SEC Newgate Annual Report 2017

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FY2017 Annual Report · SEC Newgate

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Annual Report
2017

“Logic will get you from A to B.
Imagination will take you everywhere”

Albert Einstein

Annual Report 2017 |

INDEX

Highlights, SEC at a glance

Information on the group

Chairman’s Statement

Chief Executive’s Statement

2017, a year of growth

Outlook

The Board

Principal risks and uncertainties

Financial Highlights

Financial information of SEC Spa for the two years ended 31 December 2017

p. 4

p. 5

p. 11

p. 12

p. 15

p. 19

p. 22

p. 23

p. 27

p. 28

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HIGHLIGHTS, SEC AT A GLANCE

Revenues: 20,96 € millions

Ebita 1,69 € millions

Equity: 9.35 € millions
(attributable to Equity holders)

Cash flow: 4,67 € millions

OUR OBJECTIVES

1. Re-launch organic growth through a new model for new business
2. Continue acquisitions plan, complete European step with France, start in North
America and continue in Latam
3. Invest in digital transformation

4. Add consultancy value to our offer
5. Attract always more talents

Annual Report 2017 |

INFORMATION ON THE GROUP

1. INTRODUCTION

SEC S.p.A., headquartered in Milan, is the holding company of a Group providing public
relations, advocacy business ad public affairs consultancy. The Group has operations across
Europe and South America. The business was originally founded in 1989 and has subsequently
grown both organically and by acquisition.

In recent years the Group has acquired a number of controlling stakes in various companies,
leaving existing management incentivised with minority shareholdings. The Group’s Italian
operation is now the largest independent PR agency in the country. Directors consider that the
Company is ideally positioned to become a consolidator in the growing public relations and
advocacy sectors. The strategy of the Group is to become a global PR business, differentiated
from its competitors (most of whom are US based) by its European roots. The Placing and
Admission to AIM is an important part of executing this strategy.

2. BACKGROUND

SEC was founded by the current Chief Executive, Fiorenzo Tagliabue. It subsequently grew
organically focusing on media relations, institutional and B2B events, publishing and
institutional relations. From 1997, the Company expanded across Italy opening offices in
Torino, Naples, Roma, Bari and Catania. Following consistent growth over a number of years,
in 2013 the Group began to expand internationally with a series of acquisitions in Bruxelles,
Spain, Germany, United Kingdom, Poland and Colombia (30 December 2017). The Group
currently comprises eleven subsidiaries in which the Company holds stakes ranging between
51 and 75 per cent. of the share capital.

Company’s activities comprise Public Relations, Advocacy and Integrated Services. Typically
clients will engage the Company on a retained basis with an annual or semi-annual rolling
contract.

Public Relations Services, which showed a decrease of 8,16% of revenue in the financial year
ended 31 December 2017 compared to 2016’s figures, include:
• Brand Equity Management – The development of strategies to preserve and/or raise the
brand value of a client, be it a company and its brand(s), a cultural institution or large real
estate projects. This is typically based on detailed understanding of perception and uses
various communication levers and processes of perception analysis.

• Corporate and Financial Communication - Provision of consulting and communication
services for companies and financial institutions related to mergers and acquisitions,
capital markets and investor relations.

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• Reputation Safeguard: Issues & Crisis Management – The development of strategies
to help companies and institutions rapidly and effectively combat potential or actual crises,
which could cause severe damage to their reputation and ultimately their business
operations.

• Corporate Social Responsibility - Services related to every aspect of social engagement

and reputation of a client.

• External and Internal Relations - Professional communication focusing on Customer
Relationship Management (CRM), social and content management and projects addressed
at employees to align and reenergise.

• Media Relations - Services designed to enhance relations with journalists, bloggers and

editors.

• Digital Relations - New age digital communications including social media audits and
analysis, digital press office and digital PR, social media strategies, video reporting,
monitoring of local media networks and facilitating training sessions to clients.

Advocacy activities, which show an increase of 19,58% of revenue in the financial year ended
31 December 2017 compared to 2016’s figures, include:
• Government Relations - Services aimed at enabling companies to interact effectively

with local, national and international governments.

• Public Affairs - Assisting clients, ranging from local interest communities to global
opinion leaders, through research and campaigning, to mobilise opinion across regions.
• Community Relations and Consensus Building - Helping companies manage potential
or actual conflicts related to its goods, services or projects, building reputation in the
communities where they operate.

• Issue Management - Helping organisations prioritize and proactively address public

policy and reputation issues that can affect their success.

• Political Communication - Services provided to political parties during election periods,

ranging from communication management and strategy to media coverage.

Integrated Services, which show an increase of 131,01% of revenue in the financial year
ended 31 December 2017 compared to 2016’s figures, include:
• Social Media Management - Covering all the stages of social media communication,
from strategic and editorial decisions to direct administration of social media channels.
• Event Management - Services focused on organising events, assisting the clients in every
step of the process, including design, promotion and organisation of an event, and budget
management, in order to deliver a strong return on client spend.

• Association Management - Services ranging from the launch and day-to day management
of an association to providing the back office of an industry coalition. Association
management services help clients to ensure legal and financial compliance and represent
clients’ industries and advocate on clients’ issues.

• Integrated Communication - Encompasses advertising campaigns coordination and
multidisciplinary projects, leveraging synergies with artists, screenwriters and advertising
agencies.

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3. SUBSIDIARIES

SEC S.p.A.
SEC S.p.A. is the Milano operations as well as the Group’s head office. The Company also
has a team based in Roma, which is solely focused on advocacy.

SEC Group in 2016

SEC & Associati S.r.l. (Italy)
SEC & Associati S.r.l., based in Torino, was incorporated in 1997 and represents SEC’s first
operations outside of Milano. SEC & Associati provides a wide range of PR services to various
types of clients, including large corporates, trade associations and regional governments and
municipalities. It also has the capability to offer basic advocacy services, with more complex
advocacy referred to SEC’s Milano office. SEC owns a 51% stake in SEC & Associati. The
remaining 49% is owned by a group of senior partners that include Mr. Maurizio Ravidà,
Managing Director.

SEC Mediterranea S.r.l. (Italy)
SEC Mediterranea S.r.l., based in Bari in Southern Italy, provides a wide comprehensive range
of PR and community relations services to clients which include corporates and trade
associations.. SEC S.p.A. owns a 51% interest in SEC Mediterranea, with the remaining 49%
held by Managing Director, Mr. Gianluigi Conese.

SEC and Partners S.r.l. (Italy)
SEC and Partners S.r.l. principally provide its clients, including a number of large
corporations, with corporate and financial PR services from its office in Roma, where it was
incorporated in 2014. SEC S.p.A. has a 51% interest in SEC and Partners S.r.l., with the
remaining 49% owned by Managing Director, Giancarlo Frè.

Curious Design S.r.l. (Italy)
Curious Design S.r.l., located in Milano, is a corporate identity and graphic design agency. In
2010 Mr. Alberto Scotti, President and Creative Director, joined the company. SEC acquired

Annual Report 2017 |

part of its holding in Curious Design (75%) in 2011 with Alberto Scotti owning the remaining
25%. It provides its clients, which include a number of large well-known businesses and
brands, with a wide range of design services including website design and layout, product
packaging design, branding and corporate image design.

HIT S.r.l. (Italy)
HIT was established in 1994, and provides human resources for the different enterprise
communication activities. The company has a database of over 10,000 contacts from which it
can supply its clients’ events throughout Italy with stewards, promoters, entertainers, event
hosts, interpreters and security operators on a 24 hours a day, 7 days a week basis. It also
offers highly specialised administrative communication services such as recall services,
mailing lists, email and telephone hotlines as well as professional technical services (audio,
video and lighting) for corporate events. SEC S.p.A. owns a 57.7% interest in HIT, with the
remaining 42.3% owned by a group of senior partners.

Cambre Associates SA (Bruxelles)
Cambre Associates SA is an advocacy business based in Bruxelles where it has operated since
2001. SEC acquired its stake in 2013. The team at Cambre have an understanding of European
Union Government issues and specialise in government relations, public affairs and public
relations. Cambre assists its clients to mobilise opinion across Europe from local interest
communities to global opinion leaders. Cambre skills are based around research,
understanding legislative procedure, networks, search engine optimisation, infographics,
personal profiling, polling, online campaigning or multimedia. Cambre’s clients include
governments, industry associations and multinational companies. SEC S.p.A. owns a 76.0%
interest in Cambre Associates SA, 22.0% is held by Outcom SPRL (a company controlled by
Tom Parker) and the remaining 2.0% of the issued share capital is held by Cambre Associates
SA in itself (but with voting rights suspended).

ACH Cambre, Consejeros De Relaciones Públicas S.L. (Spain)
ACH Cambre was formed when SEC bought Cambre group (including Cambre Associates SA
in Madrid) in 2013, and integrated Cambre Madrid with ACH Spain. Its main office is in
Madrid and it also operates from Barcelona. ACH Cambre provides reputation services, media
and investor relations, opinion analysis, CSR projects and reports, and financial PR. ACH
Cambre has a track record spanning over 30 years and is therefore very well known. The
Directors consider that ACH Cambre has a strong reputation in Spain because the founder and
now minority shareholder, Antonio Hernando Pinilla, has been influential in the history of its
market. SEC S.p.A. owns a 65,7% interest in ACH Cambre, with the remaining 34,3% owned
by a group of senior partners.

Kohl PR & Partner Unternehmensberatung für Kommunikation GmbH (Germany)
Kohl PR was founded in 1984 and has been owner-managed since. It was one of the first PR
agencies in Germany to focus on political communication, which is its core strength, along
with government relations. The business is headquartered in Berlin, close to the Reichstag,
leading media outlets and offices of the members of the German Bundestag. SEC S.p.A. owns

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a 75% interest in Kohl PR, with 20% owned by Mr. Peter Rall and the remaining 5% owned
by Invester Private Equity GmbH.

Newington Communications Limited
Newington Communications Limited
award-winning, multi-disciplinary
is
communications consultancy specialising in Corporate and Public Affairs for the UK and
European markets. The team of up to 50 experienced consultants is based across offices in
London, Edinburgh, Manchester, Birmingham and Chelmsford. Newington is the fifth largest
public affairs consultancy in the UK as measured by PR Week (2016). Its continued success,
noted by the industry and recognised by domestic and international awards, and its
considerable growth is due to its strong emphasis on client care, ethics and delivering tangible
outcomes. From 2016 SEC S.p.A. owns a 60.0% interest in Newington with the remaining
40.0% owned by founders Mark Glover and Phil Briscoe.

At end of 2016 SEC decided to wind up Della Silva Srl, whilst, in April 2017, SEC bought the
Polish agency Martis Consulting.

Martis Consulting(Poland)
Founded in Warsaw in 2001 by Ewa Baldyga and Dariusz Jarosz, professionals with over
twenty years of experience in corporate communications, Martis had significant development
that brought the company among the first ten of the sector in Poland, and to position as agency
of reference for most of blue chips listed at the Warsaw Stock Exchange.
Moreover Martis Consulting has a strong track record in public and corporate affairs in Poland
and throughout Europe. Its specialist consultants work in a range of sectors including oil and
gas, energy and environment, financial services, healthcare, housing, justice and legal, as well
as property development and transport. Sec S.p.A. owns a 60% interest in Martis Consulting
whit the remaining 40% owned by founders Ewa Baldyga and Dariusz Jarosz
Martis Consulting is run by existing management who retain equity in the business and are
incentivised to deliver strong growth.

