30th Nov 2007 07:01
Creston PLC30 November 2007 30 November 2007 Creston plc Reports Interim Results 2007 Excellent growth in revenue and profit underpinned by good like-for-like growth Creston plc (LSE: CRE), the Insight and Communications group, today announcedits interim results for the six months ended 30 September 2007. Highlights • Reported and Headline Diluted EPS up 159% (4.10 pence) and 5% (7.18 pence) respectively • Like-for-like revenue and operating company PBIT growth of 11% and 10% respectively • Like-for-like revenue growth in the Insight and Communications divisions of 15% and 10% respectively • Revenue from digital and on-line up to 16% of revenue Group (2006: 12%) with a 39% like-for-like growth • Headline operating margin maintained at 17% • EBITDA increase of 24% to £7.7 million (2006: £6.2 million) • Dividend increase of 10% to 0.97 pence per share • Annualised net new business wins of over £5 million driven by blue chip client wins Financial Results Headline results ** Reported results 2007 2006 Change 2007 2006 Change (restated)Revenue 39.2 30.8 +27% 39.2 30.8 +27%PBIT* 6.6 5.2 +26% 5.6 3.1 +82%Pre-tax profit 5.8 4.9 +18% 3.9 1.8 +117%Diluted EPS (pence) 7.18 6.85 +5% 4.10 1.58 +159%Dividends per share (pence) 0.97 0.88 +10% 0.97 0.88 +10% * Profit before Interest and Tax (PBIT) is defined as Profit before financeincome, finance costs, income from financial assets and taxation. It has beenrestated to reflect the accounting treatment of deemed remuneration as describedin Note 2 of the Interim Report. ** Headline performance measures exclude the impact of deemed remuneration,notional finance costs on deferred consideration and amortisation of intangibleassets. A reconciliation of Headline PBIT, PBT and Profit after taxation (PAT)to their Reported equivalents is set out in Note 4 of the Interim Report. Commenting on today's announcement, Don Elgie, Group Chief Executive, said: "We have had one of our best ever commercial performances. This has translatedinto a 27% increase in revenue and 39% like-for-like growth in digital andon-line revenue. The number of new business wins and the new products andservices utilising web based platforms give a solid foundation for the secondhalf of the year. Our confidence is reflected in a 10% increase in dividend to0.97 pence per share. " FOR FURTHER INFORMATION, PLEASE CONTACT: Creston plc 020 7930 9757Don Elgie, Chief ExecutiveBarrie Brien, COO/CFOwww.creston.com Hogarth Partnership Limited 020 7357 9477Chris Matthews/Sarah Macleod About Creston plc • Creston is an Insight and Communications marketing services group. The Board's aim is to identify synergistic benefits between its marketing services companies offering premium services such as market research, direct and interactive marketing, advertising, public relations, insight and to build a Group that offers clients solutions to both existing and future marketing needs across both on-line and off-line channels. • Creston's companies boast a range of blue-chip clients including the AA, AstraZeneca, BA, Bayer, BMW, BT, Burger King, Canon, COI Communications, Cow & Gate, Diageo, eBay, General Motors, George Wimpey, GlaxoSmithKline, Halifax, Kimberly-Clark, Lexus, Lloyds Black Horse, Morrisons, Nestle Rowntree, Nissan, Norwich Union, Pfizer, Roche Diagnostics, Sainsbury's, Tesco, Toshiba, T-Mobile, Tropicana, Unilever, Vodafone, Walkers and WHSmith. • Creston's share price is quoted in the Financial Times, The Daily Telegraph, The Times and the London Evening Standard. CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT The Board is pleased to report a strong first half performance, building on asuccessful record of delivery against financial and strategic objectives. Duringthe first half of the 2008 financial year, Creston has benefited from the newdigital and on-line initiatives introduced in the prior year, which have provento be a success in the Group's integrated on and off-line offerings to clients. The growth in revenue, operating profit and earnings per share, supported by astrong like-for-like of 11% and 10% in revenue and Headline PBIT respectively,demonstrate the robustness and relevance of our business model and clientfocused structure. The period has seen Creston respond to the changing dynamics of the industry andclients' demand for an integrated approach and accordingly the Group has changedits operational framework to a two divisional structure consisting of theInsight and Communications divisions. The latter division encompasses thosebusinesses previously included within the BRANDCOM, MARCOMS and PR divisions,while the former incorporates Creston's research offerings and remainsunchanged. The Group's continued investment in its employees and its range ofclient offerings, combined with the internal reorganisation of the business intotwo divisions, has ensured that Creston remains well positioned to benefit fromclient demands in a changing marketing environment. We were delighted that DLKW was ranked 14th (2006: 24th) and digitaltmw 25th(2006: 41st) in the recent NMA Interactive Agencies 2007 league tables - on acombined turnover basis this would place Creston's digital offering 7th in theUK. Overall our on-line and digital investment is proving successful. On-lineand digital revenues have increased 39 per cent on a like-for-like basis and nowcontribute 16 per cent (2006: 12 per cent) to Group revenues. The Group is verypleased with this increased contribution from internet derived activity and thatit