Final Results

Creston PLC 12 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, today announces its preliminary financial results for the year ended 31 March 2007. Highlights â€¢ Excellent growth in revenue, profit and diluted EPS, with acquisitions underpinned by good like-for-like growth â€¢ Reported and Headline Diluted EPS up 22% (9.33 pence) and 24% (17.35 pence) respectively â€¢ Like-for-like revenue growth of 5% â€¢ Like-for-like Headline PBIT growth of 7% (growth in BRANDCOM, Insight and PR of 33%, 33% and 11% respectively) â€¢ 15% of Creston revenue from digital, up from 10% in 2006 â€¢ Acquisition of UK market research group, ICM Research Ltd (ICM), for a maximum consideration of Â£36.4 million â€¢ Acquisition of direct and digital marketing company, Tullo Marshall Warren Ltd and sister company Colombus Communications Ltd (TMW), for a maximum consideration of Â£38.1 million â€¢ Acquisition of healthcare advertising and communications company, PAN Advertising Ltd (PAN), for a maximum consideration of Â£18.5 million â€¢ Launch of Creston US with the appointment of Steve Blamer as CEO Financial Results Headline results** Reported results 2007 2006 Change 2007 2006 Change Â£m Â£m Â£m Â£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 acquisitions underpinned by a good like-for-like performance. Successive years of double digit growth in revenue, profit and diluted earnings per share demonstrate our ability to outperform the UK marketing services sector. This performance is the result of our highly selective acquisition criteria with a focused strategy and illustrates Creston's ability to attract leading brands from across the core marketing services disciplines. With continued strong growth in the UK and the launch of Creston US we are enthusiastic about the Group's prospects and look forward to another excellent year in 2008." A meeting for analysts will be held today at 9.30 am at the offices of Panmure Gordon. Please contact Julie Cordice at Hogarth on telephone: 020 7357 9477 for details. For further information, please contact: Creston plc 020 7930 9757 Don Elgie, Chief Executive Barrie Brien, COO & CFO www.creston.com Hogarth Partnership Limited 020 7357 9477 Chris Matthews Sarah Macleod Chairman and Chief Executive Statement 2007 Group Highlights Creston enjoyed a sixth consecutive year of growth and success, with revenue and Headline PBIT growing by 60 per cent and 75 per cent respectively (reported PBIT increased by 75 per cent). We are delighted to report that Headline and reported diluted earnings per share (DEPS) increased by 24 per cent and 22 per cent respectively, and that close management of the business resulted in an industry leading 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 ICM Research Ltd (ICM), Tullo Marshall Warren Ltd, together with its sister company Colombus Communications Ltd (TMW) and PAN Advertising Ltd (PAN), to give us greater strength in the key area of healthcare. Acquisitive growth was underpinned by good like-for-like revenue and profit growth. This year saw us launch digital start-up ventures, newvista research and SWAY. We also entered into a trading partnership with Latitude, a leading search optimisation company. Finally, as the US market is an important one we wish to exploit, we were delighted to appoint Steve Blamer as CEO of Creston US. The changing market We believe that the shape of the marketing communication landscape is changing rapidly and clients will reward groups which are structured to meet their future needs. Creston's success in winning market share is due to its ability to offer clients services across the range of marketing disciplines, providing them with superior insight into the speed of consumer behavioural change, coupled with integrated media-neutral planning and a deep understanding of the evolving digital landscape. We can also offer relevant and compelling multi-channel (ie on and off line) creative capabilities and advanced measurable performance metrics, which provide a diversified client proposition. Acquisitions Our view of the changing market is a critical influence on our acquisition strategy. We focus on potential targets, which will enhance our portfolio of industry specialisations and which allow us, as a Group, to respond to the changing needs of our clients. During the year Creston made three acquisitions each of which fulfilled our highly selective acquisition criteria. ICM was acquired on 17 May 2006 for a maximum consideration of Â£36.4 million. ICM is one of the UK's largest market research groups and has a market leading reputation for innovative, premium quality qualitative and quantitative research. On the back of this acquisition Creston's Insight division has grown in critical mass, which it has utilised to develop a number of strategic innovations, the most significant of which includes the