Unaudited Full Year Results

RNS Number : 4985A

Creston PLC

08 June 2016

 

8 June 2016

Creston plc

('Creston' or the 'Group')

Unaudited Full Year Results for the Year Ended 31 March 2016

Creston plc (LSE: CRE), the marketing communications group, today announces its full year results for the year ended 31 March 2016.

Group Financial Highlights

·    Revenue up 8 per cent to £82.6 million (2015: £76.9 million)

·    Like-for-like1 revenue broadly flat at £76.5 million (2015: £76.9 million)

·    Headline2 PBIT3 up 1 per cent to £10.1 million (2015: £10.0 million)

·    Headline PBT4 of £9.9 million (2015: £9.9 million)

·    Headline DEPS5 down 8 per cent to 12.02 pence (2015: 13.07 pence)

·    Reported results include an exceptional non-cash goodwill impairment charge of
£15.2 million (2015: £nil) and other headline items of £2.3 million (2015: £0.2 million)

·    Reported loss before tax of £7.6 million (2015: profit before tax £9.6 million), post the impairment charge and other headline items

·    Proposed full year dividend up 5 per cent to 4.4 pence per share (2015: 4.2 pence per share)

·    Net cash including deferred consideration at year end of £1.4 million (2015: £6.9 million) with strong cash conversion at 111 per cent

Operational and Corporate Highlights

·    Continued progress in completing the five year strategic plan

·    Strong growth in new clients and increased services to key clients

·    Revenue affected by volatility in client budgets and the Euro

·    Acquisition of 51 per cent of How Splendid Ltd and strategic investment in 18 Feet & Rising Ltd

·    Further development of full service offering through partnerships with Future Foundation, Propeller Communications and Ariadna

·    Launched new offerings in brand sponsorship and data platform consultancy

·    Continued investment in existing agencies via the launch of new data and research products

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

"Over the last year we have made good progress against our five year strategic plan and the team has been working hard to integrate the strategy across the Unlimited Group. As a result we have been able to drive another year of improved new business and increased our full service offering for key clients.

Revenue in the year grew by 8 per cent, Headline PBIT grew by 1 per cent and our cash conversion improved, resulting in a positive year end net cash position. The Group was affected by volatility in some clients' budgets and the Euro, but the Company has increased the full year dividend by five per cent, reflecting the fundamental good health of the business. Despite still having work to do, we are looking forward to continuing this progress in the coming year and I believe that we are in a good position to capitalise on the positive work already achieved."

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

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

^[3] Profit before finance costs, finance income and taxation (PBIT).

^[4] Profit before taxation (PBT).

^[5] Headline diluted earnings per share (DEPS).  A full reconciliation is presented in note 7 to this announcement

Group Financial Results

	2016	2015	% change
Revenue (£ million)	82.6	76.9	8%
Headline PBIT (£ million)	10.1	10.0	1%
Headline PBIT margin (%)	12%	13%	-1%
Headline PBT (£ million)	9.9	9.9	0%
Headline DEPS (pence)	12.02	13.07	-8%
Reported PBIT (£ million)	(7.3)	9.8	-174%
Reported PBT (£ million)	(7.6)	9.6	-179%
Reported DEPS (pence)	(16.63)	12.45	-234%
Dividend per share (pence)	4.4	4.2	5%

There will be a presentation for analysts today at 9.30am for details please contact Bell Pottinger.

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

About Creston plc

Creston plc (LSE: CRE), incorporating the Creston Unlimited group offer, is a marketing communications group delivering a range of digital and 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  

Group Chief Executive's Statement
 

Overview

In the 12 months under review, the Group has achieved good progress in implementing its five year strategic plan, continued the growth in new business and broadened the services delivered to many of its top twenty clients, whilst reporting year-on-year growth in full year revenue, Headline PBIT and dividend.

The full year revenue increased 8 per cent against the prior year to £82.6 million (2015: £76.9 million), and like-for-like revenue was broadly flat at £76.5 million (2015: £76.9 million). Headline PBIT increased 1 per cent to £10.1 million (2015: £10.0 million), Headline PBT was flat at £9.9 million (2015: £9.9 million) and Headline Diluted EPS decreased to 12.02 pence (2015: 13.07 pence).

The Group reports a loss before tax for the year of £(7.6) million, versus a prior year profit before tax of £9.6 million.  This loss includes the impact of taking a £15.2 million exceptional non-cash impairment charge against the carrying values of goodwill and other headline items of £2.3 million (see note 4). The impairment charge is allocated to two cash generating units ('CGUs') being ICM Unlimited and DJM PAN Unlimited, following more conservative future estimates of operating profit growth rates from a lower FY16 performance.

The Group has continued its history of reporting good cash conversion of its EBITDA and at 31 March 2016, following a cash conversion of 111 per cent in the year, the Group had net cash of £1.4 million (2015: £8.3 million) and no deferred consideration due (2015: £1.4 million). Following this operating cash flow performance, and the positive net cash position, the Board proposes a 5 per cent increase in the full year dividend to 4.4 pence per share (2015: 4.2 pence per share).

Revenues were affected by specific factors reported earlier this year, including increased client caution due to growing economic headwinds, weaker trading by some of our larger retail and consumer tech clients resulting in budget cuts and a weaker performance of the Euro, which has adversely affected the Company's Euro based revenue contracts by £0.4 million year-on-year.

As a consequence of the FY16 revenue performance, the Group reduced its operating costs where appropriate and maintained an operating company Headline PBIT margin at 16 per cent (2015: 16 per cent). During the year, there has been investment in the Creston Unlimited group offer. This and the Euro weakness have contributed to the Group's Headline PBIT margin reducing slightly to 12 per cent (2015: 13 per cent). The Board will continue to review the Group's cost base to ensure it improves profit margins to prior year levels, whilst ensuring we invest in the growth areas of our business and clients are provided the best service.

With a full service global offer, the Group continues to grow its breadth of services for clients. By offering more services than ever before, our clients are recognising the Unlimited Group as a credible partner to meet their ever changing needs. This is demonstrated in the growth of our international services to 34 per cent of revenue (2015: 32 per cent), the considerable new business success in the period and with the Unlimited strategy resonating with existing clients, there has been an increased number of cross-referral opportunities between Creston companies and its partners. We now have nine of our top 20 clients serviced by two or more of our Unlimited companies and partners, compared to six in the prior year.

Particularly positive is the growth in business from clients completely new to the Group and its agencies. These brands, which make up 63 per cent of the total annualised new business revenue, provide good opportunity for future growth. New business wins in the period include CRM strategy for the Vodafone Customer Value Marketing account, an appointment as Sony Mobile's global lead digital strategic agency, Creston Unlimited's appointment as British Airways' CRM and data strategy adviser, the local marketing of Bosch Home and Garden, and the CRM and digital strategy for Weetabix.

Progress on the implementation of our new five year strategy

In FY15, we set out and began the implementation of a five year strategy focusing on five key objectives, our '5x5s', to create competitive advantage and growth for both our companies and our clients.

Our five key strategic objectives are to:

          ·     build an agency group brand

          ·     develop a group full service client offer

          ·     develop our consultancy offer

          ·     invest in our existing companies' offer and services

          ·     grow our international services

Since launch, and more specifically in this year, I'm pleased to report we have made significant progress on the implementation of our new five year strategy. This progress has included the successful rebrand of the Group, filling the gaps in some discipline offerings and the addition of key strategic partners to the Unlimited family.

To date, we have made the following progress against each individual strategic objective:

·    Building an agency group brand, as all Group companies now operate with the Unlimited suffix to align themselves to one another, strengthening both the Creston Unlimited offer and each agency's position in its market. As Creston Unlimited, we now service clients including British Airways, Canon and Danone, which each tap into the expertise of multiple Group companies. For each of these clients we've established an internal Managing Partner, ensuring a bespoke offering of marketing services that aligns with the client's requirements of collaboration and innovation with maximum efficiency. A good demonstration of this is through our client Danone, which now benefits from the services of nine Group agencies, plus our European partner Serviceplan. The Group provides full strategic global marketing consultancy services to Danone via CRM, market research and insight, healthcare professional advertising and community management for the brand across Europe.
 

·    To further enhance our full service offer, the Health Unlimited division has created and launched Search Unlimited, a digital marketing search engine optimisation agency. With founding clients AstraZeneca, Abbvie and Novartis, this SEO specialist works to support clients in building their online profile.

      On 11 December 2015, we announced the creation of a new brand-partnership specialist, Affinity Unlimited, which helps clients negotiate long-term partnerships with sporting and live-entertainment events. Since launch, Affinity Unlimited has won clients including Rolls Royce and Ocean Masters World Championship.

·    The role of marketing continues to change at pace, spanning business strategy, customer experience and behaviour change communications. As such, Creston Unlimited has been committed from launch to address clients' ever evolving business as well as brand challenges. The success of this way of working is driving the formation of the Group's consultancy offer.

      In April 2015 we announced an investment in digital design and development consultancy How Splendid Limited, which now operates as Splendid Unlimited. At the same time, the Group began a partnership with global consumer trends and insight consultancy Future Foundation. Through the acquisition, development and growth of these partnerships as well as the existing capabilities across the group, we have a comprehensive consultancy offer for existing and new clients, providing business consultancy to create, develop or enhance market opportunities.

·    To further support the consultancy offer, we've launched a new company, Navigate Unlimited, which is expert in marketing technology. In the context of an ever-changing, complex landscape of data platforms, Navigate Unlimited has been set up to advise brands on the optimal technology to automate data-driven consumer marketing experiences. It now works with Group clients, including Danone, Nissan and Sony. 
 

     Other investments in existing agencies this year includes the launch of Real Data and Reflected Life, data analytic and digital marketing tools respectively.

·    Providing international services to our clients remains a key focus for the Group, due to growth opportunities it provides. In the period under review, the international revenue has grown by 14 per cent to represent 34 per cent of the total Group revenue. For international digital healthcare, in April 2015 we announced a partnership with Propeller Communications, who have since moved into our US Health Unlimited office on Fifth Avenue. Also in April 2015, we began a partnership with leading global consumer trends and insight consultancy Future Foundation. The international growth has been further supported by our existing partnership with Serviceplan in Europe and in January 2016 we entered a new partnership with Ariadna to grow our South American services.

Business Review

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

2016	Revenue		Headline PBIT (excluding Head Office costs)
	£ million	% of Group	£ million	% of Group
Communications & Insight	62.9	76%	9.0	69%
Health	19.7	24%	4.0	31%

Communications & Insight

	2016	2015
Revenue (£ million)	62.9	56.2
Contribution to Group revenue (%)	76%	73%
Headline PBIT (£ million)	9.0	8.1
Headline PBIT margin (%)	14%	14%
Reported PBIT (£ million)	(3.2)	7.9

Revenue for Communications & Insight increased by 12 per cent to £62.9 million (2015: £56.2 million) and like-for-like revenue increased 2 per cent to £57.5 million (2015: £56.2 million). This growth was driven by the acquisition of How Splendid Limited, the good new business performance and the broadening of our services to key clients, as an example two of our top five clients experienced double digit revenue growth year-on-year. Our top 20 client list has seen three new entrants including Splendid Unlimited's clients SSE and Boots, and the FY15 win of Costa.

As previously reported, this positive underlying revenue trend has been affected by client budget reductions and volatility, due to weaker trading for certain clients, especially in the retail and consumer tech sectors, and a more cautious economic outlook for others. Our insight companies have particularly been affected by these factors, as well as the changing market research industry, and this has led to the closure of our Fieldwork operation and a more difficult trading performance.

Headline PBIT increased by 11 per cent to £9.0 million (2015: £8.1 million), due to the inclusion of Splendid Unlimited, however the Headline PBIT growth was offset by the weakening Euro of £0.4 million and an increase in operating costs to service an anticipated higher level of revenue earlier in the year. Actions have been taken to ensure operating costs are aligned to the revised levels of future revenues and to maintain our divisional margin.

Significant new business wins during the period include work for new and existing clients: British Airways, Vodafone, Sony Mobile and Bosch. Post period end wins include Sony PlayStation Europe and additional work with L'Oreal.

Health

	2016	2015
Revenue (£ million)	19.7	20.7
Contribution to Group revenue (%)	24%	27%
Headline PBIT (£ million)	4.0	4.3
Headline PBIT margin (%)	20%	21%
Reported PBIT (£ million)	(1.1)	4.7

Health reported a revenue decline of 5 per cent to £19.7 million (2015: £20.7 million) and Headline PBIT decline of 8 per cent to £4.0 million (2015: £4.3 million). On a like-for-like constant currency basis, given the strengthening of the US dollar, the decline increased, with revenue down by 8 per cent to £19.1 million.

Revenue was lower predominantly due to weaker performance in our UK Health business, and more specifically in our health advertising agency. As a consequence of this and the growing change in market opportunities, we took the decision to combine the offers of DJM Unlimited and PAN Unlimited to launch DJM PAN Unlimited - a multi-channel agency borne out of advertising and digital excellence. Our top 30 Health clients however grew year-on-year, as we strengthened relationships with the likes of Gilead and Bayer. The decline in the division's revenue was predominantly driven by clients outside our top 30, which we were unable to offset with new business.

In reaction to the revenue performance, cost initiatives have been enacted in this division which have included disbanding the Health regional restructure, which will realise £0.5 million in annualised savings.

Significant new business wins during the period include work for new and existing clients: Astellas, AstraZeneca, CDC, Gilead, National Meningitis Association, Novartis, and Sanofi. Post period wins include AbbVie, Janssen and Orthimo.

People

We continue to attract and retain some of the best talent from across the industry. Our success has been a result of the strong values across our businesses, the team collaboration and innovation we are achieving for our clients, and our investment in training for senior talent and rising stars.

The commitment, enthusiasm and creativity delivered every day by our teams is the driving force of the above-market client satisfaction scores we continue to achieve, as demonstrated again in this year's survey conducted by Relationship Audits & Management, a third party auditor. We have also received industry recognition, with awards won in the calendar year 2015 increasing 14 per cent to 40 and 56 submissions shortlisted. Awards won include a Gold Euro Effie for Brand Experience for the Durex #TurnOffToTurnOn project and DMA Awards, Gold Best Brand Building, Arrive Awesome - Virgin Trains.

Board

As previously announced, Richard Huntingford stepped down from the board as Non-Executive Chairman, effective 1 April 2016. Until such time as a new Chairman joins the Board, Nigel Lingwood, the Company's Senior Independent Director, continues to act as Non-Executive Chairman on an interim basis. The Company will update the market further in due course.

On the 18 February 2016, Iain Ferguson joined the Board as a Non-Executive Director representing the Company's largest shareholder, DBAY Advisors Limited.

Dividend

Following our strong cash conversion, positive net cash position combined with our outlook, the Board recommends a final dividend of 3.0 pence per share (2015: 2.9 pence per share). This, with the half year dividend of 1.4 pence per share (2015: 1.3 pence per share), gives a proposed full year dividend of 4.4 pence per share (2015: 4.2 pence per share), representing a 5 per cent increase compared to the prior year.

Summary and Outlook

The Group continues to make progress against its new strategy. It has experienced another year of winning an enviable list of new clients across the Group plus the growth of additional services into key clients under the Unlimited proposition, demonstrating the relevance of our new offer in the market place. The year's performance, whilst showing our strategy is on track, was however impacted by circumstances specific to certain clients and a cautious outlook from others. As a result appropriate actions have been taken to realise operational efficiencies required to maintain our operating company Headline PBIT margin.

The Board remains confident that the Group is well-placed to deliver long-term growth for shareholders on the basis of its strengthened offer, blue-chip client relationships, robust cash flow generation and positive cash position at the financial year end.

Barrie Brien

Group Chief Executive

Financial Review

Headline results

For the financial year ended 31 March 2016, Group revenue increased by 8 per cent to £82.6 million (2015: £76.9 million) and Group Headline PBIT increased by 1 per cent to £10.1 million (2015: £10.0 million) decreasing the Headline PBIT margin to 12 per cent (2015: 13 per cent). Group Headline PBT maintained at £9.9 million (2015: £9.9 million) and Headline Diluted Earnings Per Share (DEPS) decreased 8 per cent to 12.02 pence (2015: 13.07 pence).

Growth in Headline results was delivered predominantly due to inclusion of Splendid Unlimited revenue, despite a weakening of the Euro during the year. The Group's Euro based revenue contracts, contributing 9 per cent of Group revenue, have impacted both the Group's revenue and Headline PBIT growth by £0.4 million. Given that further GBP:EUR volatility is expected management are working to renegotiate Euro denominated contracts where possible, and have converted two client contracts back to Sterling effective from 1 April 2016.  During the year management have also entered into two Euro forward contracts to minimise Euro fluctuations.

Headline items

Headline items consist of exceptional and other certain items which are eliminated from Reported results to enable a better understanding of the underlying performance of the Group (see note 4 and note 5 for further detail), the material items of which were:

i.    Impairment
An exceptional non-cash impairment charge to reported profit against the carrying value of goodwill of £15.2 million has been incurred during the year.

ii.   Acquisition, accounting and deal related costs

       Acquisition related costs of £1.4 million have been charged to reported profit, in relation to the acquisition of How Splendid Limited and 18 Feet & Rising Limited. These costs comprise of acquisition and deal related costs, and other accounting costs connected with the acquisition accounting for How Splendid Limited.

iii.  Start-up related net losses

Start-up related net losses of £0.4 million have been charged to reported profit during the year.  These costs have been incurred in relation to five start-ups comprising of Reflected Life, Real Data, Affinity Unlimited, Navigate Unlimited and Search Unlimited.

iv.  Restructuring and closure costs

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

Reported results

The Group reported a loss before tax of £(7.6) million (2015: PBT £9.6 million) primarily due to the exceptional non-cash impairment charge of £15.2 million (2015: £nil) against the carrying value of goodwill for two CGUs being ICM Unlimited and DJM PAN Unlimited. Of the total impairment charge, £10.7 million has been allocated to ICM, due to more conservative future estimates of operating profits off a lower performance in FY16, and due to the first half closure of FieldworkUK.com Limited. The remaining impairment charge of £4.5 million has been allocated to DJM PAN Unlimited, due to more conservative future estimates of operating profits given the recent combination of the businesses DJM Unlimited and PAN Unlimited. Group Reported DEPS decreased 234 per cent to (16.63) pence (2015: 12.45 pence) with this decline mainly being due to the £15.2 million exceptional impairment charge with other headline items totaling £2.3 million (2015: £0.2 million). Note 4 to the full year results presents a reconciliation between Headline and Reported results.

Key performance indicators

The Group manages its operational performance through a number of key performance indicators (KPIs). The principal ones are as follows:

	Financial year ended 31 March 2016	Financial year ended 31 March 2015
Revenue	£82.6 million	£76.9 million
Revenue from international	34%	32%
Revenue per head	£90,100	£90,100
Headline PBIT	£10.1 million	£10.0 million
Headline PBIT per head	£11,000	£11,700
Headline PBIT margin	12%	13%
Reported EBITDA	£10.2 million	£11.5 million
*Adjusted cash conversion	111%	80%
Net cash	£1.4 million	£8.3 million
Net cash including contingent deferred consideration	£1.4 million	£6.9 million

*Adjusted cash conversion is the ratio of operating cash flow to Reported EBITDA, with reported EBITDA adjusted to exclude non-cash items of £0.6m (FY15: £0.6m).

Balance sheet

As at 31 March 2016, the Group had a net cash position of £1.4 million (2015: £6.9 million). The net cash position includes contingent deferred consideration liabilities of £nil (2015: £1.4 million), as the consideration was settled during FY16 (£0.3 million for the Cooney Waters Group Unlimited and £1.1 million for DJM PAN Unlimited).

Cash flow performance

During the financial year, the operating cash inflow was £10.6 million (2015: £8.6 million). The working capital position decreased to £3.9 million (2015: £4.2 million), which resulted in a cash conversion ratio of operating cash flow to Reported EBITDA of 111 per cent (2015: 80 per cent). The improved working capital position was predominantly due to improvements in both accrued income and deferred revenue balances. Management continues to place significant emphasis on managing working capital effectively and this has resulted in a five year cumulative cash conversion of 92 per cent.

Net finance costs

Headline net finance costs were £0.2 million (2015: £0.1 million) comprised of interest paid in relation to the overdraft and non-utilisation fees for the revolving credit facility. Headline net finance costs were covered by Headline EBITDA 47 times (2015: 78 times).

The Reported net finance costs were £0.2 million (2015: £0.2 million).

Refinance

The Group's banking facility was successfully negotiated in May 2015 to include a £25.0 million revolving credit facility (including a £5.0 million overdraft) on improved terms plus an optional £10.0 million accordion.

Effective tax rate

The Headline tax rate was 20.5 per cent (2015: 21.1 per cent), this is in line with the UK statutory tax rate of 20 per cent. The Headline rate has fallen slightly from 2015, largely as a result of the drop in the UK statutory tax rate by 1 per cent, from 21 per cent down to 20 per cent.

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

There is no tax relief on the Group impairment charge of £15.2 million. If the effects of the impairment charge were excluded, the effective tax rate would be 26.4 per cent. This is still higher than the FY15 reported tax rate of 23.1 per cent, due to an increase in non-tax deductible acquisition and restructuring related costs.  

Acquisitions completed during year

On the 22 April 2015 the Group acquired 51 per cent of the share capital of How Splendid Limited ('Splendid'), a London-based digital design and development consultancy.

On completion there was an initial cash consideration payment of £8.7 million funded from the Group's existing cash resources and Splendid retained net current assets of c.£1.2 million, including cash of £1.0 million. A balance sheet surplus payment was made of c.£0.2 million for the net current assets in the completion balance sheet in excess of the pre-agreed minimum requirement of £1.1 million. Due to the estimated financial conditions not being met, no further consideration for the 51 per cent of Splendid is expected.

For the remaining share capital there are no put options, however Creston will have the option to acquire a further 24 per cent from April 2017 for a value up to £8.6 million and for the remaining 25 per cent from April 2019 for a value up to £11.9 million. The consideration for both these call options, payable in cash, will be calculated at a pre-agreed multiple applied to the average profit before interest and tax for the year in which the call option is exercised and the two years preceding the call.

On 9 June 2015, the Group made a strategic investment in 18 Feet & Rising Limited, a London based advertising agency. The investment represented a 27 per cent stake, and 50 per cent of the £1.0 million cash payment for the shareholding invested in the business to help accelerate its future growth.

Going forward, we will continue to seek acquisitions and investments which enhance our current service offerings.

Kathryn Herrick

Chief Financial Officer

UNAUDITED CONSOLIDATED INCOME STATEMENT

for the year ended 31 March 2016

		Note		Unaudited  Year ended 31 March 2016 £'000	Audited Year ended 31 March 2015 £'000
Turnover (billings)				108,044	100,135
Cost of sales				(25,399)	(23,257)
Revenue		5		82,645	76,878
Impairment charge				(15,156)	-
Operating costs				(74,762)	(67,081)
(Loss)/Profit before finance income, finance costs and taxation		4		(7,273)	9,797
Finance income				1	10
Finance costs				(248)	(184)
Share of loss of investments				(64)	-
(Loss)/Profit before taxation		4		(7,584)	9,623
Income tax expense		6		(1,990)	(2,216)
(Loss)/Profit for the year		4		(9,574)	7,407
Attributable to:
Equity holders of the parent				(9,683)	7,321
Non-controlling interest				109	86
				(9,574)	7,407
Basic (loss)/earnings per share (pence)		7		(16.66)	12.48
Diluted (loss)/earnings per share (pence)		7		(16.63)	12.45
Headline profit before finance income, finance costs and taxation		4		10,087	10,001
Headline profit before taxation		4		9,854	9,852
Headline profit for the year		4		7,838	7,775

 

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2016

		Unaudited Year ended 31 March 2016 £'000	Audited Year ended 31 March 2015 £'000
(Loss)/Profit for the year		(9,574)	7,407
Other comprehensive income:
Items that may be reclassified subsequently to profit and loss:
Exchange differences on translation of foreign operations		417	1,298
Other comprehensive income for the year, net of tax		417	1,298
Total comprehensive (loss)/income for the year		(9,157)	8,705
Attributable to:
Equity holders of the parent		(9,266)	8,619
Non-controlling interest		109	86
		(9,157)	8,705

UNAUDITED CONSOLIDATED BALANCE SHEET

as at 31 March 2016

	Note	Unaudited as at  31 March 2016 £'000	Audited as at 31 March 2015 £'000
Non-current assets
Intangible assets:
Goodwill	10	95,725	105,381
Other	11	4,071	1,256
Property, plant and equipment		3,244	3,985
Investments		936	-
Deferred tax assets		955	1,141
		104,931	111,763
Current assets
Inventories and work in progress		735	1,001
Trade and other receivables		29,380	28,195
Cash and cash equivalents	13	1,441	8,312
		31,556	37,508
Current liabilities
Trade and other payables		(26,776)	(25,559)
Corporation tax payable		(38)	(1,328)
Provision for contingent deferred consideration	12	-	(1,384)
		(26,814)	(28,271)
Net current assets		4,742	9,237
Total assets less current liabilities		109,673	121,000
Non-current liabilities
Trade and other payables		(1,485)	(2,078)
Provision for other liabilities and charges		(784)	(841)
Deferred tax liabilities		(1,655)	(808)
		(3,924)	(3,727)
Net assets		105,749	117,273
Equity
Called up share capital		6,134	6,134
Share premium account		35,943	35,943
Own shares		(3,267)	(3,371)
Shares to be issued		199	423
Other reserves		30,822	30,822
Foreign currency translation reserve		985	568
Retained earnings		34,836	46,668
Equity attributable to equity holders of parent		105,652	117,187
Non-controlling interest		97	86
Total equity		105,749	117,273

UNAUDITED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 March 2016

	Called up share capital	Share premium	Own shares	Shares to be issued	Other reserves	Foreign currency translation reserve	Retained earnings	Total attributable to equity holders of parent	Non-controlling interest	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Changes in equity for 2016 (Unaudited)
At 1 April 2015	6,134	35,943	(3,371)	423	30,822	568	46,668	117,187	86	117,273
Loss for the year	-	-	-	-	-	-	(9,683)	(9,683)	109	(9,574)
Other comprehensive income:
Exchange differences on translation of foreign operations	-	-	-	-	-	417	-	417	-	417
Total comprehensive income/(loss) for the year	-	-	-	-	-	417	(9,683)	(9,266)	109	(9,157)
(Debit)/Credit for share-based incentive schemes	-	-	-	(65)	-	-	324	259	-	259
Transfer between reserves in respect of lapsed share options	-	-	-	(31)	-	-	31	-	-	-
Exercise of share award	-	-	140	(128)	-	-	-	12	-	12
Loss on employee benefit trust	-	-	-	-	-	-	(20)	(20)	-	(20)
Purchase of treasury shares	-	-	(36)	-	-	-	-	(36)	-	(36)
Dividends (note 8)							(2,484)	(2,484)	(98)	(2,582)
At 31 March 2016	6,134	35,943	(3,267)	199	30,822	985	34,836	105,652	97	105,749

	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 2015 (Audited)
At 1 April 2014	6,134	35,943	(1,679)	929	30,822	(730)	41,032	112,451	107	112,558
Profit for the year	-	-	-	-	-	-	7,321	7,321	86	7,407
Other comprehensive income:
Exchange differences on translation of foreign operations	-	-	-	-	-	1,298	-	1,298	-	1,298
Total comprehensive income for the year	-	-	-	-	-	1,298	7,321	8,619	86	8,705
Credit for share-based incentive schemes	-	-	-	335	-	-	-	335	-	335
Transfer between reserves in respect of lapsed share options	-	-	-	(683)	-	-	683	-	-	-
Exercise of share award	-	-	60	(158)	-	-	-	(98)	-	(98)
Gain on employee benefit trust	-	-	-	-	-	-	16	16	-	16
Purchase of treasury shares	-	-	(1,752)	-	-	-	-	(1,752)	-	(1,752)
Dividends (note 8)	-	-	-	-	-	-	(2,384)	(2,384)	(107)	(2,491)
At 31 March 2015	6,134	35,943	(3,371)	423	30,822	568	46,668	117,187	86	117,273

UNAUDITED CONSOLIDATED STATEMENT OF CASHFLOWS
for the year ended 31 March 2016

	Note		Unaudited Year ended 31 March 2016 £'000	Audited Year ended 31 March 2015 £'000
(Loss)/Profit for the year			(9,574)	7,407
Income tax expense			1,990	2,216
(Loss)/Profit before taxation			(7,584)	9,623
Finance income			(1)	(10)
Finance costs			248	184
Share of loss from investments			64	-
(Loss)/Profit before finance income, finance costs and taxation			(7,273)	9,797
Depreciation of property, plant and equipment			1,527	1,491
Amortisation of intangible assets			789	162
Share based payments charge			201	490
Charge for future acquisition payments to employees deemed as remuneration			102	12
Movement in fair value of contingent deferred consideration			-	(384)
Impairment charge			15,156	-
Loss on disposal of property, plant and equipment			8	4
Loss on disposal of intangible assets			-	1
Decrease/(increase) in inventories and work in progress			291	(78)
Decrease in trade and other receivables			379	982
Decrease in trade and other payables			(544)	(3,828)
Operating cash inflow			10,636	8,649
Income Tax paid			(3,279)	(2,003)
Net cash inflow from operating activities			7,357	6,646
Investing activities
Finance income			1	10
Purchase of subsidiary undertakings net of cash acquired			(7,843)	-
Purchase of investments			(1,000)	-
Payment of deferred consideration			(1,387)	-
Purchase of property, plant and equipment			(767)	(787)
Proceeds from sale of property, plant and equipment			-	5
Purchase of intangible assets			(295)	(181)
Net cash outflow from investing activities			(11,291)	(953)
Financing activities
Finance costs			(209)	(200)
Dividends paid			(2,484)	(2,384)
Dividends paid to non-controlling interest			(98)	(107)
Purchase of treasury shares			(36)	(1,752)
Net cash outflow from financing activities			(2,827)	(4,443)
(Decrease)/increase in cash and cash equivalents			(6,761)	1,250
Cash and cash equivalents at start of year	13		8,312	7,452
Effect of foreign exchange rates			(110)	(390)
Cash and cash equivalents at end of year	13		1,441	8,312

NOTES TO THE FULL YEAR RESULTS STATEMENT
for the year ended 31 March 2016

1.         Presentation of financial information

The financial information set out herein does not constitute the company's statutory accounts for the years ended 31 March 2016 or 2015, within the meaning of section 434 of the Companies Act 2006.  Statutory accounts for 2015 have been delivered to the Registrar of Companies. The auditors have reported on these 2015 accounts and their report was (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain statements under section 498(2) or (3) of the Companies Act 2006. Copies of the statutory accounts for 31 March 2016 will be distributed to shareholders in advance of the Annual General Meeting and will be delivered to the Registrar of Companies upon approval.

2.         Basis of Preparation

The information has been prepared in accordance with the EU-adopted International Financial Reporting Standards (IFRS) and IFRIC interpretations and with those parts of the Companies Act 2006 which are applicable to companies reporting under IFRS, however, this full year statement in itself does not contain sufficient information to comply with IFRS. The Group Financial Statements are consolidated and include all Group entities. The Company's domicile and country of incorporation is England and Wales, and both its registered office and Head Office are located at Creston House, 10 Great Pulteney Street, London W1F 9NB.

The financial statements have been prepared in Sterling, the currency in which the majority of the Group's transactions are denominated, on the historical cost basis, except where IFRS as adopted by the European Union requires a fair value adjustment, and on a going concern basis.

3.         Accounting policies

The full year results were prepared in accordance with the policies disclosed in the 2015 audited Annual Report and Accounts and the policies as described in note 2 above.

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

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

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

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

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

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

4.         Reconciliation of Headline profit to Reported profit

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

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

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

Year ended 31 March 2016

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

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

Acquisition, accounting and deal related costs amounting to £1.3 million have been excluded from the Headline PBIT measure for year ended 31 March 2016. This comprises of acquisition costs for Splendid Unlimited and 18 Feet (£0.2 million), amortisation of intangibles recognised on acquisition of Splendid Unlimited (£0.7m) and share based payment charge in relation to Splendid Unlimited for valuation of liquidity foregone for the non-controlling interest (£0.3 million) - refer to note 9. In relation to the acquisition of DJM Unlimited and Cooney Waters Group Unlimited £0.1 million has been recognised as acquisition payments to employees deemed as remuneration.

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

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

Year ended 31 March 2015
	PBIT £'000	PBT £'000	PAT £'000
Headline	10,001	9,852	7,775
Other headline items:
Acquisition, accounting, and deal related costs	132	132	132
Property related costs	88	88	88
Creston Unlimited rebranding	(393)	(393)	(393)
Start-up related net losses	(31)	(31)	(31)
Notional finance cost on future contingent deferred consideration		(25)	(25)
Deferred tax charge on amortisation of goodwill		-	(223)
Taxation impact		-	84
Total other headline items	(204)	(229)	(368)
Reported	9,797	9,623	7,407
Headline Basic EPS (pence)			13.10
Headline Diluted EPS (pence)			13.07
Reported Basic EPS (pence)			12.48
Reported Diluted EPS (pence)			12.45

Acquisition, accounting and deal related costs totalling a credit of £0.1 million have been excluded from the Headline PBIT measure for the year ended 31 March 2015. This comprises of £0.2 million in deal related costs incurred during the year in relation to the post year end acquisition of Splendid Unlimited, offset by a credit in relation to the contingent deferred consideration in relation to the end of the earn out period for DJM Unlimited and Cooney Waters Unlimited of £0.3 million and £0.04 million respectively. These amounts have been excluded from the Headline PBIT measure.

A property related credit of £0.1 million has been excluded from the Headline PBIT measure following a rebate of costs incurred during the vacant period of Creston House which were previously excluded from the Headline PBIT measure in a prior period.

Start-up related net losses of £0.03 million relating to trading losses associated with the brand and creative consultancy, Loooped in its first year of trading, have been excluded from the Headline PBIT measure.

Creston Unlimited rebranding costs of £0.4 million have been excluded from the Headline PBIT measure for the year ended 31 March 2015. These incremental and non-recurring costs are as a result of the launch of our new agency group brand and offer, Creston Unlimited, in November 2014 and the simultaneous rebrand of all our Creston companies with the Unlimited suffix.
 

5.         Segmental analysis

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

The principal activities of the two divisions 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, Creston Unlimited rebranding, movement in fair value of contingent deferred consideration, impairment of goodwill, future acquisition payments to employees deemed as remuneration and notional finance costs on contingent deferred consideration.

Accounting policies are consistent across the reportable segments.

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

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

Divisional segmentation

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

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

	Note	Communications & Insight	Health	Head Office	Group
Year ended 31 March 2015		£'000	£'000	£'000	£'000
Turnover (billings)		76,599	23,536	-	100,135
Revenue		56,156	20,722	-	76,878
Headline PBIT		8,112	4,319	(2,430)	10,001
Other headline items	4	(260)	361	(305)	(204)
Reported PBIT		7,852	4,680	(2,735)	9,797
Finance income		-	-	10	10
Finance costs		-	-	(159)	(159)
Notional finance cost on future contingent deferred consideration		-	(25)	-	(25)
Profit before taxation		7,852	4,655	(2,884)	9,623
Taxation					(2,216)
Profit for the period					7,407

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
		Year ended 31 March 2016	Year ended 31 March 2015		Year ended 31 March 2016	Year ended 31 March 2015
		£'000	£'000		£'000	£'000
UK		73,984	66,404		54,706	52,282
Rest of Europe		18,935	19,209		16,077	12,383
Rest of the World (including USA)		15,125	14,522		11,862	12,213
		108,044	100,135		82,645	76,878

6.         Taxation

The Headline tax rate was 20.5 per cent (2015: 21.1 per cent), this is in line with the UK statutory tax rate of 20 per cent. The Headline rate has fallen slightly from 2015, largely as a result of the drop in the UK statutory tax rate by 1 per cent, from 21 per cent down to 20 per cent.

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

There is no tax relief on the Group impairment charge of £15.2 million. If the effects of the impairment charge were excluded, the effective tax rate would be 26.4 per cent. This is still higher than the 2015 reported tax rate of 23.1 per cent, due to an increase in non-tax deductible acquisition and restructuring related costs.

 7.        Earnings/(Loss) per share

	Headline				Reported
		Year ended 31 March 2016	Year ended 31 March 2015		Year ended 31 March 2016	Year ended 31 March 2015
Earnings
Profit/(Loss) for the year (£'000)		7,838	7,775		(9,574)	7,407
Attributable to:
Non-controlling interest (£'000)		109	86		109	86
Accrued dividend for the non-controlling interest (£'000)		731	-		-	-
Equity holders of the parent (£'000)		6,998	7,689		(9,683)	7,321
Number of shares
Weighted average number of shares		58,108,610	58,679,091		58,108,610	58,679,091
Dilutive effect of shares		117,415	140,664		117,415	140,664
		58,226,025	58,819,755		58,226,025	58,819,755
Earnings/(loss) per share
Basic earnings/(loss) per share (pence):		12.04	13.10		(16.66)	12.48
Diluted earnings/(loss) per share (pence):		12.02	13.07		(16.63)	12.45

The Headline EPS and Headline DEPS are based on the Headline PAT attributable to the respective equity holders (see note 4) and is divided by the weighted average number of shares and by the weighted average number of diluted shares respectively. Headline DEPS is also adjusted to assume an accrued dividend for the non-controlling interest in Splendid Unlimited.

Diluted earnings per share has been calculated based on the dilutive impact of 475,147 employee share options which were outstanding as at 31 March 2016 (31 March 2015: 604,349).

8.         Dividends

	Unaudited 2016 £'000	Audited 2015 £'000
Amounts recognised as distributions to shareholders in the year:
Prior year final dividend of 2.85 pence per share (2015: 2.70 pence per share)	1,658	1,600
Interim dividend of 1.42 pence per share (2015: 1.35 pence per share)	826	784
Total	2,484	2,384

A final dividend of 2.99 pence (2015: 2.85 pence) per share equivalent to £1,740,000 is recommended to be paid on 9 September 2016 to shareholders on the register on 5 August 2016. The final dividend will be recognised in the FY17 accounts, should it be approved by shareholders at the Annual General Meeting.

9.         Acquisitions

How Splendid Limited

Announced on 22 April 2015, Creston plc acquired 51 per cent of the share capital of How Splendid Limited, a London-based digital design and development consultancy. The following table summarises the consideration paid for Splendid, the fair value of assets acquired, liabilities assumed and the non-controlling interest at the acquisition date.

		Book value	Fair value adjustments	Total
		£'000	£'000	£'000
Consideration
Cash				8,700
Working capital surplus				203
Total consideration				8,903
Recognised amounts of identifiable assets acquired and liabilities assumed
Property, plant and equipment		47	-	47
Intangible assets (customer relationships)		-	3,302	3,302
Inventories and work in progress		31	-	31
Trade and other receivables		1,845	-	1,845
Cash and cash equivalents		1,060	-	1,060
Trade and other payables		(1,091)	-	(1,091)
Corporation tax payable		(671)	-	(671)
Deferred tax liabilities		(11)	(660)	(671)
Total net assets acquired		1,210	2,642	3,852
Non-controlling interest				-
Goodwill				5,051
Total				8,903

Acquisition related costs of £0.2 million have been charged to professional and legal expenses in the consolidated income statement for the year ended 31 March 2016.

A working capital surplus of £0.2 million was paid representing the surplus of net current assets in the completion balance sheet in excess of the pre-agreed minimum requirement of £1.1 million. There is potential for a further additional consideration payment of up to £7.0 million in June 2017 relating to the 51 per cent shareholding, based on average profit before interest and tax from April 2015 to March 2017. This payment would be considered deemed remuneration and will be expensed to the income statement as the provision is recognised. Currently there is zero deferred consideration due to project delays impacting FY16 performance, and this will be re-assessed at each future reporting period thereafter.

The fair value of identified intangible assets of £3.3 million representing customer relationships, will be amortised over a 4.5 year period.

The fair value of non-controlling interest in Splendid is deemed to be nil on acquisition, due to restrictions on the 49 per cent non-controlling shareholding which links the ownership of those shares to continuing employment for two years from the date of the signing of the acquisition. As such a share based payment charge will be recognised to value this liquidity foregone to build up a balance in equity, from the date of acquisition to the two year anniversary of the deal. At the anniversary of the deal this will convert to non-controlling interest provided the sellers are still in employment at that date. The forecast value of the liquidity foregone of the non-controlling interest at the 2 year period is forecast to be £0.7 million. At 31 March 2016, a share based payment charge of £0.3 million has been recognised (refer to note 4).

For the remaining share capital there are no put options, however Creston will have the option to acquire a further 24 per cent from April 2017, for a maximum value up to £8.6 million and the remaining 25 per cent from April 2019 for a maximum value up to £11.9 million. The consideration for both these call options, payable in cash, will be calculated at a pre-agreed multiple applied to the average profit before interest and tax for the year in which the call option is exercised and the two years preceding the call.

Since 22 April 2015, Splendid Unlimited has contributed revenue of £5.9 million and profit after tax of £1.5 million to the Group's Consolidated statement of comprehensive income. Had Splendid Unlimited been consolidated from 1 April 2015, the Consolidated income statement would show pro-forma revenue of £6.1 million and profit of £1.5 million.

18 Feet & Rising Limited

Announced on 9 June 2015, Creston plc, made a strategic investment in 18 Feet & Rising Limited, a London-based advertising agency. Consideration of £1.0 million was paid for a 27 per cent shareholding in the business. For the post acquisition period, a loss of £(64,000) has been recognised to 31 March 2016.

10.        Goodwill

Goodwill represents the excess of cost of acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition.

	Goodwill on consolidation £'000
Cost
At 1 April 2014 (Audited)	103,792
Foreign exchange	1,589
At 31 March 2015 (Audited)	105,381
Acquisition	5,051
Impairment charge	(15,156)
Foreign exchange	449
At 31 March 2016 (Unaudited)	95,725
Net book amount
At 31 March 2016 (Unaudited)	95,725
At 31 March 2015 (Audited)	105,381

In accordance with the Group's accounting policy, the carrying value of goodwill and brand name intangible assets are not subject to systematic amortisation but are reviewed annually for impairment. The review assesses whether the carrying value of goodwill could be supported by the recoverable amount which is determined through value in use calculations of each cash generating unit ('CGU'). The key assumptions applied in the value in use calculations are the discount rate and the projected cash flows.

The recoverable amounts of all CGUs are based on the same key assumptions.

Discount rates

Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money. In assessing the discount rate applicable to the Group the following factors have been considered:

(i) 12-month cost of debt;

(ii) the cost of equity based on a two-year industry average beta of 0.44. We consider this to be an appropriate period since the Group is of an acquisitive nature and therefore has changed significantly during the last five years;

(iii) the risk free rate for a 20-year UK government bond; and

(iv) the risk premium to reflect the increased risk of investing in equities.

Using a consistent methodology, the above assumptions have resulted in a decline in our calculated weighted average cost of capital to 7.2 per cent (2015: 7.9 per cent). However management have adopted a more conservative pre-tax discount rate of 9.95 per cent (2015: 9.95 per cent) in assessing the carrying value of goodwill.

As all the CGUs are similar in nature, the risk profile is considered the same across countries. As a result the same discount rate is used for each.

Projected cash flows

Projected cash flows are calculated with reference to each CGUs latest budget and business plan (approved in June 2016) which is subject to a rigorous review and challenge process. Operating company management prepare the budgets through an assessment of historic revenues from existing clients, the pipeline of new projects, historic pricing, and the required resource base needed to service new and existing clients, coupled with their knowledge of wider industry trends and the economic environment.

Projected cash flows are calculated using the first year of approved budget, which can be adjusted with management override for events or changes post budget approval. In the current year, the basis for projecting cash flows has changed to reflect more conservative future operating profit growth rates. The first year budget is followed by a residual growth rate of 3 per cent (2015: first two years of approved budgets followed by a residual growth rate of 3 per cent) and after year five, a terminal value with 2.25 per cent (2015: 2.5 per cent) growth has been applied. Where a specific business issue means that the expected cash flows in the following three-year period are expected to be materially different to the residual growth rate of 3 per cent, the expected cash flows are used instead.

For acquisitions made within the last two years, the Group uses the relevant CGU's current year Headline performance for the first two years and applies a 3 per cent growth (2015: 3 per cent) for the following three years with 2.25 per cent (2015: 2.5 per cent) growth on the terminal value. This is then adjusted for any related deemed remuneration charges relevant for that CGU. Management believes this method to be more appropriate as it allows them to work with any new acquisitions through one complete budgeting and performance cycle.

Based on the value in use calculation two CGUs show indicators of impairment, ICM Unlimited and DJM PAN Unlimited. This has been derived from a reduction in future profits for both CGUs, as a result of a more prudent view of growth rates for these underlying businesses.

Sensitivity analysis

The impairment review of the Group is sensitive to changes in key assumptions, most notably projected operating cash flows and the pre-tax discount rate. Consistent with historic Group impairment sensitivities, management have independently applied the following "reasonably possible adverse" changes to the base case assumptions for all CGUs:
 

·      Increase the pre-tax discount rate by 10 per cent to 10.9 per cent;

·      Decrease the projected operating cash flows by 10 per cent.

The CGUs most sensitive to the changes are confirmed as ICM Unlimited and DJM PAN Unlimited, and any adverse change in key assumption would cause further impairment losses to be recognised.

Results of impairment review

Based on the impairment review the following CGUs have recognised an impairment charge against the carrying value of goodwill allocated to that CGU.

ICM Unlimited
At 31 March 2016, a goodwill impairment charge of £10.7 million has been recognised against this CGU. This impairment includes £2.0 million as a result of the closure of FieldworkUK.com Limited, a company included in the ICM Unlimited CGU, and as a result of the impairment review at 31 March 2016, a further £8.7 million impairment charge has been recognised. Due to a more conservative estimate of future operating profit growth rates for this CGU, from a lower performance of FY16, the carrying amount of this CGU exceeds the value in use by £8.7 million. This impairment charge is based on the sensitised 10 per cent reduction of operating cash flow. In the other sensitised scenario the impairment charge would increase to £9.2 million if the discount rate was increased to 10.9 per cent.

DJM PAN Unlimited

At 31 March 2016, a goodwill impairment charge of £4.5 million has been recognised against this CGU. This is due to a more conservative estimate of future operating profit growth given the recent combination of the businesses of DJM Unlimited and PAN Unlimited. As a result the carrying amount of this CGU exceeds the value in use by £4.5 million. In the sensitised scenario the impairment charge would increase to £5.4 million if the discount rate was increased to 10.9 per cent or would increase to £4.9 million if operating cash flows were reduced by 10 per cent.

Components of goodwill by CGU, after impairment charges, at 31 March 2016 and 2015 are:

	Unaudited 2016 £'000	Audited 2015 £'000
Communications & Insight
EMO Unlimited	4,362	4,362
NBG Unlimited	6,434	6,434
TMW Unlimited	28,541	28,541
TRA Unlimited	5,281	5,281
ICM Unlimited	8,394	19,030
MSL Unlimited	7,633	7,633
SPL Unlimited	5,051	-
	65,696	71,281
Health
CWG Unlimited	13,716	13,716
DJM PAN Unlimited*	7,262	11,782
RDC Unlimited	7,668	7,668
Foreign exchange	1,383	934
	30,029	34,100
Total	95,725	105,381

* Effective from 1 October 2015, DJM Unlimited and PAN Unlimited CGUs were combined to form DJM PAN Unlimited.

11.        Other Intangible Assets

Other intangible assets	Software development and Licences	Brand names	Customer Contracts	Total
	£'000	£'000	£'000	£'000
Cost
As at 31 March 2014	2,163	954	1,654	4,771
Additions	159	22	-	181
Disposals	(3)	-	-	(3)
Foreign exchange	-	45	-	45
As at 31 March 2015	2,319	1,021	1,654	4,994
Additions	295	-	-	295
Acquisition of subsidiary	-	-	3,302	3,302
Foreign exchange	-	7	-	7
As at 31 March 2016	2,614	1,028	4,956	8,598
Amortisation
As at 31 March 2014	1,924	-	1,654	3,578
Charge for the year	162	-	-	162
Disposal	(2)	-	-	(2)
As at 31 March 2015	2,084	-	1,654	3,738
Charge for the year	116	-	673	789
As at 31 March 2016	2,200	-	2,327	4,527
Net book amount
31 March 2015	235	1,021	-	1,256
31 March 2016	414	1,028	2,629	4,071

12.        Provision for contingent deferred consideration

The contingent deferred consideration obligations are set out below:

		As at 31 March 2016	As at 31 March 2015
		£'000	£'000
At 1 April		1,384	1,711
Movement in fair value of contingent deferred consideration		-	(384)
Cash settlement		(1,387)	-
Foreign exchange		-	32
Notional finance cost on future contingent deferred consideration		3	25
At 31 March		-	1,384

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 (2015: 3.3 per cent). The earn-out obligations were paid in cash in July 2015, in accordance with the associated sale purchase agreement.

13.        Analysis of net cash

Year ended 31 March 2016	As at 1 April 2015	Acquisition related*	Cash flow	Foreign exchange	As at 31 March 2016
	£'000	£'000	£'000	£'000	£'000
Cash and cash equivalents	8,312	(10,230)	3,469	(110)	1,441
Net cash	8,312	(10,230)	3,469	(110)	1,441
Provision for contingent deferred consideration (note 12)	(1,384)	1,384	-	-	-
Net cash including contingent deferred consideration	6,928	(8,846)	3,469	(110)	1,441

Year ended 31 March 2015	As at 1 April 2014	Acquisition related*	Cash flow	Foreign exchange	As at 31 March 2015
	£'000	£'000	£'000	£'000	£'000
Cash and cash equivalents	7,452	-	1,250	(390)	8,312
Net cash	7,452	-	1,250	(390)	8,312
Provision for contingent deferred consideration (note 12)	(1,711)	327	-	-	(1,384)
Net cash including contingent deferred consideration	5,741	327	1,250	(390)	6,928

* Includes non-cash items.

14.        Related party transactions

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

15.        Availability of the Annual Report and Accounts

Copies of the Annual Report and Accounts will be available on the Company's website www.creston.com.

 

END

 

 

FR UGUMPQUPQGQM