Interim Results
Creston PLC
05 December 2005
Date: 5 December 2005
On behalf of: Creston Plc ("Creston" or "the Group")
Embargoed until: 0700hrs
Creston Plc
Interim Results in accordance with IFRS
for the six months ended 30 September 2005
Creston Plc, the diversified marketing services group, today announced its
interim results for the six months ended 30 September 2005. The highlights,
which demonstrate the Group's ability to acquire and manage companies in
continuing challenging market conditions, are:
FINANCIAL HIGHLIGHTS Headline* IFRS
Change Change
• Increase in turnover (gross billings) to £37.4m (2004: +133% +133%
£16.0m)
• Increase in revenue (fees earned) to £20.7m (2004:
£8.5m) +142% +142%
• Increase in PBIT to £2.8m (2004: £1.4m) +107%
• Increase in Headline PBIT to £3.9m (2004: £1.5m) +158%
• Growth in organic agency Headline PBIT +6%
• Increase in Headline PBIT margin to 18.7% (2004: 17.6%) +6%
• Increase in PBT to £1.9m (2004: £1.2m) +66%
• Increase in Headline PBT to £3.6m (2004: £1.5m) +149%
• Decrease in diluted EPS to 2.10 p (2004: 3.12p) -33%
• Increase in Headline diluted EPS to 6.70p (2004: 4.34p) +54%
• Increase in interim dividends to 0.80p (2004: 0.70p) +14% +14%
* Headline figures are reconciled below:
OPERATIONAL HIGHLIGHTS
• Acquisition of Red Door Communications Limited (RDC) completed on
7 July 2005 for a maximum consideration of £13.5m - the acquisition broadens
Creston's range of marketing services into healthcare and is expected to be
earnings enhancing in the current year.
• Appointment of Simon Williams as the Group's Synergy and Strategy Director
on 5 December 2005.
Commenting on today's announcement, Don Elgie, Group Chief Executive, said:
"Our strategy of building a diversified international marketing services group
through a combination of organic growth and selective acquisitions is
progressing well. We are pleased to have delivered a good performance for our
shareholders in the first half of the year and the depth of new business wins
gives a strong foundation for the second half of the year, with trading since
September being in line with the Board's expectations."
FOR FURTHER INFORMATION, PLEASE CONTACT:
Creston Plc 020 7930 9757
Don Elgie, Chief Executive
Barrie Brien, COO/CFO
www.creston.com
Redleaf Communications 020 7955 1410
Emma Kane/Miranda Good 07876 338339
NOTES TO EDITORS:
• Publication quality photographs are available through Redleaf on the numbers
shown above.
About Creston Plc
• Creston's strategy is to build a diversified international marketing services
group through a combination of organic growth and selective acquisitions. The
Board's aim is to identify synergistic benefits between currently independent
marketing services companies offering premium services such as market research,
direct marketing, customer relationship marketing, advertising and other areas
of marketing communications.
• Creston's companies boast a range of blue-chip clients including the AA,
AstraZeneca United Kingdom, Bacardi-Martini, Bayer, Canon, COI Communications,
Cow & Gate, General Motors, George Wimpey, GlaxoSmithKline, Halifax, Kimberly-
Clark, Lloyds Black Horse, NEC, Nestle Rowntree, NTL, Pfizer, Roche Diagnostics,
Scottish Courage, Tesco, Toshiba and Unilever.
• Creston's share price is quoted in the Financial Times, Telegraph, the Times
and the London Evening Standard.
CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT
The Board is pleased to present the Group's interim results for the six months
ended 30 September 2005. Creston has continued the successful implementation of
its strategy of building a diversified international marketing services group
through a combination of organic growth and selective acquisitions. The
acquisition of Red Door Communications Limited ("RDC"), a leading specialist
healthcare PR agency, on 7 July 2005 supported this strategy.
The Group's interim results have been prepared under International Financial
Reporting Standards ("IFRS"), which were adopted with effect from 1 April 2004.
Due to the impact of IFRS (discussed below) Creston has presented headline
results as the key profit performance indicators as these eliminate the volatile
non-recurring impacts associated with the adoption of IFRS.
Overall, trading during the first six months of the year ending 31 March 2006
has been ahead of expectations. The main operating companies delivered a
combined increase in turnover (billings) of 133 per cent. and 142 per cent. in
revenue over the prior year period. Profit before interest and tax ("PBIT") has
increased by 107 per cent. under IFRS policies and headline PBIT has increased
by 158 per cent. to £3.9m (2004: £1.5m).