launch of newvista research, an online market initiative. ICM's clients include BT, NOP, Norwich Union, O2, Orange and Vodafone. TMW was acquired on 17 May 2006 for a maximum consideration of Â£38.1 million. TMW is one of the UK's largest direct and digital marketing companies. The acquisition adds considerable strength to the Creston MARCOMS division, particularly in the areas of insight, data mining/analysis and digital. Its separately branded digital offering, digitaltmw, has grown in size and is able to boast a workforce of over 50 employees developing a strong reputation in its own right. TMW's clients include British Airways, Diageo, eBay, FT, Nissan Europe, Sainsburys, Unilever and T-Mobile. PAN was acquired on 3 December 2006 for a maximum consideration of Â£18.5 million. PAN is one of the UK's leading healthcare advertising and communication companies. Although UK based, PAN is very much an international brand with over 50% of its revenue generated internationally. PAN, alongside RDC, forms Creston 's market leading integrated international healthcare proposition. PAN's clients include BMS Medical Imaging, Boehringer Ingelheim, GSK, Ipsen, Schering and Servier. Online and Digital The UK digital and online market is enjoying the highest rate of growth (41 per cent Source: IAB/PWC) of any discipline in the marketing communications industry and the key challenge is the proper integration of digital communications into the marketing mix. Consumer brand consideration is not formed through isolated channels and so clients are increasingly demanding relevant, compelling multi-channel creative campaigns. Creston has responded to this challenge through numerous initiatives. It has re-structured the DLKW Group by integrating dlkw dialogue into the core of the creative agency. In November 2006, it launched newvista research in the Insight Division, a revolutionary approach to generating robust online data, newvista research allows Creston to offer clients a fully integrated traditional and online research capability and, in six months since its launch, it has enjoyed rapid success with annualised sales of Â£2 million via wins such as RBS, Tesco and Vodafone. In December 2006, Creston launched SWAY, an online brand management and e-influencer initiative enabling clients to manage, re-act to and/or promote brand messages online. This product was a joint initiative between MARCOMS and PR divisions. In March 2007 Creston announced a trading partnership with Latitude Group Ltd, the world class search optimisation company. The partnership allows each of our operating companies to provide a comprehensive search engine marketing offering to their clients. With the acquisition of TMW during the year and the launch of newvista research and SWAY, Creston's digital offering has generated revenue in excess of Â£10 million during the year and has a headcount in excess of 100 employees. This accounts for approximately 15 per cent of Group revenue, increasing in absolute terms by 141 per cent compared to 2006. Although the Group's digital business is imbedded within its core operations it is now of sufficient size to compete against any stand alone digital business. This demonstrates Creston's ability to react to the evolving digital channels in the marketing communications industry and we believe that it has a strong platform from which to continue its growth in this area in 2008. International Although Creston's operations are mainly UK based (with the exception of TMW France and Creston US), we are able to service a significant number of clients internationally 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 to develop an international presence with centres around Europe, the US, Asia and Latin America. We are taking a cautious approach to date because of our determination not to compromise any of our rigorous acquisition criteria. 2007 saw Creston take its first steps towards international expansion via a presence overseas. In January 2007 TMW France was launched to service its Nissan Europe account. In March 2007 Steve Blamer was appointed CEO of the newly created Creston plc US Holdings Inc in New York, USA. Steve has an excellent reputation within the US marketing communications industry having held the position of CEO both at Foote Cone and Belding Worldwide and at Grey Worldwide. His appointment adds weight to Creston's offering in the US and will facilitate the development of a Creston US Group 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 to continuing to grow with existing clients, our excellent new business record particularly in the latter half of the year included annualised revenue in excess of Â£10 million from Alfa Romeo, eBay, GSK, Lexus, Morrisons, Nissan Europe, 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 an increasingly diverse range of industries. The Group is proud of its growing portfolio of blue chip and international clients and with this growth our client concentration has improved. Our largest client represents 8 per cent of total Group revenue (2006: 12 per cent), while our Top 10 clients represent 37 per cent (2006: 52 per cent). Synergy is one of the core principles upon which the concept of Creston is based. 