is meeting its target of keeping apace with, if not ahead of the overallgrowth of the digital market. We are also pleased that this objective, which iscrucial to our long-term growth, has been met with no reduction in Headlineoperating margin. Strategic goals As we announce these results, there is much publicised change and volatility inthe financial markets as well as continued change and fragmentation in howconsumers absorb brands and communication. In regard to the marketing servicesindustry, the Board believes that there is more opportunity than ever for adiversified, entrepreneurial and dynamic Group such as Creston to gain marketshare by helping its clients in these rapidly changing times. We believe that our business model is of sound logic and we remain committed tobuilding the group both organically and acquisitively in the long-term. However,with the global economic uncertainty, particularly in the US and also growingconcerns about the UK, together with the effect this has had on equity markets,we have decided to focus on organic growth in the short term by redoubling ourefforts on synergy and operational efficiencies in each of our two divisions. Until clarity emerges on consumers' resilience and normality returns to theequity markets, our investments in the short to medium term will focus onenabling our operating companies to win a greater proportion of clients'budgets. Our investments will be in five distinct areas: • digital and on-line initiatives, such as newvista research and Sway online marketing; • increase of digital resource to service the growth in this segment; • organisational structure to make our client proposition relevant and compelling, such as DLKW's integrated offer; • client-driven opportunities overseas where on-the-ground representation is commercially beneficial; and • sector expertise, where we will seek to build further on our sector specialisations, eg in healthcare, technology and telecommunications Net new business The Group has continued its impressive record of net new business wins.Annualised net new business wins of £5m included: • new clients such as Alton Towers, Capital One, Freeview, Homeform, Marie Curie, Pricerunner, Royal Mail, Thorpe Park, T-Mobile and Smart; • new wins from existing clients such as Alfa Romeo, Astellas, Bayer, BT, eBay, General Motors, GSK, Nissan (Infiniti Pan European launch), Opel, Pepsico, Roche, Sainsbury's Bank, T-Mobile and Unilever; and • synergy wins from Andreas Stihl, AstraZeneca, Canon, eBay, The Financial Times, Freeview, Morrisons, Pepsico and Toshiba. The Partners' Board has proved to be an excellent mechanism for our companies toestablish new business opportunities, culminating in our highest ever level ofjoint pitches and cross referrals. Results Overall, trading for the first six months of the year ending March 2008 has beenin line with expectations. Revenue has increased by 27 per cent to £39.2m (2006:£30.8m) and Headline PBIT has increased by 26 per cent to £6.6m (2006: £5.2m).Reported PBIT has increased by 82 per cent to £5.6m (2006: £3.1m). This ReportedPBIT performance has been driven by a mixture of the underlying Headline growthand the impact of the non-recurring charges for consideration deemed asremuneration of £1.0m (2006: £1.5m) plus amortisation of intangible assetsrelated to acquisitions of nil (2006: £0.6m). The revenue and Headline PBIT has been driven by new business wins and thelike-for-like growth of 11 per cent and 10 per cent respectively plus theinclusion of a full six months performance for the companies acquired in 2006(ICM, PAN and TMW). Headline Basic EPS has increased by 4 per cent to 7.21 pence (2006: 6.93 pence)and Headline Diluted EPS has increased by 5 per cent to 7.18 pence (2006: 6.85pence). Reported Basic EPS has increased by 158 per cent to 4.12 pence (2006:1.60 pence) and Reported Diluted EPS has increased by 159 per cent to 4.10 pence(2006: 1.58 pence). Divisional performance To enable a better understanding of the underlying divisional performance of theGroup, Creston refers to Headline PBIT, which eliminates the non-recurringnon-cash charges associated with the acquisitions included in the reportedfigures. Insight Division The Insight Division has contributed revenue of £9.0m (2006: £6.8m) and PBIT of£2.8m (2006: £2.0m), which represents growth of 33 per cent and 37 per centrespectively. On the Reported basis the PBIT was £2.6m (2006: £1.6m). Thisdivision continues to perform strongly, generating like-for-like revenue andPBIT growth of 15 per cent (2006: 6 per cent) and 14 per cent (2006: 7 per cent)respectively. The PBIT margin remains strong at 31 per cent (2006: 30 per cent). The growth of this division has been led by the excellent performances of allour companies but also by the expansion of newvista research, which now boastsan on-line market research panel in excess of 100,000 members. On-line researchnow represents 19 per cent of the Insight Division's revenue (2006: 10 per cent)and has generated like-for-like revenue growth of 108 per cent. Our on-lineturnover in Insight exceeded £2.4m for the six months (2006: £1.1m) and as anannualised turnover, this would rank newvista research amongst the marketleaders in on-line research. The division has a prestigous client base that includes BT, Burger King, CocaCola, COI, Danone, Norwich Union, Nutricia, O2, Orange, Tesco and Vodafone. Thishas been supplemented by new business wins including Britvic, Heinz Foods, Shelland T-Mobile and by group synergy