Final Results
Creston PLC
22 June 2005
Date: 22 June 2005
On behalf of: Creston Plc ("Creston" or "the Group")
Embargoed until: 0700hrs
Creston Plc
Preliminary Results 2005
for the year ended 31 March 2005
The results of Creston's fourth full year as a marketing services group
demonstrate the strength of the Group's strategy. Creston has outperformed the
UK marketing communications sector and exceeded its operational and financial
targets to deliver a fourth consecutive set of record results.
HIGHLIGHTS Change
• Increase in turnover to £35.87m (2004: £29.45m) +22%
• Increase in gross profit to £16.22m (2004: £11.12m) +46%
• Increase in operating profit to £3.68m (2004: £2.36m) +56%
• Increase in organic operating profit +15%
• Increase in PBT to £3.50m (2004: £2.10m) +68%
• Increase in operating margin to 23% (2004: 21%) +9%
• Increase in gross margin to 45% (2004: 38%) +18%
• Increase in EPS 10.72p (2004: 9.03p) +19%
• Increase in diluted EPS 10.56p (2004: 8.47p) +25%
• Increase in full year dividend to 2.15p (2004:1.80p) +19%
• CML Research Limited ("CML") acquired in September 2004 for a maximum
consideration of £7.4m
• DLKW Group ("DLKW") acquired in March 2005 for a maximum consideration of
£39.2m
• The Group now has a highly skilled and well-motivated team of 467 employees
(2004: 269)
Commenting on today's announcement, Don Elgie, Group Chief Executive, said:
"I am pleased to report that Creston has had another successful year in which it
has exceeded its operational and financial objectives to achieve record results.
The current financial year has started well: performance is ahead of
expectations and business prospects are strong."
"The Group has grown substantially in the past year, building a strong,
diversified marketing services group and taking advantage of the synergies,
which that diversity offers."
"The Board is confident that the coming year will be a further year of strong
growth, both organically and by acquisition. We believe that Creston has
established a robust business model, which will allow the Group to do this, and
are confident of the Group's future prospects."
FOR FURTHER INFORMATION, PLEASE CONTACT:
Creston Plc 020 7930 9757
Don Elgie, Chief Executive
Barrie Brien, COO/CFO
www.creston.com
Redleaf Communications 020 7955 1410
Emma Kane/Miranda Good/Wendy Timmons 07876 338339
NOTES TO EDITORS:
• Publication quality photographs are available through Redleaf on the
numbers shown above.
About Creston Plc
• Creston's strategy is to build a diversified international marketing
services group through a combination of organic growth and selective
acquisitions. The Board's aim is to identify synergistic benefits between
currently independent marketing services companies offering premium
services such as market research, direct marketing, customer relationship
marketing and other areas of marketing communications.
• Since January 2001, when the Company was repositioned as a marketing
services group, Creston has made six significant acquisitions, which have
demonstrated growth despite difficult market conditions:
January 2001 Acquisition of Marketing Sciences Limited, an international
quantitative and qualitative market research company, based
in Winchester
November 2001 Acquisition of The Real Adventure Marketing Communications
Limited, a national marketing communications company, based
in Bath
December 2002 Acquisition of EMO Group Limited, a national channel
marketing communications company, based in Swindon and
Bristol
October 2003 Acquisition of Nelson Bostock Communications Limited, a
London based public relations agency
September 2004 Acquisition of CML Research Limited, a London based
qualitative market research business
March 2005 Acquisition of DLKW Group, a London based advertising and
communications group
• Together these companies boast a range of blue-chip clients including Lloyds
Black Horse, Unilever, Kimberly-Clark, Tesco, Toshiba, Canon, BMW (UK),
MINI, Pfizer, Cow & Gate, Bacardi-Martini, Nestle Rowntree, NEC, NTL,
George Wimpey, Scottish Courage, Vodafone, HBOS, COI, e-Bay, Burger King,
General Motors, Exxon, Financial Times and WHSmith
• Creston's share price is quoted in the Financial Times, Daily Telegraph,
the Times and the London Evening Standard.
CHAIRMAN'S STATEMENT
Over the last four years, Creston has built a highly successful business model.
