Half Yearly Report

RNS Number : 1571S

Creston PLC

28 November 2012

 



28 November 2012

Creston plc

('Creston' or the 'Group')

Half year results for the six months to 30 September 2012

Creston plc (LSE: CRE), the Insight and Communications group, today announces its half year results for the six months to 30 September 2012 ('the Period').

Group Financial Highlights

·     Revenue up 2 per cent to £37.2 million (H1 2012: £36.5 million)

·     Headline¹ EBITDA²of £5.4 million (H1 2012: £5.5 million)

·     Headline PBT³of £4.4 million (H1 2012: £4.8 million)

·     Headline DEPS⁴ up 32 per cent to 7.44 pence (H1 2012: 5.63 pence) per share

·     Half year dividend per share increased by 20 per cent to 1.00 pence (H1 2012: 0.83 pence)

Corporate and Operational Highlights

·     Digital and online revenue up 8 per cent, representing 45 per cent of Group revenue (H1 2012: 42 per cent)

·     Continued focus on digital marketing with today's acquisition of digital healthcare agency DJM Digital Solutions Ltd ('DJM') post Period end

·     International revenue increased by 35 per cent, and now represents 35 per cent of Group revenue (H1 2012: 26 per cent)

·     Net new business of £3.1 million in annualised revenue (H1 2012: £2.6 million)

·     Solid performance by the Communications division, reporting growth in Headline PBIT⁵ of 8 per cent driven by an improving margin

·     Health division benefiting from successful integration of The Corkery Group into the New York office

·     A slower Insight division margin recovery against a tough industry backdrop, despite stabilised revenues

Group Financial Results

	Headline results		Reported results
	H1 2013 £ million	H1 2012 £ million	H1 2013 £ million	H1 2012 £ million
Revenue	37.2	36.5	37.2	36.5
EBITDA	5.4	5.5	8.8	5.0
PBIT	4.4	4.9	7.9	4.3
PBT	4.4	4.8	7.9	4.1
DEPS	7.44 pence	5.63 pence	13.66 pence	4.67 pence
Dividend per share	1.00 pence	0.83 pence	1.00 pence	0.83 pence

¹Headline results reflect the underlying performance of the Group and excludes acquisition, start-up and restructuring related costs, deemed remuneration charges, non-recurring property-related costs, movement in fair value of deferred consideration and notional finance costs. A full reconciliation is presented in note 4 to this half year statement.

² Earnings before finance costs, finance income, taxation, depreciation and amortisation (EBITDA).

³ Profit before taxation (PBT).

⁴ Profit before taxation (PBT).

⁵ Profit before finance costs, finance income and taxation (PBIT).

Commenting on the results, Don Elgie, Group Chief Executive of Creston plc, said:

"The Group has continued to increase revenue through the expansion of its international business, and the addition of some significant new clients and brands to its roster.

"Many of these new business wins have a significant digital element and Creston is continuing to focus on establishing itself as one of the leaders in providing digital marketing services. This position has been further enhanced through the 8 per cent growth of our online and digital revenue, and today's announcement of the acquisition of digital healthcare agency DJM. 

"While the market remains volatile on the back of continuing macro-economic pressures and we therefore naturally remain cautious, the Group will look to build on its first half revenue increase during its historically stronger second half. The Group's current new business pipeline is healthy and based on historic conversion levels, the Group expects to deliver full year Headline PBIT at around the prior year level."

There will be a presentation for analysts today at 09.30 at the offices of M:Communications, Citypoint, 11^th Floor, 1 Ropemaker Street, London, EC2Y 9AW.

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

Creston plc	+ 44 (0)20 7930 9757
Don Elgie, Group Chief Executive
Barrie Brien, COO/CFO
M:Communications	[phone]
Elly Williamson

Matthew Neal

About Creston plc

Creston plc (LSE: CRE) is a marketing services company focused on insight-led communications. The Group delivers a range of marketing services, including advertising, brand consultancy, CRM, digital and direct marketing, health communications, local marketing, market research, PR and social media marketing to a broad spectrum of blue-chip global clients. Our insight companies give us a real edge, providing the analytic intelligence to enable us to truly understand, influence and inspire consumers and it's that insight-led intelligence that drives our creativity. www.creston.com

Group Chief Executive's Statement

Group Performance

During the first six months of the current financial year, Group revenue grew by 2 per cent compared to the same prior year period. The driver behind this increase was a combination of the continued growth of our international business, which now represents 35 per cent of total revenue (H1 2012: 26 per cent), and the addition of some significant new clients and brands to our roster.

Group Headline EBITDA was £5.4 million (H1 2012: £5.5 million), Group Headline PBIT was £4.4 million (H1 2012: £4.9 million) and Group Headline PBT was £4.4 million (H1 2012: £4.8 million).

Headline DEPS increased 32 per cent to 7.44 pence (H1 2012: 5.63 pence) per share. This increase in DEPS is due to a tax credit in the Period following a positive conclusion to an outstanding HMRC enquiry (further explanation can be found in note 6).  Reported PBT was £7.9 million (H1 2012: £4.1 million) with the material difference between Headline and Reported PBT principally due to a revaluation of estimated deferred consideration (see note 4). This revaluation and the tax credit referred to above have increased Reported DEPS by 192 per cent to 13.66 pence (H1 2012: 4.67 pence) per share.