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SEC Group in 2017

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CHAIRMAN’S STATEMENT

After the IPO (July 2016) we kept our promises
to the market with three new acquisitions (2017)
and an extraordinary deal

After our admission to AIM in July 2016 we completed two acquisitions (Martis Consulting
in Warsaw, Newlink, now SEC Latam in Bogotà, Colombia) and we continue to seek
acquisition opportunities. Moreover, on August 3rd 2017, SEC Group acquired 19.3% of Porta
Communication plc. shares, a communication and marketing group listed on AIM, a market
of the London Stock Exchange. This deal was an investment which provided SEC with the
opportunity to acquire the capital of another listed communication Group and expand SEC’s
footprint with limited overlaps, to expand know how and market reach, and to consolidate our
management skills. Today the platform Porta-SEC operates in 5 continents with a great offer
and development perspective.

According to the latest rankings published by
@theHolmesReport (source: www.holmesreport.com
Global ranking 2018) SEC is Italy’s first international
Group in the Global PR rankings 2018.

SEC is now ranked 75th in these listings, in a
market with volumes rising over the last 12 months
(source: www.holmesreport.com Global ranking 2018)..

Finally, during the period under review,we have
strengthened the Board by appointed Mark Glover,
Newington founder and Managing Director, as
executive director.

We are optimistic for the year ahead.

Luigi Roth
SEC Spa
Chairman

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CHIEF EXECUTIVE’S STATEMENT

Global economic outlook in 2017 has been stronger than expected reaching the best growth
since 2011 up
to World Bank
(http://pubdocs.worldbank.org/en/890001512062601032/Global-Economic-Prospects-Jan-
2018-Highlights-Chapter-1.pd)

to +3% versus a +2,4%

in 2016 accordingly

Growth has been stronger in emerging economies who reached a +4,3% growth versus
advanced economies who grew less. Nevertheless growth in Advanced economies is
investment-led which represent a good base for protracting this trend.

The European
(https://ec.europa.eu/info/publications/economy-finance/european-economic-forecast-
winter-2018-interim_en).

economic outlook

a 2,4%

increase

showed

from

a 1,8%

The global economic outlook is expected to positively continue for the next couple of years
(https://ec.europa.eu/info/publications/economy-finance/european-economic-forecast-
winter-2018-interim_en). This in spite of an eventually increasing volatility in the financial
markets where a degree of uncertainty continues to exist towards Inflation rate, consequent
decision on interest rates and still in place QEs.

We believe that trade tariff negotiations are a worrying factor for the world trading system and
its output can have important effects of the global trade and as a consequence on the GDP
trend.

As some increasing signs of conflicts in very complex part of the world may have uncertainty
effects.
Nevertheless global sentiment of populations towards the future, seems to remain stable with
an improving orientation to investments and consumption.
This seems to be reflected in the positive trends going forward and in the un-employment

Annual Report 2017 |

reduction in many places, some approaching the almost full employment rate.

The recent round of elections in the four major European Countries France, Germany, Spain
and Italy have not really contributed to EU stability and has prompted a discussion on the fine
tuning of European Union approach to a number of issues. Brexit is also representing a
changing factor. Increasing populism, booming immigration and terroristic attack continue to
be a destabilizing factor.

The global communication market is forecasted to growth 3,6% up from 3,1% last year. A
positive development. In Italy the same market is forecasted to grow only 0,4% vs. previous
year. The global growth is boosted by the economic grow and some major sport events.
Most part of the growth is linked with digital and social media which continue to develop at a
higher rate with traditional media, a part of television and radio, continuing to face problematic
times.

Public Relation, Public Affairs and Advocacy market, our specific sector have grown 5% in
2017 and is forecasted to continue with a possibly increasing pace.
Largest player seems to have more difficult to intercept this growing trend than the less
structured and lean companies. The latter seems to be quicker in adapting to a constantly
changing market were the ability to fast decision taking and no bureaucracy tent to favor less
complex structure.

The directors believe SEC has structured itself to respond to the economic uncertainty by
consolidating but maintaining a very lean chain of decision taking. Whilst continuing to
implement its expansion project and boosting organic growth to further enhance its footprint
and intercept faster growing markets.

During the year we have had seen very good performances particularly in Italy, with Sec
S.p.a., Sec & partners and Hit beating budget, in the UK with a strong performance after
rebranding and moving to larger premises Some operations have faced management changes
like Spain, where a new stronger management team is now in place boosting growth for 2018,
Brusells which having seen a temporary suspension of one of its major client is now back on
track and Germany suffering for the departing of a key member of team.

In the mean time we believe we have seen the growth of synergies to serve clients in more
than one market. The list of client served in more than one market includes names as Autogrill,
CES, IKEA, Medtronic, Tesla and, Federlegno
.

New business generated in 2017 was more than €3 million at a Group level. The Company
has also recruited a new Chief Sales Officer, to boost activities and to propose our services to
global large multinationals.

With regards to costs, we continue to apply great attention to cost control specially increasing

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efficiency of our processes and reducing our staff-to-revenues ratio in accordance with our
strategic plan.

The SEC Group holding company continues to implement investments to continue the
expansion process by way of acquisition and the related cost for the M&A activities.

A major chapter to these investment is represented by the investment to leverage digital and
artificial intelligence to our know how.

Furthermore, in 2017 SEC became the largest single shareholder of Porta Communication
Plc., also AIM quoted, with SEC CEO Fiorenzo Tagliabue named Non Executive Director and
Vice-Chairman on the Porta board.

The collaboration plan between the two entities, is expected to produce increasing commercial
opportunities for both operations.

Revenues
The positive context above described has contributed the positive result of the Group.

Revenues are at € 20.964.302 up 13.4% against 2016 (€ 18.486.777)
EBIDTA (see note on financial highlights) is at €1.695.188 vs. €1.130.080 last year, up 50%.

Profit
The year-end Net Profit is € 772.937 vs. € 445.472 last year. A 73,5% increase.

Net asset
Equity (attributable to Equity holders) has increased from €9,157M to € 9,354M.

Group Cash position
The group Cash position remains strong at €4,672M at the end of the period.

Outlook
The directors believe that new business generated in 2017 and the pipeline of all the Group’s
companies give the board confidence for 2018.
The current year, thanks to a huge effort in new business, has started well.

I would like to thank all the partners and our employees for their continued efforts.

2017, A YEAR OF GROWTH

Fiorenzo Tagliabue
SEC Spa CEO

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2017, the first year after the IPO has been the year of full speed and the start to transform the
Group from a sum up of individual companies to a really integrated Group to improve
productivity and efficiency. The process will not be quick and easy, nevertheless the work is
in in progress and the first results are coming.

This has meant:

• Management Committee (MC), in which all Group companies’ managing directors are
members, with the primary scope of evaluating and leveraging every possible synergy
starting with commercial ones, worked very hard during the year. Chaired by Tom Parker,
the MC has addressed, in particular, two main objectives: the creation of an international
marketing unit headed by a CSO, Chief Sales Officer, whose selection is just completed;
the unit will promote the group, intercept multinational group challenges, build an identity
based on the strategic choice of our business model: a group of entrepreneurs, before a
group of companies.

The second objective was to start a discussion about the sharing central costs related to Group
management, up to now sustained by the parent Company. Since January 1st 2018 they will be
shared accordingly to the gross profit of each individual company.

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• The implementation of the management system NetSuite, one of the most sophisticated
and diffuse in the world for service companies, for the group at a central level but also for
all the subsidiaries. This will permit a more punctual and rigorous management of monthly
reports under the profile of the economic accounts and asset situation. As well as providing
a series of instruments to improve the efficiency of the service supply process by
measuring timings and profitability, these interventions, in the respective areas, has started
to produce results in 2017, to become fully functioning in 2018.

In 2017, two acquisitions were finalised: Martis Consulting (April), Newlink, today SEC
Latam, (December 30th).

MARTIS Consulting

The project presented during the roadshow ahead of the IPO foresaw a development scheme
into three steps: Europe, Americas and Asia. European footprint would include – as for the
first step – Europe key markets that comprehended Poland for Eastern Europe. In fact with its
nearly 39 million inhabitants, Poland is by far the most relevant Country in East Europe beside
Russia.

A Member State of the European Union since May 1st 2004 (yet still not in the euro zone)
Poland has a solid growing economy and from the restoration of democracy has kept a
liberalization of national economy which allow Poland to be considered as one of the most
successful case of transition from centralized to free market economics. As a matter of fact in
2010 Poland overcame the Netherlands to establish itself as Europe’s sixth economic power.

According to McKinsey’s provisions, if Poland will keep its growing ratio it is likely that by
2020 they can surpass or at least get very close to per capita GDP of Italy, Spain, Portugal or
France.

The new course strongly promoted a privatization process of many small and medium State
companies that turned into a fast development of a lively private sector within national
economy. Restructuring and privatization of such crucial sectors as coal, steel, rails and energy
is in full deployment. Polish GDP rise is at 4,6%%, best performer in EU.

Warsaw Stock Exchange is the Easter most important stock exchange of Easter Europe.

Within this framework we selected MARTIS Consulting, an agency based in Warsaw standing
at the 7th place of local PR rankings which claims two specific expertise: financial comms
(one of the founder having been an economy columnist himself for many years) and corporate
comms / public affairs.

The agency will deeply benefit (the process is only started so far) from being part of a Group
based, among others, in Italy and Germany two key Countries as far as Polish industrial and
commercial relations are concerned.

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PORTA COMMUNICATIONS Plc.

Porta Communications Plc. is a PR Group – as SEC Group – listed at LSE’s AIM segment.
2017 turnover was in excess of 40 million pounds. Its focus is financial comms under the
brand Newgate Communications with operations in London, Singapore, Honk Kong,
Shanghai, Abu Dhabi and Australia (with 5 branches in the most relevant Australian cities).
In addition Porta controls three other UK based brand: Redleaf (financial comms with a special
focus on SME), Publicasity (marketing communication) and 2112 (digital).

In the past Porta suffered some mismanagement issues that led to critical situations, namely
in the UK market where they were seeking for an industrial partner they then found in SEC
Group. For the sake of this strategic partnership, Porta arranged a dedicated capital increase
(August 3rd 2017) by which SEC now owns 18,6% of Porta Plc’s shares, its first shareholder.
Following this operation, SEC’s CEO Fiorenzo Tagliabue was appointed as Deputy Chairman
of PORTA.

Starting September 2017 a significant restructuring plan has been carried out that generated
savings worth 1.9 million.

PORTA and SEC has no overlaps since UK based SEC partner is mostly focused on Public
Affairs, a business not performed by Porta operations in UK market.

The SEC-PORTA platform is now present in five Continents (Europe, Africa, Asia, Australia
and Latin America) and shows an impressive potential of commercial synergies that, once the
restructuring plan will be completed, will be further implemented.