Unashamedly, our strategy remains unaltered, that of growing both organically
and through selective acquisitions to become a substantial, diversified,
international marketing services group.
This strategy will continue to 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.
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 and
digital marketing. We will also consider companies that have strong track
records within more cyclical sectors but only where they meet our strict
acquisitions criteria, which have been the key to our success. This allowed us
to acquire DLKW, one of Britain's leading advertising agencies.
Our outstanding performance has been recognised in two independent surveys. The
'Hot 100 for 2005' survey prepared from Companies House data by Real Business
Magazine and in association with Lloyds Development Capital, features Creston as
the third fastest growing Main List public company in the UK and the fastest
growing marketing services public company. Creston achieved 13th place in 2004
Europe 500 listing, the only independent pan-European listing of high growth job
creating companies.
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
equity 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 22 per cent. to £35.9 million (2004: £29.5 million). Operating
profit grew by 56 per cent. to £3.7 million (2004: £2.4 million), and profit
before tax grew by 68 per cent. to £3.5 million (2004: £2.1 million). Operating
margins grew by 9 per cent. to 23 per cent.
Basic earnings per share were 10.72 pence (2004: 9.03 pence), an increase of 19
per cent. and diluted earnings per share increased by 25 per cent. to 10.56
pence (2004: 8.47 pence). Detailed information on the Group's financial
performance is set out in the Chief Operating and Financial Officer's Review.
Dividend
In line with the strategy of pursuing a progressive dividend policy, the Board
recommends for payment a final dividend for this year of 1.45 pence per share in
addition to the interim of 0.70 pence per share paid in November 2004, making a
total dividend for the year of 2.15 pence per share (2004: 1.80 pence per
share). The dividend will be paid on 1 August 2005 subject to shareholder
approval at the forthcoming AGM of the Company, to shareholders on the register
at the close of business on 1 July 2005.
The Board intends to maintain its progressive dividend policy, recognising the
importance to shareholders of dividends and it is the intention of the Board to
continue to pay interim dividends in future, subject to satisfactory financial
performance and prudent cash management. This year's dividend represents a 19
per cent. increase on last year reflecting this policy.
Staff
The Group now has 467 employees, compared to 269 last year, in 10 locations in
the United Kingdom - Bath, Bristol, London (five), Swindon, Westerham and
Winchester.
I would like to welcome the staff of CML who joined the Group in September 2004
and DLKW who joined in March of this year.
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, shareholders approved a
Sharesave Scheme and an Enterprise Management Incentive Scheme at the 2004 AGM.
I am very pleased to report that the take up of the Sharesave Scheme, which is
entirely voluntary, was very high at 42 per cent. of all staff - a sign, I
believe, of the commitment and confidence the staff as a whole have towards
Creston's future. It is intended to make a further offering under the Sharesave
Scheme to enable our new employees to participate in the future.
Senior management motivation is clearly vital and a Long Term Incentive Plan,
the details of which are contained in the Remuneration Report, will be put to
the AGM for approval.
Outlook
The Board believes that Creston has established a robust business model and is
confident of the Group's future prospects. I am confident that the coming year
will again deliver a further year of strong growth, both organically and by
acquisition.
D C Marshall
Chairman
21 June 2005
CHIEF EXECUTIVE'S REVIEW
Over the year under review, organic performance at the operating level was very
strong with an increase of 15 per cent. in PBIT on a like for like basis. This
performance has to be reviewed against the less than 5 per cent. growth reported
for most marketing service sectors.
CML, one of Britain's leading qualitative research companies was acquired on 3
September 2004 and its acquisition further extends our research capabilities.
DLKW, one of Britain's leading advertising and integrated agency groups, was
acquired on 9 March 2005, and marked an excellent finish to the year. Its
acquisition was funded by a Placing and Open Offer of shares which raised £9.8
million for the Group.
Creston now has a broad range of marketing service businesses with a strong
balance sheet and cash flows.
Insight Division
Creston's Insight Division had a strong year delivering a 25 per cent. increase
in PBIT (the British Market Research Association reported 4 per cent. growth in
turnover for 2004). This was underpinned by strong higher margin UK work
compared to international work and effective cost control.
