Final Results
Creston PLC
16 June 2003
Date: 16 June 2003
On behalf of: Creston plc
Embargoed until: 0700hrs
CRESTON PLC
Preliminary Results for the year ended 31 March 2003
In its second year of trading as a fully focused marketing services group,
Creston plc announces another year of strong growth achieved across the Group.
Highlights
• Turnover up 90% to £18.6m (2002: £9.8m)
• Organic growth remains strong at 14% - 70% of turnover derived from repeat business
• Operating profits increased to £1.2m (2002: £0.3m)
• Profit before tax up 341% to £0.9m (2002: £0.2m)
• Earnings per share increased to 6.38p (2002: 1.23p)
• Proposed dividend per share doubled to 1.4p (2002: 0.7p)
• Most recent acquisition, EMO, completed in a difficult market and already earnings enhancing
during first four months as part of the Group
• Creston now has a highly skilled and well-motivated team of 210 employees
Commenting on the results, Don Elgie, Chief Executive of Creston, said:
"We are very pleased to have delivered another set of strong figures, achieved
against a background of continuing difficult trading conditions, and this
performance confirms our strategy of investing only in resilient areas of
marketing services. In just two years, Creston has established a significant
platform within the marketing services and communications sector to achieve
sustainable growth and we are confident of the future prospects of the Group.
"The new financial year has started well with performance comfortably ahead of
budget. We have fulfilled our initial buy-and-build objectives and are
confident that we will maintain our progress with good organic growth and
further high-quality acquisitions during 2003."
Enquiries
Don Elgie, Chief Executive Tel: 020 7930 9757
Tim Alderson, Finance Director
Creston plc
Emma Kane/Katharine Sharkey Tel: 020 7955 1410
Redleaf Communications Mob: 07876 338339
Further information on Creston is available on the Company's website:
www.creston.com
CHAIRMAN'S STATEMENT
In our second full year of trading as a marketing services group, Creston has
continued its strategy of organic and acquisitive growth in tightly focused
marketing services sectors. In December 2002 Creston made its third acquisition
supporting this strategy. The other Group companies continue to deliver organic
growth well above the relevant market sector average.
RESULTS
Group turnover was £18.6 million (2002: £9.8 million), an increase of 90 per
cent on the prior year, and gross profit was £6.7 million (2002: £3.4 million)
representing a gross margin of 36.0 per cent (2002: 35.0 per cent). These
results reflect not only contributions from The Real Adventure Marketing
Communications Limited ("TRA") for a full year and EMO Group Limited ("EMO") for
four months, but they also include strong organic growth by the Marketing
Sciences Group ("MSL"). Profit before taxation for the year was £0.9 million
(2002: £0.2 million), an increase of over three times. This also reflects the
increasing operating leverage of spreading the head office costs over an
increasing number of operating companies. Basic earnings per share were 6.38
pence (2002: 1.23 pence), some five times that of the previous year.
Annualised turnover for the Group is approximately £24m and annualised operating
profits of the operating subsidiaries are approximately £2.5m before central
overheads.
DIVIDEND
In line with the stated strategy of pursuing a progressive dividend policy, the
Board proposes to increase the dividend for this year to 1.4 pence per share
(2002: 0.7 pence per share). The cost to the Group of this dividend is
£157,000. The dividend will be paid on 29 August 2003, subject to shareholder
approval at the forthcoming AGM of the Company, to shareholders on the register
at the close of business on 25 July 2003.
STRATEGY
Creston's strategy is to build an international marketing services group which
reflects the way the market is moving, namely to having a one-to-one
relationship with customers. This strategy will be achieved by acquiring
companies with a record of strong organic growth and management who are
committed to further growth under the Creston "umbrella".
REVIEW OF OPERATIONS
Our most recent acquisition was EMO, a group based in Swindon and Bristol
specialising in channel marketing, which was completed in December 2002 and is
already earnings enhancing. Following this acquisition, Creston comprises three
marketing services companies: MSL - providing quantitative and qualitative
market research; TRA - providing direct marketing and customer relationship
marketing ("CRM") and EMO - providing marketing communications and channel
marketing. All of these companies have demonstrated consistent organic growth
over the year under review despite difficult trading conditions.
