Audited results for the year ended 31/12/2018

SEC S.p.A.

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

Audited results for the year ended 31 December 2018

Notice of AGM

SEC, the largest independent advocacy, public relations and integrated communications agency in the Italian market, is pleased to announce its audited results for the year ended 31 December 2018. The 2018 Report and Accounts are available on the company's investor relations website (https://www.secglobalnetwork.com/investors/).

SEC will hold its Annual General Meeting at the company's registered office at Via Ferrante Aporti 8, 20125 Milan, Italy on 10 June 2019 at 10:00am (CET) and if a further meeting is needed that will take place on 11 June 2019 at 10:00 (CET).

Highlights

· Acquisition of leading French public relations agency Clai, Paris

· Strongly positioned to continue to act as an industry consolidator.

Luigi Roth, Chairman of SEC, commented: "Three years from the IPO in July 2016, the Group is poised for further growth."

For more information:

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

Chairman's statement

2018 has been a great year for SEC Group with the completion of our European acquisitions' plan concluding with the deal for Clai, Paris (November 20th), and our subsequent investment in an applied Artificial Intelligence project which is helping drive organic business growth, especially in Italy.

The result of these efforts saw a significant rise in our PR Week worldwide ranking with SEC Group moving to 54th position from 71th last year.

As well an improved business performance as reflected in increased turnover and net profit the last year has seen an improved shared culture amongst all the various agencies in the Group.

Moreover in 2018 the Company has been working to enlarge its operational footprint with progress made on three new acquisitions in the USA, Chile and in particular Germany - reinforcing our presence beyond Kohl PR.

In addition to these initiatives the board has started to work to address two other prominent issues: the application of Law 231 (anti-bribery proceeds) due in 2019 and a review of costs to increase efficiency and performance across the Group.

Finally, SEC secured new headquarters in Palazzo Aporti, an important historical building in the city of Milan (the former National Mail Service building) refurbished by one of SEC's clients. The new offices, occupied since 11 February 2019, are a significant upgrade, improving the working conditions for our staff and providing a professional environment in which to welcome existing and new clients. A HQ of this nature provides a common base for the three SEC Group companies operating in Milan (SEC, Curious Design and HIT).

With the approval of the 2018 balance sheet the current Board will expire (in accordance with Italian Law) after three years of work, following SEC Spa listing on July 26th 2016. I would like to thank every one of the directors for the professional job they have done in providing governance and direction of the Company (in Italy) and of the Group.

I look forward to the new opportunities that await the Group in the coming months.

Luigi Roth

Chairman

Chief Executive's Statement

The year's global economic outlook proved difficult after a start of the year which suggested consistent growth. Driven by growing international trade (5% above 2017 values, and a significant increase of 1.5% increase in growth trends in 2017 as opposed to 2016).

However, the trends in the global economy slowed in the second half of 2018 due in part to persistent and worsening trade tensions between US and China, social and political instability in some key emerging markets, the complication in delivering Brexit have been all factors in dampening expectations of many key economic players. These factors and their repercussions started to affect internal demand in key markets slowing down investment and consumption.

A significant consequence of this scenario was the negative impact on manufacturing economies: including the Eurozone that are still largely based around industrial production. By the end of Q2: French economic expansion was at its lowest levels in 16 months, whilst in Germany the figure was the worst in 20 months. The US economic growth was still positive in Q3 (+3.4% on a yearly basis), Projected Eurozone economic growth was cut by half (dropping from 0.4% to 0.2%), Whilst the the Eurozone economy saw its growth rate drop from 2.8% in Q4 2017 to a current level of 1.6%.

Japan's GDP decreased by 0.3% QoQ in Q3, despite the pursuit of an expansive monetary policy; while China and India were still performing consistently in the same period with growth of 6.5% and 7.1%, respectively. Brazil and Russia, on the other hand, saw growth slow significantly to 1.3% and 1.5% respectively.

Finally, inflation has for the most part remained stable, despite rising trends in previous quarters due to being counterbalanced by stable crude prices. Eurozone inflation at the beginning of the year was 1.3% and is now 1.6% after reaching a peak in Q2 of 2%. The same dynamic can be tracked in the US were the inflation ratio was 2.1% at the start of the year and is now 1.9% dropping 1 point from June peak of 2.9%.