referrals including Canon, eBay, Morrisons andToshiba. Within the Insight Division healthcare research has continued to develop withthe group investing in additional senior management resources to support itsexpanding client base of EPMRA, GE Healthcare, Intervet, Merial, the NHS,Novartis and Solvay. The Group's healthcare capabilities were further enhancedby the launch of businessvista research, an on-line panel of professionalexperts, which includes a specific panel of GPs and other medical practitioners. Communications Division The Communications Division generated revenue of £30.2m (2006: £24.0m) and PBITof £5.7 m (2006: £4.7m), which represents growth of 26 per cent and 23 per centrespectively. On the Reported basis the PBIT was £5.2m (2006: £3.2m). Thisdivision has performed strongly, generating like-for-like revenue growth of 10per cent (2006: 3 per cent) and like-for-like PBIT growth of 8 per cent (2006:decreased 13 per cent). The PBIT margin is good at 19 per cent (2006: 19 percent). On the same divisional basis as the prior year the BRANDCOM, MARCOMS andPR divisions would have reported like-for-like PBIT growth of 8 per cent, 6 percent and 10 per cent, respectively. The division has an enviable client base which includes the AA, Alfa Romeo,Astra Zeneca, British Airways, Burger King, Canon, COI, eBay, General Motors,GSK, HBOS, Lexus, Lloyds, Morrisons, Nissan, Nutricia, PepsiCo, Roche,Sainsburys, SPMSD, T-Mobile, Unilever and WH Smith. This has been enlarged bynew business wins including Alton Towers, Capital One, Freeview, GM Eco Greencampaign, GSK, Homeform, Infiniti, Pricerunner, Royal Mail and Sainsbury's Bankand by Group synergy referrals including AstraZeneca, Freeview and The FinancialTimes. Net debt The Group generated positive operating cash flow of £5.9 million (2006: £3.0million) for the period, which represents a conversion from reported PBIT of 103per cent (2006: 98 per cent) and demonstrates an improvement in the Group'smanagement of working capital. At 30 September 2007, Creston had net debt of £24.4m (March 2007: £21.7m), whichrepresents a gearing level of 30 per cent (March 2007: 27 per cent). Theincrease since the year end has been caused by the settlement of the deferredconsideration for NBC and RDC by issuing loan notes. Settling deferredconsideration predominantly in loan notes, rather than by the issue of shares,continues the Board's objective to use strong cash flow to maximise earnings pershare. There are no deferred consideration liabilities to be settled in thesecond half of the financial year. The next settlement of deferred considerationof £13.0 million is due next financial year and is therefore now treated as ashort term liability. This will be settled through a combination of operatingcashflow and draw downs from our unused available banking facilities. Crestoncontinues to maintain significant headroom in its banking covenants. Dividends An interim dividend per share of 0.97 pence (2006: 0.88 pence) will be paid on14 January 2008 to shareholders on the register at 14 December 2007. Thiscontinues the Group's progressive dividend policy and represents an increase inthe interim dividend per share of 10 per cent. Principal risks and uncertainties Creston's principal operating risks and uncertainties are associated with theretention of key personnel and customers. In common with many businesses in themarketing services sector, the loss of certain key personnel could jeopardisethe continuing success of the business. The Group seeks to mitigate these risksvia non-compete and non-solicit covenants, incentivising its key personnelthrough LTIP and bonus arrangements and it has a good track record of retainingkey personnel. The Group derives much revenue from contracts with its major customers. TheGroup has instigated a system of customer satisfaction reviews to identify areasfor improving its service and is continuously working towards reducing clientconcentration. Creston US Creston US, led by Steve Blamer, commenced operations at the beginning of thecurrent financial period. His task is to build the profile and offering of ourUK companies to a US client base. This objective was to be achieved by a mixtureof organic growth by our UK companies and occasional highly selective bolt onacquisitions. However, in light of recent concerns about an economic downturn inthe US, we have reviewed our acquisition strategy and timing and decided not topursue such acquisitions at this time. We will continue to build Creston'sprofile and offering of our UK companies to a US client base. Outlook The Group's results have historically been weighted toward the second half ofthe year due to the timing of our year end in March and client spending patternsand the Board sees no exception to this trend. Our companies are notexperiencing any declines in client marketing budgets and are converselybenefiting from their unique ability to position themselves and deliver toclients effective Insight and Communication solutions. Our wins in the firsthalf of the year and full new business pipelines give us good momentum todeliver another solid performance for the year. David Marshall Don ElgieChairman Chief Executive ( 2007) UNAUDITED CONSOLIDATED INCOME STATEMENT for the six months ended 30 September 2007 Six months Year Note Six months ended ended ended 30 September 31 March 30 September 2006 2007 2007 (restated) (restated) £'000 £'000 £'000 Turnover (billings) 68,643 53,484 117,621 ----------- ----------- ---------- Revenue (fees earned) 39,199 30,755 69,665Operating costs (33,612) (27,692) (59,353) ----------- ----------- ---------- Profit before finance income, financecosts, income from financial assets and taxation 4 5,587 3,063 10,312Finance income 28 115 199Finance costs (1,724) (1,387) (3,095)Income from financial assets - - 241 ----------- ----------- ---------- Profit before taxation 4 3,891 1,791 7,657Taxation 6 (1,611) (1,001) (3,212) ----------- ----------- ---------- Profit for the period 4 2,280 790 4,445 ----------- ----------- ---------- Basic earnings per share (pence) 7 4.12 1.60 8.50Diluted earnings per share (pence) 7 4.10 1.58 8.41 The results above arise wholly from continuing operations. UNAUDITED CONSOLIDATED BALANCE SHEET as at 30 September 2007 Note As at As at As at 30 September 30 September 31 March 2007 (restated) (restated) £'000 2006 2007 £'000 £'000 Non-current assetsIntangible assetsGoodwill 9 123,475 110,009 122,984Other 9 1,369 1,080 1,290Property, plant and equipment 9 4,042 4,529 4,267Trade and other receivables - 1,158 1,325Investments - available for sale 550 550 550Deferred tax assets 1,443 962 1,347 ---------- --------- --------- 130,879 118,288 131,763 ---------- --------- ---------Current assetsInventories and work in progress 3,811 3,676 5,080Trade and other receivables 30,946 24,383 29,454Cash and cash equivalents 22 3,644 1,655 ---------- --------- --------- 34,779 31,703 36,189 Current liabilitiesTrade and other payables (25,222) (24,692) (28,208)Corporate income tax payable (1,829) (825) (1,601)Obligations under finance leases (53) (132) (61)Bank overdraft, loans and loannotes (7,208) (5,595) (7,309)Short term provisions 10 (12,955) (1,131) (4,139) ---------- --------- --------- (47,267) (32,375) (41,318) ---------- --------- ---------Net current liabilities (12,488) (672) (5,129) ---------- --------- --------- Total assets less currentliabilities 118,391 117,616 126,634 Non-current liabilitiesBank loans and loan notes (17,200) (12,740) (16,000)Long term provisions 10 (20,418) (29,877) (31,430) ---------- --------- --------- (37,618) (42,617) (47,430) ---------- --------- --------- Net assets 80,773 74,999 79,204 ---------- --------- --------- EquityCalled up share capital 5,576 5,497 5,576Share premium account 33,345 33,345 33,345Own shares (233) (139) (104)Shares to be issued 2,394 1,492 1,998Other reserves 31,357 30,943 31,357Retained earnings 8,334 3,861 7,032 ---------- --------- --------- Total equity 80,773 74,999 79,204 ---------- --------- --------- UNAUDITED STATEMENT OF CHANGES IN EQUITY Six months ended 30 September 2007 Share capital Share premium Own shares Shares to be Other reserves Retained Total issued earnings £'000 £'000 £'000 £'000 £'000 £'000 £'000Changesin equityfor theperiod At 1April2007 (as restated) 5,576 33,345 (104) 1,998 31,357 7,032 79,204 Creditforsharebased incentivescheme - - - 396 - - 396 Ownshares purchased - - (129) - - - (129) Profitfor the period - - - - - 2,280 2,280 Dividends - - - - - (978) (978) ------ ------- ------ ------ ------ ------- -------At 30September 2007 5,576 33,345 (233) 2,394 31,357 8,334 80,773 ------ ------- ------ ------ ------ ------- ------- Six months ended 30 September 2006 Share capital Share premium Own shares Shares to be Other reserves Retained Total issued earnings £'000 £'000 £'000 (restated) £'000 (restated) (restated) £'000 £'000 £'000Changes inequity forthe period At 1 April 2006 3,759 19,734 (46) 1,836 17,682 4,429 47,394 Priorperiod adjustment - - - (829) - (473) (1,302) ------ ------- ------ ------- ------ ------- -------At 1 April2006 (asrestated) 3,759 19,734 (46) 1,007 17,682 3,956 46,092 New sharesissued 1,738 13,611 53 - 13,288 - 28,690 Credit forsharebasedincentive scheme - - - 485 - - 485 Own sharespurchased - - (146) - - - (146) Loss ontreasuryscheme - - - - (27) - (27) Profit forthe period - - - - - 790 790 Dividends - - - - - (885) (885) ------ ------- ------ ------- ------ ------- -------At 30September2006 (as restated) 5,497 33,345 (139) 1,492 30,943 3,861 74,999 ------ ------- ------ ------- ------ ------- ------- Year ended 31 March 2007 Share capital Share premium Own shares Shares to be Other reserves Retained Total issued earnings £'000 £'000 £'000 (restated) £'000 (restated) (restated) £'000 £'000 £'000Changes inequity forthe year At 1 April 2006 3,759 19,734 (46) 1,836 17,682 4,429 47,394 Priorperiod adjustment - - - (829) - (473) (1,302) ------ ------- ------ ------- ------ ------- -------At 1 April2006 (asrestated) 3,759 19,734 (46) 1,007 17,682 3,956 46,092 New sharesissued 1,817 13,611 96 - 13,669 - 29,193 Credit forsharebasedincentive scheme - - - 991 - - 991 Own sharespurchased - - (154) - - - (154) Profit ontreasuryscheme - - - - 6 - 6 Profit forthe year - - - - - 4,445 4,445 Dividends - - - - - (1,369) (1,369) ------ ------- ------ ------- ------ ------- -------At 31March 2007 5,576 33,345 (104) 1,998 31,357 7,032 79,204 ------ ------- ------ ------- ------ ------- ------- UNAUDITED CONSOLIDATED CASH FLOW STATEMENT for the six months ended 30 September 2007 Note Six months Six months Year ended ended ended 30 September 30 September 31 March 2007 2006 2007 £'000 £'000 £'000Operating cash flow 11 5,850 2,999 8,700Finance income 28 115 199Finance costs (474) (451) (1,180)Income from financial assets - - 241Tax paid (1,479) (1,374) (4,173) --------- ---------- ---------Net cash inflow from operatingactivities 3,925 1,289 3,787 Investing activitiesPurchase of subsidiaryundertakings (2,511) (31,062) (44,501)Net