Acquisition/Interim Results

Creston PLC
9 November 2001


 
                      CRESTON PLC ANNOUNCES ACQUISITION                       
                             AND INTERIM RESULTS                              
 

                                  HIGHLIGHTS                                  

* Important step forward in the Group's 'buy-and-build' strategy with
  earnings enhancing acquisition; 
 
* Conditional acquisition of The Real Adventure Marketing Communications
  Limited for £7.25 million; 
 
* Pleasing current order levels and sales enquiries; 
 
* Appointment of additional new non-Executive Director  
 
 
Commenting on today's developments David Marshall, Group Chairman, said:
 
'We were attracted to Real Adventure by its go-ahead management, its
proprietary skills - particularly in direct marketing, customer relationship
marketing and IT - and its potential synergy with our earlier acquisition,
Marketing Sciences. This is an excellent acquisition for Creston which shows
clearly that, even during an economic downturn, our buy-and-build strategy is
driving forwards. After less than a year of operation, Creston is beginning
to have critical mass as a marketing services group. The Board is continuing
to pursue further acquisition opportunities vigorously.'
 

Definitions set out in the Company's circular (incorporating Listing
Particulars) dated 9 November 2001 apply throughout the following
announcement.  Copies of the circular are being posted to Shareholders today.
 
 
Further enquiries: Don Elgie - Creston Plc, Chief Executive     020 7930 9757
                   Tim Alderson - Creston Plc, Finance Director 020 7930 9757
                   Richard Fallowfield - Cardew & Co.           020 7930 0777
                   Jonathan Rooper - Cardew & Co.               020 7930 0777
 
 
 
CRESTON ANNOUNCES ACQUISITION AND INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 
                                SEPTEMBER 2001                                
 
 
The Board of Creston PLC announces the proposed acquisition of The Real
Adventure Marketing Communications Limited, a marketing services company
based in Bath, for a maximum total consideration of approximately £7.25
million. Due to its size in relation to the Group, the Acquisition
constitutes a reverse takeover under the Listing Rules and accordingly the
Company is required to obtain the prior approval of Shareholders, and to
apply for re-admission to the Official List.
 
An EGM has been convened for 27 November 2001 at which the Resolution will
be proposed seeking Shareholders' consent to the Acquisition, and granting
authority to the Directors to issue Convertible Loan Notes 2004 in part
payment of the Initial Consideration.
 
Conditional on completion of the Acquisition it is proposed that Peter Cunard
is appointed to the board as a non-executive director. Further details on
Peter Cunard are set out below.
 
Background to the Acquisition 
 
Since October 1999 when the Company announced its decision to cease its
property activities, the Board has made significant advances in its strategy
to reposition Creston as a marketing services group by means of a
buy-and-build strategy. In January 2001, having completed the withdrawal from
property activities, the proposed acquisitions of MSL (which incorporated its
then recently acquired subsidiary MSTS) and Synergie were announced. In
addition the proposed appointments of Don Elgie and Tim Alderson were
announced. These acquisitions and appointments were approved at an
extraordinary general meeting on 29 January 2001.
 
Building on its strategy the Board has now conditionally agreed to acquire
The Real Adventure, which the Board believes provides not only an excellent
fit with the Group's current activities but also fits squarely within the
Group's defined acquisition criteria.
 
Information on The Real Adventure 

The Real Adventure is an independent marketing services company based in Bath
which was founded in September 1991 by Neil Kirkman and Ben Cook. It has
sought to provide a comprehensive range of creative and marketing disciplines
for clients including brand development, direct mail campaigns, eMarketing,
customer relationship and database management, incentive schemes, advertising
and design.

Typically The Real Adventure's clients operate in the financial services, food
and leisure sectors. The Real Adventure's strategy has been firmly based upon
not only winning new clients, but also critically, on retaining them following
delivery of a successful initial project and providing them with further
products and services on an ongoing basis with a view to maximising the
lifetime value of each client. The success of this strategy is evidenced by
the very low rate of client attrition which The Real Adventure has sustained.
Indeed there are a number of notable clients with whom the company has been
working consistently for several years.
 
The Real Adventure's financial track record may be summarized as follows:
 

                                  Year ended 31 May
                                2001     2000     1999
                               £'000    £'000    £'000
Turnover                       5,734    5,360    4,442
Gross profit                   2,102    1,718    1,337
Operating profit                 739      360      455
Pre tax profit                   745      354      452
Net assets                       598      142      160
 
Principal terms of the Acquisition 
 
The terms of the Acquisition have been structured to include an earn-out
element in order to align as far as possible the interests of the Principal
Vendors and the employees of The Real Adventure with those of the Enlarged
Group. The Company has today conditionally agreed to acquire the entire
issued share capital of The Real Adventure for:
 
(a) an Initial Consideration of £4,251,500 satisfied as to:
    (i)    £1,201,500 in cash;
    (ii)   £800,000 by the issue of Guaranteed Loan Notes 2002;
    (iii)  £1,750,000 by the issue of Convertible Loan Notes 2004; and
    (iv)   £500,000 by the issue of Unsecured Loan Notes 2004.
 
