                                                incorporation        held 
                                                                   ----------- 
13 Communications Limited           13CO       London (UK)          100%*       Dormant 
21:12 Communications                                                            Marketing & advertising 
 Limited                            2112       London (UK)         67%           agency 
ACH Sec Global SL                   ACH        Madrid (Spain)      65.7%        Public relations 
                                                                                 & corporate 
                                                                                 affairs consultancy 
Cambre Associates SA                CAM        Bruxelles           76%          Public relations 
                                                (Belgium)                        & corporate 
                                                                                 affairs 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)  100%**       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           100%*        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)  75.57%*      Public relations, 
 Pty Limited                                                                     corporate affairs 
                                                                                 & research consultancy 
Newgate Communications              NGCB       Beijing (China)     100%*        Public relations 
 (Beijing) Limited                                                               & corporate 
                                                                                 affairs consultancy 
Newgate Communications              NGAD       Abu                 76%*         Public relations 
 FZ-LLC                                         Dhabi (United                    consultancy 
                                                Arab Emirates) 
SEC Newgate UK Limited              NGUK       London (UK)         100%*        Public relations, 
 (formerly Newgate Communications                                                corporate affairs 
 Limited)                                                                        & 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)  100%*        Intermediate holding 
 Pty Limited                                                                     company 
Porta Communications                MIDC       London (UK)         100%*        Intermediate holding 
 Midco Holdings Limited                                                          company 
UKFH Limited (formerly              PORT       London (UK)          100%        Intermediate holding 
 Porta Communications                                                            company 
 Plc) 
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 
SEC Newgate US LLC                  SECUS      New York (USA)       55%         Public relations 
                                                                                 & corporate 
                                                                                 affairs consultancy 
SEC Newgate US Holdings             SECUS      New York (USA)      100%         Public relations 
 Corporation                         Holdings                                    & corporate 
                                                                                 affairs consultancy 
Springall Gbr                       SPRG       Hamburg (Germany)    100%*       Dormant 
Velvet Consultancy Limited          VELV       London (UK)          100%*       Dormant 
                                                                   ----------- 
*Indirectly held 
 ** Indirectly held with 
 an economic interest 
 of 51% 
 

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 
 

25. Non-controlling interests

The total non-controlling interest (NCI) at the year end is EUR563,000 (2019: EUR99,000). The NCI is in respect of those subsidiaries (as listed in note 24) that the Group does not own a holding of 100%.

Set out below is summarised financial information for each subsidiary that has NCI 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 2020 
EUR'000                ACH     CAM      CLA     HIT   KOHL  MRT     NEW    NGSN   NGHK    NGAS    SEC-L  SEC-P   2112 
Non-current 
 assets                 237      482      723    308    49   102      290    536    129    1,146     65    940      224 
Current 
 assets                 192    1,942    2,390    582   150   163    1,468    932    185    5,607  1,048  1,229    1,103 
Non-current 
 liabilities          (469)    (303)    (119)  (141)  (28)  (78)    (382)      -   (35)  (1,710)  (229)  (141)  (4,202) 
Current 
 liabilities          (243)  (1,263)  (1,394)  (139)  (68)  (75)  (1,275)  (182)  (102)  (3,845)  (670)  (622)    (773) 
Net 
(liabilities)/assets  (283)      858    1,600    610   103   112      101  1,286    177    1,198    214  1,406  (3,648) 
NCI                    (97)      207        -    258    26    45       40    630      -      293    105    696  (1,204) 
 
 
 
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 
(liabilities)/assets   (19)    822    1,697    666     77    132      609  1,231    321      944    343  1,421  (3,964) 
NCI                     (7)    197        -    282     19     53      244    603     48      314    168    703  (1,031) 
 

Summarised income statements

 
 
At 31 December 2020 
EUR'000         ACH    CAM    CLA   HIT  KOHL  MRT    NEW   NGSN   NGHK    NGAS   SEC-L  SEC-P  2112 
Revenue          836  4,326  4,614  796   513   662  3,394  1,433  1,055  17,398  3,326  1,575  3,732 
(Loss)/Profit 
 for the 
 period        (264)    386    477    2    26  (12)  (483)    393  (126)   1,899    146     34    101 
(Loss)/Profit 
 attributable 
 to NCI         (91)     93      -    1     7   (5)  (193)    193    (5)     548     72     16     32 
 
 
 
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 NCI         (69)     87      -     22     8   28   (99)     2     7    113    128     64  (213) 
 

26. Related parties

Compensation paid to key management personnel has been set out in the directors' remuneration table within note 5. In addition, from time to time the Group enters into transactions with its associate undertakings.

During the year, Newgate Communications Limited paid Barbican Centre Trust Ltd, a registered charity and a company of which Emma Kane is the Chairman, EUR27,000 (GBP24,000) (2019: EUR14,000 (GBP12,000)) for corporate membership. As at 31 December 2020, this amount was due to the Barbican Centre Trust Ltd.

During the year, the Group was invoiced EUR13,000 (A$12,000) (2019: EUR6,000 (A$10,000)) for flowers by Buds and Poppies, a florist company owned by the wife of Brian Tyson. An annual membership fee of EUR10,000 (A$16,500) (2019: EUR5,000 (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.

27. Ultimate controlling party

There is no ultimate controlling party. SEC Newgate S.p.A. is 36.03% controlled by Fiorenzo Tagliabue.

28. Subsequent events

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

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

On 22 March 2021, the Group announced the establishment of a new commercial venture, SEC Newgate CEE (SECN CEE), in Poland, to accelerate the business development across the Central Eastern Europe Region. SECN CEE has been established as a 51% owned subsidiary.

Regarding the UK headquarters, notice has been given to both the London offices, SEC Newgate UK Ltd will move to new premises, heads of terms were signed the on 9 April 2021 for a 10-year lease (with a five year break clause).

In accordance with the agreement signed on 23 December 2020, the Group acquired a 60% interest in Orca Affairs GmbH (Orca) in April 2021 for an initial consideration of EUR2.2m, with the consideration potentially increasing to a maximum of EUR3.5m contingent on Orca's performance. The consideration is payable in four instalments between 2021 to 2024, the first instalment of EUR700,000 was paid on 14 April 2021 acquiring 15% of the issued share capital of the target, with attached voting rights of 60% passing to SEC Newgate S.p.A.

On 19 May 2021 the Group agreed with UniCredit a revised covenant criteria related to the bank loan of EUR4.0m signed in 2019, more reflective of the Group's current situation. Based on these new criteria, no breach has been reported at 31 December 2020; the loan has been disclosed as a non-current liability.

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