Interim Results 2018

This announcement contains inside information

4 September 2018

Porta Communications Plc

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

Interim Results for the six months ended 30 June 2018

Porta Communications Plc (AIM: PTCM) is pleased to announce its unaudited interim results for the six months ended 30 June 2018.

Financial Highlights

· Revenue reduced by 5% on HY 2017, to £18.53m (HY 2017: £19.44m)

· Gross profit reduced by 5% to £15.68m (HY 2017: £16.48m)

· Adjusted EBITDA1 down by 13% at £1.01m (HY 2017: £1.16m)

· Loss per share2 0.5p (HY 2017: 0.6p)

· Net debt £9.55m (FY 2017: £8.37m)

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

2. Loss per share on continuing and discontinued operations

Half Year Highlights

· Emma Kane and Brian Tyson, the founder and Managing Partner respectively of the two most profitable businesses in the Group were appointed as Joint CEOs of Porta on 26 April

· Revenue and Gross Profit continue to be internally generated with no new acquisitions in the period

· Positive EBITDA delivered by Newgate Abu Dhabi, Newgate Australia, Newgate Hong Kong, Newgate Singapore, Redleaf, and 2112

· Redleaf wholly owned from 19 June, following the acquisition of the final 19% shareholding

· Acquired a further 20% of Newgate Hong Kong and 4.43% of Newgate Australia, taking shareholdings to 80% and 66.71% respectively

Post Period and Outlook

· Internal restructuring well underway and to be completed in H2 2018

· The full impact of the circa £3m of non-performing costs removed from the UK businesses expected to be realised in Q4 2018

John Foley, Chairman of Porta Communications Plc, commented:

"Porta was bold enough to enter into a number of "start-ups" as well as making a significant number of acquisitions in order to achieve its aim of creating an integrated communications and marketing group with clear synergies between each office and business. A number of the Group's businesses are producing strong financial results, but the challenge for the new Joint CEOs is to ensure that the success that they have generated in their respective businesses becomes the case across the whole Group. 

We are now in a position where we can see the end of the phase which was initiated when I became Chairman in May 2017. That phase involved the necessary internal restructuring, removal of non-performing costs and changes to senior management in April this year, so that financial performance could be achieved to support the original vision and therefore justify the considerable financial investment which has so far been incurred. The Group's balance sheet still requires some strengthening but that can now be done from a position of positive operating cashflow and a leaner and more appropriate cost base from which to deliver future profitable trading growth and sustainable, appropriate results to shareholders from 2019 onwards."

Emma Kane, Joint CEO of Porta Communications Plc, commented:

"For every full financial year since inception, Porta has experienced continuous growth in gross profit - the focus is now to drive productivity and profitability. The major elements of the necessary internal restructuring will be completed in the second half of 2018 and we are confident about the Group's immediate and future prospects. I would like to thank all our colleagues for their passion and dedication to excellence, and our clients for trusting us to build their brands and protect their reputations."

Brian Tyson, Joint CEO of Porta Communications Plc, commented:

"Emma and I have a clear vision of how we will achieve our defined strategy to operate a seamless strategic communications consultancy operating locally, nationally and internationally; our objectives are to improve the Group's productivity and profitability and to build a motivated, talented team that is passionate about being the best. We have done this in our individual businesses and are relishing working across the Group to achieve our goals."

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

Enquiries

Porta Communications Plc

Brian Tyson, Joint CEO

Emma Kane, Joint CEORhydian Bankes, CFO

www.portacomms.com

+44 (0) 20 7680 6500

Grant Thornton UK LLP (Nominated Adviser)

Samantha Harrison

Ben Roberts

Seamus Fricker

+44 (0) 207 383 5100

N+1 Singer (Broker)

Mark Taylor

Lauren Kettle

+44 (0) 20 7496 3000

Newgate Communications (Media Enquiries)

Bob Huxford

Adam Lloyd

+44 (0) 20 7680 6500

[email protected]

Notes to Editors

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

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

· The brands and companies it owns are Newgate Communications, Redleaf Communications, Publicasity and 2112 Communications.