NEWLINK (now SEC LATAM)

The acquisition of a significant participation in PORTA has prompt SEC to modify its strategic
plan in a slightly different direction in respect to what presented to analysts and market at IPO.
In fact, through PORTA our footprint in Asia is already satisfactory. From 2017 we turned
our attention to American Continent. In North America we are in negotiations with a potential
target, while in South America we completed the first acquisition of a Colombian PR agency
based in Bogotà, the second in the domestic market.

Several reasons made up our decision to begin approaching South America starting from
Colombia. Colombia is the 5th South American economy and, after the FARC pacification
roadmap was finished, they have one of the most solid and stable political landscape in the
Region. At the time of EXPO 2015, when SEC was the advisor of the Colombian Pavilion,
we were offered the chance to build a consistent network of relations with local institutions,
including the former Vice President German Vargas, now one of the candidates to the
Presidency in end of May electoral round.

Many European and American corporations have operations in Colombia such as, only to
quote some examples ENEL, BAT (British American Tobacco) both Sec current client, Ford
Foundation, Huawei, Coca Cola, etc..

In Colombia the Group invested into a large size agency (over 3 million euros turnover, 65
staff) aiming at establishing there our LatAm hub. Under this assumption they will run directly

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the first screening stages of selection of agencies in Chile and Peru our next two target markets
for further acquisitions.

In addition, the two founders of the agency have an impressive networking ability within local
business community and institutional landscape. The former control shareholder, now the
person holding the key part of the minority shares has been herself the Minister of Transport
and TLC for some years.
As from April 1st 2018 Newlink has changed its name into SEC Latam to underline to be part
of Sec Group.

During the whole 2017 a working group made up at the holding company and coordinated by
the CEO came up with a strategic investment plan in the area of technology with the aim of
taking advantage of the benefits of the digital revolution in an industry that appears to be not
very active in the use of advanced technologies. It is not possible here to describe the five
projects developed by the group, but all of the tools generated by these projects will be able to
be used in linguistic contexts other than Italian (starting with the principal languages spoken
in Europe) in order that they become assets of every company in the Group. The investments,
moreover, will be able to benefit from tax benefit of the Italian Governmental programme
“Piano Industria 4.0” [“Industry Plan 4.0”] designed by the Minister of Economy to stimulate
Italian SMEs to use new technologies.

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OUTLOOK

2018, also thanks to a huge effort in new business, has started well, in line with our
expectations. The parent Company is working to complete two more acquisitions before the
end of the year in two strategical markets like France and USA.
We have budgeted an organic growth of 3% (at a group level) and in the second part of the
year we should have the first results of the investment in digital transformation.

GROUP OVERVIEW

Latin name, European vocation, Italian DNA. This is SEC, an independent agency born in
Milano in 1989 and today the first Italian agency in the world-ranking list (Holmes Report
2016 and PR Week), with offices and subsidiaries throughout Italy, Europe and Latin America.
To strengthen the international placement and to finance the business development plan, SEC
was listed on AIM at London Stock Exchange on 26th July 2016. Identification, integration
and proximity are the basis of a strategic daily consulting crossing traditional, digital and
complete communication.

THE STRATEGY

The Group’s strategy develops four main factors.

1) To create best conditions to attract talent and adopt retention plan; thus, after the listing a
5% Stock Grant Plan has been made available to all employees who have certain
prerequisites (two years with the company). This will vest two years after the quotation,
on July 26th 2018.

2) Invest in technology to take advantage of opportunities offered by the digital

transformation

3) Overcome the “commoditization” of certain practices in this industry through the
acquisition of a solid leadership in the areas most subject to this process and to increase
consulting capacities of the Group through strategic partnerships.

4) The size. The Group must grow even faster in order to be competitive in large commercial
pitches at global level. To intercept big multi-Country assignments, we must build a
network of agencies, owned or associated, that will allow us to respond to our potential
Clients’ needs in the five continents of the world. The Group is strongly committed to
reaching this goal.

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OUR VALUES

Certain principles guide our actions and behaviours towards our clients, our shareholders, our
staff, our suppliers and the communities we live in.
For many years, we have adopted a deontological code that brings together the main ethics
and rules that collaborators, consultants, suppliers, and all the external subjects who operate
with and on behalf of the Company have to observing when undertaking their activities.
1) People are at the centre of our professional work with our clients. Therefore, we take care

of selection, training and retention of our people.

2) Reliability is key to our work with our clients. That is: capability of strategy and execution,

realism and concreteness in projects, flexibility and orientation of the outcome.

3) Intelligent Capacity in interpreting complex situations, defining priorities and mobilising

relations and necessary resources.

4) Proximity to Client to share their growth step by step.
5) Capacity to involve stakeholders to become our Clients’ advocates.

PERSPECTIVE OF THE MARKET IN EUROPE

There is reasonable optimism in terms of growth (already visible in last year’s study and
reports.) The main topics:
• PR consulting is finally developing in the Eastern part of the region. After years of basic
brand PR and stunts, local agencies are becoming more sophisticated in their services.
• There is still a limited number of networks operating across the borders of Central and

Eastern Europe (SEC is one of these after the acquisition of Martis Consulting).

• According to the latest ratings published by @theHolmesReport 2018 in general mid-
sized Groups, those around the 50 million dollars turnover, performed better than the
established large players and proved to be capable of faster reactions. This observation
confirms one of SEC vision’s paradigm and how consistently our business model is to
tackle the current market scenario in order to establish ourselves such a key player of these
peers.

• Strategic communications, public affairs and lobbying are growing in importance,
becoming new areas of consulting for many agencies as the institutional landscape
becomes more complex. Our strong presence in Bruxelles allows us to provide consultancy
and services both at a national and European level.

• More sophisticated services are required, due to a more and more demanding business

context: the role and status of PR is getting bigger in all industries.

• There is no doubt that creativity is an asset today, as standards improve and clients are

observing their agency’s performance in terms of international awards.

• Digital is everywhere. There is still a lot to do around integration. Also, smart data analysis

and measurement are still key challenges for PR agencies in Europe.

Annual Report 2017 |

OUR SOCIAL RESPONSIBILITIES

PORTOFRANCO ONLUS

“It takes a village to educate a child”. In this African proverb is
the reason SEC supports Portofranco Onlus, an organization that
created
in other cities) an
extraordinarily effective and beautiful place for high school
students to get support with studying.

in Milano (and replicated

Here, working and retired teachers, professionals, university
students volunteer their time to help children with difficulties
with individual lessons, and it is the children themselves who
book the lessons and choose to come and study, with no
obligation from the school or their family. Here, spontaneously,
they have generated one of the most meaningful experiences in
immigrant students of different
Italy, which
generations.

integrates

SEC’s involvement will support the organization’s fundraising
and the involvement of some of its directors.

VALORE D

From 2017 SEC is partner of Valore D the first corporate
association to promote women’s talents, diversity and
to foster national enterprises
leadership
development.
SEC acknowledges the association’s goals that are:
•

in order

to foster corporate welfare policies aiming at
implementing innovative and flexible working places
where personal needs are taken into account
taking inclusive and diversity driven strategies in
human resource management in order to improve on each individual know how and
competence
to promote inclusive and balanced leadership and governance models to foster
participation, collaboration and dialogue inside the organization
to offer sustainable and new social models aiming at orienteering girls study courses and
overcoming gender based stereotypes in families and workplaces

•

These principles stand strongly in our agency where a significant role is led by women
employees: both the GM and CFO, in fact, are women as well as 7 supervisors out of 12 and 7
account directors out of 9.

Annual Report 2017 |

A sensitive attention to maternity and parental needs is part of our human resource
management style. In turn not only is the agency born ratio sensibly higher then national
average but our careers development schemes positively integrate with the increase of family
responsibilities: 8 of our 12 supervisors in fact have child while those 9 female supervisors
that are also mothers spent maternity leaves (often Monroe then one) while at SEC. (?)
Through partnering with Valore D, which offer to its members seminars, companies
benchmark and development schemes for staff, SEC is aiming at further improving its
employees opportunities both on the professional and the work-life balance sides.

THE BOARD

The Board, composed of 8 members, was integrated during the last year and now it is
composed of:

•

three Non-Executive Directors, the Italian Luigi Roth as Chairman, who has prestigious
experience as CEO and/or President of many other listed companies; now is the Chairman
of Equita SIM spa, listed on AIM in Milan; David Mathewson and Paola Bruno, both
with significant experience on the boards of companies quoted on the London AIM;

• and, as executive directors, Tom Parker, the managing director of Cambre, the PA
company based in Bruxelles, Mark Glover, founder and managing director of Newington,
the UK subsidiary, second company of the Group, Cesare Valli, already managing
director of Hill & Knowlton Strategy for South Europe, and the CFO, Anna Milito. The
board is completed by CEO, Fiorenzo Tagliabue.

Annual Report 2017 |

PRINCIPAL RISKS AND UNCERTAINTIES

An investment in ordinary shares is highly speculative and involves a high degree of risk. the
attention of prospective investors is drawn to the fact that the company is subject to a variety
of risks which, if any were to materialise, could have a significant adverse effect on the
company's business and/or financial condition, results or future operations. in such case, the
market price of the ordinary shares could decline and investors might lose some or all of their
investment.

In addition to the information set out in the rest of this document, the following risk factors
in this part should be considered carefully in evaluating whether to make an investment in the
company. the following factors do not purport to be an exhaustive list or explanation of all
the risk factors involved in investing in the company and they are not set out in any order of
priority. Additionally, there may be risks not mentioned in this document of which the board
are not aware or believes to be immaterial but which may, in the future, adversely affect the
group’s business and the market price of the 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.

1. RISKS RELATING TO THE GROUP

1.1. Exposure of the Group to economic conditions
Demand for the Group’s services may be significantly affected by the general level of
economic activity and economic conditions in the regions and sectors in which the Group
operates. Therefore, an actual or perceived economic downturn, especially in regions or
sectors where the Group’s operations are focused, could have a material adverse effect on the
Group’s business and financial results. In addition, there may be a delay between the
occurrence of an actual or perceived threat of economic downturn and the impact this could
have on the Group’s financial results. Diversification trough investments in different regions
and sectors is a key action to ensure the mitigation of the above risks.

1.2. The Group is reliant on key executives and personnel
The Group’s business, development and prospects are dependent upon the continued services
and performance of its Directors, in particular Mr. Fiorenzo Tagliabue, Paola Ambrosino,
Tom Parker and other key personnel. The experience and commercial relationships of the
Group’s Directors and key personnel help provide the Group with a competitive edge. The
Directors believe that the loss of services of any existing key executives for any reason, or
failure to attract and retain necessary personnel, could adversely impact the business,

Annual Report 2017 |

development, financial condition, results of operations and prospects of the Group. In order
to mitigate the above risks the group aims at creating the best opportunities for personal
development and career enhancement. Recruiting specialised, experienced staff is also
crucial.