cash acquired withsubsidiaries - 9,140 10,663Purchase of property, plant and (742) (1,030) (1,738)equipmentSale of property, plant andequipment - - 99 --------- ---------- ---------Purchase of intangible assets (145) - (399)Decrease in restricted cashdeposits - - 13 --------- ---------- ---------Net cash outflow from investingactivities (3,398) (22,952) (35,863) Financing activitiesIssue of shares for cash - 15,109 15,164Share issues costs - (545) (545)Share repurchases (129) (146) (154)Net (decrease)/increase inborrowings (1,500) 6,530 15,530Equity dividends paid (978) (885) (1,369)Capital element of finance leasepayments (8) (73) (199) --------- ---------- ---------Net cash (outflow)/inflow fromfinancing (2,615) 19,990 28,427 --------- ---------- ---------Decrease in cash and cashequivalents (2,088) (1,673) (3,649) Cash and cash equivalents at startof period 1,633 5,282 5,282 --------- ---------- ---------Cash and cash equivalents at endof period 12 (455) 3,609 1,633 --------- ---------- --------- NOTES TO THE INTERIM REPORT for the six months ended 30 September 2007 1. Presentation of financial information The financial information contained in this Interim Report does not constitutestatutory accounts within the meaning of the Companies Act 1985 and has notbeen audited or reviewed by the Group's auditors. The financial information for the year to 31 March 2007 does not constitutestatutory accounts within the meaning of Section 240 of the Companies Act 1985.It is extracted from the statutory accounts for that year that were prepared under IFRS, on which the Group's auditors at that time, PricewaterhouseCoopersLLP, gave an unqualified audit report and amended in the period as described inNote 2 below. Statutory accounts for the year ended 31 March 2007 have been delivered to the Registrar of Companies. 2. Basis of Preparation The Interim Report of Creston plc for the six months ended 30 September 2007have been prepared in accordance with the Disclosure and Transparency Rules ofthe Financial Services Authority and with IAS 34, "Interim financial reporting"as adopted by the European Union. The accounting policies applied in the preparation of the annual financialstatements are based on the European Union adopted International FinancialReporting Standards (IFRS) and IFRIC interpretations that are applicable at thistime. The preparation of financial statements requires the use of certain criticalaccounting estimates. It also requires management to exercise judgment in theprocess of applying the Group's accounting policies. The following new standards, amendments to standards and interpretations aremandatory for the first time for the financial year ending 31 March 2008: •IFRS 7, 'Financial instruments: Disclosures', effective for annual periods beginning on or after 1 January 2007. IAS 1, 'Amendments to capital disclosures', effective for annual periods beginning on or after 1 January 2007. As this interim report contains only condensed financial statements, and as there are no material financial instrument-related transactions in the period, full IFRS 7 disclosures are not required at this stage. The full IFRS 7 disclosures, including the sensitivity analysis to market risk and capital disclosures required by the amendment of IAS 1, will be given in the annual financial statements. •IFRIC 8, 'Scope of IFRS 2', effective for annual periods beginning on or after 1 May 2006. This interpretation has not had any impact on the recognition of share-based payments in the Group. •IFRIC 9 'Reassessment of embedded derivatives', effective for annual periods beginning on or after 1 June 2006. This interpretation has not had any impact on the reassessment of embedded derivatives as the group already assessed if embedded derivatives should be separated using principles consistent with IFRIC 9. •IFRIC 10, 'Interims and Impairment', effective for annual periods beginning on or after 1 November 2006. This interpretation has not had any impact on the group's accounts. •IFRIC 11, 'IFRS 2 - Group and treasury share transactions', effective for annual periods beginning on or after 1 March 2007. The following new standards, amendments to standards and interpretations havebeen issued, but are not effective for the financial year ending 31 March 2008and have not been early adopted: •IFRS 8, 'Operating segments', effective for annual periods beginning on or after 1 January 2009, subject to EU endorsement. Management do not currently foresee any changes to the group's business segments. •IFRIC 12, 'Service concession arrangements', effective for annual periods beginning on or after 1 January 2008. Management do not expect this interpretation to be relevant for the Group. Prior period adjustment The treatment of share awards under long term incentive plans in respect ofacquisitions has been amended in the period. Such awards were previouslyincluded as an acquisition cost and hence as part of goodwill, but are nowrecognised in the income statement (as deemed remuneration) over the relatedvesting period. This change has resulted in a restatement of the comparative figures. The impacton the balance sheet at 1 April 2006 is to decrease goodwill by £1,122,000,decrease shares to be issued by £827,000, decrease deferred tax assets by£180,000 and decrease retained earnings by £475,000. The income statement chargefor the year ended 31 March 2007 is £629,000 and for the comparative six monthperiod ended 30 September 2006 is £302,000. The corresponding tax effect for theyear ended 31 March 2007 is £142,000 and for the six month period ended 30September 2006 is £75,000. Basic reported earnings per share and diluted reported earnings per share werereduced by 0.93 pence and 0.92 pence respectively for the year ended 31 March2007 and by 0.46 pence and 0.46 pence respectively for the period ended 30September 2006. 