2007 saw the strongest performance in terms of synergistic client referrals within the Group, with annualised revenue of Â£1 million including clients such as Alfa Romeo, Canon, Hyundai-Kia, Nutricia, Servier and the World Heart Foundation. Of the Group's Top 30 clients, over 50 per cent are served by two or more of the Group's divisions. Board We are delighted to welcome to the Board Andrew Dougal as a Non-Executive Director and Chairman of the Audit Committee and Malcolm Wall as a Non-Executive Director and Chairman of the Remuneration Committee. The Board would like to thank all staff and colleagues for their contributions and efforts for last year's excellent performance. The Board would particularly like to thank David Hanger and Peter Cunard who joined the Board at the inception of Creston as a marketing services group and are stepping down at the AGM following six years of valuable and committed service to the Group. Outlook Creston has demonstrated the effectiveness of its business model for six consecutive years. As our profile continues to rise, an increasing number of high quality companies and individuals are approaching us. We have good forward visibility of earnings and believe we will continue to outperform our larger competitors. We are excited by the Group's prospects and have full confidence in being able to achieve another excellent year in 2008. David Marshall Don Elgie Chairman Chief Executive Officer Financial Review Financial Highlights In 2007 Creston achieved another set of outstanding results. Revenue has increased by 60 per cent to Â£69.7 million (2006: Â£43.5 million); Headline PBIT has increased by 75 per cent to Â£14.0 million (2006: Â£8.0 million); and Headline Profit before taxation (PBT) increased by 72 per cent to Â£13.3 million (2006: Â£7.7 million). Reported PBIT has increased by 75 per cent to Â£10.9 million (2006: Â£6.3 million) and reported PBT has increased by 75 per cent to Â£8.3 million (2006: Â£4.7 million). This strong growth has been driven by the acquisitions of ICM, TMW and PAN and the underlying growth achieved by the existing businesses. In 2007 at the operating level, the Group achieved like-for-like revenue growth of 5 per cent (2006: 14 per cent) and Headline PBIT growth of 7 per cent (2006: 18 per cent). These growth rates continue to exceed the industry averages despite the investments (for example newvista research and SWAY) which have been made in the core Group companies during the year. The loss of 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 this client, showed underlying like-for-like revenue and Headline PBIT growth of 8 per cent and 11 per cent respectively. The key tenet of Creston's strategy is to build a diversified marketing services group, while minimising risk and maximising the opportunities for synergy. After the acquisitions of ICM, TMW and PAN the divisional composition of revenue by division 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 of various key performance indicators (KPIs). The Board is pleased to report consistently strong KPIs in each of the Divisions . Revenue per head was Â£90,600 (2006 re-stated: Â£92,600); Headline PBIT per head increased by 7 per cent to Â£18,200 (2006 re-stated: Â£17,100); Headline PBIT margin has improved by 9 per cent to 20.1 per cent (2006: 18.4 per cent); and Headline diluted earnings per share (DEPS) grew by 24 per cent to 17.35 pence (2006: 14.04 pence). Reported DEPS grew by 22 per cent to 9.33 pence (2006: 7.67 pence). We believe these KPIs are significantly ahead of industry averages and demonstrate that Creston continues to improve its efficiency and productivity across the Group and, more importantly, that its strategy of acquiring companies that offer clients higher added-value services is translating into impressive financial returns. Average staff numbers have increased from 470 to 769 on a full time basis and the year ended with a headcount of over 800 employees. Divisional Performance BRANDCOM Division The BRANDCOM Division generated outstanding growth with revenue increasing by 12 per cent to Â£17.0 million (2006: Â£15.1 million) and Headline PBIT increasing by 53 per cent to Â£3.9 million (2006: Â£2.6 million) and reported PBIT increasing to Â£3.2 million from Â£1.4 million. This growth was driven by the acquisition of PAN in December 2006 and the like-for-like revenue and Headline PBIT growth of 3 per cent and 33 per cent respectively. Revenue per head increased to Â£119,000 (2006: Â£110,400); Headline PBIT per head increased to