1.3 Acquisition strategy
The Group employs an acquisition strategy whereby it seeks bolt-on acquisitions. A result of
this is an ever-increasing number of management teams within the Group which require
oversight by the Board. Additionally, and despite following the acquisition criteria outlined
in this document, there remains the risk that all acquisitions may not be accretive. There is a
risk related to the Group’s ability to accurately identify suitable targets and to successfully
execute transactions for such a strategy. As consideration for such acquisitions, the Company
may seek to issue Ordinary Shares. There can be no guarantee that sellers of target companies,
businesses or assets will be prepared to accept shares traded on AIM as consideration, and
this may limit the Group’s ability to grow its activities and pursue its strategy. The difficulties
involved in integrating any companies, businesses or assets acquired by the Group may divert
financial and management resources from the Group’s core business, which could adversely
affect the Group’s business, financial condition and operating results.
When completing new acquisitions in order to mitigate those risks the best practices in terms
of screening are used. Due diligence studies are also conducted by external advisors on the
selected target companies.

1.4 Reliance on subcontractors
The Group utilises subcontractors on a project-by-project basis to meet its contractual
obligations. Such projects will rely on the subcontractors performing their duties and
obligations, not only in terms of timely delivery but also in terms of their performance
obligations. Any such non-performance may result in time and cost over-run of the Group’s
projects and reduce the value of the Group’s returns.
In order to mitigate the above risks, the Group relies on long-term partnerships with well
renowned subcontractors.

1.5 Timing of large contracts
The Group’s revenues are generated from a mix of longer and shorter lead time orders. The
timing of order placement and delivery of the larger orders are inherently difficult to predict
potentially causing material fluctuations in actual results compared with expectations or
plans.

1.6 Competition for investment
The Group may face significant competition from both domestic and international
competitors who have greater capital, greater resources and superior brand recognition that
the Group and who may be able to provide better services, adopt more aggressive pricing
policies or pay higher prices to acquire businesses. There is no assurance that the Group will
be able to compete successfully in such an environment.

Annual Report 2017 |

1.7 Internal controls
Future growth and prospects for the Company will depend on the Directors’ ability to manage
the business of the Group and to continue to expand and improve operational, financial and
management information and quality control systems on a timely basis, whilst at the same
time maintaining effective cost controls. Any failure to expand and improve operational,
financial and management information and quality control systems in line with the Group’s
growth could have a material adverse effect on the Group’s business, financial condition and
results of operations. The Group is investing in a new integrated accounting and managerial
software the use of which will play a key role in mitigating the risk of internal control failures.

1.8 Quality of the Group
The Group’s success is correlated to the reputation of its services by its clients. The Group’s
results, therefore, depend on its ability to maintain the quality of its services, as well as on the
maintenance of a strong image of its brands. Any failure to guarantee the quality of its services
could have material adverse effects on the Group’s reputation, which could harm its business,
financial condition, and operating results. The Group aims at providing the best possible
services to its client. In order to do so, training and updating courses are offered to all
employers.

2. RISKS RELATING TO THE GROUP’S OPERATIONS OVERSEAS

2.1 General
It is expected that a significant proportion of the Group’s revenues will be generated overseas.
The Group’s business could therefore be adversely affected by changes in local and regional
economic, political and social conditions or the policies of the relevant government, such as
changes in laws and regulations, taxation and imposition of restrictions on currency
conversion. In addition, the occurrence of war, public disorder, economic sanctions, terrorism
and local or national strikes or labour unrest in any of the overseas locations in which the
Group operates may disrupt or permanently prevent the Group from operating in these
locations or recovering its investment in whole or in part. The Group’s investments may be
denominated in currencies other than Euro. Accordingly, fluctuations in exchange rates
between Euro and the relevant local currency and the costs of conversion and exchange control
may have an unfavourable effect on the profitability of such operations.

2.2 Financial risks
Revenue and profitability
The Company cannot guarantee that the Group will be able to achieve or sustain revenue
growth and achieve or sustain profitability in the future. If the Company is unable to achieve
or sustain profitability, the business could be severely harmed. The Group’s operating results
may fluctuate as a result of a number of factors, many of which are beyond its control. These
factors include, amongst others, the growth rate of markets into which the Group sells its
services or products, market acceptance of and demand of its services and products and those
of its customers and unanticipated delays, problems in the introduction of its services or
products. If the Company does not realise sufficient revenue levels to sustain profitability, it

Annual Report 2017 |

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

Exchange rate risk
The Company and the Group will be exposed to several exchange risks. The Company is
raising funds in Sterling pursuant to the Placing and the Subscription. Most of the Group’s
expenses and the sale of its products will be denominated in Euros. Exchange rate fluctuations
could adversely affect the Company’s profitability or the price competitiveness of its products.
Fluctuations in exchange rates between currencies in which the Group operates may cause
fluctuations in its financial results which are not necessarily related to its underlying
operations. The Group does not currently have a foreign currency hedging policy.

__________________________________________________________________________

Annual Report 2017 |

FINANCIAL HIGHLIGHTS

Revenue

EBITDA1

EBIT2

Profit Before Tax

Net Profit

Net Profit to the Group

Net Profit to minorities

Year ended
31 December 2016

Year ended
31 December 2017

18.487

20.964

1.130

788

734

445

182

263

1.695

1.235

1.103

773

449

324

Net Financial position

3.115

1.501

FULL YEAR HIGHLIGHTS

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

1 EBITDA is calculated as: SALES - LABOUR COSTS– SERVICE CHARGES– OTHER OPERATING COSTS–
PUBLIC COMPANY COSTS + OTHER OPERATING INCOME

2 EBIT is calculated as: EBITDA – DEPRECIATION OF TANGIBLES AND INTANGIBLES – OTHER
ACCRUALS AND DEPRECIATION

Annual Report 2017 |

FINANCIAL INFORMATION OF SEC S.P.A.
FOR THE TWO YEARS ENDED 31 DECEMBER 2017

CONSOLIDATED INCOME STATEMENT

Continuing Operations

Note

Revenue

Employees expenses
Service costs

Depreciation & amortization

Other operating income and charges
Other operating costs
Profit from operations
Finance income and expense
Profit before taxation
Taxation
Profit for the year
Profit for the year attributable to
owners of the company
Non-controlling interest
Profit for the year
Earnings per share attributable to
the equity holders of the Company
Basic, per share
Diluted, per share

5-6
7

9
10

Year ended
31 December 2016
€’000

Year ended
31 December2017
€’000

18,487

(8,296)
(8,699)

(128)

77
(646)
795
(61)
734
(289)
445

182

263
445

20,964

(10,380)
(7,502)

(155)

37
(1,729)
1,235
(132)
1,103
(330)
773

449

324
773

0.01 0.036
0.01 0.034

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Continuing Operations

Note

Year ended
31 December 2016
€’000

Year ended
31 December 2017
€’000

for sale

revaluation of available

Profit for the year
Items that may be subsequently reclassified to profit or
loss:
Gain/(loss) on
investments
Gain /(loss) on exchange rates
Items that will not be reclassified to profit or loss:
Actuarial gain/(loss) on defined benefit pension plans
Total comprehensive income for the year
Total comprehensive income for the year attributable to:
Owners of the Company
Non-controlling interest
Net Group comprehensive income for the year

445

(6)

(1)
474

216
258
474

773

(238)

(21)

14
529

214
315
529

Annual Report 2017 |

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Intangible assets
Tangible assets

Investments

Other financial assets

Other assets

Non-current assets

Trade receivables

Other receivables

Financial investments

Cash and cash equivalents

Current assets

Total assets

Trade payables

Borrowings

Other payables

Provisions

Current liabilities

Employee benefits

Borrowings

Other non-current liabilities

Non-current liabilities

Total liabilities

Net assets

Share capital

Reserves

Note

13
14

Profit of the year
Equity attributable to equity holders
Of the Company
Equity non-controlling interests

Total equity

Total equity and liabilities

Year ended
31 December
2016
€’000

Year ended
31 December
2017
€’000

5,703
454

9,402
413

917

924

7,097

10,764

7,304

8,436

657

854

1,049

4,509

6,776

15,786

22,883

4,672

18,472

29,235

2,261

2,537

901

1,807

2,911

651

6,724

3,482

1.180

9,006

1,504

1,680

3,353

5,873

256

5,311

1,280

8,833

11,837

17,839

11,046

11,397

1,222

1.222

7,753

182

9,157
1,889

11,046

22,883

7,683

449

9,354
2,042

11,396

29,235

Annual Report 2017 |

CONSOLIDATED CASH FLOW STATEMENT

Year ended
31 December 2016
€’000

Year ended
31 December 2017
€’000

Operating activities

Profit for the year

Adjusted for:

Corporation tax

Impairment charges

Net interest

Depreciation tangible assets

Amortization intangible assets

Other depreciations

Pension provisions

Long-term provisions

Other non- cash movements

Changes in working capital:

(Increase)/decrease in trade and other receivables

Increase/(decrease) in trade and other payables

Cash generated from operations
Income tax paid

Net cash flow from operating activities

Investing activities

(Purchase)/sale tangible assets

Acquisitions and earn-outs

(Purchase)/sale of other intangibles assets

Cash from acquisitions
(Purchase)/Sale of financial assets

(Purchase)/Sale of investment

Net cash used in investing activities

Financing activities

Interest paid

Increase in financial borrowings

Decrease in financial borrowings

Dividend payments

Share issues

Own shares operation

Minorities
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at the end of period

445

289

123

121

359

(528)

1,579

(667)

1,885
(1,439)

446

(169)

(1,653)

(89)

143
(10)

(1,779)

(61)

2,150

(819)

(341)

2,849

(404)

(303)
3,071
1,739
5,036
6,776

773

330

102

295

168

(402)

(11)

(933)

225

645
(426)

219

(1)

(1,332)

(416)

47
(3,697)

(5,938)

(45)

4,370

(946)

(164)

(141)
(2,103)
2,104
6,676
4,672

Annual Report 2017 |

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Share
capital
€’000

Legal
reserve
€’000

Other
reserves
€’000

Retained
earnings
€’000

Total equity
shareholders’
funds
€’000

Non-
controlling
interest
€’000

Total
equity
€’000

Balance at 1 January 2016
Net profit for the year
Other comprehensive income
Ordinary shares issued
Dividends paid
Others
Own shares operations
Acquisition of subsidiaries with
non-controlling interest
Balance at 31 December 2016
Net profit for the year
Other comprehensive income
Ordinary shares issued
Dividends paid
Others
Own shares operations
Acquisition of subsidiaries with
non-controlling interest
Balance at 31 December 2017

1,000
-
-
222
-
-
-

1,222
-
-
-
-
-
-

1,222

20
-
-
-
-
38
-

58
-
-
-
-
-
-

(38)
-
34
-
-
-
-

(4)
-
(241)
-
-
-
-

5.635
182
-
2,627
(100)
(41)
(422)

7,881
449
-
-
-
(10)
-

6,617
182
34
2,849
(100)
(3)
(422)

9,157
449
(241)
-
-
(10)
-

1,849
263
(6)
-
(241)
9
(275)

290

1,889
324
(10)
-
(164)
(85)
-

8,466
445
28
2,849
(341)
6
(697)

290

11,045
773
(252)
-
(164)
(95)
-

(245)

8,320

9,354

2,042

11,936

1. CORPORATE INFORMATION

SEC S.p.A. (the “Company”) was incorporated in March 1989 and is based in Milan. The
registered office and principal executive office of SEC S.p.A. is located at Via Panfilo
Castaldi, 11, Milan 20100.