There were some strong performances from our two largest divisions, Communications and Health, but a slower recovery from our smallest division, Insight. Our Communications division reported an 8 per cent increase in its Headline PBIT; and our Health division, bolstered by the acquisition of The Corkery Group, delivered good revenue and Headline PBIT growth with a flat like-for-like revenue performance as the sector began to stabilise. Both of these divisions also delivered margin improvements. Our Insight division experienced a slower recovery in a challenging market following its FY12 Q4 slowdown, but saw a return to profit in FY13 Q2 following two prior quarters of losses. Management is continuing its proactive cost management to restore the Insight margin.

It is clear that our more digitally focused offer is attractive to clients, as we are seeing an increase in new business opportunities as a direct result of our digital capabilities. As an example, all agencies within the Communications division have recently been appointed to the Government's Agile Route to Market roster. The Group is currently pitching for some major new business opportunities and a significant portion of these are joint pitches between two or more of our agencies in both the Communications and Health divisions, endorsing the strength of our 'Better Together' proposition.

Following the previously reported fall in revenues at the end of the last financial year, like-for-like revenues in the Period declined by 6 per cent, however this is being replaced by a strong new business pipeline and the Group has added net new business from both new and existing clients of £3.1 million (H1 2012: £2.6 million) in annualised revenue.

With work from online and digital activities now accounting for 45 per cent of Group revenue (H1 2012: 42 per cent), the Group is more focused than ever on establishing itself as one of the leaders in providing digital marketing services to clients. This position has been further cemented by today's announcement of the acquisition of digital healthcare agency DJM.

Corporate Development

As well as being marginally earnings enhancing in this financial year, the acquisition of digital marketing specialist DJM, supports the continued development of the Group's Health division. Working as part of Creston Health, we are confident that DJM will facilitate the continued growth of the division as digital becomes an ever-more significant element of our clients' requirements.

Business Review

The respective revenue, Headline PBIT and percentage contributions per division are as follows:  

H1 2013	Revenue		Headline PBIT
	£ million	% of Group	£ million	% of Group
Communications	20.7	55%	3.1	54%
Health	11.0	30%	2.6	45%
Insight	5.5	15%	0.04	1%

Communications

	H1 2013 £ million	H1 2012 £ million
Revenue	20.7	21.0
Contribution to Group revenue (%)	55%	58%
Headline PBIT	3.1	2.9
Reported PBIT	3.1	2.6
Headline PBIT margin (%)	15%	14%

The Group's Communications division delivered a solid performance during the Period. There was good growth of 8 per cent in the division's Headline PBIT to £3.1 million (H1 2012: £2.9 million), despite a small decline in revenue to £20.7 million (H1 2012: £21.0 million), which was a robust performance against two tough prior year revenue growth comparisons (H1 2012: 6 per cent; H1 2011: 14 per cent). The Headline PBIT growth was as a result of our continued vigorous focus on profitable revenue generation and improved recovery rates. Accordingly this has resulted in a continued strengthening of the divisional half year Headline PBIT margin to 15.1 per cent (H1 2012: 13.8 per cent; H1 2011: 11.8 per cent). As the Group's largest division, contributing 55 per cent of revenues and 54 per cent of Headline PBIT, this is an encouraging performance.

Three of the four divisional companies, namely TMW, The Real Adventure and the Nelson Bostock Group, produced good performances during the first half, delivering both revenue and Headline PBIT growth and so underpinning the division's strong PBIT performance. Marketing magazine reinforced TMW's strength in the digital space naming it a Top 5 mobile and e-CRM agency and overall Top 10 digital agency in a recent league table.

Following the decline in revenue at EMO as it entered the current financial year, management undertook a review of its offer, processes and operational structure. The management team is confident this full operational review, along with some major on-going pitches, will enable the business to grow its revenue and improve its profitability during the course of FY14. In the current year however, its revenue and PBIT decline against the prior year will impact the full year results of the division by off-setting the growth from the rest of the division's companies.

New business won by our Communications division during the Period from new and existing clients includes campaigns for several new Unilever brands in the UK: Impulse, VO5, Dove Men + Care and Simple Skincare; EE, Brother and salesforce.com. 

Health

	H1 2013 £ million	H1 2012 £ million
Revenue	11.0	8.0
Contribution to Group revenue (%)	30%	22%
Headline PBIT	2.6	1.8
Reported PBIT	6.1	1.5
Headline PBIT margin (%)	24%	22%

Revenue for the Health division rose by 38 per cent to £11.0 million (H1 2012: £8.0 million) and Headline PBIT increased by 47 per cent to £2.6 million (H1 2012: £1.8 million), as a result of the six month contribution from The Corkery Group. Like-for-like revenue was broadly flat against the prior year, while the Headline PBIT margin for the division increased to 24 per cent (H1 2012: 22 per cent).

