12th Jun 2007 07:02
Creston PLC12 June 2007 12 June 2007 Creston plc Preliminary Financial Results for the Year Ended 31 March 2007 Creston plc (LSE: CRE), the diversified marketing services group, todayannounces its preliminary financial results for the year ended 31 March 2007. Highlights • Excellent growth in revenue, profit and diluted EPS, with acquisitions underpinned by good like-for-like growth • Reported and Headline Diluted EPS up 22% (9.33 pence) and 24% (17.35 pence) respectively • Like-for-like revenue growth of 5% • Like-for-like Headline PBIT growth of 7% (growth in BRANDCOM, Insight and PR of 33%, 33% and 11% respectively) • 15% of Creston revenue from digital, up from 10% in 2006 • Acquisition of UK market research group, ICM Research Ltd (ICM), for a maximum consideration of £36.4 million • Acquisition of direct and digital marketing company, Tullo Marshall Warren Ltd and sister company Colombus Communications Ltd (TMW), for a maximum consideration of £38.1 million • Acquisition of healthcare advertising and communications company, PAN Advertising Ltd (PAN), for a maximum consideration of £18.5 million • Launch of Creston US with the appointment of Steve Blamer as CEO Financial Results Headline results** Reported results 2007 2006 Change 2007 2006 Change £m £m £m £m Revenue 69.7 43.5 +60% 69.7 43.5 +60%PBIT* 14.0 8.0 +75% 10.9 6.3 +75%Pre-tax profit 13.3 7.7 +72% 8.3 4.7 +75%Diluted EPS (pence) 17.35 14.04 +24% 9.33 7.67 +22%Dividends per share (pence) 2.64 2.40 +10% 2.64 2.40 +10%----------------------------------------------------------------------------------- * Profit before Interest and Tax (PBIT) is defined as Profit before finance income, finance costs, income from financial assets and taxation ** A reconciliation between Headline and Reported profit is presented in note 4. Commenting on today's announcement, Don Elgie, Group Chief Executive, said: "I am pleased to report another year of excellent results with acquisitionsunderpinned by a good like-for-like performance. Successive years of doubledigit growth in revenue, profit and diluted earnings per share demonstrate ourability to outperform the UK marketing services sector. This performance is theresult of our highly selective acquisition criteria with a focused strategy andillustrates Creston's ability to attract leading brands from across the coremarketing services disciplines. With continued strong growth in the UK and the launch of Creston US we areenthusiastic about the Group's prospects and look forward to another excellentyear in 2008." A meeting for analysts will be held today at 9.30 am at the offices of PanmureGordon. Please contact Julie Cordice at Hogarth on telephone: 020 7357 9477 fordetails. For further information, please contact: Creston plc 020 7930 9757Don Elgie, Chief ExecutiveBarrie Brien, COO & CFOwww.creston.com Hogarth Partnership Limited 020 7357 9477Chris MatthewsSarah Macleod Chairman and Chief Executive Statement 2007 Group Highlights Creston enjoyed a sixth consecutive year of growth and success, with revenue andHeadline PBIT growing by 60 per cent and 75 per cent respectively (reported PBITincreased by 75 per cent). We are delighted to report that Headline and reporteddiluted earnings per share (DEPS) increased by 24 per cent and 22 per centrespectively, and that close management of the business resulted in an industryleading Headline PBIT margin of 20 per cent (reported PBIT margin 16 per cent). We continued to invest in high quality businesses with the acquisitions of ICMResearch Ltd (ICM), Tullo Marshall Warren Ltd, together with its sister companyColombus Communications Ltd (TMW) and PAN Advertising Ltd (PAN), to give usgreater strength in the key area of healthcare. Acquisitive growth wasunderpinned by good like-for-like revenue and profit growth. This year saw uslaunch digital start-up ventures, newvista research and SWAY. We also enteredinto a trading partnership with Latitude, a leading search optimisation company. Finally, as the US market is an important one we wish to exploit, we weredelighted to appoint Steve Blamer as CEO of Creston US. The changing market We believe that the shape of the marketing communication landscape is changingrapidly and clients will reward groups which are structured to meet their futureneeds. Creston's success in winning market share is due to its ability to offerclients services across the range of marketing disciplines, providing them withsuperior insight into the speed of consumer behavioural change, coupled withintegrated media-neutral planning and a deep understanding of the evolvingdigital landscape. We can also offer relevant and compelling multi-channel (ieon and off line) creative capabilities and advanced measurable performancemetrics, which provide a diversified client proposition. Acquisitions Our view of the changing market is a critical influence on our acquisitionstrategy. We focus on potential targets, which will enhance our portfolio ofindustry specialisations and which allow us, as a Group, to respond to thechanging needs of our clients. During the year Creston made three acquisitions each of which fulfilled ourhighly selective acquisition criteria. ICM was acquired on 17 May 2006 for a maximum consideration of £36.4 million.ICM is one of the UK's largest market research groups and has a market leadingreputation for innovative, premium quality qualitative and quantitativeresearch. On the back of this acquisition Creston's Insight division has grownin critical mass, which it has utilised to develop a number of strategicinnovations, the most significant of which includes the launch of newvistaresearch, an online market initiative. ICM's clients include BT, NOP, NorwichUnion, O2, Orange and Vodafone. TMW was acquired on 17 May 2006 for a maximum consideration of £38.1 million.TMW is one of the UK's largest direct and digital marketing companies. Theacquisition adds considerable strength to the Creston MARCOMS division,particularly in the areas of insight, data mining/analysis and digital. Itsseparately branded digital offering, digitaltmw, has grown in size and is ableto boast a workforce of over 50 employees developing a strong reputation in itsown right. TMW's clients include British Airways, Diageo, eBay, FT, NissanEurope, Sainsburys, Unilever and T-Mobile. PAN was acquired on 3 December 2006 for a maximum consideration of £18.5million. PAN is one of the UK's leading healthcare advertising and communicationcompanies. Although UK based, PAN is very much an international brand with over50% of its revenue generated internationally. PAN, alongside RDC, forms Creston's market leading