Final Results

RNS Number : 7829I

Creston PLC

21 June 2011

 



21 June 2011

Creston plc

Unaudited Preliminary Financial Results for the Year Ended 31 March 2011

Creston plc ("Creston" or "the Group") (LSE: CRE), the insight and communications group, today announces its preliminary financial results for the year ended 31 March 2011.

Financial Highlights*

·     Revenue increased by 11% to £67.8 million (2010: £61.3 million)

·     Revenue increased on a like-for-like ^[1] basis by 7% (2010: -1%)

·     Headline ^[2]PBIT ^[3] margin restored to 18% in the second half with the full year at 16% (2010:18%)

·     Headline PBT ^[4] increased by 1% to £10.4 million (2010: £10.3 million)

·     Operating cash flow at £9.9 million (2010: £13.7 million) and cash conversion to Headline EBITDA ^[5] of 82% (2010: 113%)

·     Net debt decreased by £25 million to £0.05 million (2010: £24.9 million)

·     Total full year dividend of 3.00 pence per share (2010: 1.00 pence per share)

Operational Highlights*

·     Cash sale of advertising business DLKW Group for £28.0 million

·     Acquisition of the trade and assets of New York healthcare public relations business, Cooney/Waters, and its subsidiary, Alembic Health Communications, for an initial cash consideration of $9.4 million (£5.9 million)

·     Digital and online revenues increased by 19% to represent 41% of Group revenues (2010: 38%)

·     Continuing focus on international expansion post-period end - Nelson Bostock opening Hong Kong office to service HTC in Asia, an existing client in Europe

[1] A comparison of the current year performance (including acquisitions from the relevant date of completion) compared to the prior year performance adjusted to include the results of acquisitions for the commensurate period in the prior year.

[2] Headline results reflect the underlying performance of the Group and excludes acquisition and start-up related costs, restructuring costs, amortisation of acquired intangible assets, deemed remuneration and notional finance costs from the Reported results. A full reconciliation is presented in note 4 to this Preliminary Announcement.

[3] Profit before Interest and Taxation (PBIT) is defined as profit before finance income, finance cost, income from financial assets and taxation.

[4]  Profit before Taxation (PBT).

[5]  Earnings before finance income, finance costs, income from financial assets, taxation, depreciation and amortisation (EBITDA). 
 

Financial Results *	Headline results			Reported results
	2011	2010	Change	2011	2010	Change
	£m	£m		£m	£m
Revenue	67.8	61.3	+11%	67.8	61.3	+11%
Pre-tax profit	10.4	10.3	+1%	8.4	5.0	+66%
Post-tax profit	7.5	7.9	-6%	5.7	2.9	+94%
Diluted EPS (pence)	12.39	13.46	-8%	9.41	4.97	+89%

*   All figures are based on continuing operations.

Commenting on today's announcement, Don Elgie, Group Chief Executive Officer, said:

"In the last 12 months, we have transformed the shape and balance of the Group organically and by acquisition to increase our exposure to digital and international and delivered revenue growth of 11 per cent. At the same time, we have continued to invest in our people and our services to ensure our client proposition remains innovative and current to market changes. We believe that our strong focus on the highest growth areas within the insight and marketing communiation sectors, coupled with a growing client list of exceptional quality, positions us well for the next year and beyond."

A meeting for analysts will be held today at 9.30 am at Investec, 2 Gresham Street, London, EC2V 7QP. Please contact Sarah Macleod on telephone: [phone] for details.

For further information, please contact:

Creston plc                                                                             Tel: [phone]

Don Elgie, Group Chief Executive Officer

Barrie Brien, COO & CFO

Sarah Macleod, Communications Director

www.creston.com

M:Communications                                                                Tel: [phone]

Elly Williamson

Group Chief Executive's Statement

2011, our tenth year, has been a significant and successful one for Creston plc.  We have transformed the shape and balance of the Group, grown revenue by 11 per cent (7 per cent on a like-for-like basis), launched new marketing services, strengthened the balance sheet from a position of net debt to net cash and invested in a leadership development programme for our senior people.

In July 2010 the Group disposed of DLKW Group, its traditional above-the-line advertising business, in order to focus investment on faster growth opportunities. One such example is the acquisition in December 2010 of the business and assets of New York based Cooney/Waters and its subsidiary Alembic Health Communications (together "Cooney/Waters"), an award winning, growing, profitable healthcare PR group. The acquisition builds on an existing collaboration and shared client base with our UK healthcare PR company, Red Door Communications. We have been pleased with the performance of the business to date.

The disposal of DLKW Group and the acquisition of Cooney/Waters have helped to reshape the Group in two ways. Firstly, more of the Group's profits (almost two thirds of Headline PBIT before head office costs) are now weighted towards its higher margin and more resilient divisions, Insight and Health, and secondly, the Communications Division is now focused on the faster growth areas of digital, local and mobile marketing, public relations and social media.

During the first half of the year, we continued to invest in new marketing services and personnel across the whole Group. As highlighted at the time of our Interim Results, the cost of these investments impacted on the Group's Headline PBIT margin temporarily. We are pleased to report a return to our historical 18 per cent margin in the second half of the year, delivering a Headline margin of 16 per cent for the full year.

In view of the strong revenue growth, margin improvement and a much strengthened balance sheet, the Board recommends a final dividend of 2.25 pence per share (2010: 1.00 pence per share), which combined with the interim dividend of 0.75 pence per share (2010: nil), represents a 200 per cent increase in dividends for the year. Following this material increase, the Board expects to return to a progressive dividend policy.

The evolving landscape brings opportunities

The markets in which we operate continue to evolve at a rapid rate and across the board our clients' markets are evolving too. Old methods of advertising, communicating a one-way message via TV, radio or posters, are becoming less important, while the increasingly numerous online channels and developing technology are transforming the way people behave and consume.

To help our clients fit the array of marketing possibilities into clearly planned, executable and media-neutral campaigns, we launched Creston Unlimited, a creative brand and innovation consultancy, in April 2011.  It works to solve specific brand problems such as developing new products and managing brand portfolios, as well as developing execution strategies. In so doing, Creston Unlimited will work closely with all Creston companies to create new opportunities across the Group and we are encouraged by early demand for its services.