Over two thirds of MSL's business is generated by repeat business from its
clients such as Tesco, Unilever and Kimberly Clark. Key new clients won in the
year for MSL include Drambuie, Boots Healthcare International and Lafarge.
MSTS, the sensory research subsidiary of MSL, had a succession of new business
wins such as Premier Foods, General Mills and RHM, plus a growing relationship
with Heinz.
CML was only acquired in September 2004 but already includes the new win of
Toyota Europe and being added to the COI Communications roster. CML's other
clients include Vodafone, Halifax and Audi.
We look forward to CML contributing to Creston's performance.
Marketing Communications Division
Creston's Marketing Communications division grew by 18 per cent. PBIT over the
2004 year. The marketing communications sector is not reported on as a single
unit, but we have used the Keynote 2005 report on Direct Marketing as a guide.
This shows an estimated growth of 5 per cent. in turnover for the industry in
2004 on 2003.
TRA had strong organic growth from clients such as Pfizer and Cow & Gate and
excellent new business wins. PepsiCo's Tropicana was an important win for TRA
and has been further strengthened by the win of a further Tropicana brand, PJ
Smoothies; together with HPI, the vehicle tracking subsidiary of Norwich Union.
EMO enjoyed increased expenditure by BMW, George Wimpey, Bang & Olufsen and
Honda.
Whilst only being part of Creston since 9 March 2005, Dialogue and TCR had
demonstrated strong performance, most noticeably for Dialogue with the
integrated win for the AA, breakdown and roadside assistance.
Public Relations Division
Creston acquired NBC in October 2003 and therefore a full year like for like is
not possible, however, on an annualised basis, the company has achieved
substantial growth. Canon, Toshiba and NTL remain important clients. New wins in
this year include Bollinger, The Post Office Residential Phone Services, Vonage,
the US market leader for telephony services over broadband and Warner Home
Video.
Advertising Division
DLKW was acquired on 9 March 2005 and therefore there are only three weeks
figures consolidated into the Group.
As well as major clients like HBOS, Vauxhall, COI Communications, e-Bay, W H
Smith, new wins this year include the AA, Diageo's Bulliet Bourbon, General
Motors Vectra across Europe and SCA's Tena brand across Europe.
The advertising industry showed real growth in 2004 with an estimated increase
of 5 per cent. in revenue over 2003 according to the Advertising Association and
growth for 2005 is predicted at 4.5 per cent.
Synergy
It has been a successful year for incremental synergy income and the synergy
opportunities are increasing as the Group grows.
Examples include Tropicana research projects, the PR launch of the BMW Series 1
and London Dungeons have appointed Nelson Bostock on a retained basis for PR.
In total, thirteen clients now work with more than one agency within the Group:
Campbells, Tropicana, Premier Foods, Nutricia, London Dungeons, Bacardi, Arla
Foods, Scottish Courage, COI Communications, Danone, Pfizer, Unilever, BMW.
We are committed to increasing these synergy opportunities, as they represent a
key area of future organic growth. To this end, we are near to employing a
Synergy New Business Director to leverage further the cross selling
opportunities across the Group.
Forward Plans
We have built a strong domestic diversified marketing services group in four
years and aim to continue to add in the UK with complementary business in
healthcare, digital and other growth niche marketing service areas.
International
It is our stated intention to become an international marketing group in order
to better serve clients. We hope to make progress in this goal during the new
financial year, particularly in the USA, which offers a large and relatively
buoyant economy and further growth opportunities for the Group.
Outlook
I am pleased to report that the current financial year has started well with
performance ahead of the Board's expectations. Business prospects are strong
reflecting the aforementioned recent client wins such as the AA, Diageo, SCA,
General Motors Vectra, Tropicana brands and this new business record should help
continue the Group's impressive organic growth into 2006.
Don Elgie
Chief Executive
21 June 2005
CHIEF OPERATING AND FINANCIAL OFFICER'S REVIEW
The Group has continued to exceed its financial and operational objectives of
driving acquisitive and organic growth, strengthening its Balance Sheet and
delivering significant growth in EPS. All this has been achieved, while
improving already above market operating margins and completing the acquisitions
of CML in September 2004 and DLKW in March 2005.