The consolidated financial statements for the two years ended 31 December 2017, represent
the result of the Company and its subsidiaries (together referred to as “Sec Group” or the
“Group”).

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

The subsidiaries of the Company included in the consolidated financial information, are as
follows:

Annual Report 2017 |

Company

Key

Location

Hit S.r.l.
Sec & Associati S.r.l.
Sec Mediterranea S.r.l.
Della Silva Communication Consulting
S.r.l
Curious Design S.r.l.
Cambre Associates SA
ACH Cambre SL
Sec and Partners S.r.l.
Kohl PR & Partners GMBH
Newington Communications LTD
Martis Consulting sp z o..o
Newlink Comunicaciones Estrategica SAS NWC

Milan (Italy)
HIT
SEC-A Turin (Italy)
MED
Bari (Italy)
DS

Milan (Italy)
Milan (Italy)
Brussels (Belgium)
Madrid (Spain)
Rome (Italy)
Berlin (Germany)
London (UK)

CUR
CAM
ACH
SEC-P
KOHL
NEW
MRT Warsaw (Poland)

Bogotà (Colombia)

SEC shareholdings
as of December 31, 2017
57.71%
51.00%
51.00%

51.00%
75.00%
76.00%
65.70%
50.50%
75.00%
60.00%
60.00%
51.00%

The acquisitions completed during the two years ended 31 December 2017 were as follows:
• September 2016: Newington Communications LTD
•

In January 2016, Sec Spa acquired additional shares of 10% in Cambre Associates SA,
and during the year Cambre Associates SA acquired 8% of its own shares, increasing
ownership of Sec Spa to 76% at 31 December 2016.

• April 2017: Martis Consulting sp z o.o
• December 2017: Newlink Comunicaciones Estrategica SAS

2. ACCOUNTING POLICIES

a. Basis of preparation
The principal accounting policies adopted in the preparation of the financial information are
set out below. The policies have been consistently applied to all the years presented, unless
otherwise stated.
The financial information has been prepared in accordance with International Financial
Interpretations
Reporting Standards and
(collectively “IFRSs”) issued by the International Accounting Standards Board (IASB) and
adopted by the European Union (“adopted IFRSs”). The Group adopted IFRS for the first
time for the period from 1 January 2013.
The financial information has been prepared under the historical cost convention, except for
the “financial instruments” that have been measured at fair value.
The functional currency of the Group is Euro (EUR), and all amounts are presented in
functional currency.

International Accounting Standards and

a (bis). Translation of the Financial Statements of foreign companies
• The Group records transactions denominated in foreign currency in accordance with IAS
21 - The Effect of Changes in Foreign Exchange Rates. The results and financial position
of all the Group entities that have a functional currency different from the presentation
currency are translated into the presentation currency as follows:

Annual Report 2017 |

• Assets and liabilities for each consolidated statement of financial position presented are
translated at the closing rate at the date of that consolidated statement of financial position;
Income and expenses for each consolidated statement of income are translated at average
exchange rates.

•

• Goodwill and fair value adjustments arising from the acquisition of a foreign entity are
treated as assets and liabilities of the foreign entity and translated at the closing rate.

b. New standards, interpretations and amendments not yet effective
At the date of this financial information, certain new standards, amendments and
interpretations to existing standards have been published but are not yet effective, and have
not been adopted early by the SEC Group. These are listed below:
•
IFRS 9: Financial Instruments (effective 1 January 2018)
•
IFRS 15 standards and clarifications: Revenue from Contracts with Customers (effective
1 January 2018)
IFRS 16: Leases (effective 1 January 2019)

•
• Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses

(effective 1 January 2017)

• Amendments to IAS 7: disclosure initiative (effective 1 January 2017)
• Amendments to IFRS 1 and IAS 28: First-time Adoption of International Financial
Reporting Standards and Investments in Associates and Joint Ventures (effective 1 January
2018)

• Amendments to IFRS 2: Classification and Measurement of Share-based Payment

Transactions (effective 1 January 2018)

• Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance

•

Contracts (effective 1 January 2018)
IFRIC interpretation 22: Foreign Currency Transactions and Advance Consideration
(effective 1 January 2018)

• Amendments to IAS 40: Transfers of Investment Property (effective 1 January 2018)

The adoption of these standards, interpretations and amendments are not expected to have
a material impact on SEC Group in the period they are applied.
IFRIC interpretation 23: Uncertainty over Income Tax Treatments (effective 1 January
2019)

•

• Amendments to IFRS 9 Financial Investments and to IAS 28 Investments in Associates

and Joint Ventures (clarifications on how to combine IFRS 9 and IAS 28)

• Amendments to IAS 12 Income Taxes, IAS 23 Borrowing Costs, IFRS 3 Business

Combination and to IFRS 11 Joint arrangements (effective 1 January 2019)

• Amendment to IAS 19 Employees Benefits (effective 1 January 2019)

c. 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 for the future. Therefore, the Group continues to adopt the going concern basis in
preparing the financial information.

Annual Report 2017 |

d. Basis of consolidation
A company is classified as a subsidiary when the SEC Group has the following:
• power over the investee;
• exposure, or rights, to variable returns from its involvement with the investee; and
•
the ability to use its power over the investee to affect the amount of the investor’s returns.
• The financial information presents the results of the company and its subsidiary
undertakings as if they formed a single entity. Intercompany transactions and balances
between Group companies are therefore eliminated in full.

• The financial information includes the results of the Company and its subsidiary
undertakings made up to the same accounting date. All intra-Group balances, transactions,
income and expenses are eliminated in full on consolidation.

e. Business combinations
The results of subsidiary undertakings acquired during the period are included from the
consolidated income statement from the effective date of acquisition.
Business combinations are accounted for using the acquisition method. The cost of an
acquisition is measured as the aggregate of the consideration transferred, measured at fair
value at the date of acquisition, and the amount of any non-controlling interest in the acquired
entity. Non-controlling interest are initially measured at the non-controlling interests’
proportionate share of the recognized amounts of the acquiree’s identifiable net
assets. Acquisitions costs incurred are expensed and included in administrative expenses
except where they relate to the issue of debt or equity instruments in connection with the
acquisition.

f. Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided
to the chief operating decision maker. The chief operating decision maker has been identified
as the board of directors that makes strategic decisions.
The Board considers that SEC Group’s protect activity constitutes one operating and one
reporting segment, as defined under IFRS 8. Management reviews the performance of the SEC
Group by reference to total result against Budget.

Services provided by Group entities located in each geography are as follows:

Italy
United Kingdom
Belgium
Germany
Spain
Poland

Total revenue

Year ended
31 December 2016

Year ended
31 December 2017

€’000
9,933
989
4,736
1,245
1,584
-

%
54%
5%
25%
7%
9%
-

€’000
10,580
4,074
3,624
957
900
829

%
50%
19%
17%
5%
4%
4%

18,487

100%

20,964

100%

Annual Report 2017 |

g. Revenue
Revenue is recognized to the extent that it is probable that economic benefits will flow to the
Group and the revenue can be reliably measured. Revenue represents the fees derived from
the services provided to and invoiced to clients and is reported net of discounts, VAT and
other taxes.
Revenue is recognized in the period in which the service is performed, in accordance with the
terms of the contractual arrangements. Income billed in advance of the performance of the
service is deferred and recognized in the income statement when the service takes
place. Income in respect of work carried out but not billed at period end is accrued.
Costs incurred with external suppliers on behalf of the clients are excluded from revenue.

h. Intangibles Assets
Goodwill
Goodwill represents the excess of fair value attributed to investments in businesses and
subsidiary under taking over the fair value of the identifiable net assets, liabilities and
contingent liabilities acquired. Goodwill on acquisition of an entity is included in intangible
assets.
Goodwill has indefinite useful life and therefore not amortized. Impairment reviews are
undertaken annually or more frequently if events or changes in circumstances indicate a
potential impairment. Any impairment in carrying value is recognized as an expense and is
not subsequently reversed.
The valuation of the CGUs for goodwill impairment testing has been prepared on a discounted
cash flow basis.
Other
Externally acquired intangible assets are initially recognized cost and subsequently amortized
on a straight-line basis over their useful economic lives. Licenses are amortized over the term
of the license agreement.

i. Tangible assets
Property, furniture and equipment are initially recognized at cost and subsequently stated at
cost less accumulated depreciation and, where appropriate, impairment losses.
Depreciation is provided on all items of property and equipment so as to write off their
carrying value, less its residual value, over their expected useful economic lives. It is
provided at the following rates:
• Furniture and machinery
• Office equipment
• Computer equipment

12%
20%
20%

The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the
end of each reporting period. An asset 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 proceeds with the carrying
amount and are recognized within “other operating income and changes”.

Annual Report 2017 |

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

k. Financial assets
The Group classifies its financial assets into one of the categories discussed below, depending
on the purpose for which the asset was acquired.

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
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 ‘available for sale’ and are shown at fair value with any
movements in fair value taken to equity. On disposal, the cumulative gain or loss previously
recognized in equity is included in the profit or loss for the year.
The fair values of the primary financial assets and liabilities of the company together with
their carrying values are as follows:

Financial assets
Trade and other receivables
Financial investments
Cash and cash equivalents

Financial liabilities
Trade and other payables
Financial liabilities

Year ended
31 December 2016
€’000

Year ended
31 December 2017
€’000

Carrying
value

7,961
1,049
6,776

Fair
value

8,066
1,049
6,776

Carrying
value

9,290
4,509
4,672

Fair
value

9,290
4,509
4,672

5,1771
4,254

5,171
4,254

6,019
7,679

Trade and other receivables
These assets are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market. They arise principally through the provision of services to
customers (e.g. trade receivables), but also incorporate other types of contractual monetary
asset. They are initially recognized at fair value plus transaction costs that are directly
attributable to their acquisition or issue, and are subsequently carried at amortized cost using
the effective interest rate method, less provision for bad debts and doubtful account.
Impairment provisions are recognized when there is objective evidence (such as significant
financial difficulties on the part of the counterparty or default or significant delay in payment)
that the Group will be unable to collect all of the amounts due under the terms receivable, the

Annual Report 2017 |

amount of such a provision being the difference between the net carrying amount and the
present value of the future expected cash flows associated with the impaired receivable.
For trade receivables, which are reported net, such bad debt provisions are recorded in a
separate allowance account with the loss being recognized within other operating costs in the
Consolidated income statement. On confirmation that the trade receivable will not be
collectable, the gross carrying value of the asset is written off against the associated
provision.

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 over draft are shown within borrowings in
current liabilities.

m. Financial liabilities
Financial liabilities comprise loans and trade and other payables, which are initially
recognized at fair value and subsequently carried at amortized cost using the effective interest
method. The interest element of the borrowings and short-term financial liabilities is
expensed over the repayment period at a constant rate. In accordance with IAS 39 Financial
Instruments: “Recognition and Measurement, a financial liability of the Group is only
released to the consolidated income statement when the underlying legal obligation is
extinguished”.

n. Operating leases
Assets leased under operating leases are not recorded in the statement of financial position.
Rental payments are charged directly to the income statement on a straight-line basis.

o. Share capital
SEC S.p.A.’s ordinary shares are classified as equity instruments.