Â£27,500 (2006: Â£18,700); and the Headline PBIT margin increased to 23 per cent (2006: 18 per cent). These KPIs compare favourably with the UK advertising industry averages of Â£98,325; Â£9,819; and 10%, respectively (Source: WKS 2007). Insight Division The Insight Division generated excellent growth with revenue increasing by 145 per cent to Â£15.4 million (2006: Â£6.3 million) and Headline PBIT increasing by 168 per cent to Â£5.0 million (2006: Â£1.9 million) and reported PBIT increasing to Â£4.3 million from Â£1.9 million. This growth was driven by the acquisition of ICM in May 2006 and like-for-like revenue and Headline PBIT growth of 14 per cent and 33 per cent respectively. This compares to growth in sales for the industry as a whole of 3.6 per cent (Source: MRS 2007). Revenue per head increased to Â£104,700 (2006: Â£92,200); Headline PBIT per head increased to Â£34,300 (2006: Â£27,700); and the Headline PBIT margin increased to 33 per cent (2006: 30 per cent). We believe these KPIs are competitive within the industry and have been boosted by the launch of newvista research during the year. Following the ICM acquisition, an Insight Division Board was set up to share best practice, identify industry opportunities and synergies. The Division is also starting to maximise savings due to economies of scale and eliminating duplication in the areas of data collection and processing. MARCOMS Division The MARCOMS Division continued its trend of fast growth with revenue increasing by 89 per cent to Â£28.5 million (2006: 15.0 million) and Headline PBIT increasing by 35 per cent to Â£5.4 million (2006: Â£4.0 million) and reported PBIT increasing to Â£4.4 million from Â£3.7 million. This growth was driven by the acquisition of TMW in May 2006. The like-for-like revenue growth rate of 1 per cent (2006: 18 per cent) was suppressed by the loss of the BMW dealer business by EMO at the very end of the last financial year. This masked the underlying like-for-like revenue growth of 7 per cent. The plc Board has been impressed by EMO's resilience in moving on to win Alfa Romeo, George Wimpey and Lexus - a powerful recovery. Similar to the Insight Division, the MARCOMS Division is large enough to warrant its own board. The MARCOMS Board comprises of the Managing Directors of all the constituent companies and has the agenda of sharing best practice and driving cost and revenue synergies, while exploiting industry opportunities. Revenue per head decreased to Â£74,500 (2006: Â£83,100); whilst Headline PBIT per head of Â£14,300 and Headline PBIT margin of 19 per cent remained above the industry average of Â£8,139 and 10 per cent, respectively (Source: WKS 2007). PR Division The PR Division delivered an excellent performance with revenue increasing by 25 per cent to Â£8.8 million (2006: Â£7.1 million) and Headline PBIT increasing by 19 per cent to Â£2.7 million (2006: Â£2.2 million) and reported PBIT increasing to Â£2.1 million from Â£2.0 million. This growth was driven by the consolidation of a full year's performance from RDC and like-for-like revenue and PBIT growth of 14 per cent and 11 per cent respectively. Revenue per head increased to Â£100,200 (2006: Â£92,900); Headline PBIT per head increased to Â£30,100 (2006: Â£29,300); and the PBIT margin remained above the industry average at 30 per cent (2006: 31 per cent). These KPIs compare favourably with the UK PR industry average of Â£92,000, Â£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: 14.04 pence). This is the sixth successive year of significant growth in these key financial ratios and reflects the Group's success in completing earnings enhancing acquisitions and delivering superior value and return for shareholders. At the reported level, basic EPS increased by 17 per cent to 9.43 pence (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 all potential acquisitions. Established growth companies Creston buys well established high quality and highly respected businesses with proven growth histories and credible resilient plans for the future. We look for companies that have national and international clients without over-dependent client 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 the entrepreneurial skills of vendors and channel them into growing the Group. Acquisition consideration Creston equity forms a meaningful part of purchase consideration and long term restrictions on disposal help bind the ambitions of vendors and Creston together. Minimum size thresholds Creston looks for companies with a minimum PBIT of Â£1m in the UK, $3m in the US and â‚¬2m in Europe. Such companies tend to have strong management teams with an experienced second tier, good client depth and proven internal operational structures. This criteria also allows Creston management to be highly focused and 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 as part of an