Half Yearly Report

RNS Number : 8732X

Creston PLC

25 November 2014

 



25 November 2014

Creston plc

('Creston' or the 'Group')

Half year results for the six months ended 30 September 2014

Creston plc ('Creston' or the 'Group') (LSE: CRE), the marketing communications group, today announces its half year results for the six months to 30 September 2014 (the 'Period').

Group Financial Highlights

            ·     Revenue up 5 per cent to £37.3 million (H1 2014: £35.7 million), constant currency¹ revenue up 6 per cent

            ·     Like-for-like² revenue up 4 per cent to £37.1 million (H1 2014: £35.7 million), constant currency like-for-like              revenue up 5 per cent

            ·     Headline³ PBT⁴ up 6 per cent to £3.8 million (H1 2014: £3.6 million), constant currency Headline PBT up 9 per              cent

            ·     Headline DEPS⁵ up 14 per cent to 4.98 pence (H1 2014: 4.35 pence)

            ·     Half year dividend per share increased by 13 per cent to 1.35 pence (H1 2014: 1.20 pence)

            ·     Net cash including contingent deferred consideration of £4.9 million (H1 2014: £0.1 million)

Corporate and Operational Highlights

            ·     Operating Highlights:

o  Significant new business wins in the Period include: McCarthy & Stone, Allianz, McCain and Danone in two new international markets

o  Digital and online revenue up 4 per cent in absolute terms and continues to be over 50 per cent of Group revenue

·     Corporate Highlights:

o  Appointment of Barrie Brien as Group Chief Executive

o  Appointment of Kathryn Herrick to the Board and Group as Chief Financial Officer

o  Appointment of Richard Huntingford as Non-Executive Chairman of the Group

o  Acquisition of niche, market-leading neuroscience specialist, Walnut Unlimited

·     Post Period end:

o  Launch of new agency brand and integrated group offer, Creston Unlimited, alongside rebranding of Group companies

o  Partnership agreement with Serviceplan Gruppe ('Serviceplan') to extend the Group's international offer

o  Appointment of Kate Burns as Non-Executive Director and Chairman of the Remuneration Committee

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

"The Group has enjoyed good growth over the six months resulting in increased year-on-year revenue and Headline profit, plus the addition of some major new clients and brands to our existing enviable list of international blue chip clients.

A new executive management team has overseen a busy first half and the delivery of some major cornerstones of the new strategy, which the Group announced in June 2014. These include the repositioning of Creston as an integrated agency group of specialists under the unifying Unlimited brand and our partnership with Serviceplan to extend our international offer. 

The increase in the H1 dividend demonstrates our strong cash generation, and in light of our continued growth momentum we anticipate, as in previous years, increased revenues in the second half of this financial year. Therefore, while we remain cautious in light of the global macro-economic climate and its potential to affect our client budgets, the Board confirms that current trading is in line with its expectations for the full year."

Group Financial Results

	H1 2015	H1 2014	% change	% change on a constant currency basis
Revenue (£ million)	37.3	35.7	5%	6%
Headline PBIT (£ million)	3.8	3.6	6%	9%
Reported PBIT (£ million)	4.1	1.7	137%	143%
Headline PBIT margin (%)	10%	10%	1%	3%
Headline DEPS (pence)	4.98	4.35	14%	18%
Reported DEPS (pence)	5.24	1.82	188%	197%
Dividend per share (pence)	1.35	1.20	13%	13%

¹ Constant currency disclosures calculate the impact of retranslating overseas' operating results at prior year exchange rates.

² Excluding the results from any acquisitions made during the current year, like-for-like compares current year performance to the prior year, adjusting the current year to only include the results of prior year acquisitions for the commensurate period of ownership.

³ Headline results reflect the underlying performance of the Group and exclude property related costs, acquisition, start-up 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 and notional finance costs. A full reconciliation is presented in note 4 to this half year announcement.

⁴ Profit before taxation (PBT).

⁵ Diluted earnings per share (DEPS).

There will be a presentation for analysts today at 11.30 at the offices of Liberum Capital Limited, Ropemaker Place, 25 Ropemaker Street, London, EC2Y 9LY

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]
Elly Williamson/Lucy Stewart

About Creston plc

Creston plc (LSE: CRE), incorporating the Creston Unlimited group offer, is a marketing communications group delivering a range of digital technology-based marketing solutions to blue-chip global clients. Encompassing consultants and discipline experts from across the industry and beyond, Creston Unlimited unlocks the power of creative collaboration to realise the opportunities that exist for brands and businesses in today's rapidly evolving world. www.creston.com / www.creston-unlimited.com  

Chief Executive's Statement

Group Performance

In an encouraging start to the current financial year, revenue and Headline PBIT rose by 5 and 6 per cent respectively, and by 6 and 9 per cent respectively on a constant currency basis, during the first six months.

The Group reported revenue of £37.3 million (H1 2014: £35.7 million) and a Headline PBIT of £3.8 million (H1 2014: £3.6 million), which resulted in a small increase in Headline PBIT margin to 10.3 per cent (H1 2014: 10.2 per cent). On a constant currency basis higher growth was achieved, with revenue of £37.7 million (H1 2014: £35.7 million) and Headline PBIT of £3.9 million (H1 2014: £3.6 million). Like-for-like revenue increased by 4 per cent to £37.1 million (H1 2014: £35.7 million), with constant currency like-for-like revenue growth of 5 per cent to £37.4 million (H1 2014: £35.7 million).