Operating Profit and Margin
Gross profit increased by 46 per cent. over last year reflecting the acquisition
of CML and DLKW, a full year of results from NBC and strong organic growth
across the Group. Due to the acquisitions, plus a high level of new business
wins and tight cost control, operating profits increased by 56 per cent. to £3.7
million (2004: £2.4 million) and operating margins to 23 per cent. from 21 per
cent.
The inclusion of CML and DLKW has raised gross margins to 45 per cent. from 38
per cent. Total staff numbers increased from 269 to 467 on a full time
equivalent basis. Key performance indicators are regularly reviewed across the
Group and efficiency continued to improve indicated by a rise in gross profit
and operating profit per head of 12 per cent. and 20 per cent. respectively.
Organic Growth
At both the operating company and Group level, Creston has demonstrated
outstanding organic growth. Turnover, gross profit and PBIT for the operating
companies' increased by 2, 6 and 15 per cent. respectively. This result shows a
very high profit conversion (80 per cent.) on the organic gross profit and the
continued move to higher value added services, as demonstrated by high gross
profit growth compared to small turnover growth.
In 2005 Creston continued to invest in its head office infrastructure to support
the future growth of the Group. Even when including this investment, the Creston
group managed organic (or like for like) growth in PBIT of 8 per cent.
Interest
The net interest charge was £0.2 million (2004: £0.2 million) reflecting the
increased term loan offset by improved cash balances and treasury management
throughout the Group. Interest was well covered by profit before interest and
tax at 21 times (2004: 10 times).
Creston introduced an interest rate hedging strategy on approximately half of
its new medium term loan and accordingly entered into an interest rate collar
provided by Barclays Bank.
Effective Tax Rate
The Group's effective underlying tax rate has remained at the 30 per cent.
standard rate. In 2005, the Group's results benefited from favourable tax
treatments in certain areas, for example, a tax benefit on the goodwill of CML
as it was a trade and asset purchase, which reduced the tax charge by £0.2
million to give a net effective tax rate of 25 per cent.
Earnings per Share
Basic earnings per share rose 19 per cent. to 10.72 pence (2004: 9.03 pence) and
diluted earnings per share rose 25 per cent. to 10.56 pence (2004: 8.47 pence).
This is the fourth successive year of significant growth in these key financial
ratios reflecting the Group's success in delivering enhanced value and returns
to shareholders.
Acquisitions
On 3 September 2004, Creston bought CML for an initial investment of £5.1
million, including costs and maximum further deferred consideration of £2.3
million. On 9 March 2005, Creston bought Face Communications Ltd (main trading
name DLKW & Partners) for an initial investment of £19.9 million, including
costs and maximum further deferred consideration of £19.3 million.
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. It is our policy
that all future acquisitions are made on a financially prudent basis and are
earnings enhancing.
Capital Expenditure
The total capital expenditure for 2005 was £0.6 million (2004: £0.4 million).
The main categories of investment being leasehold refurbishment, computer
systems, software and some motor cars. At the year end the Group had a
commitment to complete refurbishment work on one of its London offices at an
estimated cost of £0.4 million.
Cash Flow and Net Debt
The cash generated by operating profit continues to be very strong. Net cash
inflow from operating activities rose to £4.9 million (2004: £3.1 million), and
the cash conversion rate from operating profit was 134 per cent. (2004: 130 per
cent.).
The high operational cash flow was used to finance transaction costs, tax and
deferred consideration.
A key cash movement in the year was the net cash outflow on the DLKW and CML
acquisitions of £16.2 million, which was funded by the proceeds from share
issues raising £10.9 million net of costs and net new bank loans of £5.1
million. These factors resulted in the Group having net debt of £3.3 million at
31 March 2005 (2004: net funds of £0.4 million).
At the time of the DLKW acquisition, Creston agreed with Barclays Bank a new
Senior Debt structure. This comprises an £8.3 million medium term loan (fully
drawn) and a £5.0 million revolving credit facility (which remains undrawn). It
is intended to utilise the revolving credit facility to manage working capital
requirements.
Balance Sheet and Gearing
Shareholders' funds rose by £27.1 million in the year to £52.3 million. Earnings
contributed £2.0 million to their growth and new share capital issued was £18.1
million (including the Placing and Open Offer which raised £9.8 million net of
costs in February 2005 and the acquisitions of DLKW and CML). In addition, £11.0
million of deferred consideration is included as shares to be issued, an
increase of £7.0 million in the year.