earn-out, to be paid to the non-shareholders of the company. Creston believes this is an important driver in motivating them to grow the company and outperform the market. This part of the consideration paid for a company is treated 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 stated strategy and criteria, whilst always maintaining prudent levels of gearing and interest cover. It is our policy that all acquisitions are made on a financially prudent basis and are earnings-enhancing. Cash flow Operating cash flow is a key focus for management as this source of funds is used to finance existing and future acquisition consideration payments. During the year the Group generated operating cash flow of Â£8.7 million (2006: Â£8.0 million). The cash conversion of Headline PBIT to operating cash flow was 62 per cent (2006: 99 per cent). This performance is behind the prior year as a result of the phasing of 2007 billings, which were skewed to the fourth quarter as a consequence of an increase in new business during that period; change in timing of TV production payments by DLKW; and some clients setting 90 day payment terms. In addition, ICM, PAN and TMW had Â£4.0 million surplus cash on their balance sheets on acquisition, the majority of which was to settle post-acquisition creditor movements. These creditors were settled post-acquisition which further suppressed the cash conversion ratio, and masked an underlying cash conversion rate of 91 per cent. The Creston management team is focused on returning to its internal target of over 90 per cent cash conversion. The Group's operating cash flow, cash received on acquisition from ICM (Â£4.4 million), TMW (Â£5.3 million), and PAN (Â£1.0 million), additional bank financing (Â£15.5 million) and shares issued for cash as part of the fundraising in May 2006 (Â£14.6 million) were used to finance the cash element of consideration due to: EMO in respect of the final consideration (Â£1.0 million); DLKW in respect of the interim consideration (Â£4.1 million); ICM in respect of the initial consideration (Â£14.5 million); TMW in respect of the initial consideration (Â£14.6 million); and PAN in respect of the initial consideration (Â£8.5 million). Together with transaction costs, interest, capital expenditure, taxation and external dividends, the Group's cash balance has reduced to Â£1.7 million (2006: Â£5.3 million). Banking On 19 April 2006, the Group agreed a new Â£40.0 million banking facility. This facility allows for term debt of Â£30.0 million of which Â£10.0 million remains undrawn and borrowings for working capital of Â£10.0 million of which Â£7.0 million remains undrawn as at 31 March 2007. Balance sheet, net debt and gearing Total equity rose by Â£34.3 million in the year to Â£81.7 million. After dividends earnings contributed Â£3.6 million to its growth and Â£29.2 million of new share capital was issued in connection with the fundraising in May 2006, the acquisition of ICM and TMW in May 2006 and the acquisition of PAN in December 2006. Under the deferred consideration arrangements Creston has the right to settle certain deferred consideration liabilities in equity rather than loan notes and the amount of the deferred consideration is amended each year to the expected amount payable. It has been agreed that the interim consideration due to RDC and the final consideration due to NBC, both payable on the finalisation of the 31 March 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 and DLKW's consideration with cash or loan notes rather than equity. The Board proposes to continue this policy of settling a larger proportion of deferred consideration in loan notes rather than equity in order to maximise shareholder value when financial conditions are appropriate. As a result of the increase in equity and cash outflow, Creston's gearing (net debt over equity) was 27 per cent (2006: 5 per cent) and the net debt of the Group at 31 March 2007 was Â£21.7 million (2006: Â£2.5 million). After including net deferred consideration to be settled by a mixture of loan notes and shares of Â£34.2 million (2006: Â£20.4 million) the Group's total debt has increased to Â£56.0 million (2006: Â£22.9 million). Based on total debt, the Group's gearing has increased to 69 per cent (2006: 48 per cent). Creston will continue to maintain its policy of managing its net debt and gearing to prudent levels, whilst maximising returns for shareholders, in order to preserve its financial stability and maintain high levels of headroom in its banking covenants. Net finance costs Headline net finance costs were Â£1.0 million (2006: Â£0.4 million) reflecting the increased term loan drawn to fund the acquisitions in the year and the increase in underlying rates of interest. Headline net finance costs were covered 14 times (2006: 19 times) by Headline PBIT. The reported net finance cost was Â£2.9 million (2006: Â£1.7 million), which includes notional finance cost of Â£1.9 million (2006: Â£1.2 million). Effective tax rate The Group's effective Headline tax rate remained at 31 per cent (2006: 31 per cent). The reported effective tax rate was 40 per cent (2006: 38 per cent), due to the reduction in underlying profits from items not subject to tax relief such as notional finance costs. Dividends The Board is proposing a final dividend of 1.76 pence per share, giving a total dividend for 2007 of 2.64 pence per share (2006: 2.40 pence). This represents an increase in dividend per share of 10 per cent. Capital expenditure Total capital expenditure in 2007 was Â£1.7 million (2006: Â£2.3 million) with the main categories of investment being leasehold improvements, computer systems and software. In addition, costs of Â£0.4 million were incurred to implement the group-wide accounting system, Maconomy. The purpose of having a single accounting system is to maintain strong internal controls as the Group grows, to facilitate audits and 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 of the two most recent acquisitions, which will be imminently completed. Basis of Headline results Creston has presented Headline results as the key profit performance indicators because they eliminate the non-cash and non-recurring charges associated with the acquisitions and, therefore, provide a truer picture of the underlying operating performance for the Group. The Headline results exclude the following adjustments (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 the existing core companies, the Group has a strong portfolio of diversified operating companies performing very well to their KPI targets. New business momentum in the second half of 2007 is very encouraging and from this platform the Group is well placed to continue into the next phase of its strategic development. Barrie Brien Chief Operating and Financial Officer Unaudited 2007 2006 Note Â£'000 Â£'000 ------------------------------------------------------------------------------------- Turnover (billings) 3 117,621 81,472 ===================================================================================== Revenue 3 69,665 43,503 Operating costs (58,725) (37,234) ------------------------------------------------------------------------------------- Profit before finance income, finance costs, income from financial assets and taxation 3/4 10,940 6,269 Finance income 199 182 Finance costs (3,095) (1,836) Income from financial assets 241 109 ------------------------------------------------------------------------------------- Profit before taxation 8,285 4,724 Taxation (3,354) (1,797) ------------------------------------------------------------------------------------- Profit for the financial year 4,931 2,927 ===================================================================================== Basic earnings per share (pence) 5 9.43 8.04 Diluted earnings per share (pence) 5 9.33 7.67 ===================================================================================== Consolidated Balance Sheet Unaudited as at As at 31 March 31 March 2007 2006 Note Â£'000 Â£'000 ------------------------------------------------------------------------------------- Non-current assets Intangible assets Goodwill 7 125,061 66,535 Other 1,290 350 Property, plant and equipment 4,267 3,006 Trade and other receivables 1,325 1,162 Financial assets - available for sale 550 550 Deferred tax asset 1,799 906 ------------------------------------------------------------------------------------- 134,292 72,509 ------------------------------------------------------------------------------------- Current assets Inventories and work in progress 5,080 2,907 Trade and other receivables 29,454 19,961 Cash and short term deposits 1,655 5,317 ------------------------------------------------------------------------------------- 36,189 28,185 Current 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 3,759 Share premium account 33,345 19,734 Own shares (104) (46) Shares to be issued 3,568 1,836 Other reserves 31,357 17,682 Retained 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 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Changes in equity for 2007 ------------------------------------------------------------------------------------ At 1 April 2006 3,759 19,734 (46) 4,429 17,682 1,836 47,394 Profit for the year - - - 4,931 - - 4,931 Shares issued 1,817 13,611 96 - 13,669 - 29,193 Credit for share based incentive schemes - - - - - 1,732 1,732 Own 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 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- Changes in equity for 2006 At 1 April 2005 3,493 19,168 - 2,312 15,434 1,426 41,833 Profit for the year - - - 2,927 - - 2,927 Shares issued 266 566 - - 2,258 - 3,090 Credit for share based incentive schemes - - - - - 410 410 Own 