The Group also reported an improvement in Headline PBT which increased by 6 per cent to £3.8 million (H1 2014: £3.6 million), and an improvement in Headline PBT of 9 per cent to £3.9 million (H1 2014: £3.6 million) on a constant currency basis. Headline DEPS also increased 14 per cent to 4.98 pence (H1 2014: 4.35 pence) due to the underlying earnings growth and a reduction in the Headline effective tax rate to 21 per cent (H1 2014: 25 per cent).

Due to the strengthening of sterling against the US dollar there is a material currency exchange impact on our US operations' results which merits the above separate reporting in constant currency.

The co-location of the Group's companies has been an important strategic step which will deliver increased referral and joint pitching opportunities in the medium to long term. In the short term there has been an impact on profitability and the Group's H1 results include the effect of a full six month period of the higher property costs relating to the co-location of the Group's London based companies. To allow for a prior year comparison, if these property costs were to be excluded, Headline PBIT would have increased by 19 per cent to £4.3 million.

Reported PBIT was £4.1 million (H1 2014: £1.7 million) and after a small interest charge Reported PBT was £4.0 million (H1 2014: £1.6 million), with the difference between Headline and Reported PBT largely due to the revaluation credit of the contingent deferred consideration. The prior year included one-off property related costs resulting from the co-location of our London-based companies (see note 4 for reconciliation from Headline to Reported).

In a continuation of FY14's new business performance, there has been a good level of new business activity and referrals during the Period with new clients including: Allianz, Baxter, Bayer, Bentley and BSkyB.

New digital assignments won in the Period, including McCain and the Right to Buy digital contract through the Crown Commercial Service (formerly Government Procurement Service), have contributed to an increase in digital revenue of 4 per cent in absolute terms and revenue from digital work continues to be over 50 per cent of Group revenue. Despite our continued growth in this area, digital work by its nature can lead to variability in annual income over the course of a client relationship. For example, an instruction which often begins as a large website design and build will usually progress to a content management, hosting and maintenance instruction.

Corporate Development

As reported in the Group's full year FY14 results, a key strategic objective for the current financial year was to reposition Creston as an integrated agency group of specialists under the unifying Unlimited brand. I am pleased to report that Creston Unlimited was launched on 18 November 2014 and simultaneously our existing individual Group companies were rebranded with the Unlimited suffix. TMW for example is now called TMW Unlimited. We are confident this new offer will benefit the service offering to our clients and will importantly provide the opportunity for us to pitch and win more multi-discipline business from existing and new clients. The launch of Creston Unlimited and the group-wide rebranding of our service offerings has an associated project cost of under £0.5 million, the majority of which will be incurred in the second half of the current financial year.

Post Period we have also signed a partnership agreement with the German-owned international marketing communications group Serviceplan. Founded in 1970, Serviceplan has almost 2,000 employees based in more than 30 office locations worldwide, including 16 in Europe. Serviceplan has no UK or US presence and so Creston Unlimited will look to serve Serviceplan's clients in these markets. In addition Serviceplan will assist Creston Unlimited's clients in Europe. This partnership agreement will also enable both Creston and Serviceplan to refer clients to each other and jointly pitch for pan-European and US opportunities.

Creston and Serviceplan have already successfully partnered together to win CRM assignments for Danone in Germany and the Middle East.

Business Review

Following the launch of Creston Unlimited, with its collaborative team-led approach to meeting client needs, the Group no longer operates on a divisional basis. The Group's insight capabilities will be an important part of the Group's new consultancy offer and will also closely support our communications companies, and as such, going forwards, the former Communications and Insight divisions will be reported as one offer, Communications & Insight. The Group will continue to have an important specialism in health marketing, which will still be reported separately.

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

H1 2015	Revenue		Headline PBIT
	£ million	% of Group	£ million	% of Group (excluding Head Office costs)
Communications & Insight	27.0	72%	3.2	66%
Health	10.3	28%	1.7	34%

Communications & Insight

	H1 2015	H1 2014
Revenue (£ million)	27.0	26.0
Contribution to revenue (%)	72%	73%
Headline PBIT (£ million)	3.2	3.6
Reported PBIT (£ million)	3.2	2.8
Headline PBIT margin (%)	12%	14%

Revenue for Communications & Insight increased by 4 per cent during the Period to £27.0 million (H1 2014: £26.0 million). Owing to the £0.5 million impact of a full six month period of higher property costs relating to the co-location of the Group's London based companies, all of which sit within the Communications & Insight division, Headline PBIT declined to £3.2 million (H1 2014: £3.6 million).

Significant new business wins during the Period include work for: McCarthy & Stone, Sony Mobile, Arthritis Research, Allianz, BSkyB, Bentley, McCain, Activision, the Right to Buy digital contract through the Crown Commercial Service (formerly Government Procurement Service), Vertu, Sainsbury's Energy and the Department for Work and Pensions.

Revenue derived from our international work for clients served by Communications & Insight grew by 4 per cent to 20 per cent of the division's revenue (H1 2014: 20 per cent). We will look to further grow our international revenues following our partnership agreement with Serviceplan. 

