Half-year Report

RNS Number : 4001P

Creston PLC

17 November 2016

 

17 November 2016

Creston plc

('Creston' or the 'Group')

Half year results for the six months ended 30 September 2016

Creston plc (LSE: CRE), the marketing communications group, today announces its half year results for the six months to 30 September 2016.

Group Financial Highlights

            ·     Revenue broadly flat at £40.0 million (H1 2016: £40.3 million)

            ·     Like-for-like¹ revenue decline of 4% to £38.7million

            ·     International revenue up 11% to £14.2 million (H1 2016: £12.8 million)

·     Growth on Headline PBIT and margin due to on-going operational efficiencies

            ·     Headline² PBT³ up 13 per cent to £4.5 million (H1 2016: £4.0 million)

            ·     Headline DEPS⁴ up 16 per cent to 5.77 pence (H1 2016: 4.98 pence)

            ·     Reported PBT at £3.8 million (H1 2016: £1.1 million)

            ·     Reported DEPS at 4.70 pence (H1 2016: 0.47 pence)

            ·     Net cash of £1.4 million (31 March 2016: net cash of £1.4 million), with nil deferred consideration

            ·     Half year dividend per share maintained at 1.42 pence (H1 2016: 1.42 pence)

            ·     Post period end cash offer of 125 pence per share in Creston announced today

Commenting on the results, Barrie Brien, Group Chief Executive of Creston plc, said:

"Despite the challenging economic and trading environment, the Group's headline profits grew 13 per cent in the first half of the year. Creston has achieved steady progress in implementing the Group's five-year strategy of growing the breadth of services to clients under the Unlimited offer and, as a result, our top 20  clients and international revenue have grown by 12 per cent and 11 per cent respectively.

Today, the Independent Directors of the Board have also announced their intention to unanimously recommend to shareholders a cash offer for the entire share capital of Creston plc by DBAY Advisors.  As the business and our clients' requirements continue to develop, and in light of uncertain market conditions, the Board of Creston has given careful thought about how best it pursues this strategy to deliver value for shareholders, clients and staff.

As such, the Independent Directors of Creston consider that recommending this cash offer will provide most shareholders with the opportunity to realise value from their investment in cash at an attractive premium. Furthermore, it offers the business, with the support of DBAY Advisors, the ability to continue to grow the Unlimited Group as a private company, which we believe is in the best interests of our clients and staff."

Group Financial Results

¹Like-for-like compares current year performance to the prior year, adjusting the current year, and prior year if applicable, to exclude results from acquisitions and company closures, the impact of foreign exchange rate movements on overseas results and Euro denominated contracts, of which both are retranslated at prior year average rates.

²Headline results reflect the underlying performance of the Group and exclude exceptional charges including impairment of goodwill and other headline items including property related costs, start-up net losses, acquisition and restructuring related costs, the launch of Creston Unlimited and Group rebranding, movement in fair value of contingent deferred consideration, amortisation of acquired intangibles, deemed remuneration charges, acquisition related share based payment charges and notional finance costs. A full reconciliation is presented in note 4 to this announcement.

³Profit before taxation (PBT).

⁴Headline diluted earnings per share (DEPS). A full reconciliation is presented in note 4 to this announcement.

Earnings before interest, taxation, depreciation and amortisation (EBITDA).

Free cash flow represents operating cash flow less the cash flow impact of taxation, net interest and capital expenditure relating to both plant, property and equipment and intangibles.

	H1 2017	H1 2016
Revenue (£ million)	40.0	40.3
Headline PBIT1 (£ million)	4.6	4.2
Headline PBIT margin (%)	12%	10%
Headline PBT (£ million)	4.5	4.0
Headline DEPS (pence)	5.77	4.98
Reported PBIT (£ million)	3.9	1.2
Reported PBT (£ million)	3.8	1.1
Reported DEPS (pence)	4.70	0.47
Dividend per share (pence)	1.42	1.42

¹ Profit before finance income, finance costs and taxation (PBIT)

For further information on the Group's half year results or about the analyst meeting please contact:

Creston plc	+ 44 (0)20 7930 9757
Barrie Brien, Group Chief Executive
Kathryn Herrick, Chief Financial Officer
Bell Pottinger	[phone]
David Rydell/Lucy Stewart

About Creston plc

Creston plc (LSE: CRE), incorporating the Unlimited Group, is an integrated marketing and communications group delivering a range of digital and technology-based marketing solutions to blue-chip global clients. The Unlimited Group brings together talent and expertise into bespoke teams, drawn from its network of specialist agencies, uniquely blended for each challenge. Unlimited enables smarter and more agile ways of working to solve its clients' evolving business and marketing challenges. www.creston.com / www.unlimitedgroup.com   

Chief Executive's Statement

Group Performance

In the six months under review, the Group reported broadly flat revenue of £40.0 million (H1 2016: £40.3 million), an increase in both headline PBT of 13 per cent to £4.5 million (H1 2016: £4.0 million) and in headline Diluted EPS of 16 per cent to 5.77 pence (H1 2016: 4.98 pence) on the prior year.

Reported PBT was £3.8 million (H1 2016: £1.1 million), with the difference between headline and reported PBT predominantly due to acquisition, accounting and deal related costs (see note 4 for reconciliation from headline to reported).

Creston continued to make steady progress on its five-year strategy, further growing the offer of the Unlimited Group. This strategic progress contributed to the continued diversification of Group revenue, in terms of breadth of services and geographies, and the Group's ongoing focus on strengthening and deepening its relationships with its largest clients. International revenue was up 11 per cent, driven by expansion of the Danone and Sony Mobile global engagements, and a strong performance of Health Unlimited in the US. The period has seen its Unlimited companies referring more clients to one another than ever before, with newly shared clients including National Trust, National Citizens Service, Grünenthal and Novartis. As a result, the top 20 clients from the comparable prior year period grew reported revenues by 12 per cent and these clients now represent 59 per cent of total revenue versus 52 per cent in FY16. In addition to this growth, 40 per cent of the top 50 clients were served by two or more companies, up from 38 per cent in H1 FY16.