In this context, whilst the Fed has raised the base interest rate four times during the year whilst the ECB, is still pursuing a neutral policy that is expected to leave interest rates unchanged until Summer 2019.

Despite this complicated outlook, 2018 has been a strong year for SEC Group. The performance proved solid and the results very positive. SEC Group produced revenues for €25 million for the year to 31 December 2018, (an increase of 17.3% with respect to 2017), an increase in EBITDA to €2.7 million (+ 59% against 2017), and net profits up to €1.5 million, soaring 103% on the preceding year.

The improvements secured in 2018 are a result of management time being focused on increasing the delivery of successful client outcomes, boosting existing client growth and generating new business opportunities.

In particular, some of the Group key international operations, such as Cambre in Brussels and SEC Latam in Bogotà performed very consistently well with a renovated focus on both efficiency and client growth and their results exceeded those expected. The same focus on efficiency and expansion was also apparent in Italy at a HQ level and in Rome, with both delivering significant margins.

All operational performance was aligned to budget provisions or with minimal deviations. Spain recovered from a challenging 2017 position after a management change. 2018 results have seen losses reduced to less than one third of the losses of 2017, which now provide a solid base to rebuild and grow the business in 2019.

SEC's German agency still faces a challenging situation due to specific market conditions and the need to refocus the business plan on alternative markets. The Group has worked with the German agency to identify a new offer in Germany and hopes by the end of the year to see a partnership with another German agency restoring SEC's fortunes in Germany. This partnership forms part of our business plan for 2019 and is described further in the part dedicated to the Group expansion and acquisition policy. SEC's UK Partner, Newington Communications has continued to see an increase in turnover in 2018 but due to investment and a challenging year end heavily influenced by Brexit this did not deliver the expected level of profit but Newington remains a growing brand in the UK marketplace with two best of category awards in the UK Public Affairs 2018 Awards.

The most concrete sign of Group performance is our rise up the Global PR rankings. SEC Group is now 54th in the PR Week Top 150 listing in 2019, rising from a position of 71 the previous year (+29%). SEC Global is also 12th in the PR Week European Rankings.

Aside from the evident satisfaction of a jump of 17 positions, the result can be seen as a clear recognition of the potential of SEC Group's distinctive business model. In a particular moment when traditional PR multinational groups struggle to meet the tough market conditions in many years, our lean, agile and entrepreneurial focused organization has been able to perform strongly. The picture presented by the PR Week 2019 rankings, demonstrates that our Group has overtaken more established and traditional agencies such as Porter Novelli, Finsbury or APCO to name a few.

I am personally convinced that this performance and recognition are a result of the strong commitment and energy spent by the Group to integrate our operations.

Our joint operational governance body, the Management Committee, where all companies' CEOs sit to develop the strategies and operations to meet the objectives and priorities defined by the Group Board, has now been in operation for two and a half years. During this period it has helped shape a common company culture, whilst supporting each local entrepreneur in developing global business opportunities.

A complete review of SEC Global's website has been undertaken with the launch of the new platform expected at the end of Q2 2019. Similar work has been done on the Group's corporate identity including the creation of professional commercial materials to support centralized marketing and sales activities. The Chief Sales Officer function, headed by former founder and now, Chairman of Cambre, Tom Parker, is driving SEC's business opportunities at an international level, seeing an expansion in cross border clients and international pitch opportunities.

Another important step taken by the Group in 2018 has been to strengthen internal communications. An intranet tool was created to support a centralized global management and control system that was implemented in 2017. We have now 327 professionals from all our operations connected on the Workplace platform.

The focus on internal capacity building across the Group will see the first session of training delivered by the SEC Academy in June 2019.

SEC Global retains a strong focus on innovation developing new tools based on Artificial Intelligence. All technical issues have been addressed, which will see the delivery of a new product service in 2019 - supported by a comprehensive marketing strategy.

The intelligence platform at the core of the service is multilingual, with a first release designed for the Italian market with outputs in Italian. It is already expected that this service will be rolled out to other market in different languages giving SEC a strong competitive advantage in the PR Industry.