In many ways, Creston Unlimited is a client-facing embodiment of our "better together" ethos. Bringing complementary and relevant skills together from across a range of agencies is central to the way Creston operates and it has been a key part of our success in the last year. Such synergy underpins our strategy of acquiring and growing complementary, high-performing businesses.

Change brings opportunity and it is Creston's unique combination of complementary insight and communications agencies and our integrated approach that positions us to take advantage of the evolving landscape.

Fostering innovation and collaboration

Our innovation strategy is to build capacity in new areas of marketing whilst judiciously managing risk. We do this by focusing investment on new service offerings and start-up ventures, and ensuring efficiency through our Centres of Excellence, which provide a forum for leveraging expertise across the Group.

Collaboration amongst our companies enables us to expand our expertise into new sectors. Examples of this collaboration include:

•     the evolution of our specialist Insight Health offer by pooling expertise from our research and healthcare agencies;

•     a combination of our specialist healthcare expertise and our local marketing capability to meet the changing demands expected to result from the proposed NHS budget reforms; and

•     the launch of a new consumer healthcare proposition that pools expertise from our Health and Communications Divisions, which has already identified significant opportunities. An early business win has resulted in four companies from all three divisions working together on a UK product launch.

Creston Health's medical education business, ROCK, shows the value of our start-up approach by delivering a year of strong growth with revenue at almost £1.0 million during its first full year of operation.

Digital media and innovation are key recurring themes in the development of Creston's offer to clients and with a 19 per cent absolute increase on last year, over 40 per cent of Group revenues now come from digital-related business. Our focus on this area reflects the strong growth we continue to expect from online advertising and digital marketing that will outpace the recovery in traditional above-the-line activity.

International growth

Creston's client list and success over the last decade proves that a group of our size is a highly attractive partner for major global brands. Today, a quarter of our revenues are derived from international projects and this is expected to increase as we capitalise on new client opportunities and with a full year's contribution from Cooney/Waters.

As we respond to client demand by establishing regional hubs in strategically important markets, we significantly increase our potential for growth. As with Cooney/Waters and our Health Division, growth will be achieved through the ownership of an established business or, in cases where we believe it is important to leverage our own expertise, we will build organically. For example, we are in the process of opening an office in Hong Kong for Nelson Bostock Group to support HTC, whom we currently service across Europe, so extending our PR agency's already significant relationship with the Taiwanese smartphone manufacturer over two continents.

To provide coverage in other markets, we will continue to support and develop our affiliate networks, namely the InterDirect network in direct marketing, the Research Alliance and WIN Network in Insight, the Health Collective network in healthcare PR and the Compass network in B2B and consumer PR. We recently strengthened our specialist pharmaceutical branding and creative offer by uniting our Indigenus network of aligned creative agencies more formally under a single LLC and expanding the network to provide full global coverage for clients. Indigenus now comprises thirteen agencies in major and key emerging markets.

New business growth

During the past financial year, annualised net new business wins of £10.0 million (2010: £7.0 million) included Astellas, BP Castrol, CA Technologies, Guinness digital, Intercontinental Hotel Group, LighterLife, Lotus, Pfizer, Rolls Royce, Sony Ericsson, Sony Europe, Twinings, ViiV Healthcare and a major international financial services company.  We have recently retendered for one of our top five accounts and are currently awaiting the outcome of that process. None of the other top twenty client accounts are currently under tender.

Refreshing the Insight Division

Our Insight Division began the financial year facing a period of significant challenge. The  market research sector was in decline, especially in government and social research, and there was the departure of the founder of ICM along with a number of senior managers. In responding, we focused investment on hiring senior directors with the skills to synthesise rapidly emerging new research techniques and deliver clear, actionable insights for clients. The success of the new team at ICM is demonstrated by there only being a small decline in ICM's turnover in line with the market of 2 per cent, indicating there was no material reduction in the number and value of projects commissioned by the existing clients. However, revenue and Headline PBIT did decline because of a lower gross margin on increased data collection costs. With the benefit of improving budgets in government and social research, ICM's return to growth in the final quarter and an improvement in gross margins for the new financial year demonstrate the benefits of the senior team changes. With strong loyalty from our client base and major new business from Sainsbury's and BT, we are confident of the future prospects for the agency and the Division.

Outlook

Creston's prospects have been strengthened this last financial year.  We have transformed the business model away from traditional advertising towards the higher growth areas of digital marketing and the higher profit margin areas of insight and healthcare marketing, whilst transforming our balance sheet from net debt of £25 million to a net cash position.

We are benefiting firstly from the increased synergy between our complementary businesses as they work together to develop innovative services and win new business and, secondly, from our blue chip client list which provides an increasing number of international opportunities.

The anaemic recovery in UK consumer spending is well publicised and despite a general stabilisation and improvement in clients' marketing budgets, we remain cautious over the current year. The Group's current net cash balance together with its unutilised banking facility will enable Creston to continue to build its international and domestic capabilities through strategic acquisitions and low-risk start-up investments. We therefore anticipate further growth in revenues during the next year from both overseas markets and the faster growing areas of marketing services.

Don Elgie

Group Chief Executive Officer

Financial Review       

As required under International Financial Reporting Standards (IFRS), the results of DLKW Group are treated as a discontinued operation and are therefore eliminated from the Reported and Headline results for the current and prior year. Any year-on-year commentary therefore excludes the historical performance of DLKW.

For the financial year ended 31 March 2011 (2011) the Group has again delivered a robust set of financial results. Revenue increased by 11 per cent (2010: 1 per cent decline) to £67.8 million (2010: £61.3 million), driven by 7 per cent like-for-like revenue growth and the inclusion of three months' trading from the recently acquired Cooney/Waters and Alembic Health businesses (together "Cooney/Waters").  The Group also ended the year strongly with like-for-like revenue growth of 10 per cent in the final quarter of 2011. This growth has been achieved through the net new business wins of £10.0 million (2010: £7.0 million) and the Group's continuing shift to digital revenue streams, which grew 19 per cent to £27.5 million during the year. Digital revenue now accounts for 41 per cent of Group revenue compared with 38 per cent in the financial year ended 31 March 2010 (2010).