Results and impact of IFRS
Turnover, which represents billings to our customers, grew by 133 per cent. to
£37.4m (2004: £16.0m). More importantly revenue, which represents our income
earned increased by 142 per cent. to £20.7m (2004: £8.5m). The reported PBIT
grew from £1.4m to £2.8 m, an increase of 107 per cent.. Headline PBIT was
£3.9m (2004: £1.5m), an increase of 158 per cent. on the prior year.
The directors are of the opinion that certain IFRS accounting policies have a
materially distortive impact on the reported results and introduce a volatility
to the reported figures. In order to enable a better understanding of the
underlying trading of the Group, Creston will refer to headline profit before
taxation, which is derived from the reported figures as follows:
Six months to Six months to
30 September 30 September
2005 2004
£'000 £'000
Headline Profit before taxation 3,611 1,452
IFRS Adjustments
Notional finance costs on future deferred consideration payments (608) (140)
Future acquisition payments to employees deemed as remuneration (714) (132)
Amortisation of intangible assets (353) (13)
Profit before taxation - IFRS 1,936 1,167
Headline profit after taxation 2,440 1,014
IFRS Adjustments
Notional finance costs on future deferred consideration payments (608) (140)
Future acquisition payments to employees deemed as remuneration (714) (132)
Amortisation of intangible assets (353) (13)
Taxation impact - -
Profit after taxation IFRS 765 729
Headline Diluted EPS 6.70p 4.34p
Diluted EPS - IFRS 2.10p 3.12p
The contingent consideration deemed as remuneration arises on payments made by
Creston to employees in respect of the deferred consideration on the business
acquisitions. The notional finance costs also relate to the deferred
consideration. Both of these charges will cease once the relevant earn-outs
have been settled.
A full reconciliation of the impacts of IFRS and an explanation of the
adjustments can be found in the Notes and Appendix 1.
Headline PBIT has increased from £1.5m to £3.9m driven by underlying organic
growth in our companies representing 5 per cent. of revenue and 6 per cent. of
profit before interest and tax. The headline PBIT margin has increased to 18.7
per cent. from 17.6 per cent. as a result of tight cost control, Group
procurement initiatives and good profit conversion on incremental revenue. In
addition DLKW Group has shown significant growth since it was acquired as a
result of securing new clients such as the AA, Dollond & Aitchison, Blockbuster
and Opel. The contribution from RDC has also been pleasing with the agency
continuing its track record of impressive growth.
Profit before taxation under IFRS increased by 66 per cent. to £1.9m from £1.2m
in the prior six month period.
Earnings per share ("EPS") were 2.14p (2004: 3.17p) and diluted EPS were 2.10p
(2004: 3.12p). This decline of 33 per cent. is due to the volatile IFRS
adjustments noted above principally arising on the IFRS accounting for the
acquisition of DLKW Group. In order to give shareholders a better idea of the
underlying trading, the directors have presented a headline EPS and headline
diluted EPS which are 6.82p (2004: 4.41p) and 6.70p (2004: 4.34p) respectively.
The headline diluted EPS growth of 54% is more representative of the underlying
growth of the business.
At 30 September 2005, Creston had net cash balances of £3.2m and total bank
loans and loan notes of £7.6m. The resulting net bank debt of £4.4 m represents
a gearing level of 10%. Creston continues to demonstrate impressive operating
cash flow and maintains significant headroom in its banking covenants. Net
finance costs cover is 3.2 times under IFRS and 15.1 times on a headline basis.
Dividend
An interim dividend per share of 0.80p (2004: 0.70p) is to be paid on 16 January
2006 to shareholders on the register on 16 December 2005. This is in line with
the Board's stated strategy of implementing a progressive dividend policy.
Divisional performance, organic growth and new business
BRANDCOM DIVISION
The BRANDCOM Division (responsible for brand building and communication) was
formed in March 2005 following the acquisition of DLKW and this is its first
full six months of trading. This division has been re-named from Advertising,
as this did not truly reflect the overall Brand Communication Services offered.
Its revenue of £7.0m and headline PBIT of £1.2m is ahead of management's
expectations for the first half of the financial year, due to strong new
business performance with wins including the AA, Opel, Dollond & Aitchison and
Legoland.
INSIGHT DIVISON
Creston's Insight Division (responsible for quantitative and qualitative
research) has contributed revenue of £3.3m (2004: £2.5million) and headline PBIT
of £1.0m (2004: £0.7m). These six months show organic revenue and organic
headline PBIT growth of 3.0 per cent. and 15.0 per cent. respectively. The
headline PBIT margin has increased from 26.4 per cent. to 31.3 per cent. In
addition, the division has benefited from the acquisition of CML, which was
completed in September 2004 and therefore had a minimal impact on the results to
September 2004.