SEC acquired Clai Communications in France in 2019, further acquisitions are still being pursued in the US and Chile. We fully expect after presenting our plans to advisers that by the end of 2019 these potential acquisitions will be secured. Due diligence and discussions in both cases are far established and well planned.

At the same time SEC has been searching for a possible partner in Germany in order to cope with the current revenue restrictions the Group is facing in this market. A specialized firm in lobbying and advocacy has been identified and thoroughly assessed in order to start cooperation with SEC's German agency. From both the perspective of logistics and business growth, the two agencies offer considerable synergies and development opportunities. We believe this partnership could evolve over time to a position where further acquisition would consolidate our position in the German market, allowing expansion into new areas of activities supplementing the Group offer. Discussions are ongoing between our Germany subsidiary and the counterpart with the Group board fully informed on any developments.

The most relevant event of the first half of 2019 is certainly the announcement of non-binding offer for a potential merger with Porta Plc. The transaction, which would be considered as a reverse takeover if it proceeds, is fully with the experience of this last two years when both companies established a solid commercial partnership as a consequence of SEC Group becoming a key shareholders.

The synergies between both groups, the absence of any significant geographical overleap and an offer and core business that are fully integrated and compatible are, in fact, solid grounds to base the discussions for this potential merger.

While at this stage we cannot predict if the merger will occur, if successful the resulting merged entity would be of a size, know-how and market capability to further boost SEC growth and positioning as a global PR player.

Net cash and equivalents have changed from 1.501 (2017) to -1.160 (2018) primarily as a consequence of the different classification of Porta securities (from Financial Assets Available for Sale to Participations).

Net assets

Following the announcement of shareholder offer and placing made on the 17th July 2018 (closed on the 3rd August 2018) SEC issued 1.280.558 new shares. At the end of 2018, the issued share capital was 13.502.533 shares.

Group Cash position

The group Cash position remains strong with at 5.220.000 at the end of the period.

Fiorenzo Tagliabue

SEC Spa CEO

Notice of Annual General Meeting

SEC will hold its Annual General Meeting at the Company's registered office at Via Ferrante Aporti, 8, 20125 Milan, Italy on 10 June 2018 at 10:00am (CET).

FINANCIAL HIGHLIGHTS

FINANCIAL INFORMATION OF SEC S.P.A.

FOR THE TWO YEARS ENDED 31 DECEMBER 2018

Consolidated income statement

Consolidated statement of comprehensive income

Consolidated statement of financial position

Consolidated cash flow statement

Consolidated statement of changes in equity

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 Ferrante Aporti 8, Milano 20125.

The consolidated financial statements for the two years ended 31 December 2018, 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:

The acquisitions completed during the two years ended 31 December 2018 were as follows:

· April 2017: Martis Consulting sp z o..o

· December 2017: SEC Latam Comunicaciones Estrategica SAS

· November 2018: CLAI SAS (see note 13)

Accounting policies

a. Basis of preparation

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

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

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:

· 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.

· All resulting exchange differences are recognized in other comprehensive income.

· 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.

· The final exchange rate of Euro vs. Great Britain Pound used on Newington Communication LTD as of 31 December 2018 is 0,89453; the average exchange rate for the period considered was 0,88471.

· The final exchange rate of Euro vs. Colombian Pesos used on SEC Latam SAS as of 31 December 2018 is 3.721,81; the average exchange rate for the period considered was 3.486,74.

· The final exchange rate of Euro vs Polish Zloty used on Martis Consulting sp. z o o as of 31 December 2018 is 4,3014; the average exchange rate for the period considered was 4,2615

b. Impact of initial application of IFRS 9 'Financial Instruments'

In the current year, the Group has applied IFRS 9 'Financial Instruments' and the related consequential amendments to other Adopted IFRSs that are effective for periods beginning on or after 1 January 2018. The transition provisions of IFRS 9 allow an entity not to restate comparatives. The adjustments arising from the impact of IFRS 9 are not reflected in the balance sheet at 31 December 2017; however, they are recognised in the opening balance sheet on 1 January 2018.

IFRS 9 introduced new requirements for:

1. the classification and measurement of financial assets and financial liabilities;

2. impairment of financial assets;

3. general hedge accounting.

Details of the impact of these new requirements on the Group's consolidated financial statements are summarized in the table below.