Headline PBIT before foreign exchange losses increased by 1 per cent to £10.9 million (£10.8 million). Headline PBIT after foreign exchange charges had a small decline from the prior year of less than 0.5 per cent to £10.8 million (2010: £10.8 million) and the Headline PBIT margin reduced to 15.9 per cent (2010: 17.6 per cent). This is as a result of the continuing investment in start-ups, staff development programmes and a foreign exchange loss of £0.2 million (2010: £0.03 million). Headline PBT increased 1 per cent to £10.4 million (2010: £10.3 million). Headline Diluted Earnings Per Share (DEPS) declined by 8 per cent to 12.39 pence (2010: 13.46 pence), despite the increase in Headline PBT. This decline was predominantly the result of a lower than usual effective tax rate in 2010.

Reported PBIT increased 48 per cent to £8.7 million (2010: £5.9 million) and resulted in a Reported PBIT margin of 13 per cent (2010: 10 per cent). Reported PBT increased 66 per cent to £8.4 million (2010: £5.0 million). Reported DEPS increased 89 per cent to 9.41 pence (2010: 4.97 pence). Note 4 to this Preliminary Announcement presents a reconciliation between Headline and Reported results with the principal adjustments being exceptional acquisition-related charges.

Key performance indicators remain strong

The Group manages its operational performance through a number of key performance indicators (KPIs) which remain in the upper quartile for the industry.

	Financial Year ended 31 March 2011	Financial Year ended 31 March 2010
Headline PBIT margin	15.9%	17.6%
Revenue per head	£83,400	£83,100
Headline PBIT per head	£13,200	£14,700
Cash conversion	82%	113%

Divisional review

Insight Division

The Insight Division accounts for 22 per cent of Group revenues (2010: 26 per cent) and 30 per cent of Group Headline PBIT before head office costs (2010: 37 per cent). The Division contributed revenue of £14.8 million (2010: 16.0 million) and Headline PBIT of £4.1 million (2010: £4.9 million). On a Reported basis, PBIT was £3.9 million (2010: £0.7 million).

	Financial Year ended 31 March 2011	Financial Year ended 31 March 2010
Headline PBIT margin	28%	31%
Revenue per head	£103,800	£112,400
Headline PBIT per head	£28,600	£34,400

The market research sector declined 2 per cent during the year (source: Market Research Society), which, combined with the change in senior management at ICM and the temporary increase in online data collection costs, resulted in a difficult year for the Division. However, the re-structure of the senior management within ICM has proved successful and we remain confident heading into the 2012 financial year.

Communications Division

The Communications Division accounts for 61 per cent of Group revenues (2010: 60 per cent) and 45 per cent of Group Headline PBIT before head office costs (2010: 42 per cent). The Division contributed revenue of £41.1 million (2010: £36.5 million) and Headline PBIT of £6.2 million (2010: £5.5 million). On a Reported basis, PBIT was £6.1 million (2010: £5.0 million).

	Financial Year ended 31 March 2011	Financial Year ended 31 March 2010
Headline PBIT margin	15%	15%
Revenue per head	£72,300	£71,600
Headline PBIT per head	£10,900	£10,700

The Division performed strongly with like-for-like revenue and Headline PBIT growth of 13 per cent and 14 per cent respectively. This is attributed to particularly strong growth by our local marketing and public relations companies.

Health Division

The Health Division accounts for 17 per cent of Group revenues (2010: 14 per cent) and 25 per cent of Group Headline PBIT before head office costs (2010: 21 per cent). The Division contributed revenue of £11.8 million (2010: £8.8 million) and Headline PBIT of £3.4 million (2010: £2.7 million). On a Reported basis, PBIT was £1.9 million (2010: £2.7 million).

	Financial Year ended 31 March 2011	Financial Year ended 31 March 2010
Headline PBIT margin	29%	30%
Revenue per head	£132,600	£119,500
Headline PBIT per head	£38,600	£36,600

The Division achieved like-for-like revenue and Headline PBIT growth of 8 per cent and 9 per cent respectively and with the acquisition of Cooney/Waters it has entered the new year with positive momentum.

During the 2011 financial year we also launched Intensity Digital, a small business focused on e-detailing and digital sales to healthcare professionals. The start-up did not perform to our level of satisfaction and we therefore decided not to pursue Intensity as a separate entity but to roll the expertise into our healthcare advertising agency, PAN.

Acquisition of Cooney/Waters

During the year the Group acquired Cooney/Waters for an initial consideration payment of £5.9 million ($9.4 million). Deferred consideration payments will become due in June 2013 and 2015 and will be based on the trading performance of Cooney/Waters over the period to 31 March 2015. The maximum deferred consideration payment due is £13.6 million ($21.4 million). However, the fair value recorded in the balance sheet at 31 March 2011 is £8.4 million ($13.4 million) (after discounting for notional interest based on the expected consideration payable). The total consideration due will be based on a multiple of between 5 and 5.5 times Cooney/Waters' average PBIT. Further amounts are payable under the terms of the sale and purchase agreement to certain key employees of Cooney/Waters which are treated as employee costs under IFRS. These are referred to as deemed remuneration charges. This will become due in June 2013 and July 2016. £0.1m has been charged to the income statement in 2011. The current estimated full payout for deemed remuneration is £1.7 million ($2.7 million).

Continued positive cash flow performance

In 2011, the Group generated operating cash flow of £9.9 million (2010: £13.7 million). The cash conversion ratio of operating cash flow to Headline EBITDA was 82 per cent (2010: 113 per cent). After an average three year cash conversion exceeding 100 per cent, the Group has continued to meet management's long-term average target of 95 per cent.

Capital expenditure for 2011 was £1.5 million (2010: £1.1 million) with investment mainly in new leasehold property improvements, system hardware and IT software.