There was revenue growth during the first half of FY17 across the top 20 and also top 50 clients, however, the first quarter revenue growth for the Group was off-set in the second quarter as a result of the uncertainty caused by the EU referendum. This has created headwinds and market uncertainty causing variability and uncertainty in budgets amongst existing clients, both before and after the vote, especially from the Group's smaller UK clients. There has also been a resulting decline in new business opportunities both from existing and new clients across both divisions.

The increased economic uncertainty adds to the challenges already faced by clients as they experience their own business transformations within their markets, together with a number of procurement led re-alignments. In total, these factors contributed to the Group's like-for-like revenue decline of 4 per cent to £38.7 million (H1 2016: £40.1 million).

The Group has added a broad roster of new global brands to its client list, despite the reduced number of new business pitches across the UK industry and a lower level of marketer financial confidence. These wins include the EMEA PR responsibilities for Sony PlayStation, health communications for Global Blood Therapeutics in the US, digital and social media responsibilities for Ferrero brands (Raffaelo, Bueno and Tic Tac), brand partnerships and PR for the forthcoming live attraction Dinosaurs in the Wild and a post-period win of an additional Unilever brand.

As Creston transitions from a Group of agencies to one Agency Group under the Unlimited brand, management has continued to review the Group's organisational and operational structure to reduce duplication and overhead. In addition to this, there has been ongoing proactive planning of resource to revenue, especially as client budgets have become more variable. The consequence of these initiatives together with  £0.3 million of currency gains have improved Headline PBIT by 12 per cent and grown Headline PBIT margin to 11.6 per cent (H1 2016: 10.3 per cent) in the period.

The Group has continued to evolve under its new strategy with a particular focus on servicing more of its top 50 clients' marketing and communication needs, whilst reducing the single discipline engagements with smaller clients, which often have more variable budgets. The Group continues to fill gaps in its full service offer, via targeted investments, acquisitions and partnerships. On the 15 September 2016, the Group announced a partnership with independent media agency Goodstuff. With pitches for integrated marketing activity on the rise, partnerships such as Goodstuff add to the Group's ability to offer clients a full service offer, made up of owned companies and trusted collaborators, all under the Unlimited banner.

Business Review

The respective revenue, headline PBIT and percentage contributions for Communications & Insight and Health are as follows:

H1 2017	Revenue		Headline PBIT
	£ million	% of Group	£ million	% of Group (excluding Head Office costs)
Communications & Insight	30.2	76%	4.3	73%
Health	9.8	24%	1.6	27%

Communications & Insight

	H1 2017	H1 2016
Revenue (£ million)	30.2	30.6
Headline PBIT (£ million)	4.3	4.0
Reported PBIT (£ million)	3.6	1.2
Headline PBIT margin (%)	14%	13%

Total revenue from our top 20 Communications & Insight clients, which now represents 67 per cent (H1 2016: 61 per cent) of total Communications & Insight revenue, has grown by 8 per cent from the comparable prior year period. This has been driven by the success of the Unlimited strategy, as more Unlimited companies are being engaged by existing clients.  Revenue has grown specifically with Danone, Sony Mobile, Sony Playstation, Boots, Vodafone, and Costa, the latter two being new business wins in the prior year. This positive revenue growth has been off-set by a decline in the smaller clients outside the division's top 50 and the fewer new business opportunities, as mentioned above. The combination of these two factors meant that revenue for the division decreased by 1 per cent during the period to £30.2 million (H1 2016: £30.6 million); and with the strengthening of the Euro, like-for-like revenue for the division was down 3 per cent to £29.5 million (H1 2016: £30.4 million).

The companies within the division continue to manage resourcing closely to the variable revenue levels and this focus has contributed to the improved operating margin and headline PBIT has increased by 7 per cent to £4.3 million (H1 2016: £4.0 million).

Reported PBIT for the division was £3.6 million (H1 2016: £1.2 million) and is lower than Headline PBIT, due predominantly to acquisition, accounting and deal related costs (see below and note 4 and 5).

In addition to those mentioned above, significant new business wins during the period include additional work for Sony Mobile, the UKTI, Danone and Nissan. Post-period end wins include further work for Unilever and the division is now seeing the new business opportunities increasing in number.

As a result of the increasing work the Group performs outside of the UK together with the Unlimited partnerships with Serviceplan and Ariadna, international revenue has grown by 2 per cent and now contributes 22 per cent of Communications & Insight revenue (H1 2016: 21 per cent).

The agencies have also delivered a strong awards performance, having won 50 awards so far this year and being shortlisted for 62 more. A recent standout award achievement was for TMW Unlimited, selected Agency of the Year at The Drum Dream Awards. The #BiggerIssues campaign for Unilever brand Lynx with charity CALM continues to win high profile accolades across disciplines, including at the Marketing Week Data Storytelling Awards, Digital Impact Awards, The Drum Masters of Marketing Awards and a prestigious Cannes Lions for Creative Data.

 

Health

	H1 2017	H1 2016
Revenue (£ million)	9.8	9.7
Headline PBIT (£ million)	1.6	1.6
Reported PBIT (£ million)	1.6	1.5
Headline PBIT margin (%)	16%	16%

During the period, Health reported a 1 per cent increase in revenue to £9.8 million (H1 2016: £9.7 million), driven by a strong US performance and the strengthening of the US dollar against sterling.

There was a slower than anticipated performance in the UK Health market, causing a divisional like-for-like revenue decrease of 6 per cent to £9.1 million (H1 2016: £9.7 million), although we expect recovery in the second half of the year, given the stronger new business performance since 30 September. This has been helped by an increase in pitching as a single Health Unlimited brand and access to new clients through partnerships, such as the recently announced global partnership with the health social network HealthUnlocked. New business wins include Global Blood Therapeutics, plus a number of new projects from existing clients, such as CDC, Danone, Gilead and UCB, as they increasingly engage with the single integrated Health Unlimited offer.