MARCOMS DIVISION
The MARCOMS Division (responsible for the activation and generation of sales
push communication) has shown strong growth with revenue increasing to £7.3m
from £3.9m and headline PBIT increasing to £1.9m from £1.1m. Organic revenue
growth was 5.4 per cent. Following the acquisition of DLKW Group this division
was further strengthened by the addition of DLKW Dialogue and TCR, which
together have generated revenue of £3.2m and headline PBIT of £0.8m in 2005.
These two businesses have performed particularly strongly in the six months to
30 September 2005 following a number of new client wins including AA and
Blockbuster.
PUBLIC RELATIONS DIVISION
The Public Relations Division has been strengthened by the acquisition of RDC
during the period. The division has contributed revenue of £3.0m (2004:£2.1m)
and headline PBIT of £0.9m (2004:£0.5m). Organic revenue and organic headline
PBIT growth are 7.1 per cent. and 6.4 per cent, respectively. These two
businesses have performed strongly in the first six months to 30 September 2005
following a number of new client wins including Kraft, Virgin Games, GLA, GE
Healthcare and Roche Products.
Acquisitions
During the period, the Group acquired the business and assets of RDC, which was
completed on 7 July 2005 for a maximum consideration of £13.5 million plus
costs. RDC, based in London is one of Britain's leading specialist healthcare
PR agencies. RDC's clients include AstraZeneca United Kingdom, Bayer,
GlaxoSmithKline and Roche Diagnostics.
Employees and Incentive Schemes
As detailed in the 2005 Annual Report and approved at the Annual General
Meeting, Creston has instituted long term incentive plans for senior management.
In addition, there was a second offering under the Group's Sharesave scheme,
which was offered to all employees. The take up under the Sharesave scheme
continues to be excellent with 233 employees representing 44 per cent. of
eligible employees participating in this scheme.
We are pleased to announce the appointment of Simon Williams as the Group's
Synergy and Strategy Director reporting to the Chief Executive Officer. Simon
was European Managing Director of Vivaldi Partners, a US Strategic Brand and
Marketing Communications Consultancy.
Outlook
Creston has had a very successful first six months with new business and
additional assignments coming from:
Dollond & Aitchison, Pfizer, Tena (SCA), Opel, Clerical & Medical, COI, BP,
Argos, BP, BUPA, Premier, Carlsberg, General Mills, Danone, John West, Virgin,
Kraft, GLA, GE Healthcare, Roche Products, Bristol Myers Squibb, Bayer, Sanofi,
Ovaltine and Walker's Crisps.
These new business and additional assignment wins have given a strong foundation
for the second half of the year, with trading since September being in line with
the Board's expectation. With the acquisition of RDC, which the Board expects
to be earnings enhancing for the Group in the current year, we are confident
that there will be further opportunities to leverage cross selling and client
referrals across Group companies.
As Creston's profile rises and a considerable amount of acquisition interest is
generated, so more opportunities present themselves.
In summary, we are pleased with the Group's performance in the reported period.
Despite continuing challenging market conditions, the Group continues to
demonstrate a resilient trading performance and the Board is confident of
Creston's growth plans and the future prospects of the Group.