Creston has focused on making acquisitions in resilient sectors, hence its
robust performance has been derived not just from acquisitions but also from
strong organic growth:
• MSL's organic growth in operating profits has been 32 per cent. Its
resilience is in no small part due to a high visibility of earnings from clients
like Tesco and Unilever;
• TRA's organic growth in operating profits has been 30 per cent. Its
resilience lies both in its high repeat revenues and durable clients like Lloyds
Black Horse, Pfizer and Cow & Gate; and
• EMO's pro forma annualised growth in operating profits has been 103 per
cent for continuing businesses. Its resilience lies in a high level of
contracted revenue, especially from the BMW Group, which includes BMW (GB), MINI
and Rolls Royce.
In view of this encouraging performance Creston's long term strategy remains
unchanged, namely to become a major player in marketing services by building on
our domestic base and by expanding overseas to become an international company
in the medium term.
EMPLOYEES
It has been a further year of growth and the Group now has 210 employees,
compared to 156 last year, in six locations in the United Kingdom. I would like
to thank the directors and staff both new and old for their continued hard work,
so self evident with the excellent results achieved.
The one sad event this year has been the sudden death of Vincent Moran, a
non-executive director of Creston, on 10 August 2002. He was a strong supporter
of Creston's refocus to a marketing services group and was highly valued, not
just for his business advice, but as a friend. Our best wishes go to his widow,
Anne, and their children.
OUTLOOK
We continue to actively identify and review acquisitions that meet Creston's
criteria. Specifically, we have identified complementary opportunities within
market research and marketing communications, including direct marketing and
CRM. We will bring specific proposals to shareholders at the appropriate time.
The creation of synergies across the Group in terms of additional income and
efficiencies has begun to bear fruit. In spite of the continued challenging
economic environment, Creston has begun the new financial year with a strong
performance from all subsidiaries. The Creston model has proved to be robust
and the Board believes that the outlook for the Group remains highly positive.
I look forward to building on this year's success, both organically and through
further acquisition.
David Marshall
Chairman
13 June 2003
CHIEF EXECUTIVE'S OVERVIEW
The year to 31 March 2003 was Creston's second full year as a marketing services
group. The Group has had a very successful year and has achieved its
operational and financial objectives and the results confirm the good progress
that has been made. Both the main operating companies, MSL and TRA, produced
excellent results demonstrating significant organic growth. EMO, acquired in
December 2002, also had a very encouraging first four months as part of the
Group.
The performance of the operating companies was achieved in difficult market
conditions and the Group has considerably out-performed the marketing services
sector as a whole.
STRATEGY AND OBJECTIVES
Creston's strategy remains to build the Group both organically and through
selective acquisitions to become a substantial diversified marketing services
group. It is the Board's objective that each element of the Group will reflect
the continued trend away from mass marketing towards one-to-one marketing
between clients and customers.
The Board believes an important part of its strategy is to build a broadly based
group and to avoid over-concentration in any one sector, thereby minimising
risk. At the current stage of development, it is the Board's intention to
continue to avoid very cyclical sectors such as above-the-line advertising.
However, we will consider acquisitions of companies that have demonstrated
strong organic growth in cyclical sectors. The Group will consider potential
acquisitions particularly in marketing services sectors such as market research,
direct marketing, CRM and digital marketing.
Creston is committed to harnessing the entrepreneurial skills of the vendors and
senior management of its operating subsidiaries. Creston encourages them to
deliver continued organic growth through exploitation of their existing niche
market positions and through leveraging cross-selling opportunities that exist
within the Group. Creston is achieving this objective by providing appropriate
levels of incentivisation through earn-out targets, payment of acquisition
consideration through both ordinary shares and cash, and competitive
remuneration packages.
CRESTON OPERATING BOARD
Creston has created an Operating Board, which reports to the Board on a monthly
basis, to review overall strategy, performance, and acquisition opportunities
and to create synergy opportunities between the subsidiaries. This is the key
forum for the operational management of the Group and the Board believes that it
is a vital element in harnessing the entrepreneurial talent of the subsidiary
managements' expertise and experience.
TRADING IN THE YEAR TO 31 MARCH 2003
As reported in the Chairman's Statement, turnover for the Group increased by 90
per cent compared to last year. Operating profit increased by 307 per cent in
the year to 31 March 2003. Each of the main operating subsidiaries has
generated a net contribution and all are budgeted to do so in the forthcoming
year.