In the US, the performances of our most recent acquisitions were encouraging. Both The Corkery Group and Cooney/Waters have reported year-on-year growth in revenue and Headline PBIT. However, owing to continued pressure on the pharmaceutical industry, less funding is being given to institutions that raise disease awareness, which is the practice area of Alembic within the Cooney/Waters Group. We are therefore taking a longer term view that Alembic will not return to former revenue levels in the period to March 2015 (the end of its earn out period) and, consequently, with this reduction in future revenue and PBIT growth, we have reduced the Cooney/Waters Group estimated future deferred consideration by £4.0 million. This movement in the fair value of deferred consideration has resulted in a credit to the income statement and represents the majority of the material growth in our Reported results.

In the UK, despite a difficult 2012 for the pharmaceutical industry which resulted in a drop off in new business opportunities for the division, our investment in the division is starting to bear fruit. Investment in senior hires including a Head of Digital for the division and a Head of International at Red Door Communications (which was recently named Most Rated UK agency by health journalists according to PR Week), our acquisition of digital healthcare agency DJM after the Period end, and a good new business conversion rate mean our agencies are well positioned to capitalise on the growing number of new business opportunities in the current financial year.

New business won during the Period by the Health division from new and existing clients includes work for: Almirall, AstraZeneca, Celgene EU and UK, Leo Pharma, Pfizer, UCB and Warner Chilcott.

Insight

	H1 2013 £ million	H1 2012 £ million
Revenue	5.5	7.5
Contribution to Group revenue (%)	15%	20%
Headline PBIT	0.04	1.7
Reported PBIT	0.04	1.7
Headline PBIT margin (%)	1%	22%

The Insight division reported a decline in revenue to £5.5 million (H1 2012: £7.5 million). However, revenue is stabilising with FY13 Q2 flat on FY13 Q1 and showing growth on Q4 of the previous financial year, when there was a drop off in revenue at ICM as previously reported.

While a decline in PBIT was expected, a PBIT of £0.04 million (H1 2012: £1.7 million) caused by a slower recovery and weaker gross margins at ICM was disappointing. However, despite a rapid slowdown in market research activity during July to September 2012 according to the latest Market Research Society Quarterly Market Trends report, the division returned to profit in FY13 Q2 following two prior quarters of losses. While ICM's recovery is slower than originally anticipated, both revenue and Headline PBIT are expected to grow in the second half as a result of improving commissions and the swift cost-cutting and management actions, which have been on-going since the last financial year.

The division has undertaken a major investment in tablet PCs ('tablets') to digitise its face-to-face research. The benefits of digitising the interview process include a faster response rate for the client and a more engaging experience for the consumer. With 350 tablets, Marketing Sciences has one of the largest operations in the UK and has been rewarded with a major new customer satisfaction tracker from a top retailer.

The division's latest start-up, healthcare research consultancy Vitaris, performed well in the Period, turning profitable in FY13 Q2 within 12 months of launch.

New business won during the period included new commissions from longstanding clients as well as new clients such as Internet Advertising Bureau, VELUX, Gomez and the North West Public Health Observatory.

Co-location

The Group continued to realise its long-term co-location strategy during the Period with its three New York health companies moving to one New York office in September 2012, following the co-location in Bristol of UK agencies EMO and The Real Adventure in April 2012. The Group's UK health companies co-located in Richmond during the prior year.

The Group is also in negotiation to sign a lease to co-locate all its central London agencies (ICM, the Nelson Bostock Group and TMW) and Creston plc next summer. We strongly believe that alongside the clear operational efficiencies from sharing one building and infrastructure, further value will follow from increased client referrals, pitching for more integrated projects and creating a shared environment where our 'innovation through collaboration' and 'Better Together' approach can thrive.

In relation to the New York and London co-locations there will be an associated one-off cost recognised in the full year and FY14 numbers owing to a double rent period and some short-term onerous lease charges. This will be an accounting charge not a cash charge due to the rent free periods which will have been agreed.

Balance Sheet

As at 30 September 2012 the Group continued to strengthen its balance sheet with net current assets of £0.3 million compared with the year-end position of net current liabilities of £2.0 million. The total debt position also improved from the year-end position of £7.0 million to £4.9 million. Net debt of £2.0 million as at the Period end gives an unused banking facility of £16.8 million. As at 30 September 2012, the Group had a low gearing position of 4 per cent versus the year-end position of 7 per cent.

There has been a short-term increase in the Group's working capital position from a negative position of £0.5 million at the year-end to a positive position of £3.4 million. The Group's five year average cash conversion to 30 September 2012 remains high at 93 per cent demonstrating the Group's solid performance in cash generation.

Dividend

As previously reported, in light of the Group's history of strong cash generation and low gearing, it is the Board's intention to maintain a progressive dividend policy. Reflecting this, the Board has declared a half year dividend of 1.00 pence (H1 2012: 0.83 pence) per share to be paid on 10 January 2013 to shareholders registered at 7 December 2012. This represents a 20 per cent increase on the prior year however, this growth rate is higher than the expectation for the full year dividend, as the Board looks to move to a one-third / two-third allocation between the half year / final dividend payment respectively.

Outlook

We are seeing good new business opportunities across the Group, which, combined with our focus on restoring the Insight division's margin, should lead to a second half improvement in our key operational performance indicators.

Creston is continuing to focus on establishing itself as one of the leaders in providing digital marketing services, a position we will look to build on following today's announcement of the acquisition of digital healthcare agency DJM.