Balance sheet strengthens and the Group is virtually debt free

The balance sheet was strengthened significantly during the year. As a result of the sale of DLKW, the acquisition of Cooney/Waters and another year of positive operating cash flow, the Group's net debt fell to £48,000 at 31 March 2011 (2010: £24.9 million). The Group also had an unutilised £25 million committed bank facility and net current liabilities of £0.3m (2010: £28.1m).

Total debt, including deferred consideration, reduced from £24.9 million to £8.4 million. This represents a gearing level to total equity of 9 per cent (2010: 26 per cent) and a total debt to Headline EBITDA multiple of 0.7 (2010: 2.1). 

Net finance costs minimal

Headline net finance costs reduced to £0.3million (2010: £0.7 million). This decrease was driven by the sale of DLKW and consequent reduction in net debt, positive cash generation during the year and the historically low LIBOR. The Group's average interest rate margin paid over LIBOR was 1 per cent during the year. Headline net finance costs were covered by Headline EBITDA 39 times (2010: 18 times).

The Reported net finance cost was £0.4 million (2010: £1.1 million), which includes notional finance costs relating to the deferred consideration payments of £0.1 million (2010: £0.4 million).

Effective tax rate increases

The Group's Headline tax rate was 29 per cent (2010: 24 per cent).  This rate is higher than the current statutory rate of 28 per cent as a result of items of expenditure that are not deductible for tax purposes. The rate in 2010 was lower than both the statutory rate and the 2011 Headline rate, as a result of prior-year adjustments reflecting the resolution of discussions with HMRC on the deductibility of goodwill in earlier periods. The Reported effective tax rate was 32 per cent (2010: 42 per cent) and is higher than the statutory rate of 28 per cent because of non-deductible acquisition related costs.

Summary

The results for the year are encouraging. Despite the uncertain economic climate, we have achieved excellent revenue growth, transformed our balance sheet, invested in the business and its talent, and continued to report profit margins above industry norms. The Group is well balanced across its three divisions; approximately two thirds of total Headline PBIT reside in our Insight and Health Divisions and our Communications Division is now focused on the faster growth areas of direct and digital communication.

Barrie Brien

Chief Operating and Financial Officer

Consolidated income statement

		Unaudited Before Headline items	Headline items (note 4)	Unaudited Total	Audited Before Headline items	Headline Items (note 4)	Audited Total
	Note	2011 £'000	2011 £'000	2011 £'000	2010 £'000	2010 £'000	2010 £'000
Continuing operations:
Turnover (billings)	3	100,542	-	100,542	93,673	-	93,673
Revenue	3	67,769	-	67,769	61,259	-	61,259
Operating costs		(57,008)	(2,015)	(59,023)	(50,447)	(4,887)	(55,334)
Profit before finance income, finance costs, income from financial assets and taxation	4	10,761	(2,015)	8,746	10,812	(4,887)	5,925
Finance income		1	-	1	6	-	6
Finance costs		(314)	(68)	(382)	(676)	(404)	(1,080)
Income from financial assets		-	-	-	195	-	195
Profit before taxation	4	10,448	(2,083)	8,365	10,337	(5,291)	5,046
Taxation		(2,981)	286	(2,695)	(2,425)	297	(2,128)
Profit for the financial year from continuing operations		7,467	(1,797)	5,670	7,912	(4,994)	2,918
Discontinued operations
Profit/ (loss) for the year from discontinued operations	5	125	(3,448)	(3,323)	2,458	(243)	2,215
Profit for the year		7,592	(5,245)	2,347	10,370	(5,237)	5,133
Basic earnings/ (loss)  per share (pence)	6
Continuing operations		12.39		9.41	13.47		4.98
Discontinued operations		0.20		(5.52)	4.19		3.77
		12.59		3.89	17.66		8.75
Diluted earnings/ (loss) per share (pence)	6
Continuing operations		12.39		9.41	13.46		4.97
Discontinued operations		0.20		(5.52)	4.19		3.77
		12.59		3.89	17.65		8.74

Consolidated statement of comprehensive income

	Note	Unaudited 2011 £'000	Audited 2010 £'000
Profit for the year		2,347	5,133
Other comprehensive (expenses)/income:
Exchange differences on translation of foreign operations		(190)	-
Cash flow hedge:
Fair value gain/(loss) in the year		188	(188)
Tax effect of fair value (gain)/loss		(53)	53
Other comprehensive expense for the year, net of tax		(55)	(135)
Total comprehensive income for the year		2,292	4,998

Consolidated balance sheet

	Note	Unaudited As at 31 March 2011 £'000	Audited As at 31 March 2010 £'000
Non-current assets
Intangible assets
Goodwill	8	101,280	119,081
Other		1,379	1,551
Property, plant and equipment		2,144	2,065
Financial assets - available for sale		-	550
Deferred tax asset		688	766
		105,491	124,013
Current assets
Inventories and work in progress		1,444	2,937
Trade and other receivables		29,053	32,346
Cash and short term deposits		1,677	2,778
		32,174	38,061
Current liabilities
Trade and other payables		(27,713)	(35,884)
Corporation tax payable		(3,087)	(2,398)
Obligations under finance leases		(7)	(8)
Bank overdraft, loans and loan notes		(1,716)	(27,687)
Derivative financial instrument		-	(135)
		(32,523)	(66,112)
Net current liabilities		(349)	(28,051)
Total assets less current liabilities		105,142	95,962
Non current liabilities
Provision for other liabilities and charges	9	(8,376)	-
Obligations under finance leases		(2)	(8)
		(8,378)	(8)
Net assets		96,764	95,954
Equity
Called up share capital		6,134	6,134
Share premium account		35,943	35,943
Own shares		(779)	(801)
Shares to be issued		1,545	1,461
Other reserves		30,822	31,357
Foreign currency translation reserve		(190)	-
Retained earnings		23,289	21,860
Total equity		96,764	95,954