integrated international healthcare proposition. PAN's clientsinclude BMS Medical Imaging, Boehringer Ingelheim, GSK, Ipsen, Schering andServier. Online and Digital The UK digital and online market is enjoying the highest rate of growth (41 percent Source: IAB/PWC) of any discipline in the marketing communications industryand the key challenge is the proper integration of digital communications intothe marketing mix. Consumer brand consideration is not formed through isolated channels and soclients are increasingly demanding relevant, compelling multi-channel creativecampaigns. Creston has responded to this challenge through numerous initiatives.It has re-structured the DLKW Group by integrating dlkw dialogue into the coreof the creative agency. In November 2006, it launched newvista research in theInsight Division, a revolutionary approach to generating robust online data,newvista research allows Creston to offer clients a fully integrated traditionaland online research capability and, in six months since its launch, it hasenjoyed rapid success with annualised sales of £2 million via wins such as RBS,Tesco and Vodafone. In December 2006, Creston launched SWAY, an online brand management ande-influencer initiative enabling clients to manage, re-act to and/or promotebrand messages online. This product was a joint initiative between MARCOMS andPR divisions. In March 2007 Creston announced a trading partnership with Latitude Group Ltd,the world class search optimisation company. The partnership allows each of ouroperating companies to provide a comprehensive search engine marketing offeringto their clients. With the acquisition of TMW during the year and the launch of newvista researchand SWAY, Creston's digital offering has generated revenue in excess of £10million during the year and has a headcount in excess of 100 employees. Thisaccounts for approximately 15 per cent of Group revenue, increasing in absoluteterms by 141 per cent compared to 2006. Although the Group's digital business isimbedded within its core operations it is now of sufficient size to competeagainst any stand alone digital business. This demonstrates Creston's ability to react to the evolving digital channels inthe marketing communications industry and we believe that it has a strongplatform from which to continue its growth in this area in 2008. International Although Creston's operations are mainly UK based (with the exception of TMWFrance and Creston US), we are able to service a significant number of clientsinternationally such as General Motors, Canon, Toshiba, Exxon, SCA Tena, Nissan,BA and GSK. In 2007 18 per cent of our turnover was generated internationally,having grown from 12 per cent in 2006. In order to better serve our clients outside the UK, Creston's stated aim is todevelop an international presence with centres around Europe, the US, Asia andLatin America. We are taking a cautious approach to date because of ourdetermination not to compromise any of our rigorous acquisition criteria. 2007 saw Creston take its first steps towards international expansion via apresence overseas. In January 2007 TMW France was launched to service its NissanEurope account. In March 2007 Steve Blamer was appointed CEO of the newly created Creston plc USHoldings Inc in New York, USA. Steve has an excellent reputation within the USmarketing communications industry having held the position of CEO both at FooteCone and Belding Worldwide and at Grey Worldwide. His appointment adds weight toCreston's offering in the US and will facilitate the development of a Creston USGroup based on similar core principles as the UK. Client Overview and New Business The Group strives to add value to its clients' marketing efforts. In addition tocontinuing to grow with existing clients, our excellent new business recordparticularly in the latter half of the year included annualised revenue inexcess of £10 million from Alfa Romeo, eBay, GSK, Lexus, Morrisons, NissanEurope, Sainsbury, The Financial Times and Vodafone among others. With the acquisition of ICM, TMW and PAN, and our strong new business record,Creston is in a position to offer sector-specific expertise across anincreasingly diverse range of industries. The Group is proud of its growing portfolio of blue chip and internationalclients and with this growth our client concentration has improved. Our largestclient represents 8 per cent of total Group revenue (2006: 12 per cent), whileour Top 10 clients represent 37 per cent (2006: 52 per cent). Synergy is one of the core principles upon which the concept of Creston isbased. 2007 saw the strongest performance in terms of synergistic clientreferrals within the Group, with annualised revenue of £1 million includingclients such as Alfa Romeo, Canon, Hyundai-Kia, Nutricia, Servier and the WorldHeart Foundation. Of the Group's Top 30 clients, over 50 per cent are served bytwo or more of the Group's divisions. Board We are delighted to welcome to the Board Andrew Dougal as a Non-ExecutiveDirector and Chairman of the Audit Committee and Malcolm Wall as a Non-ExecutiveDirector and Chairman of the Remuneration Committee. The Board would like tothank all staff and colleagues for their contributions and efforts for lastyear's excellent performance. The Board would particularly like to thank DavidHanger and Peter Cunard who joined the Board at the inception of Creston as amarketing services group and are stepping down at the AGM following six years ofvaluable and committed service to the Group. Outlook Creston has demonstrated the effectiveness of its business model for sixconsecutive years. As our profile continues to rise, an increasing number ofhigh quality companies and individuals are approaching us. We have good forwardvisibility of earnings and believe we will continue to outperform our largercompetitors. We are excited by the Group's prospects and have full confidence inbeing able to achieve another excellent year in 2008. David Marshall Don ElgieChairman Chief Executive Officer Financial Review Financial Highlights In 2007 Creston achieved another set of outstanding results. Revenue hasincreased by 60 per cent to £69.7 million (2006: £43.5 million); Headline PBIThas increased by 75 per cent to £14.0 million (2006: £8.0 million); and HeadlineProfit before taxation (PBT) increased by 72 per cent to £13.3 million (2006:£7.7 million). Reported PBIT has increased by 75 per cent to £10.9 million(2006: £6.3 million) and reported PBT has increased by 75 per cent to £8.3million (2006: £4.7 million). This strong growth has been driven by theacquisitions of ICM, TMW and PAN and the underlying growth achieved