· Porta Communications' corporate website is www.portacomms.com

Chairman's Review

Introduction

Since Porta Communications was founded in 2010, we have established 15 offices across 7 countries through a combination of organic growth, acquisitions and financing a number of start-ups. The Group today has approximately 1,100 clients advised by a team of 223 highly experienced communications specialists. 

For every year since inception, the Group has experienced continuous growth in gross profit - the focus is now to drive productivity and profitability. From Q4 2017, we have stripped out in excess of £3m (net) of non-performing cost in the UK businesses. I am pleased to report that the Group made further substantial efforts to improve its internal processes and structures in the first half of 2018. It now has a much leaner, stronger and more appropriate foundation from which to deliver future profitable trading growth and sustainable, appropriate results to shareholders from 2019. 

Considering the scale of the restructuring that has occurred, I am pleased to report that the consolidation of the cost base and operating structures did not materially adversely impact first half performance when compared to the first half of 2017.

Financial Overview

Both Revenue of £18.53m (HY2017: £19.44m) and Gross Profit of £15.68m (HY2017: £16.48m) were 5% lower than the previous year. As previously indicated, Adjusted EBITDA of £1.01m (HY2017: £1.16m) was 13% lower than the previous year.

The major items representing the difference between Adjusted and Reported EBITDA were centered around the restructuring of the UK businesses, namely Newgate and Publicasity - the removal of non-performing cost and the legal costs associated with doing so. Together this accounted for £0.9m of the adjustments to EBITDA in the period, with the majority of the balance relating to the sale of Summit Marketing Services and the relocation of Redleaf.

In June 2018, Porta acquired the final tranche of shares in Redleaf taking its ownership of this highly profitable business to 100%. This, in combination with the net repayment of £0.6m against the Clydesdale Bank Revolving Credit Facility ("RCF") increased the Group's net borrowings to £9.55m (FY2017: £8.37m).

The Group currently has a £5.2m loan with Retro Grand Limited that matured on 29 June 2018, a £4.6m deep discount bond with Hawk Investment Holdings Limited both at 8% coupons and a £3.3m RCF with Clydesdale Bank on which the Group is charged interest of 3.85% over 3-month LIBOR. The Company is currently having positive discussions with Retro Grand Limited regarding the refinancing of the £5.2m loan that matured on 29 June 2018 and expects to provide the market with a further update in due course.

Despite the costs associated with the consolidation of the cost base over the last nine months, it is very pleasing to see that the Group was in a position to report a net cash inflow from operating activities. Positive operating cash generation will improve further when the financial effects of necessary restructuring are complete which is anticipated to occur in the second half of 2018.

Operational Review

On 26 April 2018, Emma Kane and Brian Tyson were appointed as the Group's Joint CEOs and immediately defined a strategy to operate a seamless strategic communications consultancy operating locally, nationally and internationally; its objectives are to improve the Group's productivity and profitability and to build a motivated, talented team that is passionate about being the best. 

The Joint CEOs instigated an inaugural conference in London for the heads of each of its international offices, held over four days. The event was designed to increase collaboration between teams in different geographies and across disciplines, to improve and to drive performance, and to build-out strategic products and services such as digital, data and social market research. The benefits of this forum are already being experienced. 

Newgate Abu Dhabi

Newgate Abu Dhabi had a successful first six months and performed in line with expectations. The team won two major contracts in competitive tenders and worked closely with colleagues in both Asia and the UK to deliver the clients' campaigns.

Newgate Australia

Newgate Australia continued to consolidate its position as the region's leading communications consultancy against a background of a turbulent political climate and impending elections. The business performed well in the first half but behind the exceptionally strong performance experienced in 2017. The reduction in Gross Profit was offset by lower than budgeted operating expenditure. Research and Insight continue to underpin Newgate Australia's campaigns and the Australian team is spearheading the rollout of this offering outside the continent. In June, Porta acquired a further 4.43% of Newgate Australia, taking its shareholding to 66.71%.

