Final Results

Creston PLC 20 June 2001 Creston Plc Preliminary Results for the year to 31 March 2001 For further information: Don Elgie, Chief Executive 020 7930 9757 Tim Alderson, Finance Director 020 7930 9757 Richard Fallowfield, Cardew & Co. 020 7930 0777 Jonathan Rooper, Cardew & Co. 020 7930 0777 CHAIRMAN'S STATEMENT The year to 31 March 2001 has seen considerable change for Creston. As far back as October 1999, it was announced that it was Creston's intention to leave the property sector as market sentiment had moved against property companies, particularly those with small market capitalisations. We successfully realised the Group's assets and have returned part of the proceeds to shareholders by way of two special dividends: 36p per share was paid on 5 May 2000, and 32.5p per share was paid on 17 November 2000. In view of these two sizeable dividends it is not proposed to pay a further dividend for the year ended 31 March 2001. Your Board has spent considerable time evaluating opportunities to refocus Creston in order to enhance shareholder value. The objective was to find a sector that has demonstrated consistent profitable growth and has potential for the future. After considerable research the marketing services sector was identified as the area which met our requirements. Details of our new strategy are covered in the Chief Executive's Overview that follows. On 4 January 2001, we announced that Creston would become a diversified marketing services company. The first step was the acquisition of Synergie Consulting Limited and Marketing Sciences Limited. Synergie Consulting was founded by Don Elgie, Creston's new Chief Executive, for the purpose of developing a 'buy and build' concept within the marketing services sector. Marketing Sciences Limited, is a well established quantitative research company with a blue chip client list. The figures presented in these preliminary results show ten months as a residual property company and only two months of trading as 'new' Creston. The new Creston is trading in line with management expectations. It is the objective of the Board to ensure that Creston achieves a significant critical mass within three to five years through a series of acquisitions and through organic growth, and that the company will become a leading player in its industry. I would like to thank my fellow Directors and staff who have worked hard to secure maximum value for the Company's property assets. With Creston's repositioning as a marketing services group, it is right that non-executive directors are appointed who are familiar with the sector and can add value. In this respect I welcome the appointment of David Hanger, Publisher of The Economist Newspaper. Other appointments will be proposed following the repositioning of Creston. I would like to thank Michael Robotham and Charles Bunker who resign as Directors after the AGM on 24 July 2001 following the refocusing of the company. I am enthusiastic about the 'new' Creston and its objectives and look forward to playing my part in building the Company into a flourishing marketing services group. David Marshall 20 June 2001 Chairman CHIEF EXECUTIVE'S OVERVIEW As described in the Chairman's Statement, Creston refocused as a marketing services group following the EGM on 29 January 2001. The Business Objective Creston's objective is to build the company both organically and through acquisition. Its defining characteristic will be to establish customer needs and motivation and to identify and keep abreast of changes as they inevitably occur. In addition to expanding within the UK, the Board will also be looking for opportunities to expand internationally. The Company has created a small headquarters office capable of achieving proposed future growth at minimal additional cost. Acquisition criteria Companies targeted by Creston will have: * good quality businesses * scope for involvement in one to one marketing relationships with their customers * at least £1m PBT in the previous year (unless they are part of a high growth sector or are part of a multiple acquisition) * good growth prospects * committed management Each Company within the Group will be chosen, not just for its quality, but also for its potential to generate additional income through co-operation and cross fertilisation with other companies in the Group. Target Market Sectors Creston's strategy is to acquire companies with niche businesses which will fit together and complement one another. The areas of greatest interest to us are: Market Research Market Research entails exploring market trends, gathering data, views and opinions from customers and transforming it into useful information so that companies can act on it for the purposes of strategic planning and product development. The market research sector has experienced consistent growth over the last ten years with an average 11% growth per annum. The total UK market research market was estimated