MARKETING SCIENCES
Turnover for MSL was £6.6 million (2002: £6.0 million), a 10 per cent increase
on the prior year, a particularly strong performance when compared to the
British Market Research Association's ("BMRA") reported growth of 2.6 per cent
for 2002. Operating profit increased by 32 per cent to £0.83 million (2002:
£0.60 million).
MSL's performance was underpinned by the fact that over two-thirds of its
turnover has been generated by repeat business from existing clients. MSL
provides a wide range of quantitative and qualitative research services to
clients such as Tesco, Unilever and Kimberly-Clark.
Since the appointment of a new business development director, MSTS is currently
generating record levels of new business enquiries. The Board anticipates that
MSTS will deliver further profitable growth in the year to 31March 2004.
The Board has also taken the decision to close the US joint venture, Visualiser
Llc, because trading conditions in the USA have remained extremely difficult.
This will affect the trading performance of MSL positively in 2004. The
Visualizer intellectual property rights remain with MSL.
THE REAL ADVENTURE
Turnover for TRA was £8.6 million with operating profit of £0.98 million.
Although no directly comparable figures are available because the agency was
acquired in November 2001 and its year end moved to 31 March 2003, pro forma
year-on-year turnover growth was 22 per cent and operating profit growth was 30
per cent.
Repeat income from TRA's client base represented 85 per cent of turnover,
primarily a result of TRA's close working relationships with its clients and
implementation of proven strategies in direct and customer relationship
marketing. During the year, the company recruited a further 10 employees.
Significant new work has been won from Pfizer Consumer Healthcare, a new CRM
campaign has been launched for Cow & Gate, and the level and breadth of
contracted work for Lloyds TSB Black Horse Finance has seen a significant
increase with two new areas of that business having been competitively pitched
for and won during the year.
EMO
Creston acquired EMO on 2 December 2002 and the results therefore reflect only
four months' trading. Turnover for that period was £1.9 million and operating
profit was £0.23 million. Proforma year-on-year operating profit growth
excluding discontinued businesses was 103 per cent.
EMO manages all the UK dealer and sales channel marketing programmes for BMW
(GB). This work includes both the MINI brands and the newly launched Rolls Royce
and covers all areas of automotive marketing including new and used cars,
servicing, parts and financing. The EMO Group has also undertaken significant
work for Andreas Stihl in helping to increase brand awareness and sales in the
UK over the last five years, in which time its sales have almost doubled. Sky
Rock Communications Limited ("Sky Rock"), another member of the EMO Group,
provides creative and technical support to electronic communications programmes
on behalf of EMO's clients. Other notable clients of EMO include Intel
Corporation (UK) and George Wimpey.
EMO has shown consistent earnings growth over the last three years and the Board
has been encouraged by their trading performance since acquisition.
OUTLOOK
I am pleased to report that the new financial year has started well with
performance comfortably ahead of budget.
With the acquisition of EMO, the synergy opportunities within the Group have
increased. In particular, opportunities exist to facilitate client referrals
and create joint products as well as to leverage the Group's specialist
marketing skills within each business to generate cross-selling opportunities.
Referral opportunities are already being seen across the Group including clients
such as Cow & Gate, PHH Arval, Scottish Courage and Coca-Cola.
It is the Board's intention to continue its acquisitions strategy throughout the
current financial year. However, we believe that organic performance, including
a full year of EMO, will produce strong growth.
The Board believes that in just two years Creston has established a significant
platform within the marketing services and communications sector to achieve
sustainable future growth and is confident of the future prospects of the Group.