Consolidated statement of changes in equity

	Share capital	Share premium	Own shares	Shares to be issued	Other reserves	Foreign currency translation reserve	Retained earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Changes in equity for 2011 (Unaudited)
At 1 April 2010	6,134	35,943	(801)	1,461	31,357	-	21,860	95,954
Profit for the year	-	-	-	-	-	-	2,347	2,347
Other comprehensive income:
Exchange differences on translation of foreign operations	-	-	-	-	-	(190)	-	(190)
Fair value gain on financial liability	-	-	-	-	-	-	188	188
Tax effect of fair value gain	-	-	-	-	-	-	(53)	(53)
Total comprehensive income for the year	-	-	-	-	-	(190)	2,482	2,292
Credit for share-based incentive schemes	-	-	-	112	-	-	-	112
Exercise of share award	-	-	22	(28)	-	-	-	(6)
Gain on treasury scheme / employee benefit trust	-	-	-	-	-	-	6	6
Fair value adjustment of own shares	-	-	-	-	-	-	(4)	(4)
Dividends (note 7)	-	-	-	-	-	-	(1,055)	(1,055)
Disposal of investment	-	-	-	-	(535)	-	-	(535)
At 31 March 2011	6,134	35,943	(779)	1,545	30,822	(190)	23,289	96,764

	Share capital	Share premium	Own shares	Shares to be issued	Other reserves	Foreign currency translation reserve	Retained earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Changes in equity for 2010 (Audited)
At 1 April 2009	5,576	33,345	(1,054)	2,706	31,357	-	15,938	87,868
Profit for the year	-	-	-	-	-	-	5,133	5,133
Other comprehensive income:
Fair value loss on financial liability	-	-	-	-	-	-	(188)	(188)
Tax effect of fair value loss	-	-	-	-	-	-	53	53
Total comprehensive income for the year	-	-	-	-	-	-	4,998	4,998
Credit for share-based incentive schemes	-	-	-	11	-	-	-	11
Exercise of share award	-	-	253	(1,202)	-	-	-	(949)
Loss on treasury scheme / employee benefit trust	-	-	-	-	-	-	(11)	(11)
Gain on treasury scheme / employee benefit trust	-	-	-	-	-	-	185	185
Fair value adjustment of own shares	-	-	-	-	-	-	696	696
Proceeds from shares issued	558	2,788	-	-	-	-	-	3,346
Costs associated with shares issued	-	(190)	-	-	-	-	-	(190)
Transfer of lapsed options	-	-	-	(54)	-	-	54	-
At 31 March 2010	6,134	35,943	(801)	1,461	31,357	-	21,860	95,954

Consolidated statement of cash flows

	Note	Unaudited 2011 £'000	Audited 2010 £'000
Operating cash flow	10	9,937	13,686
Tax paid		(1,593)	(1,812)
Cash (outflow)/ inflow from discontinued operating activities		(1,058)	3,568
Net cash generated from operating activities		7,286	15,442
Investing activities
Finance income		1	6
Income from financial assets		-	195
Purchase of subsidiary undertakings		(9,010)	(20,058)
Net cash acquired with subsidiaries		497	-
Purchase of property, plant and equipment		(1,381)	(843)
Sale of property, plant and equipment		4	12
Purchase of intangible assets		(164)	(227)
Decrease in restricted cash deposits		-	22
Net proceeds from disposal of subsidiary		27,374	-
Cash outflow from discontinued investing activities		(1,373)	(160)
Net cash inflow/(outflow) from investing activities		15,948	(21,053)
Financing activities
Proceeds from issuance of ordinary shares (net of issue costs)		-	3,156
Finance costs		(324)	(766)
Net (decrease)/ increase in borrowings	11	(24,600)	3,200
Dividends paid	7	(1,055)	-
Capital element of finance lease payments		(7)	(7)
Net cash (outflow)/ inflow from financing activities		(25,986)	5,583
Decrease in cash and cash equivalents	11	(2,752)	(28)
Cash and cash equivalents at start of year	11	2,778	2,806
Effect of foreign exchange rates		(45)	-
Cash and cash equivalents at end of year	11	(19)	2,778

 

Notes:

1.   Basis of Preparation

The financial information set out herein does not constitute the company's statutory accounts for the years ended 31 March 2011 or 2010, within the meaning of section 434 of the Companies Act 2006. Statutory accounts for 2010 have been delivered to the registrar of companies. The auditors have reported on these 2010 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 2011 will be distributed to shareholders in advance of the Annual General Meeting and will be delivered to the registrar of companies upon approval.

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 preliminary announcement in itself does not contain sufficient information to comply with IFRS.

2.   Accounting policies

The preliminary results were prepared in accordance with the policies disclosed in the prior year audited annual report subject to the following relevant standards, amendments and interpretations which were effective in 2011:

(i)         IFRS 3 (revised 2008), 'Business combinations', and consequential amendments to IAS 27, 'Consolidated and separate financial statements', are applied prospectively to business combinations from 1 April 2010. The main impact of these revised standards was as follows:

-     In the year to 31 March 2011, all acquisition-related costs have been recognised as an operating cost in the consolidated income statement whereas previously they were capitalised. Prior periods have not been restated as this change in accounting is required to be applied prospectively from 1 April 2010; and

-     Deferred consideration payable is to be measured at fair value at the acquisition date. Any subsequent movements in the fair value of such consideration as a result of post-acquisition events must be recognised as a gain or loss in the consolidated income statement.

3.   Segmental Analysis

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

The principal activities of the three Divisions are as follows:

Insight

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

Communications

The Communications Division offers clients an integrated approach to their marketing and communication strategy, offering a range of services which include advertising, brand strategy, channel marketing, customer relationship marketing (CRM), digital marketing, direct marketing, promotional marketing and public relations.

Health

The Health Division provides an integrated communications solution to the healthcare and pharmaceuticals sector and offers services which include advertising, direct marketing, digital marketing, public relations, issues management, market research and medical education.

The Board assesses the performance of the operating segments based on a measure of revenue and Headline PBIT. This measurement basis excludes the effects of exceptional charges from the operating segments, such as amortisation of acquired intangible assets, acquisition and start-up related costs, restructuring costs, goodwill write-off,  deemed remuneration and notional finance costs on deferred consideration.

Accounting policies are consistent across the reportable segments.