by theexisting businesses. In 2007 at the operating level, the Group achievedlike-for-like revenue growth of 5 per cent (2006: 14 per cent) and Headline PBITgrowth of 7 per cent (2006: 18 per cent). These growth rates continue to exceedthe industry averages despite the investments (for example newvista research andSWAY) which have been made in the core Group companies during the year. The lossof part of BMW, a major 2006 top ten client account within the MARCOMS division,masked the resilience of the Group, which, when adjusted for the loss of thisclient, showed underlying like-for-like revenue and Headline PBIT growth of 8per cent and 11 per cent respectively. The key tenet of Creston's strategy is to build a diversified marketing servicesgroup, while minimising risk and maximising the opportunities for synergy. Afterthe acquisitions of ICM, TMW and PAN the divisional composition of revenue bydivision is: BRANDCOM 24 per cent (2006: 35 per cent); Insight 22 per cent(2006: 14 per cent); MARCOMS 41 per cent (2006: 35 per cent); and PR 13 per cent(2006: 16 per cent). Key Performance Indicators The Group continues to manage its operational performance with the help ofvarious key performance indicators (KPIs). The Board is pleased to reportconsistently strong KPIs in each of the Divisions . Revenue per head was £90,600(2006 re-stated: £92,600); Headline PBIT per head increased by 7 per cent to£18,200 (2006 re-stated: £17,100); Headline PBIT margin has improved by 9 percent to 20.1 per cent (2006: 18.4 per cent); and Headline diluted earnings pershare (DEPS) grew by 24 per cent to 17.35 pence (2006: 14.04 pence). ReportedDEPS grew by 22 per cent to 9.33 pence (2006: 7.67 pence). We believe these KPIs are significantly ahead of industry averages anddemonstrate that Creston continues to improve its efficiency and productivityacross the Group and, more importantly, that its strategy of acquiring companiesthat offer clients higher added-value services is translating into impressivefinancial returns. Average staff numbers have increased from 470 to 769 on a full time basis andthe year ended with a headcount of over 800 employees. Divisional Performance BRANDCOM Division The BRANDCOM Division generated outstanding growth with revenue increasing by 12per cent to £17.0 million (2006: £15.1 million) and Headline PBIT increasing by53 per cent to £3.9 million (2006: £2.6 million) and reported PBIT increasing to£3.2 million from £1.4 million. This growth was driven by the acquisition of PANin December 2006 and the like-for-like revenue and Headline PBIT growth of 3 percent and 33 per cent respectively. Revenue per head increased to £119,000 (2006:£110,400); Headline PBIT per head increased to £27,500 (2006: £18,700); and theHeadline PBIT margin increased to 23 per cent (2006: 18 per cent). These KPIscompare favourably with the UK advertising industry averages of £98,325; £9,819;and 10%, respectively (Source: WKS 2007). Insight Division The Insight Division generated excellent growth with revenue increasing by 145per cent to £15.4 million (2006: £6.3 million) and Headline PBIT increasing by168 per cent to £5.0 million (2006: £1.9 million) and reported PBIT increasingto £4.3 million from £1.9 million. This growth was driven by the acquisition ofICM in May 2006 and like-for-like revenue and Headline PBIT growth of 14 percent and 33 per cent respectively. This compares to growth in sales for theindustry as a whole of 3.6 per cent (Source: MRS 2007). Revenue per headincreased to £104,700 (2006: £92,200); Headline PBIT per head increased to£34,300 (2006: £27,700); and the Headline PBIT margin increased to 33 per cent(2006: 30 per cent). We believe these KPIs are competitive within the industryand have been boosted by the launch of newvista research during the year.Following the ICM acquisition, an Insight Division Board was set up to sharebest practice, identify industry opportunities and synergies. The Division isalso starting to maximise savings due to economies of scale and eliminatingduplication in the areas of data collection and processing. MARCOMS Division The MARCOMS Division continued its trend of fast growth with revenue increasingby 89 per cent to £28.5 million (2006: 15.0 million) and Headline PBITincreasing by 35 per cent to £5.4 million (2006: £4.0 million) and reported PBITincreasing to £4.4 million from £3.7 million. This growth was driven by theacquisition of TMW in May 2006. The like-for-like revenue growth rate of 1 percent (2006: 18 per cent) was suppressed by the loss of the BMW dealer businessby EMO at the very end of the last financial year. This masked the underlyinglike-for-like revenue growth of 7 per cent. The plc Board has been impressed byEMO's resilience in moving on to win Alfa Romeo, George Wimpey and Lexus - apowerful recovery. Similar to the Insight Division, the MARCOMS Division islarge enough to warrant its own board. The MARCOMS Board comprises of theManaging Directors of all the constituent companies and has the agenda ofsharing best practice and driving cost and revenue synergies, while exploitingindustry opportunities. Revenue per head decreased to £74,500 (2006: £83,100);whilst Headline PBIT per head of £14,300 and Headline PBIT margin of 19 per centremained above the industry average of £8,139 and 10 per cent, respectively(Source: WKS 2007). PR Division The PR Division delivered an excellent performance with revenue increasing by 25per cent to £8.8 million (2006: £7.1 million) and Headline PBIT increasing by 19per cent to £2.7 million (2006: £2.2 million) and reported PBIT increasing to£2.1 million from £2.0 million. This growth was driven by the consolidation of afull year's performance from RDC and like-for-like revenue and PBIT growth of 14per cent and 11 per cent respectively. Revenue per head increased to £100,200(2006: £92,900); Headline PBIT per head increased to £30,100 (2006: £29,300);and the PBIT margin remained above the industry average at 30 per cent (2006: 31per cent). These KPIs compare favourably with the UK PR industry average of£92,000, £11,500 and 13 per cent respectively (Source: WKS 2007). Earnings per Share At the Headline level, basic EPS increased by 19 per cent to 17.54 pence (2006:14.72 pence) and DEPS increased by 24 per cent to 17.35 pence (2006: 14.04pence). This is the sixth successive year of significant growth in these keyfinancial ratios and reflects the Group's success in completing earningsenhancing acquisitions and delivering superior value and return forshareholders. At the reported level, basic EPS increased by 17 per cent to 9.43pence (2006: 8.04 pence) and DEPS increased by 22 per