David Marshall Don Elgie
Chairman Chief Executive
5 December 2005
UNAUDITED CONSOLIDATED INCOME STATEMENT
for the six months ended 30 September 2005
Note Six months ended Six months ended Year ended
30 September 2005 30 September 2004 31 March 2005
£'000 £'000 £'000
Turnover (billings) 2 37,352 16,021 35,870
Revenue (fees earned) 2 20,654 8,533 19,401
Operating Costs (17,853) (7,177) (16,308)
Profit on ordinary activities
before interest 2,801 1,356 3,093
Finance Income 84 71 162
Finance Costs 3 (949) (260) (665)
Profit on ordinary activities
before taxation 2 1,936 1,167 2,590
Taxation (1,171) (438) (857)
Profit for the period 765 729 1,733
Basic earnings per share (pence) 5 2.14 3.17 7.04
Diluted earnings per share (pence) 5 2.10 3.12 6.93
Six months ended Six months Year
30 September ended ended
2005 30 September 31 March
2004 2005
£'000 £'000 £'000
Amounts recognised as distributions in the
period 508 265 441
Amounts declared but not recognised as
distributions in the period 297 176 508
UNAUDITED CONSOLIDATED BALANCE SHEET
as at 30 September 2005
Note As at As at As at
30 September 30 September 31 March
2005 2004 2005
£'000 £'000 £'000
Non-current assets
Intangible assets
Goodwill 6 67,166 31,747 57,256
Other 350 27 533
Property, plant and equipment 2,535 932 1,740
Investments 15 - 15
Deferred tax assets 210 60 190
70,276 32,766 59,734
Current assets
Inventories and work in progress 2,050 889 1,810
Trade and other receivables 15,129 7,014 14,638
Cash and short term deposits 3,215 3,976 5,419
20,394 11,879 21,867
Current liabilities
Trade and other payables (16,647) (4,939) (16,441)
Corporate income tax payable (1,849) (1,202) (668)
Obligations under finance leases (149) (144) (216)
Bank overdraft, loans and loan notes (1,687) (2,709) (1,687)
Net current assets 62 2,885 2,855
Total assets less current liabilities 70,338 35,651 62,589
Non current liabilities
Bank loans and loan notes (5,938) (4,282) (6,659)
Obligations under finance leases (157) (56) (205)
Other payables 8 (20,037) (5,743) (14,603)
Net assets 44,206 25,570 41,122
Equity
Called up share capital 3,712 2,519 3,493
Share premium account 19,333 10,070 19,168
Own shares (70) - -
Shares to be issued 1,679 509 1,426
Special reserve 2,385 2,385 2,385
Other reserve 14,702 8,707 12,442
Capital redemption reserve 72 72 72
Retained earnings 2,393 1,308 2,136
Total equity 44,206 25,570 41,122
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 30 September 2005
Note Six months Six months Year ended
ended ended 31 March
30 September 30 September 2005
2005 2004
£'000 £'000 £'000
Net cash inflow from operating activities 9 2,617 386 3,867
Investing activities
Purchase of subsidiary undertakings (4,240) (3,161) (20,413)
Net cash/(overdraft) acquired with
subsidiaries 1,779 (118) 4,233
Purchase of property, plant and
Equipment (1,110) (361) (549)
Sale of property, plant and equipment 32 18 25
Decrease/(increase) in restricted cash 12 (491) 240
deposits
Net cash outflow from investing activities (3,527) (4,113) (16,464)
Financing activities
Issue of shares 185 1,070 11,290
Share repurchases (30) - -
Net decrease in borrowings (814) 2,429 3,791
Financing and share issue costs - - (416)
Equity dividends paid (508) (265) (441)
Capital element of finance lease payments (115) (60) (124)
Net cash (outflow)/inflow from financing (1,282) 3,174 14,100
(Decrease)/increase in cash and cash (2,192) (553) 1,503
equivalents
Cash and cash equivalents at start of period 5,357 3,854 3,854
Cash and cash equivalents at end of period 10 3,165 3,301 5,357
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 September 2005
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2005 2004 2005
£'000 £'000 £'000
At 1 April 52,341 25,254 25,254
Change in accounting policies relating to first time
adoption of IFRS (11,219) (4,495) (4,495)
At 1 April as restated 41,122 20,759 20,759
New share capital issued 2,644 4,287 18,094
Own shares purchased (70) 60 977
Credit for share based incentive schemes 253 - -
Profit for the period 765 729 1,733
Dividends (508) (265) (441)
At period end 44,206 25,570 41,122
NOTES TO THE INTERIM REPORT
for the six months ended 30 September 2005
1. Presentation of financial information and accounting policies
Creston prepared its consolidated financial statements under UK GAAP up to and
including the year ended 31 March 2005. From 2005 onwards Creston is required
to prepare its consolidated financial statements in accordance with
International Accounting Standards and International Financial Reporting
Standards ("IFRS") in accordance with European Union regulations.
The accounting policies used are consistent with those that the directors intend
to use in the next annual financial statements. There is, however, a
possibility that the directors may determine that some changes to these policies
are necessary when preparing the full annual financial statements for the first
time in accordance with those IFRSs adopted for use by the European Union.
This interim financial information has been prepared on the basis of the
recognition and measurement requirements of IFRSs in issue that either are
endorsed by the EU and effective (or available for early adoption) at 31 March
2006 or are expected to be endorsed and effective (or available for early
adoption) at 31 March 2006, the Group's first annual reporting date at which it
is required to use adopted IFRSs. Based on these adopted and unadopted IFRSs,
the directors have made assumptions about the accounting policies expected to be
applied when the first annual IFRS financial statements are prepared for the
year ending 31 March 2006. The interim financial information presented includes
Creston's first interim results reported under IFRS. This document includes an
explanation of how Creston's reported performance and financial position are
impacted by this change. The Group's revised principal accounting polices under
IFRS are presented below. The comparative information contained within this
document has been restated under these new accounting policies and a
reconciliation to the UK GAAP profits as previously reported is provided in
Appendix 1.