While the market remains volatile on the back of continuing macro-economic pressures and we therefore naturally remain cautious, the Group will look to build on its first half revenue increase during its historically stronger second half. The Group's current new business pipeline is healthy and based on historic conversion levels, the Group expects to deliver full year Headline PBIT at around the prior year level.

Don Elgie

Group Chief Executive 

UNAUDITED CONSOLIDATED INCOME STATEMENT

for the six months ended 30 September 2012

	Note	Six months ended 30 September 2012 £'000	Six months ended 30 September 2011 £'000	Audited Year ended 31 March 2012 £'000
Turnover (billings)		52,865	55,975	109,968
Revenue	5	37,165	36,500	74,924
Operating costs		(32,736)	(31,642)	(64,506)
Headline profit before finance income, finance costs and taxation	4	4,429	4,858	10,418
Headline items	4	3,450	(543)	659
Profit before finance income, finance costs and taxation	4	7,879	4,315	11,077
Finance costs		(12)	(217)	(246)
Profit before taxation	4	7,867	4,098	10,831
Taxation	6	392	(1,277)	(1,719)
Profit for the period	4	8,259	2,821	9,112
Basic and diluted earnings per share (pence):	7	13.66	4.67	15.08
		13.66	4.67	15.08

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 September 2012

		Six months ended 30 September 2012 £'000	Six months ended 30 September 2011 £'000	Audited Year ended 31 March 2012 £'000
Profit for the period		8,259	2,821	9,112
Other comprehensive (expense)/income:
Exchange differences on translation of foreign operations		(185)	211	17
Other comprehensive (expense)/income for the period, net of tax		(185)	211	17
Total comprehensive income for the period		8,074	3,032	9,129

UNAUDITED CONSOLIDATED BALANCE SHEET

as at 30 September 2012

	Note	As at  30 September 2012 £'000	As at  30 September 2011 £'000	Audited as at 31 March 2012 £'000
Non-current assets
Intangible assets
Goodwill	9	106,850	101,611	107,050
Other	9	1,388	1,303	1,473
Property, plant and equipment	9	3,721	2,111	3,390
Deferred tax assets		754	732	592
		112,713	105,757	112,505
Current assets
Inventories and work in progress		1,088	1,688	1,202
Trade and other receivables		26,196	28,793	25,982
Cash and cash equivalents	13	1,189	436	1,818
		28,473	30,917	29,002
Current liabilities
Trade and other payables		(23,903)	(20,903)	(27,636)
Corporation tax payable		(1,047)	(2,811)	(1,419)
Obligations under finance leases	13	(2)	(7)	(2)
Bank overdraft, loans and loan notes	13	(3,210)	(6,258)	(1,908)
Derivative financial instrument	12	(40)	-	-
		(28,202)	(29,979)	(30,965)
Net current assets/(liabilities)		271	938	(1,963)
Total assets less current liabilities		112,984	106,695	110,542
Non-current liabilities
Provision for other liabilities and charges	10	(2,849)	(8,569)	(6,929)
Obligations under finance leases	13	-	(2)	-
Deferred tax liabilities		(118)	(17)	(118)
		(2,967)	(8,588)	(7,047)
Net assets		110,017	98,107	103,495
Equity
Called up share capital		6,134	6,134	6,134
Share premium account		35,943	35,943	35,943
Own shares		(656)	(656)	(656)
Shares to be issued		1,141	1,286	1,079
Other reserves		30,822	30,822	30,822
Foreign currency translation reserve		(358)	21	(173)
Retained earnings		36,991	24,557	30,346
Total equity		110,017	98,107	103,495

UNAUDITED STATEMENT OF CHANGES IN EQUITY

Six months ended 30 September 2012

	Called up share capital	Share premium	Own shares	Shares to be issued	Other reserves	Foreign currency translation reserve	Retained earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Changes in equity for the period
At 1 April 2012	6,134	35,943	(656)	1,079	30,822	(173)	30,346	103,495
Profit for the period							8,259	8,259
Other comprehensive expense:
Exchange differences on translation of foreign operations						(185)		(185)
Total comprehensive income for the period						(185)	8,259	8,074
Credit for share-based incentive schemes				62				62
Dividends (note 8)							(1,614)	(1,614)
At 30 September 2012	6,134	35,943	(656)	1,141	30,822	(358)	36,991	110,017

	Called up share capital	Share premium	Own shares	Shares to be issued	Other reserves	Foreign currency translation reserve	Retained earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Changes in equity for the period
At 1 April 2011	6,134	35,943	(779)	1,545	30,822	(190)	23,289	96,764
Profit for the period	-	-	-	-	-	-	2,821	2,821
Other comprehensive income:
Exchange differences on translation of foreign operations	-	-	-	-	-	211	-	211
Total comprehensive income for the period	-	-	-	-	-	211	2,821	3,032
Credit for share-based incentive schemes	-	-	-	56	-	-	-	56
Exercise of share award	-	-	123	(315)	-	-	-	(192)
Gain on treasury scheme/employee benefit trust	-	-	-	-	-	-	81	81
Fair value adjustment of own shares	-	-	-	-	-	-	(274)	(274)
Dividends (note 8)	-	-	-	-	-	-	(1,360)	(1,360)
At 30 September 2011	6,134	35,943	(656)	1,286	30,822	21	24,557	98,107