 
(b) a Deferred Consideration of up to approximately £3 million subject to
    the average annualised profits before tax and interest achieved by The
    Real Adventure from 1 June 2001 to 31 March 2004 reaching agreed levels,
    to be satisfied as to: 
    (i)    33% in Guaranteed Loan Notes 2005; and
    (ii)   67% in either Unsecured Loan Notes 2005 or new Ordinary Shares (or
           a mixture of both) at the option of the Company.
 
 
On production of The Real Adventure's audited accounts for the annualised
period from 1 June 2001 to 31 March 2002, the Principal Vendors will pay to
the Company the amount (if any) by which The Real Adventure's net asset value
as at Completion is less than £850,000 or (if greater) the amount by which
the cash at bank of The Real Adventure as at the close of business on the
date of Completion is less than £500,000. Payment of any such shortfall will
be satisfied by payment in cash by the Principal Vendors or by set-off (in
order of priority) against the Unsecured Loan Notes 2004, Convertible Loan
Notes 2004 and Guaranteed Loan Notes 2002.
 
On production of The Real Adventure's audited accounts for the annualized
period from 1 June 2001 to 31 March 2002, the Company will pay to the
Principal Vendors in cash the amount (if any) by which The Real Adventure's
net asset value as at Completion is greater than £850,000 or (if less) the
amount by which the cash at bank of The Real Adventure as at the close of
business on the date of Completion is greater than £500,000.
 
The Deferred Consideration which may be payable will be dependent on The Real
Adventure's performance up to 31 March 2004, and will be payable to the
Vendors as to 67 per cent. by the issue of Unsecured Loan Notes 2005 and/or
the issue of new Ordinary Shares (at the Company's discretion) and 33 per
cent. by the issue of Guaranteed Loan Notes 2005. 67 per cent. of the
Deferred Consideration will be payable to the Principal Vendors and 33 per
cent. to the trustees of the Real Adventure Marketing Communications Limited
Employee Benefit trust for the benefit of the employees of The Real
Adventure. If any Deferred Consideration becomes payable this will be paid
following completion of the audit of The Real Adventure for the year to 31
March 2004.

Under the terms of the Acquisition Agreement the Company shall not issue any
new Ordinary Shares to the Vendors as Deferred Consideration if the issue of
such Ordinary Shares would lead to any or all of the Vendors becoming a
controlling shareholder within the meaning of Paragraph 3.13 of the Listing
Rules or would require any or all the Vendors to make a mandatory offer for
the issued shares of the Company pursuant to Rule 9 of the City Code on
Takeovers and Mergers.
 
The Guaranteed Loan Notes 2002 are secured by new facilities provided by
Barclays Bank plc.
 
Current trading and prospects 
 
The Directors have not noticed any slow down within the Group and indeed
sales enquiries and orders are currently running at pleasing rates, in
addition to which the Directors have not noticed any lengthening of the lead
time between enquiries and the placing of orders. They believe this reflects
the resilience of the market research market and expect the Enlarged Group to
capitalise on this during the remaining months of the current year.
 
As is explained in the interim results, inevitably the acquisition of MSL did
involve some disruption to that business as a result of which its sales
during the early part of the current financial year suffered. Furthermore due
to the disruption caused by the upgrading of the accounting systems at MSL,
the identification of these shortfalls did not occur promptly and
consequently the necessary corrective action was delayed. These accounting
system issues have now been resolved. However, management remain confident
that trading during the second half will be satisfactory - indeed the
acquisition of The Real Adventure is expected to enhance earnings.
 
MSL has achieved sole research supplier status for certain categories of
research for a major blue chip client and has become preferred supplier for
pack research for a global consumer goods company. Synergies between MSL and
MSTS are becoming evident as a major drinks company has awarded a substantial
joint project to both companies. MSTS continues to perform satisfactorily.
 
In the US Creston's joint venture partner Ziment Associates Inc., was
acquired by WPP PLC in May 2001. Whilst this change in ownership is not
expected to have a negative influence on the prospects of the 'Visualiser'
product in the US in the long term, the focus of Creston's US management was
affected during the due diligence process for that transaction, which has
inevitably affected sales performance. However the US joint venture
(Visualizer LLC) does not currently make a significant contribution to
overall Group profits.
 
The Company has today released its interim results for the six months to 30
September 2001. These results together with a commentary on them from the
Chairman are set out below. 