Following to application of IFRS 9 an amount of 84 €'000 corresponding to cumulated change in fair value from previous years on investments has been reclassified from OCI Reserve into retained earnings; change in fair value of investments incurred in 2018 for 24K has been accounted against profit & loss rather than against OCI reserve"  

IFRS 15 'Revenue from Contracts with Customers'

The standard deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers.

Revenue is recognised when a customer obtains control of a service and thus has the ability to direct the use and obtain the benefits from the service. Variable consideration is included in the transaction price if it is highly probable that there will be no significant reversal of the cumulative revenue recognised when the uncertainty is resolved.

The standard replaces IAS 18 'Revenue', and IAS 11 'Construction Contracts', and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018, and earlier application is permitted. The Group implemented IFRS 15 on 1 January 2018 and has carried out a review of existing contractual arrangements as part of this process.

The classification and measurement of revenue is largely unchanged following the adoption of IFRS 15.

No material impact on profit for future periods is expected.

IFRS 16 - Leases 

On 31 October 2017 was issued the "Regolamento UE n. 2017/1986 that implemented in the European Economic Community IFRS 16 (leasing). IFRS 16 substitutes IAS 17 (Leasing) and related interpretations (IFRIC 4 Determine if an agreement includes a leasing; SIC 15 Operating leases and incentives; SIC 27 Evaluating the substance of transactions in the legal form of leasing). IFRS 16 is expected to be applied retrospectively starting from 1st January 2019.

Based on IFRS 16, accounting representation of leasing (that do not represent service rendered) shall be made through including in the statement of financial position of a financial liability corresponding to the net present value of future rental payments versus inclusion of an asset corresponding to the right of use of the rented assets.

Passive leasing previously classified based on IAS 17 as financial leases will not be treated differently than the present and will be treated accordingly to what done in the past.

At the time of first implementation of the new accounting standard, with reference to leases previously classified based on IAS 17, the Group is willing to apply the retrospective method through inclusion of the financial liability for lease contracts and of the asset corresponding to the right of use measured based on residual / future contractual payments still to be made at the time of transition.

SEC Group, contracts falling under implementation of IFRS 16 are principally related to:

· Office buildings/space

· Cars

· Office equipment

Concerning options and exemptions stated in IFRS 16, the Group intends to adopt the following choices:

· IFRS 16 is not applied to intangible assets, to short term contracts (lower than 12 months) and contracts with low unit value;

· Usage rights and financial liabilities related to leasing are divided into specific classes in the financial statement of position;

· any component relating to the provision of services included in the lease payments is generally excluded from IFRS 16

· contracts with similar characteristics are valued using a single discount rate.

The application of the new principle on the Group's financial debt exposure (on a like-for-like basis), still being evaluated and refined, is indicatively equal to 6,718 €'000.

Other standards or amendments issued by the IASB, not endorsed by the European Union or approved but not yet applicable to the Consolidated Financial Statements, are shown in the following table:

* early application granted for entities that apply IFRS 15

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.

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;

· 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:

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 undertaking 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.

IFRS 9. The valuation of the CGUs for goodwill impairment testing has been prepared on a discounted cash flow basis.

Licenses: Research and development costs

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

• it is technically feasible to develop the product for it to be available for use or sold;

• adequate technical, financial and other resources are available to complete the development;

• there is an intention to complete and sell or use the product;

• there is an ability for the Group to sell the product;

• sale of the product will generate future economic benefits;

• expenditure on the project can be measured reliably.

Capitalised development costs are amortised over three years. The amortisation expense is included within the administrative expenses line in the statement of comprehensive income. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in the statement of comprehensive income as incurred.

Licenses: Other

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

i. Tangible assets

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

Depreciation is 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 12%

· Office equipment 20%

· Computer equipment 20%

The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset 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".

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. The Group has not classified any of its financial assets at fair value through profit or loss, as available for sale or held to maturity except for financial investments.

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:

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 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 overdrafts 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 IFRS 9 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.

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.

t. Stock Plans - IFRS 2

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

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

3. Critical accounting estimates and judgements

SEC Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Useful lives of depreciable assets

Useful lives of depreciable assets are based on the expected utilization of each asset. Changes to estimates can result in significant variations in the carrying value and amounts charged to the Statement of Comprehensive Income in specific periods (see notes 13 and 14).