	Called up share capital	Share premium	Own shares	Shares to be issued	Other reserves	Foreign currency translation reserve	Retained earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Changes in equity for the year
At 1 April 2011	6,134	35,943	(779)	1,545	30,822	(190)	23,289	96,764
Profit for the period	-	-	-	-	-	-	9,112	9,112
Other comprehensive income:
Exchange differences on translation of foreign operations	-	-	-	-	-	17	-	17
Total comprehensive income for the period	-	-	-	-	-	17	9,112	9,129
Debit for share-based incentive schemes	-	-	-	(151)	-	-	-	(151)
Exercise of share award	-	-	123	(315)	-	-	-	(192)
Gain on treasury scheme/employee benefit trust	-	-	-	-	-	-	81	81
Fair value adjustment of own shares	-	-	-	-	-	-	(274)	(274)
Dividends (note 8)	-	-	-	-	-	-	(1,862)	(1,862)
At 31 March 2012	6,134	35,943	(656)	1,079	30,822	(173)	30,346	103,495

UNAUDITED CONSOLIDATED STATEMENT OF CASHFLOWS
for the six months ended 30 September 2012

	Note	Six months ended 30 September 2012 £'000	Six months ended 30 September 2011 £'000	Year ended 31 March 2012 £'000
Operating cash flow	11	1,694	(1,760)	10,713
Tax paid		(196)	(1,588)	(3,176)
Net cash inflow/(outflow) from operating activities		1,498	(3,348)	7,537
Investing activities
Purchase of subsidiary undertakings		(491)	(377)	(3,545)
Net cash acquired with subsidiaries		-	-	453
Purchase of property, plant and equipment	9	(1,150)	(511)	(2,296)
Proceeds from sale of property, plant and equipment		6	-	17
Purchase of intangible assets	9	(50)	(29)	(247)
Net cash outflow from investing activities		(1,685)	(917)	(5,618)
Financing activities
Finance costs		(70)	(66)	(107)
Net increase in borrowings		1,000	3,000	-
Dividends paid		(1,614)	(1,360)	(1,862)
Capital element of finance lease payments		-	-	(7)
Net cash (outflow)/inflow from financing activities		(684)	1,574	(1,976)
Decrease in cash and cash equivalents		(871)	(2,691)	(57)
Net cash and cash equivalents at start of period		(80)	(19)	(19)
Effect of foreign exchange rates		(60)	(92)	(4)
Net cash and cash equivalents at end of period	13	(1,011)	(2,802)	(80)

NOTES TO THE HALF YEAR REPORT
for the six months ended 30 September 2012

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 2012 were approved by the Board of Directors on 12 July 2012 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 2012 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, "Interim financial reporting" as adopted by the European Union.

The accounting policies applied in the preparation of the annual financial statements are based on the European Union adopted International Financial Reporting Standards (IFRS) and IFRIC 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 2012 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 2012 have been prepared in accordance with the accounting policies contained in the Group's Annual Report and Accounts 2012 and the policies as described in note 2 above.

The following new standards have been issued and are effective for annual periods beginning after 1 April 2012, but have not been adopted as they are not seen to have a significant impact on the Group:

·      Amendment to IAS 1, 'Financial statement presentation' regarding other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in 'other comprehensive income' (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not address which items are presented in OCI.

·      IFRS 12, 'Disclosures of interests in other entities', includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The group is yet to assess IFRS 12's full impact and intends to adopt IFRS 12 no later than the accounting period beginning on or after 1 April 2013.  

4.         Reconciliation of Headline profit to Reported profit

In order to enable a better understanding of the underlying trading of the Group, the Directors refer to Headline PBIT, PBT and PAT 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 include acquisition-related charges deemed as remuneration arising on payments made by Creston to non-shareholding employees in respect of the consideration on the business acquisitions; movement in fair value of deferred consideration; and notional finance costs on deferred consideration.  In the financial year ended 31 March 2012, there were also charges relating to the amortisation of acquired intangible assets; and

(ii)         exceptional non-recurring operating charges which include property-related costs. In the financial year ending 31 March 2012, there were also acquisition, start-up and restructuring related costs.

Six months ended 30 September 2012

	PBIT £'000	PBT £'000	PAT £'000
Headline	4,429	4,354	4,499
Property-related costs	(432)	(432)	(432)
Acquisition, start-up and restructuring-related costs	-	-	-
Movement in fair value of deferred consideration	4,032	4,032	4,032
Future acquisition payments to employees deemed as remuneration	(150)	(150)	(150)
Notional finance cost on future deferred consideration	-	63	63
Taxation impact			247
Reported	7,879	7,867	8,259
Headline Basic and Diluted EPS (pence)			7.44
Reported Basic and Diluted EPS (pence)			13.66