Further information on Peter Cunard
 
Under a letter of appointment dated 23 October 2001 Mr Peter Cunard will,
conditional on Completion, be appointed to the Board. He will be entitled to
a fee of £10,000 per annum for providing his services as a non-executive
Director in addition to which he will be entitled to an introductory fee of
0.5 per cent. of the initial consideration paid for any completed acquisition
made by the Enlarged Group, where such acquisition has been introduced by
him. He will not be entitled to receive any benefits in kind.
 
Mr Cunard is currently a director of Cunard Communications Limited, The Sick
Children's Trust and 7 Woodville Gardens Limited. Within the last five years
he has also been a director of Tolman Cunard Limited. There are no further
disclosures to be made pursuant to 6.F.2(b) to (g) of the Listing Rules in
relation to Mr Cunard.

 

          Interim results for the six months ended 30 September 2001          

Chairman's Statement

Over the six months ended 30 September 2001 the Board has continued to
implement Creston's buy-and-build strategy within the marketing services
industry. Needless to say these results reflect our first six months' trading
as a marketing services group and therefore do not make for a meaningful
comparison to the same period last year or indeed the last full year. The
Directors are not recommending the payment of any interim dividend.
 
Over the course of the last six months your Board has identified and
investigated a large number of quality, privately owned companies and has
initiated discussions with more than 30. Today's developments, with the
acquisition of The Real Adventure Marketing Communications Limited (The Real
Adventure) represent the first results of this process.
 
At the same time we have been working hard to integrate the acquisitions made
last January, and we remain optimistic that the combination of Marketing
Sciences Limited (MSL) and Mobile Sensory Testing Services Limited (MSTS)
gives us a firm platform from which to build a broadly based marketing
services group, a position enhanced by the addition of The Real Adventure.
 
Management remain confident that trading during the second half will be
satisfactory, and the acquisition of The Real Adventure is expected to be
earnings enhancing. The Directors have not noticed any slow down, indeed
sales enquiries and orders are currently running at pleasing rates. In
addition, we have not noticed any lengthening of the lead-time between
enquiries and the placing of orders. The Board believes this reflects the
resilience of the market research market and expect the Group to capitalise on
this during the remaining months of the current year.
 
The results for the six months ended 30 September 2001 show a loss of
£194,000 after tax, reflecting the bedding-in of the first acquisition made
under the new strategy. The acquisition of MSL did inevitably involve some
disruption to that business as a result of which its sales during the early
part of the current financial year suffered. Furthermore due to the
disruption caused by the upgrading of the accounting systems at MSL, the
identification of these shortfalls did not occur promptly and consequently
the necessary corrective action was delayed. These accounting system issues
have now been resolved.
 
The Board is delighted that MSL has achieved sole research status for certain
categories of research for a major blue chip client and has become preferred
supplier for pack research for a global consumer goods company. Synergies
between MSL and MSTS have become evident through the award of a substantial
joint project from a major drinks company. MSTS continues to perform
satisfactorily.
 
In the United States, our joint-venture partner, Ziment Associates Inc., was
acquired by WPP PLC in May 2001. This change in ownership is not expected to
affect the prospects of the 'Visualiser' product in the US in the long term,
but the focus of our US management was distracted during the due diligence
process, and this briefly affected sales performance. However, the US joint
venture (Visualizer LLC) was not expected to make a significant contribution
to overall Group profits.
 
The Board fully intends to continue to pursue acquisition opportunities
vigorously.
 
David Marshall                                   9 November 2001 
Chairman 


CRESTON PLC
GROUP PROFIT AND LOSS ACCOUNT 
                                     Unaudited         Audited         Audited
                                 Six months to   Six months to      Year ended
                                  30 September    30 September        31 March
                                          2001            2000            2001
                                         £'000           £'000           £'000
Turnover                                 3,453           1,333           2,622
Cost of sales                          (1,152)         (1,200)         (1,975)

Gross profit                             2,301             133             647
Administrative expenses                (2,510)           (402)         (1,256)

Operating loss                           (209)           (269)           (609)
Share of operating (loss)/profit 
in joint ventures                         (16)               -              16
Exceptional profit from disposal of 
property portfolio                           -               -              72

Loss on ordinary activities 
before interest                          (225)           (269)           (521)
Net interest                                31             316             522

Profit/(loss) on ordinary activities
before tax                               (194)              47               1
Tax                                          -               -            (25)

Profit/(loss) for the period             (194)              47            (24)
Dividend                                     -               -               -

Retained profit/(loss) for the period    (194)              47            (24)

Basic earnings/(loss) per share         (1.7p)            0.5p          (0.2p)