Health

	H1 2015	H1 2014
Revenue (£ million)	10.3	9.7
Contribution to revenue (%)	28%	27%
Headline PBIT (£ million)	1.7	1.5
Reported PBIT (£ million)	2.0	1.2
Headline PBIT margin (%)	16%	15%

Revenue for Health increased by 6 per cent during the Period to £10.3 million (H1 2014: £9.7 million) and Headline PBIT rose 15 per cent to £1.7 million (H1 2014: £1.5 million). Like-for-like revenue, adjusting for the acquisition of Liberation Unlimited on 1 August 2013, increased by 4 per cent to £10.0 million (H1 2014: £9.7 million).

On a constant currency basis, there was higher growth, with revenue increasing by 10 per cent to £10.7 million (H1 2014: £9.7 million) and Headline PBIT rising 22 per cent to £1.8 million (H1 2014: £1.5 million).

Reported PBIT for the division was £2.0 million (H1 2014: £1.2 million), with the difference between Headline and Reported PBIT largely due to a revaluation credit of the contingent deferred consideration for DJM Unlimited. This was due to project delays and cancellations, partly in relation to a failed clinical trial.

In the US, our health business has maintained its good new business performance with wins during the Period including work for National Meningitis Association, Parent Project Muscular Dystrophy and CDC. In the UK, new client work during the Period included major wins from Sanofi, Baxter, Bayer, Pfizer and Novartis. Reflecting the great work we have performed for our clients, Health Unlimited has won 21 industry awards in the Period.

Balance sheet and cash flow

As at 30 September 2014, the Group was in a net cash position of £6.3 million and after contingent deferred consideration of £1.4 million, our net cash position was £4.9 million (30 September 2013: £0.1 million). During the Period the Group delivered an operating cash inflow of £3.3 million (H1 2014: adjusted operating cash outflow £0.6 million). This reflects an improved cash conversion ratio of operating cash flow to Headline EBITDA of 71 per cent (H1 2014: adjusted operating cash flow to Headline EBITDA of negative 14 per cent).

Following a year end working capital position of £1.9 million, our working capital position was £3.0 million as at 30 September 2014 (30 September 2013: £3.4 million). Management continues to place significant emphasis on managing working capital effectively and this has resulted in a five-year cumulative cash conversion of 91 per cent.

Tax

The Reported tax rate of 22 per cent and the Headline tax rate of 21 per cent are broadly in line with the UK statutory rate of 21 per cent.  The Headline tax rate has fallen in the current period largely due to the fall in the UK Statutory tax rate from 23 per cent to 21 per cent.  In future periods we expect the Headline tax rate to increase to reflect the higher levels of tax on growing US income.

Share buyback

In light of its cash position and share price at the time, the Group announced on 11 June 2014 that it would commence a share buy-back programme of up to £2 million. As at 24 November, a total of 1,462,359 shares had been bought back during the financial year costing £1.6 million at an average price of 110 pence. 

Board Changes

As previously announced a number of Board changes took effect during the Period, with two additional changes post Period end. I became Group Chief Executive on 1 April 2014 and Kathryn Herrick joined the Board and Group as Chief Financial Officer on 1 July 2014.

David Grigson stepped down from his role as Non-Executive Chairman at the conclusion of the Group's AGM on 8 September 2014, and I would like to thank David for the significant contribution he has made to Creston during his four and a half years as Chairman.

David has been replaced as Non-Executive Chairman and Chairman of the Nomination Committee by Richard Huntingford, an existing member of the Board for three years and former Chairman of the Remuneration Committee.

The Group also announced two further Board changes on 28 October 2014. Effective 1 November 2014 Kate Burns joined the Board as Non-Executive Director and Chairman of the Remuneration Committee. Kate brings with her a strong background in digital media and technology with senior level experience at Google and AOL, while, effective 30 November 2014, David Marshall will be stepping down from the Board as Non-Executive Director. David was Chairman of the Group from its formation in 2001 until 2010 and I am grateful to David for the wise counsel and experience which he brought to the Board during his tenure.

Dividend

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. The Board has accordingly declared a half year dividend of 1.35 pence (H1 2014: 1.20 pence) per share to be paid on 9 January 2015 to shareholders on the register at 5 December 2014. This represents a 13 per cent increase on the prior year. This growth rate is higher than the expectation for the full year dividend as the Board looks to complete its move towards a one-third/two-thirds allocation between the half year/final dividend payment respectively.

Outlook

Our clients increasingly require international multidiscipline solutions to their brand and business challenges. The recent launch of Creston Unlimited, the unifying Unlimited branding across the Group, and our partnership with Serviceplan, will help us meet this need and means we have entered the second half of the financial year with stronger individual businesses as well as a strengthened core Group offer.

Our strong balance sheet will enable us to invest in and evolve our offer through organic growth and selective acquisitions as we look to deliver the more digital technology-based marketing solutions which our clients require.

The Group is continuing the growth momentum reported in H2 FY14 and, as in previous years, anticipates increased revenues in the second half of the current financial year. Therefore, while we remain cautious in light of the global macro-economic climate and its potential to affect our client budgets in the second half, the Board confirms that current trading is in line with its expectations for the full year.