Newgate Hong Kong

Newgate Hong Kong experienced a tremendously successful first half operating significantly ahead of management forecasts and ahead of the prior year equivalent period. The team handled two of China's largest ever IPOs as well as a major M&A take-private which contributed to its record performance. In June, Porta acquired a further 20% of Newgate Hong Kong taking its shareholdings to 80%. A new office was opened in Shanghai as part of Newgate's Greater China offering. 

Newgate Singapore

Newgate Singapore is regarded as a leader in its market and has performed in line with management expectations and the prior year equivalent period. The continued strong performance enabled the company to continue to invest in the expansion of its team and senior talent growing by over 25% since the start of 2018. 

Newgate UK

Emma Kane was appointed Chief Executive of Newgate UK on 26 April 2018. The UK operations have been the focus of significant management attention centred around operations and costs; the full impact will be realised from Q4 2018 with Newgate UK's monthly breakeven point having been reduced by approximately 25%.

Newgate UK is being transformed into a cohesive operation able to provide seamless communications to clients, whatever their business need. The strength of its integrated offering was recognised in the annual PRCA City and Financial Awards when its work in support of the high-profile acquisition of Imagination Technologies by Canyon Bridge won "Best M&A or Communications in Support of a Transaction". Newgate devised and delivered an integrated financial, corporate and public policy communications programme in support of the transaction that the PRCA award judges considered to be "very well thought out and strategic".

Redleaf Communications

In February 2018, Redleaf joined the other Porta UK group companies by relocating to Sky Light City Tower which will achieve an annualised saving of £0.2m for the Group. In June 2018, Redleaf became wholly-owned by Porta following the acquisition of the remaining 19% of the agency by the Group for £1m and the agency is now being fully integrated and will start operating under the Newgate brand from November 2018. Redleaf performed in line with management expectations in the first half and has enjoyed record monthly performance since relocating. 

Publicasity

Publicasity did not perform in line with expectations in the first half of 2018 and a strategic review of the business was commenced and its management team restructured to reflect the increasing focus on influencer marketing and digital communications. The new management team was successful in winning three major new clients which will form the basis of the business moving forward. This business will now be integrated into Newgate to leverage the benefits that it brings both in the UK and cross-border.

2112 Communications

2112 continues to trade profitably and is ahead of the comparative period for the prior year. The business continues to benefit from a large number of loyal, long-term clients and is increasingly working with other companies within the Porta group.

Strategic Review

Porta was established with the aim of creating an integrated communications and marketing group with clear synergies between each office and business. As I have previously reported, the Group was bold enough to enter into a number of "start-ups" as well as making a significant number of acquisitions in order to achieve its aim. A number of the Group's businesses are producing strong financial results, but the challenge is to ensure that this is the case across the whole Group.

We are now in a position where we can see the end of the phase which was initiated when I became Chairman in May 2017. That phase involved the necessary internal restructuring, removal of non-performing costs and changes to senior management in April this year, so that financial performance could be achieved to support the original vision and therefore justify the considerable financial investment which has so far been incurred. The Group's balance sheet still requires some strengthening but that can now be done from a position of positive operating cashflow and a leaner and more appropriate cost base from which to deliver future profitable trading growth and sustainable, appropriate results to shareholders from 2019 onwards.

Board Changes and People

Emma Kane and Brian Tyson were appointed Joint Chief Executive of the Group on 26 April 2018. Emma is the founder and Chief Executive of Redleaf Polhill which prior to its integration with Newgate Communications was the Group's most profitable UK business. Brian is Managing Partner of Newgate Australia, the largest and most profitable company in the Group. The Group is now led by two proven operators and they are working very effectively with each other and their colleagues to achieve the Group's stated objectives. Steffan Williams who was previously the Group's Chief Executive Officer left the board on 5 May 2018. 