Headline PBIT of £1.6 million (H1 2016: £1.6 million) is in line with prior year and the margin has remained at 16 per cent. The division has benefitted from some of the staff cost saving initiatives commenced last year and these will continue to benefit the second half, whilst continuing to invest in the US resource to service its revenue growth.

Balance sheet and cash flow

As at 30 September 2016, the Group was in a net cash position of £1.4 million with no deferred consideration liabilities (31 March 2016: £1.4 million). During the period the Group delivered an operating cash inflow of £3.1 million (H1 2016: £3.2 million), which equates to a cash conversion ratio of operating cash flow to reported EBITDA of 64 per cent (H1 2016: 79 per cent).

Following a year end working capital position of £3.9 million, the half year position has increased to £6.1 million due to a temporary increase in work in progress and accrued income and a general reduction in accruals. Despite this temporary increase in working capital, free cash flow has increased to £1.9 million (H1 2016: £1.0 million). Management continues to place significant emphasis on managing working capital effectively and has a five-year actual cumulative cash conversion of 90 per cent.  Net current assets have also significantly improved to £6.4 million, up from £1.9 million the previous half year.

Tax

The headline tax rate of 23 per cent (H1 2016: 20 per cent) has increased due to the proportionate increase in the Group's US income.  This is because US income is taxed at a significantly higher rate than the UK statutory rate of 20 per cent. The reported tax rate of 28 per cent (H1 2016: 68 per cent) is significantly lower than H1 2016.  This is because in H1 2016 there was a goodwill impairment charge for which no tax relief was available. In future periods we expect a small increase in the headline tax rate to reflect the higher levels of tax on growing US income.

Board Changes

Nigel Lingwood has continued to act as Non-Executive Chairman on an interim basis whilst the Board has carried out a search for a replacement Chairman. In early October the Board had identified an appropriate candidate for the role as Chairman, but in light of the proposed Offer announced today, confirmation of this appointment has been postponed.

 

Dividend

The Board has declared a half year dividend of 1.42 pence (H1 2016: 1.42 pence) per share, which will be paid on 20 December 2016 to shareholders on the register at 2 December 2016.

Barrie Brien

Group Chief Executive 

 

UNAUDITED CONSOLIDATED INCOME STATEMENT

for the six months ended 30 September 2016

	Note	Six months ended 30 September 2016 £'000	Six months ended 30 September 2015 £'000	Audited Year ended 31 March 2016 £'000
Turnover (billings)		53,092	51,602	108,044
Cost of sales		(13,090)	(11,253)	(25,399)
Revenue	5	40,002	40,349	82,645
Impairment charge		-	(2,000)	(15,156)
Operating costs		(36,119)	(37,161)	(74,762)
Profit/(Loss) before finance income, finance costs and taxation	4	3,883	1,188	(7,273)
Finance income		-	1	1
Finance costs		(104)	(132)	(248)
Share of loss of investments		(28)	-	(64)
Profit/(Loss)  before taxation	4	3,751	1,057	(7,584)
Income tax expense	6	(1,033)	(722)	(1,990)
Profit/(Loss)  for the period	4	2,718	335	(9,574)
Attributable to:
Equity holders of the parent		2,742	271	(9,683)
Non-controlling interest		(24)	64	109
		2,718	335	(9,574)
Basic earnings/(loss) per share (pence):	7	4.70	0.47	(16.66)
Diluted earnings/(loss) per share (pence):	7	4.70	0.47	(16.63)
Headline profit before finance income, finance costs and taxation	4	4,628	4,150	10,087
Headline profit before taxation	4	4,528	4,019	9,854
Headline profit for the period	4	3,502	3,236	7,838
Headline DEPS (pence)	7	5.77	4.98	12.02

 

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 September 2016

		Six months ended 30 September 2016 £'000	Six months ended 30 September 2015 £'000	Audited Year ended 31 March 2016 £'000
Profit/(Loss) for the period		2,718	335	(9,574)
Other comprehensive income/(expense):
Items that may be reclassified subsequently to profit and loss:
Exchange differences on translation of foreign operations		1,553	(290)	417
Other comprehensive income/(expense) for the period, net of tax		1,553	(290)	417
Total comprehensive income/(expense) for the period		4,271	45	(9,157)
Attributable to:
Equity holders of the parent		4,295	(19)	(9,266)
Non-controlling interest		(24)	64	109
		4,271	45	(9,157)

 

UNAUDITED CONSOLIDATED BALANCE SHEET

as at 30 September 2016

	Note	As at  30 September 2016 £'000	As at  30 September 2015 £'000	Audited as at 31 March 2016 £'000
Non-current assets
Intangible assets
Goodwill	9	97,383	108,113	95,725
Other	9	3,928	4,212	4,071
Property, plant and equipment	9	2,917	3,644	3,244
Investment in associates		908	1,000	936
Deferred tax assets		1,009	1,183	955
		106,145	118,152	104,931
Current assets
Inventories and work in progress		1,493	1,098	735
Trade and other receivables		29,852	31,035	29,380
Cash and cash equivalents	10	1,350	906	1,441
		32,695	33,039	31,556
Current liabilities
Trade and other payables		(25,572)	(26,622)	(26,776)
Corporation tax payable		(708)	(1,137)	(38)
Bank overdraft	10	-	(3,421)	-
		(26,280)	(31,180)	(26,814)
Net current assets		6,415	1,859	4,742
Total assets less current liabilities		112,560	120,011	109,673
Non-current liabilities
Trade and other payables		(1,188)	(1,782)	(1,485)
Provision for other liabilities and charges		(806)	(871)	(784)
Deferred tax liabilities		(1,748)	(1,566)	(1,655)
		(3,742)	(4,219)	(3,924)
Net assets		108,818	115,792	105,749
Equity
Called up share capital		6,134	6,134	6,134
Share premium account		35,943	35,943	35,943
Own shares		(2,946)	(3,231)	(3,267)
Shares to be issued		86	336	199
Other reserves		30,822	30,822	30,822
Foreign currency translation reserve		2,538	278	985
Retained earnings		36,172	45,444	34,836
Equity attributable to equity holders of parent		108,749	115,726	105,652
Non-controlling interest		69	66	97
Total equity		108,818	115,792	105,749