Fair value measurements and valuation processes

Some of the Group's assets and liabilities are measured at fair value for financial reporting purposes. In estimating the fair value of an asset or a liability, SEC Group uses market observable data to the extent it is available (see notes 15 and 20).

Provision for doubtful debts

Management performs an assessment of the recoverability of debtors when evidence arises that demonstrates the collection is uncertain. Management periodically reassesses the adequacy of the allowance for doubtful debts in conjunction with its credit policy and discussions with each specific customer. Judgement is applied at the point where recoverability is deemed uncertain and thus when a provision is to be recognized (see notes 10 and 18).

Employee benefits

For actuarial assumptions on severance indemnity refer to note 26.

Impairment of Goodwill

Disclosure included in note 2 (h).

4. 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

Principal financial instruments

The principal financial instruments used by Sec Group, from which financial instrument risk arises, include:

· trade and other receivables (see notes 17 and 18);

· cash and cash equivalents (see note 21);

· trade and other payables (see notes 22 and 24).

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 9,630 €'1000 (2017: 8,436 €'1000) net of any write-off and allowance for doubtful receivables.

As at 31 December 2018, 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.

Directors reviewed trade receivables as on end of December 2018 and based on the trade receivables analysis made an additional provision against bad debts has been made in order to consider possible losses; changes in bad debts provision accounted in 2018 as well as ECL are summarized in note 18.

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 UBS (Italy) S.p.A., Deutsche Bank S.p.A., Unicredit S.p.A., BPM Banco Popolare di Milano, Natwest, Carige. 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.

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 two monthly basis instalments between July 2015 and June 2019.

3. Deutsche Bank S.p.A. 1,000 €'000 at an interest rate of 1-month Euribor plus a margin of 1,00 per cent. On amortizing basis with monthly basis instalment between April 2017 and March 2020.

4. 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.

5. Unicredit S.p.A, 1.000 €'000 at an interest rate of 1.2% payable every six months between June 2016 and December 2020

6. BPM Banco Popolare di Milano 1.000 €'000 at an interest rate of 1,1% payable in monthly instalments between February 2016 and February 2020.

7. Natwest 100 GBP'000 at an interest rate of 4.69% payable in monthly instalments between October 2016 and October 2019

8. Unicredit S.p.A, 3.500 €'000 at an interest rate of Euribor 3 months * 365/360 (1,7-0,336) payable every three months between July 2017 and July 2022

9. Carige 1.000 €'000 at an interest rate of 1.20% payable every six months between December 2018 and January 2021

(See also note 23)

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;

· 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 (see notes 28 and 29)

e. Exchange rates risk

Exchange-rate risk, also called currency risk, is the risk that changes in the relative value of certain currencies will reduce the value of investments denominated in a foreign currency.

On 2018 year the Group had no material intercompany payables or receivable denominated in foreign currency and suitable to produce a material impact on the value of such assets and liabilities.

Assets and liabilities denominated in foreign currencies are held by some foreign subsidiaries (Martis,denominated in PLN - Newington denominated in GBP - SEC Latam denominated in COP). These foreign entities ad no material amounts denominated in other foreign currency as on end of December 2018. Exchange rates used for conversion of amounts related to these companies are shown in note a (bis).

5. Revenue

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 for 12.886 €'000 (2017 10,820 €'000); advocacy activities for € 7.443 €'000 (2017 € 5,735,000); and integrated services of 4.265 €'000 (2017 4,410 €'000).

6. Employees expenses

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

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

Directors retributions

On 03/28/2018 the Board of Directors, in implementation of the shareholders' meeting resolution of 10/27/2017, resolved to establish a stock option plan for the managers of the investee companies and the parent company. An estimated cost for 37 €'000 has been included in other staff costs and the corresponding tax impact has been considered for some 9 €'000 (see also note 29).

7. Service costs

Overheads principally comprise costs incurred with subcontractors in order to manage extraordinary workload activity not directly provided internally. Services principally comprise marketing, advertising and other services incurred by the Group in its operating activities (respectively for 2,178 €'000 € in 2018 and 2,044 €'000 € in 2017); other amounts are related to phone costs, travel expenses, office maintenance expenses, freight costs, car expanses and bank charges.