cent to 9.33 pence (2006:7.67 pence). Acquisition Criteria The Group has established a series of benchmark criteria that it applies to allpotential acquisitions. Established growth companies Creston buys well established high quality and highly respected businesses withproven growth histories and credible resilient plans for the future. We look forcompanies that have national and international clients without over-dependentclient concentration. Committed vendors Creston does not consider companies whose vendors want an immediate exit,although it is sensitive to life stage. Instead, it prefers to harness theentrepreneurial skills of vendors and channel them into growing the Group. Acquisition consideration Creston equity forms a meaningful part of purchase consideration and long termrestrictions on disposal help bind the ambitions of vendors and Crestontogether. Minimum size thresholds Creston looks for companies with a minimum PBIT of £1m in the UK, $3m in the USand €2m in Europe. Such companies tend to have strong management teams with anexperienced second tier, good client depth and proven internal operationalstructures. This criteria also allows Creston management to be highly focusedand to build a Group of few but sizeable companies. Consideration to non-shareholding employees Unlike its peers, Creston requires up to 25% of any consideration payable aspart of an earn-out, to be paid to the non-shareholders of the company. Crestonbelieves this is an important driver in motivating them to grow the company andoutperform the market. This part of the consideration paid for a company istreated as deemed remuneration in our report and accounts. Acquisitions During the year Creston completed the acquisitions of ICM, TMW and PAN. The Group continues to pursue acquisition targets which match its statedstrategy and criteria, whilst always maintaining prudent levels of gearing andinterest cover. It is our policy that all acquisitions are made on a financiallyprudent basis and are earnings-enhancing. Cash flow Operating cash flow is a key focus for management as this source of funds isused to finance existing and future acquisition consideration payments. Duringthe year the Group generated operating cash flow of £8.7 million (2006: £8.0million). The cash conversion of Headline PBIT to operating cash flow was 62 percent (2006: 99 per cent). This performance is behind the prior year as a resultof the phasing of 2007 billings, which were skewed to the fourth quarter as aconsequence of an increase in new business during that period; change in timingof TV production payments by DLKW; and some clients setting 90 day paymentterms. In addition, ICM, PAN and TMW had £4.0 million surplus cash on theirbalance sheets on acquisition, the majority of which was to settlepost-acquisition creditor movements. These creditors were settledpost-acquisition which further suppressed the cash conversion ratio, and maskedan underlying cash conversion rate of 91 per cent. The Creston management teamis focused on returning to its internal target of over 90 per cent cashconversion. The Group's operating cash flow, cash received on acquisition from ICM (£4.4million), TMW (£5.3 million), and PAN (£1.0 million), additional bank financing(£15.5 million) and shares issued for cash as part of the fundraising in May2006 (£14.6 million) were used to finance the cash element of consideration dueto: EMO in respect of the final consideration (£1.0 million); DLKW in respect ofthe interim consideration (£4.1 million); ICM in respect of the initialconsideration (£14.5 million); TMW in respect of the initial consideration(£14.6 million); and PAN in respect of the initial consideration (£8.5 million).Together with transaction costs, interest, capital expenditure, taxation andexternal dividends, the Group's cash balance has reduced to £1.7 million (2006:£5.3 million). Banking On 19 April 2006, the Group agreed a new £40.0 million banking facility. Thisfacility allows for term debt of £30.0 million of which £10.0 million remainsundrawn and borrowings for working capital of £10.0 million of which £7.0million remains undrawn as at 31 March 2007. Balance sheet, net debt and gearing Total equity rose by £34.3 million in the year to £81.7 million. After dividendsearnings contributed £3.6 million to its growth and £29.2 million of new sharecapital was issued in connection with the fundraising in May 2006, theacquisition of ICM and TMW in May 2006 and the acquisition of PAN in December2006. Under the deferred consideration arrangements Creston has the right to settlecertain deferred consideration liabilities in equity rather than loan notes andthe amount of the deferred consideration is amended each year to the expectedamount payable. It has been agreed that the interim consideration due to RDC andthe final consideration due to NBC, both payable on the finalisation of the 31March 2007 financial statements, will be settled fully in cash and loan notes.In addition, during the year the Group settled a larger proportion of EMO andDLKW's consideration with cash or loan notes rather than equity. The Boardproposes to continue this policy of settling a larger proportion of deferredconsideration in loan notes rather than equity in order to maximise shareholdervalue when financial conditions are appropriate. As a result of the increase in equity and cash outflow, Creston's gearing (netdebt over equity) was 27 per cent (2006: 5 per cent) and the net debt of theGroup at 31 March 2007 was £21.7 million (2006: £2.5 million). After includingnet deferred consideration to be settled by a mixture of loan notes and sharesof £34.2 million (2006: £20.4 million) the Group's total debt has increased to£56.0 million (2006: £22.9 million). Based on total debt, the Group's gearinghas increased to 69 per cent (2006: 48 per cent). Creston will continue to maintain its policy of managing its net debt andgearing to prudent levels, whilst maximising returns for shareholders, in orderto preserve its financial stability and maintain high levels of headroom in itsbanking covenants. Net finance costs Headline net finance costs were £1.0 million (2006: £0.4 million) reflecting theincreased term loan drawn to fund the acquisitions in the year and the increasein underlying rates of interest. Headline net finance costs were covered 14times (2006: 19 times) by Headline PBIT. The reported net finance cost was £2.9million (2006: £1.7 million), which includes notional finance cost of £1.9million (2006: £1.2 million). Effective tax rate The Group's effective Headline tax rate remained at 31 per cent (2006: 31 percent). The reported effective