3. Accounting policies The interim consolidated financial statements of Creston plc for the six monthsended 30 September 2007 have been prepared in accordance with the accountingpolicies contained in the Group's 2007 Annual Report and the policies as described in Note 2 above. 4. Reconciliation of Headline profit to Reported profit The Directors are of the opinion that certain accounting policies relating tocharges deemed as remuneration, notional finance costs on deferred considerationand amortisation of intangible assets have a material impact on the reportedresults and introduce volatility to the reported figures. In order to enable abetter understanding of the underlying trading of the Group, Creston refer toHeadline PBIT, PBT and PAT which eliminates these non-recurring non-cash chargesfrom the reported figures, as follows: Six months ended 30 September 2007 PBIT PBT PAT £'000 £'000 £'000Headline 6,597 5,757 3,989Future acquisition payments to employees deemedas remuneration (1,010) (1,010) (1,010)Notional finance costs on future deferredconsideration - (856) (856)Taxation impact - - 157 ------- ------- -------Reported 5,587 3,891 2,280 ------- ------- -------Headline Basic EPS (pence) 7.21Headline Diluted EPS (pence) 7.18Reported Basic EPS (pence) 4.12Reported Diluted EPS (pence) 4.10 Six months ended 30 September 2006(restated) PBIT PBT PAT £'000 £'000 £'000Headline 5,220 4,884 3,421Future acquisition payments to employees deemedas remuneration (1,532) (1,532) (1,532)Amortisation of intangible assets (625) (625) (625)Notional finance costs on future deferredconsideration - (936) (936)Taxation impact - - 462 ------- ------- -------Reported 3,063 1,791 790 ------- ------- -------Headline Basic EPS (pence) 6.93Headline Diluted EPS (pence) 6.85Reported Basic EPS (pence) 1.60Reported Diluted EPS (pence) 1.58 Year ended 31 March 2007(restated) PBIT PBT PAT £'000 £'000 £'000 Headline 14,003 13,263 9,173Future acquisition payments to employees deemedas remuneration (2,536) (2,536) (2,536)Amortisation of intangible assets (1,155) (1,155) (1,155)Notional finance costs on future deferredconsideration - (1,915) (1,915)Taxation impact - - 878 ------- ------- -------Reported 10,312 7,657 4,445 ------- ------- -------Headline Basic EPS (pence) 17.54Headline Diluted EPS (pence) 17.35Reported Basic EPS (pence) 8.50Reported Diluted EPS (pence) 8.41 The acquisition related charges deemed as remuneration arises on payments madeby Creston to non-shareholding employees in respect of the consideration on thebusiness acquisitions. The notional finance costs relate to the deferredconsideration and will cease once the relevant earn-outs have been settled. Theamortisation of intangible assets is also a non-recurring non-cash chargerelating to the acquisitions. Headline EPS calculations are adjusted for thecosts disclosed above. 5. Segmental analysis The Group has changed its operational framework to a two divisional structureconsisting of the Insight and Communications divisions. The latter division nowencompasses those businesses previously included within the BRANDCOM, MARCOMSand PR divisions while the former incorporates Creston's research offerings andremains unchanged. Insight Communications Head office Group £'000 £'000 £'000 £'000Six monthsended 30September 2007 Turnover (billings) 15,562 53,081 - 68,643 Revenue 8,994 30,205 - 39,199 Profit beforefinanceincome,finance costs,income fromfinancialassets andtaxation(segment result) 2,609 5,179 (2,201) 5,587 Finance income - - 28 28 Finance costs (195) (661) (868) (1,724) Income from financial assets - - - - ---------- ---------- ---------- ----------Profit before taxation 2,414 4,518 (3,041) 3,891 Taxation (1,611) ---------- Profit for the period 2,280 ---------- Insight Communications Head office Group £'000 £'000 £'000 £'000Six monthsended 30September 2006(restated) Turnover (billings) 11,978 41,506 - 53,484 Revenue 6,761 23,994 - 30,755 Profit beforefinanceincome,finance costs,income fromfinancialassets andtaxation(segment result) 1,620 3,212 (1,769) 3,063 Finance income - - 115 115 Finance costs (103) (833) (451) (1,387) Income from financial assets - - - - ---------- ---------- ---------- ---------- Profit before taxation 1,517 2,379 (2,105) 1,791 Taxation (1,001) ----------- Profit for the 790period ----------- Insight Communications Head office Group £'000 £'000 £'000 £'000Year ended 31 March 2007(restated)Turnover (billings) 27,575 90,046 - 117,621Revenue 15,386 54,279 - 69,665Profit before financeincome, finance costs,income from financialassets and taxation(segment result) 4,306 9,704 (3,698) 10,312Finance income - - 199 199Finance costs (244) (1,671) (1,180) (3,095)Income from financial - - 241 241assets ------- ---------- --------- -------- Profit before taxation 4,062 8,033 (4,438) 7,657Taxation (3,212) -------- Profit for the financial 4,445year ----------- 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 Period Period ended 30 Year ended 31 Period ended 30 Period ended 30 Year ended 31 September 2006 March 2007 September 2007 September 2006 March 2007 ended 30 September 2007 £'000 £'000 £'000 £'000 £'000 £'000UK 30,697 24,748 60,230 53,310 43,394 95,994Rest of 7,830 5,632 7,968 14,241 8,276 18,628EuropeOverseas 672 375 1,467 1,092 1,814 2,999 -------- --------- -------- --------- -------- ------- 39,199 30,755 69,665 68,643 53,484 117,621 -------- --------- -------- --------- -------- ------- All significant assets and liabilities are located within the UK with theexception of certain trade receivables which relate to the turnover and revenuenoted above and the net working capital associated with Creston US (which is notsignificant). 