The amount of the deferred consideration (settled by a combination of cash loan
notes and shares) is amended in each year to the current expected amount
payable. As a result, Creston's gearing (net debt over equity) is 6 per cent.
and the net debt for the Group at 31 March 2005 was £3.3 million compared to net
funds of £0.4 million at 31 March 2004. After including deferred consideration
and loan notes of £9.4 million (2004: £2.4 million) the Group's total debt has
increased to £12.7 million (2004: £2.0 million). Based on total debt, the
Group's gearing has increased to 24 per cent. from 8 per cent. reflecting the
increased indebtedness arising principally from the acquisition of DLKW.
The Group will continue to maintain its policy of managing and controlling the
net debt and gearing to prudent levels in order to preserve its financial
stability, whilst seeking to use the low interest rate levels to enhance
shareholder returns.
Barrie Brien
Chief Operating and
Financial Officer
21 June 2005
Consolidated Profit and Loss Account
for the year ended 31 March 2005
Continuing
Operations Acquisitions
2005 2004
Note £'000 £'000 £'000 £'000
Turnover 2 33,069 2,801 35,870 29,453
Cost of sales (19,001) (649) (19,650) (18,326)
Gross profit 14,068 2,152 16,220 11,127
Administrative expenses (10,961) (1,579) (12,540) (8,770)
Operating profit 3,107 573 3,680 2,357
Share of operating loss in joint - (34)
venture
Profit on ordinary activities before 3,680 2,323
interest
Net interest payable (176) (235)
Profit on ordinary activities before 2 3,504 2,088
taxation
Tax on profit on ordinary activities 3 (864) (639)
Profit for the financial year 2,640 1,449
Dividends 4 (684) (332)
Retained profit for the financial 1,956 1,117
year
Earnings per share 5 10.72p 9.03p
Diluted earnings per share 5 10.56p 8.47p
The Group has no recognised gains or losses other than the results for the year
as set out above.
Consolidated Balance Sheet
as at 31 March 2005
2005 2004
Note £'000 £'000
Fixed assets
Intangible assets 6 64,212 25,820
Tangible assets 1,740 775
Investments 15 -
65,967 26,595
Current assets
Stocks and work in progress 1,810 777
Debtors 14,821 6,213
Cash at bank and in hand 5,419 4,160
22,050 11,150
Creditors: amounts falling due within one year (19,480) (8,980)
Net current assets 2,570 2,170
Total assets less current liabilities 68,537 28,765
Creditors: amounts falling due after
more than one year 8 (16,196) (3,511)
Net assets 52,341 25,254
Capital and reserves
Called up share capital 3,493 2,207
Share premium account 19,168 9,083
Special reserve 2,385 2,385
Other reserve 12,442 5,719
Capital redemption reserve 72 72
Shares to be issued 11,016 3,979
Profit and loss account 3,765 1,809
Total equity shareholders' funds 52,341 25,254
Consolidated Cash Flow Statement
for the year ended 31 March 2005
2005 2004
Note £'000 £'000
Net cash inflow from operating activities 9 4,930 3,057
Returns on investments and servicing of finance
Bank interest received 162 101
Bank and other loan interest paid (331) (378)
Finance lease interest paid (7) (13)
Net cash outflow from returns on investments and servicing of (176) (290)
finance
Taxation (887) (677)
Capital expenditure and financial investment
Purchase of tangible fixed assets (549) (240)
Proceeds on sale of tangible fixed assets 25 24
Decrease/(increase) in restricted cash deposits 240 (191)
Net cash outflow from capital expenditure and financial (284) (407)
investment
Acquisitions and disposals
Purchase of subsidiary undertakings (20,413) (4,588)
Net cash acquired with subsidiaries 4,233 1,795
Net cash outflow from acquisitions and disposals (16,180) (2,793)
Equity dividends paid (441) (224)
Net cash outflow before financing (13,038) (1,334)
Financing
Issue of share capital for cash consideration 11,290 4,751
Expenses paid in connection with share issues (416) (293)
Receipt of bank loan 11,284 -
Repayment of bank loan (6,198) (916)
Repayment of loan notes (1,295) (528)
Capital element of finance lease payments (124) (112)
Net cash inflow from financing 14,541 2,902
Increase in cash 10 1,503 1,568
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.