 

UNAUDITED STATEMENT OF CHANGES IN EQUITY

Six months ended 30 September 2016

	Called up share capital	Share premium	Own shares	Shares to be issued	Other reserves	Foreign currency translation reserve	Retained earnings	Total attributable to equity holders of parent	Non-controlling interest	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Changes in equity for the period
At 1 April 2016	6,134	35,943	(3,267)	199	30,822	985	34,836	105,652	97	105,749
Profit/(loss) for the period	-	-	-	-	-	-	2,742	2,742	(24)	2,718
Other comprehensive expense:
Exchange differences on translation of foreign operations	-	-	-	-	-	1,553	-	1,553	-	1,553
Total comprehensive income/ (expense) for the period	-	-	-	-	-	1,553	2,742	4,295	(24)	4,271
Credit for share-based incentive schemes	-	-	-	-	-	-	172	172	-	172
Exercise of share award	-	-	321	(113)	-	-	-	208	-	208
Gain on employee benefit trust	-	-	-	-	-	-	166	166	-	166
Dividends (note 8)	-	-	-	-	-	-	(1,744)	(1,744)	(4)	(1,748)
At 30 September 2016	6,134	35,943	(2,946)	86	30,822	2,538	36,172	108,749	69	108,818

	Called up share capital	Share premium	Own shares	Shares to be issued	Other reserves	Foreign currency translation reserve	Retained earnings	Total attributable to equity holders of parent	Non-controlling interest	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Changes in equity for the period
At 1 April 2015	6,134	35,943	(3,371)	423	30,822	568	46,668	117,187	86	117,273
Profit for the period	-	-	-	-	-	-	271	271	64	335
Other comprehensive expense:
Exchange differences on translation of foreign operations	-	-	-	-	-	(290)	-	(290)	-	(290)
Total comprehensive income/(expense) for the period	-	-	-	-	-	(290)	271	(19)	64	45
Credit for share-based incentive schemes	-	-	-	72	-	-	152	224	-	224
Transfer between reserves in respect of lapsed share options	-	-	-	(31)	-	-	31	-	-	-
Exercise of share award	-	-	140	(128)	-	-	-	12	-	12
Loss on employee benefit trust	-	-	-	-	-	-	(20)	(20)	-	(20)
Dividends (note 8)	-	-	-	-	-	-	(1,658)	(1,658)	(84)	(1,742)
At 30 September 2015	6,134	35,943	(3,231)	336	30,822	278	45,444	115,726	66	115,792

 

	Called up share capital	Share premium	Own shares	Shares to be issued	Other reserves	Foreign currency translation reserve	Retained earnings	Total attributable to equity holders of parent	Non-controlling interest	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Changes in equity for the year
At 1 April 2015	6,134	35,943	(3,371)	423	30,822	568	46,668	117,187	86	117,273
(Loss)/Profit for the year	-	-	-	-	-	-	(9,683)	(9,683)	109	(9,574)
Other comprehensive income:
Exchange differences on translation of foreign operations	-	-	-	-`	-	417	-	417	-	417
Total comprehensive income/(expense) for the period	-	-	-	-	-	417	(9,683)	(9,266)	109	(9,157)
(Debit)/Credit for share-based incentive schemes	-	-	-	(65)	-	-	324	259	-	259
Transfer between reserves in respect of lapsed share options	-	-	-	(31)	-	-	31	-	-	-
Exercise of share award	-	-	140	(128)	-	-	-	12	-	12
Loss on employee benefit trust	-	-	-	-	-	-	(20)	(20)	-	(20)
Purchase of treasury shares	-	-	(36)	-	-	-	-	(36)	-	(36)
Dividends	-	-	-	-	-	-	(2,484)	(2,484)	(98)	(2,582)
At 31 March 2016	6,134	35,943	(3,267)	199	30,822	985	34,836	105,652	97	105,749

UNAUDITED CONSOLIDATED STATEMENT OF CASHFLOWS

	Note	Six months ended 30 September 2016 £'000	Six months ended 30 September 2015 £'000	Audited Year ended 31 March 2016 £'000
Profit/(Loss) for the period		2,718	335	(9,574)
Taxation		1,033	722	1,990
Profit/(Loss) before taxation		3,751	1,057	(7,584)
Finance Income		-	(1)	(1)
Finance costs		104	132	248
Investment loss		28	-	64
Profit/(Loss) before finance income, finance costs and taxation		3,883	1,188	(7,273)
Depreciation of property, plant and equipment		756	756	1,527
Amortisation of intangible assets		463	376	789
Share based payments charge		172	263	201
Charge for future acquisition payments to employees deemed as remuneration		24	-	102
Impairment on Goodwill		-	2,000	15,156
Loss on disposal of property, plant and equipment		-	7	8
(Increase)/decrease in inventories and work in progress		(772)	(122)	291
(Increase)/decrease in trade and other receivables		(431)	(1,117)	379
Decrease in trade and other payables		(1,019)	(184)	(544)
Operating cash inflow		3,076	3,167	10,636
Tax paid		(484)	(1,557)	(3,279)
Net cash inflow from operating activities		2,592	1,610	7,357
Investing activities
Finance income		-	1	1
Purchase of subsidiary undertakings net of cash acquired		-	(7,843)	(7,843)
Purchase of investments		-	(1,000)	(1,000)
Payment of deferred consideration		-	(1,387)	(1,387)
Purchase of property, plant and equipment	9	(386)	(397)	(767)
Purchase of intangible assets	9	(243)	(38)	(295)
Net cash outflow from investing activities		(629)	(10,664)	(11,291)
Financing activities
Finance costs		(60)	(175)	(209)
Net increase in borrowings		-	3,421	-
Proceeds from SAYE exercise		312	-	-
Dividends paid		(1,744)	(1,658)	(2,484)
Dividends paid to non-controlling interest		(4)	(84)	(98)
Purchase of treasury shares		-	-	(36)
Net cash (outflow)/inflow from financing activities		(1,496)	1,504	(2,827)
Increase/(decrease) in cash and cash equivalents		467	(7,550)	(6,761)
Cash and cash equivalents at start of period	10	1,441	8,312	8,312
Effect of foreign exchange rates		(558)	144	(110)
Cash and cash equivalents at end of period	10	1,350	906	1,441

NOTES TO THE HALF YEAR REPORT
for the six months ended 30 September 2016

1.         Presentation of financial information

The financial information contained in this half year report does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006.