tax rate was 40 per cent (2006: 38 per cent), dueto the reduction in underlying profits from items not subject to tax relief suchas notional finance costs. Dividends The Board is proposing a final dividend of 1.76 pence per share, giving a totaldividend for 2007 of 2.64 pence per share (2006: 2.40 pence). This represents anincrease in dividend per share of 10 per cent. Capital expenditure Total capital expenditure in 2007 was £1.7 million (2006: £2.3 million) with themain categories of investment being leasehold improvements, computer systems andsoftware. In addition, costs of £0.4 million were incurred to implement the group-wideaccounting system, Maconomy. The purpose of having a single accounting system isto maintain strong internal controls as the Group grows, to facilitate auditsand improve the financial information to the Board. At the time of this report,the Maconomy system has been rolled out to all agencies with the exception ofthe two most recent acquisitions, which will be imminently completed. Basis of Headline results Creston has presented Headline results as the key profit performance indicatorsbecause they eliminate the non-cash and non-recurring charges associated withthe acquisitions and, therefore, provide a truer picture of the underlyingoperating performance for the Group. The Headline results exclude the followingadjustments (as detailed in note 4): 1. notional finance costs on future deferred consideration payments; 2. future acquisition payments due to employees deemed as remuneration; 3. amortisation of intangible assets; and 4. deferred tax on the above items. Summary With the acquisitions of ICM, TMW and PAN and the investments made in theexisting core companies, the Group has a strong portfolio of diversifiedoperating companies performing very well to their KPI targets. New businessmomentum in the second half of 2007 is very encouraging and from this platformthe Group is well placed to continue into the next phase of its strategicdevelopment. Barrie BrienChief Operating and Financial Officer Unaudited 2007 2006 Note £'000 £'000-------------------------------------------------------------------------------------Turnover (billings) 3 117,621 81,472=====================================================================================Revenue 3 69,665 43,503Operating costs (58,725) (37,234)-------------------------------------------------------------------------------------Profit before finance income, finance costs, income from financial assets and taxation 3/4 10,940 6,269Finance income 199 182Finance costs (3,095) (1,836)Income from financial assets 241 109-------------------------------------------------------------------------------------Profit before taxation 8,285 4,724Taxation (3,354) (1,797)-------------------------------------------------------------------------------------Profit for the financial year 4,931 2,927===================================================================================== Basic earnings per share (pence) 5 9.43 8.04Diluted earnings per share (pence) 5 9.33 7.67===================================================================================== Consolidated Balance Sheet Unaudited as at As at 31 March 31 March 2007 2006 Note £'000 £'000 ------------------------------------------------------------------------------------- Non-current assets Intangible assets Goodwill 7 125,061 66,535Other 1,290 350Property, plant and equipment 4,267 3,006Trade and other receivables 1,325 1,162Financial assets - available for sale 550 550Deferred tax asset 1,799 906------------------------------------------------------------------------------------- 134,292 72,509-------------------------------------------------------------------------------------Current assets Inventories and work in progress 5,080 2,907Trade and other receivables 29,454 19,961Cash and short term deposits 1,655 5,317------------------------------------------------------------------------------------- 36,189 28,185Current liabilities Trade and other payables (28,208)(22,497)Corporation tax payable (1,601) (1,452)Obligations under finance leases (61) (196)Bank overdraft, loans and loan notes (7,309) (2,525)Short term provisions (4,139) (7,046)------------------------------------------------------------------------------------ (41,318) (33,716)------------------------------------------------------------------------------------Net current liabilities (5,129) (5,531)Total assets less current liabilities 129,163 66,978------------------------------------------------------------------------------------Non current liabilities Bank loans and loan notes (16,000) (5,073)Obligations under finance leases - (9)Long term provisions (31,430) (14,502)------------------------------------------------------------------------------------ (47,430) (19,584)------------------------------------------------------------------------------------Net assets 81,733 47,394====================================================================================Equity Called up share capital 5,576 3,759Share premium account 33,345 19,734Own shares (104) (46)Shares to be issued 3,568 1,836Other reserves 31,357 17,682Retained earnings 7,991 4,429------------------------------------------------------------------------------------Total equity 81,733 47,394==================================================================================== Consolidated Statement of Changes in Equity Shares Share Share Own Retained Other to be capital premium shares earnings reserves issued Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Changes in equity for 2007 ------------------------------------------------------------------------------------ At 1 April 2006 3,759 19,734 (46) 4,429 17,682 1,836 47,394Profit for the year - - - 4,931 - - 4,931Shares issued 1,817 13,611 96 - 13,669 - 29,193Credit for share based incentive schemes - - - - - 1,732 1,732Own shares purchased - - (154) - - - (154) Profit on Treasury Scheme - - - - 6 - 6 Dividends (note 6) - - - (1,369) - - (1,369) ------------------------------------------------------------------------------------At 31 March 2007 (unaudited) 5,576 33,345 (104) 7,991 31,357 3,568 81,733==================================================================================== Shares Share Share Own Retained Other to be capital premium shares earnings reserves issued Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------Changes in equity for 2006 At 1 April 2005 3,493 19,168 - 2,312 15,434 1,426 41,833Profit for the year - - - 2,927 - - 2,927Shares issued 266 566 - - 2,258 - 3,090Credit for share based incentive schemes - - - - - 410 410Own shares