to be worth approximately £1 billion in 2000 (source: BMRA). Creston made its first acquisition in market research with the purchase of Marketing Sciences Limited, a quantitative market research company. Direct Marketing Creston's definition of direct marketing is any form of communication that requires a direct response from the customer. This can be via: - Radio advertising Television Outdoor/transport advertising Contract Magazines New Media Cinema Advertising Direct Mail The UK market as described above is estimated to be worth £10.7 billion in 1999 and is growing at an annual rate of 17% (source: Euromonitor). Creston aims to make acquisitions in direct marketing and its related fields. CRM (Customer Relationship Marketing) CRM, or Database Marketing as this sector is also called, is the development and manipulation of customer databases to facilitate a one to one relationship with customers. The CRM market was estimated to be worth £1.0 billion in 1999 and to be growing at a rate of 25% a year (source: Euromonitor). This growth has come about as a result of: - * Companies recognising the importance of direct communication with their customers * Companies recognising that the quality of existing databases is inadequate for the tasks now demanded of them. CRM expertise is often incorporated into both Direct Marketing agencies and Telemarketing Centres. Creston's preference is to acquire specific in-depth expertise. Telemarketing Telemarketing covers both voice and the new internet voice-callback contact with customers - both inbound (typically sales enquiries and orders) and outbound (typically sales). Telemarketing is today an essential part of the marketing mix in maintaining a one to one relationship with customers. The telemarketing market was estimated to be worth £2.7 billion in 1999 and is estimated to have grown by 25% in the year (source: Euromonitor). Retailers, financial institutions and telecoms companies are all seeking to strengthen their relationship with their customer base on a direct basis. Indeed, many newer industries have no physical high street presence (such as mobile airtime providers and internet banks), and therefore rely on voice (and mail) for customer contact. In short, telemarketing has become a vital part of many companies' interaction with customers. Creston is seeking to make acquisitions in the areas of call handling, consultancy and training services in both inbound and outbound telemarketing. E-marketing In spite of the way that values of internet based companies radically overheated at the end of 1999/beginning of 2000, the internet as a channel of communication and sales is here to stay. Within the e-marketing sector Creston intends to target consultancies and not e-commerce companies with a direct consumer interface. The latter are noted for high cash burn on technology and marketing. It is not possible to provide reliable estimates of market size and growth at this early stage of market development. Advertising, Public Relations and Design These marketing service sectors are generally cash generative and capable of delivering good net margins. Creston intends to acquire companies in these markets but at the moment we are taking a cautious view because these sectors are sensitive to prevailing economic conditions. Summary Since Completion at the end of January we have reviewed each of the main sectors identified and have initiated discussions with a number of potential targets. As Creston's profile as a marketing services group has risen, approaches made to it by potential target companies have increased. These approaches may or may not lead to offers being made. I believe we have laid solid foundations for the challenging tasks that lie ahead in building Creston into a dynamic marketing services group. Don Elgie Chief Executive CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31 March 2001 Nine months ended Year ended 31 March 2001 31 March 2000 Continuing Discontinued Total operations operations Note Acquisitions £'000 £'000 £'000 £'000 £'000 Turnover 2 - 1,168 1,454 2,622 5,037 Cost of sales - (709)(1,266) (1,975) (2,282) Gross profit - 459 188 647 2,755 Administrative expenses (300) (410) (546) (1,256) (1,127) Operating profit (300) 49 (358) (609) 1,628 Share of operating profit in joint ventures 16 - Loss on disposal of investment properties - (174) Exceptional profits/(losses) arising from disposal of property portfolio 72 (4,766) Loss on ordinary activities before interest (521) (3,312) Net interest receivable/ (payable) 4 522 (1,942) Profit/(loss) on ordinary activities before taxation 1 (5,254) Tax on profit/(loss) on ordinary activities 5 (25) - Loss for the financial period (24) (5,254) Dividends 7 - (6,581) Retained loss for the financial year (24) (11,835) Loss per share 6 (0.2p) (59.2p) CONSOLIDATED BALANCE SHEET As at 31 March 2001 Group 31 March 31 March Note 2001 2000 £'000 £'000 Fixed assets Investment properties - 1,086 Other tangible fixed assets 160 12 Investments in joint ventures Share of gross assets 176 - Share of gross liabilities (105) - 71 - Intangible assets 8 9,927 - 10,158 1,098 Current assets Stocks 332 1,200 Debtors 2,528 2,385 Cash at bank and in hand 9 6,090 13,579 8,950 17,164 Creditors: amounts falling due within one year (2,676) (10,038) Net current assets 6,274 7,126 Total assets less current liabilities 16,432 8,224 Creditors: amounts falling due after more than one year 10 (6,599) - Net assets 9,833 8,224 Capital and reserves Called up share capital 1,121 952 Share premium account 4,879 3,415 Special reserve 2,385 2,385 Other reserve 1,385 1,385 Capital redemption reserve 72 72 Profit and loss account (9) 15 Total equity shareholders' funds 9,833 8,224 The accounts were approved by the Board of Directors on 19 June 2001. Tim Alderson Finance Director CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 March 2001 Nine Year ended months 31 March ended 31 Note 2001 March 2000 £'000 £'000 Net cash (outflow)/inflow from operating activities (17) 2,327 Returns on investments and servicing of finance Interest received 522 37 Interest paid - (1,804) Exceptional costs paid relating to redemption of loans - (1,085) Net cash inflow/(outflow) from returns on investments and servicing of finance 522 (2,852) Capital expenditure and financial investment Additions to investment properties - (2,042) Purchase of tangible fixed assets (14) - Sale of investment properties 1,000 34,831 Sale of tangible fixed assets - 7 Net cash inflow from capital expenditure and financial investment 986 32,796 Acquisitions and disposals Purchase of subsidiary undertakings (3,386) - Net cash acquired with subsidiaries 895 - Disposal of subsidiary undertakings 2,867 - Net cash disposed of with subsidiaries (3,126) - Net cash outflow from acquisitions and disposals (2,750) - Equity dividends paid (6,431) (268) Management of liquid resources Cash invested on short term treasury deposits - (12,950) Net cash (outflow)/inflow before financing (7,690) 19,053 Financing Issue of share capital for cash consideration - 158 Repayment of loans - (19,349) Capital element of finance lease rentals (2) - Net cash outflow from financing (2) (19,191) Decrease in cash (7,692) (138) NOTES TO THE PRELIMINARY ANNOUNCEMENT For the year ended 31 March 2001 1 BASIS OF PREPARATION The preliminary announcement has been prepared in accordance with applicable accounting standards and under the historical cost convention except that the comparative figures include the effects of the disposal of freehold and leasehold properties which had been carried at revalued amounts. The principal accounting policies of the Group are set out in the Group's 2001 annual report and financial statements. The policies have remained unchanged from those set out in the previous annual report apart from the inclusion of policies which are considered more appropriate to a marketing services group and the non-applicability of policies which were relevant when the Group was involved in the property sector. None of these changes had a financial effect on the results of the current or prior year. The Group's accounting policy on goodwill is that goodwill arising from the acquisition of subsidiary undertakings, representing the difference between the purchase consideration and fair value of net assets acquired, has been capitalised in accordance with the requirements of Financial Reporting Standard number 10 (FRS 10). The directors are of the opinion that the intangible assets of the Group have an indefinite economic life given the durability of the MSL, MSTS and Visualiser brand names, their historic ability to sustain long term profitability, and the Group's commitment to continue to build branded products with added-value. In accordance with Financial Reporting Standards 10 and 11, the carrying value of intangible assets will continue to be reviewed annually for impairment on the basis stipulated in FRS 11 and adjusted should this be required. The individual circumstances of each future acquisition will be assessed to determine the appropriate treatment of any related goodwill. The financial statements depart from the requirement of companies' legislation to amortise goodwill over a finite period in order to give a true and fair view, for the reasons outlined above. If the goodwill arising on all acquisitions made during the year had been amortised over a period of twenty years, operating profit would have decreased by £83,000. 2 TURNOVER Nine Year ended months 31 March ended 31 2001 March 2000 £'000 £'000 Marketing services (excluding share of joint venture's turnover of £41,000) 1,168 - Discontinued businesses: Rental income 157 2,420 Property trading 1,200 2,400 Other income 97 217 2,622 5,037 All of the Group's current activities are marketing services activities based primarily in the United Kingdom. Turnover from marketing services relates only to the two months since acquisition. The Group discontinued its property activities during the year. The sale of properties where sale contracts were exchanged prior to 31 March 2000, the distribution to shareholders of shares in Industrial & Commercial Holdings Plc, and the sale of the remaining property subsidiaries were all completed by 31 December 2000. 