Interim Results 2004
Creston PLC
29 November 2004
Date: 29 November 2004
On behalf of: Creston Plc ("Creston" or "the Group")
Embargoed until: 0700hrs
Creston Plc
Interim Results 2004
for the six months ended 30 September 2004
Creston Plc, the diversified marketing services group, today announced its
interim results for the six months ended 30 September 2004. The highlights,
which demonstrate the Group's ability to acquire and manage companies in
continuing challenging market conditions, are:
FINANCIAL HIGHLIGHTS Change
• Increase in turnover to £16.02m (2003: £12.95m) +24%
• Increase in gross profit to £7.01m (2003: £4.45m) +58%
• Increase in gross margin to 44% (2003: 34%) +29%
• Increase in PBT to £1.46m (2003: £0.75m) +95%
• Increase in PBT margin to 21% (2003: 17%) +23%
• Increase in comparable EPS to 4.45p (2003: 3.61p) +23%*
• Increase in comparable diluted EPS to 4.38p (2003: 3.61p) +21%*
• EPS 4.45p (2003: 4.59p) -3%*
• Diluted EPS 4.38p (2003: 4.59p) -5%*
• Increase in interim dividends to 0.70p (2003: 0.60p) +17%
OPERATIONAL HIGHLIGHTS
• Acquisition of CML Research Limited completed on 3 September 2004 for a
maximum consideration of £7.78m - acquisition broadens Creston's range of
market research services and is expected to be earnings enhancing in the
current year
• Appointment of Barrie Brien as Chief Operating and Financial Officer on 13
September 2004
Commenting on today's announcement, Don Elgie, Group Chief Executive, said:
"Creston has shown excellent growth in turnover, gross profit and profit before
tax. Margins have also improved reflecting the tightly controlled central costs
and the economies of scale generated by the inclusion of NBC and CML, the two
most recent acquisitions.
"Strong organic growth and the increasing generation of synergies across the
Group demonstrate our ability to identify and grow companies that are capable of
performing well in difficult markets and generate synergies across the Group.
We continue to pursue our 'buy and build' strategy through further acquisition
opportunities to build a pre-eminent diversified international marketing
services group.
"In summary, we are pleased with the Group's performance in the reported period.
The Group continues to demonstrate a resilient trading performance and the
Board is confident of Creston's growth plans and the future prospects of the
Group."
* Note: Convertible loan notes, with an exercise price of 96p per ordinary
share, were issued to the TRA and EMO vendors in November 2001 and December 2002
instead of ordinary shares as part of the acquisitions' initial consideration.
These convertible loan notes converted into ordinary shares in the second half
of the year ended 31 March 2004. The comparable basic and fully diluted EPS
numbers shown above are on the basis that these convertible loan notes had
converted into ordinary shares on 1 April 2003.
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/James White 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 five 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 marketresearch business
• 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 and Vodafone.
• Creston's share price is quoted in the Financial Times, Telegraph, the
Times and the London Evening Standard.
CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT
The Board is pleased to present the Group's interim results for the six months
ended 30 September 2004. Creston has continued the successful implementation of
its 'buy and build' strategy and completed its acquisition of CML Research
Limited ("CML"), a leading qualitative market research company, on 3 September
2004. The acquisition is the fifth made by Creston to date and is in line with
its strategy of building a diversified international marketing services group
through a combination of organic growth and selective acquisitions.
Trading during the first six months of the year ending 31 March 2005 has been
strong. The main operating companies, Marketing Sciences Group ("MSL Group"),
The Real Adventure Marketing Communications Limited ("TRA"), EMO Group Limited
("EMO") and Nelson Bostock Communications Limited ("NBC") delivered a combined
increase in turnover of 24 per cent. and 95 per cent. in profit before taxation
over the prior year period. This is particularly gratifying given the
challenging market conditions that still exist and gives testimony to our
ability to identify and acquire companies that are capable of resilient
performance.