Statutory accounts for the year ended 31 March 2016 were approved by the Board of Directors on 11 July 2016 and delivered to the Registrar of Companies. The report of the auditors by PricewaterhouseCoopers LLP on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 448 of the Companies Act 2006.

The half year report has not been audited or reviewed by the Group's auditors.

2.         Basis of Preparation

The half year report of Creston plc for the six months ended 30 September 2016 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union.

The accounting policies applied in the preparation of the annual financial statements are based on the European Union adopted International Financial Reporting Standards (IFRS) and IFRS IC interpretations that are applicable at this time.

The condensed half year consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 March 2016 which have been prepared in accordance with IFRS as adopted by the European Union.

3.         Accounting policies

The half year consolidated financial statements of Creston plc for the six months ended 30 September 2016 have been prepared in accordance with the accounting policies contained in the Group's Annual Report and Accounts 2016 and the policies as described in note 2 above.

The following standards, amendments and interpretations are relevant to the Group, but not yet effective and have not been early adopted by the Group:

·      IFRS 9 'Financial Instruments' (effective for periods beginning on or after 1 January 2018 - not yet endorsed by EU). This is a new standard which enhances the ability of investors and other users of financial information to understand the accounting for financial assets and reduces complexity. The standard uses a single approach to determine whether a financial asset is measured at amortised cost or fair value, replacing the various rules in IAS 39.

·      IFRS 15 'Revenue from contracts with customers' (effective for periods beginning on or after 1 January 2018 - not yet endorsed by EU). The standard establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 'Revenue' and IAS 11 'Construction Contracts' and related interpretations.

·      IFRS 16 'Leases' (effective for periods beginning on or after 1 January 2019 - not yet endorsed by EU). This is a new standard which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. The standard eliminates the classification of leases as either operating or finance leases as required by IAS 17, and instead, introduces a single lessee accounting model. A lessee will be required to recognise assets and liabilities for all leases with a term of more than 12 months and depreciated lease assets separately from interest in the income statement. The standard replaces IAS 17 'Leases'.

The following standards, amendments and interpretations were adopted by the Group during the period:

There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

4.         Reconciliation of headline profit to reported profit

In order to enable a better understanding of the underlying trading of the Group, the Board refers to Headline PBIT, PBT, PAT and DEPS which eliminate certain amounts from the Reported figures. These break down into two parts:

(i)         Certain accounting policies which have a material impact and introduce volatility to the reported figures. These include acquisition related costs, amortisation of acquired intangible assets, movement in the fair value of contingent deferred consideration, future acquisition payments to employees deemed as remuneration, acquisition related share based payment charges and notional finance costs on future contingent deferred consideration. These adjustments will cease once all the relevant earn-out and related obligations have been settled; and

(ii)         exceptional non-recurring operating charges, which consist of start-up related net losses and restructuring related costs, property related costs, Creston Unlimited rebranding costs and the impairment of goodwill. Start-up losses are defined as the net operating result in the period of the trading activities that relate to new products, or new organically started businesses. These trading activities will cease being separately identified where, in the opinion of the directors, the activities show evidence of becoming sustainably profitable or are closed, whichever is earlier. In any event start-up net losses will cease being separately identified after one year from the commencement of the activity.

Six months ended 30 September 2016

	PBIT £'000	PBT £'000	PAT £'000
Headline	4,628	4,528	3,502
Headline exceptional items:
Impairment of goodwill	-	-	-
Total headline exceptional items	-	-	-
Other headline items:
Acquisition, accounting and deal related costs	(620)	(620)	(620)
Start-up related net losses	(125)	(125)	(125)
Interest expense	-	(32)	(32)
Deferred tax charge on amortisation of goodwill	-	-	(120)
Taxation impact	-	-	113
Total other headline items	(745)	(777)	(784)
Reported	3,883	3,751	2,718
Headline Basic EPS (pence)			5.77
Headline Diluted EPS (pence)			5.77
Reported Basic EPS (pence)			4.70
Reported Diluted EPS (pence)			4.70

Acquisition, accounting and deal related costs of £0.6 million have been incurred during the half year comprising of amortisation of intangibles recognised on acquisition of Splendid Unlimited (£0.3 million) and share based payment charge in relation to Splendid Unlimited for valuation of liquidity foregone for the non-controlling interest (£0.2 million) and deal related costs (£0.1 million).

Start-up related net losses of £0.1 million have been excluded from the Headline PBIT measure. This represents the net losses of two start-ups in the Communication and Insight division being Affinity Unlimited and Navigate Unlimited that commenced activity in H2 of FY16.

Six months ended 30 September 2015

	PBIT £'000	PBT £'000	PAT £'000
Headline	4,150	4,019	3,236
Headline exceptional items:
Impairment of goodwill	(2,000)	(2,000)	(2,000)
Total headline exceptional items	(2,000)	(2,000)	(2,000)
Other headline items:
Acquisition, accounting and deal related costs	(598)	(598)	(598)
Restructuring and closure related costs	(140)	(140)	(140)
Start-up related net losses	(224)	(224)	(224)
Deferred tax charge on amortisation of goodwill	-	-	(87)
Taxation impact	-	-	148
Total other headline items	(962)	(962)	(901)
Reported	1,188	1,057	335
Headline Basic EPS (pence)			4.99
Headline Diluted EPS (pence)			4.98
Reported Basic EPS (pence)			0.47
Reported Diluted EPS (pence)			0.47

An exceptional non-cash impairment charge to the carrying value of goodwill of £2.0 million was excluded from the Headline PBIT measure, recognised in relation to the closure of FieldworkUK.com Limited a subsidiary of ICM Research Limited, which is part of the ICM cash generating unit.