Creston has taken advantage of the exemption available under IFRS 1 not to apply
IAS 32 and IAS 39 until 1 April 2005. The interim results and the comparative
information have been prepared on the basis of all currently issued IFRSs.
The principal accounting policies affected by IFRS are:
Goodwill
Goodwill on acquisitions is initially measured at cost including deferred
consideration being the excess of the cost of the business combination over the
Group's fair value of the identifiable net assets (including any identified
intangible assets in addition to goodwill). Following initial recognition,
goodwill is carried at cost less any accumulated impairment losses.
Deferred consideration on acquisitions is provided based on the directors' best
estimate of the liability at the balance sheet date. The liability is
discounted and a notional finance cost is included in the income statement. The
effect has been to increase the finance costs by £0.6m in the six months ended
30 September 2005 (2004: £0.1m).
Intangible assets
Other acquired intangible assets are capitalised at cost. Intangible assets
acquired as part of a business combination are capitalised at fair value at the
date of acquisition. The list of such intangible assets is significantly more
comprehensive under IFRS than was the case under UK GAAP. Intangible assets are
amortised to residual values over the useful economic life of the asset. Where
an asset's life is considered to be indefinite an annual impairment test is
performed.
The identified intangible assets and associated periods of amortisation are as
follows:
Intangible asset Period of amortisation
Brands Indefinite life - subject to annual impairment
Customer contracts Over the notice period of the contract
(generally 1 to 3 months)
The effect has been to charge amortisation costs of £0.4 m in the six months
ended 30 September 2005 (2004: £nil).
Share based payment transactions
Creston has applied the requirements of IFRS 2 " Share-based payment". IFRS 2
has been applied to all grants of equity instruments after 7 November 2002 that
remained unvested as of 1 January 2005. This policy affects the various Creston
incentive schemes.
The cost of equity-settled transactions is recognised, together with a
corresponding increase in equity, over the period in which the performance
conditions are fulfilled, ending on the vesting date on which the relevant
employees become fully entitled to the award. The cumulative expense recognised
for equity-settled transactions at each reporting date until the vesting date
reflects the extent to which the vesting period has expired and the number of
awards that, in the opinion of the directors at that date, will ultimately vest.
No expense is recognised for awards that do not ultimately vest.
The dilutive effect of outstanding options is reflected as additional share
dilution in the computation of earnings per share.
Consideration deemed to be remuneration
In accordance with IFRS 3 certain payments made to employees in respect of
earn-out arrangements are required to be treated as remuneration within the
income statement. These amounts are required to be charged to the income
statement despite the director's opinion that they represent payments to acquire
the business. This has the effect of reducing the reported profit by £0.7m in
the six months to 30 September 2005 (£0.1 m in the six months ended 30 September
2004).
2. Segmental analysis
Turnover, revenue and profit before tax attributable to Creston activities are
shown below. Turnover represents the gross billings to customers. Revenue
represents the fees earned by the companies.
Turnover Revenue
2005 2004 2005 2004
£'000 £'000 £'000 £'000
Brandcom 16,012 - 7,041 -
Insight 5,700 4,443 3,293 2,515
Marcoms 11,767 8,912 7,329 3,948
Public Relations 3,873 2,666 2,991 2,070
37,352 16,021 20,654 8,533
Headline profit before tax
2005 2004
£'000 £'000
Brandcom 1,248 -
Insight 1,032 664
Marcoms 1,922 1,073
Public Relations 891 535
Agency Total 5,093 2,272
Head Office (1,225) (771)
Profit before interest and tax 3,868 1,501
Net finance costs (257) (49)
Profit before tax 3,611 1,452
It is not possible to present a segmental split of the IFRS PBIT and finance
costs as the deemed remuneration and notional finance costs cannot be allocated
between the business segments. As Headline PBT excludes these items (together
with the amortisation of intangibles) a segmental split is presented on that
basis.
3. Finance Costs
Under IAS 39 (fair value of liabilities) the Group is required to discount
liabilities to their fair value. This has a significant impact on the treatment
of deferred consideration, which is generally paid more than three years after
the date of acquisition. The difference between the fair value of the
liabilities and the actual amounts payable are charged to the income statement
as notional finance costs (calculated at the annual rate of 5.5%) over the life
of the associated liability. This has the impact of increasing the finance
costs by £608,000 in the six months ended 30 September 2005 (£140,000 in the six
months ended 30 September 2004 and £327,000 for the year ended 31 March 2005).
4. Dividends
The Board has recommended an interim dividend of 0.80p per share to all ordinary
shareholders on the register at 16 December 2005. In accordance with IFRS this
dividend is not reflected in the income statement for the six months to 30
September 2005 as it was not approved by the Board until 2 December 2005.
5. Earnings per share
The calculation of the basic earnings per share is based on the profit
attributable to ordinary shareholders divided by the weighted average number of
shares in issue for each period, which was 35,768,390 for the period ended 30
September 2005 (year ended 31 March 2005: 24,617,806 and period ended 30
September 2004: 22,974,708). The calculation of the diluted earnings per share
is based on the profit attributable to ordinary shareholders divided by the
weighted average number of diluted shares in issue for each period, which was
36,436,925 for the period ended 30 September 2005 (year ended 31 March 2005:
24,990,613 and period ended 30 September 2004: 23,340,216).
The headline EPS and headline diluted EPS are based on the headline PBT analysed
in note 2 less attributable tax and divided by the weighted average number of
shares and by the weighted average number of diluted shares respectively.
6. Goodwill
A review of the carrying value of acquisitions has been carried out using
reforecast profits. This has shown an increase in the value in use of the
subsidiaries and a corresponding increase in the surplus over the carrying value
in the accounts. No reduction in goodwill has therefore been made, as there are
no indications of impairment.
7. Acquisition
The acquisition of Red Door Communications Limited ("RDC") was completed on 7
July 2005. The maximum consideration payable (including deemed remuneration and
notional finance costs) for RDC is £13.5m plus legal and professional costs of
£0.3m. It is satisfied by an initial consideration of £6.5m, an estimated
further £0.1m dependent upon the final determination of the net assets acquired
and a deferred consideration of up to £6.7m, which is dependent on the financial
performance of RDC in the period to 31 March 2009. As part of the acquisition,
1,595,724 new ordinary shares were issued and listed on the London Stock
Exchange on 14 July 2005. The remaining acquisition costs of £4.2m were funded
from existing working capital resources (£4.1m) and one year loan notes (£0.1m).
At acquisition, RDC had (subject to audit) net assets of £1.2m comprising fixed
assets of £0.1m and net current assets of £1.1m.
The results for the period from completion to 30 September were £0.9m turnover,
£0.8m revenue and £0.3m profit before interest and tax, which has been included
within the consolidated results.
8. Other payables
Other payables represent the accumulated amounts due under the deferred
consideration arrangements with the vendors of the agency companies as
calculated in accordance with IFRS. Creston has the right to settle these
liabilities in equity opposed to loan notes and the decision will be made at
the time of settlement.
9. Reconciliation of profit before interest and tax to net cash flow from
operating activities
Six months Six months Year
ended ended Ended
30 September 30 September 31 March
2005 2004 2005
£'000 £'000 £'000
Profit before interest and tax 2,801 1,356 3,093
Depreciation 400 220 488
Amortisation of intangible assets 353 13 182
Share based payments 88 8 80
Deemed remuneration 714 132 325
Profit on disposal of fixed assets (8) (4) (6)
(Increase)/decrease in inventories and
work in progress (247) (113) 264
(Increase) in debtors (189) (368) (832)
(Decrease)/increase in creditors (604) (819) 1,336
3,308 425 4,930
Net finance costs (257) (39) (176)
Tax paid (434) - (887)
Net cash inflow from operating activities 2,617 386 3,867
10. Analysis of Debt
As at Cash Flow Acquisitions As at
1 April 31 September
2005 2005
£'000
£'000 £'000 £'000
Cash at bank and in hand 5,357 (2,192) - 3,165
Bank loans and loan notes (8,346) 814 (93) (7,625)
Finance leases (421) 115 - (306)
Net (debt) (3,410) (1,263) (93) (4,766)
Restricted cash deposits 62 (12) - 50
Net (debt) including (3,348) (1,275) (93) (4,716)
restricted cash deposits
The restricted cash balances are maintained in a designated account as security
for the loan notes issued on the acquisition of MSL and are, therefore, not
freely available to the Group.
11. Publication of non-statutory accounts
The Interim Report is unaudited and does not constitute statutory accounts
within the meaning of s240 of the Companies Act 1985. The statutory accounts
for the year ending 31 March 2005, which were prepared under UK Generally
Accepted Accounting Principles, have been delivered to the Registrar of
Companies. The auditors' opinion on these accounts was unqualified and did not
contain a statement made under s237(2) or s237(3) of the Companies Act 1985.
12. Availability of the Interim Report
Copies of the Interim Report will be sent to shareholders in due course and are
available from the Company's registered office at City Group P.L.C., 30 City
Road, London, EC1Y 2AG and on the company's website www.creston.com.
APPENDIX 1
FIRST TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
Introduction
This interim statement has been prepared in accordance with the revised
accounting policies set out in note 1 above. These policies have been revised
from those published in the Group's 2005 Report and Accounts following the
Group's transition to reporting under IFRS. The following notes and
reconciliations provide an explanation of the impact of the transition to IFRS.
First-time adoption of IFRS
The rules for the first time adoption of IFRS are set out in IFRS 1 "First Time
Adoption of International Financial Reporting Standards". The Group is required
to establish its IFRS accounting policies, which it will use to prepare its
results for the year to 31 March 2006 and, in general, apply these
retrospectively to determine its opening balance sheet under IFRS at the date of
transition 1 April 2004. The standard permits certain optional exemptions from
this general principle. The Group has elected to take the following principal
exemptions and the information presented has been prepared on this basis.
Business combinations prior to the date of transition
The Group has elected not to apply IFRS 3 retrospectively to business
combinations, which occurred prior to the date of transition.
Share based payments
The Group has elected not to apply IFRS 2 to all relevant share-based payment
transactions granted after 7 November 2002 that had vested at 1 January 2005.
Reconciliation of UK GAAP to IFRS
The following reconciliations are presented below in order to explain the effect
of the transition to IFRS and to show how the comparative results have been
restated.
- reconciliation of profit for the six months to 30 September 2004
- reconciliation of profit for the year ended 31 March 2005
- reconciliation of equity at 1 April 2004
- reconciliation of equity at 30 September 2004
- reconciliation of equity at 31 March 2005
The IFRS adjustments are explained in the notes to the reconciliations below.
RECONCILIATION OF PROFIT FOR THE SIX MONTHS TO 30 SEPTEMBER 2004
As previously Notional Deemed Other As per
reported Finance remuneration IFRS
Costs
£'000 £'000 £'000 £'000 £'000
Turnover (billings) 16,021 - - - 16,021
Revenue 8,533 - - - 8,533
Operating Costs (7,024) - (132) (21) (7,177)
Profit on ordinary activities before
interest 1,509 - (132) (21) 1,356
Finance Income 71 - - - 71
Finance Costs (120) (140) - - (260)
Profit on ordinary activities before
taxation 1,460 (140) (132) (21) 1,167
Taxation (438) - - - (438)
Profit for the period 1,022 (140) (132) (21) 729
Other items comprise:
£'000
Share based payments (8)
Amortisation of intangible assets (13)
(21)
Headline PBIT is calculated as follows:
£'000
IFRS PBIT 1,356
Add:
Deemed remuneration 132
Amortisation of intangibles 13
Headline PBIT 1,501
RECONCILIATION OF PROFIT FOR THE YEAR ENDED 31 MARCH 2005
As previously Notional Deemed Other As per IFRS
reported Finance remuneration
Costs
£'000 £'000 £'000 £'000 £'000
Turnover (billings) 35,870 - - - 35,870
Revenue 19,401 - - - 19,401
Operating Costs (15,721) - (325) (262) (16,308)
Profit on ordinary activities
before interest 3,680 - (325) (262) 3,093
Finance Income 162 - - - 162
Finance Costs (338) (327) - - (665)
Profit on ordinary activities
before taxation 3,504 (327) (325) (262) 2,590
Taxation (864) - - 78 (857)
Profit for the period 2,640 (327) (325) (254) 1,733
Other items comprise:
£'000
Share based payments (80)
Amortisation of intangible assets (182)
(262)
Tax 7
(254)
Headline PBIT is calculated as follows:
£'000
IFRS PBIT 3,093
Add:
Deemed remuneration 325
Amortisation of intangibles 182
Headline PBIT 3,600
RECONCILIATION OF PROFIT FOR THE SIX MONTHS TO 30 SEPTEMBER 2005
Headline PBIT is calculated as follows:
£'000
IFRS PBIT 2,801
Add:
Deemed remuneration 714
Amortisation of intangibles 353
Headline PBIT 3,868
RECONCILIATION OF EQUITY AT 1 APRIL 2004
£'000
UK GAAP reported 1 April 2004 25,254
IFRS 3 Business combinations (notes a to c) (5,209)
IFRS 2 Share based payments (note c) 449
IAS 10 Events after the balance sheet date (note c) 265
IFRS restated 1 April 2004 20,759
RECONCILIATION OF EQUITY AT 30 SEPTEMBER 2004
£'000
UK GAAP reported 30 September 2004 31,000
IFRS 3 Business combinations (notes a to c) (6,107)
IFRS 2 Share based payments (note c) 501
IAS 10 Events after the balance sheet date (note c) 176
IFRS restated 30 September 2004 25,570
RECONCILIATION OF EQUITY AT 31 MARCH 2005
£'000
UK GAAP reported 31 March 2005 52,341
IFRS 3 Business combinations (notes a to c) (13,080)
IFRS 2 Share based payment (note c) 1,353
IAS 10 Events after the balance sheet date (note c) 508
IFRS restated 31 March 2005 41,122
NOTES TO IFRS ADJUSTMENTS
a) Notional finance costs
Deferred consideration on acquisitions is provided based on the directors' best
estimate of the liability at the balance sheet date. The fair value of the
consideration is obtained by discounting (at an interest rate of 5.5%) to
present value the amounts expected to be payable in the future. The resulting
notional finance cost is included in the income statement. The effect has been
to increase the finance costs by £608,000 in the six months ended 30 September
2005 (£140,000 in the six months ended 30 September 2004 and £327,000 for the
year ended 31 March 2005).