Barrie Brien

Group Chief Executive 

UNAUDITED CONSOLIDATED INCOME STATEMENT

for the six months ended 30 September 2014

	Note	Six months ended 30 September 2014 £'000	Six months ended 30 September 2013 £'000	Audited Year ended 31 March 2014 £'000
Turnover (billings)		48,687	48,547	101,850
Revenue	5	37,304	35,677	74,878
Operating costs		(33,221)	(33,955)	(67,471)
Profit before finance income, finance costs and taxation	4	4,083	1,722	7,407
Finance costs		(89)	(102)	(203)
Profit before taxation	4	3,994	1,620	7,204
Taxation	6	(871)	(472)	(1,969)
Profit for the period	4	3,123	1,148	5,235
Attributable to:
Equity holders of the parent		3,110	1,100	5,128
Non-controlling interest		13	48	107
		3,123	1,148	5,235
Basic earnings per share (pence):	7	5.25	1.82	8.55
Diluted earnings per share (pence):	7	5.24	1.82	8.52
Headline profit before finance income, finance costs and taxation	4	3,847	3,634	9,766
Headline profit before taxation	4	3,771	3,559	9,617
Headline profit for the period	4	2,971	2,677	7,207

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 September 2014

		Six months ended 30 September 2014 £'000	Six months ended 30 September 2013 £'000	Audited Year ended 31 March 2014 £'000
Profit for the period		3,123	1,148	5,235
Other comprehensive income/(expense):
Items that may be reclassified subsequently to profit and loss:
Exchange differences on translation of foreign operations		275	(677)	(1,007)
Other comprehensive income/(expense) for the period, net of tax		275	(677)	(1,007)
Total comprehensive income for the period		3,398	471	4,228
Attributable to:
Equity holders of the parent		3,385	423	4,121
Non-controlling interest		13	48	107
		3,398	471	4,228

UNAUDITED CONSOLIDATED BALANCE SHEET

as at 30 September 2014

	Note	As at  30 September 2014 £'000	As at  30 September 2013 £'000	Audited as at 31 March 2014 £'000
Non-current assets
Intangible assets
Goodwill	9	104,114	104,195	103,792
Other	9	1,217	1,267	1,193
Property, plant and equipment	9	4,220	4,709	4,619
Deferred tax assets		979	652	987
		110,530	110,823	110,591
Current assets
Inventories and work in progress		1,138	945	905
Trade and other receivables		26,361	25,634	28,948
Cash and cash equivalents	11	6,290	2,780	7,452
		33,789	29,359	37,305
Current liabilities
Trade and other payables		(25,093)	(23,802)	(28,519)
Corporation tax payable		(837)	(137)	(1,147)
Bank overdraft, loans and loan notes	11	-	(1,000)	-
Provision for contingent deferred consideration	10	(1,429)	-	-
		(27,359)	(24,939)	(29,666)
Net current assets		6,430	4,420	7,639
Total assets less current liabilities		116,960	115,243	118,230
Non-current liabilities
Trade and other payables		(2,376)	(2,775)	(2,674)
Provision for contingent deferred consideration	10	-	(1,692)	(1,711)
Provision for other liabilities and charges		(806)	(196)	(782)
Deferred tax liabilities		(584)	(489)	(505)
		(3,766)	(5,152)	(5,672)
Net assets		113,194	110,091	112,558
Equity
Called up share capital		6,134	6,134	6,134
Share premium account		35,943	35,943	35,943
Own shares		(2,829)	(1,098)	(1,679)
Shares to be issued		645	867	929
Other reserves		30,822	30,822	30,822
Foreign currency translation reserve		(455)	(400)	(730)
Retained earnings		42,814	37,717	41,032
Equity attributable to equity holders of parent		113,074	109,985	112,451
Non-controlling interest		120	106	107
Total equity		113,194	110,091	112,558

UNAUDITED STATEMENT OF CHANGES IN EQUITY

Six months ended 30 September 2014

	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 2014	6,134	35,943	(1,679)	929	30,822	(730)	41,032	112,451	107	112,558
Profit for the period	-	-	-	-	-	-	3,110	3,110	13	3,123
Other comprehensive income:
Exchange differences on translation of foreign operations	-	-	-	-	-	275	-	275	-	275
Total comprehensive income for the period	-	-	-	-	-	275	3,110	3,385	13	3,398
Credit for share-based incentive schemes	-	-	-	129	-	-	-	129	-	129
Transfer between reserves in respect of lapsed share options	-	-	-	(256)	-	-	256	-	-	-
Exercise of share award	-	-	61	(157)	-	-	-	(96)	-	(96)
Gain on employee benefit trust	-	-	-	-	-	-	16	16	-	16
Purchase of treasury shares	-	-	(1,211)	-	-	-	-	(1,211)	-	(1,211)
Dividends (note 8)	-	-	-	-	-	-	(1,600)	(1,600)	-	(1,600)
At 30 September 2014	6,134	35,943	(2,829)	645	30,822	(455)	42,814	113,074	120	113,194