Acquisition, accounting and deal related costs amounting to £0.6 million were excluded from the Headline PBIT measure for period ended 30 September 2015. This comprises of acquisition costs for Splendid Unlimited and 18 Feet (£0.1 million), amortisation of intangibles recognised on acquisition of Splendid Unlimited (£0.3m) and share based payment charge in relation to Splendid Unlimited for valuation of liquidity foregone for the non-controlling interest (£0.2 million).

Start-up related net losses of £0.2 million have been excluded from the Headline PBIT measure. This represents the net losses of three start-ups being Reflected Life and Real Data in the Communications and Insight division and Search Unlimited in the Health division.

Restructuring and closure related costs of £0.1 million have been incurred in relation to the closure of FieldworkUK.com Limited (£0.05 million) and resulting from combining DJM PAN Unlimited (£0.09 million).

Year ended 31 March 2016

	PBIT £'000	PBT £'000	PAT £'000
Headline	10,087	9,854	7,838
Headline exceptional items:
Impairment of goodwill	(15,156)	(15,156)	(15,156)
Total headline exceptional items	(15,156)	(15,156)	(15,156)
Other headline items:
Acquisition, accounting, and deal related costs	(1,349)	(1,349)	(1,349)
Restructuring and closure related costs	(497)	(497)	(497)
Start-up related net losses	(358)	(358)	(358)
Interest expense	-	(55)	(55)
Loss from investment	-	(23)	(23)
Deferred tax charge on amortisation of goodwill	-	-	(321)
Taxation impact	-	-	347
Total other headline items	(2,204)	(2,282)	(2,256)
Reported	(7,273)	(7,584)	(9,574)
Headline Basic EPS (pence)			12.04
Headline Diluted EPS (pence)			12.02
Reported Basic EPS (pence)			(16.66)
Reported Diluted EPS (pence)			(16.63)

An exceptional non-cash impairment charge to the carrying value of goodwill of £15.2 million was excluded from the Headline PBIT measure.

Acquisition, accounting and deal related costs amounting to £1.3 million were excluded from the Headline PBIT measure for year ended 31 March 2016. This comprises of acquisition costs for Splendid Unlimited and 18 Feet (£0.2 million), amortisation of intangibles recognised on acquisition of Splendid Unlimited (£0.7m) and share based payment charge in relation to Splendid Unlimited for valuation of liquidity foregone for the non-controlling interest (£0.3 million). In relation to the acquisition of DJM Unlimited and Cooney Waters Group Unlimited £0.1 million has been recognised as acquisition payments to employees deemed as remuneration.

Start-up related net losses of £0.4 million have been excluded from the Headline PBIT measure. This represents the net losses of five start-ups being Reflected Life, Real Data, Affinity Unlimited, Navigate Unlimited and Search Unlimited.

Restructuring and closure related costs of £0.5 million have been incurred in relation to the reorganisation of UK Health regional board, the combination of DJM Unlimited and PAN Unlimited to form DJM PAN Unlimited and the closure of the company FieldworkUK.com Limited.

5.         Segmental analysis

The chief operating decision maker has been identified as the Executive Board of Directors, which makes the strategic decisions. The Executive Board reviews the performance of the Group using two divisions, these being Communications & Insight, and Health.

The principal activities of the two divisions and Head Office are as follows:-

Communications & Insight

The Communications & Insight division delivers a range of digital technology based marketing solutions to blue-chip global clients. Services include: advertising, brand strategy, customer relationship marketing (CRM), digital and direct marketing, local marketing, market research using qualitative and quantitative face-to-face, telephone and online data collection techniques, social media marketing and public relations.

Health

The Health division provides an integrated communications solution to the healthcare and pharmaceutical sector and offers services which include advertising, advocacy, digital and direct marketing, public relations, issues and reputation management and medical education.

Head office

Head office segment comprises the operating costs of the parent company and the sales, marketing and PR for the Unlimited Group.

The Executive Board assesses the performance of the operating segments based on a measure of revenue and headline PBIT. This measurement basis excludes the effects of certain amounts from the operating segments, such as amortisation of acquired intangible assets, acquisition, start-up and restructuring related costs, property related costs, Creston Unlimited rebranding, movement in fair value of contingent deferred consideration, impairment of goodwill, future acquisition payments to employees deemed as remuneration and notional finance costs on contingent deferred consideration.

Accounting policies are consistent across the reportable segments.

All significant assets and liabilities are located within the UK and the USA. The Executive Board does not review the assets and liabilities of the Group on a divisional basis and therefore has chosen to adopt the amendments to IFRS 8 which permit not segmenting the assets and liabilities of the Group.

Other information provided to the Board of Directors is measured in a manner consistent with that in the Financial Statements.

 

Divisional segmentation

Turnover, revenue, headline and reported profit before finance income and finance costs (PBIT), and profit before tax (PBT) attributable to Group activities are shown below:

Six months ended 30 September 2016	Note	Communications & Insight	Health	Head Office	Group
		£'000	£'000	£'000	£'000
Turnover (billings)		41,155	11,310	627	53,092
Revenue		30,227	9,760	15	40,002
Headline PBIT		4,267	1,580	(1,219)	4,628
Other headline items	4	(664)	(24)	(57)	(745)
Reported PBIT		3,603	1,556	(1,276)	3,883
Finance income		-	-	-	-
Finance costs		-	-	(104)	(104)
Share of loss from investment		(28)	-	-	(28)
Profit before taxation		3,575	1,556	(1,380)	3,751
Taxation					(1,033)
Profit for the period					2,718