Six months ended 30 September 2011

	PBIT £'000	PBT £'000	PAT £'000
Headline	4,858	4,779	3,398
Acquisition, start-up and restructuring-related costs	(300)	(300)	(300)
Future acquisition payments to employees deemed as remuneration	(243)	(243)	(243)
Notional finance cost on future deferred consideration	-	(138)	(138)
Taxation impact			104
Reported	4,315	4,098	2,821
Headline Basic and Diluted EPS (pence)			5.63
Reported Basic and Diluted EPS (pence)			4.67
Year ended 31 March 2012
	PBIT £'000	PBT £'000	PAT £'000
Headline	10,418	10,288	7,455
Acquisition, start-up and restructuring-related costs	(3,114)	(3,114)	(3,114)
Movement in fair value of deferred consideration	4,763	4,763	4,763
Amortisation of acquired intangible assets	(110)	(110)	(110)
Future acquisition payments to employees deemed as remuneration	(880)	(880)	(880)
Notional finance costs on future deferred consideration	-	(116)	(116)
Taxation impact			1,114
Reported	11,077	10,831	9,112
Headline Basic and Diluted EPS (pence)			12.34
Reported Basic and Diluted EPS (pence)			15.08

5.         Segmental analysis

The chief operating decision-maker has been identified as the Executive Board of Directors ('Executive Board') who make the strategic decisions.  The Executive Board has determined the operating segments in a manner consistent with the internal reporting provided to the Executive Board.  The Executive Board considers the business from a divisional perspective, that being Communications, Health and Insight.

The principal activities of the three divisions are as follows:

Communications
The Communications division offers clients an integrated approach to their marketing and communications strategy, offering a range of services which include advertising, brand strategy, customer relationship marketing (CRM), data analytics, digital marketing, events marketing, mobile marketing, local marketing, public relations and social media.

Health
The Health division provides an integrated communications solution to the healthcare and pharmaceuticals sectors and offers services which include advertising, direct marketing, digital marketing, issue management, market research, medical education, public relations and social media.

Insight
The Insight division performs a complete range of market research services on behalf of its clients, through both qualitative and quantitative means using face-to-face, telephone and online techniques.

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, movement in fair value of deferred consideration, future acquisition payments to employees deemed as remuneration and notional finance costs on deferred consideration.

Accounting policies are consistent across the reportable segments.

All significant assets and liabilities are located within the UK and the US.  The Board does not review the assets and liabilities of the Group on a divisional basis and as such has not segmented 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 attributable to Group activities are shown below:

	Communications	Health	Insight	Head Office	Group
Six months ended 30 September 2012	£'000	£'000	£'000	£'000	£'000
Turnover (billings)	29,044	13,308	10,513	-	52,865
Revenue	20,650	10,978	5,537	-	37,165
Headline PBIT	3,125	2,600	38	(1,334)	4,429
Property-related costs	-	(432)	-	-	(432)
Movement in fair value of deferred consideration	-	4,032	-	-	4,032
Future acquisition payments to employees deemed as remuneration	-	(150)	-	-	(150)
Reported PBIT	3,125	6,050	38	(1,334)	7,879
Finance costs	-	-	-	(75)	(75)
Notional finance cost on future deferred consideration		63			63
Profit before taxation	3,125	6,113	38	(1,409)	7,867
Taxation					392
Profit for the period					8,259
	Communications	Health	Insight	Head Office	Group
Six months ended 30 September 2011	£'000	£'000	£'000	£'000	£'000
Turnover (billings)	31,819	10,712	13,444	-	55,975
Revenue	21,044	7,961	7,495	-	36,500
Headline PBIT	2,896	1,764	1,668	(1,470)	4,858
Acquisition, start-up and restructuring-related costs	(300)	-	-	-	(300)
Future acquisition payments to employees deemed as remuneration	-	(221)	-	(22)	(243)
Reported PBIT	2,596	1,543	1,668	(1,492)	4,315
Finance costs	-	-	-	(79)	(79)
Notional finance cost on future deferred consideration	-	(138)	-	-	(138)
Profit before taxation	2,596	1,405	1,668	(1,571)	4,098
Taxation					(1,277)
Profit for the period					2,821

	Communications	Health	Insight	Head Office	Group
Year ended 31 March 2012	£'000	£'000	£'000	£'000	£'000
Turnover (billings)	64,718	22,117	23,133	-	109,968
Revenue	43,009	18,066	13,849	-	74,924
Headline PBIT	6,308	4,559	2,137	(2,586)	10,418
Acquisition, start-up and restructuring-related costs	(1,595)	(791)	(728)	-	(3,114)
Movement in fair value of deferred consideration	-	4,763	-	-	4,763
Amortisation of acquired intangible assets	-	(110)	-	-	(110)
Future acquisition payments to employees deemed as remuneration	-	(1,017)	-	137	(880)
Reported PBIT	4,713	7,404	1,409	(2,449)	11,077
Finance costs	-	-	-	(130)	(130)
Notional finance cost on future deferred consideration	-	(116)	-	-	(116)
Profit before taxation	4,713	7,288	1,409	(2,579)	10,831
Taxation					(1,719)
Profit for the period					9,112

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 2012	Six months ended 30 September 2011	Year ended 31 March 2012	Six months ended 30 September 2012	Six months ended 30 September 2011	Year ended 31 March 2012
	£'000	£'000	£'000	£'000	£'000	£'000
UK	35,808	42,578	79,741	24,268	26,916	52,086
Rest of Europe	8,127	7,598	15,173	5,302	5,466	11,347
Rest of the World (including USA)	8,930	5,799	15,054	7,595	4,118	11,491
	52,865	55,975	109,968	37,165	36,500	74,924

6.         Taxation

The Headline and Reported tax rate is lower than the UK statutory rate of 24 per cent following the resolution of HMRC's enquiry into the tax deductibility of goodwill that was written off following the closure of a Group subsidiary in 2009.  HMRC has confirmed that tax relief will be allowed in respect of the goodwill write-off, leading to a release of the provision that was set up in 31 March 2010.  All periods up to and including the year ended 31 March 2010 have now been agreed with HMRC. In future periods we expect the tax charge to return to a rate that is higher than the UK statutory rate of 24 per cent as a result of disallowable expenditure and higher rates of tax incurred by Creston's US operations.