6. Taxation Taxation is recognised based on management's best estimate of the weightedaverage annual income tax rate expected for the full financial year. Theestimated average annual tax rate used for the year to 31 March 2008 is 49% (theestimated tax rate for the six months ended 30 September 2006 was 56%). The Headline average annual tax rate for 31 March 2008 is expected to be 31%(the estimated Headline tax rate for the six months ended 30 September 2006 was30%). 7. Earnings per share Reported earnings per share for the period Headline earnings per share for the period ended 30 September 2007 ended 30 September 2007 Reported profit Weighted Pence per share Headline profit Weighted Pence per share for the average number for the average number financial of shares financial of shares period period £'000 £'000Basicearnings pershare 2,280 55,290,839 4.12 3,989 55,290,839 7.21 Options - 278,387 (0.02) - 278,387 (0.03) Dilutedearningsper share 2,280 55,569,226 4.10 3,989 55,569,226 7.18 Reported earnings per share for the period Headline earnings per share for the period ended 30 September 2006 (restated) ended 30 September 2006 Reported profit Weighted Pence per share Headline profit Weighted Pence per share for the average number for the average number financial of shares financial of shares period period £'000 £'000Basicearnings pershare 790 49,372,200 1.60 3,421 49,372,200 6.93 Options - 564,591 (0.02) - 564,591 (0.08) Dilutedearningsper share 790 49,936,791 1.58 3,421 49,936,791 6.85 Reported earnings per share for the year ended Headline earnings per share for the year ended 31 March 2007 (restated) 31 March 2007 Reported profit Weighted Pence per share Headline profit Weighted Pence per share for the average number for the average number financial of shares financial of shares period period £'000 £'000Basicearnings per share 4,445 52,294,443 8.50 9,173 52,294,443 17.54 Options - 573,674 (0.09) - 573,674 (0.19) Dilutedearningsper share 4,445 52,868,117 8.41 9,173 52,868,117 17.35 DEPS has been calculated based on the following dilutive elements. An estimateof 278,387 options (2006: 564,591) remain outstanding that would have beenissued based on the average share price (this includes SAYE, EMI and unapprovedoptions). The contingent shares in 2006 related to the equity element of thedeferred consideration due within one year. The Headline EPS and Headline diluted EPS are based on the Headline PBT analysedin note 4 less attributable tax and divided by the weighted average number ofshares and by the weighted average number of diluted shares respectively. 8. Dividends The Board has declared an interim dividend to be paid on 14 January 2008 of 0.97pence (2006: 0.88 pence) per share to all ordinary shareholders on the registerat 14 December 2007. This dividend is not reflected in the Income Statement forthe six months to 30 September 2007 as it was not approved by the Board until 29November 2007. However, the final dividend of 1.76 pence per share for the yearto 31 March 2007 was recognised during the period after it was approved at theAGM on 30 July 2007 and paid on 3 August 2007. 9. Capital expenditure Six months ended 30 September 2007 Property, plant Intangible Intangible and equipment assets - assets - other goodwill (restated) £'000 £'000 £'000Net bookamount at 1April 2007 4,267 122,984 1,290Additions 742 - 145Adjustments toconsideration - 491 -Depreciationandamortisation (967) - (66) ---------- ---------- ---------- Net bookamount at 30September 2007 4,042 123,475 1,369 ---------- ---------- ---------- Six months ended 30 September 2006 Property, plant Intangible Intangible and equipment assets - assets - other goodwill (restated) £'000 £'000 £'000Net bookamount at 1April 2006 3,006 65,413 350Additions 1,030 43,374 -Adjustments toconsideration - 1,222 -Depreciationandamortisation (842) - (625)Acquired onacquisition ofsubsidiary 1,335 - 1,355 ---------- ---------- ---------- Net bookamount at 30September 2006 4,529 110,009 1,080 ---------- ---------- ---------- Year ended 31 March 2007 Property, plant Intangible Intangible and equipment assets - assets - other goodwill (restated) £'000 £'000 £'000Net bookamount at 1April 2006 3,006 65,413 350Additions 1,793 55,336 399Disposals (69) - -Transfers(from)/tointangibles (206) - 206Adjustments to consideration - -Depreciationandamortisation (1,776) 2,535 (1,270)Acquired onacquisition ofsubsidiary 1,519 - 1,605 ---------- ---------- ---------- Net bookamount at 31March 2007 4,267 122,984 1,290 ---------- ---------- ---------- 10. Short term and long term provisions Short term and long term provisions represent the fair value of deferredconsideration. The deferred consideration will be settled by a mixture of cash,loan notes and new ordinary shares, dependent on the terms of the relevant saleand purchase agreement. 