All significant assets and liabilities are located within the UK and US.  The 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 of not segmenting the assets of the Group.

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

The Group's operational framework consists of a three divisional structure consisting of the Insight, Communications and Health Divisions.

The analysis below has been presented on a continuing operations basis

Segmental analysis by business

Turnover, revenue, Headline and Reported profit before finance income, finance costs, income from financial assets and taxation (PBIT), and profit before tax attributable to Group activities are shown below.

2011 (Unaudited)	Insight £'000	Communications £'000	Health £'000	Head office £'000	Group £'000
Turnover (billings)	25,580	60,096	14,866	-	100,542
Revenue	14,828	41,142	11,799	-	67,769
Headline profit/ (loss) before finance income, finance costs, income from financial assets and taxation (segment result)	4,094	6,197	3,437	(2,967)	10,761
Acquisition and start-up related costs	-	(144)	(1,173)	-	(1,317)
Restructuring costs	(240)	-	-	-	(240)
Amortisation of acquired intangible assets	-	-	(219)	-	(219)
Future acquisition payments to employees deemed as remuneration	-	-	(110)	(129)	(239)
Reported profit/ (loss) before finance income, finance costs, income from financial assets and taxation (segment result)	3,854	6,053	1,935	(3,096)	8,746
Finance income	-	-	-	1	1
Finance costs	-	-	-	(314)	(314)
Notional finance costs on future deferred consideration	-	-	(68)	-	(68)
Profit/(loss) before taxation	3,854	6,053	1,867	(3,409)	8,365
Taxation					(2,695)
Profit for the financial year					5,670

2010 (Audited)	Insight £'000	Communications £'000	Health £'000	Head office £'000	Group £'000
Turnover (billings)	27,839	54,989	10,845	-	93,673
Revenue	15,956	36,457	8,846	-	61,259
Headline profit/ (loss) before finance income, finance costs, income from financial assets and taxation (segment result)	4,883	5,455	2,711	(2,237)	10,812
Restructuring costs	(354)	(230)	-	-	(584)
Goodwill write-off	(3,786)	-	-	-	(3,786)
Deemed remuneration	(36)	(215)	(5)	(261)	(517)
Reported profit/ (loss) before finance income, finance costs, income from financial assets and taxation (segment result)	707	5,010	2,706	(2,498)	5,925
Financial income	-	-	-	6	6
Financial cost	-	-	-	(676)	(676)
Notional finance costs on future deferred consideration	(204)	(193)	(7)	-	(404)
Income from financial assets	-	195	-	-	195
Profit/(loss) before taxation	503	5,012	2,699	(3,168)	5,046
Taxation					(2,128)
Profit for the financial year					2,918

Segmental analysis by geography

The following table provides an analysis of the Group's turnover and revenue by geographical market, irrespective of the origin of the services.

	Revenue		Turnover
	(Unaudited) 2011 £'000	(Audited) 2010 £'000	(Unaudited) 2011 £'000	(Audited) 2010 £'000
UK	51,127	47,563	77,787	74,916
Rest of Europe	11,673	11,682	16,103	15,941
Rest of the World	4,969	2,014	6,652	2,816
	67,769	61,259	100,542	93,673

4.   Reconciliation of Headline profit to Reported profit

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

(i)   Certain accounting policies which have a material impact and introduce volatility to the Reported figures. These are amortisation of acquired intangible assets, deemed remuneration and notional finance costs on deferred consideration. These charges will cease once all the relevant earn-out and related obligations have been settled; and

(ii)  Exceptional non-recurring operating charges, which, in 2011, consist of acquisition costs, start-up related costs and restructuring costs. In 2010 this consisted of restructuring costs and the write-off of goodwill.

2011 (Unaudited)	PBIT £'000	PBT £'000	PAT £'000
Headline	10,761	10,448	7,467
Acquisition and start-up related costs	(1,317)	(1,317)	(1,317)
Restructuring costs	(240)	(240)	(240)
Amortisation of acquired intangible assets	(219)	(219)	(219)
Future acquisition payments to employees deemed as remuneration	(239)	(239)	(239)
Notional finance costs on future deferred consideration	-	(68)	(68)
Taxation impact			286
Reported	8,746	8,365	5,670
2010 (Audited)	PBIT £'000	PBT £'000	PAT £'000
Headline	10,812	10,337	7,912
Restructuring costs	(584)	(584)	(584)
Goodwill write-off	(3,786)	(3,786)	(3,786)
Future acquisition payments to employees deemed as remuneration	(517)	(517)	(517)
Notional finance costs on future deferred consideration	-	(404)	(404)
Taxation impact			297
Reported	5,925	5,046	2,918

5.   Discontinued operations

(a) Description

On 28 June 2010, the Group announced the proposed sale of Delaney Lund Knox Warren and Partners, Dialogue DLKW and The Composing Room ('DLKW') for £28.0 million, which was then approved by shareholders on 13 July 2010 with effect from 14 July 2010. DLKW is reported in the financial statements as a discontinued operation.

(b) Financial performance

The financial performance information, for the year to 31 March 2011 below shows the results of DLKW until the effective date of disposal (14 July 2010). The period to 31 March 2010 shows the financial information of DLKW for the full year.

	Unaudited 2011 £'000	Audited 2010  £'000
Turnover (billings)	9,180	43,149
Revenue	4,472	19,241
Headline operating costs	(4,307)	(15,796)
Headline PBIT	165	3,445
Loss on disposal (part (e))	(3,474)	-
Restructuring costs	-	(338)
Reported (loss)/ profit before interest and tax	(3,309)	3,107
Reported (loss)/ profit before tax	(3,309)	3,107
Taxation	(14)	(892)
(Loss)/ profit for the year	(3,323)	2,215

The table below is a reconciliation of Headline to Reported figures for discontinued operations:

2011 (Unaudited)	PBIT £'000	PBT £'000	PAT £'000
Headline	165	165	125
Loss on disposal	(3,474)	(3,474)	(3,474)
Taxation impact			26
Reported	(3,309)	(3,309)	(3,323)

2010 (Audited)	PBIT £'000	PBT £'000	PAT £'000
Headline	3,445	3,445	2,458
Restructuring costs	(338)	(338)	(338)
Taxation impact			95
Reported	3,107	3,107	2,215

(c) Cash flow information

Refer to the statement of cash flows for the amounts related to discontinued operations.