	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 2013	6,134	35,943	(656)	1,167	30,822	277	37,863	111,550	58	111,608
Profit for the period	-	-	-	-	-	-	1,100	1,100	48	1,148
Other comprehensive expense:
Exchange differences on translation of foreign operations	-	-	-	-	-	(677)	-	(677)	-	(677)
Total comprehensive (expense)/income for the period	-	-	-	-	-	(677)	1,100	423	48	471
Credit for share-based incentive schemes	-	-	-	64	-	-	-	64	-	64
Transfer between reserves in respect of lapsed share options	-	-	-	(364)	-	-	364	-	-	-
Purchase of treasury shares	-	-	(442)	-	-	-	-	(442)	-	(442)
Dividends (note 8)	-	-	-	-	-	-	(1,610)	(1,610)	-	(1,610)
At 30 September 2013	6,134	35,943	(1,098)	867	30,822	(400)	37,717	109,985	106	110,091

	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 2013	6,134	35,943	(656)	1,167	30,822	277	37,863	111,550	58	111,608
Profit for the year	-	-	-	-	-	-	5,128	5,128	107	5,235
Other comprehensive expense:
Exchange differences on translation of foreign operations	-	-	-	-`	-	(1,007)	-	(1,007)	-	(1,007)
Total comprehensive (expense)/income for the period	-	-	-	-	-	(1,007)	5,128	4,121	107	4,228
Credit for share-based incentive schemes	-	-	-	126	-	-	-	126	-	126
Transfer between reserves in respect of lapsed share options	-	-	-	(364)	-	-	364	-	-	-
Purchase of treasury shares	-	-	(1,023)	-	-	-	-	(1,023)	-	(1,023)
Dividends	-	-	-	-	-	-	(2,323)	(2,323)	(58)	(2,381)
At 31 March 2014	6,134	35,943	(1,679)	929	30,822	(730)	41,032	112,451	107	112,558

UNAUDITED CONSOLIDATED STATEMENT OF CASHFLOWS
for the six months ended 30 September 2014

	Note	Six months ended 30 September 2014 £'000	Six months ended 30 September 2013 £'000	Audited Year ended 31 March 2014 £'000
Profit for the period		3,123	1,148	5,235
Taxation		871	472	1,969
Profit before taxation		3,994	1,620	7,204
Finance costs		89	102	203
Profit before finance income, finance costs and taxation		4,083	1,722	7,407
Depreciation of property, plant and equipment		735	828	1,657
Amortisation of intangible assets		92	176	282
Share based payments charge		223	64	267
(Credit)/charge for future acquisition payments to employees deemed as remuneration		(13)	155	252
Movement in fair value of contingent deferred consideration		(302)	(30)	(29)
Loss on disposal of property, plant and equipment		-	63	56
Loss on disposal of intangible assets		-	-	2
(Increase)/decrease in inventories and work in progress		(231)	123	160
Decrease/(increase) in trade and other receivables		2,640	(250)	(3,617)
(Decrease)/increase in trade and other payables		(3,890)	(3,485)	1,080
Adjusted operating cash inflow/(outflow)		3,337	(634)	7,517
Outflow of proceeds on operating lease	12	-	(3,688)	(3,688)
Operating cash inflow/(outflow)		3,337	(4,322)	3,829
Tax paid		(1,091)	(1,803)	(2,647)
Net cash inflow/(outflow) from operating activities		2,246	(6,125)	1,182
Investing activities
Purchase of property, plant and equipment	9	(327)	(1,205)	(1,513)
Proceeds from sale of property, plant and equipment		2	-	-
Purchase of intangible assets	9	(102)	(110)	(152)
Net cash outflow from investing activities		(427)	(1,315)	(1,665)
Financing activities
Finance costs		(72)	(77)	(112)
Net increase/(decrease) in borrowings		-	990	(10)
Dividends paid		(1,600)	(1,610)	(2,323)
Dividends paid to non-controlling interest		-	-	(58)
Purchase of treasury shares		(1,211)	(442)	(1,023)
Net cash outflow from financing activities		(2,883)	(1,139)	(3,526)
Decrease in cash and cash equivalents		(1,064)	(8,579)	(4,009)
Cash and cash equivalents at start of period	11	7,452	11,208	11,208
Effect of foreign exchange rates		(98)	151	253
Cash and cash equivalents at end of period	11	6,290	2,780	7,452

NOTES TO THE HALF YEAR REPORT
for the six months ended 30 September 2014

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 2014 were approved by the Board of Directors on 9 July 2014 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 2014 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 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 2014 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 2014 have been prepared in accordance with the accounting policies contained in the Group's Annual Report and Accounts 2014 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).  This standard on classification and measurement of financial assets and financial liabilities will replace IAS 39, 'Financial instruments: Recognition and measurement'.  IFRS 9 has two measurement categories: amortised cost and fair value.  All equity instruments are measured at fair value.  A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest.  For liabilities, the standard retains most of the IAS 39 requirements.

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

IFRS 10, 'Consolidated financial statements' and amendments to IAS 32, 'Financial instruments: Presentation'.  The adoption of these amendments did not have a material impact on the Financial Statements.

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 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. These are 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 and notional finance costs on future contingent deferred consideration. These charges 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 and restructuring related costs, property related costs, Creston Unlimited rebranding costs and the impairment of goodwill.

See note 5, segmental analysis, for further explanation of the nature of Headline items incurred within the respective periods.