Don Elgie
Chief Executive
13 June 2003
CRESTON PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH 2003
Note
Continuing Acquisitions 2003 2002
Operations
£'000 £'000 £'000 £'000
Turnover 2 16,647 1,989 18,636 9,810
Cost of sales (10,599) (1,323) (11,922) (6,376)
Gross profit 6,048 666 6,714 3,434
Administrative expenses (5,080) (433) (5,513) (3,139)
Operating profit 968 233 1,201 295
Share of operating loss in joint venture (78) (64)
Profit on ordinary activities before 1,123 231
interest
Net interest payable (211) (24)
Profit on ordinary activities before 912 207
taxation
Tax on profit on ordinary activities 3 (197) (69)
Profit for the financial year 715 138
Dividends 4 (157) (79)
Retained profit for the financial year 558 59
Earnings per share 5 6.38p 1.23p
Diluted earnings per share 5 6.38p 1.23p
CRESTON PLC
CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH 2003
Note 2003 2002
£'000 £'000
Fixed assets
Intangible assets 6 19,001 16,306
Tangible fixed assets 670 265
Investment in joint venture
Share of gross assets 57 43
Share of gross liabilities (57) (75)
0 (32)
19,671 16,539
Current assets
Stocks 474 351
Debtors 5,299 3,771
Cash at bank and in hand 2,424 6,004
8,197 10,126
Creditors: amounts falling due within one (5,929) (8,437)
year
Net current assets 2,268 1,689
Total assets less current liabilities 21,939 18,228
Creditors: amounts falling due after more 8 (11,403) (8,250)
than one year
Net assets 10,536 9,978
Capital and reserves
Called up share capital 1,122 1,122
Share premium account 4,880 4,880
Special reserve 2,385 2,385
Other reserve 1,385 1,385
Capital redemption reserve 72 72
Profit and loss account 692 134
Total equity shareholders' funds 10,536 9,978
CRESTON PLC
CONSOLIDATED CASHFLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH 2003
Note 2003 2002
£'000 £'000
Net cash inflow/ (outflow) from operating
Activities 9 1,516 (241)
Dividends received from joint venture - 39
Returns on investments and servicing of finance
Bank interest received 147 60
Bank interest paid (367) (75)
Finance lease interest paid (5) -
Net cash outflow from returns on investments
and servicing of finance (225) (15)
Taxation (212) (337)
Capital expenditure and financial investment
Purchase of tangible fixed assets (227) (120)
Sale of tangible fixed assets 26 2
Decrease in restricted cash deposits 4,089 500
Net cash inflow from capital expenditure and 3,888 382
financial investment
Acquisitions and disposals
Purchase of subsidiary undertakings (2,980) (1,767)
Net cash acquired with subsidiaries 1,004 939
Net cash outflow from acquisitions and
disposals (1,976) (828)
Equity dividends paid (79) -
Net cash inflow/ (outflow) before financing 2,912 (1,000)
Financing
Issue of share capital for cash consideration - 1
Receipt of bank loan 3,060 1,519
Repayment of bank loan (464) -
Repayment of loan notes (4,889) -
New finance leases acquired 27 -
Capital element of finance lease payments (48) (18)
Net cash (outflow)/ inflow from financing (2,314) 1,502
Increase in cash 10 598 502
1. ACCOUNTING POLICIES
Basis of preparation
The accounts have been prepared under the historical cost convention and in
accordance with United Kingdom applicable accounting standards up to and
including Financial Reporting Standard (FRS) 19. The principal accounting
policies of the Group are as set out in the Group's 2003 annual report and
financial statements, and have remained unchanged from the previous year.
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 FRS 10.
The directors are of the opinion that the intangible assets of the Group have an
indefinite economic life given the durability of MSL, MSTS, The Real Adventure
and EMO 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 FRS 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 had
been amortised over a period of twenty years, operating profit would have
decreased by £784,000 (2002: £612,000).
2. TURNOVER
2003 2002
£'000 £'000
Marketing services
(excluding share of joint venture's turnover of £104,000; 2002 - 171,000) 18,636 9,810
All of the Group's current activities are marketing services activities based
primarily in the United Kingdom. Turnover for EMO Group relates only to the
four months since acquisition.
3. TAX ON PROFIT ON ORDINARY ACTIVITIES
2003 2002
£'000 £'000
The tax charge comprises:
Current tax:
Corporation tax at 30% (2002: 30%) 236 85
Overprovision of corporation tax in prior year (37) (25)
Deferred tax: 199 60
Origination and reversal of timing differences (2) 9
Tax charge 197 69
4. DIVIDENDS
2003 2002
£'000 £'000
Proposed final dividend: 1.4p per share (2002: 0.7p per share) 157 79
5. EARNINGS PER SHARE
2003 2002
Profit for the financial year (£'000) 715 138
Weighted average number of shares (number) 11,215,364 11,214,177
Earnings per share (pence) 6.38 1.23
No dilutive effects arose in relation to the options, warrants or convertible
loan notes in issue during either year.
6. INTANGIBLE ASSETS
Goodwill on
consolidation
Group £'000
Cost
At 1 April 2002 16,306
Additions (see below) 4,983
Adjustment to consideration (2,288)
At 31 March 2003 19,001
The adjustment to consideration relates to reductions to the estimated deferred
consideration payable to the vendors of MSL and TRA under the terms of the Sale
and Purchase agreements.