purchased - - (46) - - - (46) Loss on Treasury Scheme - - - - (10) - (10) Dividends (note 6) - - - (810) - - (810) --------------------------------------------------------------------------------------At 31 March 2006 3,759 19,734 (46) 4,429 17,682 1,836 47,394 ====================================================================================== Consolidated Cash Flow Statement Note Unaudited 2007 2006 £'000 £'000------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- Operating cash flow 8 8,700 7,970Finance income 199 182Finance costs (1,180) (594)Income from financial assets 241 109Tax paid (4,173) (1,908)-------------------------------------------------------------------------------------Net cash inflow from operating activities 3,787 5,759-------------------------------------------------------------------------------------Investing activities Purchase of subsidiary undertakings (44,501) (4,240)Net cash acquired with subsidiaries 10,663 1,779Purchase of property, plant and equipment (1,738) (2,262)Sale of property, plant and equipment 99 117Purchase of intangible assets (399) -Decrease in restricted cash deposits 13 27-------------------------------------------------------------------------------------Net cash outflow from investing activities (35,863) (4,579)-------------------------------------------------------------------------------------Financing activities Issues of shares for cash 15,164 642Share issue costs (545) -Share re-purchases (154) (30)Increase/(decrease) in borrowings (net) 15,530 (841)Dividends paid (1,369) (810)Capital element of finance lease payments (199) (216)Net cash inflow/(outflow) from financing 28,427 (1,255)Decrease in cash and cash equivalents (3,649) (75)Cash and cash equivalents at start of year 5,282 5,357-------------------------------------------------------------------------------------Cash and cash equivalents at end of year 1,633 5,282===================================================================================== Notes: 1. Basis of Preparation The financial information set out above does not constitute the Group'sstatutory accounts for the years ended 31 March 2007 and 2006. The financialinformation in respect of 2007 is unaudited. The information has been prepared in accordance with the EU-adoptedInternational Financial Reporting Standards (IFRS) and IFRIC interpretations andwith those parts of the Companies Act 1985 which are applicable to companiesreporting under IFRS. 2. Accounting policies The accounting policies applied by the Group were published in the financialstatements for the year ended 31 March 2006, which is available on the group'swebsite at www.creston.com, and they will also be included in the financialstatements for the year ended 31 March 2007. 3. Segmental analysis Turnover, revenue, profit before finance income, finance costs, income fromfinancial assets and taxation, capital expenditure, depreciation, amortisation,gross assets and gross liabilities attributable to Group activities are shownbelow. Primary segmental analysis by business Head2007 BRANDCOM Insight MARCOMS PR Office Consolidated £'000 £'000 £'000 £'000 £'000 £'000 ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- Turnover (billings) 31,363 27,575 44,026 14,657 - 117,621=========================================================================================Revenue 17,012 15,386 28,453 8,814 - 69,665-----------------------------------------------------------------------------------------Profit before finance income, finance costs, income from financial assets and taxation (segment result) 3,158 4,306 4,441 2,105 (3,070) 10,940Finance income - - - - 199 199Finance costs (811) (244) (573) (287) (1,180) (3,095) Income from financial assets - - - - 241 241-----------------------------------------------------------------------------------------Profit before taxation 2,347 4,062 3,868 1,818 (3,810) 8,285-----------------------------------------------------------------------------------------Taxation (3,354)----------------------------------------------------------------------------------------- Profit for the financial year 4,931----------------------------------------------------------------------------------------- Other information (excluding acquisitions) -----------------------------------------------------------------------------------------Capital expenditure ------------------------------------------------------------------------------------------ Property, plant and equipment 527 359 483 408 16 1,793------------------------------------------------------------------------------------------ Intangible assets - - - - 399 399-----------------------------------------------------------------------------------------Depreciation 760 301 549 147 19 1,776-----------------------------------------------------------------------------------------Amortisation 200 630 325 - 115 1,270----------------------------------------------------------------------------------------- Balance sheet Assets Segment assets 57,573 40,398 50,865 18,092 3,553 170,481-----------------------------------------------------------------------------------------Liabilities Segment liabilities (24,628) (9,505) (18,634) (8,606) (27,375) (88,748)----------------------------------------------------------------------------------------- Consolidated total assets and liabilities are split as: Assets Liabilities £'000 £'000 Non current 134,292 (47,430)Current 36,189 (41,318)------------------------------------------------------------------------------- 170,481 (88,748)=============================================================================== 2006 BRANDCOM Insight MARCOMS PR Office Consolidated £'000 £'000 £'000 £'000 £'000 £'000 -----------------------------------------------------------------------------------------Turnover (billings) 34,734 10,885 25,800 10,053 - 81,472=========================================================================================Revenue 15,129 6,269 15,042 7,063 - 43,503-----------------------------------------------------------------------------------------Profit before finance income,finance costs, income from financial assets and taxation (segment result) 1,385 1,884 3,710 1,979 (2,689) 6,269Finance income - - - - 182 182Finance costs (875) - (148) (219) (594) (1,836)Income from financial assets - - - - 109 109-----------------------------------------------------------------------------------------Profit before taxation 510 1,884 3,562 1,760 (2,992) 4,724-----------------------------------------------------------------------------------------Taxation (1,797)-----------------------------------------------------------------------------------------Profit