Six months ended 30 September 2014

	PBIT £'000	PBT £'000	PAT £'000
Headline	3,847	3,771	2,971
Acquisition and start-up related costs	(63)	(63)	(63)
Creston Unlimited rebranding	(16)	(16)	(16)
Movement in fair value of contingent deferred consideration	302	302	302
Credit for future acquisition payments to employees deemed as remuneration	13	13	13
Notional finance cost on future contingent deferred consideration	-	(13)	(13)
Deferred tax charge on amortisation of goodwill	-	-	(79)
Taxation impact	-	-	8
Reported	4,083	3,994	3,123
Headline Basic EPS (pence)			4.99
Headline Diluted EPS (pence)			4.98
Reported Basic EPS (pence)			5.25
Reported Diluted EPS (pence)			5.24

Six months ended 30 September 2013

	PBIT £'000	PBT £'000	PAT £'000
Headline	3,634	3,559	2,677
Property related costs	(1,422)	(1,422)	(1,422)
Acquisition, start-up and restructuring related costs	(305)	(305)	(305)
Movement in fair value of contingent deferred consideration	30	30	30
Amortisation of acquired intangibles	(60)	(60)	(60)
Future acquisition payments to employees deemed as remuneration	(155)	(155)	(155)
Notional finance cost on future contingent deferred consideration	-	(27)	(27)
Deferred tax charge on amortisation of goodwill	-	-	(121)
Taxation impact	-	-	531
Reported	1,722	1,620	1,148
Headline Basic EPS (pence)			4.36
Headline Diluted EPS (pence)			4.35
Reported Basic and Diluted EPS (pence)			1.82

Year ended 31 March 2014
	PBIT £'000	PBT £'000	PAT £'000
Headline	9,766	9,617	7,207
Property related costs	(1,446)	(1,446)	(1,446)
Acquisition, start-up and restructuring related costs	(630)	(630)	(630)
Amortisation of acquired intangibles	(60)	(60)	(60)
Movement in fair value of contingent deferred consideration	29	29	29
Future acquisition payments to employees deemed as remuneration	(252)	(252)	(252)
Notional finance cost on future contingent deferred consideration	-	(54)	(54)
Deferred tax charge on amortisation of goodwill	-	-	(147)
Taxation impact	-	-	588
Reported	7,407	7,204	5,235
Headline Basic EPS (pence)			11.84
Headline Diluted EPS (pence)			11.79
Reported Basic EPS (pence)			8.55
Reported Diluted EPS (pence)			8.52

5.         Segmental analysis

The chief operating decision maker has been identified as the Executive Board of Directors, which makes the strategic decisions. During the Period the way in which the Executive Board review the performance of the Group's components, and subsequently allocate resources to these components has changed, and as such the Group's reportable operating segments have also changed accordingly. The Executive Board now reviews the performance of the Group using two divisions, these being Communications & Insight, and Health.

The principal activities of the two divisions 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.

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 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:

	Communications & Insight	Health	Head Office	Group
Six months ended 30 September 2014	£'000	£'000	£'000	£'000
Turnover (billings)	36,546	12,141	-	48,687
Revenue	27,018	10,286	-	37,304
Headline PBIT	3,218	1,677	(1,048)	3,847
Acquisition and start-up related costs	(24)	(39)	-	(63)
Creston Unlimited rebranding	-	-	(16)	(16)
Movement in fair value of contingent deferred consideration	-	302	-	302
Future acquisition payments to employees deemed as remuneration	(20)	33	-	13
Reported PBIT	3,174	1,973	(1,064)	4,083
Finance costs	-	-	(76)	(76)
Notional finance cost on future contingent deferred consideration	-	(13)	-	(13)
Profit before taxation	3,174	1,960	(1,140)	3,994
Taxation				(871)
Profit for the period				3,123

Due to management's revision of the expected trading performance of DJM Unlimited during the earn-out period there has been a reduction of contingent deferred consideration resulting in a credit to the Consolidated income statement of £0.3 million for the period ended 30 September 2014. This has been excluded from the Headline PBIT measure. 

	Communications & Insight	Health	Head Office	Group
Six months ended 30 September 2013	£'000	£'000	£'000	£'000
Turnover (billings)	37,662	10,885	-	48,547
Revenue	26,010	9,667	-	35,677
Headline PBIT	3,582	1,461	(1,409)	3,634
Property related costs	(516)	-	(906)	(1,422)
Acquisition, start up and restructuring related costs	(276)	(29)	-	(305)
Movement in fair value of contingent deferred consideration	-	30	-	30
Amortisation of acquired intangibles	-	(60)	-	(60)
Future acquisition payments to employees deemed as remuneration	-	(155)	-	(155)
Reported PBIT	2,790	1,247	(2,315)	1,722
Finance costs	-	-	(75)	(75)
Notional finance cost on future contingent deferred consideration	-	(27)	-	(27)
Profit before taxation	2,790	1,220	(2,390)	1,620
Taxation				(472)
Profit for the period				1,148

	Communications & Insight	Health	Head Office	Group
Year ended 31 March 2014	£'000	£'000	£'000	£'000
Turnover (billings)	77,829	24,021	-	101,850
Revenue	53,592	21,286	-	74,878
Headline PBIT	8,268	4,497	(2,999)	9,766
Property related costs	(534)	-	(912)	(1,446)
Acquisition, start-up and restructuring related costs	(435)	(195)	-	(630)
Amortisation of acquired intangibles	-	(60)	-	(60)
Movement in fair value of contingent deferred consideration	-	29	-	29
Future acquisition payments to employees deemed as remuneration	-	(252)	-	(252)
Reported PBIT	7,299	4,019	(3,911)	7,407
Finance costs	-	-	(149)	(149)
Notional finance cost on future contingent deferred consideration	-	(54)	-	(54)
Profit before taxation	7,299	3,965	(4,060)	7,204
Taxation				(1,969)
Profit for the period				5,235

Property related costs of £1.4 million have been excluded from the Headline PBIT measure for the year ended 31 March 2014. These costs include £0.9 million recognised within the Head Office result, relating to the costs incurred during the vacant period of Creston House, including double rent, rates and service charge.

The remaining £0.5 million included within the total £1.4 million of property related costs for the year relates to move costs and double rent, rates and service charge on existing leases; these have been recognised within the respective divisional result. As the economic benefit obtained during the year ended 31 March 2014 was in excess of the £0.5 million incurred under the existing leases, a provision for these costs was not made as at 31 March 2013.

Acquisition, start up and restructuring related costs of £0.6 million have been excluded from the Headline PBIT measure for the year ended 31 March 2014. These consist of £0.4 million in closure costs and trading losses for Vitaris and restructuring costs within the Communications & Insight division, and £0.2 million in start-up costs associated with the new brand and creative consultancy, Loooped.

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 2014	Six months ended 30 September 2013	Year ended 31 March 2014	Six months ended 30 September 2014	Six months ended 30 September 2013	Year ended 31 March 2014
	£'000	£'000	£'000	£'000	£'000	£'000
UK	31,540	33,635	70,376	25,054	23,875	50,949
Rest of Europe	10,554	8,621	18,471	6,601	6,320	12,779
Rest of the World (including USA)	6,593	6,291	13,003	5,649	5,482	11,150
	48,687	48,547	101,850	37,304	35,677	74,878

6.         Taxation

The Reported tax rate of 22 per cent and the Headline tax rate of 21 per cent are broadly in line with the UK statutory rate of 21 per cent.  The Headline tax rate has fallen in the current period largely due to the fall in the UK Statutory tax rate from 23 per cent to 21 per cent.  In future periods we expect the Headline tax rate to increase slightly to reflect the higher levels of tax on growing US income. 

7.        Earnings per share

	Headline			Reported
	Six months ended 30 September 2014	Six months ended 30 September 2013	Year ended 31 March 2014	Six months ended 30 September 2014	Six months ended 30 September 2013	Year ended 31 March 2014
Earnings
Profit for the period (£'000)	2,971	2,677	7,207	3,123	1,148	5,235
Attributable to:
Non-controlling interest (£'000)	13	48	107	13	48	107
Equity holders of the parent (£'000)	2,958	2,629	7,100	3,110	1,100	5,128
Number of shares
Weighted average number of shares	59,254,192	60,347,772	59,951,901	59,254,192	60,347,772	59,951,901
Dilutive effect of shares	145,117	91,591	244,459	145,117	91,591	244,459
	59,399,309	60,439,363	60,196,360	59,399,309	60,439,363	60,196,360
Earnings per share
Basic earnings per share (pence):	4.99	4.36	11.84	5.25	1.82	8.55
Diluted earnings per share (pence):	4.98	4.35	11.79	5.24	1.82	8.52

The Headline EPS and Headline DEPS are based on the Headline PBT attributable to the equity holders of the parent 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.

Diluted earnings per share has been calculated based on the dilutive impact of 647,203 employee share options which were outstanding as at 30 September 2014 (30 September 2013: 867,465).

8.         Dividends

The prior year final dividend of 2.70 pence (H1 2014: 2.67 pence) per share was paid to shareholders on 12 September 2014 giving a total of £1,599,932 (H1 2014: £1,609,782).

The Board has declared a half year dividend to be paid on 9 January 2015 of 1.35 pence (H1 2014: 1.20 pence) per share to all ordinary shareholders on the register at 5 December 2014. 

9.         Non-current assets

Six months ended 30 September 2014
	Property, plant and equipment £'000	Intangible assets - goodwill £'000	Intangible assets - other £'000	Total £'000
Net book amount at 1 April 2014	4,619	103,792	1,193	109,604
Additions	327	-	102	429
Transfer to intangible assets	(8)	-	8	-
Disposals	(3)	-	-	(3)
Depreciation and amortisation	(735)	-	(92)	(827)
Exchange differences	20	322	6	348
Net book amount at            30 September 2014	4,220	104,114	1,217	109,551
Six months ended 30 September 2013
	Property, plant and equipment £'000	Intangible assets - goodwill £'000	Intangible assets - other £'000	Total £'000
Net book amount at 1 April 2013	4,442	105,022	1,359	110,823
Additions	1,205	-	110	1,315
Disposals	(63)	-	-	(63)
Depreciation and amortisation	(828)	-	(176)	(1,004)
Exchange differences	(47)	(827)	(26)	(900)
Net book amount at            30 September 2013	4,709	104,195	1,267	110,171
Year ended 31 March 2014
	Property, plant and equipment £'000	Intangible assets - goodwill £'000	Intangible assets- other £'000	Total £'000
Net book amount at                1 April 2013	4,442	105,022	1,359	110,823
Additions	1,961	-	152	2,113
Transfer to intangible assets	(1)	-	1	-
Disposals	(56)	-	(2)	(58)
Charge for the year	(1,657)	-	(282)	(1,939)
Exchange differences	(70)	(1,230)	(35)	(1,335)
Net book amount at            31 March 2014	4,619	103,792	1,193	109,604