7. ACQUISITIONS
On 2 December 2002, the Company acquired the whole of the issued share capital
of EMO Group 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 EMO Group Limited from 1 January 2002
to the date of acquisition was £315,000. Its profit after taxation for the year
ended 31 December 2001 was £193,000.
The assets and liabilities of EMO Group Limited at 2 December 2002 were as
follows:
Accounting
policy
Book value adjustments Fair value
£'000 £'000 £'000
Fixed assets
Tangible fixed assets 442 - 442
Current assets
Stocks and work in progress 213 13 226
Debtors 1,144 (6) 1,138
Prepayments 77 10 87
Bank and cash 1,004 1,004
Total assets 2,880 17 2,897
Creditors
Trade creditors (520) - (520)
Other creditors (37) 5 (32)
Accruals (604) 6 (598)
Social security and other taxes (219) - (219)
Finance leases (175) - (175)
Corporation tax (151) (40) (191)
Total liabilities (1,706) (29) (1,735)
Net assets 1,174 (12) 1,162
Purchased goodwill capitalised 4,983
6,145
Satisfied by: £'000
Issue of convertible loan notes 1,165
Cash 1,860
Consideration paid 700
Deferred/contingent consideration 2,000
Acquisition costs 420
6,145
The deferred/contingent consideration is dependent upon the level of profit
before taxation achieved by EMO Group Limited in the period from 1 April 2002 to
31 March 2006.
8. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
31 March 2003 31 March 2002
£'000 £'000
Acquisition convertible loan notes 2,915 1,750
Acquisition loan notes 584 555
Bank loans 3,199 1,055
Acquisition deferred consideration 4,613 4,890
Deferred taxation 6 -
Amounts due under finance leases 86 -
11,403 8,250
9. RECONCILIATION OF OPERATING PROFIT/(LOSS) TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES
2003 2002
£'000 £'000
Operating profit 1,201 295
Depreciation 219 111
Loss/ (profit) on disposal of plant, vehicles and equipment 19 (2)
(Increase)/decrease in stock (130) 36
(Increase)/decrease in debtors (303) 108
Increase/(decrease) in creditors 510 (789)
Net cash inflow/ (outflow) from operating activities 1,516 (241)
10. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2003 2002
£'000 £'000
Increase in cash in the year 598 502
Cash outflow from reduction in debt 336 18
Cash inflow from increase in debt (3,060) (1,519)
Movement in net debt in the year resulting from cash flows (2,126) (999)
New finance leases (27) -
Reduction of loan stock 4,889 500
Issue of acquisition loan notes (1,165) (3,050)
Net debt at start of year (7,089) (3,540)
Net debt at end of year (5,518) (7,089)
11. ANALYSIS OF NET DEBT
At Cash flow Acquisitions Non-cash items At
31 March 31 March
2002 2003
£'000 £'000 £'000 £'000 £'000
Cash at bank and in hand 1,804 509 - - 2,313
Overdrafts (115) 88 - - (27)
1,689 597 - - 2,286
Acquisition convertible (1,750) - - (1,165) (2,915)
loan notes
Acquisition loan notes (5,500) 4,889 - - (611)
Bank loan (1,519) (2,596) - - (4,115)
Finance leases (9) 48 (175) (27) (163)
Net debt (7,089) 2,938 (175) (1,192) (5,518)
Restricted cash deposits 4,200 (4,089) - - 111
Net debt including (2,889) (1,151) (175) (1,192) (5,407)
restricted cash deposits
12. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information relating to the years ended 31 March 2002 and 2003
does not constitute statutory accounts within the meaning of section 240 of the
Companies Act 1985 ("the Act").
The summarised balance sheet at 31 March 2003 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 2003 statutory financial statements
upon which the auditors' opinion is unqualified and does not include any
statement under Section 237 of the Act.
The summarised balance sheet at 31 March 2002 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 2002 statutory financial statements
which have been delivered to the Registrar of Companies, and in respect of which
the auditors gave an unqualified opinion which did not contain a statement under
section 237 of the Act.
The auditors have agreed this preliminary statement of final results.
13. ANNUAL REPORT & ACCOUNTS
Creston plc's Annual Report & Accounts will be mailed to shareholders on 27 June
2003. Copies will be made available from the Company's Head Office, 56
Haymarket, London, SW1Y 4RN.
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