CRESTON PLC
GROUP BALANCE SHEET 
                                  Unaudited at      Audited at      Audited at
                                  30 September    30 September        31 March
                                          2001            2000            2001
                                         £'000           £'000           £'000
Fixed assets 
Investment properties                        -              86               -
Other tangible fixed assets                210               3             160
Investments in joint ventures
Share of gross assets                      141               -             176
Share of gross liabilities               (120)               -           (105)
                                            21               -              71
Intangible assets                        9,927               -           9,927

                                        10,158              89          10,158
Current assets 
Stocks                                     178               -             332
Debtors                                  1,916           2,434           2,528
Cash at bank and in hand                 6,111           9,985           6,090
                                         8,205          12,419           8,950
Creditors - amounts falling due 
within one year                        (2,134)         (4,154)         (2,676)

Net current assets                       6,071           8,265           6,274

Total assets less current liabilities   16,229           8,354          16,432
 
Creditors - amounts falling due after  
more than one year                     (6,590)               -         (6,599)

Net assets                               9,639           8,354           9,833
 
Capital and reserves 
Called up share capital                  1,121             960           1,121
Share premium account                    4,879           3,490           4,879
Special reserve                          2,385           2,385           2,385
Other reserve                            1,385           1,385           1,385
Capital redemption reserve                  72              72              72
Profit and loss account                  (203)              62             (9)

Shareholders' funds                      9,639           8,354           9,833


CRESTON PLC
GROUP CASH FLOW 
                                  Unaudited to      Audited to      Audited to
                                  30 September    30 September        31 March
                                          2001            2000            2001
                                         £'000           £'000           £'000
Net cash inflow/(outflow) from 
operating activities                       465         (1,454)            (17)

Dividends received from joint ventures
 and associates                             24               -               -
 
Returns on investments and servicing 
of finance      

Net interest received                       31              316            522
 
Capital expenditure and 
financial investment 
Purchase of tangible fixed assets         (96)                -           (14)
Sale of investment properties                -            1,000          1,000

Net cash inflow/(outflow) from capital 
expenditure and financial investment      (96)            1,000            986

Taxation                                 (191)                -              -
 
Acquisitions and disposals 
Purchase of subsidiary undertakings          -                -        (3,386)
Net cash acquired with subsidiaries          -                -            895
Disposal of subsidiary undertakings          -                -          2,867
Net cash disposed of with subsidiaries       -                -        (3,126)

Net cash (outflow) from acquisitions 
and disposals                                -                -        (2,750)

Equity dividends paid                        -          (3,456)        (6,431)
 
Management of liquid resources 
Cash invested in short term 
treasury deposits                            -            3,440              -

Net cash inflow/(outflow) before financing 233            (154)        (7,690)
 
Financing 
Issue of share capital for 
cash consideration                           -               83              -
Capital element of finance lease rentals   (9)                -            (2)
Repurchase of 6% redeemable 
unsecured loan stock                         -             (83)              -

Net cash (outflow)/inflow from financing   (9)                -            (2)

Increase/(Decrease) in cash                224            (154)        (7,692)



CRESTON PLC
NOTES TO THE INTERIM REPORT 
 
1.  Basis of Preparation

    The principal accounting policies of the group are set out in the group's
    2001 annual report and financial statements. The policies have remained
    unchanged from the previous annual report.
 
2.  Earnings/(loss) per share

    The calculation of the basic earnings/(loss) per share is based on the
    profit/(loss) attributable to ordinary shareholders divided by the
    weighted average number of shares in issue for each period which were
    11,213,781 for the period to 30 September 2001 (30 September 2000: 
    9,599,194).
 
3.  Cash and Liquid Resources
                                    At 1 April          At 30 September 
                                          2001     Cash flow       2001 
                                         £'000         £'000      £'000 
     Cash at bank and in hand            6,090            21      6,111
     Overdrafts                          (203)           203          -
        
                                         5,887           224      6,111
 
    Cash includes £4,700,000 which is maintained in a designated account as
    security for the loan notes issued on the acquisition of Marketing
    Sciences Limited and is, therefore, not freely available to the Group.
  
4.  Post Balance Sheet Events

    On 9 November, the Company announced its intention to acquire the entire
    share capital of The Real Adventure Marketing Communications Limited.
 
    A warranty claim has been agreed in principle with the Marketing Sciences
    Limited Vendors that could result in a reduction of the initial
    consideration loan notes of up to £500,000.
 
5.  Revaluation of Goodwill

    No revaluation of the carrying value of acquisitions has been carried out
    at the interim stage. An impairment review will be carried out at the year
    end.
 
6.  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 2001 has been
    extracted from the Group's statutory accounts for that period which
    contained an unqualified audit report and which have been filed with the
    Registrar of Companies.
 
    The financial information for the period ended 30 September 2000 has been
    extracted from non-statutory interim financial statements for that period
    which have been audited by the Company's auditors. The auditor's report,
    which was addressed to the directors of Creston Plc, was unqualified.