10.        Provision for contingent deferred consideration

The contingent deferred consideration obligations are set out below:

	As at 30 September 2014	As at 30 September 2013	As at 31 March 2014
	£'000	£'000	£'000
Brought forward	1,711	1,714	1,714
Movement in fair value of contingent deferred consideration	(302)	(30)	(29)
Exchange differences	7	(19)	(28)
Income statement:
- Notional finance cost on future contingent deferred consideration	13	27	54
Carried forward	1,429	1,692	1,711
	As at 30 September 2014 £'000	As at 30 September 2013 £'000	As at 31 March 2014 £'000
Analysed as:
Current liabilities	1,429	-	-
Non-current liabilities	-	1,692	1,711

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 (H1 2014: 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 July 2015.

Under IFRS 3 the Group recognises any changes in the fair value of the contingent deferred consideration for previous acquisitions through the Consolidated income statement. During the Period a credit of £0.3 million has been recognised due to the revaluation of the contingent deferred consideration for DJM Unlimited.

11.        Analysis of net cash

Six months ended 30 September 2014	As at 1 April 2014	Acquisitions*	Cash flow	Foreign exchange	As at 30 September 2014
	£'000	£'000	£'000	£'000	£'000
Cash and cash equivalents	7,452	-	(1,064)	(98)	6,290
Net cash	7,452	-	(1,064)	(98)	6,290
Provision for contingent deferred consideration (note10)	(1,711)	282	-	-	(1,429)
Net cash including contingent deferred consideration	5,741	282	(1,064)	(98)	4,861

Six months ended 30 September 2013	As at 1 April 2013	Acquisitions*	Cash flow	Foreign exchange	As at 30 September 2013
	£'000	£'000	£'000	£'000	£'000
Cash and cash equivalents	11,208	-	(8,579)	151	2,780
Revolving credit facility	-	-	(1,000)	-	(1,000)
Acquisition loan notes	(10)	-	10	-	-
Net cash	11,198	-	(9,569)	151	1,780
Provision for contingent deferred consideration (note10)	(1,714)	22	-	-	(1,692)
Net cash including contingent deferred consideration	9,484	22	(9,569)	151	88

Year ended 31 March 2014	As at 1 April 2013	Acquisitions*	Cash flow	Foreign exchange	As at 31 March 2014
	£'000	£'000	£'000	£'000	£'000
Cash and cash equivalents	11,208	-	(4,009)	253	7,452
Acquisition loan notes	(10)	-	10	-	-
Net cash	11,198	-	(3,999)	253	7,452
Provision for contingent deferred consideration (note10)	(1,714)	3	-	-	(1,711)
Net cash including contingent deferred consideration	9,484	3	(3,999)	253	5,741

* Includes non-cash items.

12.        Proceeds on operating lease

On 7 January 2013 the Group entered into an operating lease for the new London office. On signing the lease, the Group received a one-off cash payment of £7.2 million (including VAT) in relation to a reverse premium and agreed dilapidations obligation. During the period to 30 September 2013 £3.7 million of the operating lease proceeds were utilised to fulfil the dilapidations obligation and settle the associated VAT liability.  Excluding the £3.7 million from the Group's operating cash outflow of £4.3 million resulted in an adjusted operating cash outflow of £0.6 million in FY14.

13.        Related-party transactions

During the six months ended 30 September 2014 total fees of £32,500 (H1 2014: £32,500) were incurred in relation to City Group P.L.C., £15,000 (H1 2014: £15,000) for the provision of company secretarial services and £17,500 (H1 2014: £17,500) for the services of Mr D C Marshall, a Non-Executive Director. The balance due at 30 September 2014 was £nil (30 September 2013: £nil). All transactions were conducted on an arm's length basis.

14.        Principal risks and uncertainties

Details of our principal risks and uncertainties have been disclosed on page 28 of the 2014 Annual Report and Accounts. In that disclosure we referred to our mitigation procedures which remain relevant to the risks outlined below: 

·      A fast-moving communications industry with high levels of competition, partly due to low barriers to entry, increasingly complex technological change and a greater international focus, leads to pressures on client retention, budgets and price.

·      Loss of key clients leads to reduced revenues and impacts the Group's financial performance.

·      Loss of key staff leads to inability to deliver projects, potential loss of clients and potential inability to obtain new clients.

·      Increased pressure from new and existing clients to reduce their costs, leading to increased potential of scope creep, reduced prices for services provided and longer payment terms for clients.

·      Turbulence in the macro-economic environment affects the Group's financial performance due to volatility in revenues and expenses, and clients or suppliers going out of business.

·      Insufficient security or ineffective operational management of IT and data management systems leads to compromised client relationships, delays to client work, falling foul of data protection requirements and an impact on reputation.

·      Acquired businesses perform poorly which impacts the Group's overall performance and results in an impairment of goodwill.

·      Changes to regulations and legal requirements restrict or burden the Group's activities.

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

15.        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 2014.  A list of current Directors is maintained on the Creston website: www.creston.com.

By order of the Board

Barrie Brien

25 November 2014

Group Chief Executive

16.        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.

17.        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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