8. Depreciations and amortizations

9. Other operating income and charges

Other income in 2018 includes an extraordinary income for €502 €'000 tax credit reimbursement on the investment made from SEC in an Artificial Intelligence project. Other operating income and expenses in 2018 and 2017 are mainly generated by non-recurring adjustments and miscellaneous.

10. Other operating Costs

Other costs primarily include the purchase of goods and materials for managing events for 496 €'000 (533 €'000 in 2017); the remaining costs comprise subscriptions, magazines, books and newspapers, consumption of materials.

11. Finance income and expense

12. Taxation

2018 Applicable tax rates (Italy)

The SEC Group's activities are both in Italy and abroad (Spain, Germany, Belgium, United Kingdom, Poland, Colombia and France). Activities within Italy are subject to two corporate taxation regimes:

· IRES is the state tax which was levied at 24 per cent 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:

13. Intangible assets

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

· In 2017 1,191 €'000 from acquisition of Martis, 2,143 €'000 from SEC Latam and 252 €'000 from Newington

· In 2018 € 5,010 €'000 from CLAI Acquisition

The evaluation of the CGUs for goodwill impairment testing has been prepared on a Discounted Cash Flow basis value.

In 2018 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 2018 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 SEC Latam (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 €'1000).

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:

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 2019 to 2023 five year plan approved by management, on the basis of the results attained in previous years as well as management expectations regarding future trends in the public relations market. At the end of the five-year projected cash flow period, a terminal value was estimated in order to reflect the value of the CGUs in future years. The terminal values were calculated as a perpetuity at the same growth rate as described above and represent the present value, in the last year of the forecast, of all future perpetual cash flows. The impairment test performed as of the balance sheet date resulted in a recoverable value greater than the carrying amount (net operating assets) of the above-mentioned CGUs.

Acquisition of Newington is subject to an earn-out based on company EBITDA over three years (2016 - 2017 - 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 562 €'000 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 25).

Acquisition of SEC Latam is subject to an earn-out based on company EBITDA over three years (2018 - 2019 - 2020); total consideration for the acquisition of the 51% share of the company has been calculated based on conservative and reasonable estimates, consequently an earn-out liability for 1,594 €'000 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 25). The SEC Latam business combination has been determined only provisionally at the end of 2017 as per IFRS 3.45 considered that earn outs are based on 2018, 2019, 2020 SEC Latam effective EBITDA and that this is expected to impact the amount of consideration transferred and used in order calculate goodwill (IFRS 3.46).

Acquisition of CLAI is subject to an earn out based on company EBITDA over seven years (2019 - 2020 - 2021 - 2022 - 2023 - 2024 - 2025); SEC holds preferred shares in Clai that represent the 10% of the share capital that allow 50%+0,1 voting rights and a set of options allows SEC to escalate to 100% of Clai within the end of the earn out period; total consideration for the acquisition of 100% share of the company has been calculated based on conservative and reasonable estimates, consequently an earn-out liability for 6,412 €'000 has been accrued as of 31 December 2018. The final total consideration is subject to uncertainty and depends on the company performance over the ongoing financial years (see note 25). The CLAI business combination has been determined only provisionally at the end of 2018 as per IFRS 3.45 considered that earn outs are based on the next seven years effective EBITDA of CLAI and this is expected to impact the amount of consideration transferred and used in order to calculate goodwill (IFRS 3.46)

14. Tangible assets

15. Investments

Investment in Porta Communications PLC made in August 2017 was originally classified within investments available for sale. In April 2019 the Boards of Porta Communications Plc (AIM: PTCM) and SEC announced that they entered into discussions concerning a potential all-share merger (the "Potential Merger") of the two companies. Following to such strategical decision the investment has been reclassified within investments in compliance with IFRS 9.

16. 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 2018 and 2017. In 2018 it also includes 46 €'1000 deposit to guarantee the CLAI offices lease.

17. Other assets

Director benefits is the asset coverage provided by an external insurance company in order to fulfil the end of mandate obligations for a Board director (see note 27).

The movement on the deferred tax account is shown below: