Final Results

Creston PLC 14 June 2004 Date: 14 June 2004 On behalf of: Creston plc Embargoed until: 0700hrs CRESTON PLC Preliminary Results for the year ended 31 March 2004 The results of Creston's third full year as a marketing services group demonstrate that the Group's strategy of organic and acquisitive growth in tightly focused marketing services disciplines is fully on track. The Group exceeded its operational and financial targets to deliver a third consecutive set of record results, the highlights of which were: Highlights change • Turnover increased to £29.45m (2003: £18.64m), an annualised 1) rate of £32.6m + 58% • Organic growth remained strong at 13% with some 71% of turnover coming from existing clients' repeat/ contracted business • Operating profits increased to £2.36m (2003: £1.20m), an annualised rate 1) of £2.9m +97% • Profit before taxation rose to £2.09m (2003: £0.91m) +130% • Basic earnings per share up to 9.03p (2003: 6.38p). +42% • Full year dividend per share increased to 1.8p (2003: 1.4p) +29% • Funding position improved from net debt of £5.52m last year to net funds of £49,000 • Gearing reduced to below 10 per cent • Nelson Bostock Communications ("NBC") acquired in October 2003 for a maximum consideration of £10.70m and an expected consideration of £9.11m, is already enhancing earnings • The Group now has a highly skilled and well-motivated team of 269 employees (2003: 210) +28% Note 1. The 2004 numbers include the results for NBC for five and a half months. The 2004 proforma numbers are annualised to include the results for NBC for 12 months and are unaudited. Commenting on the results, Don Elgie, Chief Executive of Creston, said: "I am pleased to report that Creston had another very successful year in which it has exceeded its operational and financial objectives. The current financial year has started well with performance ahead of budget. Business prospects are running at a high level, creating a strong platform for future growth. "We are starting to see the fruits of the integration of the businesses acquired in 2002 and 2003, with an increasing number of companies working together to leverage the Group's specialist marketing skills within each business to generate cross-selling opportunities to develop Group solutions to meet clients' needs. "The Board believes that Creston has established a robust business model and is confident of the Group's future prospects. We are confident that the coming year will be a further year of strong growth, both organically and by acquisition." Enquiries Don Elgie, Chief Executive Tel: 020 7930 9757 Tim Alderson, Finance Director Tel: 020 7930 9757 Creston plc Emma Kane Tel: 020 7955 1410 Redleaf Communications Mob: 07876 338339 Further information on Creston is available on the Company's website: www.creston.com CHAIRMAN'S STATEMENT I am extremely pleased to report another excellent year for Creston Plc during which the Group has delivered its third consecutive set of record results. STRATEGY AND OBJECTIVES Creston's strategy remains to grow both organically and through selective acquisitions to become a substantial, diversified, international marketing services group. This strategy will be achieved by acquiring companies with a record of strong organic growth and management who are committed to further growth as part of the Creston Group of companies. It is the Board's objective that each element of the Group will reflect the continued trend away from mass marketing and towards one-to-one marketing between clients and customers. The Board believes that an important part of this strategy is to avoid over-concentration in any one part of the marketing services sector, thereby minimising risk. Creston will consider acquisitions across the marketing services disciplines including market research, direct marketing, customer relationship marketing ("CRM") and digital marketing. We will also consider companies that have strong track records within more cyclical sectors such as above-the-line advertising, but only where they meet our strict acquisitions criteria, which has been the key to our success. Our robust business model, is very different to that of the large trade groups, and is the key to Creston's ability to continue to outperform the market. Creston's acquisition criteria are: • Growth companies Creston buys established businesses with proven growth histories and credible business plans. • Committed vendors Creston will not consider companies where the vendors want an immediate exit although it is sensitive to life stage issues. The Board prefers to harness the entrepreneurial skills of vendors to work together to grow Creston. • Creston equity - an important part of retaining vendor loyalty Creston stock forms a meaningful part of the consideration and helps bind vendors' and Creston's ambitions together. • Creston operating board Creston harnesses the entrepreneurial talents of the acquired company management through representation on the Operating Board. This reviews overall strategy, performances and synergy opportunities and reports to the Creston Plc Board. OVERVIEW OF FINANCIAL RESULTS Turnover grew by 58 per cent to £29.45m (2003: £18.64m). Operating profit grew by 97 per cent to £2.36m (2003: £1.20m), and profit before tax grew by 130 per cent to £2.09m (2003: £0.91m). Basic earnings per share were 9.03 pence (2003: 6.38 pence), an increase of 42 per cent, and diluted earnings per share were 8.47 pence (2003: 6.38 pence). Detailed information on the Group's financial performance is set out in the Finance Director's Overview. DIVIDEND In line with the stated strategy of pursuing a progressive dividend policy, the Board recommends for payment a final dividend for this year of 1.2 pence per share in addition to the special interim of 0.6 pence per share paid in October 2003, a total distribution of 1.8 pence per share (2003: 1.4 pence per share). The dividend will be paid on 2 August 2004, subject to shareholder approval at the forthcoming AGM of the Company, to shareholders on the register at the close of business on 2 July 2004. The Board intends to maintain its progressive dividend policy, recognising the importance to shareholders of dividends as well as share price growth. It is the intention of the Board to pay interim dividends in future subject to satisfactory financial performance and prudent cash management. This year's final dividend represents a 29 per cent increase on last year reflecting this policy. EMPLOYEES After another year of growth, the Group now has 269 employees, compared to 210 last year, in seven locations in the United Kingdom - Bath, Bristol, London (two), Swindon, Westerham and Winchester. I would like to welcome the staff of Nelson Bostock Communications Limited who joined the Group in October 2003. I would also like to congratulate the directors and staff across the Group who have been responsible for such excellent results, particularly when set against the market and our competitors. In order to maintain the enthusiasm of the staff it is proposed that we create an Employee Sharesave Scheme and an Enterprise Management Incentive Scheme, proposals for both will be put to the AGM for approval. PROSPECTS The Board believes that Creston has established a robust business model and is confident of the Group's future prospects. I look forward to reporting to you next year on what I expect to be a further year of strong growth, both organically and by acquisition. D C Marshall Chairman 11 June 2004 CHIEF EXECUTIVE'S OVERVIEW I am pleased to report that Creston had another very successful year in which it has exceeded its operational and financial objectives. Over the year under review, all the main operating companies produced excellent results, each generated a net contribution, and all companies across the Group demonstrated their ability to deliver consistent organic growth despite challenging market conditions. Consequently, Group turnover increased by 58 per cent whilst operating profit increased by 97 per cent over the year. Nelson Bostock Communications Limited ("NBC"), a leading public relations agency founded in 1987, was acquired in October 2003 and has enjoyed a very encouraging first five and a half months as part of the Group. Its acquisition was funded by a Placing and Open Offer of shares, which raised £4.27 million for the Group. Following the acquisition of NBC, Creston has a broad range of focused marketing services businesses, with a strong balance sheet and cash flows. REVIEW OF OPERATIONS The Group operations are all in marketing services. The main subsidiaries comprise Marketing Sciences Limited ("MSL") - quantitative and qualitative market research, The Real Adventure Marketing Communications Limited ("TRA") - direct marketing and customer relationship marketing, EMO Group Limited ("EMO") - marketing communications and channel marketing and NBC - public relations. The Board considers that all these different aspects of marketing services constitute one business segment. MSL The turnover of MSL and its subsidiary MSTS showed an increase of 16% on the previous year, a particularly strong performance compared to the British Market Research Association's ("BMRA") reported growth of 3 per cent for 2003. Combined operating profit increased by 40 per cent. MSL's performance was underpinned by over two-thirds of its turnover being generated by repeat business. MSL provides a wide range of quantitative and qualitative research services to clients such as Tesco, Unilever and Kimberly-Clark. Key new clients won in the year include Royal Mail and Sony Ericsson. MSTS is continuing to generate record levels of new business enquiries and is expected to continue its profitable growth. Key new clients won in the year include Nestle, Campbells, Arla and Heinz. TRA Turnover was 18 per cent higher than in 2003 and operating profit grew by 21 per cent. Repeat income represented 68 per cent of turnover, primarily as a result of TRA's close working relationship with its clients such as Lloyds Black Horse, Pfizer and Cow & Gate, and implementation of proven strategies in direct marketing and CRM. Significant new work has been won from BSkyB, Mates Condoms and Kerry Foods. EMO EMO increased its turnover by 4 per cent on the previous year reflecting the move away from low margin print. However operating profit increased by 12 per cent on a like for like basis although EMO was only part of the Group for four months in 2003. BMW, Wimpey and Bang & Olufsen have been growth clients for EMO. A key new client win for EMO's subsidiary CTC was Honda. Sky Rock, the EMO owned digital marketing company, supplies key design expertise for BMW dealer websites. NBC Creston acquired NBC on 16 October 2003 and the results therefore reflect only five and a half months' trading. Full year operating profit grew by 16 per cent compared to the previous year. NBC has shown its resilience to downturns in market conditions and today is ranked as the fifteenth largest UK agency, and as the seventh largest agency in the technology sector. The Board has been encouraged by its trading performance since acquisition. In the light of its success in attracting a range of leading organisations to its stable of clients including BMW and Freeview. INTERNATIONAL It is Creston's intention to become an international marketing services group in order to provide its clients with an international reach beyond that provided by the existing range of affiliates. To this end, over the last year we have investigated the market in Germany, Benelux and the USA and hope to bring forward opportunities in the current financial year. OUTLOOK I am pleased to report that the current financial year has started well with performance ahead of budget. Business prospects are running at a high level, creating a strong platform for future growth. We are starting to see the fruits of the integration of the businesses acquired in 2002 and 2003, with an increasing number of companies working together to develop Group solutions to meet clients' needs. In particular, companies are co-operating to encourage client referrals and create joint products as well as to leverage the Group's specialist marketing skills within each business to generate cross-selling opportunities. Don Elgie Chief Executive 11 June 2004 FINANCE DIRECTOR'S OVERVIEW In line with Creston's policy of implementing corporate best practice, I am pleased to provide our first Finance Director's Overview. The key financial features in the year are the increased operating scale of the Group, (benefiting from a full year of EMO, five and a half months of NBC and significant organic growth in all the businesses) and a much-strengthened balance sheet. At this early stage of Creston's development, the benefit of adding new businesses to relatively fixed central costs is very high. OPERATING PROFIT AND MARGIN Turnover increased by 58 per cent over last year and gross profit increased by 66 per cent reflecting the acquisition of NBC and strong organic growth. Due to the enhanced operating leverage, operating profits increased by 97 per cent to £2.36m (2003: £1.20m) and profit before tax by 130 per cent, reflecting relatively lower interest charges. The inclusion of NBC raised gross margins to 38 per cent from 36 per cent. Net margins increased to 8 per cent (2003: 6 per cent), aided by the much-improved performance of MSTS and the closure of Visualizer, which was announced last year, but which was completed in the first half of this year, and leveraged central costs. Total staff numbers increased from 210 to 269 on a Full Time Equivalent basis (including large numbers of researchers employed for very short periods), and efficiency continued to improve indicated by a rise in gross profit per head of 14 per cent. INTEREST The net interest charge was restricted to £235,000 (2003: £211,000) reflecting a full year of the EMO acquisition bank debt offset by improved treasury management during the course of the year and the conversion of loan notes when their share price trigger was reached. Margins improved during the year relative to bank base rate for interest both received on cash balances and paid on bank debt. Interest was well covered by profit before interest and tax at 10 times (2003: 5 times). EFFECTIVE TAX RATE The Group's effective tax rate moved towards the 30 per cent standard rate from 22 per cent last year, which was low due to a one-off timing adjustment arising from the TRA acquisition. EARNINGS PER SHARE Basic earnings per share rose 42 per cent to 9.03 pence (2003: 6.38 pence). This year there was a dilution effect due to the contingent shares which may be issued as part of the TRA acquisition deferred consideration, giving a diluted earnings per share of 8.47 pence compared to a nil dilution effect last year (2003: 6.38 pence). There was also a small dilution effect from the share options and warrants, due to the fact that the Creston share price was above the exercise price (see note 5). The full impact of the Placing and Open Offer and Vendor Shares as part of the NBC acquisition together with the TRA and EMO conversion shares will be to reduce EPS growth in 2005. ACQUISITIONS On 16 October 2003, Creston bought NBC for an initial investment of £6.70m, and estimated deferred consideration of £2.41m. The Group will continue to pursue acquisition targets that fit in with its stated strategy. We are currently assessing a number of other opportunities, with particular focus on expanding into the USA and Europe. We will ensure that all future acquisitions are made on a financially prudent basis. CAPITAL EXPENDITURE The total capital expenditure for 2004 almost doubled to £393,000. The main categories of investment being computer systems, software and some motor cars. CASH FLOW AND NET DEBT The cash generated by operating profit continues to be very strong. Net cash inflow from operating activities rose to £3.06 (2003: £1.52m), and the cash conversion rate from operating profit was 129 per cent (2003: 126 per cent). Better cash collection reduced debtor days at the year-end. The high operational cash flow was used to repay £916,000 of bank debt and to redeem £500,000 of loan notes before their due date. A key cash movement in the year was the net cash outflow on the NBC acquisition of £2.79m, which was funded by the proceeds from a Placing and Open Offer of £4.27m, net of costs. The remainder was used to enhance working capital, which is at a satisfactory level. A further £2.92m of debt was eliminated on conversion of TRA and EMO convertible loan notes when the share price rose above contractual trigger points. These factors enabled the Group to move from net debt of £5.52m last year to a net funds position of £49,000 at 31 March 2004. TREASURY, FUNDING AND EXCHANGE RISK The Group has established treasury policies and procedures, which ensure that Group interest rate exposure is continually monitored. All the businesses are part of a composite accounting system, which allows cash balances to be consolidated and the resulting aggregate sum invested to maximise interest receipts. The Group does not engage in speculative transactions. BALANCE SHEET AND GEARING Shareholders' funds more than doubled in the year to £25.25m. Earnings contributed £1.12m to their growth and new share capital issued was £9.61m as a result of the Placing and Open Offer which raised £4.27m net of costs in October 2003, the acquisition of NBC and the conversion of convertible loan notes. In addition, £3.98m of deferred consideration is included as shares to be issued. Notwithstanding the increased number of shares, the share price rose steeply during the year from 45.5p on 1 April 2003 to 151.0p on 31 March 2004. There has been a significant reduction in long term creditors for three reasons despite the inclusion of the expected deferred consideration of £2.41m. First the TRA deferred consideration has been moved to creditors less than one year because the earn-out completed on 31 March 2004. Secondly the amount of the TRA and EMO deferred consideration has been reduced from the maximum amount to the expected amount payable. Finally the equity element of the TRA, EMO and NBC deferred consideration is included as shares to be issued. As a result, Creston's gearing (net debt over equity) has reduced considerably to below 10 per cent. IMPACT OF INTERNATIONAL FINANCIAL REPORTING STANDARDS The Group has systems in place to assess the impact of the new International Financial Reporting Standards which come in to effect for Creston's year ending 31 March 2006, as early as possible in order to manage their implementation most effectively, and expects to report on this in the Annual Report 2005. Tim Alderson Finance Director 11 June 2004 CRESTON PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 2004 Note 2004 2003 Continuing operations Acquisitions £'000 £'000 £'000 £'000 Turnover 2 26,690 2,763 29,453 18,636 Cost of sales (17,351) (975) (18,326) (11,922) Gross profit 9,339 1,788 11,127 6,714 Administrative expenses (7,399) (1,371) (8,770) (5,513) Operating profit 1,940 417 2,357 1,201 Share of operating loss in joint venture 2 (34) (78) Profit on ordinary activities before 2,323 1,123 interest Net interest payable (235) (211) Profit on ordinary activities before 2,088 912 taxation Tax on profit on ordinary activities 3 (639) (197) Profit for the financial year 1,449 715 Dividends 4 (332) (157) Retained profit for the financial year 1,117 558 Earnings per share 5 9.03p 6.38p Diluted earnings per share 5 8.47p 6.38p The Group has no recognised gains or losses other than the results for the year as set out above. CRESTON PLC CONSOLIDATED BALANCE SHEET AS AT 31 MARCH 2004 Group Company Note 2004 2003 2004 2003 £'000 £'000 £'000 £'000 Fixed assets Intangible assets 6 25,820 19,001 - - Tangible fixed assets 775 670 31 50 Investment in joint venture Share of gross assets - 57 - - Share of gross liabilities - (57) - - - - - - Other investments - - 31,396 22,884 26,595 19,671 31,427 22,934 Current assets Stocks 777 474 - - Debtors 6,213 5,299 76 72 Cash at bank and in hand 4,160 2,424 1,232 810 11,150 8,197 1,308 882 Creditors: amounts falling due within one year (8,980) (5,929) (3,182) (1,662) Net current assets/(liabilities) 2,170 2,268 (1,874) (780) Total assets less current liabilities 28,765 21,939 29,553 22,154 Creditors: amounts falling due after more than one 8 (3,511) (11,403) (3,507) (11,411) year 25,254 10,536 26,046 10,743 Net assets Capital and reserves Called up share capital 2,207 1,122 2,207 1,122 Share premium account 9 9,083 4,880 9,083 4,880 Special reserve 9 2,385 2,385 2,385 2,385 Other reserve 9 5,719 1,385 5,719 1,385 Capital redemption reserve 9 72 72 72 72 Shares to be issued 10 3,979 - 3,979 - Profit and loss account 9 1,809 692 2,601 899 Total equity shareholders' funds 25,254 10,536 26,046 10,743 CRESTON PLC CONSOLIDATED CASHFLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2004 Note 2004 2003 £'000 £'000 Net cash inflow from operating activities 11 3,057 1,516 Returns on investments and servicing of finance Bank interest received 101 147 Bank and other loan interest paid (378) (367) Finance lease interest paid (13) (5) Net cash outflow from returns on investments and servicing (290) (225) of finance Taxation (677) (212) Capital expenditure and financial investment Purchase of tangible fixed assets (240) (200) Proceeds on sale of tangible fixed assets 24 26 (Increase)/ decrease in restricted cash deposits (191) 4,089 Net cash (outflow)/inflow from capital expenditure and (407) 3,915 financial investment Acquisitions and disposals Purchase of subsidiary undertakings (4,588) (2,980) Net cash acquired with subsidiaries 1,795 1,004 Net cash outflow from acquisitions and disposals (2,793) (1,976) Equity dividends paid (224) (79) Net cash (outflow)/ inflow before financing (1,334) 2,939 Financing Issue of share capital for cash consideration 4,751 - Expenses paid in connection with share issues (293) - Receipt of bank loan - 3,060 Repayment of bank loan (916) (464) Repayment of loan notes (528) (4,889) Capital element of finance lease payments (112) (48) Net cash inflow/ (outflow) from financing 2,902 (2,341) Increase in cash 12 1,568 598 1. ACCOUNTING POLICIES Basis of preparation The accounts have been prepared under the historical cost convention and in accordance with United Kingdom applicable accounting standards. The true and fair override provisions of the Companies Act 1985 have been invoked with regard to goodwill as detailed below. The principal accounting policies of the Group have remained unchanged from the previous year. Goodwill Goodwill arising from the acquisition of subsidiary undertakings, representing the difference between the purchase consideration and fair value of net assets acquired, has been capitalised in accordance with the requirements of FRS 10. The directors have considered the appropriate method of accounting for goodwill. They are of the opinion that reviewing goodwill on an annual basis is a more suitable method than writing it off over a specific number of years. The subsidiaries were acquired with specific brand names and customer bases. The companies have continued to increase profits and the Group is committed to maintaining the value of the brand names and to constantly reviewing the product portfolio. An impairment review is carried out every six months based on projected future cash flows discounted at an appropriate discount rate based on the Group's weighted average cost of capital. In accordance with FRS 10 and 11, the carrying value of intangible assets will continue to be reviewed for impairment on the basis stipulated in FRS 11 and adjusted should this be required. The individual circumstances of each future acquisition will be assessed to determine the appropriate treatment of any related goodwill. The financial statements depart from the requirement of companies' legislation to amortise goodwill over a finite period in order to give a true and fair view, for the reasons outlined above. If the goodwill arising on all acquisitions had been amortised over a period of twenty years, operating profit would have decreased by £1,163,000 (2003: £784,000). 2. TURNOVER 2004 2003 £'000 £'000 Marketing services (excluding share of joint venture's turnover of £35,000; 2003: 29,453 18,636 £104,000) All of the Group's current activities are marketing services activities, which the directors consider to be one segment, based primarily in the United Kingdom. The operations of the joint venture ended during the year. Turnover from NBC relates only to the five and a half months since acquisition. 3. TAX ON PROFIT ON ORDINARY ACTIVITIES 2004 2003 £'000 £'000 The tax charge comprises: Current tax: Corporation tax at 30% (2003: 30%) 618 236 Overprovision of corporation tax in previous year (2) (37) 616 199 Deferred tax: Origination and reversal of timing differences 23 (2) Tax charge on profit on ordinary activities 639 197 4. DIVIDENDS 2004 2003 £'000 £'000 Special interim dividend of 0.6p per share 67 - Proposed final equity dividend of 1.2p per share (2003: 1.4p final per share) 265 157 332 157 The proposed final dividend will be paid on 2 August 2004 to shareholders on the register at 2 July 2004. 5. EARNINGS PER SHARE 2004 2003 Profit for Weighted Pence per Profit for Weighted Pence the average share the average per financial number of financial number of share year shares year shares £'000 £'000 Basic earnings per share Earnings attributable to ordinary 9.03 715 11,215,364 6.38 shareholders 1,449 16,045,576 Dilutive effect of securities: Warrants - 15,275 - - - - Options - 70,179 - - - - Contingent shares - 985,033 - - - - Diluted earnings per share 1,449 17,116,063 8.47 715 11,215,364 6.38 No dilutive effects arose in relation to the options and warrants in issue during 2003. 6. INTANGIBLE ASSETS Goodwill on consolidation Group £'000 Cost At 1 April 2003 19,001 Additions (note 7) 7,774 Adjustments to consideration and net assets (955) At 31 March 2004 25,820 Net book amount at 31 March 2004 25,820 Net book amount at 31 March 2003 19,001 As explained in note 1, goodwill on consolidation has not been amortised as the directors are of the opinion that it has an indefinite economic life. The adjustments to consideration relate to a change in the estimated deferred consideration for EMO and TRA and finalisation of the net asset value of EMO Group under the terms of the Sale and Purchase Agreement dated 13 November 2002. 