Six months ended 30 September 2015	Note	Communications & Insight	Health	Head Office	Group
		£'000	£'000	£'000	£'000
Turnover (billings)		40,729	10,700	173	51,602
Revenue		30,658	9,688	3	40,349
Headline PBIT		3,993	1,578	(1,421)	4,150
Headline exceptional items	4	(2,000)	-	-	(2,000)
Other headline items	4	(813)	(119)	(30)	(962)
Reported PBIT		1,180	1,459	(1,451)	1,188
Finance income		-	-	1	1
Finance costs		-	-	(132)	(132)
Profit before taxation		1,180	1,459	(1,582)	1,057
Taxation					(722)
Profit for the period					335

Year ended 31 March 2016	Note	Communications & Insight	Health	Head Office	Group
		£'000	£'000	£'000	£'000
Turnover (billings)		85,718	21,727	599	108,044
Revenue		62,924	19,721	-	82,645
Headline PBIT		8,995	3,964	(2,872)	10,087
Headline exceptional items	4	(10,636)	(4,520)	-	(15,156)
Other headline items	4	(1,541)	(578)	(85)	(2,204)
Reported PBIT		(3,182)	(1,134)	(2,957)	(7,273)
Finance income		-	-	1	1
Finance costs		-	-	(250)	(250)
Notional finance cost on future contingent deferred consideration		-	2	-	2
Share of loss from investment		(64)	-	-	(64)
Loss before taxation		(3,246)	(1,132)	(3,206)	(7,584)
Taxation					(1,990)
Loss for the period					(9,574)

 

Geographical segmentation

The following table provides an analysis of the Group's turnover and revenue by geographical market, irrespective of the origin of the services:

	Turnover			Revenue
	Six months ended 30 September 2016	Six months ended 30 September 2015	Year ended 31 March 2016	Six months ended 30 September 2016	Six months ended 30 September 2015	Year ended 31 March 2016
	£'000	£'000	£'000	£'000	£'000	£'000
UK	33,565	34,804	73,984	25,830	27,561	54,706
Rest of Europe	11,673	9,597	18,935	7,456	6,981	16,077
Rest of the World (including USA)	7,854	7,201	15,125	6,716	5,807	11,862
	53,092	51,602	108,044	40,002	40,349	82,645

6.         Taxation

The headline tax rate of 23 per cent (H1 2016: 20 per cent) has increased due to the proportionate increase in the group's US income. This is because US income is taxed at a significantly higher US tax rate than the UK statutory rate of 20 per cent.  

The reported tax rate of 28 per cent (H1 2016: 68 per cent) is significantly lower than H1 2016. This is due to the fact that in H1 2016 there was a goodwill impairment charge for which no tax relief was available. The reported tax rate of 28 per cent is higher than the headline rate of 23 per cent, as it includes the deferred tax charge on amortisation deductions claimed in respect of Goodwill acquired in the US, which is added back as a headline adjustment.

In future periods we would expect the headline tax rate to be higher than the UK statutory rate as a consequence of the higher tax rates in the US.

 7.        Earnings/(Loss) per share

	Headline			Reported
	Six months ended 30 September 2016	Six months ended 30 September 2015	Year ended 31 March 2016	Six months ended 30 September 2016	Six months ended 30 September 2015	Year ended 31 March 2016
Earnings
Profit/(Loss) for the period (£'000)	3,502	3,236	7,838	2,718	335	(9,574)
Attributable to:
non-controlling interest (£'000)	(24)	64	109	(24)	64	109
accrued dividend for the non-controlling interest (£'000)	162	274	731	-	-	-
equity holders of the parent (£'000)	3,364	2,898	6,998	2,742	271	(9,683)
Number of shares
Weighted average number of shares	58,316,170	58,053,043	58,108,610	58,316,170	58,053,043	58,108,610
Dilutive effect of shares	5,008	196,864	117,415	5,008	196,864	117,415
	58,321,178	58,249,907	58,226,025	58,321,178	58,249,907	58,226,025
Earnings/(losses)  per share
Basic earnings/(loss) per share (pence):	5.77	4.99	12.04	4.70	0.47	(16.66)
Diluted earnings/(loss) per share (pence):	5.77	4.98	12.02	4.70	0.47	(16.63)

The headline EPS and DEPS are based on the headline PAT attributable to the respective equity holders and is divided by the weighted average number of shares and by the weighted average number of diluted shares respectively. The non-controlling interest charge comprises of the results of DJM PAN Unlimited and Loooped Unlimited. Headline DEPS is also adjusted to assume an accrued dividend for the non-controlling interest in Splendid.

Diluted earnings per share has been calculated based on the dilutive impact of 28,496 employee share options which were outstanding as at 30 September 2016 (30 September 2015: 499,143).  During the period, the 2013 Creston SAYE scheme matured on 1 April 2016 which resulted in exercises of share options during the current period.

8.         Dividends

The prior year final dividend of 2.99 pence (H1 2016: 2.85 pence) per share was paid to shareholders on 9 September 2016 giving a total of £1,744,000 (H1 2016: £1,652,255).  The Board has declared a half year dividend to be paid on 20 December 2016 of 1.42 pence (H1 2016: 1.42 pence) per share to all ordinary shareholders on the register at 2 December 2016.

9.         Non-current assets

Six months ended 30 September 2016	Intangible assets - goodwill £'000	Intangible assets - other £'000	Property, plant and equipment £'000	Total £'000
Net book amount at 1 April 2016	95,725	4,071	3,244	103,040
Additions	-	243	386	629
Transfer to/from intangible assets/property, plant and equipment	-	24	(24)	-
Depreciation and amortisation	-	(463)	(756)	(1,219)
Impairment	-	-	-	-
Exchange differences	1,658	53	67	1,778
Net book amount at            30 September 2016	97,383	3,928	2,917	104,228
Six months ended 30 September 2015	Intangible assets - goodwill £'000	Intangible assets - other £'000	Property, plant and equipment £'000	Total £'000
Net book amount at 1 April 2015	105,381	1,256	3,985	110,622
Additions	-	38	397	435
Acquisition of subsidiary	5,051	3,302	47	8,400
Disposals	-	-	(7)	(7)
Depreciation and amortisation	-	(376)	(756)	(1,132)
Impairment	(2,000)	-	-	(2,000)
Exchange differences	(319)	(8)	(22)	(349)
Net book amount at            30 September 2015	108,113	4,212	3,644	115,969
Year ended 31 March 2016	Intangible assets - goodwill £'000	Intangible assets - other £'000	Property, plant and equipment £'000	Total £'000
Net book amount at                1 April 2015	105,381	1,256	3,985	110,622
Additions	-	295	722	1,017
Acquisition of subsidiary	5,051	3,302	47	8,400
Disposals	-	-	(7)	(7)
Charge for the year	-	(789)	(1,527)	(2,316)
Impairment	(15,156)	-	-	(15,156)
Exchange differences	449	7	24	480
Net book amount at            31 March 2016	95,725	4,071	3,244	103,040