On behalf of the Board, I would like to thank all our employees for their tremendous commitment, enthusiasm and hard work. 

Outlook

The major elements of the necessary internal restructuring will be completed in the second half of 2018. The Board is confident about the Group's immediate and future prospects as a result of improved leadership, an appropriate cost base and strengthened internal structures.

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Statement of Financial Position

Condensed Consolidated Statement of Cash Flows

Notes to the Condensed Consolidated Interim Financial Report

1. Corporate information

The interim condensed consolidated financial statements of Porta Communications Plc and its subsidiaries (collectively, the Group) for the six-month period ended 30 June 2018 were authorised for issue in accordance with a resolution of the Directors on 4 September 2018.

Porta Communications Plc ('the Company') is a public company domiciled in the United Kingdom whose shares are publicly traded on the AIM market of the London Stock Exchange. The Group is primarily involved in providing communication, advertising and marketing services.

2. Basis of preparation

 (a) Statement of compliance

The condensed consolidated interim financial report for the six month period ended 30 June 2018 has been prepared in accordance with IAS 34 Interim Financial Reporting. Selected explanatory notes are included to explain events and transactions that are significant to understanding the changes in financial position and performance of the Group since the last annual consolidated financial statements as at and for the year ended 31 December 2017. This condensed consolidated interim financial report does not include all of the information required for full annual financial statements prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

The financial information presented herein does not constitute full statutory accounts under section 434 of the Companies Act 2006. This condensed consolidated financial report is unaudited. The financial information in respect of the previous year ended 31 December 2017 has been extracted from the consolidated statutory accounts of the Company for that period and have been delivered to the Registrar of Companies. The Group's Independent Auditor's report on those accounts was unmodified, did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498 (2) or 498 (3) of the Companies Act 2006.

(b) Judgments and estimates

Preparing the condensed consolidated interim financial report requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

In preparing this condensed consolidated interim financial report, significant judgments were made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2017.

(c) Headline measures

Consistent with previous years and periods, adjusted EBITDA is included as a key metric for understanding the Group's performance. Adjusted EBITDA is the results of the Group before start-up losses, acquisition costs, restructuring costs, non-recurring property costs, legal and other consultancy costs, share based payments and impairments.

A reconciliation between operating loss and adjusted EBITDA is presented in note 4. In addition to this, earnings per share is presented in note 8. Headline measures in this report are not defined terms under IFRS and may not be compared with similarly titled measures reported by other companies.

3. Accounting policies

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2017, as described in those annual financial statements. The adoption of new standards and interpretations effective as of 1 January 2018 had no material impact on the comparative figures.

4. Reconciliation of operating loss to EBITDA and to adjusted EBITDA

5. Segmental reporting

Business segments

The following tables present revenue, gross profit and reportable results (operating profit) for the Group's operational segments:

The following table below presents assets and liabilities information for the Group's operating segments as at 30 June 2018, 30 June 2017 and 31 December 2017 respectively. Intercompany balances have been netted off against the individual segments rather than grossed up and shown separately:

Geographical segments

The analysis of results and assets by geographic region, based on the location of the operating company, is as follows:

6. Finance expense

7. Income tax expense

The Group calculates the period income tax expense using the tax rate that would be applicable to the expected total annual earnings. The major components of income tax expense in the interim Condensed Consolidated Statement of Comprehensive Income are:

8. Loss per share

The loss per share has been calculated using the weighted average number of shares in issue during the relevant financial period. The weighted number of equity shares in issue and the loss after tax attributable to ordinary shareholders, used in these calculations, are as follows:

No share options outstanding at 30 June 2018, 30 June 2017 or 31 December 2017 were dilutive and all such potential ordinary shares are therefore excluded from the weighted average number of ordinary shares for the purposes of calculating diluted earnings per share. Details of share options outstanding are given in note 14.

9. Intangible assets

There were no impairment indicators at 30 June 2018 for cash generating units to which goodwill has been allocated.