7. ACQUISITIONS On 16 October 2003, the Company acquired the whole of the issued share capital of NBC for consideration (including deferred consideration) as set out below. This purchase has been accounted for by the acquisition method of accounting. The profit after taxation of NBC from 1 April 2003 to the date of acquisition was £340,000. Its profit after taxation for the year ended 31 March 2003 was £550,000. The assets and liabilities of NBC at 16 October 2003 were as follows: Accounting policy Fair value Book value adjustments £'000 £'000 £'000 Fixed assets Tangible fixed assets 118 - 118 Current assets Stocks and work in progress 177 - 177 Debtors 884 - 884 Prepayments 252 - 252 Bank and cash 1,795 - 1,795 Total assets 3,226 - 3,226 Creditors Trade creditors (148) - (148) Accruals (770) - (770) Social security and other taxes (213) - (213) Corporation tax (399) - (399) Deferred tax (3) - (3) Total liabilities (1,533) - (1,533) Net assets 1,693 - 1,693 Purchased goodwill capitalised 7,774 9,467 Satisfied by: £'000 Cash 4,226 Guaranteed loan notes 219 Shares issued 2,250 Deferred/contingent consideration (note 8) 2,410 Acquisition costs 362 9,467 The amount of deferred/contingent consideration payable is dependent upon the level of profit before taxation achieved by NBC in the period from 17 October 2003 to 31 March 2007. The directors have recognised the estimated £2,410,000 of deferred consideration at this time. The directors consider this to be the most reasonable estimate that can be made on the information available. The subsidiary undertaking acquired during the year made the following contributions to, and utilisations of, Group cash flow: £'000 Net cash inflow from operating activities 689 Returns on investment and servicing of finance 3 Taxation (252) Capital expenditure and financial investment (16) Increase in cash 424 Analysis of net outflow of cash in respect of the purchase of the subsidiary undertakings: £'000 Cash at bank and in hand acquired 1,795 Cash consideration paid (4,226) Acquisition costs paid (362) Net cash outflow (2,793) 8. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR Group Company 31 March 31 March 2004 2003 2004 2003 £'000 £'000 £'000 £'000 Acquisition convertible loan notes - 2,915 - 2,915 Acquisition loan notes 56 584 56 584 Bank loans 2,283 3,199 2,283 3,199 Acquisition deferred consideration 1,068 4,613 1,068 4,613 Deferred taxation 3 6 - - Amounts due to Group undertakings - - 100 100 Amounts due under finance leases 101 86 - - 3,511 11,403 3,507 11,411 The bank loans are secured by a fixed and floating charge over the assets of all the Group companies. Where deferred consideration is included, such amounts have not been discounted. Included in creditors above are the following amounts arising on the acquisitions of MSL, TRA, EMO and NBC: MSL £83,000 loan notes 2008, which are guaranteed by cash deposits held on escrow and accrue interest at 6% per annum, of which £56,000 are payable after more than one year. £100,000 loan notes in favour of the MSL Employee Benefit Trust and £13,000 by cash. TRA £2,430,400 deferred consideration, payable £1,487,400 by shares or loan notes at the option of Creston Plc and the balance by guaranteed loan notes 2005. The deferred consideration becomes payable if the average annual profits of TRA over the three years to 31 March 2004 exceed £820,268. £1,487,400 of the consideration has been classified as shares to be issued, the balance is within short term creditors. EMO £1,150,000 deferred consideration, payable 70% by shares or loan notes at the option of Creston Plc and 30% by guaranteed loan notes 2007. The deferred consideration becomes payable if the average annual consolidated profits of EMO Group over the three years to 31 March 2006 exceed £605,000. £805,000 of the consideration has been classified as shares to be issued, the balance is within long term creditors. NBC £219,000 loan notes 2005, which are guaranteed by cash deposits held on escrow and accrue interest at 1% per annum. £2,410,000 deferred consideration, payable 70% by shares or loan notes at the option of Creston Plc and 30% by guaranteed loan notes 2008. The deferred consideration becomes payable if the average annual profits of NBC over the three and a half years to 31 March 2007 exceed £800,000. £1,687,000 of the consideration has been classified as shares to be issued, the balance is within long term creditors. 