10.        Analysis of net cash

Six months ended 30 September 2016	As at 1 April 2016	Acquisition related	Cash flow	Foreign exchange	As at 30 September 2016
	£'000	£'000	£'000	£'000	£'000
Cash and cash equivalents	1,441	-	467	(558)	1,350
Net cash	1,441	-	467	(558)	1,350
Provision for contingent deferred consideration	-	-	-	-	-
Net cash including contingent deferred consideration	1,441	-	467	(558)	1,350

Six months ended 30 September 2015	As at 1 April 2015	Acquisition related	Cash flow	Foreign exchange	As at 30 September 2015
	£'000	£'000	£'000	£'000	£'000
Cash and cash equivalents	8,312	(10,230)	2,680	144	906
Bank overdraft	-	-	(3,421)	-	(3,421)
Net cash/(debt)	8,312	(10,230)	(741)	144	(2,515)
Provision for contingent deferred consideration	(1,384)	1,384	-	-	-
Net cash/(debt) including contingent deferred consideration	6,928	(8,846)	(741)	144	(2,515)

Year ended 31 March 2016	As at 1 April 2015	Acquisition related	Cash flow	Foreign exchange	As at 31 March 2016
	£'000	£'000	£'000	£'000	£'000
Cash and cash equivalents	8,312	(10,230)	3,469	(110)	1,441
Net cash	8,312	(10,230)	3,469	(110)	1,441
Provision for contingent deferred consideration	(1,384)	1,384	-	-	-
Net cash including contingent deferred consideration	6,928	(8,846)	3,469	(110)	1,441

11.        Related-party transactions

The ultimate controlling party of the Group is Creston plc (incorporated in the United Kingdom). The Group has a related-party relationship with its subsidiaries and with its Directors. Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. There have been no related party transactions with Directors during the period.

 

12.        Principal risks and uncertainties

Details of our principal risks and uncertainties have been disclosed on pages 18 to 20 of the 2016 Annual Report and Accounts. In that disclosure we referred to our mitigation and monitoring procedures which remain relevant to the risks outlined below: 

·      Failure to adapt the business model to an increasingly fast-moving industry. In a rapidly evolving industry closely linked to technological progression, the failure to adapt could have a direct impact on client retention and operational efficiency.

·      Globalisation and macro-economic events affecting client decision-making process. Globalisation and macro-economic events such as the recent result of the EU referendum have transformed client decision making processes, reactiveness and budget allocation. A volatile macro-economic environment could result in a short-term and dynamic budget reallocation process, thus resulting in strategic decisions being independent of performance and client satisfaction.

·      Loss of key clients. Loss of key clients would lead to loss of revenues, impacting the Group's financial performance.

·      Failure to understand evolving client needs and to respond to an increasingly competitive pressure on client acquisition. Client needs evolve under the influence of technological, cultural, and socio-political factors. Failure to understand and anticipate client needs would affect the quality of our work and ultimately lead to the loss of key accounts. Competitive pressure on client acquisition and client retention could lead the Group to face the threat of committing to unfavourable terms of business.

·      Performance of newly acquired businesses is below forecasts and market expectations. Acquired businesses may not perform in line with forecasts could result in underperformance against market expectations. Post-deal integration issues could result in operational inefficiencies and increased integration costs. Performance issues related to acquired business could lead to impairment of Goodwill and intangible assets. Strategic partnerships may not perform in line with expectations creating operational gap. In addition, sub-optimal synergies heighten the risk of litigation.

·      Loss of key staff. Loss of key staff could impair the ability to deliver projects and indirectly affect client retention. In addition, creative edge and brand reputation are equally affected by the loss of key creative talent.

·      Failure to respond to the increasing threat on data protection and cyber security. Ineffective protection of data may expose the Group to various types of confidentiality breach both from an information and from a cyber security perspective. Cyber-attacks could lead to unauthorised circulation of confidential information or vulnerability to ransom demands, which could result in significant reputational loss, and ultimately negatively impact existing and potential business.

·      Systems, IT and technology are managed ineffectively across the Group. Ineffective operational management of systems, IT and technology could lead to loss of operational effectiveness and significantly weakens security processes. This would also negatively affect the ability of the Group to present a competitive offering to potential and existing clients and would increase vulnerability to external attacks.

·      Failure to adhere to changing legal and compliance requirements. Changes to regulations and legal requirements could restrict or burden the Group's activities. Failure to adhere to compliance requirements could lead to financial and reputational damage to the Group.

These principal risks and uncertainties have the potential to impact our results or financial position during the remaining six months of the financial year.

 

13.        Statement of Directors' responsibilities

The Directors confirm that to the best of their knowledge these condensed consolidated set of financial statements have been prepared in accordance with IAS 34 as adopted by the European Union. The half year management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R; namely:-

·      the condensed set of financial statements, which has been prepared in accordance with applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole as required by DTR 4.2.4;

·      an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

The Directors are responsible for the maintenance and integrity of the Company website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors of Creston plc are listed in the Creston Group Annual Report and Accounts 2016. A list of current Directors is maintained on the Creston website: www.creston.com.  

By order of the Board

Kathryn Herrick

17 November 2016

Chief Financial Officer

14.        Forward-looking statements

Certain statements in this half year report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. As these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

15.        Availability of the half year report

Copies of the half year report are available on the Company's website www.creston.com.

 

END

 

 

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