(d) Carrying amounts of assets and liabilities

The carrying amounts of assets and liabilities as at 14 July 2010 were:

		Unaudited
		As at 14 July 2010  £'000
Property, plant and equipment		350
Trade receivables		5,919
Inventories and work in progress		471
Deferred tax asset		219
Cash and short term deposits		1,331
Total assets		8,290
Trade and other payables		(8,200)
Corporation tax payable		(40)
Total liabilities		(8,240)
Net assets		50

(e) Financial information on the sale of DLKW

2011 (Unaudited)		£'000
Proceeds from the sale		28,000
Costs associated with the sale		(626)
Goodwill write-off		(30,533)
Intangible asset write-off		(250)
Carrying amount of net assets sold		(50)
Investment write-off		(15)
Loss on disposal of subsidiary		(3,474)

The subsidiary disposed of (DLKW) was reportable under the Communications Division.

6.   Earnings per share

	Headline				Reported
	Unaudited	Audited			Unaudited	Audited
	2011 £'000	2010  £'000			2011 £'000	2010 £'000
Earnings
Profit for the year from continuing operations	7,467	7,912			5,670	2,918
Profit/ (loss) from discontinued operations	125	2,458			(3,323)	2,215
	7,592			10,370	2,347			5,133
Number of shares Weighted average number of shares	60,285,576		58,729,868		60,285,576	58,729,868
Dilutive effect of shares	-		32,047		-	32,047
	60,285,576		58,761,915		60,285,576		58,761,915
Earnings per share
Basic earnings/ (loss) per share (pence):
- Continuing operations	12.39		13.47		9.41	4.98
- Discontinued operations	0.20		4.19		(5.52)	3.77
	12.59		17.66		3.89			8.75
Diluted earnings/ (loss) per share (pence):
- Continuing operations	12.39		13.46		9.41	4.97
- Discontinued operations	0.20		4.19		(5.52)	3.77
	12.59		17.65		3.89			8.74

Diluted earnings per share has been calculated based on the following dilutive elements:

(i)    On 31 March 2010 there were 32,047 restricted shares which had vested but not been issued at the balance sheet date.

A reconciliation from Headline to Reported profit after tax is provided in note 4.

7.   Dividends

	Unaudited	Audited
	2011 £'000	2010 £'000
Amounts recognised as distributions to shareholders in the year
Prior year final dividend of 1.00 pence per share (2010: nil pence per share)	603	-
Interim dividend of 0.75 pence per share (2010: nil pence per share)	452	-
Total	1,055	-

A final dividend of 2.25 pence per share (2010: 1.00 pence per share) equivalent to £1,378,911 is to be paid on 12 September 2011 to shareholders on the register on 5 August 2011. The final dividend will be recognised in the 2012 accounts, should it be approved by shareholders at the AGM.

8.   Goodwill

	Purchased goodwill £'000	Goodwill on consolidation £'000	Total  £'000
Cost
At 1 April 2009 (Audited)	3,786	119,070	122,856
Goodwill write-off	(3,786)	-	(3,786)
Adjustments to consideration	-	11	11
At 31 March 2010	-	119,081	119,081
Disposals	-	(30,533)	(30,533)
Additions (note 9)	-	12,975	12,975
Exchange differences	-	(243)	(243)
At 31 March 2011 (Unaudited)	-	101,280	101,280
Net book amount
31 March 2011 (Unaudited)	-	101,280	101,280
31 March 2010 (Audited)	-	119,081	119,081

The 'adjustments to consideration' in 2010 relates to a change in the estimated deferred consideration for agencies in the earn-out period under the terms of the relevant sale and purchase agreements.

The Group disposed of DLKW and acquired Cooney/Waters in the year to 31 March 2011.

In accordance with the Group's accounting policy, the carrying values of goodwill and other intangible assets not subject to systematic amortisation are reviewed semi-annually for impairment. The review assesses whether the carrying value of goodwill could be supported by the present value of future cash flows derived from operating activities. Future cash flows are calculated with reference to each subsidiary's two year business plan (approved in March 2011) which is subject to a rigorous review and challenge process. The residual growth rate thereafter has been reduced to a nominal rate of 3 per cent for all units and after year 5, a terminal value with zero growth has been applied.

In assessing the discount rate applicable to the Group we have considered the following factors:

(i)   12 month cost of debt;

(ii)  The cost of equity based on a two year beta of 1.00. 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 10 year UK government bond; and

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

The pre-tax discount rate used to assess the carrying value of goodwill is 8.3 per cent (2010: 9.6 per cent), which is the Group's weighted average cost of capital (WACC). As all the cash generating units are similar in nature, the risk profile is considered the same across countries. As a result the same WACC is used for each.

The review performed at the year end did not result in the impairment of goodwill for any cash-generating unit as the estimated recoverable amount exceeded the carrying value in all cases.

At 31 March 2011, had the Group used an industry average beta of 1.22, the WACC would have been 9.2 per cent. At this level, no impairment on goodwill would be recognised.

Using a WACC of 8.3 per cent, a 10 per cent decrease in management's budgeted 2012 and 2013 PBIT at 31 March 2011 and zero growth thereafter, no impairment on goodwill would be recognised.

Components of goodwill at 31 March 2011 and 2010 are:

	Unaudited 2011 £'000	Audited 2010 £'000
Insight ICM	19,030	19,030
MSL	7,633	7,633
	26,663	26,663
Communications
DLKW	-	30,533
EMO	4,362	4,362
NBC	6,434	6,434
TMW	28,541	28,541
TRA	5,281	5,281
	44,618	75,151
Health
Cooney/Waters	12,975	-
PAN	9,599	9,599
RDC	7,668	7,668
Exchange differences	(243)	-
	29,999	17,267
Total	101,280	119,081

9.  Acquisition of subsidiaries

Cooney/Waters and Alembic Health Communications

On 20 December 2010, the Group completed the acquisition of the trade and assets of both Cooney/Waters and its sister company, Alembic Health Communications (together known as "Cooney/Waters"), a healthcare public relations business based in the United States of America for consideration (including deferred consideration) as set out below.