9. RESERVES Share premium Other Profit and account reserves loss account £'000 £'000 £'000 Group At 1 April 2003 4,880 3,842 692 Issue of ordinary shares on acquisition of NBC - 2,015 - Issue of ordinary shares on Placing and Open Offer 4,031 - - Issue of ordinary shares following conversion of loan notes - 2,612 - Issue of ordinary shares on exercise of warrants 172 - - Costs of share issues - (293) - Retained profit for the financial year - - 1,117 At 31 March 2004 9,083 8,176 1,809 Company At 1 April 2003 4,880 3,842 899 Issue of ordinary shares on acquisition of NBC - 2,015 - Issue of ordinary shares on Placing and Open Offer 4,031 - - Issue of ordinary shares following conversion of loan notes - 2,612 - Issue of ordinary shares on exercise of warrants 172 - - Costs of share issues - (293) - Retained profit for the financial year - - 1,702 At 31 March 2004 9,083 8,176 2,601 As permitted by Section 230 of the Companies Act 1985, the Company has not presented its own profit and loss account. The profit for the financial year relating to the parent Company amounted to £2,036,000 (2003: £659,000). Other reserves are made up of Special reserve £2,385,000, Other reserve £5,719,000 and Capital Redemption reserve £72,000. 10. SHARES TO BE ISSUED 2004 Group and Company £'000 At 1 April 2003 - Accrued for acquisitions 3,979 At 31 March 2004 3,979 This year TRA came to the end of its earn-out period and as a result there is certainty as to the deferred consideration payable. Up to 67 per cent of this is payable in equity and, in accordance with FRS7, this amount has been shown as Shares to be issued with the balance as creditors. The expected deferred consideration for EMO and NBC has been treated similarly. 11. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES 2004 2003 Group £'000 £'000 Operating profit 2,357 1,201 Depreciation 384 219 (Profit)/loss on disposal of plant, vehicles and equipment (2) 19 Increase in stock (126) (130) Decrease/(increase) in debtors 223 (303) Increase in creditors 221 510 Net cash inflow from operating activities 3,057 1,516 12. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS/(DEBT) 2004 2003 £'000 £'000 Increase in cash in the year 1,568 598 Cash outflow from reduction in debt 1,556 336 Cash inflow from increase in debt - (3,060) Movement in net debt in the year resulting from cash flows 3,124 (2,126) New finance leases (153) (27) Reduction of loan stock 2,915 4,889 Issue of acquisition loan notes (319) (1,165) Net debt at 1 April 2003 (5,518) (7,089) Net funds/(debt) at 31 March 49 (5,518) 13. ANALYSIS OF NET FUNDS/(DEBT) At At 1 April Non-cash 31 March 2003 Cash flow Acquisitions items 2004 £'000 £'000 £'000 £'000 £'000 Cash at bank and in hand 2,313 1,545 - - 3,858 Overdrafts (27) 23 - - (4) 2,286 1,568 - - 3,854 Acquisition convertible loan notes (2,915) - - 2,915 - Acquisition loan notes (611) 528 (219) (100) (402) Bank loans (4,115) 916 - - (3,199) Finance leases (163) 112 - (153) (204) Net funds/(debt) (5,518) 3,124 (219) 2,662 49 Restricted cash deposits 111 (28) 219 - 302 Net funds/(debt) including restricted (5,407) 3,096 - 2,662 351 cash deposits Short term bank deposits of less than one month are classified as liquid resources. 14. PUBLICATION OF NON STATUTORY ACCOUNTS The financial information relating to the years ended 31 March 2003 and 2004 does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985 ("the Act"). The summarised balance sheet at 31 March 2004 and the summarised profit and loss account, summarised cash flow statement and associated notes for the year then ended have been extracted from the Group's 2004 statutory financial statements upon which the auditors' opinion is unqualified and does not include any statement under Section 237 of the Act. The summarised balance sheet at 31 March 2003 and the summarised profit and loss account, summarised cash flow statement and associated notes for the year then ended have been extracted from the Group's 2003 statutory financial statements which have been delivered to the Registrar of Companies, and in respect of which the auditors gave an unqualified opinion which did not contain a statement under section 237 of the Act. 15. ANNUAL REPORT & ACCOUNTS Creston plc's Annual Report & Accounts will be mailed to shareholders on 30 June 2004. Copies will be made available from the Company's Head Office, 56 Haymarket, London, SW1Y 4RN. This information is provided by RNS The company news service from the London Stock Exchange

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