7.         Earnings per share

	Headline			Reported
	Six months ended 30 September 2012 £'000	Six months ended 30 September 2011 £'000	Year ended 31 March 2012 £'000	Six months ended 30 September 2012 £'000	Six months ended 30 September 2011 £'000	Year ended 31 March 2012 £'000
Earnings
Profit for the period	4,499	3,398	7,455	8,259	2,821	9,112
Number of shares
Weighted average number of shares	60,458,946	60,374,966	60,413,845	60,458,946	60,374,966	60,413,845
Earnings per share
Basic and diluted earnings per share (pence):	7.44	5.63	12.34	13.66	4.67	15.08

The Headline EPS and Headline DEPS are based on the Headline PBT analysed in note 4 less attributable tax and divided by the weighted average number of shares and by the weighted average number of diluted shares respectively.

8.         Dividends

The prior year final dividend of 2.67 pence (H1 2012: 2.25 pence) per share was paid to shareholders on 12 September 2012 giving a total of £1,614,254 (H1 2012: £1,360,000).

The Board has declared a half year dividend to be paid on 10 January 2013 of 1.00 pence (H1 2012: 0.83 pence) per share to all ordinary shareholders on the register at 07 December 2012. 

9.         Non-current assets

Six months ended 30 September 2012
	Property, plant and equipment £'000	Intangible assets - goodwill £'000	Intangible assets - other £'000	Total £'000
Net book amount at 1 April 2012	3,390	107,050	1,473	111,913
Additions	1,150	-	50	1,200
Disposals	(12)	-	-	(12)
Depreciation and amortisation	(793)	-	(135)	(928)
Exchange differences	(14)	(200)	-	(214)
Net book amount at            30 September 2012	3,721	106,850	1,388	111,959
Six months ended 30 September 2011
	Property, plant and equipment £'000	Intangible assets - goodwill £'000	Intangible assets - other £'000	Total £'000
Net book amount at 1 April 2011	2,144	101,280	1,379	104,803
Additions	511	-	29	540
Depreciation and amortisation	(546)	-	(111)	(657)
Exchange differences	2	331	6	339
Net book amount at            30 September 2011	2,111	101,611	1,303	105,025
Year ended 31 March 2012
	Property, plant and equipment £'000	Intangible assets - goodwill £'000	Intangible assets- other £'000	Total £'000
Net book amount at                1 April 2011	2,144	101,280	1,379	104,803
Transfer to tangible assets	5	-	(5)	-
Additions	2,296	-	247	2,543
Disposals	(28)	-	(14)	(42)
Acquisition of subsidiary	92	5,902	218	6,212
Charge for the year	(1,118)	-	(347)	(1,465)
Exchange differences	(1)	(132)	(5)	(138)
Net book amount at            31 March 2012	3,390	107,050	1,473	111,913

10.        Provisions for other liabilities and charges

The earn-out obligations are set out below:

	As at 30 September 2012	As at 30 September 2011	As at 31 March 2012
	£'000	£'000	£'000
Brought forward	6,929	8,376	8,376
Movement in fair value of deferred consideration	(4,032)	-	(4,763)
Acquisitions made during the financial year	-	-	3,311
Exchange differences	15	55	(111)
Income statement: - Notional finance (credit)/cost on future deferred consideration	(63)	138	116
Carried forward	2,849	8,569	6,929
	As at 30 September 2012 £'000	As at 30 September 2011 £'000	As at 31 March 2012 £'000
Analysed as: Non-current liabilities	2,849	8,569	6,929

The Group considers that the above liabilities approximate to their fair value.  The notional interest rate used during the period was 3.3 per cent (31 March 2012: 3.3 per cent).

The earn-out obligations will be paid in cash, in accordance with the associated sale purchase agreement. These payments become due in June 2015.

Due to the reduction of £4.0 million in deferred consideration for the Cooney/Waters Group, management conducted an impairment review and due to the headroom between the present value of future cash flows and the carrying value of goodwill and intangible assets, no impairment is required.