The acquisition complements the international drive of the Health Division and builds on an existing collaboration and shared client base with the Group's UK healthcare public relations company, Red Door Communications.

2011 (Unaudited)	Book value £'000	Fair value adjustments £'000	Provisional fair value  £'000
Non-current assets
Intangible assets
Other	-	540	540
Property, plant and equipment	39	-	39
	39	540	579
Current assets
Trade and other receivables	2,540	-	2,540
Cash and short term deposits	497	-	497
	3,037	-	3,037
Current liabilities	(1,954)	-	(1,954)
Net current assets	1,083	-	1,083
Net assets	1,122	540	1,662
Goodwill (note 8)			12,975
Total	1,122	540	14,637

Satisfied by:

2011 (Unaudited)			£'000
Cash			5,943
Working capital payment			386
Deferred consideration			8,308
			14,637

The fair value adjustment relates to the recognition of other intangible assets as required under IFRS as follows:

2011 (Unaudited)			£'000
Customer orders			222
Brand names			318
Intangible assets			540

As part of the sale and purchase agreement, there was a minimum working capital and cash requirement on the acquisition date. Any excess/shortfall from the minimum would be paid/collected to/from the seller. There was a working capital excess of £386,000 which will be settled as a cash payment after the year end.

The amount of deferred consideration payable is contingent upon the average level of PBIT achieved by Cooney/Waters in the period from completion to 31 March 2015.

The potential undiscounted amount of deferred consideration (ie including future notional interest charges to be made to the income statement) that the Group could be required to make under this arrangement is between £nil and £13,580,000 ($21,390,000).

The fair value of the deferred consideration of £8,308,000 was estimated by applying the income approach. The fair value estimates are based on a discount rate of 3.33 per cent and assumed probability-adjusted profit in Cooney/Waters.

The fair value of the deferred consideration recognised at 31 March 2011 was £8,376,000. The difference between the £8,308,000 shown above and the year end balance of £8,376,000 is the notional interest charge of £68,000 for the period from acquisition to 31 March 2011.

Deferred consideration will be paid in cash, in accordance with the associated asset and purchase agreement. These payments are due in June 2013 and June 2015.

IFRS 3 (revised) now requires companies to expense acquisition costs. As a consequence £988,000 has been charged to the income statement in relation to the acquisition of Cooney/Waters.

Profit and cash flow

The subsidiary undertaking acquired during the year made the following contributions to, and utilisations of, Group profit and cash flow:

2011 (Unaudited)		£'000
Profit before finance income, finance costs, income from financial assets and taxation		551
Depreciation		2
Increase in inventories and work in progress		(140)
Decrease in trade and other receivables		642
Decrease in trade and other payables		(900)
Purchase of property, plant and equipment		(3)
Cash  flow		152

Cooney/Waters contributed revenue of £2.3m and operating profit of £0.6m to the results of the Group since acquisition. If the acquisition had been completed at the beginning of the financial year, management estimate that Group revenue for the year would have been £74.7m and Group Headline PBIT would have been £13.2m (note that the revenue and profit figures for Cooney/Waters for the period before the acquisition have not been audited due to this not being a requirement for a US incorporated entity).

10. Reconciliation of profit for the year to operating cash flow

	Unaudited 2011 £'000	Audited 2010  £'000
Profit for the year	5,670	2,918
Taxation	2,695	2,128
Profit before taxation	8,365	5,046
Income from financial assets	-	(195)
Finance costs	382	1,080
Finance income	(1)	(6)
Profit before finance income, finance costs, income from financial assets and taxation	8,746	5,925
Depreciation of property, plant and equipment	955	1,019
Amortisation of intangible assets	599	323
Share-based payments/(credits)	17	(92)
Goodwill write-off	-	3,786
Deemed remuneration	239	517
Profit on disposal of property, plant and equipment	(1)	(1)
Loss on disposal of intangible assets	22	-
Decrease/ (increase) in inventories and work in progress	196	(719)
Increase in trade and other receivables	(468)	(3,293)
(Decrease)/ increase in trade and other payables	(368)	6,221
Operating cash flow	9,937	13,686

11. Analysis of net and total debt

	Audited	Unaudited	Unaudited	Unaudited	Unaudited
	At 31 March 2010 £'000	Acquisition £'000	Cash flow £'000	Foreign exchange £'000	At 31 March 2011 £'000
Cash and short term deposits	2,778	-	(1,056)	(45)	1,677
Bank overdraft	-	-	(1,696)	-	(1,696)
Revolving credit facility	(13,000)	-	13,000	-	-
Acquisition loan notes	(3,087)	-	3,067	-	(20)
Bank loans	(11,600)	-	11,600	-	-
Finance leases	(16)	-	7	-	(9)
Net debt	(24,925)	-	24,922	(45)	(48)
Provision for deferred consideration	-	(8,376)	-	-	(8,376)
Total debt	(24,925)	(8,376)	24,922	(45)	(8,424)

Included within the cash flow movement was an initial cash consideration of £5.9m paid for the acquisition of Cooney/Waters.

12. Related party transactions

Mr D C Marshall is a Director of City Group P.L.C. and Western Selection P.L.C. which held 3,000,000 Ordinary Shares in Creston plc at 31 March 2011. During the year total fees of £61,321 (2010: £61,435) were paid to City Group P.L.C., £31,321 (2010: £31,435) for the provision of secretarial services and assistance on the acquisitions and £30,000 (2010: £30,000) for the services of Mr D C Marshall. There were no outstanding balances with City Group P.L.C at 31 March 2011 or 31 March 2010.

13. Availability of the Annual Report and Accounts

Copies of the Annual Report and Accounts will be sent to shareholders in due course and are available from the Company's registered office at City Group P.L.C., 30 City Road, London, EC1Y 2AG and on the company's website www.creston.com.

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END

 

 

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