11. Reconciliation of profit before finance costs income from investments andtaxation to operating cash flow Six months Six months Year ended ended Ended 30 September 30 September 31 March 2007 2006 (restated) 2007 (restated) £'000 £'000 £'000Profit for the period 2,280 790 4,445Taxation 1,611 1,001 3,212Profit before taxation 3,891 1,791 7,657Income from financial assets (241)Finance costs 1,724 1,387 3,095Finance income (28) (115) (199)Profit before finance costs,income 5,587 3,063 10,312from investments and taxationDepreciation of property, plantand 967 842 1,776equipmentAmortisation of intangible 66 625 1,270assetsShare based payments 99 166 400Deemed remuneration 1,010 1,532 2,536Profit on disposal of property,plant and equipment - - (30)Decrease/(increase) ininventories 1,269 259 (1,042)and work in progress(Increase)/decrease in trade andother receivables (429) 2,535 (2,080)(Decrease) in trade and otherpayables (2,719) (6,023) (4,442) ---------- ---------- ----------Operating cash flow 5,850 2,999 8,700 ---------- ---------- ---------- 12. Analysis of net debt As at Cash Flow Acquisitions As at 1 April £'000 £'000 30 September 2007 2007 £'000 £'000 Cash and short term deposits 1,633 (1,633) - -Bank overdrafts - (455) - (455)Revolving credit facility (3,000) 1,500 - (1,500)Acquisition loan notes (309) (2,144) (2,453)Bank loans (20,000) - (20,000)Finance leases (61) 8 - (53) -------- -------- -------- ---------Net (debt) (21,737) (2,724) - (24,461)Restricted cash deposits 22 - - 22 -------- -------- -------- ---------Net (debt) including restrictedcash deposits (21,715) (2,724) - (24,439) -------- -------- -------- --------- As at Cash Flow Acquisitions As at 1 April £'000 £'000 30 September 2006 2006 £'000 £'000 Cash and short term deposits 5,282 (1,673) - 3,609Acquisition loan notes (128) - (4,207) (4,335)Bank loans (7,470) (6,530) - (14,000)Finance leases (205) 73 - (132) _______ _______ _______ ________Net (debt) (2,521) (8,130) (4,207) (14,858)Restricted cash deposits 35 - - 35Net (debt) including restricted _______ _______ _______ _______cash deposits (2,486) (8,130) (4,207) (14,823) _______ _______ _______ _______ As at Cash Flow Acquisitions Non-cash items As at 1 April £'000 £'000 £'000 31 March 2007 2006 £'000 £'000 Cash and shortterm deposits 5,282 (3,649) - - 1,633Bankoverdrafts - (3,000) - - (3,000)andrevolvingcreditfacilityAcquisitionloan (128) 7,025 (7,206) - (309)notesBank loans (7,470) (12,530) - - (20,000)Finance leases (205) 199 - (55) (61) _______ _______ _______ _______ _______Net (debt) (2,521) (11,955) (7,206) (55) (21,737)Restrictedcash 35 (13) - - 22depositsNet (debt) _______ _______ _______ _______ _______includingrestrictedcash deposits (2,486) (11,968) (7,206) (55) (21,715) _______ _______ _______ _______ _______ Non-cash items relate to £55,000 of new finance leases entered into during theyear ended 31 March 2007. The restricted cash deposits are maintained in a designated account as securityfor the loan notes issued on the acquisition of MSL and are, therefore, notfreely available to the Group. The bank overdrafts, revolving credit facility, acquisition loan notes and bankloans are as follows:- 30 September 30 September 31 March 2007 2007 2006 £'000 £'000 £'000 Non-current 17,200 12,740 16,000Current 7,208 5,595 7,309 ---------- ---------- --------- 24,408 18,335 23,309 ---------- ---------- --------- On 14 August 2007, the Group restructured its banking arrangements to more fullyalign its financial structure with the Group's development plans. The principalschanges were:- (i) the undrawn term loan facility of £10.0 million at 31 March 2007 convertedto a revolving credit facility which will remain available until 31 March 2012;and (ii) the repayments of the drawn term loan of £20.0 million have been re-phased. 13. Related-party transactions During the six months ended 30 September 2007 total fees of £15,741 (six monthsended 30 September 2006: £18,486) were paid to City Group P.L.C. and £12,741(2006: £10,486) for the provision of secretarial services and £13,000 (2006:£8,000) for the services of Mr D C Marshall. 14. Statement of directors' responsibilities The directors confirm that this condensed set of financial statements has beenprepared in accordance with IAS 34 as adopted by the European Union, and thatthe interim management report herein includes a fair review of the informationrequired by DTR 4.2.7 and DTR 4.2.8. The directors of Creston plc are listed in the Creston plc Annual Report for 31March 2007, with the exception that as noted in the Annual Report Mr D Hangerand Mr P Cunard resigned as directors on 30 July 2007. A list of currentdirectors is maintained on the Creston plc website: www.creston.com. 15. Forward-looking statements Certain statements in this interim report are forward-looking. Although theGroup believes that the expectations reflected in these forward-lookingstatements are reasonable, we can give no assurance that these expectations willprove to have been correct. Because these statements involve risks anduncertainties, actual results may differ materially from those expressed orimplied by these forward-looking statements. We undertake no obligation to update any forward-looking statements whether as aresult or new information, future events or otherwise. 16. Availability of the Interim Report Copies of the Interim Report will be sent to shareholders in due course and areavailable from the Company's registered office at City Group P.L.C., 30 CityRoad, London, EC1Y 2AG and on the company's website www.creston.com This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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