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

q. Taxation
Income tax for each period comprises current and deferred tax.
The current tax is based upon the taxable profit for the year together with adjustments, where
necessary, in respect of prior periods, and calculated using tax rates that have been enacted
or substantively enacted at the end of the financial year. Italian Corporate entities are subject
to a corporate income tax (IRES) and to a regional production tax (IRAP).
Current tax is recognized in the consolidated income statement, except to the extent that it
relates to items recognized in other comprehensive income or directly in equity.
Deferred tax assets and liabilities are recognized where the carrying amount of an asset or
liability in the consolidated statement of financial position differs from its tax base.

Annual Report 2017 |

Recognition of deferred tax assets is restricted to those instances where it is probable that
taxable profit will be available against which the difference can be utilized.
The amount of the asset or liability is determined using tax rates that have been enacted or
substantively enacted by the reporting date and are expected to apply when the deferred tax
liabilities/assets are settled/recovered.

r. Employee benefits
The only form of post-employment benefit provided to staff by Group companies is
represented by Staff Termination Benefits “TFR”. In light of the amendments made to the
relevant regulations by the “2007 Finance Act” (law no. 296 of 27 December 2006), with
regard to enterprises with more than 50 employees, staff termination benefits are accounted
for in accordance with the following rules:
1. for defined benefit plans, as regards the portion of staff termination benefits accrued as at
31 December 2006, through actuarial calculations which do not include the item related to
future salary increases;

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

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

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

3. FINANCIAL INSTRUMENTS – RISK MANAGEMENT

The Board has overall responsibility for the determination of the Group’s risk management
objectives and policies. The overall objective of the Board is to set policies that seek to reduce
risk as far as possible without unduly affecting the Group’s competitiveness and flexibility.
All funding requirements and financial risks are managed based on policies and procedures
adopted by the Board of Directors. The Group does not currently use derivative financial
instruments and does not issue or use financial instruments of a speculative nature.

Through its operations SEC Group is exposed to the following financial risks:
a. Credit risk
b. Market price risk
c. Fair value and cash flow interest rate risk
d. Liquidity risk

Annual Report 2017 |

trade and other receivables;

Principal financial instruments
The principal financial instruments used by Sec Group, from which financial instrument risk
arises, include:
•
• cash and cash equivalents;
•
trade and other payables.
This note describes Sec Group’s objectives, policies and processes for managing those risks
and the methods used to measure them. Further quantitative information in respect of these
risks is presented throughout these financial statements. There have been no substantive
changes in Sec Group’s exposure to financial instrument risks, its objectives, policies and
processes for managing those risks or the methods used to measure them from previous periods
unless otherwise stated in this note.

a. Credit risk
Credit risk is the risk of financial loss to SEC Group if a customer or a counterparty to a
financial instrument fails to meet its contractual obligations. The Company is mainly exposed
to credit risk from credit sales. Sec Group has trade receivables of € 8,436,000 (2016:
€7,304,000) net of any write-off and allowance for doubtful receivables.
As at 31 December 2017, the Group had amounts due from ten major customers amounting to
20 per cent. of the trade receivables balance.
Sec Group is exposed to credit risk in respect of these balances such that, if one or more of the
customers encounters financial difficulties, this could materially and adversely affect the Sec
Group financial results.
Sec Group attempts to mitigate credit risk by assessing the credit rating of new costumers prior
to entering into contracts and by entering contracts with costumers with agreed credit terms.
Credit risk also arises from cash and cash equivalents and deposits with banks and financial
institutions. Sec Group does not enter into derivatives to manage credit risk.
The Directors are unaware of any factors affecting the recoverability of outstanding balances
at 31 December 2017 and consequently no further provisions have been made for bad and
doubtful debts.

b. Market risk
Market risk arises from SEC Group’s use of interest bearing, tradable. It is the risk that the
fair value or future cash flows of a financial instrument will fluctuate because of changes in
interest rates (interest rate risk) or other market factors (i.e. price risk).

c. Fair value and cash flow interest rate risk
Sec Group has previously been funded through borrowings from a UBS (Italy) S.p.A.,
Deutsche Bank S.p.A. and Unicredit Banca S.p.A. Sec Group obtained the following loans:
1. UBS (Italy) S.p.A. € 1,762,000 during the year ended 31 December 2013 at an interest
rate of Euribor 12 month plus a margin of 1.25 per cent as Revolving credit facility open
ended.

Annual Report 2017 |

2. Deutsche Bank S.p.A. € 1,000,000 at an interest rate of 1-month Euribor plus a margin
of 1,20 per cent. On amortizing basis with monthly basis instalment between July 2015
and June 2019.

3. Unicredit S.p.A, € 30,000, at an interest rate of 4,1 per cent payable in monthly

instalment between February 2015 and February 2020.

4. Unicredit S.p.A, €1.000.000 at an interest rate of 1.2% payable every six months

between June 2016 and December 2020

5. BPM Banca Popolare di Milano € 1.000.000 at an interest rate of 1,1% payable in

monthly instalments between February 2016 and February 2020.

6. Natwest GBP 100.000 at an interest rate of 4.69% payable in monthly instalments

between October 2016 and October 2019

d. Liquidity risk
Sec 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 aim, Sec Group finances its operations
through a mix of equity and borrowings. Sec Group’s objective is to provide funding for future
growth and achieve a balance between continuity and flexibility through its bank facilities and
future intergroup loans.
The Board receives cash flow projections on a regular basis as well as information regarding
cash balances. At the end of the financial year, these projections indicated that Sec Group is
expected to have sufficient liquid resources to meet its obligations under all reasonably
expected circumstances.

Capital management
SEC Group monitors capital, which is made up of share capital, retained earnings and other
reserves.
SEC Group’s objectives when maintaining capital are:
•

to safeguard the entity’s ability to continue as a going concern, so that it can continue to
provide returns for shareholders and benefits for other stakeholders; and
to provide an adequate return to shareholders by pricing services commensurately with the
level of risk.

•

SEC Group sets the amount of capital it requires in proportion to risk. Sec Group manages its
capital structure and makes adjustments to it in the light of changes in economic conditions
and the risk characteristics of the underlying assets. In order to maintain or adjust the capital
structure, SEC may adjust the amount of dividends paid to shareholders, return capital to
shareholders, issue new shares or sell assets to reduce debt.

4. REVENUE

Revenue of services

Total

Year ended
31 December 2016
€’000
18,487

Year ended
31 December 2017
€’000
20,964

18,487

20,964

Annual Report 2017 |

Revenues are primarily generated by a comprehensive range of communications, relations and
public affairs services provided to national and multinational clients.

Revenues for services are composed by: public relation activities for10.820.000 (2016 €
11,782,000); advocacy activities for € 5.735.000 (2016 € 4,796,000); and integrated services
of 4.410.000 (2016 € 1,909,000).

5. EMPLOYEES EXPENSES

Salaries

Social contributions

Severance indemnity

Other costs

Total employee expenses

Year ended
31 December 2016
€’000

Year ended
31 December 2017
€’000

6,782

1,241

314

8,296

8,210

1,747

319

104

10,380

The average monthly number of employees during the period was as follows:

Directors

Staff
Total average monthly employees

204
226

229
250

Salaries to key managers of the Group, including Board of Directors’ fees have been the
following:

Salaries to key managers

End of mandate allowance

Total salaries to key managers

2.101

2,146

2,346

2,382

No bonuses were paid to Directors during the period.

6. DIRECTORS RETRIBUTIONS

EXECUTIVE DIRECTORS
Fiorenzo Tagliabue
Paola Ambrosino
Anna Milito
Cesare Valli
Thomas Parker
Vicente Beneyto Perez
Manuel Delgado
Irene Matias
F. Javier De Mendizábal Castellanos

2017 Retribution
167.300
205.000
91.100
300.000
216.000
48.565
47.641
65.804
45.110

Annual Report 2017 |

Peter Rall
Maria Giulia Tagliabue
Laura Gaioni
Maurizio Ravidà
Cinzia Sigot
Frè Massini Torelli Giancarlo
Maione Maurizio
Gianluigi Conese
Scotti Alberto
Mark Glover
Phil Briscoe
Ewa Baldyga
Dariusz Jarosz
Non Executive Directors
Luigi Roth
Paola Bruno
David Methewson

Total Retribution to key managers

Figures expressed in €

7. SERVICE COSTS

Consulting

Internal Consulting & Directors

Overheads

Rent/Lease

Services

Total service costs

189.911
31.140
44.671
18.816
47.320
160.000
61.650
59.700
58.155
112.710
112.710
75.674
75.674

42.000
35.000
35.000

2.234.652

Year ended
31 December 2016
€’000

Year ended
31 December 2017
€’000

1,271

1,814

1,367

663

3,584

8,699

1,1,231

1,095

1,430

1,051

2,695

7,502

Overheads principally comprise costs incurred with subcontractors in order to manage
workload activity not directly provided internally. Services principally comprise marketing,
advertising and other services incurred by the Group in its operating activities (respectively
for 2,044,000 € in 2017 and € 2,873,000 in 2016); other amounts are related to phone costs,
travel expenses, office maintenance expenses, freight costs, car expanses and bank charges.

8. DEPRECIATIONS AND AMORTIZATIONS

Amortization of intangibles

Depreciation of tangible assets

Total depreciation and amortization

Year ended
31 December 2016
€’000

Year ended
31 December 2017
€’000

123

128

102

155

Annual Report 2017 |

9. OTHER OPERATING INCOME AND CHARGES

Year ended
31 December 2016
€’000

Year ended
31 December 2017
€’000

Other Charges

Other Income

Total other operating income and charges

(32)

109

(13)

Other operating income and expenses in 2016 and 2017 are mainly generated by non-
recurring adjustments and miscellaneous.

10. OTHER OPERATING COSTS

Bad debts write-off
Bad debts allowance
Impairment of investment

Tax local

Others
Total other operating costs

Year ended
31 December 2016
€’000

Year ended
31 December 2017
€’000

107
121
0

392
646

0
295
0

1,384
1,729

Other costs primarily include the purchase of goods and materials for managing events for €
533.000 in 2017; the remaining costs comprise subscriptions, magazines, books and
newspapers, consumption of materials.

11. FINANCE INCOME AND EXPENSE

Financial income

Interest income
Finance income
Financial expenses
Interest expense
Other expenses
Finance expenses

Net Finance income and expense

Year ended
31 December 2016
€’000
17
17

Year ended
31 December 2017
€’000
13
13

(71)
(7)
(78)

(61)

(116)
(29)
(145)

(132)

Annual Report 2017 |

12. TAXATION

Current tax expense
Deferred tax income
Total income tax expense

Year ended
31 December 2016
€’000
454
(165)
289

Year ended
31 December 2017
€’000
316
14
330

2017 Applicable tax rates (Italy)
The SEC Group’s activities are both in Italy and abroad (Spain, Germany, Belgium, United
Kingdom, Poland and Colombia). Activities within Italy are subject to two corporate taxation
regimes:
•

IRES is the state tax which was levied at 24 per cent. (27.5 per cent. in 2015) of taxable
income.
IRAP is a regional income tax, for which the standard rate is 3.9 per cent., with certain
local variations permitted.