11.        Reconciliation of profit for the period to operating cash flow

	Six months ended 30 September 2012 £'000	Six months ended 30 September 2011 £'000	Year ended 31 March 2012 £'000
Profit for the period	8,259	2,821	9,112
Taxation	(392)	1,277	1,719
Profit before taxation	7,867	4,098	10,831
Finance costs	12	217	246
Profit before finance income, finance costs and taxation	7,879	4,315	11,077
Depreciation of property, plant and equipment	793	546	1,118
Amortisation of intangible assets	135	111	347
Share based payments/(credits)	62	53	(41)
Deemed remuneration	150	243	880
Movement in fair value of deferred consideration	(4,032)	-	(4,763)
Loss on disposal of property, plant and equipment	6	-	11
Loss on disposal of intangible assets	-	-	14
Decrease/(increase) in inventories and work in progress	114	(239)	251
(Increase)/decrease in trade and other receivables	(274)	301	3,861
Decrease in trade and other payables	(3,139)	(7,090)	(2,042)
Operating cash flow	1,694	(1,760)	10,713

12.        Derivative financial instrument

The Group uses derivative financial instruments to manage its foreign currency exposure. These are initially recognised at fair value at the contract date and continue to be stated at fair value at the balance sheet date with gains and losses on revaluation being recognised immediately to the income statement.

At 30 September 2012 the Group had a derivative financial instrument open which had an estimated net fair value liability of £40,000. This amount is based on the market value of equivalent instruments at the balance sheet date. This has been recognised on the balance sheet as a derivative financial liability with the movement going through the income statement.

13.        Analysis of net and total debt

As at 30 September 2012	As at 1 April 2012	Acquisitions*	Cash flow	Foreign exchange	As at 30 September 2012
	£'000	£'000	£'000	£'000	£'000
Cash and cash equivalents	1,818	-	(569)	(60)	1,189
Bank overdraft	(1,898)	-	(302)	-	(2,200)
Net cash and cash equivalents	(80)	-	(871)	(60)	(1,011)
Revolving credit facility	-	-	(1,000)	-	(1,000)
Acquisition loan notes	(10)	-	-	-	(10)
Finance leases	(2)	-	-	-	(2)
Net debt	(92)	-	(1,871)	(60)	(2,023)
Provision for deferred consideration	(6,929)	4,080	-	-	(2,849)
Total debt	(7,021)	4,080	(1,871)	(60)	(4,872)
As at 30 September 2011	As at 1 April 2011	Acquisitions*	Cash flow	Foreign exchange	As at 30 September 2011
	£'000	£'000	£'000	£'000	£'000
Cash and cash equivalents	1,677	-	(1,149)	(92)	436
Bank overdraft	(1,696)	-	(1,542)	-	(3,238)
Net cash and cash equivalents	(19)	-	(2,691)	(92)	(2,802)
Revolving credit facility	-	-	(3,000)	-	(3,000)
Acquisition loan notes	(20)	-	-	-	(20)
Finance leases	(9)	-	-	-	(9)
Net debt	(48)	-	(5,691)	(92)	(5,831)
Provision for deferred consideration	(8,376)	(138)	-	(55)	(8,569)
Total debt	(8,424)	(138)	(5,691)	(147)	(14,400)

Year ended 31 March 2012	As at 1 April 2011	Acquisitions*	Cash flow	Foreign exchange	As at 31 March 2012
	£'000	£'000	£'000	£'000	£'000
Cash and cash equivalents	1,677	453	(308)	(4)	1,818
Bank overdraft	(1,696)	(3,545)	3,343	-	(1,898)
Net cash and cash equivalents	(19)	(3,092)	3,035	(4)	(80)
Acquisition loan notes	(20)	-	10	-	(10)
Finance leases	(9)	-	7	-	(2)
Net debt	(48)	(3,092)	3,052	(4)	(92)
Provision for deferred consideration	(8,376)	1,447	-	-	(6,929)
Total debt	(8,424)	(1,645)	3,052	(4)	(7,021)

* Includes both cash and non-cash items.

14.        Related-party transactions

During the six months ended 30 September 2012 total fees of £32,500 (H1 2012: £29,730) were incurred in relation to City Group P.L.C., £15,000 (H1 2012: £14,730) for the provision of company secretarial services and £17,500 (H1 2012: £15,000) for the services of Mr D C Marshall, a Non-Executive Director.  During the prior period the Group, through its wholly owned subsidiary Emery McLaven Orr Limited, provided services to Vanessa Knox Limited, a company owned by Vanessa Knox, the wife of Mr B C Brien, a Director of Creston plc.  The value of the services amounted to £25,417.  The balance due at 30 September 2011 was £30,500. As at 30 September 2012 there were no outstanding balances. All transactions were conducted on an arm's length basis.

15.        Key risks and uncertainties

The Group's key risks and uncertainties are detailed on pages 37 to 39 on the 2012 Annual Report and Accounts.  These risks are not considered to have changed since the 2012 Annual Report and Accounts were published.

16.        Post balance sheet events

On 28 November 2012 we announced the acquisition of 75 per cent of the share capital of DJM, a UK-based full service digital healthcare agency. On completion, an initial cash consideration payment of £1.2 million will be payable. There will be a final cash consideration payment for the 75 per cent based on the average PBIT from completion to March 2015 of up to £1.8 million. The remaining 25 per cent will remain with the existing shareholders, Dominic Marchant and Seda Marchant. Dominic will continue as managing director of DJM. The minority shareholders in DJM will have a request to put option from April 2018 onwards and Creston will have a call option from April 2020 onwards, for the remaining 25 per cent of DJM for a maximum consideration of £2.4 million. 

17.        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:

·      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 2012.  A list of current Directors is maintained on the Creston website: www.creston.com.

By order of the Board

Don Elgie

28 November 2012

Group Chief Executive

18.        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.

19.        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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