Future anticipated payments to vendors in respect of earn-outs are based on the
Directors' best estimates of these obligations. Earn-outs are dependent on the
future performance of the relevant business and are regularly reviewed. The
goodwill arising on the relevant acquisition is adjusted to these revised
estimates throughout the earn-out period.
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. 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 £1,513,000 (2004: £1,163,000).
2. SEGMENTAL ANALYSIS
Turnover, gross profit, profit before tax and net assets attributable to Creston
activities are shown below.
Turnover Gross Profit
2005 2004 2005 2004
£'000 £'000 £'000 £'000
Marketing Communications 17,876 17,330 6,754 5,727
Insight 9,917 9,360 4,228 3,613
Public Relations 6,851 2,763 4,371 1,787
Advertising 1,226 - 867 -
35,870 29,453 16,220 11,127
All of the Group's current activities are marketing services activities, which
are based primarily in the United Kingdom.
Profit before tax
2005 2004
£'000 £'000
Marketing Communications 2,298 1,955
Insight 1,594 1,271
Public Relations 1,297 417
Advertising 164 -
Agency Total 5,353 3,643
Head Office (1,673) (1,286)
Operating profit 3,680 2,357
Share of operating loss in joint ventures - (34)
Net interest payable (176) (235)
Profit before tax 3,504 2,088
Net Assets
2005 2004
£'000 £'000
Marketing Communications 22,139 11,219
Insight 12,961 8,576
Public Relations 7,700 7,537
Advertising 23,684 -
Agency total 66,484 27,332
Non operating
Net bank debt (2,864) 551
Head office (1,439) (341)
Dividends payable (508) (265)
Deferred consideration (9,332) (2,023)
Net Assets 52,341 25,254
Turnover, gross profit and profit before interest and tax may also be split
between organic activities (a like for like comparison of results for operations
reflecting their period of ownership by Creston) and acquisitions. The
acquisitions figures include the results of acquisitions in the current period
(which are disclosed on the face of the profit and loss account) as well as the
full year impact of acquisitions completed in 2004 (turnover: £2,894,000, gross
profit: £2,252,000 and profit before interest and tax: £588,000).
Agency Head
Organic Acquisitions Total office Total
£000 £000 £000 £000 £000
Turnover 30,175 5,695 35,870 - 35,870
Gross profit 11,816 4,404 16,220 - 16,220
Profit before interest and tax 4,192 1,161 5,353 (1,673) 3,680
The organic results for 2005 compare to 2004 as follows:
2005 2004 Change
£000 £000 %
Turnover 30,175 29,453 +2
Gross profit 11,816 11,127 +6
Profit before interest and tax - agency total 4,192 3,643 +15
- total 2,519 2,323 +8
3. TAX ON PROFIT ON ORDINARY ACTIVITIES
2005 2004
£'000 £'000
The tax charge comprises:
Current tax:
Corporation tax at 30% (2004: 30%) 907 618
Overprovision of corporation tax in previous year (8) (2)
899 616
Deferred tax:
Origination and reversal of timing differences (35) 23
Tax charge on profit on ordinary activities 864 639
4. DIVIDEND
2005 2004
£'000 £'000
Interim dividend of 0.7p per share (2004: 0.6p per share) 176 67
Proposed final equity dividend of 1.45p per share (2004: 1.2p final per 508 265
share)
684 332
The proposed final dividend will be paid on 1 August 2005 to shareholders on the register at 1 July 2005.