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 Â£'000 Â£'000 ------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- Operating cash flow 8 8,700 7,970 Finance income 199 182 Finance costs (1,180) (594) Income from financial assets 241 109 Tax 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 1,779 Purchase of property, plant and equipment (1,738) (2,262) Sale of property, plant and equipment 99 117 Purchase 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 15,164 642 Share 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's statutory accounts for the years ended 31 March 2007 and 2006. The financial information in respect of 2007 is unaudited. The information has been prepared in accordance with the EU-adopted International Financial Reporting Standards (IFRS) and IFRIC interpretations and with those parts of the Companies Act 1985 which are applicable to companies reporting under IFRS. 2. Accounting policies The accounting policies applied by the Group were published in the financial statements for the year ended 31 March 2006, which is available on the group's website at www.creston.com, and they will also be included in the financial statements for the year ended 31 March 2007. 3. Segmental analysis Turnover, revenue, profit before finance income, finance costs, income from financial assets and taxation, capital expenditure, depreciation, amortisation, gross assets and gross liabilities attributable to Group activities are shown below. Primary segmental analysis by business Head 2007 BRANDCOM Insight MARCOMS PR Office Consolidated Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'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) 10,940 Finance income - - - - 199 199 Finance 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 Â£'000 Â£'000 Non current 134,292 (47,430) Current 36,189 (41,318) ------------------------------------------------------------------------------- 170,481 (88,748) =============================================================================== 2006 BRANDCOM Insight MARCOMS PR Office Consolidated Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'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) 6,269 Finance income - - - - 182 182 Finance 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 (excluding acquisitions) ----------------------------------------------------------------------------------------- - 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 sheet Assets Segment assets 42,953 13,466 18,289 18,337 7,649 100,694 ----------------------------------------------------------------------------------------- Liabilities Segment liabilities (24,984) (1,639) (9,452) (8,070) (9,155) (53,300) ----------------------------------------------------------------------------------------- Consolidated total assets and liabilities are split as: Assets Liabilities Â£'000 Â£'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 which were 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 by geographical market, irrespective of the origin of the services. Revenue Turnover ------------------------------------------------------------------------------- 2007 2006 2007 2006 Â£'000 Â£'000 Â£'000 Â£'000 ------------------------------------------------------------------------------- UK 60,230 39,324 95,994 71,495 Rest of Europe 7,968 3,557 18,628 7,453 Overseas 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 of certain 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 company certain accounting policies relating to deferred consideration deemed as remuneration, notional finance costs on deferred consideration and amortisation of intangible assets have a material impact on the reported results and introduce volatility to the reported figures. In order to enable a better understanding of the underlying trading of the Group, Creston refer to Headline PBIT, PBT and PAT which eliminate these non-recurring non-cash charges from the reported figures, as follows: ------------------------------------------------------------------------------- PBIT PBT PAT 2007 Â£'000 Â£'000 Â£'000 ------------------------------------------------------------------------------- Headline 14,003 13,263 9,173 Future 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 ================================================================================ 2006 Headline 8,022 7,719 5,354 Future 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 deal structure in that it requires up to 25 per cent of any deferred consideration payable as part of an earn out, to be paid to the non-shareholders of the company. Creston believes this is an important driver in motivating employees beyond just the shareholders to grow the company and outperform the market. This contingent consideration paid by Creston to non-shareholder employees in respect of the deferred consideration is deemed as remuneration. The