for the financial year 2,927----------------------------------------------------------------------------------------- Other information Capital expenditure (excludingacquisitions)------------------------------------------------------------------------------------------ Property, plant and equipment 1,388 110 282 91 391 2,262- Intangible assets - - - - - ------------------------------------------------------------------------------------------Depreciation 466 98 292 104 59 1,019-----------------------------------------------------------------------------------------Amortisation 458 - - 70 - 528----------------------------------------------------------------------------------------- Balance sheetAssetsSegment assets 42,953 13,466 18,289 18,337 7,649 100,694-----------------------------------------------------------------------------------------LiabilitiesSegment liabilities (24,984) (1,639) (9,452) (8,070) (9,155) (53,300)----------------------------------------------------------------------------------------- Consolidated total assets and liabilities are split as: Assets Liabilities £'000 £'000 Non current 72,509 (19,584)Current 28,185 (33,716)------------------------------------------------------------------------------------------ 100,694 (53,300)========================================================================================== The 2006 segmental splits have been restated to allocate certain costs whichwere previously unallocated. Head Office assets and liabilities include corporate assets and liabilities,group cash reserves, and drawn debt liabilities and payments due to vendors. Secondary segmental analysis by geography The following table provides an analysis of the Group's turnover and revenue bygeographical market, irrespective of the origin of the services. Revenue Turnover------------------------------------------------------------------------------- 2007 2006 2007 2006 £'000 £'000 £'000 £'000-------------------------------------------------------------------------------UK 60,230 39,324 95,994 71,495Rest of Europe 7,968 3,557 18,628 7,453Overseas 1,467 622 2,999 2,524------------------------------------------------------------------------------- 69,665 43,503 117,621 81,472=============================================================================== All assets and liabilities are located within the UK with the exception ofcertain trade receivables which relate to the turnover and revenue noted above. 4. Reconciliation of Headline profit to Reported profit The Directors are of the opinion that as Creston is an acquisitive companycertain accounting policies relating to deferred consideration deemed asremuneration, notional finance costs on deferred consideration and amortisationof intangible assets have a material impact on the reported results andintroduce volatility to the reported figures. In order to enable a betterunderstanding of the underlying trading of the Group, Creston refer to HeadlinePBIT, PBT and PAT which eliminate these non-recurring non-cash charges from thereported figures, as follows: ------------------------------------------------------------------------------- PBIT PBT PAT2007 £'000 £'000 £'000 ------------------------------------------------------------------------------- Headline 14,003 13,263 9,173Future acquisition payments to employees deemed as remuneration (1,908) (1,908) (1,908)Amortisation of acquired intangible assets (1,155) (1,155) (1,155)Notional finance costs on future deferred consideration - (1,915) (1,915)Taxation impact - - 736--------------------------------------------------------------------------------Reported 10,940 8,285 4,931================================================================================2006Headline 8,022 7,719 5,354Future acquisition payments to employees deemed as remuneration (1,225) (1,225) (1,225)Amortisation of acquired intangible assets (528) (528) (528)Notional finance costs on future deferred consideration - (1,242) (1,242)Taxation impact - - 568-------------------------------------------------------------------------------Reported 6,269 4,724 2,927=============================================================================== Creston is unlike other marketing communications groups in its acquisition dealstructure in that it requires up to 25 per cent of any deferred considerationpayable as part of an earn out, to be paid to the non-shareholders of thecompany. Creston believes this is an important driver in motivating employeesbeyond just the shareholders to grow the company and outperform the market. Thiscontingent consideration paid by Creston to non-shareholder employees in respectof the deferred consideration is deemed as remuneration. The notional financecosts also relate to the deferred consideration. Both of these charges willcease once the relevant earn-outs have been settled. 5. Earnings per share --------------------------------------------------------------------------------------------------- 2007 2006--------------------------------------------------------------------------------------------------- Headline Headline profit Weighted profit Pence for the average for the average profit Weighted Pence Headline Weighted for the average per for the average per financial number Pence financial number Pence year of per year of per £'000 shares share £'000 shares share---------------------------------------------------------------------------------------------------Headline basisBasic earnings per shareEarnings attributable to ordinary shareholders 9,173 52,294,443 17.54 5,354 36,383,218 14.72Dilutive effect of securitiesOptions - 573,674 (0.19) - 415,534 (0.17)Contingent shares - - - - 1,346,950 (0.51)---------------------------------------------------------------------------------------------------Diluted earnings per share 9,173 52,868,117 17.35 5,354 38,145,702 14.04--------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- 2007 2006--------------------------------------------------------------------------------------------------- Reported Reported profit profit for the Weighted for the Weighted financial average Pence financial average Pence year number of per year number of per £'000 shares share £'000 shares share--------------------------------------------------------------------------------------------------- Reported basisBasic earnings per shareEarnings attributable to ordinary shareholders 4,931 52,294,443 9.43 2,927 36,383,218 8.04Dilutive effect of securitiesOptions - 573,674 (0.10) - 415,534 (0.09)Contingent shares - - - - 1,346,950 (0.28)---------------------------------------------------------------------------------------------------Diluted earnings per share 4,931 52,868,117 9.33 2,927 38,145,702 7.67=================================================================================================== Diluted EPS has been calculated based on the following dilutive elements. Anestimate of 573,674 options (2006: 415,534) remain outstanding that would havebeen issued based on the average share price (this includes SAYE, EMI andunapproved options). The contingent shares in 2006 related to the equity elementof the deferred consideration due within one year. A reconciliation of the profit after tax on a reported basis and the Headlinebasis is given in note 4. 