5. EARNINGS PER SHARE
2005 2004
Profit for Weighted Pence Profit for Weighted Pence per
the financial average per the average share
year number of share financial number of
£'000 shares year shares
£'000
Basic earnings per share
Earnings attributable to
ordinary shareholders 2,640 24,617,806 10.72 1,449 16,045,576 9.03
Dilutive effect of securities:
Warrants - 33,562 (0.01) - 15,275 (0.01)
Options - 339,245 (0.15) - 70,179 (0.03)
Contingent shares - - - - 985,033 (0.52)
Diluted earnings per share 2,640 24,990,613 10.56 1,449 17,116,063 8.47
6. INTANGIBLE ASSETS
Group Purchased Goodwill on
goodwill consolidation Total
£'000 £'000 £'000
Cost
At 1 April 2004 - 25,820 25,820
Additions 7,125 30,671 37,796
Adjustments to consideration and net assets (2,340) 2,936 596
At 31 March 2005 4,785 59,427 64,212
Net book amount at 31 March 2005 4,785 59,427 64,212
Net book amount at 31 March 2004 - 25,820 25,820
As explained in note 1, goodwill on consolidation and purchased goodwill have
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 agencies in the earn-out period under the terms of the
relevant sale and purchase agreements.
7. ACQUISITIONS
CML Research Limited ("CML")
On 3 September 2004, the Company acquired the trade and assets of the CML
Research partnership. Prior to its acquisition the trade and assets were sold
by the CML Research partnership into a dormant company, CML. The Company
acquired the whole of the issued share capital of CML for consideration
(including deferred consideration) as set out below. This purchase has been
accounted for by the acquisition method of accounting. The unaudited profit
attributable to the partners (before partners' drawings and salaries) for the
year ended 30 April 2004 was £1.1 million. The unaudited turnover and profit
before tax of the CML Research partnership from 1 May 2004 to 2 September 2004
were £667,000 and £147,000 respectively. The assets and liabilities of CML at 3
September 2004 were as follows:
Accounting policy
Book value adjustments Fair value
£'000 £'000 £'000
Fixed assets
Intangible assets 7,125 - 7,125
Tangible assets 29 - 29
7,154 - 7,154
Current assets
Debtors 493 - 493
Creditors amounts falling due within one year (222) - (222)
Net current assets 271 271
Net assets 7,425 - 7,425
Satisfied by: £'000
Cash 2,959
Shares issued 1,806
Deferred/contingent consideration 2,340
Acquisition costs 320
7,425
The amount of deferred/contingent consideration payable is dependent upon the
level of profit before taxation achieved by CML in the period from 3 September
2004 to 31 March 2008. At the date of acquisition the directors recognised the
maximum deferred consideration of £2.3 million. The directors consider the most
reasonable estimate of the current amounts payable is £nil. This deferred
consideration is to be settled by 30% in guaranteed loan notes 2008 and 70% in
unsecured loan notes 2008 or shares (at the Company's discretion). In addition,
should average profits for the period to 31 March 2008 fall below certain levels
then the Company has the ability to claw back the initial consideration to a
maximum of £1.8 million.
Face Communications Ltd and its subsidiaries ("DLKW group")
On 9 March 2005, the Company acquired the whole of the issued share capital of
the DLKW group 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 DLKW group for the year ended 31
December 2004 was £1.9 million. The unaudited turnover and profit before tax of
the DLKW group from 1 January 2004 to 8 March 2005 were £39.1 million and £3.3
million respectively. The assets and liabilities of the DLKW group at 9 March
2005 were as follows:
Accounting
policy
Book value adjustments Fair value
£'000 £'000 £'000
Fixed assets
Intangible fixed assets 921 - 921
Tangible assets 856 - 856
Investments 15 - 15
1,792 - 1,792
Current assets
Work in progress 1,297 - 1,297
Debtors 7,271 - 7,271
Bank and cash 4,351 - 4,351
12,919 - 12,919
Creditors amounts falling due within one year (10,564) - (10,564)
Net current assets 2,355 - 2,355
Total assets less current liabilities 4,147 - 4,147
Creditors amounts falling due after more than one year (155) - (155)
Net assets 3,992 - 3,992
Goodwill 29,750
33,742
Satisfied by: £'000
Cash 14,969
Shares issued 4,003
Deferred/contingent consideration 13,856
Acquisition costs 914
33,742
Creditors due within one year include amounts due to the vendors of £1,251,000,
which were paid prior to 31 March 2005.