Results
Turnover grew by 24 per cent. to £16.02 million (2003: £12.95 million) and gross
profit increased by 58 per cent. to £7.01 million (2003: £4.45 million). The
gross margin increased to 44 per cent. (2003: 34 per cent.) as a result of a
planned move away from commodity printing. Operating profit grew from £948,000
to £1.51 million and profit before taxation increased by 95 per cent. to £1.46
million (2003: £750,000).
Comparable earnings per share were 4.45p (2003: 3.61p) and comparable diluted
earnings per share were 4.38p (2003: 3.61p). Basic earnings per share were 4.45p
(2003: 4.59p) and diluted earnings per share were 4.38p (2003: 4.59p).
Convertible loan notes, with an exercise price of 96p per ordinary share, were
issued to the TRA and EMO vendors in November 2001 and December 2002 instead of
ordinary shares as part of the acquisitions' initial consideration. These
convertible loan notes converted into ordinary shares in the second half of the
year ended 31 March 2004. The comparable basic and fully diluted EPS numbers
shown above are on the basis that these convertible loan notes had converted
into ordinary shares on 1 April 2003.
At 30 September 2004, Creston had net cash balances of £3.98 million of which
£3.18 million are freely available for use by the Group.
Dividend
An interim dividend per share of 0.70p (2003: 0.60p) is proposed to be paid on 5
January 2005 to shareholders on the register on 10 December 2004. This is in
line with the Board's stated strategy of implementing a progressive dividend
policy.
Organic Growth and New Business
Turnover increased by 24 per cent. in the period and by 2 per cent. on a like
for like basis excluding the results of NBC, which was acquired in October 2003
and the 27 days of CML's results. The low organic turnover growth results from
the move away from commodity printing noted above. Profit before tax increased
by 95 per cent. in the period, with a margin of 21 per cent., excluding the
acquisitions of NBC and CML, profit before taxation increased by 8 per cent..
This growth was underpinned by improved cash levels, repeat business from
existing clients and from new business wins across the Group. Notable new
business wins in the period included Honda (EMO Group), Drambuie, Nestle
Rowntree and Boots Healthcare International (MSL), Post Office (NBC), Tropicana
(TRA), and Yakult, Marks & Spencer and Heinz (MSTS).
The Board is also encouraged by the increased synergy levels across Group
companies. Creston holds regular synergy meetings across the Group to help
identify cross-selling opportunities and, as a result, at least ten blue chip
clients are now handled by more than one company in the Group including:
Unilever Arla Food Scottish Courage
Bacardi BMW Premier Foods
Danone Nutricia Pfizer
Campbells Vodafone
Acquisitions
During the period, the Group acquired the business and assets of CML, which was
completed on 3 September 2004 for a maximum consideration of £7.78 million.
CML, based in London, was formed in 1988 and is one of Britain's leading
qualitative market research companies. It has a core expertise of product, brand
and communications development and will add to the market research capability of
Creston. CML's clients include Vodafone, Audi, Clarks, Arla, Thomas Cook,
Microsoft, The Economist, BBC and Interbrew.
A deferred consideration payment of £2.42 million was paid to the vendors of
TRA, through the issue of £1,013,055 loan notes and 935,030 new ordinary shares
on 9 July 2004, as a result of their sustained growth since acquisition in
November 2001.
Employees
As detailed in the 2004 Annual Report and approved at the Annual General
Meeting, Creston has instituted two long term incentive schemes which provide
employees options over Creston shares namely the Sharesave Scheme and the
Enterprise Management Incentive Scheme ("EMI Scheme"). The first Sharesave
scheme, which was offered to all employees, has had an excellent take up rate of
42 per cent. and options over a total of 368,163 shares or 1.5 per cent. of the
issued share capital were granted.
On 13 September 2004, we were pleased to announce the appointment of Barrie
Brien as Chief Operating and Financial Officer to the Board. Barrie joined
Creston from Lowe International Limited (formerly Lowe and Partners) and Draft
London Limited, which had combined revenues of approximately $300m and are part
of the Interpublic group of Companies Inc, the world's third largest marketing
communications group. We would also like to take this opportunity to thank Tim
Alderson, the outgoing Finance Director, for all his hard work in helping to
make Creston the success it is today.