b) Contingent consideration deemed as remuneration
Under IFRS 3 payments made to employees of the acquiree who are not shareholders
at the date of acquisition are considered to be remuneration and have to be
charged to the income statement over the performance period (considered to be
the earn-out period). The directors consider these payments form part of the
cost of acquisition of the business and are paid to employees in recognition of
their contribution in creating the value of the business. In order to comply
with IFRS 3 £714,000 has been charged to the income statement in the six months
ended 30 September 2005 (£132,000 in the six months ended 30 September 2004 and
£325,000 for the year ended 31 March 2005).
c) Other items
Other adjustments have been made in respect of:
Business combinations
Under IFRS 3 the Group is required to identify intangible assets acquired on
business combinations completed after the transition date of 1 April 2004. This
has resulted in the recognition of intangible assets with a fair value of
£925,000 at 30 September 2005 (2004: £40,000 and 31 March 2005: £755,000).
In accordance with IAS 38 these intangibles assets (being brand names and
customer contracts) are amortised over their useful economic lives, which vary
depending on the individual characteristics of the intangibles concerned, but
are no more than 10 years. The impact on the income statement is a charge of
£353,000 in the six months ended 30 September 2005 (£13,000 in the six months
ended 30 September 2004 and £182,000 for the year ended 31 March 2005).
Under UK GAAP where contingent consideration may be settled by either the issue
of shares or the issue of loan notes, these amounts are included in equity.
Under IFRS they are treated as liabilities. An adjustment has been made to
reallocate these amounts. This reduces net assets by £13,787,000 at 30
September 2005 (2004: £4,592,000).
A summary of the total impact on net assets of all matters associated with
business combinations is as follows:
At At At
30 September 31 March 1 April
2004 2005 2004
£'000 £'000 £'000
Amortisation of intangible assets (13) (182) -
Notional finance costs (note a) (648) (835) (508)
Deemed remuneration (note b) (854) (1,047) (722)
Reallocation of shares to be issued (4,592) (11,016) (3,979)
(6,107) (13,080) (5,209)
IFRS 2 Share based payment
IFRS 2, "Share-based payment", requires the fair value of share-based payments
(principally share options and other share based incentive schemes) to be
recognised as an expense in the income statement, spread over the vesting period
of the relevant scheme - typically three years. The group has used a
Black-Scholes valuation model to calculate this fair value. There was no charge
in the UK GAAP income statement as all options were issued at an exercise price
equivalent to the market price at that date.
Deferred tax is provided based upon the expected future tax deductions relating
to share-based payment transactions, and is recognised over the vesting period
of the relevant share award schemes.
IAS 10 Events after the balance sheet date
IAS 10, "Events after the Balance Sheet Date" requires that dividends declared
after the balance sheet date should not be recognised as a liability at that
balance sheet date, as the liability does not represent a present obligation as
defined by IAS 37 "Provisions, Contingent Liabilities and Contingent Assets".
The impact on retained earnings at 30 September 2005 is to exclude the proposed
interim dividend of £297,000 as this was declared in December 2005 but to
include the final proposed for the year ended 31 March 2005 of £508,000 as this
was declared in the six months ended 30 September 2005. Similar adjustments
were made at each period end.
IAS 19 Employee benefits
Holiday pay has been provided reflecting the unused leave accumulated at the
period end. The only period affected by this adjustment is the six months ended
30 September 2005.
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