On 7 February 2018, Newgate Media Holdings Limited, an indirect subsidiary of Porta, sold its holding of 85 A Ordinary Shares and 15 B Ordinary Shares in the capital of Summit Marketing Services Limited to the director of Summit for a cash consideration of £1. As a result, the goodwill purchased on the original acquisition of Summit has been disposed of in the period.

10. Property, plant and equipment

During the six months ended 30 June 2018, the Group acquired assets with a cost of £347,678 (six months ended 30 June 2017: £69,910 and year ended 31 December 2017: £448,855).

11. Provisions

12. Loans and borrowings

1The bank overdraft is a five year £3.3m revolving credit facility with Clydesdale Bank Plc. This facility includes a margin of 3.85% over a 3 month LIBOR.

Terms and debt repayment schedule

All debt is repayable in Pounds Sterling (GBP) unless otherwise stated. The related party loans are secured over all current and future assets of all companies within the Group.

13. Capital and Reserves

On 30 April 2018, the Company issued 3,954,619 Ordinary shares of 1p each to two former employees of PPS Group Limited.

On 19 June 2018, the Company issued the following:

· 23,493,273 Ordinary shares of 1p each, which was 50% of the total consideration of £1,047,800, to acquire an additional 19% interest in Redleaf Polhill Limited;

· 12,861,278 Ordinary shares of 1p each to acquire an additional 4.428% interest in Newgate Communications Pty Limited; and

· 9,279,895 Ordinary shares of 1p each to acquire an additional 20% interest in Newgate Communications (HK) Limited.

There have been no further changes in the share capital since the period end.

The movement in Ordinary shares for the period reconciles as follows:

Allotted, called up and fully paid

14. Share based payments

15. Related party transactions

Key management personnel

All related party transactions with respect to Key management personnel (both nature and amounts) are consistent with those reported in the Group's consolidated statutory accounts for the year ended 31 December 2017.

Other related party transactions

On 31 January 2018, John Foley, the Non-Executive Chairman of the Company, purchased 4,700,000 Ordinary shares of 1p each at a price of 3.5p per share.

On 1 May 2018, Emma Kane, the Joint Chief Executive of the Company, purchased 1,538,462 Ordinary shares of 1p each at a price of 3.25p per share.

Of the 23,493,273 shares issued on 19 June 2018, by way of consideration to acquire an additional 19% interest in Redleaf Polhill Limited ("Redleaf"), 21,158,042 were issued to Emma Kane and to persons closely associated ("PCAs") with her. Following this issue, Emma (together with PCAs) is beneficially interested in 22,696,504 Ordinary shares representing 4.48 per cent. of the issued share capital of the Company.

Between Emma's appointment to the board and the period end, Redleaf declared dividends to Emma, and PCAs with her, of £14,940 and paid £11,698. Therefore £3,242 were still owed at the period end.

During the period Redleaf paid Barbican Centre Trust Ltd, a registered charity and company of which Emma is the Chairman, £3,000 for Corporate membership.

Newgate Communications Pty Limited ("Newgate Australia") declared dividends of £64,084 (A$114,265) on 19 June 2018 to Brian Tyson. As at 30 June 2018, dividends payable of £178,774 (A$318,491) were still owed to Brian.

On 19 June 2018, 2,088,360 shares were issued to Brian Tyson in relation to Porta's further acquisition of Newgate Australia at a cost of £54,924.

During the period, the Group was invoiced £3,707 (A$6,600) for flowers by Buds and Poppies, a florist company owned by the wife of Brian Tyson. An annual membership fee of £4,763 (A$7,500) was paid to the Committee for Sydney, of which Brian Tyson is also a director.

All other related party transactions (both nature and amounts) are consistent with those reported in the Group's consolidated statutory accounts for the year ended 31 December 2017.

16. Publication

A copy of this report is available from the Company's website at www.portacomms.com and is available in hard copy on application to the Company's offices.