•

The reconciliation between the theoretical income taxes calculated on the basis of the
theoretical tax rate and income taxes recognized was as follows:

Profit before taxes

Expected tax charge based on Italian corporate tax rate (IRES 24%)

Temporary differences subject to tax @ 24%

Non-deductible expenses subject to tax @ 24%

Non-taxable incomes subject to tax @ 24%

Tax loss carry forward (use) subject to tax @ 24%

Tax loss carry forward (set-up) subject to tax @ 24%

recovery of IRAP taxable amounts on IRES purposes subject to tax @ 24%

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

IRAP on Italian entities (3,9%)

Non Italian jurisdictions tax rates reconciliation

Differences on non-Italian jurisdictions taxable income/(loss) basis

Total current income taxation

Deferred tax Income/(Expense)

Total taxation

13. INTANGIBLE ASSETS

734

(202)

(92)

(103)

107

(23)

(47)

(53)

(454)

165

(289)

1,103

(265)

(65)

(42)

100

(3)

(96)

(29)

(344)

(330)

Annual Report 2017 |

COST

At 1 January 2016
Additions

At 31 December 2016

Additions

At 31 December 2017

AMORTISATION

At 1 January 2016

Charge for the year

At 31 December 2016

Charge for the year

At 31 December 2017

NET BOOK VALUE

At 31 December 2015

At 31 December 2016

At 31 December 2017

Licenses
€’000

72
89

161

140

321

Goodwill
€’000

3,808
1,806

5.614

3,591

9,205

Total
€’000

3,880
1,895

5,775

3732

9.526

(67)

(5)

(72)

(52)

(124)

197

(5)

(72)

(52)

(124)

3,808

5,614

9,205

3,813

5,703

9,402

Additions in Goodwill over the two-year period are generated as follows:

•
•
•

in 2015, € 761,000 from acquisition of Kohl PR & Partners GMBH.
In 2016, € 1,806,000 from acquisition of Newington Communications LTD.
In 2017. € 1,196,000 from acquisition of Martis, € 2,143,000 from Newlink and
€252,000 from Newington

€’000

Trade receivables
Cash and cash equivalents
Other assets
Trade payables
Other liabilities
Net Assets acquired
% ownership SEC Group
Ownership SEC Group
FV consideration

Goodwill

Newington

Martis

NewLink

1,128
143
211
(178)
(541)
763
60%
458
2,264

1,806

80
44
24
(103)
(9)
36
60%
22
1,213

1,191

396
2
203
(197)
(162)
242
51%
124
2,269

2.145

The evaluation of the CGUs for goodwill impairment testing has been prepared on a

Annual Report 2017 |

Discounted Cash Flow basis value.

In 2017 management identified the aggregation of cash generating units (“CGUs”) for testing
the impairment of its goodwill in light of the business of the year. As a result of the analysis,
management identified as CGUs the single subsidiaries that generated goodwill.

Total goodwill at 31 December 2017 is related to Cambre (€ 1,547,000), acquired in 2013,
ACH (€ 492,000) and Sec and Partners (€ 100,000) acquired in 2014, Kohl (€ 761,000)
acquired in 2015 and Newington (€ 1,806,000, revised in 2017 to 2,052,000 based on second
earn-out) acquired in 2016; to Martis (€1,196,000) and to Newlink (€2,269,000) acquired in
2017. Additions of 2014 also included goodwill in ACH resulting from a previous merger (€
275,000) and goodwill in Sec and Partners resulting from a previous acquisition (€ 632,000).

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 Discounted Cash Flow method. The main assumptions for
determining the value in use are reported below:

Average market rate
Discount rate

Cambre ACH
8.90%
7.96%

8.90%
8.41%

Sec and
Partners Kohl

8.90%
8.55%

8.90%
7.86%

Newington
8.90%
7.23%

Martis
8.90%
10.32

Newlink

8.90%
13.64

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 2017 to 2021 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 CGU in future years. The terminal
values were calculated as a perpetuity at the same discount 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 Newington is subject to an earn-out based on company EBITDA over three
years (2016 - 2018); total consideration for the acquisition of the 60% share of the company
has been calculated based on conservative and reasonable estimates, consequently an earn-
out liability for 562K has been accrued as of 31 December 2017. The final total consideration
is subject to uncertainty and depends on the company performance over the ongoing financial
year (see note 24).

Acquisition of Newlink is subject to an earn-out based on company EBITDA over three

Annual Report 2017 |

years (2017 – 2018 – 2019 - 2020); total consideration for the acquisition of the 51% share
of the company has been calculated based on conservative and reasonable estimates,
consequently an earn-out liability for € 1,594 has been accrued as of 31 December 2017. The
final total consideration is subject to uncertainty and depends on the company performance
over the ongoing financial years (see note 24). The Newlink business combination has been
determined only provisionally at the end of 2017 as per IFRS3.45 considered that earn outs
are based on 2018, 2019, 2020 Newlink effective EBITDA and that this is expected to impact
the amount of consideration transferred and used in order calculate goodwill (IFRS3.46).

14. TANGIBLE ASSETS

Leasehold
improvements
€’000

Equipment
€’000

Furniture and
fittings
€’000

Total
€’000

COST

At 1 January 2016

Additions
Additions
acquired business
Disposals

from

At 31 December 2016

Additions
Additions
acquired business
Disposals

from

171

173

363

(6)

At 31 December 2017

379

DEPRECIATION

At 1 January 2016

Charge for the year

Disposals

At 31 December 2016

Charge for the year
Additions
acquired business
Disposals

from

(131)

(36)

(157)

(59)

At 31 December 2017

(216)

112

136

161

(85)

(10)

(95)

(11)

(106)

549

(1)

660

158

(73)

745

(384)

(76)

(439)

(42)

(100)

(561)

832

111

217

(1)

1,159

158

(79)

1,285

(600)

(93)

(680)

(112)

(100)

(872)

Annual Report 2017 |

Net Book Value

At 31 December 2016

At 31 December 2017

196

152

217

208

454

413

15. OTHER FINANCIAL ASSETS

Other financial assets include € 10,000 of bank deposits to guarantee the ACH Cambre SL
(Madrid) office lease and other financial investments of ACH Cambre SL € 6,000 in both 2017
and 2016.

16. OTHER ASSETS

Deferred tax assets

Rental deposits

CEO benefits

Other

Total other assets

Year ended
31 December 2016
€’000

Year ended
31 December 2017
€’000

505

501

164

246

917

156

267

924

CEO benefits is the asset coverage provided by an external insurance company in order to
fulfill the end of mandate obligations for the CEO (see note 26).
The movement on the deferred tax account is shown below:

Opening balance

Movements in statement of financial position

Recognized in income statement: taxation

Closing balance

Year ended
31 December 2016
€’000

Year ended
31 December 2017
€’000

505

288

165

505

267

Annual Report 2017 |

17. TRADE RECEIVABLES

Trade receivables
Total trade receivables

Year ended
31 December 2016
€’000

Year ended
31 December 2017
€’000

7,304
7,304

8,437
8,437

There is no material difference between the net book value and the fair-values of trade
receivables due to their short-term nature.

The ageing analysis of accounts receivables by due date is as follows:

Trade
receivables
not yet due
€’000

4,367

52%

≤120

€’000

1,492

18%

Days from due date

>120≤180

>180≤365

€’000

323

€’000

175

>365

€’000

980

12%

Total trade
receivables

€’000

8,436

100%

The amounts presented in the consolidated statement of financial position are net of an
allowance for doubtful receivables of € 365,000 (2016: €161,000) based on prior experience
and their assessment of the current economic ongoing.
During 2017, the Group accrued 229.000€ and utilized 25.000€ for bad debts.

18. OTHER RECEIVABLES

Prepaid expenses

Tax on income

VAT

Others

Total other receivables

Year ended
31 December 2016
€’000

Year ended
31 December 2017
€’000

120

347

190

657

195

420

238

854

There is no material difference between the net book value and the fair values of other
receivables due to their short-term nature. Others mainly includes tax refunds expected from

Annual Report 2017 |

tax authorities for € 127,000, advance prepayments to suppliers of € 24,000 (2016: €21,000)
and € 12,000 (in both 2017 and 2016) of receivables from minority shareholders.

19. FINANCIAL INVESTMENTS

UBS S.A. investment

Porta Communication equtites

Other
Total
receivables

other

Year ended
31 December 2016
€’000

1,049

Year ended
31 December 2017
€’000

1,121

3,373

1,049

4,509

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

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

31 December 2016

Investments

Bonds and Bond funds
Equities
Other
Total

Purchase Cost
€’000
428
545
30
1,003

Fair Value
€’000

Accrued interest
€’000
424 1
-
597
27
-
1,048 1

Total
€’000
425
597
27
1,049

31 December 2017

Investments

Bonds and Bond funds
Equities
Other
Total

Purchase Cost
€’000
428
545
30
1,003

Fair Value
€’000
431
662
27

Accrued interest
€’000
1
-
-
1,120 1

Total
€’000
432
662
27
1,121

Investments at fair value

Available for sale
Debt securities:

31 December 2016

31 December 2017

Level
2

€'000

Annual Report 2017 |

- Government bonds
- Other bonds

Total
Equities and mutual
funds
under
management:
- Equity Funds
- Bond Funds
- Balanced Funds
Total
Total Investments

Financial Assets Available for
sale
Annual changes
Opening Balance January 1
2016
Purchases
Positive changes in fair value
Other changes
Sales
Negative changes in fair value

Closing Balance December 31
2016
Purchases

Positive changes in fair value

Other changes

Sales

Negative changes in fair value
Closing Balance December 31
2017

Debt
securities

€'000

-
-
-

-
-

-
53

597
372
27
996
1,049

-
-

-
-
-
-
-

-
-

-
53

662
-
379
-
-
27
- 1,068
- 1.121

-
-

-
-
-
-
-

-
-

-
-
-
-
-

Equities

Funds

Loans

Total

€'000

-
-
-
-

€'000

950

70
-
-

-
(24)

996

(1)

1,068

€'000

-
-
-
-

€'000

1,003

70
-
-
-
(24)

1.049

1,121

20. CASH AND CASH EQUIVALENTS

For the purpose of the cash flow statement, cash and cash equivalents comprise the following
balances with original maturity of 90 days or less:

Annual Report 2017 |

Year ended
31 December 2016
€’000

Year ended
31 December 2017
€’000

6,776

4,672

Year ended
31 December 2016
€’000

Year ended
31 December 2017
€’000

2,261

2,537

Cash at bank

Total cash and cash equivalents

21. TRADE PAYABLES

Trade payables

Total trade payables

22. BORROWINGS

The Group has both long-term borrowings funding business acquisitions and short-term credit
facilities for working capital. Borrowings shown on current and noncurrent liabilities are as
follows:

Deutsche Bank

Banca Popolare di Milano

Unicredit

Banca Intesa

Banca Popolare di Bari

UBS

KBC Bank

National Westminster Bank PLC
Banco Colpatria Red Multibanca SA

Interest payables

Total current liabilities

UBS

Deutsche Bank

Banca Popolare di Milano

Unicredit

Year ended
31 December 2016
€’000

Year ended
31 December 2017
€’000

250

245

325

581

251

747

901

1.831

1,762

375

544

598

1,762

513

296

3,301

Annual Report 2017 |

Total non-current liabilities

Total borrowings

2,353

4,254

5.872

7.703

Details of non-current liabilities

Outstanding
€’000

UBS

1.762

Total
facilities
€’000
1,762

Interest rate

Euribor +
1.25%

Maturity
date

Open
ended

Repayment

Security

Deutsche
Bank

Deutshce
Bank
Banca
Popolare
di Milano
Unicredit
Unicredit

375

1,000

Euribor +
1.20%

23 June
2019

Two
month

719

547

600
3.479

1.000

1.000
3.500

installment
Monthly

Monthly

Monthly
Three
months

Euribor +
1%
1,1%

March
2020
February
2020

1.2% Dec. 2020
July 2022

Euribor 3
months *
365/360
(1.7%-
0.336)

Pledge on Silvia
Anna Mazzucca
financial
instruments
None

None

None
None

23. OTHER PAYABLES

Accrued Expenses

Advances from customers

Employees and payroll-related

Government institutions

Tax on Income

VAT

Other
Total other payables

Year ended
31 December 2016
€’000

Year ended
31 December 2017
€’000

178

1,195

294

216

538

437
2,911

267

1,268

294

258

338

1,053
3,482

There is no material difference between the net book value and the fair values of current other
payables due to their short-term nature.Other includes € 142,000 in both 2017 and 2016
related to the payable due to a SEC and Partners director.
Maturity analysis of the financial liabilities, classified as financial liabilities measured at

Annual Report 2017 |

amortized cost, is as follows (the amounts shown are undiscounted and represent the
contractual cash-flows):

Up to 3 months

2,911

3,482

24. PROVISION

Provisions

Total provisions

651

1,180

Increase in provisions versus 2016 is mainly due to accounting for the earn out liability on the
acquisitions of Newington, Martis and Newlink (see note 13).

25. EMPLOYEE BENEFITS

Severance indemnity

Total severance indemnity

1,504

1,680

The liability represents the amount for future severance payments to employees.

Opening Balance January 1 2016

Service Cost
Net Interest
Benefit Paid
Actuarial Gain/Loss

Closing Balance 31 December 31 2016

Service Cost
Net Interest
Benefit Paid
Actuarial Gain/Loss

Closing Balance 31 December 2017

Severance indemnity
€'000
1,436

224
29
(194)
(9)

1,504

220
19
(71)
8

1,680

Annual Report 2017 |

26. OTHER NON-CURRENT LIABILITIES

CEO benefits

Earn-out Liability Long term

Other non current liabilities

Total other non-current liabilities

Year ended
31 December
2016
€’000

246

411

Year ended
31 December
2017
€’000

301

975

1,280

SEC S.P.A. has an obligation in relation to the CEO for end of mandate allowance as per the
above amounts on each year end date. Such obligation is covered by an insurance asset (note
16).

Earn Out Liability refers to the long term portion of the Earn-out on the acquisition of Newlink.

27. SHARE CAPITAL

At 31 December 2017, the share capital comprises:

12,221,975 ordinary shares of 0.1 EUR each.

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.

At 31 December 2015 the share capital comprised 1,000,000 ordinary shares of 1 EUR each.
The general assembly held on 9 June 2016 changed the number and the amount of the sharers
into 10,000,000 ordinary shares of 0.1 EUR each.

At 26 July 2016, following the IPO on AIM UK market, the share capital changed into
12,221,975 ordinary shares of 0.1 EUR each, with an increase of 2,221,975 shares and €
222,197.50.

Authorized, issued and fully paid capital

As at 1 January
Additions during the year

31 December

As at
31 December 2016

As at
31 December 2017

€ 1,000,000.00
€ 222,197.50

€1,222,197.50

€ 1,222,197,50

€1,222,197.50

Annual Report 2017 |

EARNINGS PER SHARE

The basic and diluted earnings per share for 2016 were 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:

Profit for the year attributable to owners of the company
Number of shares
Earnings per share, basic

€ 182,000
12,221,975
€ 0.01

€ 449,000
12,221,975
€ 0.037

Year ended
31 December 2016

Year ended
31 December 2017

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

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

Year ended
31 December 2016
€’000

Profit for the year attributable to owners of the company
Number of shares
Earnings per share, diluted

€ 182,000
13,031,975
€ 0.01

28. RESERVES

The following table describes the nature of each reserve:

Year ended
31 December
2017
€’000
€ 449,000
13,031,975
€ 0.034

Legal reserve

Evaluation reserve

Share premium reserve

Retained earnings

Total Reserves

Legal reserve
This reserve required by law, not distributable.

Year ended
31 December 2016
€’000

Year ended
31 December 2017
€’000

(4)

2,627

5,071

7,752

(4)

2,627

5,002

7,683

Annual Report 2017 |

Evaluation reserve
Gains/losses arising on financial assets classified as available for sale, actuarial evaluation on
pension allowance and exchange rates differences.

Share premium reserve
The share premium reserve includes € 3,777,000 related to the IPO of Sec S.p.A. on the AIM
UK market occurred on 26 July 2016, for amounts paid in excess of share face value, net of €
1,150,000 generated by the costs of listing, net of tax.

Retained earnings
All other net gains and losses and transactions with owners not recognized elsewhere.

29. NON-CONTROLLING EQUITY

The equity non-controlling interests refers to the net value of the assets and liabilities
attributable to minority investments not held by the Group. Summarized financial information
in relation to the subsidiaries before intra-group eliminations is presented below, together with
the indication of the minority share of the net assets and the related results for the year.

The summarized company statements of financial position for the Two year ended 31
December 2017 are as follows:

As at 31
December
2016 €’000
Non-current
assets

Current
assets

Noncurrent
liabilities

Current
liabilities

Equity
Equity
non-
controlling
interest

HIT

CUR

CAM

ACH

SEC-A MED

SEC-P KOHL

NEW

102

306

716

361

796

215

1,690

566

456

146

1,455

460

1,187

115

191

698

159

395

617

261

1,094

713

263

350

932

146

749

(13)

1,170

328

725

(6)

579

290

Annual Report 2017 |

As at 31
December
2017 €’000
Non-current
assets

HIT CUR CAM ACH

SEC-
A

MED

SEC-
P

KOHL NEW MRT NWC

310

636

169

Current assets

952

387

1129

347

302

140

1382

429

1769

242

549

Noncurrent
liabilities

Current
liabilities

224

359

530

175

243

692

122

828

174

330

Equity

656

277

Equity
non-
controlling
interest

697

167

482

165

(27)

1318

298

1245

(13)

652

119

243

119

The summarized income statement of the companies for the two-year ended 31 December
2016 are as follows:

For the
period
ended 31
December
2016
€’000

HIT

CUR

CAM

ACH SEC-A MED

SEC-P KOHL

NEW

Revenue

729

369

4,736

1,584

340

229

146

1,775

1,245

989

(765)

(372)

(4,036)

(1,461)

(313)

(211)

(240)

(1,469)

(1,153)

(1,018)

Cost of Sale
Other
operating
income and
charges
Profit from
operations
Finance
income and
expenses
Profit before
taxation
Taxation

Profit (loss)
for the
period

Profit (loss)
for the
period to
non-
controlling
interest

(16)

(2)

(18)

(14)

(4)

(5)

699

123

(82)

337

111

(28)

(4)

696

(16)

(2)

131

(15)

(3)

(11)

(82)

335

(41)

109

(33)

(28)

(3)

(4)

(249)

(32)

(3)

447

116

(13)

(1)

107

(82)

293

(31)

(40)

145

(12)

Annual Report 2017 |

For the
period ended
31 December
2017
€’000

HIT CUR CAM ACH SEC-A MED

DS SEC-P KOHL

NEW

MRT

Revenue

1018

391

3624

900

401

217

1623

957

4074

829

Cost of Sale

(941)

(415)

(3792)

(1022)

(386)

(211)

(16)

(1258)

(918)

(3324)

(770)

Other operating
income and
charges

Profit from
operations

Finance income
and expenses

Profit before
taxation

(2)

(1)

(115)

(122)

(16)

365

(2)

(22)

(14)

(1)

(117)

(144)

(16)

365

750

(6)

(2)

744

Taxation

(33)

(4)

(7)

(6)

(115)

(13)

(138)

(16)

Profit (loss)
for the period

Profit (loss)
for the period
to non-
controlling
interest

(5)

(87)

(151)

(4)

(2)

(16)

250

606

242

(1)

(21)

(52)

(2)

(1)

(8)

124

30. RELATED PARTY TRANSACTIONS

From time to time the Group enters into transactions with its associate undertakings. For
amounts paid to key managers please refer to the table within note 6. For payables to related
parties, please refer to note 23; for borrowings please refer to note 3c.

31 CONTINGENCIES AND COMMITMENTS

SEC Group has no contingent liabilities and or commitments.

32. EVENTS AFTER THE REPORTING DATE

In January 2018 SEC underwrote an additional borrowing agreement with CARIGE bank
(total facility € 1.000.000, interest rate 1.20%, six months instalments, maturity June 2021).
In April 2017 Newington distributed 200.000GBP dividends.

Annual Report 2017 |

33. ULTIMATE CONTROLLING PARTY

Sec S.p.A. is 69% controlled by Fiorenzo Tagliabue.

Annual Report 2017 |

ENQUIRIES

SEC spa
Fiorenzo Tagliabue, CEO
Anna Milito, CFO, www.secglobalnetwork.com
+39 02 62499946

WH Ireland (Nominated Adviser)
Katy Mitchell, Alex Bond
+44 0207 220 1666

Peterhouse (Broker)
Charles Goodfellow, Duncan Vasey, Heena Karani and Paul Brown
Peterhouse Corporate Finance Limited
+44 (0)203 053 8671

SEC spa (Media Enquiries)
Graham Herring +44 07793 839 024
Marco Fraquelli +39 02 624999.1

NOTES TO EDITORS
SEC Spa is an advocacy, PR and strategy advisory group with specialisms including Corporate, Public affairs,
Financial , Stakeholder engagement and Consumer Public Relations.
The Group has offices in Milano, Roma, Bruxelles, London, Berlin, Madrid and Warsaw.
The brand and companies it owns are the following:
In Italy: SEC and Partners (Roma), SEC & Associati (Torino), SEC Mediterranea (Bari), HIT (Milano),
Curious Design (Milano)
In Europe: Cambre Associates SA (Bruxelles), ACH Cambre - Consejeros De Relaciones Públicas S.L (Spain),
Kohl PR & Partner Unternehmensberatung für Kommunikation GmbH (Germany), Newington
Communications Limited (UK) Martis Consulting (Poland)
In Latin America: SEC Latam (Colombia)
SEC spa’s corporate website are:
www.secrp.com
www.secglobalnetwork.com

Annual Report 2017 |