6. Dividends 2007 2006 £'000 £'000Amounts recognised as distributions to shareholders in the yearPrior year final dividend of 1.60 pence per share (2006: 1.45 pence) 878 508pence)Interim dividend of 0.88 pence per share (2006: 0.8 pence per share) 491 302-------------------------------------------------------------------------------- 1,369 810================================================================================ A final dividend of 1.76 pence (2006: 1.60 pence) equivalent to £981,000 is tobe paid on 6 August 2007 to shareholders on the register on 6 July 2007. Inaccordance with IFRS the final dividend will be recognised in the 2008 accounts,should it be approved by shareholders at the AGM. 7. Goodwill Purchased Goodwill on goodwill consolidation Total £'000 £'000 £'000-------------------------------------------------------------------------------CostAt 1 April 2005 4,785 52,268 57,053Additions - 7,501 7,501Adjustments to consideration (1,162) 3,143 1,981-------------------------------------------------------------------------------At 1 April 2006 3,623 62,912 66,535Additions - 56,725 56,725Adjustments to consideration (163) 2,155 1,992Fair value and other adjustments - (191) (191)-------------------------------------------------------------------------------At 31 March 2007 3,460 121,601 125,061===============================================================================Net book amount-------------------------------------------------------------------------------31 March 2007 3,460 121,601 125,061===============================================================================31 March 2006 3,623 62,912 66,535=============================================================================== The additions to goodwill in the year (at their initial fair value on the dateof acquisition) were ----------------------------------- £'000 ICM 17,644TMW 26,850PAN 12,231----------------------------------- 56,725----------------------------------- The acquisitions completed in the year were: ------------------------------------------------------------------------------- Date of Maximum Initial Maximum transaction consideration Consideration Deferred ConsiderationAcquisition £m £m £m ICM 17 May 2006 36.4 19.7 16.7TMW 17 May 2006 38.1 21.1 17.0PAN 4 December 2006 18.5 10.1 8.4------------------------------------------------------------------------------- To settle the initial consideration 3,068,829 ordinary shares, 3,928,101ordinary shares and 793,809 ordinary shares were issued to the vendors of ICM,TMW and PAN respectively. The remaining initial consideration was funded fromnew bank loans and working capital. The deferred consideration is dependent, forall acquisitions, on their financial performance in the period to 31 March 2009.The directors have initially recognised the following amounts: ----------------------------------- £'000 ICM 3,229TMW 9,743PAN 2,464----------------------------------- 15,436----------------------------------- 8. Reconciliation of profit before finance income, finance costs, income fromfinancial assetsand taxation to operating cash flow 2007 2006 £'000 £'000-------------------------------------------------------------------------------Profit before finance income, finance costs, income from financial assets and taxation 10,940 6,269 Depreciation 1,776 1,019Amortisation of intangible assets 1,270 528Share-based payments 400 245Deemed remuneration 1,908 1,225Profit on disposal of property, plant and equipment (30) (46)Increase in inventories and work in progress (1,042) (1,097)Increase in trade and other receivables (2,080) (4,887)(Decrease)/increase in trade and other payables (4,442) 4,714-------------------------------------------------------------------------------Operating cash flow 8,700 7,970=============================================================================== 9. Reconciliation of net cash flow to movement in net debt 2007 2006 £'000 £'000-------------------------------------------------------------------------------Decrease in cash in the year (3,649) (75)Cash outflow from reduction in debt 199 1,030Cash inflow from increase in debt (15,530) --------------------------------------------------------------------------------Movement in net debt in the year resulting from cash flows (18,980) 955New finance leases (55) -Reduction of loan stock 7,025 27Issue of acquisition loan notes (7,206) (93)Net debt at 1 April (2,521) (3,410)-------------------------------------------------------------------------------Net debt at 31 March (21,737) (2,521)=============================================================================== 10. Analysis of net debt At At 1 April Cash Non-cash 31 March 2006 flow Acquisitions items 2007 £'000 £'000 £'000 £'000 £'000 ---------------------------------------------------------------------------------------- Cash and short term deposits 5,282 (3,649) - - 1,633Bank overdrafts and revolving credit facility - (3,000) - - (3,000) Acquisition 0loan notes (128) 7,025 (7,206) - (309) Bank loans (7,470) (12,530) - - (20,000)Finance leases (205) 199 - (55) (61) ----------------------------------------------------------------------------------------Net debt (2,521) (11,955) (7,206) (55) (21,737)Restricted cash deposits 35 (13) - - 22----------------------------------------------------------------------------------------Net debt including restricted cash deposits (2,486) (11,968) (7,206) (55) (21,715)---------------------------------------------------------------------------------------- New finance leases of £55,000 were entered into during the year. 11. Availability of the Annual Report and Accounts Copies of the Annual Report and Accounts will be sent to shareholders in duecourse and are available from the Company's registered office at City GroupP.L.C., 30 City Road, London, EC1Y 2AG and on the company's websitewww.creston.com. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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