Outlook
Since the end of September, we are pleased to report that trading for the Group
is in line with the Board's expectations. With the acquisition of CML, which
the Board expects to be earnings enhancing for the Group in the current year, we
are confident that there will be further opportunities to leverage cross selling
and client referrals across Group companies.
As Creston's profile rises and a considerable amount of acquisition interest is
generated, so more opportunities are being presented to it. It was gratifying
to be placed 13th in the 2004 Europe's 500 fastest growing companies' survey
recently. This is the only independent, pan-European listing of high growth,
job-creating companies and is endorsed by companies including 3i, Microsoft,
Boston Consulting Group and PricewaterhouseCoopers.
In summary, we are pleased with the Group's performance in the reported period.
Despite continuing challenging market conditions, the Group continues to
demonstrate a resilient trading performance and the Board is confident of
Creston's growth plans and the future prospects of the Group.
David Marshall Don Elgie
Chairman Chief Executive
26 November 2004
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the six months ended 30 September 2004
Unaudited Unaudited Audited
six months ended six months ended year ended
30 September 2004 30 September 2003 31 March 2004
£'000 £'000 £'000
Turnover 16,021 12,950 29,453
Cost of sales (9,011) (8,505) (18,326)
Gross profit 7,010 4,445 11,127
Administrative expenses (5,500) (3,497) (8,770)
Operating profit 1,510 948 2,357
Share of operating loss in joint ventures - (34) (34)
Profit on ordinary activities before interest 1,510 914 2,323
Net interest payable (50) (164) (235)
Profit on ordinary activities before taxation 1,460 750 2,088
Taxation (438) (235) (639)
Profit for the period 1,022 515 1,449
Dividends (176) (67) (332)
Retained profit for the period 846 448 1,117
Basic earnings per share 4.45p 4.59p 9.03p
Diluted earnings per share 4.38p 4.59p 8.47p
Dividends per share 0.70p 0.60p 1.8p
CONSOLIDATED BALANCE SHEET
as at 30 September 2004
Unaudited Unaudited Audited
as at as at as at
30 September 2004 30 September 2003 31 March 2004
£'000 £'000 £'000
Fixed assets
Intangible assets 33,605 19,001 25,820
Tangible fixed assets 932 631 775
34,537 19,632 26,595
Current assets
Stocks 889 597 777
Debtors 7,074 5,500 6,213
Cash at bank and in hand 3,976 2,066 4,160
11,939 8,163 11,150
Creditors - amounts falling due within
one year (9,171) (7,657) (8,980)
Net current assets 2,768 506 2,170
Total assets less current liabilities 37,305 20,138 28,765
Creditors - amounts falling due after
more than one year (6,305) (9,156) (3,511)
Net assets 31,000 10,982 25,254
Capital and reserves
Called up share capital 2,519 1,122 2,207
Share premium account 10,070 4,880 9,083
Special reserve 2,385 2,385 2,385
Other reserve 8,707 1,383 5,719
Capital redemption reserve 72 72 72
Shares to be issued 4,592 - 3,979
Profit and loss account 2,655 1,140 1,809
Shareholders' funds 31,000 10,982 25,254
CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 30 September 2004
Unaudited Unaudited Audited
six months ended six months ended year ended
30 September 2004 30 September 2003 31 March 2004
£'000 £'000 £'000
Net cash inflow from operating activities 425 544 3,057
Returns on investments and servicing of
finance
Net interest paid (39) (175) (290)
Taxation - - (677)
Capital expenditure and financial investment
Purchase of tangible fixed assets net of (361) (79) (240)
finance leases acquired
Sale of tangible fixed assets 18 17 24
Increase in restricted cash deposits (491) - (191)
Net cash outflow from capital expenditure and (834) (62) (407)
financial investment
Acquisitions and disposals
Purchase of subsidiary undertakings (3,161) - (4,588)
Net (overdraft)/cash acquired with (118) - 1,795
subsidiaries
Net cash outflow from acquisitions and (3,279) - (2,793)
disposals
Equity dividends paid (265) (157) (224)
Net cash (outflow)/inflow before financing (3,992) 150 (1,334)
Financing
Issue of share capital for cash consideration 1,070 - 4,751
Expenses paid in connection with share issues - - (293)
Receipt of bank loan 3,000 - -
Repayment of bank loan (458) (458) (916)
Repayment of loan notes (113) - (528)
Capital element of finance lease payments (60) (64) (112)
Net cash inflow/(outflow) from financing 3,439 (522) 2,902
(Decrease)/increase in cash (553) (372) 1,568
NOTES TO THE INTERIM REPORT
for the six months ended 30 September 2004
1. Basis of preparation
The interim financial information has been prepared in accordance with
applicable accounting standards and under the historical cost convention. The
principal accounting policies have remained unchanged from those set out in the
Group's 2004 annual report and financial statements.