The amount of deferred consideration payable is dependent upon:
i the level of profit before taxation for the year ending 31 March 2006
exceeding the level for the year ended 31 December 2004 in which case
estimated interim consideration of £4,888,000 is payable. The directors
consider this to be the most reasonable estimate that can be made.
ii the level of profit before taxation achieved by the DLKW Group in the
period from 9 March 2005 to 31 March 2008. The directors have recognised
the estimated £8,968,000 of deferred consideration at this time.
At the date of acquisition, the directors considered the combined additional
consideration of £13,856,000 to be the most reasonable estimate that could be
made on the information available. Since the completion of the acquisition, the
agency has secured a significant number of new clients. Based on these new
client gains further consideration of £2,280,000 will fall to be payable.
The total goodwill arising on the acquisition of the DLKW group is £30,671,000
(including the existing intangible asset of £921,000).
8. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
2005 2004
£'000 £'000
Acquisition loan notes 35 56
Bank loan 6,624 2,283
Acquisition deferred consideration 9,332 1,068
Deferred taxation - 3
Amounts due under finance leases 205 101
16,196 3,511
Acquisition loan notes
Pursuant to the acquisition of MSL loan notes were issued. These are repayable
according to the agreed schedule with the final payment in 2008. The loan notes
accrue interest at 6% per annum.
Bank loan
The bank loan is secured by a fixed and floating charge over the assets of all
the Group companies. The loan is repayable in equal annual instalments of
£1,660,000. The bank loan accrues interest at 2.06% above LIBOR.
Acquisition deferred consideration
The directors' best estimate of future earn-out obligations is set out below:
Loan notes Shares to Total
to be be issued
issued
£'000 £'000 £'000
Between one and two years 2,962 3,653 6,615
Between two and three years 745 1,738 2,483
Between three and four years 5,625 5,625 11,250
9,332 11,016 20,348
The loan notes that will be issued to settle the above liabilities will be
unsecured and will bear interest at various rates.
The shares to be issued may also be settled by either new Ordinary Shares or
loan notes (at Creston's discretion).
9. RECONCILIATION OF OPERATING PROFIT TO NET CASH
INFLOW FROM OPERATING ACTIVITIES
2005 2004
£'000 £'000
Operating profit 3,680 2,357
Depreciation 488 384
Profit on disposal of plant, vehicles and equipment (6) (2)
Decrease/(increase) in stock and work in progress 264 (126)
(Increase)/decrease in debtors (832) 223
Increase in creditors 1,336 221
Net cash inflow from operating activities 4,930 3,057
10. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET (DEBT)/FUNDS
2005 2004
£'000 £'000
Increase in cash in the year 1,503 1,568
Cash outflow from reduction in debt 6,663 1,556
Cash inflow from increase in debt (11,284) -
Movement in net (debt)/funds in the year resulting from cash flows (3,118) 3,124
New finance leases (341) (153)
Reduction of loan stock - 2,915
Issue of acquisition loan notes - (319)
Net funds/(debt) at 1 April 2004 49 (5,518)
Net (debt)/funds at 31 March 2005 (3,410) 49
11. ANALYSIS OF NET (DEBT)/FUNDS
At At
1 April Non-cash 31 March
2004 Cash flow Acquisitions items 2005
£'000 £'000 £'000 £'000 £'000
Cash at bank and in hand 3,858 1,499 - - 5,357
Overdrafts (4) 4 - - -
3,854 1,503 - - 5,357
Acquisition loan notes (402) 340 - - (62)
Bank loans (3,199) (5,085) - - (8,284)
Finance leases (204) 124 (304) (37) (421)
Net funds/(debt) 49 (3,118) (304) (37) (3,410)
Restricted cash deposits (note 15) 302 (240) - - 62
Net funds/(debt) including restricted 351 (3,358) (304) (37) (3,348)
cash deposits
Short term bank deposits of less than one month are classified as liquid
resources.
12. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information relating to the years ended 31 March 2004 and 2005
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 2005 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 2005 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 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 Group's 2005 statutory financial statements have not yet been delivered to
the Registrar of Companies.
13. ANNUAL REPORT AND ACCOUNTS
Creston plc's Annual Report and Accounts will be mailed to shareholders on 29
June 2005. Copies will be made available from the Company's Head Office, 30-35
Pall Mall, London SW1Y 5LP and on the investor relations section of the Group's
website (www.creston.com).
This information is provided by RNS
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