3 EMPLOYEES The average number of employees of the Group during the year was: Nine Year ended months 31 March ended 31 2001 March 2000 Number Number Directors 4 7 Marketing services 9 - Property activities 1 12 14 19 The marketing services number is for 2 months only, the number of employees at the year end was 64. 4 NET INTEREST RECEIVABLE/(PAYABLE) Nine Year ended months 31 March ended 31 2001 March 2000 £'000 £'000 Interest receivable on deposits 522 72 Interest payable on bank overdrafts and loans - (772) Interest payable on other loans - (516) Exceptional costs relating to redemption of loans - (726) 522 (1,942) 5 TAX ON (LOSS)/PROFIT ON ORDINARY ACTIVITIES Nine Year ended months 31 March ended 31 2001 March 2000 £'000 £'000 The tax charge comprises: Corporation tax at 30% (2000: 30%) 20 - Share of tax charge of joint ventures 5 - 25 - Unutilised tax losses of approximately £450,000 remain available for carry forward against future taxable trading profits subject to agreement with the Inland Revenue. 6 LOSS PER SHARE Loss per share Nine Nine Nine Year months Year months Year months ended 31 ended 31 ended 31 ended 31 ended 31 ended 31 March March March March March March 2001 2000 2001 2000 2001 2000 £'000 £'000 Number Number pence pence Loss for the financial period (24) (5,254) Weighted average number of shares 11,213,781 8,880,420 Loss per share (0.2) (59.2) 7 DIVIDENDS Nine Year ended months 31 March ended 31 2001 March 2000 £'000 £'000 Additional dividend charge relating to 1999 - 6 Special dividend paid 5 May 2000 of 36p per share - 3,456 Proposed final: nil per share (2000: 32.5p per share) - 3,119 - 6,581 The proposed final dividend was paid as 31p cash and 1.5p as a scrip dividend. 8 ACQUISITIONS On 29 January 2001, the Company acquired the whole of the issued share capital of Marketing Sciences Limited and Synergie Consulting Limited for consideration (including deferred consideration) as set out below. This purchase has been accounted for by the acquisition method of accounting. The profit after taxation of the Marketing Sciences Group and of Synergie Consulting Limited from 1 September 2000 to the date of acquisition was £96,000. Their profit after taxation for the year ended 31 August 2000 was £536,000. The consolidated assets and liabilities of the Marketing Sciences Group and Synergie Consulting Ltd at 31 January 2001 were as follows: Accounting policy Book value adjustments Fair value £'000 £'000 £'000 Fixed assets Tangible 154 - 154 Investments in joint ventures: Share of gross assets 170 - 170 Share of gross liabilities (122) - (122) 48 - 48 Current assets Stocks 511 (37) 474 Debtors 2,372 - 2,372 Bank and cash 897 - 897 Total assets 3,982 (37) 3,945 Creditors Bank loans and overdrafts (2) - (2) Trade creditors (1,048) - (1,048) Other creditors (1,146) - (1,146) Accruals (36) - (36) Total liabilities (2,232) - (2,232) Net assets 1,750 (37) 1,713 Purchased goodwill capitalised 9,927 11,640 Satisfied by: £'000 Issue of shares 1,550 Issue of loan notes 4,700 Cash 2,500 Deferred/contingent consideration 1,890 Acquisition costs 1,000 11,640 9 CASH AT BANK AND IN HAND Cash includes £4,700,000 which is maintained in a designated account as security for the loan notes issued on the acquisition of Marketing Sciences Limited and is, therefore, not freely available to the Group. 10 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR Group 31 31 March March 2001 2000 £'000 £'000 Acquisition loan notes 4,700 - Acquisition deferred consideration 1,890 - Amounts due under finance leases 9 - 6,599 - The acquisition loan notes are secured against an equivalent amount of cash held in an escrow account. 11 ANALYSIS OF NET FUNDS At At 1 April Non-cash 31 March 2000 Cash flow items 2001 £'000 £'000 £'000 £'000 Cash at bank and in hand 629 5,461 - 6,090 Overdrafts - (203) - (203) Short term treasury deposits 12,950 (12,950) - - 13,579 (7,692) - 5,887 Convertible loan stock 2000 due within one year (83) - 83 - Acquisition loan notes - - (4,700) (4,700) Net funds 13,496 (7,692) (4,617) 1,187 Short term treasury deposits of less than one month are classified as liquid resources. 12 PUBLICATION OF NON-STATUTORY ACCOUNTS The summarised balance sheet at 31 March 2001 and the summarised profit and loss account, summarised cash flow statement and associated notes for the year then ended have been extracted from the Group's 2001 statutory financial statements upon which the auditors' opinion is unqualified and does not include any statement under Section 237 of the Companies Act 1985.

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