2. Earnings per share
The calculation of the basic earnings per share is based on the profit
attributable to ordinary shareholders divided by the weighted average number of
shares in issue for each period, which was 22,974,708 for the period ended 30
September 2004 (year ended 31 March 2004: 16,045,576 and period ended 30
September 2003: 11,215,364). The calculation of the diluted earnings per share
is based on the profit attributable to ordinary shareholders divided by the
weighted average number of diluted shares in issue for each period, which was
23,340,216 for the period ended 30 September 2004 (year ended 31 March 2004:
17,116,063 and period ended 30 September 2003: 11,215,364).
3. Acquisition
The acquisition of CML Research Limited was completed on 3 September 2004. The
maximum consideration payable for CML is £7.78 million plus costs of £0.30
million less net assets of £0.3 million, which would result in £7.78 million of
goodwill if paid in full. It is satisfied by an initial consideration of £4.78
million and a deferred consideration of £3.00 million, which is dependent on the
financial performance of CML in the period to 31 March 2008. As part of the
acquisition, 1,349,549 new ordinary shares were issued and listed on the London
Stock Exchange on 10 September 2004. The acquisition was funded by a term loan
from Barclays Bank Plc of £3.00m.
At acquisition, CML had net assets of £300,000 comprising fixed assets of
£29,000 and net current assets of £271,000.
The results for the 27 days from completion to 30 September were £152,000
turnover and £40,000 operating profit, which has been included within the
consolidated results.
4. Goodwill
A review of the carrying value of acquisitions has been carried out using
reforecast profits. This has shown an increase in the value in use of the
subsidiaries and a corresponding increase in the surplus over the carrying value
in the accounts. No reduction in goodwill has therefore been made, as there are
no indications of impairment.
5. Reconciliation of operating profit to net cash flow from operating activities
Unaudited Unaudited Audited
six months ended six months ended year ended
30 September 2004 30 September 2003 31 March 2004
£'000 £'000 £'000
Operating profit 1,510 948 2,357
Depreciation 220 170 384
Profit on disposal of fixed assets (4) (1) (2)
Increase in stock (113) (123) (126)
(Increase)/decrease in debtors (368) (201) 223
(Decrease)/increase in creditors (820) (249) 221
Net cash inflow from operating activities 425 544 3,057
6. Cash and liquid resources
As at
1 April As at 30
2004 Cash flow Acquisitions September 2004
£'000 £'000 £'000 £'000
Cash at bank and in hand 4,160 (184) - 3,976
Overdrafts (4) 122 (118) -
4,156 (62) (118) 3,976
Less restricted cash balances (302) (491) - (793)
Cash available for use 3,854 (553) (118) 3,183
The restricted cash balances are maintained in a designated account as security
for the loan notes issued on the acquisition of MSL and NBC and are, therefore,
not freely available to the Group.
7. Publication of non-statutory accounts
The financial information set out in this interim report does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985.
The financial information for the year ended 31 March 2004 has been extracted
from the Group's statutory accounts for that period. These contained an
unqualified audit report and have been filed with the Registrar of Companies.
8. Availability of the Interim Report
Copies of the Interim Report will be sent to shareholders in due course and are
available from the Company's registered office at City Group P.L.C., 25 City
Road, London, EC1Y 1BQ and on the company's website www.creston.com.
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