notional finance costs also relate to the deferred consideration. Both of these charges will cease 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 Â£'000 shares share Â£'000 shares share --------------------------------------------------------------------------------------------------- Headline basis Basic earnings per share Earnings attributable to ordinary shareholders 9,173 52,294,443 17.54 5,354 36,383,218 14.72 Dilutive effect of securities Options - 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 Â£'000 shares share Â£'000 shares share --------------------------------------------------------------------------------------------------- Reported basis Basic earnings per share Earnings attributable to ordinary shareholders 4,931 52,294,443 9.43 2,927 36,383,218 8.04 Dilutive effect of securities Options - 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. An estimate of 573,674 options (2006: 415,534) remain outstanding that would have been issued based on the average share price (this includes SAYE, EMI and unapproved options). The contingent shares in 2006 related to the equity element of the deferred consideration due within one year. A reconciliation of the profit after tax on a reported basis and the Headline basis is given in note 4. 6. Dividends 2007 2006 Â£'000 Â£'000 Amounts recognised as distributions to shareholders in the year Prior year final dividend of 1.60 pence per share (2006: 1.45 pence) 878 508 pence) 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 Â£981,000 is to be paid on 6 August 2007 to shareholders on the register on 6 July 2007. In accordance 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 Â£'000 Â£'000 Â£'000 ------------------------------------------------------------------------------- Cost At 1 April 2005 4,785 52,268 57,053 Additions - 7,501 7,501 Adjustments to consideration (1,162) 3,143 1,981 ------------------------------------------------------------------------------- At 1 April 2006 3,623 62,912 66,535 Additions - 56,725 56,725 Adjustments to consideration (163) 2,155 1,992 Fair 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 date of acquisition) were ----------------------------------- Â£'000 ICM 17,644 TMW 26,850 PAN 12,231 ----------------------------------- 56,725 ----------------------------------- The acquisitions completed in the year were: ------------------------------------------------------------------------------- Date of Maximum Initial Maximum transaction consideration Consideration Deferred Consideration Acquisition Â£m Â£m Â£m ICM 17 May 2006 36.4 19.7 16.7 TMW 17 May 2006 38.1 21.1 17.0 PAN 4 December 2006 18.5 10.1 8.4 ------------------------------------------------------------------------------- To settle the initial consideration 3,068,829 ordinary shares, 3,928,101 ordinary shares and 793,809 ordinary shares were issued to the vendors of ICM, TMW and PAN respectively. The remaining initial consideration was funded from new bank loans and working capital. The deferred consideration is dependent, for all acquisitions, on their financial performance in the period to 31 March 2009. The directors have initially recognised the following amounts: ----------------------------------- Â£'000 ICM 3,229 TMW 9,743 PAN 2,464 ----------------------------------- 15,436 ----------------------------------- 8. Reconciliation of profit before finance income, finance costs, income from financial assets and taxation to operating cash flow 2007 2006 Â£'000 Â£'000 ------------------------------------------------------------------------------- Profit before finance income, finance costs, income from financial assets and taxation 10,940 6,269 Depreciation 1,776 1,019 Amortisation of intangible assets 1,270 528 Share-based payments 400 245 Deemed remuneration 1,908 1,225 Profit 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 Â£'000 Â£'000 ------------------------------------------------------------------------------- Decrease in cash in the year (3,649) (75) Cash outflow from reduction in debt 199 1,030 Cash inflow from increase in debt (15,530) - ------------------------------------------------------------------------------- Movement in net debt in the year resulting from cash flows (18,980) 955 New finance leases (55) - Reduction of loan stock 7,025 27 Issue 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 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 ---------------------------------------------------------------------------------------- Cash and short term deposits 5,282 (3,649) - - 1,633 Bank 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 Â£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 due course and are available from the Company's registered office at City Group P.L.C., 30 City Road, 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 Exchange

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